SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
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FORM 6-K
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REPORT OF FOREIGN PRIVATE ISSUER
PURSUANT TO RULE 13a-16 OR 15d-16 OF
THE SECURITIES EXCHANGE ACT OF 1934
For April 14, 2005
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
-------- --------
(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
-------- ---------
(If "Yes" is marked, indicate below the file number assigned to the registrant
in connection with Rule 12g3-2(b): N/A.)
002 FINANCIAL CNOOC LIMITED
SUMMARY
(Amounts expressed in millions of RMB)
CONSOLIDATED INCOME STATEMENT
Year ended 31 December
2000 2001 2002 2003 2004
-----------------------------------------------------------------------------------------
Total revenue 24,224 20,820 26,374 40,950 55,222
Total expenses (12,166) (10,596) (13,626) (25,267) (32,836)
Interest income/(expenses), net (238) 201 (147) (171) (235)
Exchange gains/(losses), net 381 235 (114) (7) 29
Share of profit of associates 218 90 165 220 344
Short term investment income -- 221 193 123 72
Non-operating income/
(expenses), net (196) 35 (71) 315 519
-----------------------------------------------------------------------------------------
Profit before tax 12,223 11,006 12,774 16,163 23,117
Tax (1,926) (3,048) (3,541) (4,628) (6,931)
-----------------------------------------------------------------------------------------
Net profit 10,297 7,958 9,233 11,535 16,186
=========================================================================================
CONSOLIDATED BALANCE SHEET
As at 31 December
2000 2001 2002 2003 2004
-----------------------------------------------------------------------------------------
Current assets 9,472 20,030 24,486 29,263 35,293
Property, plant and equipment, net 22,654 23,828 36,072 43,124 57,457
Investment in associates 471 462 537 1,117 1,327
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Total assets 32,597 44,320 61,095 73,504 94,077
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Current liabilities (8,768) (4,392) (7,134) (9,307) (10,402)
Non-current liabilities (7,707) (6,617) (13,393) (17,461) (26,957)
-----------------------------------------------------------------------------------------
Total Liabilities (16,475) (11,009) (20,527) (26,768) (37,360)
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Shareholders ' Equity 16,122 33,311 40,568 46,736 56,717
=========================================================================================
Annual Report 2004 OPERATING 003
SUMMARY
Year ended 31 December
PRODUCTION 2000 2001 2002 2003 2004
----------------------------------------------------------------
Net production of crude and liquids (barrels/day)
Bohai Bay 63,797 99,978 127,756 129,506 134,512
Western South China Sea 46,434 41,277 56,910 60,944 55,873
Eastern South China Sea 90,097 81,404 73,792 72,981 96,989
East China Sea 3,557 3,967 3,223 2,536 2,121
Overseas 2,462 2,247 36,944 40,497 29,941
----------------------------------------------------------------
Total 206,347 228,873 298,625 306,464 319,436
----------------------------------------------------------------
Net production of natural gas (mmcf/day)
Bohai Bay 45.8 46.2 47.1 47.1 47.7
Western South China Sea 144.3 139.0 142.3 127.8 215.2
Eastern South China Sea 0.0 0.0 0.0 0.0 0.0
East China Sea 7.8 9.8 12.4 14.2 17.1
Overseas 0.0 0.0 70.8 101.9 84.1
----------------------------------------------------------------
Total 197.9 195.0 272.6 291.0 364.1
----------------------------------------------------------------
Total net production (BOE/day) 239,337 261,379 346,639 356,729 382,513
================================================================
RESERVES AT YEAR END
Net proved crude and liquids reserves (mm barrels)
Bohai Bay 923.9 961.3 992.5 990.4 974.6
Western South China Sea 141.1 131.6 160.4 173.7 189.7
Eastern South China Sea 136.8 132.2 120.3 154.7 168.0
East China Sea 4.5 12.4 12.5 13.9 21.5
Overseas 9.5 8.4 138.7 103.4 101.9
----------------------------------------------------------------
Total 1,215.8 1,245.9 1,424.4 1,436.1 1,455.6
----------------------------------------------------------------
Net proved natural gas reserves (bcf)
Bohai Bay 591.4 629.1 598.6 566.6 706.2
Western South China Sea 2,593.0 2,421.5 2,511.2 2,564.0 2,484.8
Eastern South China Sea 0.0 0.0 42.8 548.2 730.8
East China Sea 65.3 197.0 179.4 275.3 403.4
Overseas 0.0 0.0 215.9 200.3 321.4
----------------------------------------------------------------
Total 3,249.7 3,247.6 3,547.9 4,154.4 4,646.6
----------------------------------------------------------------
Total net proved reserves (million BOE)
Bohai Bay 1,022.4 1,066.2 1,092.3 1,084.8 1,092.3
Western South China Sea 573.3 535.1 578.9 601.0 603.8
Eastern South China Sea 136.8 132.2 127.5 246.1 289.8
East China Sea 15.4 45.2 42.4 59.8 88.7
Overseas 9.5 8.4 174.7 136.8 155.5
----------------------------------------------------------------
Total 1,757.4 1,787.1 2,015.8 2,128.5 2,230.0
================================================================
OTHERS
Reserve life (years) 20.1 18.7 15.9 16.3 15.9
Reserve replacement ratio (%) 104 131 281 187 173
================================================================
AVERAGE REALISED PRICE
Crude oil (US$/barrel) 28.21 23.34 24.35 28.11 35.41
Natural gas (US$/mcf) 3.09 3.08 2.98 2.87 2.75
================================================================
004 CORPORATE CNOOC LIMITED
MILESTONES 2004
CORPORATE MILESTONES 2004
JAN The Company announced its stock split proposal, and subdivided each of
its shares into five new shares in March.
FEB Standard and Poor's upgraded the Company's credit rating to BBB+
(Outlook Positive).
MAR CNOOC signed an agreement with the Zhejiang Provincial Government to
jointly develop China's third LNG terminal in Zhejiang.
APR The Company was ranked the top of the "Best Managed Company in China" in
a Finance Asia poll.
[PICTURE OMITTED]
MAY The Company announced the acquisition of an additional interest in the
Indonesian Tangguh Project.
The Board of Directors approved the share repurchase. During the year,
the Company repurchased and cancelled about 18.45 million ordinary
shares from the market.
[PICTURE OMITTED]
JUN The Company announced Qikou 18-2 commenced production successfully.
[PICTURE OMITTED]
Annual Report 2004 005
DEC Wholly-owned subsidiary of the Company made an offering of US$1 billion
zero coupon convertible bonds with a success.
Asiamoney named the Company the "Best Managed Company in China".
The Company completed its acquisition of an equity interest in the North
West Shelf Gas Project in Australia.
The Company announced that Mr. Yang Hua was appointed as Chief Financial
Officer.
NOV The Company announced Bonan and Huizhou 19 - 3/2 projects commenced
production.
[PICTURE OMITTED]
OCT Bozhong 25-1/25-1S completed construction and commenced operation.
AUG CNOOC signed the second deepwater contract with Husky Oil China Limited.
JUL The Company announced Caofeidian 11-1/11-2 came on stream successfully
006 CNOOC LIMITED
Stream of
Value Creation
[PICTURE OMITTED]
Annual Report 2004 007
CHAIRMAN'S REPORT
Adhering to our objective of creating better value for our shareholders, we
continued to emphasize production and reserves growth. We have also
proactively developed and expanded our natural gas business, and continued to
maintain a sound financial position so as to maximize shareholders' value.
[PICTURE OMITTED]
008 CHAIRMAN'S CNOOC LIMITED
REPORT
[PICTURE OMITTED]
In 2004, world economy remained auspicious. China, as one of the robust
regions, still grew at a rapid rate of 9.5%. The continuous rapid development
in the economy resulted in strong demand for energy. Under the combined effect
of various factors including increase in demand, hedging activities, market
panic and geopolitical instability, international oil prices stayed at a high
level during the year.
Adhering to our objective of creating better value for our shareholders, we
continued to emphasize production and reserve growth. We have also proactively
developed and expanded our natural gas business, and continued to maintain a
sound financial position so as to maximize shareholders' value.
Due to high oil prices and increase in production, the Company's results for
2004 were the best in the Company's history. For the year ended 31 December
2004, total revenue of RMB 55,222 million and net profit of RMB 16,186 million
were recorded, representing a growth of 34.9% and 40.3%, respectively over the
previous year.
During the year, the Company continued its prudent financial policies.
Standard and Poor's has upgraded the Company's long-term corporate credit
rating from "BBB" to "BBB+" with positive outlook, demonstrating the rating
agency's confidence in our financial position.
During the year under review, the Company implemented a stock-split plan to
subdivide our shares into five shares each and broadened our investor base. In
addition, the Company repurchased and cancelled some of its issued shares from
May to July in 2004. The share repurchases not only evidenced the confidence
of the Directors and management in the Company's prospect, but also
effectively enhanced the shareholders' value. Taking advantage of the
favorable market conditions on our strong stock performance as well as the US
dollar interest rate at its historical lowest level, CNOOC Finance (2004)
Limited, a wholly-owned subsidiary of the Company, issued US$1 billion zero
coupon convertible bonds, which further improved the Company's capital
structure.
In 2004, the Company continued to focus on oil and natural gas exploration and
development, achieving steady growth in oil and gas production and reserves.
The oil and natural gas production were 117 million barrels and 133 bcf
respectively, which amounts to 140 million barrels of oil equivalent in total,
a year-on-year increase of 7.5%. During the year, six projects
Annual Report 2004 009
[Graph Omitted]
Total Revenue and Net Profit 2000-2004
[Graph Omitted]
Reserve Growth 2000-2004
[Picture Omitted]
commenced production, including Weizhou 12-1N, Qikou 18-2, Bonan fields,
Bozhong 25-1/25-1S, Caofeidian 11-1/11-2, and Huizhou 19-3/2. They were
executed under strict progress, cost, quality and HSE controls. In addition,
many projects were underway. As planned, nine new projects are expected to
commence production in 2005, a year with the largest number of projects on
stream.
Growth in our reserves remained satisfactory in 2004. 242 million BOE of
reserves were added, realizing a reserve replacement ratio of 173%. During the
same period, our appraisal work accomplished promising results, in terms of
both commercial appraisal success rate and reserve additions. We will continue
to expand our efforts offshore China on new exploration initiatives.
We will further execute our natural gas strategy, and maintain our leading
position in supplying coastal China. The Company completed the acquisition of
an equity interest in the North West Shelf Gas Project in Australia. We
exercised our pre-emptive right to increase interests in the Indonesian
Tangguh Project to 16.96%. In 2004, the Chunxiao gas field in East China Sea,
the phase 2 of Dongfang 1-1 in Western South China Sea, and Huizhou 21-1 in
Eastern South China Sea are under construction. In the coming years, we expect
our natural gas production to grow steadily.
In the past year, the economy of China continued to grow in an accelerated
manner. Meanwhile, the prices of raw materials such as iron, steel, coal and
electricity went up sharply. The surge in costs of upstream oil and gas sector
became a problem commonly faced by the players in sector. Nevertheless, the
Company maintained effective cost control. We continued to rank in the top
quartile among our peers in term of production costs.
010 CHAIRMAN'S CNOOC LIMITED
REPORT
[Graph Omitted]
Production Growth 2000-2004
[Graph Omitted]
Total Return (from 01-01-04 to 31-12-04)
We also gained satisfactory results in health, safety and environmental
protection. During 2004, the Company did not have any incident of small scale
or above oil spillage nor any incident resulting in economic loss in excess of
RMB 1 million. The Company's OSHA statistics were above average among our
international peers. Focus on our employee's health, emphasis on safety and
environmental protection have always been part of the missions of the Company.
We will maintain and constantly improve our performance in these areas.
As a corporate citizen, we insist on our community responsibility. We actively
participated in community charity activities in the PRC, Indonesia and
Australia through various channels. At the end of 2004, a tsunami disaster
occurred in the South-east Asia. The Company as a whole expressed our
sympathies to the tsunami victims in Southeast Asia, and made donations, which
was recognised and praised by the society at large.
Despite the wide coverage and geographical distance in our asset distribution,
we were able to sustain development and steady growth by capitalizing on the
outstanding professional expertise and diligent work attitude of over 2,500
domestic and foreign staff. I am impressed by their efforts as well as
performance of last year. On behalf of the Board, I would like to express our
sincere thanks for the hard work, loyal service and contribution made by our
employees.
On the basis of the good performance in 2004, the Company was able to pursue
our development goals and ensure our healthy and sound development, while
delivering promising return to our shareholders. During the year under review,
the basic and diluted earnings per share of the Company were RMB 0.39. In
accordance with our dividend policies, our Board of Directors has proposed a
final dividend of HK$0.03 per share and a special final dividend of HK$ 0.05
per share. Together with the interim dividend of HK$0.03 per share and the
special interim dividend of HK$0.05 per share, we distributed a total of
HK$0.16 per share to our shareholders during 2004.
Annual Report 2004 011
[Graph Omitted]
Total Return (ADR) (from 01-01-04 to 31-12-04)
[PICTURE OMITTED]
In the coming year, we remain positive towards China's economic growth and
global oil industry. China has become one of the world's major energy
consumption countries, importing 120 million tons of crude oil in 2004. This
creates a favorable business environment for the Company. We will increase our
oil and gas reserves and production, maintain prudent financial policies, and
devote great effort in natural gas business. Whilst consolidating on our solid
fundamentals, we will adhere to our objective of maximizing shareholders'
value, and leverage on opportunities to grow into a new era.
Fu Chengyu
Chairman and Chief Executive Officer
Hong Kong, 29 March 2005
012 CNOOC LIMITED
OPERATIONS OVERVIEW
The Company's operation was stable and solid during the year with effective
production operations. Our corporate governance was healthy and transparent.
Our financial performance was the best in the history. And our long-term
targets were clear and specific.
[PICTURE OMITTED]
Annual Report 2004 013
Creation of better results through stable
Growth
[PICTURE OMITTED]
014 OPERATIONS CNOOC LIMITED
OVERVIEW
[PICTURES OMITTED]
GENERAL OVERVIEW
In 2004, the overall development of the Company was good. The Company
continued to move forward firmly and steadily in pursuit of growth.
The Company's operation was stable and solid during the year with effective
production operations. Our corporate governance was healthy and transparent.
Our financial performance was the best in the history. And our long-term
targets were clear and specific.
During the reporting period, the Company abode with its commitments and made
progresses. The Company achieved outstanding results with respect to growth of
production and reserve, cost control, performance enhancement and business
expansions.
In 2004 as a whole, the Company's oil and gas production grew considerably,
achieved a high reserve replacement ratio, maintained cost competitiveness,
and delivered satisfactory operation results. We believe that these results of
the Company will be satisfactory to the shareholders.
RESULTS
In 2004, various key performance indicators of the Company recorded
satisfactory results.
The Company's oil and gas production was 140.0 million BOE, representing a
7.5% increase over the previous year. Of this, crude oil production reached
319,436 barrels per day while natural gas production amounted to 364 Mmcf per
day, representing a 4.2% and 25.1% increase over 2003 respectively. Total oil
and gas production offshore China was 123.9 million BOE, including 106.0
million barrels of crude oil and 102.5 bcf of gas. In Indonesia, oil and gas
production was 16.1 million BOE, including 11.0 million barrels of crude oil
and 30.8 bcf of gas.
In 2004, realised oil price of the Company was US$35.41 per barrel, an
increase of 26.0% over the previous year. Realised natural gas price was
US$2.75 per thousand cubic feet, an decrease of 4.2% over the previous year.
The decrease was mainly due to the greater share of the production from gas
fields with lower gas price.
The Company realised a net profit of RMB 16,186 million in 2004, an increase
of 40.3% over the previous year, and was better than ever in its history. The
earnings per share was RMB 0.39. And return on shareholders' equity reached
28.5%.
FINANCIAL PERFORMANCE
In 2004, the Company's major financial indicators were satisfactory , which
meet the expectations of the Company and the market.
Total revenue of the Company for the year amounted to RMB 55,222 million, with
a net profit of RMB 16,186 million. They are consistantly on race to
historical highs. These favorable results were mainly due to high oil prices
in 2004 and strong growth in the Company's offshore production.
In 2004, affected by the increase in the prices of raw materials, the
Company's production cost per BOE increased by 6.6% over 2003. Nevertheless,
the Company was pleased to report that notwithstanding the escalation of the
cost in the sectors, the Company's cost structure remained competitive among
its peers.
OPERATION UPDATES
The Company continued to maintain its highly effective operation capabilities
in exploration, development and engineering constructions, and has obtained
outstanding results. In 2004, the Company's reserve replacement ratio was
173%, which was at a leading position among its peers. 6 new projects
commenced production, a record number of projects on stream in a single year.
At the same time, 16 projects were under construction.
Annual Report 2004 015
[GRAPHIC OMITTED]
[PICTURE OMITTED]
Exploration
In 2004, the Company recorded remarkable exploration results with 6 new oil
and gas discoveries, including 4 independent discoveries and 2 PSC
discoveries. 5 of these discoveries were located offshore China.
The Company's reserves maintained momentum to grow. In 2004, the proved
reserves increased by 241.7 million BOE, comprising 136.4 million barrels of
crude oil and 625.6 bcf of natural gas. The company realized a reserve
replacement ratio of 173%.
During the period, the Company enhanced its efforts in exploration, and made
in-depth studies in new areas, both of which had obtained encouraging results
that not only strengthened the Company's confidence in exploration in
designated regions, but also provided guidelines to explore for oil and gas
reserves in future.
In 2004, through proactive and effective appraisal activities, 14
hydrocarbon-bearing structures offshore China were successfully appraised, of
which 11 were independent appraisals and 3 were PSC appraisals. The successful
appraisal of these structures accelerated the development of new oil and gas
fields.
Development
In 2004, 6 oil and gas projects were completed, namely Weizhou 12-1 N in
Western South China Sea; Huizhou 19-3/2 in Eastern South China Sea; Qikou
18-2, Caofeidian 11-1/11-2, Bozhong 25-1/25-1S and Bonan oil and gas fields in
Bohai Bay. The commencement of the above projects was, mainly attributed to
the Company's effective project management, control and implementation.
In 2004, the Company undertook many engineering projects. There were
altogether 16 oil and gas projects under construction in the year. These
projects will provide reliable and steady support to the growth of the
Company's future production volume. As of to date, the above projects
progressed as planned under budget.
016 OPERATIONS CNOOC LIMITED
OVERVIEW
[PICTURE OMITTED]
In 2004, the Company completed the construction and installation of 10 jackets
and 17 platform modules, laid 255 km subsea pipelines, completed 2 onshore
terminals, and completed modification of 1 gas field.
Natural Gas
Natural gas is important in the Company's current and future business
developments. In 2004, the Company's production of natural gas offshore China
reached 102.5 bcf.
In 2004, the Company completed the equity acquisition of North West Shelf Gas
Project of Australia and increased its interests in the Tangguh project in
Indonesia. In addition, the natural gas projects offshore China were
implemented successfully. The Company's position as the leading gas supplier
in coastal China was further reinforced.
In 2004, CNOOC, parent of the Company, has been proactive in the construction
of LNG terminals in China, which helps to consolidate the Company's leading
position in the natural gas market.
Overseas Development
In 2004, the Company continued to conduct opportunistic mergers and
acquisitions with purpose, to enhance shareholders' value. During the period,
the Company completed two acquisitions.
In May 2004, the Company completed the acquisition of 20.767% interest in
Muturi contract area in Indonesia from BG Group, increasing the Company's
interest in the block to 64.767%. As a result, the Company's interest in the
Tangguh project in Indonesia was increased from 12.5% to 16.96%.
In December 2004, the Company completed the acquisition of the North West
Shelf Gas Project in Australia. According to the plan, supply of LNG from the
North West Shelf Gas Project to the first LNG terminal in Guangdong, China
will commence by 2006.
During the year, the Company through its wholly-owned subsidiary CNOOC Morocco
Limited, acquired from Vanco Energy Corporation a 11.25% interest in a
petroleum agreement for Ras Tafelney in offshore Morocco. In addition, the
Company, Golden Aaron Pte. Ltd. of Singapore and China Global Engineering
Corporation formed a joint venture and entered into three PSC contracts with
Myanmar. The Company will serve as the operator.
In early 2005, the Company, through its wholly-owned subsidiary CNOOC Belgium
BVBA, acquired a stake in Canadian based company MEG Energy Corp.("MEG"). The
Company paid 150 million Canadian dollars for 13,636,364 common shares of MEG,
representing a 16.69% stake at the close of the transaction.
Health , Safety and Environmental Protection (HSE)
As a corporation responsible to its staff, environment and society, the
Company adopted a number of measures, including system management and staff
education in HSE in 2004, for continuous improvements.
In 2004, the Company recorded no oil spills nor any safety related liabilities
that exceeded RMB1,000,000. The Company's OSHA Statistic results, were
above-average as compared to its peers.
Annual Report 2004 017
MAJOR PROPERTIES UNDER PRODUCTION AND DEVELOPMENT
Net Reserves as of
2004 Net Production December 31, 2004
(BOE/day) Actual Production (MM BOE)
The Company's Oil (Bbls/day) Commencement Oil (MM Bbls)
Block/Property Operator Partner Interests Gas(Mmcf/day) Year Gas(Bcf)
-----------------------------------------------------------------------------------------------------------------------------------
Offshore China
-----------------------------------------------------------------------------------------------------------------------------------
Bohai Bay
Production
-----------------------------------------------------------------------------------------------------------------------------------
Liaoxi
Jinzhou 20-2 CNOOC Ltd. 100% 7,710 1992 41.0
Oil 2,698 Oil 12.1
Gas 30 Gas 173.2
Jinzhou 9-3 CNOOC Ltd. 100% 13,225 1999 27.1
Oil 12,116 Oil 23.9
Gas 7 Gas 19.3
Suizhong 36-1 CNOOC Ltd. 100% 60,475 1993 178.9
-----------------------------------------------------------------------------------------------------------------------------------
Chengbei Oil Fields CNOOC Ltd. 100% 4,523 1985 5.7
-----------------------------------------------------------------------------------------------------------------------------------
Boxi
Boxi Oil Fields[1] CNOOC Ltd. 100% 12,800 1997 15.3
Oil 11,195 Oil 12.3
Gas 10 Gas 18.4
-----------------------------------------------------------------------------------------------------------------------------------
Qinhuangdao 32-6
QHD32-6 CNOOC Ltd. ChevronTexaco 75.5% 22,429 2001 99.7
-----------------------------------------------------------------------------------------------------------------------------------
11/05
Penglai 19-3 ConocoPhillips Phillips Bohai 51% 8,871 2002 131.8
-----------------------------------------------------------------------------------------------------------------------------------
Bonan
Bozhong 34-2/34-4 CNOOC Ltd. 100% 1,886 1990 3.2
Bonan oil Fields CNOOC Ltd. 100% 2,107 2004 31.7
Oil 1,877 Oil 10.2
Gas 1 Gas 128.8
Bozhong 25-1/25-1S CNOOC Ltd. ChevronTexaco 83.8% 4,073 2004 190.5
-----------------------------------------------------------------------------------------------------------------------------------
04/36
Caofeidian 11-1/11-2 Kerr-McGee Sino-American Energy 51% 4,371 2004 39.8
-----------------------------------------------------------------------------------------------------------------------------------
Development
-----------------------------------------------------------------------------------------------------------------------------------
Liaoxi
Jinzhou 21-1 CNOOC Ltd. 100% 13.8
Oil 5.7
Gas 48.5
Luda 4-2/5-2/10-1[2] CNOOC Ltd. 100% 92.7
JZ25-1S CNOOC Ltd. 100% 74.2
Oil 30.7
Gas 260.5
-----------------------------------------------------------------------------------------------------------------------------------
Bozhong
Nanbao 35-2 CNOOC Ltd. 100% 75.7
-----------------------------------------------------------------------------------------------------------------------------------
Qinghuangdao
QHD 33-1 CNOOC Ltd. 100% 3.6
-----------------------------------------------------------------------------------------------------------------------------------
Boxi
Qikou 18-9 CNOOC Ltd. 100% 3.5
Oil 3.3
Gas 1.6
Caofeidian 18-1 CNOOC Ltd. 100% 1.7
Caofeidian 18-2 CNOOC Ltd. 100% 12.5
Oil 3.2
Gas 56.0
-----------------------------------------------------------------------------------------------------------------------------------
11/05
Penglai 25-6 ConocoPhillips Phillips Bohai 51% 10.7
-----------------------------------------------------------------------------------------------------------------------------------
018 OPERATIONS CNOOC LIMITED
OVERVIEW
MAJOR PROPERTIES UNDER PRODUCTION AND DEVELOPMENT (continued)
Net Reserves as of
2004 Net Production December 31,2004
(BOE/day) Actual Production (MM BOE)
The Company's Oil (Bbls/day) Commencement Oil (MM Bbls)
Block/Property Operator Partner Interests Gas(Mmcf/day) Year Gas(Bcf)
-----------------------------------------------------------------------------------------------------------------------------------
04/36&05/36
Caofeidian 11-3/11-5 Kerr-McGee Energy 51% 1.5
Caofeidian 12-1/12-1S Kerr-McGee Energy/New Field 51% 12.8
-----------------------------------------------------------------------------------------------------------------------------------
Bonan
Bozhong 34-1/34-1S CNOOC Ltd. 100% 24.8
-----------------------------------------------------------------------------------------------------------------------------------
Bohai Bay Total 142,469 1,092.3
Oil 134,512 Oil 974.6
Gas 48 Gas 706.2
-----------------------------------------------------------------------------------------------------------------------------------
Eastern South China Sea
Production
-----------------------------------------------------------------------------------------------------------------------------------
16/08
Huizhou Oil Fields CACT Eni/ ChevronTexaco 51% 15,596 1990 27.6
Oil 20.5
Gas 43.0
-----------------------------------------------------------------------------------------------------------------------------------
16/19
Huizhou 19-3/2/1 CACT Eni/ ChevronTexaco 51% 247 2004 25.5
-----------------------------------------------------------------------------------------------------------------------------------
15/11
Xijiang 24-3 ConocoPhillips, Pecten 51% 15,979 1994 9.7
CNOOC Ltd.
-----------------------------------------------------------------------------------------------------------------------------------
15/22
Xijiang 30-2 ConocoPhillips, Pecten 40% 10,968 1995 5.4
CNOOC Ltd.
-----------------------------------------------------------------------------------------------------------------------------------
29/04
Liuhua 11-1 CNOOC Ltd. 100% 19,497 1996 11.4
-----------------------------------------------------------------------------------------------------------------------------------
16/06
Lufeng 13-1 JHN Japex/New Huanan/NMC 25% 2,851 1993 3.1
-----------------------------------------------------------------------------------------------------------------------------------
17/22
Lufeng 22-1 Statoil, Statoil 25% 536 1997 1.1
CNOOC Ltd.
-----------------------------------------------------------------------------------------------------------------------------------
15/34
Panyu 4-2/5-1 Devon Burlington 51% 31,315 2003 33.6
-----------------------------------------------------------------------------------------------------------------------------------
Development
-----------------------------------------------------------------------------------------------------------------------------------
Liuhua 07
Panyu 30-1 CNOOC Ltd. 100% 87.2
Oil 2.7
Gas 506.9
-----------------------------------------------------------------------------------------------------------------------------------
Panyu 33
Panyu 34-1 CNOOC Ltd. 100% 30.7
Oil 0.6
Gas 180.8
-----------------------------------------------------------------------------------------------------------------------------------
Xijiang 04
Xijiang 23-1 CNOOC Ltd. 100% 40.4
-----------------------------------------------------------------------------------------------------------------------------------
16/06
Lufeng 13-2 CNOOC Ltd 100% 14.1
-----------------------------------------------------------------------------------------------------------------------------------
Eastern South 96,989 289.8
China Sea Total Oil 96,989 Oil 168.0
Gas 0 Gas 730.8
-----------------------------------------------------------------------------------------------------------------------------------
Annual Report 2004 019
MAJOR PROPERTIES UNDER PRODUCTION AND DEVELOPMENT (continued)
Net Reserves as of
2004 Net Production December 31, 2004
(BOE/day) Actual Production (MM BOE)
The Company's Oil (Bbls/day) Commencement Oil (MM Bbls)
Block/Property Operator Partner Interests Gas(Mmcf/day) Year Gas(Bcf)
-----------------------------------------------------------------------------------------------------------------------------------
Western South China Sea
Production
-----------------------------------------------------------------------------------------------------------------------------------
Yulin 35
Weizhou Oil Fields[3] CNOOC Ltd. 100% 27,832 1993 48.1
Oil 26,570 Oil 47.6
Gas 8 Gas 2.9
-----------------------------------------------------------------------------------------------------------------------------------
Yangjiang 31/32
Wenchang 13-1/13-2 CNOOC Ltd. Husky 60% 28,051 2002 37.0
-----------------------------------------------------------------------------------------------------------------------------------
Yinggehai
Yacheng 13-1 CNOOC Ltd. Kufpec BPCEPC 51% 25,403 1995 84.2
Oil 1,085 Oil 5.0
Gas 132 Gas 475.1
-----------------------------------------------------------------------------------------------------------------------------------
Changjiang 25
Dongfang 1-1 CNOOC Ltd. 100% 12,851 2003 233.4
Oil 167 oil 3.2
Gas 76 Gas 1,381.0
-----------------------------------------------------------------------------------------------------------------------------------
Development
-----------------------------------------------------------------------------------------------------------------------------------
Yangjiang 31/32
Wenchang 8-3 CNOOC Ltd. 100% 11.6
Wenchang 14-3 CNOOC Ltd. 100% 11.0
Wenchang 15-1 CNOOC Ltd. 100% 22.9
Wenchang 19-1 CNOOC Ltd. 100% 26.1
-----------------------------------------------------------------------------------------------------------------------------------
Yinggehai
Yacheng 13-4 CNOOC Ltd. 100% 22.4
Oil 1.3
Gas 126.6
-----------------------------------------------------------------------------------------------------------------------------------
Ledong 01
Ledong CNOOC Ltd. 100% 83.2
Gas 499.2
-----------------------------------------------------------------------------------------------------------------------------------
Yulin 35
Weizhou 6-1 CNOOC Ltd. 100% 5.0
Weizhou 11-1 CNOOC Ltd. 100% 9.0
Weizhou 11-1N CNOOC Ltd. 100% 6.8
Weizhou 11-4N CNOOC Ltd. 100% 3.2
-----------------------------------------------------------------------------------------------------------------------------------
Western South 94,137 603.8
China Sea Total Oil 55,873 Oil 189.7
Gas 215 Gas 2,484.8
-----------------------------------------------------------------------------------------------------------------------------------
East China Sea
Production
-----------------------------------------------------------------------------------------------------------------------------------
Pinghu
Pinghu Gas Field CNOOC Ltd. 30% 4,963 1998 11.0
Oil 2,121 Oil 3.8
Gas 17 Gas 43.2
-----------------------------------------------------------------------------------------------------------------------------------
020 OPERATIONS CNOOC LIMITED
OVERVIEW
MAJOR PROPERTIES UNDER PRODUCTION AND DEVELOPMENT (continued)
Net Reserves as of
2004 Net Production December 31, 2004
(BOE/day) Actual Production (MM BOE)
The Company's Oil (Bbls/day) Commencement Oil (MM Bbls)
Block/Property Operator Partner Interests Gas(Mmcf/day) Year Gas(Bcf)
-----------------------------------------------------------------------------------------------------------------------------------
Development
-----------------------------------------------------------------------------------------------------------------------------------
Xihu Trough
Canxue CNOOC Ltd. Sinopec 50% 9.3
Oil 5.1
Gas 25.4
Duanqiao CNOOC Ltd. Sinopec 50% 7.7
Oil 2.2
Gas 32.8
Chunxiao CNOOC Ltd. Sinopec 50% 31.6
Oil 3.8
Gas 166.9
Tianwaitian CNOOC Ltd. Sinopec 50% 5.3
Oil 0.1
Gas 31.1
Baoyunting CNOOC Ltd. Sinopec 50% 19.2
Oil 4.6
Gas 87.5
Wuyunting CNOOC Ltd. Sinopec 50% 4.7
Oil 1.9
Gas 16.6
-----------------------------------------------------------------------------------------------------------------------------------
East China Sea Total 4,963 88.7
Oil 2,121 Oil 21.5
Gas 17 Gas 403.4
-----------------------------------------------------------------------------------------------------------------------------------
Offshore China Total 338,558 2,074.6
Oil 289,496 Oil 1,353.7
Gas 280 Gas 4,325.2
-----------------------------------------------------------------------------------------------------------------------------------
Indonesia
-----------------------------------------------------------------------------------------------------------------------------------
Malacca Strait PSC 2,016 1994 Oil 7.4
-----------------------------------------------------------------------------------------------------------------------------------
Indonesia SES.B.V 41,939 148.0
Oil 27,925 Oil 94.5
Gas 84 Gas 321.4
-----------------------------------------------------------------------------------------------------------------------------------
Total 382,513 2,230.0
Oil 319,436 Oil 1,455.6
Gas 364 Gas 4,646.6
-----------------------------------------------------------------------------------------------------------------------------------
[1.] The production and reserves for Qikou 18-2 that commenced operation
during the period was included under Boxi oil fields group.
[2.] Luda 10-1 commenced production ahead of the schedule in early 2005.
[3.] The reserves for Weizhou 12-1N Project was included under Weizhou oil
fields group.
Annual Report 2004 021
REVIEW BY AREA
In 2004, the Company obtained outstanding results in its major exploration
activities. The Company made 5 oil and gas discoveries offshore China,
including 4 independent discoveries, namely Bozhong 34-1 (block 4), Bozhong
34-1 (block 5), Jinzhou 21-1S and Huizhou 26-3. Our partner Kerr-McGee made a
discovery at Caofeidian 14-5. In Indonesia, the Company obtained 1 oil and gas
discovery, KE7-3.
[PICTURE OMITTED]
During the reporting period, the Company acquired 32,265 kilometers of 2D
seismic data offshore China, all of which were acquired independently. We also
acquired 4,530 square kilometers of 3D seismic data, including 4,140 square
kilometers acquired independently, and 390 square kilometers acquired by PSC
partners. The Company completed 60 exploration wells in 2004. 52 were drilled
offshore China, in which 36 were independent wells, whilst 16 were PSC wells.
In offshore China, the Company successfully appraised 14 hydrocarbon-bearing
structures, 11 were independent appraisals, including Jinzhou 25-1S, Luda
27-2, Luda 32-2, Bozhong 34-1 (block 3), Bozhong 34-1 (block 4), Qinhuangdao
33-1, Jinzhou 9-3E, Weizhou 12-1, Weizhou 11-1N, Liuhua 19-5, Panyu 34-1.
There were 3 PSC appraisals, including Penglai 14-3, Weizhou 12-8, and
Canxue-4.
[PICTURE OMITTED]
Bohai Bay
Bohai Bay is the company's most important oil and gas production base offshore
China.Its contribution of oil and gas production and reserves to the Company
ranked the top in the past years. As at 31 December 2004, the Company has net
proved reserves of 1,092 million BOE in the Bohai bay area, accounting for 49%
of the Company's total. In 2004, the average daily production in the area
amounted to 142,469 BOE, accounting for 37% of the Company's total. The
Company has exploration licenses of 15 blocks in the region and our partners
have 8 PSC blocks.
022 OPERATIONS CNOOC LIMITED
OVERVIEW
In 2004, there were altogether four new oil and gas projects that commenced
production in Bohai Bay, namely Qikou 18-2, Caofeidian 11-1/11-2, Bozhong
25-1/25-1S, and Bonan oil and gas field. The importance of the area as the
Company's core area was further protruded.
In 2004, the Company sustained a strong momentum in oil and gas exploration in
this region. Seismic and drilling activities were increased, and encouraging
exploration results obtained. The Company made four oil and gas discoveries in
Bohai Bay in the year, including Bozhong 34-1 (Block 4), Bozhong 34-1 (block
5), Jinzhou 21-1S and Caofeidian 14-5, and successfully appraised eight
hydrocarbon-bearing structures, including Jinzhou 25-1S, Luda 27-2, Luda 32-2,
Bozhong 34-1 (block 3), Bozhong 34-1 (block 4), Qinhuangdao 33-1, Jinzhou
9-3E, and Penglai 14-3. Therefore, these results laid solid basis for future
production growth in this area.
In 2004, 27 wells were drilled in Bohai Bay and 2,154 square kilometers of 3D
seismic data were acquired. Of these, 19 (including 8 wildcat wells and 11
appraisal wells) were drilled independently. 8 wells were drilled by PSC
partners, including 7 wildcat wells, 1 appraisal well, and 390 square
kilometers of 3D seismic data were acquired.
In Bonan block, the Company drilled 3 wildcat wells, 2 appraisal wells, and
made 2 oil and gas discoveries, namely Bozhong 34-1 (block 4) and Bozhong 34-1
(block 5), and successfully made appraisals in Bozhong 34-1 (block 3) and
Bozhong 34-1 (block 4).
[PICTURE OMITTED]
Annual Report 2004 023
[PICTURE OMITTED]
In Liaodong Bay block, the Company drilled 5 wildcat wells, 7 appraisal wells,
made a new oil and gas discovery in Jinzhou 21-1S, and successfully made
appraisals to 3 hydrocarbon-bearing structures, including Jinzhou 25-1S, Luda
27-2 and Jinzhou 9-3E.
The Company drilled an appraisal well in Bozhong block, and successfully
appraised the structure of Qinhuangdao 33-1. The Company also successfully
appraised Luda 32-2 in block 06/17.
In 2004, our partner ConocoPhillips successfully drilled an appraisal well on
Penglai 14-3 structure in block 11/05.
Another partner, Kerr-McGee conducted drillings in block 04/36, 09/06 and
09/18, and successfully made an oil and gas discovery in Caofeidian 14-5 in
block 09/06.
In other PSC blocks, our partners also conducted exploration drillings and
seismic acquisitions.
Western South China Sea
Production of natural gas has always been the highlight in this area. The
Company's two large natural gas fields, Yacheng 13-1 and Dongfang 1-1, are
located in this area.
As at the end of 2004, the Company has a total of 604 million BOE of net
proved reserves in the Western South China Sea, accounting for 27% of the
Company's total net proved reserves. The Company's average daily net
production in the area amounted to 94,137 BOE, or 25% of the Company's total.
During the reporting period, the Company had 34 exploration licenses in the
Western South China Sea and our partner had 8 blocks.
2004 was the first year after the Company successfully assumed operatorship of
Yacheng 13-1. The smooth operation of the gas field made the Company more
confident to operate independently.
In 2004, the Company drilled 12 wells in this area, which included 5 wildcat
wells and 3 appraisal wells independently, and acquired 13,827 kilometers of
2D seismic data and 1,047 square kilometers of 3D seismic data. Our partner
drilled 2 wildcat wells and 2 appraisal wells, and 3 hydrocarbon-bearing
structures were successfully appraised during the year.
The Company drilled 3 appraisal wells in Yulin block 35 of Beibu Gulf, and
successfully appraised 2 hydrocarbon-bearing structures, namely Weizhou 11-1N
and Weizhou 12-1. Roc Oil (China) Company drilled a wildcat and 2 appraisals
in the 22/12 block of Beibu Gulf, and successfully appraised the
hydrocarbon-bearing structure of Weizhou 12-8. During the year, the Company
announced the successful commencement of Weizhou 12-1N in this area.
In addition, the Company drilled a number of wildcat wells and acquired
seismic data in Zhu III Sag, Qiongdongnan basin and Yinggehai basin.
024 OPERATIONS CNOOC LIMITED
OVERVIEW
[PICTURES OMITTED]
Eastern South China Sea
Crude oil production has always been an important business in the Eastern
South China Sea. In recent years, the Company was delighted to discover that
the natural gas business in this area has been developing rapidly.
After we made a breakthrough in Baiyun Trough in the Pearl River Mouth basin
in 2003, the Company again successfully appraised 2 hydrocarbon-bearing
structures in this area, namely Liuhua 19-5 and Panyu 34-1 in 2004. The
potential for natural gas exploration in this area has provided a solid
foundation for the natural gas market in Pearl River Delta. At the same time,
it increased the exploration potential in the adjacent deep water areas,
indicating the hydrocarbon generating conditions and good exploration
prospects in the deep water areas of the Eastern South China Sea.
The Company's net proved reserves in the Eastern South China Sea amounted to
290 million BOE, accounting for approximately 13% of the Company's total net
proved reserves. The average daily net production in the Eastern South China
Sea was 96,989 BOE, or 25% of the Company's total.
The Company had exploration licenses in 38 blocks in this area, while our
partner had 7 blocks.
In 2004, the Company drilled 8 wells in this area, of which 3 wildcat wells
and 3 appraisal wells were independent wells, and acquired 6,560 kilometers of
2D seismic data, 1,329 square kilometers of 3D seismic data. Meanwhile our PSC
partner drilled 2 wildcat wells.
During the period, the Company made a new discovery (Huizhou 26-3) in this
area, and successfully appraised 2 structures, namely Liuhua 19-5 and Panyu
34-1.
In 2004, the Company also drilled 1 wildcat well independently in Xijiang 04
block, and our partner Devon drilled 2 wildcat wells in block 15/34 .
During the reporting period, CNOOC entered into a petroleum contract with
Husky Oil China Limited with respect to the deep water block 29/26 in Pearl
River Mouth Basin in the Eastern South China Sea. Under the terms of the
contract, we may back into up to 51% of any commercial discoveries at no cost
in the block.
East China Sea
At the end of 2004, the Company had net proved reserves of 89 million BOE in
the East China Sea, accounting for approximately 4% of the Company's total net
proved reserves. The average daily net production in the East
Annual Report 2004 025
[PICTURE OMITTED]
China Sea was 4,963 BOE, or 1% of the Company's total.
The Company had exploration licenses in 47 blocks in this area, while our
partner had 3 contract blocks.
In 2004, the Company drilled 3 wildcat wells independently and 1 wildcat well
cooperatively in this area, 1 appraisal well, and successfully appraised
structure of Canxue in this area. The Company acquired 4,058 kilometers of 2D
seismic data in the Southern Yellow Sea areas.
The Company conducts joint exploration in Xihu Trough of the East China Sea
with Sinopec.
During the reporting period, there were some changes to our partners in the
Xihu project in this area. As no agreement could be reached with respect to
the development plan, Pecten Orient Company LLC. and Unocal East China Sea
Ltd. elected not to participate in the next development stage. This did not
affect the normal operations of the Xihu project, and the Company is still
confident about the prospects of the project.
Overseas
As at 31 December 2004, the Company had net proved reserves of 155 million BOE
in Indonesia, accounting for 7% of the Company's total net proved reserves.
The Company's average daily production in the area was 43,955 BOE, or 11% of
our total production.
During the period, the Company and our partner KODECO made a new discovery
KE7-3 in the West Madura PSC area in the East Java Sea of Indonesia.
In 2004, the Company increased its equity interest in the Tangguh LNG Project
in Indonesia to 16.96%.
026 OPERATIONS CNOOC LIMITED
OVERVIEW
TABLE OF MAJOR EXPLORATION BLOCKS
Exploration License
Block Area (Commencement-
Blocks (km2) Partner Expiration)
-----------------------------------------------------------------------------------------------------------------------------------
Middle of Bohai Bay 4,974 26.4.04~26.4.06
Southern Bohai Bay 3,679 6.8.04~8.6.06
Western Bohai Bay 1,895 8.6.04~8.6.06
Western Liaodong Bay 3,344 31.3.00~8.4.06
Eastern Liaodong Bay 2,829 2.7.01~2.7.06
Eastern Bozhong 1,861 30.5.04~30.5.06
Bohai Block 09/11 843 5.4.04~5.4.06
Bohai Block 06/17 2,586 20.2.03~20.2.05
Bohai Block 02/31 4,990 29.5.03~29.5.05
-----------------------------------------------------------------------------------------------------------------------------------
Independent Total 27,000
-----------------------------------------------------------------------------------------------------------------------------------
Bohai Block 11/19 3,068 ChevronTexaco 29.5.04~29.5.05
Bohai Block 05/36 2,766 Kerr-McGee/Newfield/Sino-American Energy 10.2.04~10.2.06
Eastern Bohai Block 11/05 3,601 Conocophillips 16.8.04~16.8.06
Western Bohai Block 11/05 2,897 Conocophillips 10.2.04~10.2.06
Bohai Block 09/18 2,218 Kerr-McGeee 4.4.04~4.4.06
Bohai Block 04/36 1,694 Kerr-McGee/Sino-American Energy 1.1.04~1.1.06
-----------------------------------------------------------------------------------------------------------------------------------
PSC Total 16,244
-----------------------------------------------------------------------------------------------------------------------------------
Bohai Total 43,244
-----------------------------------------------------------------------------------------------------------------------------------
North Yellow Sea 6,471 25.5.01~25.5.06
Northern Trough (Northen South Yellow Sea) 912 30.8.00~30.8.05
Xihu Hangzhou 26 (East China Sea) 3,642 31.3.03~31.3.05
Xihu Hangzhou 17 (East China Sea) 4,227 28.8.01~28.8.08
Xihu Huangyan 04 (East China Sea) 2,848 28.8.01~28.8.08
Xihu Zhenhai 01 (East China Sea) 1,536 28.8.01~28.8.08
Lishui -Jiaojiang Trough (East China Sea) 6,767 31.3.00~28.11.05
Kunshan Block 02 (East China Sea) 2,628 11.5.01~11.5.06
Jinhua Block 12 (East China Sea) 6,931 11.5.01~11.5.06
Tiantai 32 (East China Sea) 5,400 17.7.01~17.7.06
Fuzhou Block 02 (East China Sea) 3,064 11.5.01~11.5.06
Taibei Block 27 (East China Sea) 7,379 9.7.01~9.7.06
Taoyuan 07 (East China Sea) 6,457 9.7.01~9.7.06
Jilong 25 (East China Sea) 5,692 9.7.01~9.7.06
-----------------------------------------------------------------------------------------------------------------------------------
Independent Total 63,952
-----------------------------------------------------------------------------------------------------------------------------------
Block 32/32 (East China Sea) 513 PrimeLine - Petroleum 11.7.02~11.7.04
-----------------------------------------------------------------------------------------------------------------------------------
PSC Total 513
-----------------------------------------------------------------------------------------------------------------------------------
East China Sea Total 45,681
-----------------------------------------------------------------------------------------------------------------------------------
Annual Report 2004 027
TABLE OF MAJOR EXPLORATION BLOCKS (continued)
Exploration License
Block Area (Commencement-
Blocks (km2) Partner Expiration)
-----------------------------------------------------------------------------------------------------------------------------------
Xijiang 04 (Pearl River Mouth Basin) 7,969 11.5.01~11.5.06
Lufeng 06 (Pearl River Mouth Basin) 4,457 11.5.01~11.5.06
Huizhou 31 (Pearl River Mouth Basin) 3,074 11.5.01~11.5.06
Enping 15 (Pearl River Mouth Basin) 5,833 11.5.01~11.5.06
Enping 10 (Pearl River Mouth Basin) 6,547 11.5.01~11.5.06
Panyu 33 (Pearl River Mouth Basin) 4,830 11.5.01~11.5.06
Liuhua 07 (Pearl River Mouth Basin) 4,172 11.5.01~11.5.06
Dongsha 04 (Pearl River Mouth Basin) 5,295 11.5.01~11.5.06
Kaiping 14 (Pearl River Mouth Basin) 7,753 11.5.01~11.5.06
Kaiping 32 (Pearl River Mouth Basin) 8,104 11.5.01~11.5.06
Dongsha 32(Pearl River Mouth Basin) 7,350 5.11.03~5.11.10
-----------------------------------------------------------------------------------------------------------------------------------
Independent Total 65,381
-----------------------------------------------------------------------------------------------------------------------------------
Block 15/34 (Pearl River Mouth Basin) 4,984 Devon/Burlington 24.12.03~24.12.05
-----------------------------------------------------------------------------------------------------------------------------------
PSC Total 4,984
-----------------------------------------------------------------------------------------------------------------------------------
Eastern South China Sea Total 70,365
-----------------------------------------------------------------------------------------------------------------------------------
Weizhou 12 (Beibu Gulf) 6,980 11.5.01~11.5.06
Yulin 35 (Beibu Gulf) 6,050 11.5.01~11.5.06
Weizhou 26 (Beibu Gulf) 4,358 5.11.03~11.5.06
Ledong 01 (Yinggehai) 6,543 3.12.03~3.12.05
Lingtou 20 (Yinggehai) 2,684 30.8.00~30.8.05
Lingao 11 (Yinggehai) 4,117 11.5.01~11.5.06
Sonttao 22 (Qiongdongnan) 4,063 11.5.01~11.5.06
Sonttao 31 (Qiongdongnan) 5,264 11.5.01~11.5.06
Lingsui 18 (Qiongdongnan) 7,738 6.8.02~6.8.07
Yangjiang 31 (Pearl River Mouth Basin) 6,003 3.12.03~3.12.05
Qionghai 28 (Pearl River Mouth Basin) 5,208 11.5.01~11.5.06
Wenchang 11 (Pearl River Mouth Basin) 4,901 11.5.01~11.5.06
-----------------------------------------------------------------------------------------------------------------------------------
Independent Total 63,907
-----------------------------------------------------------------------------------------------------------------------------------
North Wanan-21 A 6,801 Benton Offshore China Company 30.9.03~30.9.05
North Wanan-21 B 6,118 Benton Offshore China Company 30.9.03~30.9.05
North Wanan-21 C 6,372 Benton Offshore China Company 30.9.03~30.9.05
North Wanan-21 D 6,126 Benton Offshore China Company 30.9.03~30.9.05
-----------------------------------------------------------------------------------------------------------------------------------
PSC Total 25,417
-----------------------------------------------------------------------------------------------------------------------------------
Western South China Sea 89,325
-----------------------------------------------------------------------------------------------------------------------------------
Total 267,399
-----------------------------------------------------------------------------------------------------------------------------------
As at December 31, 2004
028 CORPORATE CNOOC LIMITED
GOVERNANCE
[Graphic omitted]
Governance standards
The Company has always uphold and executed high standard of business ethics,
for which its transparency and standard of governance have been recognized by
the public and our shareholders. Perfect and strict standard of corporate
governance enables us to operate steadily and efficiently and is in the long
term interests of the Company and its shareholders.
Since our listing, we have been endeavoured to maximize shareholders' value.
In 2004, the Company strictly executed its corporate governance policies, and
ensured that all decisions were made on principles of trust and fairness in an
open and transparent manner, so as to protect the interests of all our
shareholders.
The Company has Board and committee members who are dedicated, professional
and accountable. Internationally recognised figures serve on our international
advisory board to further enhance our corporate governance standards.
BOARD OF DIRECTORS
The Company's board of directors consists of eight members. Four of them are
independent non-executive directors. These four non-executive directors come
from other areas outside China, and are all professionals or scholars with
backgrounds in the legal, economics, financial and investment fields. They
have extensive experience and knowledge of corporate management, making
significant contributions to the Company's strategic decisions. The diverse
background of the board members ensures that they fully represent the
interests of all our shareholders.
The board holds three regular annual meetings per year, and extraordinary
meetings are held if required.
The Company has appointed an audit committee, a remuneration committee and a
nomination committee. The terms of reference consisting of these committees
during this year ended 31 December 2004 are described below.
AUDIT COMMITTEE
The audit committee consists of three independent non-executive directors,
with Professor Kenneth Courtis designated as the audit committee financial
expert for the purposes of U.S. securities laws. The committee meets at least
twice a year and is responsible for reviewing the completeness, accuracy and
fairness of the Company's accounts, evaluating the Company's auditing scope
and procedures, and evaluating internal control systems. The committee is also
responsible for setting up internal monitoring systems so as to allow the
Board to monitor the Company's entire financial position, to protect the
Company's assets, and to prevent major errors resulting from financial
reporting or loss. The Board is responsible for these systems and appropriate
delegations and guidance have been made. In addition, the chairman of the
audit committee presents a report each year to the Board describing the
committee's major activities during the year.
Annual Report 2004 029
The Company is now reviewing its Code of Ethics adopted on
28 August 2003, so as to comply with the latest corporate
governance standards. The Company will inform all management
officers and require them to comply with these code of
ethics, so as to ensure our operation is proper and lawful.
We will take disciplinary actions towards any act which is
in breach of the Code of Ethics.
REMUNERATION COMMITTEE
Comprising of three independent non-executive directors, the remuneration
committee is responsible for reviewing information pertaining to all
executives' salaries, bonuses, share options packages, performance appraisal
systems and retirement plans.
NOMINATION COMMITTEE
The nomination committee is consisted of an executive director and two
independent non-executive directors. Its role is to establish proper
procedures for the selection of the Company's leadership positions, upgrade
the quality of board members and perfect the Company's corporate governance
structure. The committee's major authority and responsibilities are to
nominate and affirm candidates approved by the Board, to review the structure
and composition of the board on a regular basis and to evaluate the leadership
abilities of executive and non-executive directors to ensure the competitive
position of the organisation.
ENHANCING TRANSPARENCY AND COMMUNICATION WITH INVESTORS
With a policy of being transparent, strengthening investor relations, and
providing consistent, stable and extraordinary returns to shareholders, the
Company seeks to ensure that information is transparent. We have a
professionally-run investor relations department to serve as a communication
channel between the Company and its shareholders and investors. Besides
announcing its interim and annual results to shareholders and investors,
according to regulations, the Company also publicises its major business
developments through press releases, announcements and the company website.
Attendance at full board meetings in 2004
No. of Meeting attended
Executive Directors (9 meetings in total)
------------------------------------------------------------------------------
Fu Chengyu 9
Luo Han 9
Jiang Longsheng 9
Zhou Shouwei 9
Independent Non-executive Directors
------------------------------------------------------------------------------
Chiu Sung Hong 9
Kenneth S.Courtis 9
Erwin Schurtenberger 9
Evert Henkes 9
CODE OF ETHICS
The board of directors adopted a Code of Ethics on 28 August 2003 to provide
guidelines to the senior management in legal and ethical matters as well as
the sensitivities involved in reporting illegal and unethical matters. The
Code of Ethics covers such areas as supervisory rules, insider dealing, market
malpractices, conflict of interests, company opportunities, protection and
proper use of the Company's assets as well as reporting requirements for
listed companies.
All our senior management members are required to familiarise themselves with
and follow the Code of Ethics to ensure that the Company's operations are
honest and legal. Violations of the rules will be penalized and serious
offences will result in dismissals.
The Company is now reviewing its Code of Ethics adopted on 28 August 2003, so
as to comply with the latest corporate governance standards. The Company will
inform all management officers and require them to comply with these code of
ethics, so as to ensure our operation is proper and lawful. We will take
disciplinary actions towards any act which is in breach of the Code of Ethics.
030 HEALTH, SAFETY AND CNOOC LIMITED
ENVIRONMENT
The Company places emphasis on professional training with respect to
Health, Safety
and Environment
[PICTURE OMITTED]
Annual Report 2004 031
[PICTURE OMITTED]
Implementation of systematic management
Caring for employees' health, safety and environment has long been the
operating principles of the Company. In 2004, the Company's OSHA statistical
results continued to be above average in the industry. The Company made
achievements to improve the implementation of HSE standards offshore China.
The senior management and the whole staff of the Company recognize that the
issues related to health, safety and environmental protection ("HSE") are as
important as exploration and production operations. Therefore, the Company as
a whole has paid great attention to the HSE.
In 2004, the performance of the Company in HSE was satisfactory: during the
year, the Company recorded no major oil spills, or any safety related
liabilities that exceeded RMB1 million per incident.
According to the Company's OSHA statistical results, we were above-average
rating as compared with our peers. We are continuously improving our HSE
performance.
During the reporting period, the Company made achievements to improve the
implementation of HSE standards offshore China.
SYSTEMATIC MANAGEMENT
The Company continued to evaluate and improve its performance by redefining
its goals and taking remedial measures in order to further enhance the HSE
system of the Company in 2004.
In 2004, the Company completed its senior management review of two branches in
China and CNOOC SES Ltd. as scheduled. Through the senior management review,
the Company's HSE management was further improved. The regulation of CNOOC's
HSE Management in respect of production and
032 HEALTH, SAFETY AND CNOOC LIMITED
ENVIRONMENT
business operations was fully implemented. The "Crisis Management plan" of the
Company was also strengthened after modification.
Further contribute to the promotion of offshore oil spill awareness, the
Company continued to cooperate with Bohai Bay Oil Spill Awareness Center and
support the establishment of the oil spillage awareness organizations in South
China Sea.
As a major member of the "China State Offshore Oil Spill Emergency Plan"
organized by State Oceanic Administration, the Company continued to conduct
researches and discussions on issues relating to resources sharing and risk
assessment in case of offshore oil spill.
In 2004, the Company further strengthened the safety management procedures for
high-risk activities such as those involving helicopter, diving and loading
operations. In addition, the Company reinforced safety checks and tightened
safety management on site.
In 2004, the Company adopted the HSE in managing other workers and contractors
on a regular and orderly basis.
During the reporting period, our HSE principles and management have gained
public recognition in various occasions.
In 2004, as the only Chinese OGP member, the Company provided assistance to
OGP in organizing its 30th anniversary seminar. The Company also participated
in the conferences on safety issues related to major incidents.
[PICTURE OMITTED]
Annual Report 2004 033
EMPLOYEE EDUCATION
The Company has spared no effort in promoting HSE among all its employees and
has encouraged them to put these ideas into practice in work and life.
During the period, the Company organized a series of training covering the
main areas of HSE regulations, special operations and offshore rescue with
more than 10,000 people participated.
Certain organizations have adopted the HSE concepts as major criteria to
evaluate the performance of employees.
In 2004, the Company emphasized fire prevention and safe driving of vehicles
in employees' training. The Company also provided employees with training on
risk avoidance and prevention and also distributed them with office fire
prevention equipment.
Regarding the healthcare of the employees, the Company has developed a
healthcare management software for the purpose of assigning duties in
accordance with the health of the employees in 2004.
CNOOC Ltd's OSHA occupational injury & occupational disease statistics of 2004
Number of Number of
Rate of Number of Rate of days away days away
Gross Recordable recordable cases cases & working & working
Scope man-hour cases cases away away shifts bounds Death
----------------------------------------------------------------------------------------------------------
Permanent workers 7,213,227 0 0.000 0 0 0 0.000 0
----------------------------------------------------------------------------------------------------------
Permanent workers,
other workers & direct
contractors 30,917,203 37 0.239 17 0.110 100 0.647 1
[PICTURE OMITTED]
034 CORPORATE CNOOC LIMITED
CITIZEN
Responsibility as to Society
In the overseas, the Company has insisted on respecting local cultures.
Different ways were sought to enhance communication with the local community.
QUALIFIED CORPORATE CITIZEN
While striving for its successful development, the Company as a "corporate
citizen", has persisted in fulfilling its responsibilities to the society,
employees and environment by actively participating in social charity for the
purpose to be a responsible and qualified corporate citizen.
RESPONSIBILITY AS TO SOCIETY
In 2004, the Company contributed to the society by participating in social
charity activities.
During the reporting period, the Company continued to be engaged in the
development project in Nima County in the Tibet Autonomous Region. The public
utilities and environment in the region have made significant improvements.
The Company is so delighted to share the fruits of success.
In 2004, the Company and its branches worked together in organizing different
kinds of charity activities including poverty relief, assistance and financial
aid to the poor and handicapped, free blood donations, tree-planting and
caring for the elderly so as to contribute to the society.
[PICTURE OMITTED]
Annual Report 2004 035
[PICTURE OMITTED]
In the overseas, the Company has insisted in treating local cultures with
respect. Different ways were sought to enhance communication with the local
community.
In 2004, the Company sponsored the "Boao Forum" again and delegated members to
participate in the "Energy Forum for Asia" featuring the "Asia Energy
Cooperation and Development" that was the first time held in the overseas.
[PICTURE OMITTED]
In Australia, the Company donated to the cultural organizations such as the
Western Australia Symphony Orchestra in order to develop closer ties with the
local community.
In Indonesia, the Company introduced a scholarship program for a part of
juvenile generation in Seribu Island, which donated books and stationeries to
the students. Numerous patrolling vessels were also donated to the police. At
the same time, foods, drinks and clothing were also donated to the orphans and
elderly in the region, and gave them blessing for the festival. In addition,
there were also initiatives to donate for the construction of Muslim temple
and the supporting for youth activities.
Following the southeast tsunami disaster by the end of 2004, the Company
immediately donated abundant relief resources and funds to affected countries
like Indonesia. The Company is eager to share social responsibilities with the
global community.
036 HUMAN CNOOC LIMITED
RESOURCES
The Company incorporated the motto of caring for its staff
into its overall development mission
People-Oriented
[PICTURE OMITTED]
Annual Report 2004 037
With human resources as first priority and people-oriented and employee
focused in mind, we focused on the overall development of our staff, whilst
the Company was under its rapid and efficient development, and created a
win-win position for the staff and the Company.
TRAINING FOR THE CORPORATE
The Company identifies employees as the most valuable assets. They are the
cores of the Company's current and future development. In 2004, the Company
further committed to the concept of reliance on the people.
In 2004, the Company established and implemented human resources strategies
appropriate for its development, thus providing a strong support for
international development and competitiveness.
Regarding its medium to long-term development objectives, the Company
introduced work relocation measures within the organization during the
reporting period. It has also dedicated to improve the quality of the two
teams namely the management and technicians in order to ensure sustainable
development of human resources.
[Graphic omitted]
Professionals
In 2004, the Company persisted in committing to the goals of its development
strategies that are based on such principles as "human resources as the first
asset" and "people-oriented and employee focus". The Company has established
and introduced human resources strategies appropriate for its development. The
human resources management system and its related measures were further
improved. The reforms on wage and salary system were strengthened. The
business and operating process were modified. Further studies and trials were
made to increase the competitiveness of human resources. These help to further
harmonize the Company's management system and structure with those of the
international energy companies and provide a strong support for international
development and competitiveness.
038 HUMAN CNOOC LIMITED
RESOURCES
ENHANCING HUMAN RESOURCES MANAGEMENT SYSTEM AND ITS SUPPORTING SYSTEMS
Effective and appropriate performance appraisal system was further implemented
in the Company to ensure that the employees' own personal goals would be
closely connected with those of the Company's business development.
Measures were taken to introduce a performance appraisal system for its
branches. The introduction of this system helps to connect the overall
objectives of the Company with the operating goals of different units in an
effective manner. While ensuring the smooth implementation of its goals, the
Company also boosted the operating result of its branches in a appropriate
way.
[PICTURE OMITTED]
The Company proactively promoted the implementation of the performance
appraisal system. With the comprehensive understanding by the employees
towards its significance, the system will be pursued for as planned in an
orderly manner.
IMPROVING THE REMUNERATION SYSTEM AND REWARD POLICIES
During the year, the Company reinforced the remuneration scheme of the
offshore workers under the current framework of salary and benefit plan that
harmonized with the market. A new salary scheme for offshore workers was also
introduced.
The Company also adopted a series of reward policies by rewarding employees
with outstanding contribution such as "minimizing exploration cost and best
drilling awards" during the reporting period.
Annual Report 2004 039
STRENGTHENING THE REFORM OF WAGE AND SALARY SYSTEM AND MODIFYING THE OPERATING
PROCESS
Based on the reforms in the previous year, the Company has conducted reviews
in respect of organization structure, headcounts and operating process of the
entire system with regard to the new situation and requirements of its
development. The Company has modified its organization structure and
headcounts. It has also increased the number of employees of different
branches and the number of research officers of its research center.
In view of the rapid development of its overseas markets, the Company prepared
supplementary human resources-related service policies for different regions
in a timely manner.
[PICTURE OMITTED]
RESHAPING THE FUTURE OF EMPLOYEES
The Company has continued to enforce its well-established training system in
2004.
During the year, after taking into account the personal development of its
employees and the practical needs of human resources management, the Company
provided the employees with two types of training namely the regular and
specific training. Regular training was coordinated primarily by the human
resources department, which focused on the mutual needs of the same type and
same level of employees. Specific training is organized by the Company's
various departments in order to meet their specific needs and those of the
employees.
With the implementation of personal development system, the Company has
organized and implemented different types of professional and comprehensive
management training to meet its specific needs. The Company has organized a
total of 641 training classes throughout the year with 8,816 participants and
a total of 42,506 training hours.
040 DIRECTORS AND CNOOC LIMITED
SENIOR MANAGEMENT
Kenneth S. Courtis Zhou Shouwei Chiu Sung Hong Luo Han Jiang Longsheng
Erwin Schurtenberger Fu Chengyu Evert Henkes
[PICTURE OMITTED]
Annual Report 2004 041
EXECUTIVE DIRECTORS
Fu Chengyu
Born in 1951. Mr. Fu received a B.S. degree in geology from the Northeast
Petroleum Institute in China and a Master's degree in petroleum engineering
from the University of Southern California in the United States. He has over
30 years of experience in the oil industry in the PRC. He previously worked in
China's Daqing, Liaohe and Huabei oil fields. He joined China National
Offshore Oil Corporation ("CNOOC") in 1982 and has since been appointed as the
Chairman of the Management Committee formed through a joint venture between
CNOOC, BP Amoco, Chevron, Texaco, Phillips Petroleum, Shell and Agip. From
1994 to 1995, Mr. Fu was the Deputy General Manager of China Offshore Oil
Eastern South China Sea Corporation, a subsidiary of CNOOC. In December 1995,
he was appointed as Vice President of Phillips China Inc. and the General
Manager of the Xijiang Development Project. In 1999, Mr. Fu was the General
Manager of China Offshore Oil Eastern South China Sea Corporation.
In 2000, Mr. Fu was appointed as Deputy General Manager of CNOOC.
Subsequently, he was appointed as a Director, Executive Vice President,
President and Chief Operating Officer of the Company in 2001. In August 2002
he became the Chairman and Chief Executive Officer of our affiliate, China
Oilfield Services Ltd.
In October 2003, Mr. Fu was appointed as President of CNOOC. He was also
appointed as the Chairman of the Board of Directors and Chief Executive
Officer of the Company, effective 16 October 2003. In November 2003, Mr. Fu
resigned his Chief Executive Officer position from China Oilfield Services
Ltd.
Luo Han
Born in 1953. Mr. Luo received a doctorate degree from the China Petroleum
University. He has over 30 years of experience in the oil industry in the PRC.
He was appointed as an Executive Director of the Company in December 2000.
From 1993 to 1999, Mr. Luo served as the Vice President of China Offshore Oil
Eastern South China Sea Corporation and concurrently as the Chairman of the
CACT (CNOOC-AGIP-Chevron-Texaco) operators group, and the Executive Vice
President of China Offshore Oil East China Sea Corporation, a subsidiary of
CNOOC. In 1999, he served as the General Manager of CNOOC China Limited `s
Shanghai Branch. Mr. Luo is a Vice President of CNOOC, a position he has held
since 2000. He joined CNOOC in 1982.
Jiang Longsheng
Born in 1945. Mr. Jiang received a B.S. degree from the Beijing Petroleum
Institute in China. He has over 35 years' experience in the oil industry in
the PRC. He was appointed as a Director of the Company in December 2000 and
has been the Vice President of CNOOC since 1998. From 1994 to 1998, he was the
General Manager of China Offshore Oil Southern Drilling Company. From 1991 to
1994, Mr. Jiang served as the Deputy Chief Drilling Engineer and was later
appointed as the Chief Drilling Engineer of China Offshore Oil Western South
China Sea Corporation. He joined CNOOC in 1982.
Zhou Shouwei
Born in 1950. Mr. Zhou received a doctorate degree from the Southwest China
Petroleum Institute and is a senior engineer. He was appointed as a Director
and Executive Vice President of the Company in September 1999. He was also the
General Manager of CNOOC China Limited and is responsible for the management
and operation. Since 2002, Mr. Zhou became the Vice President of CNOOC. Mr.
Zhou was appointed the President of the Company in August 2002. Mr. Zhou was
the Deputy General Manager of China Offshore Oil Bohai Corporation, a
subsidiary of CNOOC, the General Manager of Tianjin branch of CNOOC China
Limited and became the chairman of CNOOC Engineering Company Limited, a
subsidiary of CNOOC, on 6 December 2003. He joined CNOOC in 1982.
INDEPENDENT NON-EXECUTIVE DIRECTORS
Chiu Sung Hong
Born in 1947. Mr. Chiu received an LL.B. degree from the University of Sydney.
He is
042 DIRECTORS AND CNOOC LIMITED
SENIOR MANAGEMENT
admitted as a solicitor of the Supreme Court of New South Wales and the High
Court of Australia. He has over 30 years' experience in legal practice and is
a director of a listed company in Australia. Mr. Chiu is the founding member
of the Board of Trustees of the Australian Nursing Home Foundation and served
as the General Secretary of Australian Chinese Community Association of New
South Wales. Mr. Chiu was appointed as an Independent Non-executive Director
of the Company in September 1999.
Dr Kenneth S. Courtis
Born in 1946, is the Managing Director of Goldman Sachs and Vice Chairman of
Goldman Sachs Asia. He specializes in economics and strategy throughout the
Asia-Pacific region as well as in Europe and North America. After graduating
with honors from Glendon College in Toronto, Professor Courtis received an
M.A. in international economics from Sussex University, England, an M.B.A. in
finance and strategy from the European Institute of Business Administration
and a Ph.D. from the Institute of Economic and Political Studies in Paris.
Prior to joining Goldman Sachs, he served as Chief Asia Economist and
Strategist for Deutsche Bank where he was Managing Director.
Dr Erwin Schurtenberger
Born in 1940, is also a senior advisor to the China Training Center for Senior
Personnel Management Officials. He received a Ph.D. Degree in Economics and
was trained in political science and philosophy at the University of Paris. He
was the Ambassador of Switzerland to the People's Republic of China, the
Democratic People's public of Korea and the Republic of Mongolia from 1988 to
1995. He joined the Swiss Foreign Services in 1969. Over the years, he held
various diplomatic positions in Bangkok, Hong Kong, Beijing and Tokyo. He also
served as the Ambassador of Switzerland to Iraq. He has been an independent
business advisor to various European multinationals, American groups and
humanitarian aid organizations. He was the President of the Swiss-Asia
Foundation. He serves on the boards of directors of ROBERT BOSCH RBint and its
International Advisory Board, BUHLER GROUP Switzerland, FIRMENICH-China,
TAIKANG Life Insurance, WINTERTHUR Insurances (Asia).
Evert Henkes
Born in 1944, served as the CEO of Shell global chemical business from 1998to
2003. Since joining Shell in 1973, he held various executive positions
worldwide, including Managing Director of Shell Chemicals UK Ltd., Managing
Director of Shell UK, President of Billiton Metals, Shell's Metals
Coordinator, Shell chemical Coordinator, and Director of Strategy & Business
Services of Shell International Chemicals Ltd. He also served as directors in
regional and global industrial bodies, including CEFIC and ICCA. He is also a
director of Tate & Lyle Plc, BPB Plc, Semb Corp. Industries Ltd. And Outokumpu
Oy.
COMPANY SECRETARY
Cao Yunshi
Born in 1945. Mr. Cao is the Company Secretary, the General Counsel and a
Senior Vice President of the Company. From 1992 to 1999, he was the Director
of the Legal Department of CNOOC. He has been the General Counsel of CNOOC
since 1999. Mr. Cao is a senior economist and licensed lawyer in the PRC. He
began his career in 1968, and has extensive experience in production sharing
contracts. He received a B.S. degree from the Beijing Petroleum Institute and
studied law at the Law School of Columbia University. Mr. Cao joined CNOOC in
1982.
SENIOR MANAGEMENT
Cao Yunshi (Please refer to "Company Secretary")
Yang Hua
Born in 1961. Mr. Yang is the Chief Financial Officer and Senior Vice
President of the Company and President of CNOOC International Limited. He is a
senior engineer. He received his B.S. degree from China Petroleum Institute.
From 2003 to 2004, he received a MBA degree from the Sloan School of
Management at Massachusetts Institute of Technology as a Sloan Fellow. He has
over 22 years' experience in petroleum exploration and production. Mr. Yang
joined CNOOC in 1982 and was the Deputy Director and Acting Director of the
Overseas Development Department of CNOOC.
Annual Report 2004 043
Qiu Mark
Born in 1964. Dr. Qiu is the Senior Vice President of the Company. Prior to
this, he was the Chief Financial Officer and Senior Vice President of the
Company. He has been worked for the investment bank Salomon Smith Barney as
the head of Asia Oil & Gas Investment Banking group. He previously held
several management positions at Atlantic Richfield Corporation ("ARCO") of
United States. He was the Federal Government Relations Director of ARCO in
Washington, D.C. Prior to that, he was a Vice President of ARCO China Ltd.,
ARCO's subsidiary in China. He was a consultant with the leadership succession
planning consulting firm of RHR International. Mr. Qiu received a MBA degree
from the Sloan School of Management at Massachusetts Institute of Technology
as a Sloan Fellow. He also has a Master degree and a Ph.D. degree in Decision
Sciences from the University of Texas at Arlington.
Chen Wei
Born in 1958. Mr. Chen is a Senior Vice President of the Company and Director
of the Research Center. A senior engineer, he received his B.S. degree from
China Petroleum University and holds an MBA degree of Tsinghua University. He
has over 22 years' experience in petroleum exploration and production. Mr.
Chen joined CNOOC in 1984 and was the Deputy Manager for the Exploration and
Development Department of CNOOC Research Center, Deputy Manager of the
Overseas Research department, the Manager of the Information Department, the
Deputy Director of the Research Center, the General Manager of the Human
Resources Department of CNOOC and the Senior Vice President and General
Manager of the Administration Department of the Company.
Zhang Guohua
Born in 1960. A Senior Vice President of the Company and General Manager of
Exploration Department, Mr. Zhang is a senior engineer, responsible for the
exploration work of offshore China as well as the reserve management. He is a
geologist, and received his B.S. degree from Ocean Institute of Qingdao. He
also studied in the Business Institute of University of Alberta in 2001. Mr.
Zhang joined CNOOC in 1982 and worked as Exploration Manager of China Offshore
Oil Western South China Sea Corporation, a Chief Geologist of CNOOC Research
Center and the Assistant to General Manager of CNOOC China Limited.
Liu Jian
Born in 1958. Mr. Liu is a Senior Vice President of the Company and General
Manager of Development and Production Department. He is a senior engineer and
is responsible for the development and production of oil & gas of the Company.
He received his B.S. degree from Huazhong Institute of Technology and MBA
degree from Tianjin University in 2000. Mr. Liu joined CNOOC in 1982 and was
the Manager of CNOOC Bohai Corporation, the Vice President of Tianjin branch
office and the President of Zhanjiang branch office.
Li Ning
Born in 1964. A Senior Vice President of the Company and General Manager of
Engineering and Project Department. He is a senior engineer and is responsible
for the project management of oil and gas development of the Company. He
received his B.S. degree from Petroleum University of China in 1983 and MBA
degree from Tianjin University in 2000. Mr. Li joined CNOOC Bohai Corporation
in 1983, responsible for the design and engineering of oil and gas fields in
Bohai Bay, East China Sea and South China Sea. He was the Vice President of
Design &Engineering Corporation of CNOOC since 1994, and was appointed Deputy
manager of Engineering Department of CNOOC in 1998. He was also the General
Manager of the Dongfang 1-1 gas development project and the Deputy Manager of
the Zhanjiang branch.
CHANGES IN DIRECTORS AND SENIOR MANAGEMENT
In October 2004, Dr. Mark Qiu submitted a letter to the Board for his
resignation in early 2005.
In December 2004, the Board appointed Mr. Hua Yang, the Senior Vice President
of the Company, as the Chief Financial Officer.
04X REPORT OF THE CNOOC LIMITED
DIRECTORS
The directors (the "Directors") of CNOOC Limited (the "Company") are pleased
to present their report together with the audited financial statements for the
year ended 31 December 2004.
PRINCIPAL ACTIVITIES AND OPERATING RESULTS
The principal activity of the Company is investment holding of its
subsidiaries, (together with the Company are referred to as the "Group").
These subsidiaries are principally engaged in the exploration, development,
production and sales of crude oil and natural gas and other petroleum
products.
SUMMARY OF FINANCIAL INFORMATION
Please refer to the financial statements for a summary of the assets and
liabilities of the Group as at 31 December 2004 on page 61 and the operating
results for the year then ended on page 60.
LOANS
Please refer to note 26 to the financial statements on pages 92 to 93, for
details of the long-term bank loans of the Group for the year ended 31
December 2004.
PROPERTY, PLANT AND EQUIPMENT
Please refer to note 18 to the financial statements on pages 85 to 87 for net
movements in property, plant and equipment of the Group for the year ended 31
December 2004.
RESERVES
Please refer to the statement of changes in equity on page 62 and note 32 to
the financial statements on page 99 to 100 for movements in the reserves of
the Group and the Company, respectively, for the year ended 31 December 2004.
SUBSIDIARIES AND ASSOCIATED COMPANIES
Particulars of the Company's subsidiaries and associated companies as at 31
December 2004 are set out in notes 19 and 20 to the financial statements on
pages 87 to 90.
DIVIDENDS
The Directors recommend the payment of a final dividend of HK$0.03 per share
and a special final dividend of HK$0.05 per share for the year ended 31
December 2004.
RETIREMENT BENEFITS
Please refer to note 33 to the financial statements on page 100 for details of
the retirement benefits of the Group for the year ended 31 December 2004.
MAJOR SUPPLIERS AND CUSTOMERS
Purchases from the largest supplier of the Group for the year ended 31
December 2004 represented approximately 15.3% of the Group's total purchases.
The total purchases attributable to the five largest suppliers of the Group
accounted for approximately 33.2% of the total purchases of the Group for the
year then ended.
Sales to the largest customer for the year ended 31 December 2004 represented
approximately 19.3% of the Group's total revenue. The total sales attributable
to the five largest customers of the Group accounted for approximately 53.1%
of the total oil and gas sales of the Group for the year then ended.
Save as disclosed in this report, none of the directors or their respective
associates or any shareholder of the Company (which to the knowledge of the
directors owns more than 5% the Company's share capital) had any interests in
the five largest suppliers or customers of the Group.
CONNECTED TRANSACTIONS
The Independent Non-executive Directors have confirmed that the following
connected transactions for the year ended 31 December 2004 to which any member
of the Group was a party and the agreements governing those transactions were
entered into by the Group:
1. in the ordinary and usual course of its business;
Annual Report 2004 045
2. either (a) on normal commercial terms, or (b) where there was no
available comparison, on terms no less favourable to the Group than those
available to or from independent third parties; and
3. on terms that were fair and reasonable so far as the shareholders of the
Company were concerned and in the interests of the shareholders of the
Company as a whole.
The Independent Non-executive Directors have further confirmed that for the
year ended 31 December 2004:
1. the aggregate annual volume of transactions under the materials,
utilities and ancillary services supply agreements did not exceed 10% of
the audited consolidated total revenues of the Group in the year ended 31
December 2003;
2. the aggregate annual volume of transactions in relation to technical
services did not exceed RMB7,338 million;
3. the aggregate annual volume of transactions in relation to research and
development services for particular projects did not exceed RMB148
million;
4. the aggregate annual volume of transactions in relation to sales of crude
oil, condensate oil and liquefied petroleum gas did not exceed 56% of the
audited consolidated total revenues of the Group in the year ended 31
December 2003;
5. the amount paid under the general research and development services
agreement did not exceed RMB110 million;
6. the aggregate amounts paid under the lease and management agreements did
not exceed RMB78 million; and
7. the maximum outstanding balance of deposits (including interest received
in respect of these deposits) placed with CNOOC Finance Corporation
Limited did not exceed RMB6,800 million.
The auditors of the Group have reviewed the transactions referred to in the
above paragraph 1 to paragraph 7 and confirmed to the Directors that:
1. the transactions have received the approval of the Directors;
2. the transactions were in accordance with the pricing policies as stated
in the Company's financial statements;
3. the transactions were entered into in accordance with the terms of the
agreements governing the transactions; and
4. the amount of the transactions have not exceeded the cap for which waiver
was granted.
Please refer to note 29 to the financial statements on pages 94 to 96 for a
summary of the related party transactions which include the Group's connected
transactions.
SHARE CAPITAL
Please refer to note 31 to the financial statements on pages 97 to 99 for
details of movements in the Company's share capital for the year ended 31
December 2004.
ISSUE OF BONDS
In November 2004, CNOOC Finance (2004) Limited, a wholly-owned subsidiary of
the Company issued zero coupon convertible bonds with a total amount of
US$1,000,000,000 due 2009 (the "Convertible Bonds"). The Company intends to
use the net proceeds of the bonds for general corporate purposes. In
accordance with the terms and conditions of the Convertible Bonds, the payment
of the proposed final dividend may result in an adjustment to the conversion
price of the Convertible Bonds. The exact amount of the adjustment, if any,
can only be determined after the record date for the proposed final dividend.
A separate announcement will be made as and when appropriate.
046 REPORT OF THE CNOOC LIMITED
DIRECTORS
SHARE OPTION SCHEMES
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. Each scheme provides for issuance of options
exercisable for shares granted under each scheme as described below not
exceeding 10% of the issued shae capital of the Company as at the date when
limit of such scheme is refreshed from time to time, excluding shares issued
upon exercise of options granted under each 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 23,100,000 shares have been granted;
2. the subscription price per share is HK$1.19; and
3. the period during which an option may be exercised is as follows:
(a) 50% of the 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 period for options granted under the Pre-Global Offering Share
Option Scheme will 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:
(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.
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
Annual Report 2004 047
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 Stock Exchange of Hong
Kong ("HKSE") as stated in the HKSE's quotation sheets for the five
trading days immediately preceding the date of grant of the option; and
3. the closing price of the shares on the HKSE as stated in the HKSE's
quotation sheets on the date of grant of the option.
On 24 February 2003, the board of directors approved to grant options in
respect of 42,050,000 shares to the Company's 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.
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 late than 10 years from the date on which the option is granted.
2,300,100 share options granted under the 2002 Share Option Scheme and the
2001 Share Option Scheme have been exercised since the respective dates of
grant and up to the date when the board of directors approved the financial
statements. The total number of options exercisable as of 31 December 2004 was
54,533,267.
The weighted average fair value of the options granted under the Pre-Global
Offering Share Option Scheme, the 2001 Share Option Scheme and the 2002 Share
Option Scheme at the grant dates was HK$0.84 per share. This was estimated
using the Black-Scholes option pricing model under the following assumptions:
risk-free interest rates of 5.25%, expected volatility of 44%, an expected
life of five years and an expected dividend yield of 2.0%. The assumptions on
which the option pricing model is based represent the subjective estimations
of the Directors as to the circumstances existing at the time the options were
granted.
048 REPORT OF THE CNOOC LIMITED
DIRECTORS
PURCHASE, SALE OR REDEMPTION OF SHARES
During the year ended 31 December 2004, the Company purchased shares of the
Company listed on the HKSE as follows:
------------------------------------------------------------------------------
Aggregate price
Aggregate number paid by the Company
Date of purchase of shares purchase for the purchase
(HK$)
------------------------------------------------------------------------------
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
2 July 2004 500,000 1,637,500.00
8 July 2004 1,060,000 3,485,492.00
------------------------------------------------------------------------------
All the shares purchased by the Company have been cancelled. Save as described
above, there was no other repurchase, sale on, redemption by the Company, or
any of the Company's subsidiaries during the twelve months ended 31 December
2004.
SUBSTANTIAL INTERESTS IN SHARE CAPITAL
The register maintained by the Company pursuant to the Securities and Futures
Ordinance ("SFO") recorded that, as at 31 December 2004, the following
corporations had the interests (as defined in the SFO) in the Company set
opposite their respective names:
------------------------------------------------------------------------------
Number of Percentage of
ordinary Total Issued
shares held Shares
------------------------------------------------------------------------------
(i) CNOOC (BVI) Limited 28,999,999,995 70.64%
( "CNOOC (BVI)")
(ii) Overseas Oil & Gas 28,999,999,995 70.64%
Corporation, Limited ("OOGC")
(iii) China National Offshore 28,999,999,995 70.64%
Oil Corporation ("CNOOC")
------------------------------------------------------------------------------
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 31 December
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.
DIRECTORS AND SENIOR MANAGEMENT OF THE COMPANY
Please refer to pages 41 to 43 for information concerning the Directors and
senior management of the Company.
DIRECTORS' INTERESTS
As at 31 December 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 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 interest in
options to subscribe for shares in the Company are detailed below.
Annual Report 2004 049
As at 31 December 2004, the following Directors and employees of the Group had
the personal interests in options to subscribe for shares in the Company
granted under the share option schemes of the Company:
No. of shares
involved in No. of shares
the involved in Closing price
options the per share
outstanding options immediately before
at the outstanding the date on which the Exercise
beginning at the end Date options were Price
Name of Grantee of the period of the period* of Grant granted (HK$)* (HK$)*
Before
adjusted as Adjusted
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
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
Jiang Longsheng 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
-------------------------------------------------------------------------------------------------------------------------------
050 REPORT OF THE CNOOC LIMITED
DIRECTORS
No. of shares
involved in No. of shares
the involved in Closing price
options the per share
outstanding options immediately before
at the outstanding the date on which the Exercise
beginning at the end Date options were Price
Name of Grantee of the period of the period* of Grant granted (HK$)* (HK$)*
Before
adjusted as Adjusted
per Share as per Share
Subdivision Subdivision
-------------------------------------------------------------------------------------------------------------------------------
Chiu Sunghong 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
Erwin 230,000 1,150,000 5 Feb 2004 15.65 3.13 3.152
Schurtenberger
Evert Henkes 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 17th March 2004 ("Share Subdivision")
As at 31 December 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 31 December
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 31
December 2004.
DIRECTORS' INTERESTS IN CONTRACTS
No re-electing director has an unexpired service contract with the Company
which is not determinable by the Company within one year without payment of
compensation (other than normal statutory obligations).
Annual Report 2004 051
Save as disclosed in this report, no contract of significance to which the
Company or any of its subsidiaries was a party and in which a director of the
Company had a material interest, whether directly or indirectly, subsisted at
the end of the reporting year or at anytime during the reporting year.
EMOLUMENTS OF THE DIRECTORS AND THE FIVE HIGHEST PAID INDIVIDUALS
Please refer to notes 12 and 13 to the financial statements on pages 80 to 83
for details of the emoluments of the Directors and the five highest paid
individuals of the Company.
MATERIAL LEGAL PROCEEDINGS
As at 31 December 2004, the Company was not involved in any material
litigation or arbitration and no material litigation or claims was pending or
threatened or made against the Company so far as the Company is aware.
COMPLIANCE WITH THE CODE OF BEST PRACTICE
Throughout the year ended 31 December 2004, the Company has complied with the
Code of Best Practice contained in Appendix 14 to the Listing Rules then in
force during the year ended 31 December 2004, except that the Non-executive
Directors were not appointed for a specific term, but are subject to
retirement by rotation and re-election at the Company's annual general meeting
in accordance with the Company's articles of association.
Appendix 14 to the Listing Rules was substantially revised during 2004. The
Code of Best Practice contained in Appendix 14 to the Listing Rules has been
replaced by the Code of Corporate Governance Practice with effect from 1
January 2005 and the new Code will apply for subsequent reporting periods.
AUDITORS
Ernst & Young were appointed as the auditors of the Company for the year ended
31 December 2004 and has audited the accompanying financial statements. A
resolution to re-appoint Ernst & Young as auditors of the Company will be
proposed at the forthcoming annual general meeting.
SUFFICIENCY OF PUBLIC FLOAT
As at the date of this report, the Directors acknowledge that based on
publicly available information and within the knowledge of the Directors, the
Company had sufficient public float as required under the Listing Rules.
PROCEDURES FOR DEMANDING A POLL
Pursuant to Article 69(a) of the articles of association of the Company, a
resolution put to the vote of a general meeting shall be decided on a show of
hands unless (before or on the declaration of the result of the show of hands
or on the withdrawal of any other demand for a poll) a poll is demanded by:
(i) the Chairman of such meeting; or
(ii) at least three members present in person (or in the case of a member
being a corporation, by its duly authorised representative) or by
proxy and entitled to vote at the meeting; or
(iii) any member or members present in person or by proxy (or in the case of
a member being a corporation, by its duly authorised representative)
and representing in the aggregate not less than one-tenth of the total
voting rights of all members having the right to attend and vote at
the meeting; or
(iv) any member or members present in person or by proxy and holding shares
conferring a right to attend and vote at the meeting (or in the case
of a member being a corporation, by its duly authorised
representative) on which there have been paid up sums in the aggregate
equal to not less than one-tenth of the total sum paid up on all
shares conferring that right.
By Order of the Board
Fu Chengyu
Chairman
Hong Kong, 29 March 2005
052 MANAGEMENT DISCUSSION CNOOC LIMITED
AND ANALYSIS
In 2004, international oil prices stayed high, whilst the
Company's production and reserves increased steadily, with
attractive revenue and promising results achieved. We
expect that the Company will perform even better in 2005.
OUTLOOK
In 2004, international oil prices stayed high, whilst the Company's production
and reserves increased steadily, with attractive revenue and promising results
achieved. We expect that the Company will perform even better in 2005.
Despite the various unfavorable factors, the development of global economy
remained vigorous in 2004. In 2005, there are still some worries over the
development of the global economy. Although the growth of the global economy
may slow down, its outlook is promising.
The Company's principal businesses are concentrated in the Asia Pacific
region. In 2005, the speed of economic development in this region may slow
down, but will remain sound. China, where most of the Company's assets are
concentrated, will still be one of the major drive forces in the development
of the global economy. In 2005, China will be integrated with the global
mainstream political and economic development in a more active manner in terms
of both attitude and action. There will still be more room for the development
of the economy of China. We believe that under the guidance of the State macro
control policies, the economic growth in China will be more balanced.
In respect of the development trends of the oil price in 2005, analysts are
holding different opinions, while the management is prudently optimistic to
the trends. In 2005, since demands for international crude oil will continue
to grow, there may exist new changes in the political and economic situation
in the Mid East regions, in addition to the impact of speculations and
unexpected incidents, international oil prices may remain high.
The management will continue to cope with various external unfavorable factors
so as to mitigate any negative impact to the Company's development.
2005 is a key year for our production. Nine new projects will commence
operation during the year. It will also be a year with the largest number of
projects planning to commence operation in a single year in the Company's
history.
In 2005, we will focus on the new sectors and the prospects of reserves in
deep water areas. Emphasis will continue to be placed in the enhancement of
production volume and reserves so as to maintain the competitiveness of the
cost structure of the Company. Innovation in management will be promoted.
Internal control system and mechanism will be established and upgraded to
comply with regulatory requirements in the market. We will endeavour to attain
efficiency and maximize return for our shareholders.
The management is confident in the prospects of continuous growth of the
Company.
CONSOLIDATED NET PROFIT
Our consolidated net income after tax was RMB16,185.8 million (US$1,955.6
million) in 2004, an increase of RMB4,650.3 million (US$561.8 million), or
40.3% from RMB 11,535.5 million in 2003.
REVENUE
Income from our oil and gas sales for 2004 was RMB36,886.0 million (US$4,456.6
million), an increase of RMB8,769.2 million (US$1,059.5 million), or 31.2%
from RMB 28,116.8 million in 2003. The increase was attributable to the high
oil price, whilst growth in production also attributed to higher profits in
the Company. The average realized price for our crude oil was US$35.41 per
barrel in 2004, an increase of US$7.3, or 26.0% from US$28.11 per barrel in
2003. Sale of crude oil amounted to 116.3 million barrels, an increase of 5%
over 2003. The average realised price for our natural gas was US$2.75 per
thousand cubic feet in 2004, a decrease of 4%, due to the increased weighting
of production of low-price gas fields. At the same time, sales volume of our
natural gas increased by 26% from 2003, which effectively compensated the drop
in the gas price. Sales income of our natural gas increased by RMB480.0
million.
Annual Report 2004 053
In 2004, our net marketing profit, which were derived from marketing revenue
less purchase cost of crude oil and oil products, were RMB227.9 million
(US$27.5 million), an increase of RMB124.5 million (US$15.0 million), or
120.3%, from RMB103.4 million. Since we are one of the three companies that
have the right to sell crude oil in China, we can purchase the oil from our
foreign partners for sale in China at the request of our partners. However,
our ability to sell oil in China depends on our foreign partners, and,
therefore, we cannot control the amount of crude oil that we are able to sell
for a specific period. Marketing revenue from the Company's wholly-owned
subsidiary, China Offshore Oil (Singapore) International Pte Ltd., was
RMB10,448.8 million (US$1,262.4 million), less purchase cost of crude oil and
oil production, the net marketing profit was RMB71.3 million (US$8.6 million),
or 36.1% increased from same period last year.
Our other income, reported on a net basis, was derived from our other income
less corresponding costs. In 2004, our other net income was RMB98.8 million
(US$11.9 million), an increase of RMB14.3 million (US$1.7 million) from
RMB84.5 million in 2003.
EXPENSES
Operating expenses
Our operating expenses in 2004 were RMB5,070.3 million (US$612.6 million), an
increase of RMB557.5 million (US$67.4 million), or 12.4% from RMB 4,512.8
million in 2003. The increase was mainly attributable to the commencement of
production of 6 new oil and gas fields in China in the year, resulting in
higher cost during the initial stage of production. Operating expenses in 2004
were RMB36.7 (US$4.43) per BOE, an increase of 4.2% from RMB 35.2 (US$4.25)
per BOE in 2003. Operating expenses offshore China in 2004 were RMB29.9
(US$3.61) per BOE, an increase of 10.7% from 2003. The increase was mainly
attributable to the higher service fees, especially in supply vessels,
equipment lease, maintenance materials and fuel, resulting from higher
international crude oil price. Operating expenses offshore Indonesia in 2004
were RMB88.7 (US$10.72) per BOE, an increase of 15.6% from 2003. The increase
was attributable to the international crude oil price which maintain a high
level, and the increase in operating expenses per barrel for our Indonesian
oil fields due to lower production volume based on their profit sharing mode.
Based on working interest production, operating expenses in offshore Indonesia
in 2004 was RMB42.0 (US$5.08) per BOE, which was in line with the previous
year.
Production taxes
Our production taxes for 2004 were RMB1,725.7 million (US$208.5 million), an
increase of RMB487.1 million (US$58.9 million), or 39.3% from RMB 1,238.6
million in 2003. The increase was mainly due to the increase in oil and gas
sales.
Exploration costs
Our exploration costs for 2004 were RMB1,316.2 million (US$159.0 million), an
increase of RMB468.1 million (US$56.6 million), or 55.2% from RMB 848.1
million in 2003. The increase was mainly due to the significant increase in
the exploration works in the year. In 2004, some successful exploration wells
have been written-off since they won't be developed in the next one or two
years after reviewing by company. The write-off amount was RMB155.8 million
(US$18.8 million) during the year.
Depreciation, depletion and amortization
Our depreciation, depletion and amortization were RMB5,455.1 million (US$659.1
million) for 2004, an increase of RMB812.3 million (US$98.1 million), or 17.5%
from RMB 4,642.8 million in 2003. Our average depreciation, depletion and
amortization per barrel were RMB39.5 (US$4.77 ) per BOE, an increase of 9.2%
from RMB 36.2 (US$4.37) per BOE in 2003. The increase was mainly due to higher
054 MANAGEMENT DISCUSSION CNOOC LIMITED
AND ANALYSIS
amortization expenses of the new commencement oil fields, resulting in rising
material prices. On the other hand, the reduction in the net production of the
Indonesian oil fields was subject to the influence of oil prices, resulting in
further increase in amortization expenses per barrel as well as average
amortization expenses.
Dismantlement
Our dismantling costs for 2004 were RMB201.6 million (US$24.4 million), an
increase of RMB34.3 million (US$4.1 million) from RMB 167.3 million in 2003.
The increase was primarily due to the increased dismantling costs resulting
from the commencement of production at new oil and gas fields. Our average
dismantling costs were RMB1.5 (US$0.18) per BOE, a slight increase from RMB1.3
(US$0.16) per BOE in 2003.
Selling and administrative expenses
Our selling and administrative expenses for 2004 were RMB1,057.7 million
(US$127.8 million), a decrease of RMB154.8 million (US$18.7 million), or 12.8%
from RMB 1,212.5 million in 2003. Of which, the selling and administrative
expenses of companies in China were RMB5.5 (US$0.66) per BOE, a decrease of
17.5% from the previous year. This was mainly attributable to some of the
labor costs being directly charged into related projects, and the replacement
of foreign employees by local staff.
Net interest income/expenses
Our net interest expenses for 2004 was RMB235.0 million (US$28.4 million), an
increase of 37.1% from the net interest expenses of RMB 171.4 million in 2003,
which was mainly due to the interest expenses on our US$ 500 million bonds
issued in 2003. An increase of RMB94.8 million (US$11.5 million) in interest
expenses was caused by our long term guaranteed notes.
Exchange gains/losses, net
Our net exchange gain incurred in 2004 was RMB29.3 million (US$3.5 million),
an increase of RMB36.0 million (US$4.3 million) from a net exchange loss of
RMB 6.7 million in 2003. Compared with 2003, the position of exchange
turnaround from loss to gain, where the exchange loss was set off by our
foreign exchange swap business.
Short term investment income
Our short term investment income for 2004 was RMB72.4 million (US$8.7
million), a decrease of RMB51.1 million (US$6.2 million), or 41.4% from RMB
123.5 million in 2003. Subject to the influence from the market, we disposed
some investment in corporate bonds and reinvest in market funds. Thus, the
average return on short term investments for the year fell due to the
structural change.
Share of profit of associates
In 2004, there were gain from our investments in Shanghai Petroleum and
Natural Gas Company Limited and CNOOC Finance Corporation Limited. Of which,
share of profit from Shanghai Petroleum and Natural Gas Company Limited was
RMB297.8 million (US$36.0 million), an increase of 35.2% from 2003, which was
mainly due to the increase in oil prices in 2004. Share of profit from CNOOC
Finance Corporation Limited was RMB46.7 million (US$5.6 million) during the
period.
Non-operating income/expenses, net
Our net non-operating income for 2004 was RMB519.2 million (US$62.7 million),
and our net non-operating income for 2003 was RMB 315 million. The
non-operating income in both two years were due to the tax refund from
re-investment in China.
Income tax
Our income tax for the year 2004 was RMB6,930.8 million (US$837.4 million), an
increase of RMB2,303.0 million (US$278.2 million), or 49.8% from RMB 4,627.8
million in 2003. The primary reason for the increase was the increase in
profit before tax. In 2003, we received RMB 252.0 million tax rebate from
using domestic equipments. The effective tax rate for 2004 was 30.3%, slightly
higher than the effective rate of 28.6% in 2003.
Annual Report 2004 055
Cash generated from operating activities
Net cash generated from operating activities in 2004 amounted to RMB22,327.9
million (US$2,697.6 million), an increase of RMB4,509.1 million (US$544.8
million), or 25.3% from RMB 17,818.7 million in 2003.
The increase in cash was mainly due to an increase in profit before tax of
RMB6,953.3 million (US$840.1 million), an increase in depreciation, depletion
and amortization expenses of RMB812.3 million (US$98.1 million), an increase
in dismantling costs of RMB34.3 million (US$4.1 million), and an increase in
write-off exploration wells and disposal of fixed assets of RMB116.1 million
(US$14.0 million) in the year.
Increase of cash flow was partially offset by an increase of income tax of
RMB3,887.5 million (US$469.7 million), an increase in our share of profits of
associates of RMB124.2 million (US$15.0 million), an increase in net interest
expenses of RMB63.6 million (US$7.7 million), an increase of net exchange gain
of RMB36.0 million (US$4.4 million), the provision for inventory obsolescence
of RMB11.5 million (US$1.4 million), and a decrease in short term investment
income and others of RMB55.0 million (US$6.7 million).
In addition, operating cash flow was increased due to the decrease of working
capital, mainly due to the decrease in current liabilities from operating
activities of RMB332.1 million (US$40.1 million), and a simultaneous decrease
in current assets from operating activities excluding cash and bank balances
of RMB1,031.7 million (US$124.6 million).
Capital expenditures and investments
Net cash outflow from investing activities in 2004 was RMB24,607.2 million
(US$2,973.0 million), an increase of RMB15,094.6 million (US$1,823.7 million)
from RMB9,512.6 million in 2003.
In line with our use of successful efforts method of accounting, total capital
expenditures and investments primarily include successful exploration and
development expenditures and purchases of oil and gas properties. Total
capital expenditures were RMB18,622.0 million (US$2,250.0 million) in 2004, an
increase of RMB6,249.5 million (US$755.1 million), or 50.5%, from RMB12,372.5
million in 2003. Capital expenditures in 2004 mainly comprised RMB783.5
million (US$94.7 million) for capitalized exploration activities, RMB12,059.4
million (US$1,457.0 million) for development investments, and RMB5,779.1
million (US$698.2 million) for acquisition of oil and gas properties of
Tangguh, NWS and other projects. Our development expenditures in 2004 related
principally to the development of Bozhong 25-1/25-1S, Luda, Bonan and
Caofeidian oil and gas fields.
In addition, cash out flow was attributable to increase in time deposits with
maturities over three months of RMB 6,280 million (US$758.7 million), and RMB
294.8 million (US$ 35.6 million) cash inflow was generated from net disposal
of short-term investment.
Financing activities
The net cash flow arising from financing activities in 2004 was inflow of
RMB1,970.5 million (US$238.1 million). The issue of US$1 billion convertible
bonds in December 2004 generated cash inflow of RMB8,154.1 million (US$985.2
million). Such cash inflow was partially set off by repayment of bank loans of
RMB21.1 million (US$2.5 million), appropriation of dividend of RMB6,101.4
million (US$737.2 million), and a cash outflow of RMB61.2 million (US$7.4
million) resulted from the repurchase of shares by the Company in 2004.
056 MANAGEMENT DISCUSSION CNOOC LIMITED
AND ANALYSIS
Repayment arrangements of our total debts as at 31 December 2004 were as
follows:
Debt maturities principal only
Original currency
Total Total
RMB US$
Due by 31 December US$ JPY RMB equivalent equivalent
(in millions,
except percentages)
--------------------------------------------------------------------------------------------------------
2005 -- 271.5 -- 24.3 2.9
2006-2008 100.0 542.9 -- 865.2 104.5
2009-2010 983.1 -- -- 8,156.4 985.5
2011 and beyond 981.1 -- -- 8,157.2 985.6
Total 2,064.2 814.4 -- 17,203.1 2,078.5
Percentage of total debt 99.3% 0.7% -- 100.0% 100.0%
-------------------------------------------------------------------------------------------------------
The gearing ratio of the Company was 23.3%. Gearing ratio is (Total
Debt)/(Total Debt + Equity).
Market risks
Our market risk exposures primarily consist of fluctuations in oil and gas
prices, exchange rates and interest rates.
Oil and gas price risk
As our oil and gas prices are mainly determined by reference to the oil and
gas prices in international markets, changes in international oil and gas
prices have a large impact on us. International oil and gas prices are
volatile, and this volatility has a significant effect on our net sales and
net profits.
Currency risk
Substantially all of our oil and gas sales are denominated in Renminbi and US
dollars. In the past decade, the PRC government's policy of maintaining a
stable exchange rate and China's ample foreign reserves have contributed to
the stability of the Renminbi. Recently, there has been wide speculation in
the international market that the Chinese government will deregulate the
Renminbi exchange rate. However, the Chinese government has not determined if
or when the exchange rate will be deregulated. Currently, the Renminbi
exchange rate remains stable.
In the event of the deregulation in Renminbi exchange rate in the future, we
may be adversely affected. At present, we are seriously conducting
investigation on this issue, and will actively seek a strategy for its
resolution.
As of the end of 2004, the balance of our yen-denominated loans was only 0.81
billion yen. Since we have hedged our yen loans against foreign currency
swaps, we do not expect any exchange risk relating to Japanese yen in the
future.
Interest rate risk
As of the end of 2004, the interest rates for all the balance of our debts
were fixed. The term of the weighted average balance was approximately 9
years, with very low weighted average interest rates. The weighted average
interest rates of our debts, including the newly issued convertible bonds in
2004, was only 3.6%. Therefore, if interest rates of US dollars increase in
future, our debt combination can effectively avoid the risk of such increase.
Annual Report 2004 057
Significant investments and material acquisitions
(i) During the year, we acquired 20.767% interests from BG Group at Muturi
contract district, at a consideration of US$105.1 million (equivalent
to RMB869,881,000). The final price is subject to adjustment. The
acquisition increased our interest in the Muturi contract district to
64.767%, and our interest in Tangguh natural gas project in Indonesia
from 12.5% to 16.96%. We have completed the acquisition on 12 May
2004.
(ii) On 18 December 2004, we completed the acquisition of the North West
Shelf Gas Project in Australia. Disclosure of such acquisition has
been made on 15 May 2003. Pursuant to the contract, we acquired 25%
interest of the China LNG Joint Venture, a newly established joint
venture within the North West Shelf Gas Project in Australia. The
Company also obtained certain production licenses, lease certificates
in respect of the North West Shelf Gas Project and approximately 5.3%
interest in the exploration licenses of North West Shelf Gas Project.
At the same time, the Company will enjoy the right to participate in
the exploration other than the proved reserves in future.
The NWS Gas Project partners have signed a 25-year LNG agreement to
provide LNG to the first LNG terminal in Guangdong, China, beginning
in 2006.
(iii) During the year, the Company, through its wholly-owned subsidiary
CNOOC Morocco Limited, entered into a farmout agreement with Vanco
Energy Corporation, and acquired 11.25% interests in an petroleum
agreement for Ras Tafelney at offshore Morocco.
(iv) In addition, the Company also entered into three production sharing
contracts with Golden Aaron Pte. Ltd. and China Global Construction
Limited in Myanmar during the year, with the company being the
operator.
058 MANAGEMENT DISCUSSION CNOOC LIMITED
AND ANALYSIS
EMPLOYEES
We had 2,524 employees as at 31 December 2004.
We have adopted 3 Share Option Schemes for our senior management officers of
the Company since 4 February 2001.
In 2004, in line with our development, we have set up and implemented a
corresponding human resources strategy, to provide strong support of human
resources so as to cope with the internationalisation development and demands
of international competition.
We further implemented a highly effective performance evaluating system,
emphasizing on the integration of the individual's development targets and the
Company's operating objectives. We are now setting up a performance evaluating
systems for our branches, at the same time. Actively promoting the
implementation of a performance evaluating system for individuals.
Based on the reform in the previous year, we further implemented the reforms
in accordance with new situation and requirements of our developments, and
upgraded the salary system and incentive mechanism.
In 2004, the Company continuously to promote the effective training programme.
Through the promotion of the individual development schemes and systems, we
managed to organize and implement various specialised and comprehensive
management training courses. During the year, a total of 641 training courses
were conducted within the Company, which was attended by more than 8,816
participants, and per capita training hours was 42,506.
CHARGES ON ASSETS
The Group had no charge on assets as at 31 December 2004.
CONTINGENT LIABILITIES
The Group had no contingent liabilities as at 31 December 2004.
Annual Report 2004 AUDITORS' 059
REPORT
[logo omitted] Ernst & Young
To the shareholders of
CNOOC Limited
(Incorporated in Hong Kong with limited liability)
We have audited the financial statements of CNOOC Limited (the "Company") and
its subsidiaries (the "Group") on pages 60 to 110 which have been prepared in
accordance with accounting principles generally accepted in Hong Kong.
RESPECTIVE RESPONSIBILITIES OF DIRECTORS AND AUDITORS
The Companies Ordinance requires the directors to prepare financial statements
which give a true and fair view. In preparing financial statements which give
a true and fair view it is fundamental that appropriate accounting policies
are selected and applied consistently. It is our responsibility to form an
independent opinion, based on our audit, on those financial statements and to
report our opinion solely to you, as a body, in accordance with Section 141 of
the Companies Ordinance, and for no other purpose. We do not assume
responsibility towards or accept liability to any other person for the
contents of this report.
BASIS OF OPINION
We conducted our audit in accordance with Statements of Auditing Standards
issued by the Hong Kong Institute of Certified Public Accountants. An audit
includes an examination, on a test basis, of evidence relevant to the amounts
and disclosures in the financial statements. It also includes an assessment of
the significant estimates and judgments made by the directors in the
preparation of the financial statements, and of whether the accounting
policies are appropriate to the Company's and the Group's circumstances,
consistently applied and adequately disclosed.
We planned and performed our audit so as to obtain all the information and
explanations which we considered necessary in order to provide us with
sufficient evidence to give reasonable assurance as to whether the financial
statements are free from material misstatement. In forming our opinion we also
evaluated the overall adequacy of the presentation of information in the
financial statements. We believe that our audit provides a reasonable basis
for our opinion.
OPINION
In our opinion the financial statements give a true and fair view of the state
of affairs of the Company and of the Group as at 31 December 2004 and of the
profit and cash flows of the Group for the year then ended and have been
properly prepared in accordance with the Companies Ordinance.
Ernst & Young
Certified Public Accountants
Hong Kong
29 March 2005
060 CONSOLIDATED CNOOC LIMITED
INCOME STATEMENT
Year ended 31 December 2004
(All amounts expressed in thousands of Renminbi,
except per share data)
Notes 2004 2003
--------------------------------------------
REVENUE
Oil and gas sales 7, 29 36,886,019 28,116,831
Marketing revenues 8 18,191,353 12,398,661
Other income 144,691 434,781
-------------------------------
55,222,063 40,950,273
-------------------------------
EXPENSES
Operating expenses (5,070,344) (4,512,809)
Production taxes (1,725,674) (1,238,598)
Exploration expenses (1,316,160) (848,072)
Depreciation, depletion and amortisation (5,455,062) (4,642,753)
Dismantlement 30 (201,637) (167,326)
Crude oil and product purchases 8 (17,963,461) (12,295,238)
Selling and administrative expenses 10 (1,057,706) (1,212,523)
Others (45,844) (350,232)
-------------------------------
(32,835,888) (25,267,551)
-------------------------------
PROFIT FROM OPERATING ACTIVITIES 22,386,175 15,682,722
Interest income 206,872 183,576
Interest expenses 11 (441,825) (354,940)
Exchange gains/(losses), net 29,269 (6,746)
Short term investment income 72,438 123,483
Share of profits of associates 344,469 220,263
Non-operating income/(expenses), net 519,206 314,968
-------------------------------
PROFIT BEFORE TAX 9 23,116,604 16,163,326
Tax 14 (6,930,826) (4,627,836)
-------------------------------
NET PROFIT 15 16,185,778 11,535,490
===============================
DIVIDENDS
- Special interim dividend declared in
place of 2003 final dividend * 16 2,617,526 --
- Interim 16 1,306,451 1,220,132
- Special interim 16 2,177,418 1,568,741
- Proposed final * 16 1,310,022 --
- Proposed special final * 16 2,183,371 --
-------------------------------
9,594,788 2,788,873
===============================
EARNINGS PER SHARE
Basic 17 RMB 0.39 RMB 0.28
Diluted 17 RMB 0.39 RMB 0.28
-------------------------------
DIVIDEND PER SHARE
- Special interim dividend declared
in place of 2003 final dividend* 16 RMB 0.06 --
- Interim 16 RMB 0.03 RMB 0.03
- Special interim 16 RMB 0.05 RMB 0.04
- Proposed final* 16 RMB 0.03 --
- Proposed special final* 16 RMB 0.05 --
===============================
* The proposed final dividend and special final dividend for 2003 were
cancelled and replaced by the special interim dividend declared in 2004.
Annual Report 2004 CONSOLIDATED 061
BALANCE SHEET
31 December 2004
(All amounts expressed in thousands of Renminbi)
Group
Notes 2004 2003
--------------------------------------------
NON-CURRENT ASSETS
Property, plant and equipment, net 18 57,456,697 43,123,801
Investments in associates 20 1,327,109 1,117,640
-------------------------------
58,783,806 44,241,441
-------------------------------
CURRENT ASSETS
Accounts receivable, net 21 4,276,489 4,248,570
Inventories and supplies 22 1,147,294 1,092,926
Due from related companies 29 1,173,374 756,283
Other current assets 556,931 757,355
Short term investments 23 5,444,113 5,684,333
Time deposits with maturities over three months 8,603,000 2,323,000
Cash and cash equivalents 29 14,091,524 14,400,394
-------------------------------
35,292,725 29,262,861
-------------------------------
TOTAL ASSETS 94,076,531 73,504,302
===============================
CURRENT LIABILITIES
Accounts payable 24 3,102,024 3,969,922
Other payables and accrued liabilities 25 4,191,024 1,955,783
Current portion of long term bank loans 26 24,364 20,618
Due to the parent company 28, 29 370,060 164,653
Due to related companies 29 211,425 474,223
Tax payable 14 2,503,466 2,721,331
-------------------------------
10,402,363 9,306,530
-------------------------------
NON-CURRENT LIABILITIES
Long term bank loans 26 865,211 889,575
Long term guaranteed notes 27 16,313,550 8,141,669
Provision for dismantlement 30 3,089,448 2,646,800
Deferred tax liabilities 14 6,688,498 5,783,196
-------------------------------
26,956,707 17,461,240
-------------------------------
CAPITAL AND RESERVES
Issued capital 31 876,586 876,978
Reserves 32 55,840,875 45,859,554
-------------------------------
56,717,461 46,736,532
-------------------------------
TOTAL EQUITY AND LIABILITIES 94,076,531 73,504,302
===============================
Luo Han Zhou Shouwei
Director Director
060 CONSOLIDATED STATEMENT OF CNOOC LIMITED
CHANGES IN EQUITY
Year ended 31 December 2004
(All amounts expressed in thousands of Renminbi)
Share
premium
account Statutory
Issued and capital Cumulative and non-
share redemption Revaluation translation distributable
capital reserve reserve reserve reserve
------------------------------------------------------------------------------
Balances at 1 January 2003 876,978 20,761,205 274,671 (13,596) 2,232,410
Net profit for the year -- -- -- -- --
Appropriation to statutory reserve -- -- -- -- 818,079
Dividends (note 16) -- -- -- -- --
Transfer to/(from) reserve -- -- -- -- 5,000,000
Foreign currency translation differences -- -- -- 36,243 --
------------------------------------------------------------------------------
Net gains not recognised in the
income statement -- -- -- 36,243 --
------------------------------------------------------------------------------
Balances at 1 January 2004 876,978 20,761,205 274,671 22,647 8,050,489
Repurchase of shares (note 31) (392) -- -- -- --
Transfer of reserves upon shares
repurchase (note 31) -- 392 -- -- --
Net profit for the year -- -- -- -- --
Appropriation to statutory reserve -- -- -- -- 1,363,121
Dividends (note 16) -- -- -- -- --
Foreign currency translation differences -- -- -- (42,301) --
------------------------------------------------------------------------------
Net losses not recognised in the
income statement -- -- -- (42,301) --
------------------------------------------------------------------------------
Balances at 31 December 2004 876,586 20,761,597 274,671 (19,654) 9,413,610
==============================================================================
Retained
earnings Total
Balances at 1 January 2003 16,436,820 40,568,488
Net profit for the year 11,535,490 11,535,490
Appropriation to statutory reserve (818,079) --
Dividends (note 16) (5,403,689) (5,403,689)
Transfer to/(from) reserve (5,000,000) --
Foreign currency translation differences -- 36,243
--------------------------------------
Net gains not recognised in the
income statement -- 36,243
--------------------------------------
Balances at 1 January 2004 16,750,542 46,736,532
Repurchase of shares (note 31) (60,761) (61,153)
Transfer of reserves upon shares
repurchase (note 31) (392) --
Net profit for the year 16,185,778 16,185,778
Appropriation to statutory reserve (1,363,121) --
Dividends (note 16) (6,101,395) (6,101,395)
Foreign currency translation differences -- (42,301)
--------------------------------------
Net losses not recognised in the
income statement -- (42,301)
--------------------------------------
Balances at 31 December 2004 25,410,651 56,717,461
======================================
* These reserve accounts comprise the consolidated reserves of
RMB55,840,875,000 (2003: RMB45,859,554,000) in the consolidated balance
sheet.
Annual Report 2004 CONSOLIDATED 063
CASH FLOW STATEMENT
Year ended 31 December 2004
(All amounts expressed in thousands of Renminbi)
Notes 2004 2003
-----------------------------------------------
CASH FLOWS FROM OPERATING ACTIVITIES
Cash generated from operations 34(a) 29,705,761 21,142,911
Income taxes paid (7,402,280) (3,514,807)
Interest received 206,871 183,576
Dividends received 135,000 90,000
Short term investment income received 4,626 55,840
Interest paid (322,118) (138,801)
----------------------------------
Net cash inflow from operating activities 22,327,860 17,818,719
----------------------------------
INVESTING ACTIVITIES
Acquisition of and prepayment for oil and gas properties 34(b) (5,779,140) (4,100,900)
Additions of property, plant and equipment (12,842,905) (8,271,564)
Investment in associates -- (450,000)
(Increase)/Decrease in time deposits with
maturities over three months (6,280,000) 2,367,000
Additions of short term investments (5,735,093) (8,144,702)
Disposals of short term investments 6,029,946 9,087,581
----------------------------------
Net cash outflow from investing activities (24,607,192) (9,512,585)
----------------------------------
FINANCING ACTIVITIES
Issue of long term guaranteed notes 8,154,085 3,995,773
Repayment of bank loans (21,075) (336,938)
Dividends paid (6,101,395) (5,403,689)
Share repurchases (61,153) --
----------------------------------
Net cash inflow/(outflow) from financing activities 1,970,462 (1,744,854)
----------------------------------
NET (DECREASE)/INCREASE IN CASH
AND CASH EQUIVALENTS (308,870) 6,561,280
Cash and cash equivalents at beginning of year 14,400,394 7,839,114
----------------------------------
CASH AND CASH EQUIVALENTS AT END OF YEAR 14,091,524 14,400,394
==================================
ANALYSIS OF BALANCES OF CASH
AND CASH EQUIVALENTS
Cash and cash equivalents balances 14,091,524 14,400,394
==================================
064 BALANCE SHEET CNOOC LIMITED
31 December 2004
(All amounts expressed in thousands of Renminbi)
Company
Notes 2004 2003
------------------------------------------------
NON-CURRENT ASSETS
Property, plant and equipment, net 18 164 271
Interests in subsidiaries 19 9,855,195 16,561,970
----------------------------------
9,855,359 16,562,241
----------------------------------
CURRENT ASSETS
Other current assets 5,416 152,488
Due from the parent company 28 5 47
Short term investments 23 4,439,554 5,684,333
Cash and cash equivalents 9,240,575 1,862,650
----------------------------------
13,685,550 7,699,518
----------------------------------
TOTAL ASSETS 23,540,909 24,261,759
==================================
CURRENT LIABILITIES
Other payables and accrued liabilities 50,244 50,494
----------------------------------
CAPITAL AND RESERVES
Issued capital 31 876,586 876,978
Reserves 32 22,614,079 23,334,287
----------------------------------
23,490,665 24,211,265
----------------------------------
TOTAL EQUITY AND LIABILITIES 23,540,909 24,261,759
==================================
Luo Han Zhou Shouwei
Director Director
Annual Report 2004 NOTES TO 065
FINANCIAL STATEMENTS
31 December 2004
(All amounts expressed in Renminbi unless
otherwise stated)
1. CORPORATE INFORMATION
CNOOC Limited (the "Company") was incorporated in the Hong Kong Special
Administrative Region ("Hong Kong"), the People's Republic of China (the
"PRC") on 20 August 1999 to hold the interests in certain entities
whereby creating a group comprising the Company and its subsidiaries.
During the year, the Company and its subsidiaries (hereinafter
collectively referred to as the "Group") were principally engaged in the
exploration, development, production and sale of crude oil, natural gas
and other petroleum products.
The registered office address is 65/F, Bank of China Tower, 1 Garden
Road, Hong Kong.
In the opinion of the directors, the ultimate holding company is China
National Offshore Oil Corporation ("CNOOC"), a company established in the
PRC.
2. IMPACT OF RECENTLY ISSUED HONG KONG FINANCIAL REPORTING STANDARDS
("HKFRSS")
The Hong Kong Institute of Certified Public Accountants has issued a
number of new Hong Kong Financial Reporting Standards and Hong Kong
Accounting Standards, herein collectively referred to as the new HKFRSs,
which are generally effective for accounting periods beginning on or
after 1 January 2005. The Group has not early adopted these new HKFRSs in
the financial statements for the year ended 31 December 2004. The Group
has already commenced an assessment of the impact of these new HKFRSs,
but is not yet in a position to state when these new HKFRSs would have a
significant impact on its results of operations and financial position.
3. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Basis of preparation
These financial statements have been prepared in accordance with Hong
Kong Financial Reporting Standards (which also include Statements of
Standard Accounting Practice and Interpretations) issued by the Hong Kong
Institute of Certified Public Accountants, accounting principles
generally accepted in Hong Kong ("Hong Kong GAAP") and the Companies
Ordinance. They have been prepared under the historical cost convention
as modified by the revaluation of land and buildings and short term
investments.
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 Receipts
("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.
Basis of consolidation
The consolidated financial statements include the financial statements of
the Company and its subsidiaries for the year ended 31 December 2004. The
results of subsidiaries acquired or disposed of during the year are
consolidated from or to their effective dates of acquisition or disposal,
respectively. All significant intercompany transactions and balances
within the Group are eliminated on consolidation.
Subsidiaries
A subsidiary is a company in which the Company, directly or indirectly,
controls more than half of its voting power or issued share capital or
controls the composition of its board of directors.
The results of subsidiaries are included in the Company's income
statement to the extent of dividends received and receivable. The
Company's interests in subsidiaries are stated at cost less any
impairment losses.
066 NOTES TO CNOOC LIMITED
FINANCIAL STATEMENTS
31 December 2004
(All amounts expressed in Renminbi unless
otherwise stated)
3. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)
Associates
An associate is a company, not being a subsidiary or a jointly-controlled
entity, in which the Group has a long term interest of generally not less
than 20% of the equity voting rights and over which it is in a position
to exercise significant influence.
The Group's share of the post-acquisition results and reserves of the
associate is included in the consolidated income statement and
consolidated reserves, respectively. The Group's proportionate interests
in the associates are stated in the consolidated balance sheet at the
Group's share of net assets under the equity method of accounting, less
any impairment losses. The results of the associates are included in the
Company's income statement to the extent of dividends received and
receivable. The Company's investments in associates are treated as long
term assets and are stated at cost less any impairment losses.
Related parties
Parties are considered to be related if one party has the ability,
directly or indirectly, to control the other party or exercise
significant influence over the other party in making financial and
operating decisions. Parties are also considered to be related if they
are subject to common control or common significant influence. Related
parties may be individuals or corporate entities.
Impairment of assets
An assessment is made whenever events or changes in circumstances
indicate that there is any indication of impairment of any assets, or
when there is any indication that an impairment loss previously
recognised for an asset in prior years may no longer exist or may have
decreased. If any such indication exists, the asset's recoverable amount
is estimated. An asset's recoverable amount is calculated as the higher
of the asset's value in use and its net selling price.
An impairment loss is recognised only if the carrying amount of an asset
exceeds its recoverable amount. An impairment loss is charged to the
income statement in the period in which it arises, unless the asset is
carried at a revalued amount, when the impairment loss is accounted for
in accordance with the relevant accounting policy for that revalued
asset.
A previously recognised impairment loss is reversed only if there has
been a change in the estimates used to determine the recoverable amount
of an asset, however not to an amount higher than the carrying amount
that would have been determined (net of any depreciation/amortisation),
had no impairment loss been recognised for the asset in prior years.
A reversal of an impairment loss is credited to the income statement in
the period in which it arises, unless the asset is carried at a revalued
amount, when the reversal of the impairment loss is accounted for in
accordance with the relevant accounting policy for that revalued asset.
Annual Report 2004 067
3. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)
Property, plant and equipment
Property, plant and equipment comprise oil and gas properties, land and
buildings, and vehicles and office equipment.
(i) Oil and gas properties
For oil and gas properties, the successful efforts method of
accounting is adopted. The Group capitalises initial acquisition
costs of oil and gas properties. Impairment of initial acquisition
costs is recognised based on exploratory experience and management
judgement. Upon discovery of commercial reserves, acquisition costs
are transferred to proved properties. The costs of drilling and
equipping successful exploratory wells, all development costs,
including those renewals and betterments which extend the economic
lives of the assets, and the borrowing costs arising from borrowings
used to finance the development of oil and gas properties before
they are substantially ready for production are capitalised. The
costs of unsuccessful exploratory wells and all other exploration
costs are expensed as incurred.
Exploratory wells are evaluated for economic viability within one
year of completion. Exploratory wells that discover potentially
economic reserves in areas where major capital expenditure will be
required before production would begin and when the major capital
expenditure depends upon successful completion of further
exploratory work remain capitalised and are reviewed periodically
for impairment.
Productive oil and gas properties and other tangible and intangible
costs of producing properties are amortised using the
unit-of-production method on a property-by-property basis under
which the ratio of produced oil and gas to the estimated remaining
proved developed reserves is used to determine the depreciation,
depletion and amortisation provision. Costs associated with
significant development projects are not depleted until commercial
production commences and the reserves related to those costs are
excluded from the calculation of depletion.
Capitalised acquisition costs of proved properties are amortised by
the unit-of-production method on a property-by-property basis
computed based on the total estimated units of proved reserves.
The Group estimates future dismantlement costs for oil and gas
properties with reference to the estimates provided from either
internal or external engineers after taking into consideration the
anticipated method of dismantlement required in accordance with
current legislation and industry practices. The associated cost is
capitalised and the liability is discounted and an accretion expense
is recognised using the credit-adjusted risk-free interest rate in
effect when the liability is initially recognised.
(ii) Land and buildings
Land and buildings represent the onshore buildings and the land use
rights and are stated at valuation less accumulated depreciation and
accumulated impairment losses. Professional valuations are performed
periodically with the last valuation performed on 31 December 2000.
In the intervening years, the directors review the carrying value of
land and buildings and adjustment is made where in the directors'
opinion there has been a material change in value. Any increase in
land and building valuation is credited to the revaluation reserves;
any decrease is first offset against an increase in earlier
valuation in respect of the same property and is thereafter charged
to the income statement. Depreciation is calculated on the
straight-line basis at an annual rate estimated to write off the
valuation of each asset over its expected useful life, ranging from
30 to 50 years.
068 NOTES TO CNOOC LIMITED
FINANCIAL STATEMENTS
31 December 2004
(All amounts expressed in Renminbi unless
otherwise stated)
3. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)
(iii) Vehicles and office equipment
Vehicles and office equipment are stated at cost less accumulated
depreciation and impairment losses. The straight-line method is
adopted to depreciate the cost less any estimated residual value of
these assets over their expected useful lives. The Group estimates
the useful lives of vehicles and office equipment to be five years.
The useful lives of assets and method of depreciation, depletion and
amortisation are reviewed periodically.
The gain or loss on disposal or retirement of property, plant and
equipment recognised in the income statement is the difference between
the net sales proceeds and the carrying amount of the relevant asset. Any
revaluation reserve relating to the fixed asset is transferred to
retained earnings as a reserve movement.
Research and development costs
All research costs are charged to the income statement as incurred.
Development costs (other than relating to oil and gas properties
discussed above) incurred on projects are capitalised and deferred only
when the projects are clearly defined; the expenditures are separately
identifiable and can be measured reliably; there is reasonable certainty
that the projects are technically feasible and have commercial value.
Development expenditure which does not meet these criteria is expensed
when incurred. No development costs were capitalised during the year.
Trade and other receivables
Trade and other receivables are stated at their cost, after provision for
doubtful accounts.
Short term investments
Short term investments are investments in debt and equity securities not
intended to be held on a continuing basis and are stated at their fair
values on the basis of their quoted market prices at the balance sheet
date, on an individual investment basis. The gains or losses arising from
changes in the fair value of a security are credited or charged to the
income statement in the period in which they arise.
Inventories and supplies
Inventories consisting primarily of oil and supplies consist mainly of
items for repairs and maintenance of oil and gas properties. Inventories
are stated at the lower of cost and net realisable value. Costs of
inventories and supplies represent purchase or production cost of goods
and are determined on a weighted average basis. Net realisable value is
based on estimated selling prices less any estimated costs to be incurred
to completion and disposal. Supplies are capitalised to property, plant
and equipment when used for renewals and betterments of oil and gas
properties and have resulted in an increase in the future economic values
of oil and gas properties or are recognised as expenses when used.
Cash and cash equivalents
For the purpose of the consolidated cash flow statement, cash and cash
equivalents comprise cash on hand and demand deposits, and short term
highly liquid investments which are readily convertible into known
amounts of cash and which are subject to an insignificant risk of changes
in value, and have a short maturity of generally within three months when
acquired, less bank overdrafts which are payable on demand and form an
integral part of the Group's cash management. For the purpose of the
balance sheet, cash and cash equivalents comprise cash on hand and at
banks, and term deposits with maturities of three months or less which
are not restricted to use.
Annual Report 2004 069
3. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)
Provisions
A provision is recognised when a present obligation (legal or
constructive) has arisen as a result of a past event and it is probable
that a future outflow of resources will be required to settle the
obligation, provided that a reliable estimate can be made of the amount
of the obligation.
When the effect of discounting is material, the amount recognised for a
provision is the present value at the balance sheet date of the future
expenditures expected to be required to settle the obligation. The
increase in the discounted present value amount arising from the passage
of time is included in interest expenses in the income statement.
Provisions for dismantlement are made based on the present value of the
future costs expected to be incurred, on a property-by-property basis, in
respect of the Group's expected dismantlement and abandonment costs at
the end of the related oil exploration and recovery activities.
Income tax
Income tax comprises current and deferred tax. Income tax is recognised
in the income statement or in equity if it relates to items that are
recognised in same or a different period directly in equity.
Deferred tax is provided, using the liability method, on all temporary
differences at the balance sheet date between the tax bases of assets and
liabilities and their carrying amounts for financial reporting purposes.
Deferred tax liabilities are recognised for all taxable temporary
differences:
o except where the deferred tax liability arises from the initial
recognition of an asset or liability and, at the time of the
transaction, affects neither the accounting profit nor taxable
profit or loss; and
o in respect of taxable temporary differences associated with
investments in subsidiaries and associates, except where the timing
of the reversal of the temporary differences can be controlled and
it is probable that the temporary differences will not reverse in
the foreseeable future.
Deferred tax assets are recognised for all deductible temporary
differences, carryforward of unused tax assets and unused tax losses, to
the extent that it is probable that taxable profit will be available
against which the deductible temporary differences, and the carryforward
of unused tax assets and unused tax losses can be utilised:
o except where the deferred tax asset relating to the deductible
temporary differences arises from the initial recognition of an
asset or liability and, at the time of the transaction, affects
neither the accounting profit nor taxable profit or loss; and
o in respect of deductible temporary differences associated with
investments in subsidiaries and associates, deferred tax assets are
only recognised to the extent that it is probable that the temporary
differences will reverse in the foreseeable future and taxable
profit will be available against which the temporary differences can
be utilised.
The carrying amount of deferred tax assets is reviewed at each balance
sheet date and reduced to the extent that it is no longer probable that
sufficient taxable profit will be available to allow all or part of the
deferred tax asset to be utilised. Conversely, previously unrecognised
deferred tax assets are recognised to the extent that it is probable that
sufficient taxable profit will be available to allow all or part of the
deferred tax asset to be utilised.
Deferred tax assets and liabilities are measured at the tax rates that
are expected to apply to the period when the asset is realised or the
liability is settled, based on tax rates (and tax laws) that have been
enacted or substantially enacted at the balance sheet date.
070 NOTES TO CNOOC LIMITED
FINANCIAL STATEMENTS
31 December 2004
(All amounts expressed in Renminbi unless
otherwise stated)
3. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)
Revenue recognition
Revenue is recognised when it is probable that the economic benefits will
flow to the Group and when the revenue can be measured reliably, on the
following bases:
(i) Oil and gas sales
Revenues represent the invoiced value of sales of oil and gas
attributable to the interests of the Group, net of royalties and PRC
government share oil that are lifted and sold on behalf of the PRC
government. Sales are recognised when the significant risks and
rewards of ownership of oil and gas have been transferred to
customers.
Oil and gas lifted and sold by the Group above or below the Group's
participating interests in the production sharing contracts results
in overlifts and underlifts. The Group records these transactions in
accordance with the entitlement method under which overlifts are
recorded as liabilities and underlifts are recorded as assets at
year end oil prices. Settlement will be in kind when the liftings
are equalised or in cash when production ceases.
The Group has entered into gas sales contracts with customers which
contains take-or-pay clauses. The clauses require those customers to
take a specified minimum volume of gas each year. If the minimum
volume of gas is not taken, those customers must pay for the
deficiency gas, even though the gas is not taken. Those customers
can offset the deficiency payment against any future purchases in
excess of the specified volume. The Group records any deficiency
payments as deferred revenue which is included in other payables
until any make-up gas is taken by those customers or the expiry of
the contracts.
(ii) Marketing revenues
Marketing revenues represent sales of oil purchased from the foreign
partners under the production sharing contracts and revenues from
the trading of oil through the Company's subsidiary in Singapore.
The title, together with the risks and rewards of the ownership of
such oil purchased from the foreign partners, is transferred to the
Group from the foreign partners and other unrelated oil and gas
companies before the Group sells such oil to its customers. The cost
of the oil sold is included in crude oil and product purchases.
(iii) Other income
Other income mainly represents project management fees charged to
the foreign partners and handling fees charged to customers and is
recognised when the services are rendered.
(iv) Interest income
Interest income from deposits placed with banks and other financial
institutions is recognised on a time proportion basis taking into
account the effective yield on the assets.
(v) Dividend income
Dividend income is recognised when the right to receive payment has
been established.
Annual Report 2004 071
3. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)
Retirement and termination benefits
The Group participates in defined contribution plans based on local laws
and regulations for full-time employees in the PRC and other countries in
which it operates. The plans provide for contributions ranging from 5% to
22% of the employees' basic salaries. The Group's contributions to these
defined contribution plans are charged to expense in the year to which
they relate.
Share option schemes
The Company operates share option schemes for the purpose of providing
incentives and rewards to eligible participants who contribute to the
success of the Group's operations. The financial impact of share options
granted under the share option schemes is not recorded in the Company's
or the Group's balance sheet until such time as the options are
exercised, and no charge is recorded in the income statement or balance
sheet for their cost. Upon the exercise of share options, the resulting
shares issued are recorded by the Company as additional share capital at
the nominal value of the shares, and the excess of the exercise price per
share over the nominal value of the shares is recorded by the Company in
the share premium account. Options which are cancelled prior to their
exercise date, or which lapse, are deleted from the register of
outstanding options.
Dividends
Final and special final dividends proposed by the directors are
classified as a separate allocation of retained earnings within the
capital and reserves section of the balance sheet, until they have been
approved by the shareholders in a general meeting. When these dividends
have been approved by the shareholders and declared, they are recognised
as a liability.
Interim and special interim dividends are simultaneously proposed and
declared, because the Company's memorandum and articles of association
grant the directors the authority to declare interim dividends.
Consequently, interim dividends are recognised immediately as a liability
when they are proposed and declared.
Borrowing costs
Borrowing costs directly attributable to the acquisition, construction or
production of qualifying assets, i.e. assets that necessarily take a
substantial period of time to get ready for their intended use or sale,
are capitalised as part of the cost of those assets. The capitalisation
of such borrowing costs ceases when the assets are substantially ready
for their intended use or sale.
To the extent that funds are borrowed specifically for the purpose of
obtaining a qualifying asset, the amount of borrowing costs eligible for
capitalisation on that asset is determined as the actual borrowing costs
incurred on that borrowing during the period less any investment income
on the temporary investment of those borrowings.
To the extent that funds are borrowed generally and used for the purpose
of obtaining a qualifying asset, the amount of borrowing costs eligible
for capitalisation is determined by applying a capitalisation rate to the
expenditures on that asset. The capitalisation rate is the weighted
average of the borrowing costs applicable to the borrowings of the
enterprise that are outstanding during the period, other than borrowings
made specifically for the purpose of obtaining a qualifying asset. The
amount of borrowing costs capitalised incurred during a period should not
exceed the amount of borrowing cost incurred during that period.
Borrowing costs include interest charges and other costs incurred in
connection with the borrowing of funds, including amortisation of
discounts or premiums relating to borrowings, and amortisation of
ancillary costs incurred in connection with arranging borrowings.
072 NOTES TO CNOOC LIMITED
FINANCIAL STATEMENTS
31 December 2004
(All amounts expressed in Renminbi unless
otherwise stated)
3. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)
Foreign currencies
The books and records of the Company and its subsidiary in China are
maintained in Renminbi ("RMB"). Foreign currency transactions are
recorded at the applicable exchange rates ruling at the transaction
dates. Monetary assets and liabilities denominated in foreign currencies
at the balance sheet date are translated at the applicable exchange rates
ruling at that date. Exchange differences are dealt with in the income
statement.
On consolidation, the financial statements of overseas subsidiaries are
translated into RMB using the net investment method. The income
statements of overseas subsidiaries are translated into RMB at the
weighted average exchange rates for the year, and their balance sheets
are translated into RMB at the exchange rates ruling at the balance sheet
date. The resulting translation differences are included in the
cumulative translation reserve.
For the purpose of the consolidated cash flow statement, the cash flows
of overseas subsidiaries are translated into RMB at the exchange rates
ruling at the dates of the cash flows. Frequently recurring cash flows of
overseas subsidiaries which arise throughout the year are translated into
RMB at the weighted average exchange rates for the year.
Repairs, maintenance and overhaul costs
Repairs, maintenances and overhaul costs are normally charged to the
income statement as operating expenses in the period in which they are
incurred.
Financial instruments
The Group has interest rate and currency swap contracts with financial
institutions. Those financial instruments not designated as hedging
instruments are carried at fair value, with any changes in fair value
thereof included in the income statement.
Operating leases
Leases where substantially all the rewards and risks of ownership of
assets remain with the lessor are accounted for as operating leases.
Where the Company is the lessee, rentals payable under the operating
leases are charged to the income statement on the straight-line basis
over the lease terms.
Contingencies
Contingent liabilities are not recognised in the financial statements.
They are disclosed unless the possibility of an outflow of resources
embodying economic benefits is remote.
A contingent asset is not recognised in the financial statements, but are
disclosed when an inflow of economic benefits is probable.
Subsequent events
Post-year-end events that provide additional information about the
Company's position at the balance sheet date or those that indicate the
going concern assumption is not appropriate (adjusting events) are
reflected in the financial statements. Post-year-end events that are not
adjusting events are disclosed in the notes when material.
Use of estimates
The preparation of financial statements in conformity with Hong Kong GAAP
requires management to make estimates and assumptions that affect certain
reported amounts and disclosures. Accordingly, actual results could
differ from those estimates.
Annual Report 2004 073
4. ACQUISITIONS
(i) In 2003, the Company acquired from British Petroleum ("BP") an
equivalent of 12.5% interest in the proposed joint venture known as
the Tangguh LNG Project of Indonesia ("Tangguh LNG Project") for
approximately US$275 million (equivalent to approximately RMB
2,276,578,000) through the acquisition of certain interest in
production sharing contracts ("PSCs") which was effective from 1
January 2003. The Tangguh LNG Project comprises three PSC areas: the
Berau PSC, the Muturi PSC and the Wiriagar PSC. The Tangguh LNG
Project partners have signed a conditional 25-year Liquefied Natural
Gas ("LNG") Supply Contract (the "LNG Supply Contract") to provide
up to 2.6 million tonnes per annum of LNG to the Fujian LNG project
in the PRC, beginning in 2008. The Company completed the Tangguh
acquisition on 8 February 2003. CNOOC has an equity interest in the
Fujian LNG project.
In addition, a repurchase agreement (the "Repurchase Agreement") was
entered into whereby put options and call options are granted to the
Company and the sellers, respectively, to sell or to repurchase the
interests in the above mentioned PSCs. The options are exercisable
if:
(1) the LNG Supply Contract is terminated due to the
non-satisfaction of the conditions precedent to the LNG Supply
Contract on or before 31 December 2004; or
(2) the LNG Supply Contract is otherwise legally ineffective on or
before 31 December 2004.
The exercise price of the options are determined based on the
original consideration paid plus adjustments stipulated in the
Repurchase Agreement.
The options lapsed on 31 December 2004. As such, although the
consideration was paid in full in 2003, the acquisition date for
accounting purpose is 31 December 2004.
During the year, the Company acquired from British Gas International
Limited 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. As at 31 December 2004, Tangguh LNG
project was still in the development stage.
(ii) On 15 May 2003, the Company entered into an equity sale and purchase
agreement and a Gas Production and Processing Agreement (the
"Agreements") with the existing North West Shelf ("NWS Project")
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 approximately 5.3% in the NWS Project and a
25% interest 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 amounting to
US$180 million. CNOOC has an equity interest in the Guangdong LNG
Project.
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 deposit of the consideration and tariff payment, to the
NWS project participants by 2 January 2004. The Company made the
payment on 2 January 2004.
074 NOTES TO CNOOC LIMITED
FINANCIAL STATEMENTS
31 December 2004
(All amounts expressed in Renminbi unless
otherwise stated)
4. ACQUISITIONS (continued)
On 18 December 2004, the Company paid the balance of the consideration
payable and concurrently entered into a side letter for the fulfillment
of a condition precedent to the purchase. As such, the consideration paid
of approximately US$567 million (equivalent to approximately
RMB4,693,809,000) including the payment of the tariff of US$180 million
plus direct incremental costs relating to the acquisition were included
as a prepayment in property, plant and equipment as at 31 December 2004.
As at 31 December 2004, NWS Project was still in the development stage.
(iii) Apart from the acquisitions above, during the year, the Company
also acquired from VANCO Energy Company an 11.25% interest in a
petroleum agreement in Ras Tafelney, Morocco for approximately
US$7.75 million. The PSC was still in an exploration stage as of 31
December 2004.
(iv) In addition, the Company also entered in production sharing
contracts with Golden Aaron Pte. Ltd. and China Global Construction
Limited in Myanmar during the year. The PSCs were still in a
pre-exploration stage as of 31 December 2004. The Company is the
operator.
5. PRODUCTION SHARING CONTRACTS
PRC
For production sharing contracts in the PRC, the foreign parties to the
contracts ("foreign partners") are normally required to bear all
exploration costs during the exploration period and such exploration
costs can be recovered according to the production sharing formula after
commercial discoveries are made and production begins.
After the initial exploration stage, the development and operating costs
are funded by the Group and the foreign partners according to their
respective participating interest.
In general, the Group has the option to take a up to 51% participating
interest in a production sharing contract and may exercise such option
after the foreign partners have independently undertaken all the
exploration risks and costs and made viable commercial discoveries.
After the Group exercises its option to take a participating interest in
a production sharing contract, the Group accounts for the oil and gas
properties using the "proportional method" under which the Group
recognises its share of development costs, revenues and expenses from
such operations based on its participating interest in the production
sharing contract. The Group does not account for either the exploration
costs incurred by its foreign partners or the foreign partners' share of
development costs and revenues and expenses from such operations.
Part of the Group's annual gross production of oil and gas in the PRC is
distributed to the PRC government as settlement of royalties which are
payable pursuant to a sliding scale. The Group and the foreign partners
also pay a production tax to the tax bureau at a pre-determined rate. In
addition, there is a pre-agreed portion of oil and gas designated to
recover all exploration costs, development costs, operating costs
incurred and related interest according to the participating interests
between the Group and the foreign partners. Any remaining oil after the
foregoing priority allocations is first distributed to the PRC government
as government share oil on a pre-determined ratio pursuant to a sliding
scale, and then distributed to the Group and the foreign partners based
on their respective participating interests. As the government share is
not included in the Group's interest in the annual production, the net
sales of the Group do not include the sales revenue of the government
share oil.
The foreign partners have the right either to take possession of their
allocable remainder oil for sale in the international market, or to
negotiate with the Group to sell their allocable remainder oil to the
Group for resale in the PRC market.
Annual Report 2004 075
5. PRODUCTION SHARING CONTRACTS (continued)
Overseas
The Group and the other partners to the production sharing contracts in
Indonesia are required to bear all exploration, development and operating
costs according to their respective participating interests. Exploration,
development and operating costs which qualify for recovery can be
recovered according to the production sharing formula after commercial
discoveries are made and production begins.
The Group's net interest in the production sharing contracts in Indonesia
consists of its participating interest in the properties covered under
the relevant production sharing contracts, less oil and gas distributed
to the Indonesian government and the domestic market obligation.
6. SEGMENT INFORMATION
The Group is organised on a worldwide basis into three major operating
segments. Segment information is presented by way of two segment formats:
(i) on a primary reporting basis, by business segment; and (ii) on a
secondary segment reporting basis, by geographical segment.
Intersegment transactions: segment revenue, segment expenses and segment
performance include transfers between business segments and between
geographical segments. Such transfers are accounted for at cost. Those
transfers are eliminated on consolidation.
(a) Business segments
The Group is involved in the upstream operating activities of the
petroleum industry that comprise independent operations, production
sharing contracts with foreign partners and trading business. These
segments are determined primarily because the senior management
makes key operating decisions and assesses performance of the
segments separately. The Group evaluates performance based on profit
or loss from operations before income taxes.
076 NOTES TO CNOOC LIMITED
FINANCIAL STATEMENTS
31 December 2004
(All amounts expressed in Renminbi unless
otherwise stated)
6. SEGMENT INFORMATION (continued)
(a) Business segments (continued)
The following tables present revenue, profit and certain assets,
liabilities and expenditures information for the Group's business
segments.
Independent Production Trading
Operations sharing contracts business Unallocated
Segment Revenue 2004 2003 2004 2003 2004 2003 2004 2003
RMB' 000 RMB' 000 RMB' 000 RMB' 000 RMB' 000 RMB' 000 RMB' 000 RMB' 000
------------------------------------------------------------------------------------------------------------
Sales to external
customers:
Oil and gas sales 15,177,621 12,040,587 21,708,398 16,076,244 - - - -
Marketing revenues - - - - 18,191,353 12,398,661 - -
Intersegment
revenues 920,669 - 2,551,181 3,730,797 - - - -
Other income 6,139 8,468 136,942 424,493 - - 1,610 1,820
------------------------------------------------------------------------------------------------------------
Total 16,104,429 12,049,055 24,396,521 20,231,534 18,191,353 12,398,661 1,610 1,820
------------------------------------------------------------------------------------------------------------
Segment results
Operating expenses (1,828,614) (1,579,004) (3,241,730) (2,933,805) - - - -
Production taxes (775,210) (626,897) (950,464) (611,701) - - - -
Exploration expenses (1,136,055) (590,541) (180,105) (257,531) - - - -
Depreciation, depletion
and amortisation (2,235,064) (1,855,983) (3,219,998) (2,786,770) - - - -
Dismantlement (117,310) (96,206) (84,327) (71,120) - - - -
Crude oil and product
purchases (920,669) - (2,551,181) (3,730,797) (17,963,461) (12,295,238) - -
Selling and administrative
expenses (50,721) (62,247) (557,521) (666,369) - - (449,464) (483,907)
Others - (36,406) (45,844) (313,826) - - - -
Interest income - - 2,077 14,302 - - 204,795 169,274
Interest expenses (135,119) (60,358) (64,956) (20,817) - - (241,750) (273,765)
Exchange
gains/(losses), net - - (15,308) 124 - - 44,577 (6,870)
Short term
investment income - - - - - - 72,438 123,483
Share of profits of
associates - - - - - - 344,469 220,263
Non-operating income/
(expenses), net - - - - - - 519,206 314,968
Tax - - - - - - (6,930,826) (4,627,836)
------------------------------------------------------------------------------------------------------------
Net profit 8,905,667 7,141,413 13,487,164 8,853,224 227,892 103,423 (6,434,945) (4,562,570)
------------------------------------------------------------------------------------------------------------
Other segment
information
Segment assets 20,670,651 14,055,898 37,767,197 26,821,223 1,712,212 2,629,009 32,599,362 28,880,532
Investments in - - - - - - 1,327,109 1,117,640
associates
------------------------------------------------------------------------------------------------------------
Total assets 20,670,651 14,055,898 37,767,197 26,821,223 1,712,212 2,629,009 33,926,471 29,998,172
Segment liabilities (3,913,905) (3,554,720) (11,453,307) (12,620,113) (809,663) (2,173,828) (21,182,195) (8,419,109)
Capital expenditure 6,309,397 5,960,071 13,145,839 2,264,625 - - 164,775 46,868
============================================================================================================
Eliminations Consolidated
Segment revenue 2004 2003 2004 2003
RMB' 000 RMB' 000 RMB' 000 RMB' 000
--------------------------------------------------------------------------
Sales to external
customers:
Oil and gas sales - - 36,886,019 28,116,831
Marketing revenues - - 18,191,353 12,398,661
Intersegment
revenues (3,471,850) (3,730,797) - -
Other income - - 144,691 434,781
--------------------------------------------------------------------------
Total (3,471,850) (3,730,797) 55,222,063 40,950,273
--------------------------------------------------------------------------
Segment results
Operating expenses - - (5,070,344) (4,512,809)
Production taxes - - (1,725,674) (1,238,598)
Exploration expenses - - (1,316,160) (848,072)
Depreciation,
depletion
and amortisation - - (5,455,062) (4,642,753)
Dismantlement - - (201,637) (167,326)
Crude oil and product
purchases 3,471,850 3,730,797 (17,963,461) (12,295,238)
Selling and
administrative
expenses - - (1,057,706) (1,212,523)
Others - - (45,844) (350,232)
Interest income - - 206,872 183,576
Interest expenses - - (441,825) (354,940)
Exchange - - 29,269 (6,746)
gains/(losses), net
Short term - - 72,438 123,483
investment income
Share of profits of - - 344,469 220,263
associates
Non-operating income/
(expenses), net - - 519,206 314,968
Tax - - (6,930,826) (4,627,836)
--------------------------------------------------------------------------
Net profit - - 16,185,778 11,535,490
--------------------------------------------------------------------------
Other segment
information
Segment assets - - 92,749,422 72,386,662
Investments in - - 1,327,109 1,117,640
associates
--------------------------------------------------------------------------
Total assets - - 94,076,531 73,504,302
Segment liabilities - - (37,359,070) (26,767,770)
Capital expenditure - - 19,620,011 8,271,564
==========================================================================
Annual Report 2004 077
6. SEGMENT INFORMATION (continued)
(b) Geographical segments
In determining the Group's geographical segments, revenues and
results are attributed to the segments based on the location of the
Group's customers, and assets are attributed to the segments based
on the location of the Group's assets.
The Group mainly engaged in the exploration, development and
production of crude oil and natural gas in offshore China. Any
activities outside PRC are mainly conducted in Indonesia and
Singapore. An analysis by geographical segment is as follows:
PRC Outside PRC Total
2004 2003 2004 2003 2004 2003
RMB'000 RMB'000 RMB'000 RMB'000 RMB'000 RMB'000
----------------------------------------------------------------------------------------
Total revenue 30,453,453 25,416,466 24,768,610 15,533,807 55,222,063 40,950,273
Total assets 75,298,171 61,357,931 18,778,360 12,146,371 94,076,531 73,504,302
Capital expenditure 12,014,894 7,727,171 7,605,117 544,393 19,620,011 8,271,564
(c) An analysis of sales to major customers by business segment is as
follows:
2004 2003
RMB'000 RMB'000
----------------------------------
Production sharing contracts
China Petroleum & Chemical Corporation 6,932,008 3,848,361
PetroChina Company Limited 1,944,709 1,446,169
Castle Peak Power Company Limited 1,070,436 841,285
----------------------------------
9,947,153 6,135,815
----------------------------------
Independent operations
China Petroleum & Chemical Corporation 3,702,058 3,126,708
----------------------------------
13,649,211 9,262,523
==================================
7. OIL AND GAS SALES
2004 2003
RMB'000 RMB'000
----------------------------------
Gross sales 39,955,702 30,556,967
Royalties (610,055) (478,454)
PRC government share oil (2,459,628) (1,961,682)
----------------------------------
36,886,019 28,116,831
==================================
078 NOTES TO CNOOC LIMITED
FINANCIAL STATEMENTS
31 December 2004
(All amounts expressed in Renminbi unless
otherwise stated)
8. MARKETING PROFIT
2004 2003
RMB'000 RMB'000
----------------------------------
Marketing revenues 18,191,353 12,398,661
Crude oil and product purchases (17,963,461) (12,295,238)
----------------------------------
227,892 103,423
==================================
9. PROFIT BEFORE TAX
The Group's profit before tax is arrived at after (crediting)/charging:
2004 2003
RMB'000 RMB'000
----------------------------------
Crediting:
Interest income on bank deposits (206,872) (183,576)
Interest income on investments (1,654) (28,752)
Dividend income on investments (93,040) (46,140)
Realised (gains)/losses on investments (2,972) (27,088)
Unrealised losses/(gains) on investments 25,228 (21,503)
----------------------------------
Short term investment income (72,438) (123,483)
----------------------------------
Charging:
Auditors' remuneration 6,750 5,790
Staff costs
- Wages, salaries and allowances* 265,007 393,165
- Labour costs paid to contractors 666,599 542,292
Depreciation, depletion and amortisation 5,410,413 4,643,364
Less: Oil-in tank adjustments 44,649 (611)
----------------------------------
5,455,062 4,642,753
----------------------------------
Operating lease rentals
- Office 107,803 72,708
- Equipment 494,264 190,581
Loss on disposal of property, plant
and equipment 173 21
Repairs and maintenance 1,193,700 608,603
Research and development costs 268,477 165,793
* Including in wages, salaries and allowances, an amount of Rmb30,304,000
(2003: Rmb95,147,000) for pension scheme contributions and termination
benefits.
Annual Report 2004 079
10. SELLING AND ADMINISTRATIVE EXPENSES
2004 2003
RMB'000 RMB'000
----------------------------------
Salary and staff benefits 265,007 393,165
Utility and office expenses 115,817 90,801
Travel and entertainment 75,675 74,218
Rentals and maintenance 128,579 107,310
Management fees 218,087 219,771
Selling expenses 36,015 30,686
(Reversal) of/provision
for inventory obsolescence (2,710) 8,745
Other 221,236 287,827
----------------------------------
1,057,706 1,212,523
==================================
11. INTEREST EXPENSES
2004 2003
RMB'000 RMB'000
----------------------------------
Interest on bank loans which are:
- Wholly repayable within five years 80,829 81,539
- Not wholly repayable within five years -- --
Interest on long term guaranteed notes 485,812 391,005
Other borrowing costs 163 34,933
----------------------------------
Total interest 566,804 507,477
Less: Amount capitalised in property,
plant and equipment (note 18) (244,686) (245,783)
----------------------------------
322,118 261,694
Other finance costs:
Increase in discounted amount of
provisions arising from the
passage of time (note 30) 119,707 93,246
----------------------------------
441,825 354,940
==================================
The interest rates used for interest capitalisation represented the
cost of capital from raising the related borrowings and varied from
4.1% to 9.2% per annum for the year ended 31 December 2004.
080 NOTES TO CNOOC LIMITED
FINANCIAL STATEMENTS
31 December 2004
(All amounts expressed in Renminbi unless
otherwise stated)
12. DIRECTORS' REMUNERATION
Directors' remuneration for the year, disclosed pursuant to the Listing
Rules and Section 161 of the Companies Ordinance, is as follows:
2004 2003
RMB'000 RMB'000
----------------------------------
Fees for executive directors -- --
Fees for non-executive directors 851 1,000
Other emoluments for executive directors
- Basic salaries and allowances 6,556 6,327
- Bonuses -- 2,100
- Pension scheme contributions 62 207
- Other 1,200 1,425
----------------------------------
8,669 11,059
==================================
The number of directors whose remuneration fell within the following
bands is as follows:
Number of directors
2004 2003
----------------------------------
Nil to HK$1,000,000 6 6
HK$1,000,001- HK$1,500,000 -- 1
HK$1,500,001- HK$2,000,000 -- --
HK$2,000,001- HK$2,500,000 -- --
HK$2,500,001- HK$3,000,000 1 2
HK$3,000,001- HK$3,500,000 1 --
----------------------------------
8 9
==================================
There was no arrangement under which a director waived or agreed to waive
any remuneration during the year.
No value in respect of the share options granted during the year (note
31) has been charged to the income statement, or is otherwise included in
the above directors' remuneration disclosures.
Annual Report 2004 081
13. FIVE HIGHEST PAID EMPLOYEES
Details of the remuneration of the five highest paid employees during the
year are as follows:
2004 2003
RMB'000 RMB'000
----------------------------------
Basic salaries and allowances 18,227 15,857
Bonuses 4,589 2,550
Pension scheme contributions 1,509 1,332
Other 2,282 2,743
----------------------------------
26,607 22,482
==================================
Number of directors -- --
Number of employees 5 5
The number of highest paid employees whose remuneration fell within the
following bands is as follows:
Number of employees
2004 2003
----------------------------------
Nil to HK$3,000,000 -- --
HK$3,000,001- HK$3,500,000 1 --
HK$3,500,001- HK$4,000,000 1 3
HK$4,000,001- HK$4,500,000 1 --
HK$4,500,001- HK$5,000,000 -- --
HK$5,000,001- HK$5,500,000 -- 2
HK$5,500,001- HK$6,000,000 1 --
HK$6,000,001- HK$8,000,000 -- --
HK$8,000,001- HK$8,500,000 1 --
----------------------------------
5 5
==================================
No value in respect of the share options granted during the year (note
31) has been charged to the income statement, or is otherwise included in
the above five highest paid employees disclosures.
082 NOTES TO CNOOC LIMITED
FINANCIAL STATEMENTS
31 December 2004
(All amounts expressed in Renminbi unless
otherwise stated)
14. TAX
(i) Income tax
The Company and its subsidiaries are subject to income taxes on an
entity basis on profit arising in or derived from the tax
jurisdictions in which they are domiciled and operated. The Company
is not liable for profits tax in Hong Kong as it does not have any
assessable income currently sourced from Hong Kong.
The Company's subsidiary, CNOOC China Limited, is a wholly
foreign-owned enterprise established in the PRC. It is exempt from
the 3% local surcharge and is subject to an enterprise income tax of
30% under the prevailing tax rules and regulations.
The Company's subsidiary in Singapore, China Offshore Oil
(Singapore) International Pte Ltd., is subject to income tax at
rates of 10% and 20%, for its oil trading activities and other
income generating activities, respectively. The Company's
subsidiaries owning interests in oil and gas properties in Indonesia
along the Malacca Strait are subject to corporate and dividend tax
at the rate of 44%. The Company's subsidiaries owning interests in
oil and gas properties in Indonesia acquired from Repsol YPF, S.A.
are subject to corporate and dividend tax at the rate of 43.125% to
51.875%. All of the Company's other subsidiaries are not subject to
any income taxes in their respective jurisdictions for the year
presented.
An analysis of the provision for tax in the consolidated income
statement was as follows:
2004 2003
RMB'000 RMB'000
----------------------------------
Overseas income taxes
- Current 755,568 654,988
- Deferred (170,118) (179,134)
PRC enterprise income tax
- Current 6,411,417 3,623,157
- Deferred (66,041) 528,825
----------------------------------
Total tax charge for the year 6,930,826 4,627,836
==================================
A reconciliation of the statutory PRC enterprise income tax rate to
the effective income tax rate of the Group is as follows:
2004 2003
% %
----------------------------------
Statutory PRC enterprise income tax rate 33.0 33.0
Effect of tax exemption granted (3.0) (3.0)
Effect of different tax rates for
overseas subsidiaries 0.3 (0.1)
Tax credit from government (0.3) (1.5)
Tax effect on other permanent
differences 0.3 0.2
----------------------------------
Effective income tax rate 30.3 28.6
==================================
Annual Report 2004 083
14. TAX (continued)
(i) Income tax (continued)
The tax effect of significant temporary differences of the Group was
as follows:
2004 2003
RMB'000 RMB'000
----------------------------------
Deferred tax assets
- Provision for retirement and
termination benefits 112,150 114,758
- Provision for dismantlement 926,834 775,725
- Provision for impairment of property,
plant and equipment and write-off of
unsuccessful exploratory drillings 869,286 759,454
----------------------------------
1,908,270 1,649,937
Deferred tax liabilities
- Accelerated amortisation allowance for
oil and gas properties (8,596,768) (7,433,133)
----------------------------------
Net deferred tax liabilities (6,688,498) (5,783,196)
==================================
As at 31 December 2004, there was no significant unrecognised deferred
tax liability (2003: Nil) for taxes that would be payable on the
unremitted earnings of certain of the Group's subsidiaries and associates
as the Group had no liability to additional tax should such amounts be
remitted.
There are no income tax consequences attaching to the payment of
dividends by the Company to its shareholders.
(ii) Other taxes
The Company's PRC subsidiary pays the following other taxes:
-- Production taxes equal to 5% of independent production and
production under production sharing contracts; and
-- Business tax of 3% to 5% on other income.
15. NET PROFIT AFTER TAX
The net profit after tax for the year ended 31 December 2004 dealt with
in the financial statements of the Company, was approximately
RMB5,441,948,000 (2003: RMB5,031,491,000) (see note 32).
16. DIVIDENDS
On 28 April 2004, the board of directors declared an interim dividend and
a special interim dividend of HK$0.06 per share in place of 2003 final
dividend and final special dividend, totaling 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 final dividend for the year ended 31 December 2003.
On 25 August 2004, the board of directors declared an interim dividend of
HK$0.03 per share (2003: HK$0.028 per share), totaling HK$1,231,618,058
(equivalent to approximately RMB1,306,451,000) (2003: RMB1,220,132,000),
and a special interim dividend of HK$0.05 per share (2003: HK$0.036 per
share), totaling HK$2,052,696,764 (equivalent to approximately
RMB2,177,418,000) (2003: RMB1,568,741,000).
084 NOTES TO CNOOC LIMITED
FINANCIAL STATEMENTS
31 December 2004
(All amounts expressed in Renminbi unless
otherwise stated)
16. DIVIDENDS (continued)
The board of directors have recommended a final dividend of HK$0.03 per
ordinary share, totaling HK$1,231,571,258 (approximately equivalent to
RMB1,310,022,000), and a special final dividend of HK$0.05 per ordinary
share, totaling HK$2,052,618,764 (approximately equivalent to
RMB2,183,371,000) for the year ended 31 December 2004.
The payment of future dividends will be determined by the Company's board
of directors. The payment of dividends will depend upon, among other
things, future earnings, capital requirements, financial conditions and
general business conditions of the Company. The Company's ability to pay
dividends will also depend on the cash flows determined by the dividends,
if any, received by the Company from its subsidiaries and associated
companies. As the controlling shareholder, CNOOC will be able to
influence the Company's dividend policy.
Cash dividends to the shareholders in Hong Kong will be paid in Hong Kong
dollars and dividends to the American Depositary Receipts ("ADR") holders
will be paid to the depositary in Hong Kong dollars and will be converted
by the depositary into United States dollars and paid to the holders of
ADRs.
17. EARNINGS PER SHARE
2004 2003
------------------------------------------
Earnings:
Net profit attributable to
shareholders, used in the
basic and diluted earnings
per share calculations RMB 16,185,778,000 RMB 11,535,490,000
==========================================
Number of shares (after 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 (10,587,616) --
------------------------------------------
Weighted average number of ordinary
shares for the purpose
of basic earnings per share 41,060,240,659 41,070,828,275
Effect of dilutive potential
ordinary shares under the
share option scheme 66,720,503 39,510,820
Effect of dilutive potential
ordinary shares for convertible bonds 52,552,274 --
------------------------------------------
Weighted average number of ordinary
shares for the purpose
of diluted earnings per share 41,179,513,436 41,110,339,095
==========================================
Earnings per share
- Basic RMB0.39 RMB0.28
==========================================
- Diluted RMB0.39 RMB0.28
==========================================
Annual Report 2004 085
18. PROPERTY, PLANT AND EQUIPMENT, NET
Movements in the property, plant and equipment of the Group are as
follows:
Group
2004 2003
Vehicles
Oil and gas Land and and office
properties buildings equipment Total Total
RMB'000 RMB'000 RMB'000 RMB'000 RMB'000
--------------------------------------------------------------------------------
Cost or valuation:
At beginning of the year 70,137,828 824,781 139,902 71,102,511 59,240,281
Purchase price allocation adjustment -- -- -- -- (707,623)
Additions 12,845,367 116,797 47,977 13,010,141 8,585,798
Acquisitions (including prepayments) 6,934,951 -- -- 6,934,951 4,025,441
Disposals and write-offs (3) -- (174) (177) (40,402)
Exchange realignment (249) -- -- (249) (984)
--------------------------------------------------------------------------------
End of year 89,917,894 941,578 187,705 91,047,177 71,102,511
================================================================================
Analysis of cost or valuation:
At cost 89,917,894 116,797 187,705 90,222,396 70,277,730
At revaluation -- 824,781 -- 824,781 824,781
--------------------------------------------------------------------------------
89,917,894 941,578 187,705 91,047,177 71,102,511
================================================================================
Accumulated depreciation,
depletion and amortisation:
At beginning of the year (27,839,105) (106,401) (33,204) (27,978,710) (23,168,461)
Depreciation provided during the year (5,575,114) (26,054) (10,882) (5,612,050) (4,810,690)
Disposals -- -- 5 5 584
Exchange realignment 83 -- 192 275 (143)
--------------------------------------------------------------------------------
End of year (33,414,136) (132,455) (43,889) (33,590,480) (27,978,710)
================================================================================
Net book value:
Beginning of year 42,298,723 718,380 106,698 43,123,801 36,071,820
================================================================================
End of year 56,503,758 809,123 143,816 57,456,697 43,123,801
================================================================================
18. PROPERTY, PLANT AND EQUIPMENT, NET (continued)
086 NOTES TO CNOOC LIMITED
FINANCIAL STATEMENTS
31 December 2004
(All amounts expressed in Renminbi unless
otherwise stated)
Group
2004 2003
Vehicles
Oil and gas Land and and office
properties buildings equipment Total Total
RMB'000 RMB'000 RMB'000 RMB'000 RMB'000
--------------------------------------------------------------------------------
Had the property, plant and
equipment been carried at
cost less accumulated
depreciation, depletion
and amortisation, the carrying
amount of each class
would have been:
Cost 89,917,894 666,907 187,705 90,772,506 70,827,840
Accumulated depreciation,
depletion and amortisation (33,414,136) (88,246) (43,889) (33,546,271) (27,943,657)
--------------------------------------------------------------------------------
56,503,758 578,661 143,816 57,226,235 42,884,183
================================================================================
During the year, additions to the Group's property, plant and equipment
amounted to approximately RMB13,010,141,000 (2003: RMB8,585,798,000). The
consideration paid of US$567 million (equivalent to RMB4,693,809,000) for
the NWS project (see note 4(ii)) has been included as a prepayment in oil
and gas properties as at 31 December 2004.
Included in the current year additions was an amount of approximately
RMB244,686,000 (2003: RMB245,783,000) in respect of interest capitalised
in property, plant and equipment.
Annual Report 2004 087
18. PROPERTY, PLANT AND EQUIPMENT, NET (continued)
The property, plant and equipment of the Company mainly comprised office
equipment and were stated at cost less accumulated depreciation. The
movements in property, plant and equipment of the Company are as follows:
Company
2004 2003
RMB'000 RMB'000
----------------------------------
Cost:
Beginning of the year 5,833 5,764
Additions -- 69
----------------------------------
End of year 5,833 5,833
----------------------------------
Accumulated depreciation:
Beginning of the year (5,562) (5,108)
Charge for the year (107) (454)
----------------------------------
End of year (5,669) (5,562)
----------------------------------
Net book value:
Beginning of year 271 656
==================================
End of year 164 271
==================================
The land and buildings of the Group are held outside Hong Kong with lease
terms of 50 years.
The land and buildings were revalued by an independent valuer, Sallmanns
(Far East) Limited, Chartered Surveyors (the "Valuer") as at 31 December
2000 using a depreciated replacement cost approach. The depreciated
replacement cost approach considers the cost to reproduce or replace in
new condition the property being appraised in accordance with current
construction costs for similar property in the locality with allowance
for accrued depreciation as evidenced by observed condition or
obsolescence present, whether arising from physical, functional or
economic causes. The Valuer assumed that the assets would be used for the
purposes for which they are presently used and did not consider
alternative uses. Certain land use rights which were previously granted
by the PRC government at no cost.
19. INTERESTS IN SUBSIDIARIES
Company
2004 2003
RMB'000 RMB'000
----------------------------------
Unlisted shares, at cost 7,766,971 7,766,971
Loan to subsidiaries 4,138,290 4,138,290
Due from subsidiaries 13,206,016 12,245,592
Due to subsidiaries (15,256,082) (7,588,883)
----------------------------------
9,855,195 16,561,970
==================================
088 NOTES TO CNOOC LIMITED
FINANCIAL STATEMENTS
31 December 2004
(All amounts expressed in Renminbi unless
otherwise stated)
19. INTERESTS IN SUBSIDIARIES (continued)
The loan due to subsidiaries is unsecured and bears interest at 7.084%
per annum. The maturities of the balance are as follows:
2004 2003
RMB'000 RMB'000
----------------------------------
Balance due:
Within five years -- --
More than five years 4,138,290 4,138,290
----------------------------------
4,138,290 4,138,290
==================================
The amounts due from/to subsidiaries are unsecured, interest-free and are
repayable on demand.
Particulars of the principal subsidiaries are as follows:
Nominal value Percentage of
of issued/registered equity
Place and date of ordinary attributable to
Name incorporation share capital the Company Principal activities
-----------------------------------------------------------------------------------------------------------------------
Directly held subsidiaries:
CNOOC China Limited Tianjin, PRC RMB15 billion 100% Offshore petroleum
15 September 1999 exploration,
development,
production and
sale in the PRC
CNOOC International Limited British Virgin Islands US$2 100% Investment holding
23 August 1999
China Offshore Oil (Singapore) Singapore S$3 million 100% Sale and marketing
International Pte., Ltd. 14 May 1993 of petroleum
outside of the PRC
CNOOC Finance (2002) Limited British Virgin Islands US$1,000 100% Bond issuance
24 January 2002
CNOOC Finance (2003) Limited British Virgin Islands US$1,000 100% Bond issuance
2 April 2003
CNOOC Finance (2004) Limited British Virgin Islands US$1,000 100% Bond issuance
9 December 2004
Annual Report 2004 089
19. INTERESTS IN SUBSIDIARIES (continued)
Nominal value Percentage of
of issued/registered equity
Place and date of ordinary attributable to
Name incorporation share capital the Company Principal activities
-----------------------------------------------------------------------------------------------------------------------
Indirectly held subsidiaries*:
Malacca Petroleum Limited Bermuda US$12,000 100% Offshore petroleum
2 November 1995 exploration,
development and
production in
Indonesia
OOGC America, Inc. State of Delaware, US$1,000 100% Investment holding
United States of America
2 September 1997
OOGC Malacca Limited Bermuda US$12,000 100% Offshore petroleum
2 November 1995 exploration,
development and
production in
Indonesia
CNOOC Southeast Asia Limited Bermuda US$12,000 100% Investment holding
16 May 1997
CNOOC ONWJ Ltd. Labuan, F.T., Malaysia US$1 100% Offshore petroleum
27 March 2002 exploration,
development and
production in
Indonesia
CNOOC SES Ltd. Labuan, F.T., Malaysia US$1 100% Offshore petroleum
27 March 2002 exploration,
development and
production in
Indonesia
CNOOC Poleng Ltd. Labuan, F.T., Malaysia US$1 100% Offshore petroleum
27 March 2002 exploration,
development and
production in
Indonesia
CNOOC Madura Ltd. Labuan, F.T., Malaysia US$1 100% Offshore petroleum
27 March 2002 exploration,
development and
production in
Indonesia
CNOOC Blora Ltd. Labuan, F.T., Malaysia US$1 100% Onshore petroleum
27 March 2002 exploration,
development and
production in
Indonesia
090 NOTES TO CNOOC LIMITED
FINANCIAL STATEMENTS
31 December 2004
(All amounts expressed in Renminbi unless
otherwise stated)
19. INTERESTS IN SUBSIDIARIES (continued)
Nominal value Percentage of
of issued/registered equity
Place and date of ordinary attributable to
Name incorporation share capital the Company Principal activities
-----------------------------------------------------------------------------------------------------------------------
CNOOC NWS Private Ltd. Singapore S$1 100% Offshore petroleum
8 October 2002 exploration,
development and
production in
Australia
CNOOC Wiriagar Overseas Ltd. British Virgin Islands US$1 100% Offshore petroleum
15 January 2003 exploration,
development and
production in
Indonesia
CNOOC Muturi Ltd. The Isle of Man US$7,780,700 100% Offshore petroleum
8 Feburary 1996 exploration,
development and
production in
Indonesia
* Indirectly held through CNOOC International Limited.
The above table lists the subsidiaries of the Company which, in the
opinion of the directors, principally affected the results for the year
or formed a substantial portion of the net assets of the Group. To give
details of other subsidiaries would, in the opinion of the directors,
result in particulars of excessive length.
20. INVESTMENTS IN ASSOCIATES
Investments in associates represent (1) a 30% equity interest of CNOOC
China Limited in Shanghai Petroleum and Natural Gas Company Limited
("SPC"). SPC was incorporated on 7 September 1992 in the PRC with limited
liability and is principally engaged in offshore petroleum exploration,
development, production and sale in the South Yellow Sea and East China
Sea areas. The issued and paid-up capital of SPC is RMB900 million; and
(2) a 31.8% equity interest of CNOOC China Limited in CNOOC Finance
Corporation Limited ("CNOOC Finance"). CNOOC Finance was incorporated on
13 May 2002 in the PRC with limited liability and is principally engaged
in deposit-taking and money lending activities for the CNOOC Group. The
issued and paid-up capital of CNOOC Finance is RMB1,415 million.
Group
2004 2003
RMB'000 RMB'000
----------------------------------
Share of net assets 1,327,109 1,117,640
==================================
The directors are of the opinion that the underlying value of the
investments in associates is not less than the carrying amount of the
associates as at 31 December 2004.
Annual Report 2004 091
21. ACCOUNTS RECEIVABLE, NET
The Group's trading terms with its customers are mainly on credit, except
for new customers, where payment in advance is normally required. The
customers are required to make payment within 30 days after the delivery
of oil and gas. As at 31 December 2004 and 2003, substantially all the
accounts receivable were aged within six months.
22. INVENTORIES AND SUPPLIES
Group
2004 2003
RMB'000 RMB'000
----------------------------------
Materials and supplies 879,300 809,827
Oil in tanks 274,029 291,844
Less: Provision for inventory obsolescence (6,035) (8,745)
----------------------------------
1,147,294 1,092,926
==================================
23. SHORT TERM INVESTMENTS
As at 31 December 2004, short term investments mainly represented
investments in liquidity funds and were stated at fair value at the
balance sheet date. Details of the short term investments were as
follows:
Group Company
2004 2003 2004 2003
RMB'000 RMB'000 RMB'000 RMB'000
-----------------------------------------------------------------
Unlisted investments, at fair value:
Liquidity funds 3,763,959 3,767,179 2,759,400 3,767,179
Corporate bonds 1,639,956 1,876,880 1,639,956 1,876,880
Common stock 40,198 40,274 40,198 40,274
-----------------------------------------------------------------
5,444,113 5,684,333 4,439,554 5,684,333
=================================================================
24. ACCOUNTS PAYABLE
As at 31 December 2004 and 2003, substantially all the accounts payable
were aged within six months.
092 NOTES TO CNOOC LIMITED
FINANCIAL STATEMENTS
31 December 2004
(All amounts expressed in Renminbi unless
otherwise stated)
25. OTHER PAYABLES AND ACCRUED LIABILITIES
Group
2004 2003
RMB'000 RMB'000
----------------------------------
Accrued payroll and welfare payable 156,706 149,532
Provision for retirement and
termination benefits 292,128 290,955
Accrued expenses 2,818,785 926,867
Advances from customers 12,588 10,864
Royalties payable 142,638 205,113
Other payables 768,179 372,452
----------------------------------
4,191,024 1,955,783
==================================
As at 31 December 2004, deferred revenue from gas sales contracts
amounted to approximately RMB1,050,000 (2003: RMB1,208,000) and was
included in other payables.
26. LONG TERM BANK LOANS
As at 31 December 2004, the long term bank loans of the Group were used
primarily to finance the development of oil and gas properties and to
meet working capital requirements.
Group
2004 2003
RMB'000 RMB'000
----------------------------------
Interest rate
and final maturity
US$ denominated Fixed interest rate 827,650 827,615
bank loans of 9.2% per annum with
maturities through
to 2006
Japanese Yen Fixed interest 61,925 82,578
denominated rate of 4.1% per annum
bank loans with maturities
through to 2007
----------------------------------
889,575 910,193
Less: Current
portion of
long term bank loans (24,364) (20,618)
----------------------------------
865,211 889,575
==================================
As at 31 December 2004, all the bank loans of the Group were unsecured
and none of the outstanding borrowings were guaranteed by CNOOC.
Annual Report 2004 093
26. LONG TERM BANK LOANS (continued)
The maturities of the long term bank loans are as follows:
Group
2004 2003
RMB'000 RMB'000
----------------------------------
Balances due:
- Within one year 24,364 20,618
- After one year but within two years 846,471 24,364
- After two years but within three years 18,740 846,471
- After three years but within four years -- 18,740
- After four years but within five years -- --
----------------------------------
889,575 910,193
----------------------------------
Amount due within one year
shown under current liabilities (24,364) (20,618)
----------------------------------
865,211 889,575
==================================
Supplemental information with respect to long term bank loans:
Maximum Average Weighted
Weighted amount amount average
average outstanding outstanding interest rate
Balance interest rate during the during the during the
at year end at year end year year* year**
RMB'000 RMB'000 RMB'000
------------------------------------------------------------------------------
For the year ended 31 December
2004 889,575 8.81% 910,193 899,884 8.37%
2003 910,193 8.69% 1,238,611 1,074,403 7.94%
* The average amount outstanding is computed by dividing the total of
outstanding principal balances as at 1 January and 31 December by two.
** The weighted average interest rate is computed by dividing the total of
weighted average interest rates as at 1 January and 31 December by two.
094 NOTES TO CNOOC LIMITED
FINANCIAL STATEMENTS
31 December 2004
(All amounts expressed in Renminbi unless
otherwise stated)
27. LONG TERM GUARANTEED NOTES
On 1 March 2002, CNOOC Finance (2002) Limited, a company incorporated in
the British Virgin Islands on 24 January 2002 and a wholly-owned
subsidiary of the Company, issued US$500 million of a principal amount of
6.375% guaranteed notes due in 2012. The obligations of CNOOC Finance
(2002) Limited in respect of the notes are unconditionally and
irrevocably guaranteed by the Company.
On 21 May 2003, CNOOC Finance (2003) Limited, a company incorporated in
the British Virgin Islands on 2 April 2003 and a wholly-owned subsidiary
of the Company, issued US$200 million of a principal amount of 4.125%
guaranteed notes due in 2013 and US$300 million of a principal amount of
5.500% guaranteed notes due in 2033. The obligations of CNOOC Finance
(2003) Limited in respect of the notes are unconditionally and
irrevocably guaranteed by the Company.
On 15 December 2004, CNOOC Finance (2004) Limited, a company incorporated
in the British Virgin Islands on 9 December 2004 and a wholly-owned
subsidiary of the Company, issued US$1 billion zero coupon guaranteed
convertible bonds due 2009, unconditionally and irrevocably guaranteed
by, and convertible into shares of the Company. The bonds are converted
at HK$6.075 per share, subject to adjustment for, among other things,
subdivision or consolidation of shares, bond issues, right issues,
capital distribution and other dilutive events. Unless previous redeemed,
converted or purchased and cancelled, the bonds will be redeemed on the
maturity date at 105.114% of the principal amount.
28. BALANCES WITH THE PARENT COMPANY
As at 31 December 2004 and 2003, the balances with CNOOC were unsecured,
interest-free and were repayable on demand.
29. 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.
In addition to the transactions and balances detailed elsewhere in these
financial statements, the Group had the following material transactions
with related parties during the year:
Notes 2004 2003
RMB'000 RMB'000
-----------------------------
Materials, utilities and ancillary services (i) 1,295,598 1,018,066
Technical services (ii) 6,362,206 3,828,282
Research and development services (iii) 7,800 83,280
Lease and property management services (iv) 76,721 56,867
Included in:
Exploration expenses 960,031 487,293
Operating expenses 1,405,877 1,176,601
Selling and administrative expenses 326,004 191,349
Capitalised under property, plant and equipment 5,050,413 3,131,252
Annual Report 2004 095
29. RELATED PARTY TRANSACTIONS (continued)
(i) Materials, utilities and ancillary services
CNOOC China Limited has entered into materials, utilities and
ancillary services supply agreements with the affiliates of CNOOC.
Under these agreements, the affiliates of CNOOC provide to CNOOC
China Limited various materials, utilities and ancillary services.
The materials, utilities and ancillary services are provided at:
-- state-prescribed prices; or
-- 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
Centre, due to the restructuring of operations in 2004.
(iv) Lease and property management services
The Group has entered into lease and property management services
agreements with the affiliates of CNOOC for the leasing of various
office, warehouse and residential premises. Lease charges are based
on the prevailing market rates.
096 NOTES TO CNOOC LIMITED
FINANCIAL STATEMENTS
31 December 2004
(All amounts expressed in Renminbi unless
otherwise stated)
29. RELATED PARTY TRANSACTIONS (continued)
(v) Sale of crude oil, condensated oil and liquefied petroleum gas
The Group sells crude oil, condensated oil and liquefied petroleum
gas to CNOOC's affiliates which engage in the downstream petroleum
business at the international market price. For the year ended 31
December 2004, the total sales amounted to approximately
RMB13,945,565,000 (2003: RMB8,324,108,000).
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 year
ended 31 December 2004, the total sales to its customers through
such arrangements amounted to approximately RMB446,923,000 (2003:
RMB1,470,832,000). The commission paid by the third party customers
to CNOOC for the year amounted to approximately RMB2,682,000 (2003:
RMB8,825,000).
(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 that 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 year ended 31 December 2004, the maximum outstanding balance
for deposits (including interest received in respect of these
deposits) placed with CNOOC Finance amounted to approximately
RMB5,300,381,000.
30. PROVISION FOR DISMANTLEMENT
Provision for dismantlement represents the estimated costs of dismantling
offshore oil platforms and abandoning oil and gas properties. The
provision for dismantlement has been classified under long term
liabilities. The associated cost is capitalised and the liability is
discounted and an accretion expense is recognised using the
credit-adjusted risk-free interest rate in effect when the liability is
initially recognised. The current year income statement charge represents
the amortisation charge on the dismantlement liabilities capitalised in
accordance with SSAP 28 and is included in the accumulated depreciation,
depletion and amortisation in note 18.
The details of the provision for dismantlement are as follows:
Group
2004 2003
RMB'000 RMB'000
----------------------------------
At the beginning of year 2,646,800 2,239,320
Additions during the year and
capitalised in oil and gas properties 322,941 314,234
Increase in discounted amount of
provisions arising from the
passage of time 119,707 93,246
----------------------------------
End of year 3,089,448 2,646,800
==================================
Annual Report 2004 097
31. SHARE CAPITAL
Issued
Number of Share share capital
Shares (after Stock Split) shares capital Equivalent of
HK$'000 RMB'000
----------------------------------------------
Authorised:
Ordinary shares of HK$0.02 each
As at 31 December 2003 and 2004 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 (18,453,000) (369) (392)
----------------------------------------------
As at December 31 2004 41,052,375,275 821,048 876,586
==============================================
The repurchase of the Company's shares during the year were effected by
the directors, pursuant to the mandate from shareholders received at the
last annual general meeting.
Share options
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, the recipient
of and number of shares underlying each option. These schemes provide
for the 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:
(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 period for options granted under the Pre-Global Offering
Share Option Scheme shall end not later than 10 years from 12 March
2001.
098 NOTES TO CNOOC LIMITED
FINANCIAL STATEMENTS
31 December 2004
(All amounts expressed in Renminbi unless
otherwise stated)
31. SHARE CAPITAL (continued)
Share options (continued)
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 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.
The exercise period for options granted under the 2001 Share Option
Scheme shall end not later than 10 years from 27 August 2001.
In view of the amendments to the relevant provisions of the Rules
Governing the Listing of Securities on The Stock Exchange of Hong Kong
Limited (the "Listing Rules") regarding the requirements of share option
schemes of a Hong Kong listed company effective on 1 September 2001, no
further options will be granted under the 2001 Share Option Scheme.
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 the grant, except that such price may not be set below a
minimum price which is the highest of:
1. the nominal value of shares;
2. the average closing price of the shares on The Stock Exchange of
Hong Kong Limited (the "HKSE") as stated in the HKSE's quotation
sheets for the five trading days immediately preceding the date of
the grant of the option; and
3. the closing price of the shares on the HKSE as stated in the
HKSE's quotation sheet on the date of the grant of the option.
Annual Report 2004 099
31. SHARE CAPITAL (continued)
Share options (continued)
On 24 February 2003, the board of directors approved a grant of 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.
The exercise period for options granted under the 2002 Share Option
Scheme shall end not later than 10 years from 24 February 2003.
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 5 February 2004.
2,300,100 share options granted under the 2002 Share Option Scheme and
the 2001 Share Option Scheme have been exercised since the respective
dates of grant and up to the date when the board of directors approved
the financial statements. The total number of options exercisable as of
31 December 2004 was 54,533,267.
32. RESERVES
According to the laws and regulations of the PRC and the articles of
association of CNOOC China Limited, CNOOC China Limited is required to
provide for certain statutory funds, namely, the general reserve fund
and staff and workers' bonus and welfare funds, which are appropriated
from net profit (after making good losses from previous years), but
before dividend distribution. CNOOC China Limited is required to
allocate at least 10% of its net profit as reported in accordance with
the generally accepted accounting principles in the PRC ("PRC GAAP") to
the general reserve fund until the balance of such fund has reached 50%
of its registered capital. Appropriation to the staff and workers' bonus
and welfare funds, which is determined at the discretion of CNOOC China
Limited's directors, is expensed as incurred under Hong Kong GAAP. The
general reserve fund can only be used, upon approval by the relevant
authority, to offset against accumulated losses or to increase capital.
The staff and workers' bonus and welfare fund can only be used for
special bonuses or collective welfare of employees, and assets acquired
through this fund shall not be taken as assets of CNOOC China Limited.
As at 31 December 2004, the general reserve fund appropriated amounted
to RMB4,413,610,000 (2003: RMB3,050,489,000), representing approximately
29.4% (2003: 20.4%) of the total registered capital of CNOOC China
Limited.
100 NOTES TO CNOOC LIMITED
FINANCIAL STATEMENTS
31 December 2004
(All amounts expressed in Renminbi unless
otherwise stated)
32. RESERVES (continued)
Included in retained earnings is an amount of RMB877,109,000 (2003:
RMB577,640,000), being the retained earnings attributable to associates.
The company's ability to distribute dividends will largely depends on
the dividends it receives from its subsidiaries. The dividends
distributable by the company's subsidiaries to the company are
determined in accordance with the relevant accounting principle required
by the local authorities. As of 31 December 2004 the aggregate amount of
the subsidiaries' retained earnings available for distributions to the
company amounted to approximately RMB 16,652,414,000.
The cumulative translation reserves and revaluation reserves are
accounted for in accordance with the accounting policies adopted for
foreign currency translation and the revaluation of land and buildings.
Company
Share
premium Retained
account earnings Total
RMB'000 RMB'000 RMB'000
--------------------------------------------------------------
Balances at 1 January 2003 20,761,205 2,945,280 23,706,485
Net profit for the year -- 5,031,491 5,031,491
Dividends (note 16) -- (5,403,689) (5,403,689)
--------------------------------------------------------------
Balances at 1 January 2004 20,761,205 2,573,082 23,334,287
--------------------------------------------------------------
Net profit for the year -- 5,441,948 5,441,948
Dividends (note 16) -- (6,101,395) (6,101,395)
Repurchase of shares -- (60,761) (60,761)
Transfer of reserves upon share repurchase 392 (392) --
--------------------------------------------------------------
Balances at 31 December 2004 20,761,597 1,852,482 22,614,079
==============================================================
As at 31 December 2004, the distributable profits of the Company
amounted to approximately RMB1,852,482,000 (2003: RMB2,573,082,000).
33. RETIREMENT AND TERMINATION BENEFITS
All the Group's full-time employees in the PRC are covered by a
government regulated pension, and are entitled to an annual pension. The
PRC government is responsible for the pension liabilities to these
retired employees. The Group is required to make annual contributions to
the government-regulated pension at rates ranging from 9% to 22% of the
employees' basic salaries.
The Company is required to make contributions to a defined contribution
mandatory provident fund at a rate of 5% of the basic salaries of all
full-time employees in Hong Kong. The related pension costs are expensed
as incurred.
The Group provides retirement and termination benefits for all local
employees in Indonesia in accordance with Indonesian labour law, and
provides employee benefits to expatriate staff in accordance with the
relevant employment contracts. The Group has adopted an accounting
policy to record liabilities for the retirement and termination
benefits.
The total amount of contributions and provisions made by the Group for
the above mentioned retirement and termination benefits for the year
ended 31 December 2004 amounted to approximately RMB30,304,000 (2003:
RMB95,147,000).
Annual Report 2004 101
34. NOTES TO THE CONSOLIDATED CASH FLOW STATEMENT
(a) Reconciliation of profit before tax to cash generated from
operations
2004 2003
RMB'000 RMB'000
----------------------------------
Profit before tax 23,116,604 16,163,326
Adjustments for:
Interest income (206,872) (183,576)
Interest expenses 441,825 354,940
Exchange (gains)/losses, net (29,269) 6,746
Share of profits of associates (344,469) (220,263)
Short term investment income (72,438) (123,483)
(Reversal) of/provision for
inventory obsolescence (2,710) 8,745
Depreciation, depletion and
amortisation 5,455,062 4,642,753
Loss on disposal and write-off
of property, plant and equipment 155,876 39,818
Dismantlement 201,637 167,326
Amortisation of discount
of long term guaranteed notes 15,634 11,276
----------------------------------
Operating cash flows before
movements in working capital 28,730,880 20,867,608
Increase in accounts receivable (27,466) (1,185,304)
Increase in inventories and supplies (96,307) (129,678)
Decrease in other current assets 267,168 312,559
Increase in amounts due from
related companies (417,091) (302,993)
Increase/(decrease) in an amount
due to the parent company 205,407 (105,785)
Increase in accounts payable, other
payables and accrued liabilities 1,318,415 1,448,645
Increase/(decrease) in other taxes
payable (12,447) (4,772)
(Decrease)/increase in amounts due to
related companies (262,798) 242,631
----------------------------------
Cash generated from operations 29,705,761 21,142,911
==================================
102 NOTES TO CNOOC LIMITED
FINANCIAL STATEMENTS
31 December 2004
(All amounts expressed in Renminbi unless
otherwise stated)
34. NOTES TO THE CONSOLIDATED CASH FLOW STATEMENT (continued)
(b) Acquisitions
2004 2003
RMB'000 RMB'000
----------------------------------
Acquisitions
Net assets acquired:
Property, plant and equipment, net 4,686,857 1,579,726
Accounts receivable 453 --
Other current assets 66,744 8,959
Inventories and supplies -- 122,777
Cash and bank balances -- 17,580
Accounts payable (81,547) (8,294)
Other payables and accrued liabilities -- (47,983)
Deferred tax liabilities (1,141,461) --
----------------------------------
3,531,046 1,672,765
Prepayment for NWS Project 4,693,809 --
Prepayment for Tangguh Project -- 2,445,715
----------------------------------
8,224,855 4,118,480
==================================
Satisfied by:
Prepayment made in 2003 2,445,715 --
Cash paid (including cash
calls for Tangguh Project) 5,779,140 4,118,480
----------------------------------
8,224,855 4,118,480
==================================
An analysis of the net outflow of cash and cash equivalents in respect
of the acquisition is as follows:
2004 2003
RMB'000 RMB'000
----------------------------------
Cash consideration 5,779,140 4,118,480
Cash and bank balances acquired -- (17,580)
----------------------------------
Net outflow of cash and cash equivalents 5,779,140 4,100,900
==================================
Further details of the acquisition of the Tangguh LNG Project and NWS
Project are included in note 4 to the financial statements. The purchase
price allocations for Tangguh Project are still preliminary pending for
the confirmation of the tax basis of the underlying assets.
Annual Report 2004 103
35. COMMITMENTS
(i) Capital commitments
As at 31 December 2004, the Group and the Company had the
following capital commitments, principally for the construction
and purchase of property, plant and equipment:
2004 2003
RMB'000 RMB'000
----------------------------------
Contracted for 9,568,971 2,534,468
Authorised, but not contracted for 20,331,504 17,489,791
As at 31 December 2004, the Group had unutilised banking
facilities amounting, to approximately RMB20,662,120,000 (2003:
RMB32,455,229,500).
(ii) Operating lease commitments
(a) Office properties
The Group leases certain, of its office properties under
operating lease arrangements, leases properties are
negotiated for terms ranging from 10 months to 3 years.
As at 31 December 2004, the Group had total minimum lease
payments under non-cancelable operating leases falling due
as follows:
2004 2003
RMB'000 RMB'000
----------------------------------
Commitments due:
-- Within one year 24,824 17,222
-- After one year but within two years 549 3,174
----------------------------------
25,373 20,396
==================================
(b) Plant and equipment
During the year, the Group also entered into an operating
lease arrangement for certain plant and equipment for a term
of 20 years. As at 31 December 2004, the total minimum lease
payments under non-cancelable operating lease attributable
to the Group falling within one year were RMB 149,360,000,
in the second to fifth years were RMB 597,442,000 and after
five years were RMB 1,834,023,000.
(iii) Commitment to invest in the Gorgon Joint Venture
In October 2003, the Company entered into an agreement with the
participants in the 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.
104 NOTES TO CNOOC LIMITED
FINANCIAL STATEMENTS
31 December 2004
(All amounts expressed in Renminbi unless
otherwise stated)
35. COMMITMENTS (continued)
(iv) Financial instruments
(a) Currency swap contracts
As at 31 December 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 are as follows:
2004 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
2004 -- -- 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
(b) Fair value of financial statements
The carrying value of cash and cash equivalents, time
deposits and short-term investments approximated fair value
due to the short maturity of these instruments.
The estimated fair value of long term bank loans based on
current market interest rates was approximately RMB
967,770,000 as at 31 December 2004 (2003: RMB
1,064,895,000).
The estimated fair value of long term guaranteed notes based
on current market interest rates was approximately
RMB1,985,009,900 as at 31 December 2004 (2003: RMB
8,304,647,000).
36. CONCENTRATION OF CUSTOMERS
A substantial portion of the oil and gas sales of the Group is made to a
small number of customers on an open account basis. Details of the sales
to these customers are as follows:
2004 2003
RMB'000 RMB'000
----------------------------------
China Petroleum & Chemical Corporation 10,634,066 6,975,069
PetroChina Company Limited 1,944,709 1,446,169
Castle Peak Power Company Limited 1,070,436 841,285
Annual Report 2004 105
37. ADDITIONAL FINANCIAL INFORMATION
As at 31 December 2004, net current assets and total assets less current
liabilities of the Group amounted to approximately RMB24,890,362,000 and
RMB83,674,168,000 (2003: RMB19,956,331,000 and RMB64,197,772,000),
respectively.
As at 31 December 2004, net current assets and total assets less current
liabilities of the Company amounted to approximately RMB13,635,306,000
and RMB23,490,665,000 (2003: RMB7,649,024,000 and RMB24,211,265,000),
respectively.
38. SIGNIFICANT DIFFERENCES BETWEEN HONG KONG GAAP AND US 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 ("US GAAP").
(a) Net profit and net 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 year ended 31 December
2004 was approximately RMB9,156,000 (2003: RMB9,156,000).
Under US 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 US 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's earnings. According to US GAAP, such
investments are also measured at fair value and classified
in accordance with Statement of Financial Accounting
Standards ("SFAS") No.115. Under US GAAP, related unrealised
gains and losses on available-for-sale securities are
excluded from the current period's 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 US GAAP, long-lived assets are assessed for possible
impairment in accordance with SFAS No.144, "Accounting for
the impairment or disposal of long-lived assets". SFAS No.
144 requires the Group to (a) recognise an impairment loss
only if the carrying amount of a long-lived asset is not
recoverable from its undiscounted cash flows and (b) measure
an impairment loss as the difference between the carrying
amount and fair value of the asset. SFAS No. 144 requires
that a long-lived asset to be abandoned, exchanged for a
similar productive asset, or distributed to owners in a
spin-off be considered as held and used until it is disposed
of.
106 NOTES TO CNOOC LIMITED
FINANCIAL STATEMENTS
31 December 2004
(All amounts expressed in Renminbi unless
otherwise stated)
38. SIGNIFICANT DIFFERENCES BETWEEN HONG KONG GAAP AND US GAAP (continued)
(a) Net profit and net 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 the write-down or
write-off cease to exist. The reversal is reduced by the
amount that would have been recognised as depreciation had
the write-down or write-off not occurred. Under US GAAP, an
impairment loss establishes a new cost basis for the
impaired asset and the new cost basis should not be adjusted
subsequently other than for further impairment losses.
For the year ended 31 December 2004, there were no
impairment losses recognised under Hong Kong GAAP and US
GAAP.
(iv) Stock compensation schemes
As at December 31, 2004, the Company had three stock option
schemes, which are described more fully in note 31. The
Company accounted for those plans under the fair value
recognition provision of FASB Statement No. 123, "Accounting
for Stock-Based Compensation", as amended by FASB statement
No. 148, for stock-based employee compensation. Compensation
costs recognised for the stock option schemes amounted to
RMB46,642,000 (2003: RMB37,747,000) for the year ended 31
December 2004.
The 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%; and expected
life of five years; expected volatility of 44%; and
risk-free interest rates of 5.25%. The weighted average
exercise price of the stock options was HK$2.06 per share.
(v) Acquisition of CNOOC Finance
Under HK 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 US 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 US GAAP purpose.
Annual Report 2004 107
38. SIGNIFICANT DIFFERENCES BETWEEN HONG KONG GAAP AND US GAAP (continued)
(a) Net profit and net equity (continued)
(vi) Accounting for convertible debt
Under HK GAAP, prior to December 31, 2004, there were no
requirements to segregate the equity and derivative
components of convertible debt. As such, convertible debt
was stated at amortised cost.
Under US GAAP, the derivative components will need to be
bifurcated from the debt components if it contains a
compound derivative or fails to fulfill certain criteria for
not bifurcating. The derivative components are marked to
market at each balance sheet date and the differences will
be charged/credited to income. The debt components are
stated at amortised cost.
The effects on net profit and equity of the above significant
differences between Hong Kong GAAP and US GAAP are summarised
below:
Net Profit
2004 2003
RMB'000 RMB'000
----------------------------------
As reported under Hong Kong GAAP 16,185,778 11,535,490
Impact of U.S GAAP adjustments:
-- Reversal of additional depreciation,
depletion and amortisation charges
arising from the revaluation surplus
on land and buildings 9,156 9,156
-- Equity accounting for the results
of CNOOC Finance -- 30,913
-- Unrealised holding (gains)/losses
from available-for-sale investments in
marketable securities 25,228 (21,503)
-- Realised holding gains/(losses) from
available-for-sale
marketable securities 2,972 27,088
-- Recognition of stock compensation cost (46,642) (37,747)
----------------------------------
Income before cumulative effect of
change in accounting policy 16,176,492 11,543,397
Cumulative effect of change in
accounting policy for
dismantlement liabilities -- 436,112
----------------------------------
Net profit under US GAAP 16,176,492 11,979,509
==================================
Net profit per share under US GAAP
-- Basic (after Stock Split)
Before cumulative effect of
change in accounting policy for
dismantlement liabilities RMB 0.39 RMB 0.28
Cumulative effect of change in
accounting policy for
dismantlement liabilities -- RMB 0.01
----------------------------------
RMB 0.39 RMB 0.29
==================================
108 NOTES TO CNOOC LIMITED
FINANCIAL STATEMENTS
31 December 2004
(All amounts expressed in Renminbi unless
otherwise stated)
38. SIGNIFICANT DIFFERENCES BETWEEN HONG KONG GAAP AND US GAAP (continued)
(a) Net profit and net equity (continued)
Net Profit
2004 2003
RMB'000 RMB'000
----------------------------------
-- Diluted (after Stock Split)
Before cumulative effect
of change in accounting
policy for dismantlement liabilitie RMB 0.39 RMB 0.28
Cumulative effect of change in
accounting policy for
dismantlement liabilities -- RMB 0.01
----------------------------------
RMB 0.39 RMB 0.29
==================================
Net equity
2004 2003
RMB'000 RMB'000
----------------------------------
As reported under Hong Kong GAAP 56,717,461 46,736,532
Impact of US GAAP adjustments:
-- Reversal of revaluation surplus
on land and buildings (274,671) (274,671)
-- Reversal of additional accumulated
depreciation, depletion and
amortisation arising from
the revaluation surplus on
land and buildings 44,207 35,051
-- Equity accounting for the
results of CNOOC Finance -- 41,576
-- Dividend distribution made
by CNOOC Finance to CNOOC -- (41,576)
----------------------------------
Net equity under US GAAP 56,486,997 46,496,912
==================================
Apart from the derivative components with a total credit balance
of approximately RMB 450 million that are required to be
bifurcated from the convertible debt, there are no other
significant GAAP differences that affect classifications within
the balance sheet or income statement but do not affect net income
or shareholders' equity.
Annual Report 2004 109
38. SIGNIFICANT DIFFERENCES BETWEEN HONG KONG GAAP AND US GAAP (continued)
(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 US GAAP are
included in comprehensive income and excluded from net income.
2004 2003
(Restated)
RMB'000 RMB'000
-----------------------------------
Net income under US GAAP 16,176,492 11,979,509
Other comprehensive income:
Foreign currency translation adjustments (42,301) 36,243
Unrealised gains on short-term investment (25,228) 21,503
Less: Reclassification adjustment
for gains included in net income (2,972) (27,088)
-----------------------------------
Comprehensive income under US GAAP 16,105,991 12,010,167
===================================
Roll forward of accumulated other comprehensive income components
are as follows:
Foreign Unrealised Accumulated
currency gains on other
translation short-term comprehensive
adjustments investments income
RMB'000 RMB'000 RMB'000
---------------------------------------------------
Balance at 1 January 2003 (13,596) 53,821 40,225
Reversal of current
year realised gains -- (27,088) (27,088)
Current year change 36,243 21,503 57,746
---------------------------------------------------
Balance at 1 January 2004 22,647 48,236 70,883
Reversal of current
year realised gains -- (2,972) (2,972)
Current year change (42,301) (25,228) (67,529)
---------------------------------------------------
Balance at 31 December 2004 (19,654) 20,036 382
===================================================
110 NOTES TO CNOOC LIMITED
FINANCIAL STATEMENTS
31 December 2004
(All amounts expressed in Renminbi unless
otherwise stated)
38. SIGNIFICANT DIFFERENCES BETWEEN HONG KONG GAAP AND US GAAP (continued)
(c) Derivative instruments
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 certain Japanese Yen 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 year ended 31 December 2004, the
Group recognised related changes in fair value, a gain of
RMB2,581,000 (2003: RMB10,038,000), and included the amount in
"Exchange gains /(losses), net" in the consolidated income
statement.
During 2003, the Group also entered 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 year and the total net gain was
RMB84,168,000.
(d) Use of estimates in the preparation of financial statements
The preparation of financial statements in conformity with
accounting principles generally accepted in the United States of
America requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the
financial statements, and the reported amounts of revenues and
expenses during the reporting period. The most significant
estimates pertain to proved oil and gas reserve volumes and the
future development, provision for dismantlement as well as
estimates relating to certain oil and gas revenues and expenses.
Actual amounts could differ from those estimates and assumptions.
(e) Segment reporting
The Group's segment information is based on the segmental
operating results regularly reviewed by the Group's chief
operating decision maker. The accounting policies used are the
same as those used in the preparation of the Group's consolidated
Hong Kong GAAP financial statements.
39. SUBSEQUENT EVENT
The Company, through its wholly owned subsidiary has signed an agreement
with a Canadian based Company, MEG Energy Corporation ("MEG"), to
acquire a 16.69% stake of MEG. The Company completed the transaction and
paid C$150 million for the acquisition of 13,636,364 common shares of
MEG in March 2005. MEG is principally engaged in the production of the
oil sands.
40. APPROVAL OF THE FINANCIAL STATEMENTS
The financial statements were approved and authorised for issue by the
board of directors on 29 March 2005.
Annual Report 2004 SUPPLEMENTARY INFORMATION 111
ON OIL AND GAS PRODUCING
ACTIVITIES (UNAUDITED)
(All amounts expressed in Renminbi unless
otherwise stated)
The following disclosures are included in accordance with the United States
Statement of Financial Accounting Standards No. 69, "Disclosures about Oil and
Gas Producing Activities".
(a) Reserve quantity information
Crude oil and natural gas reserve estimates are determined through
analysis of geological and engineering data which appear, with
reasonable certainty, to be recoverable at commercial rates in the
future from known oil and natural gas reservoirs under existing economic
and operating conditions.
Estimates of crude oil and natural gas reserves have been made by
independent engineers. The Group's net proved reserves consist of its
percentage interest in reserves, comprised of a 100% interest in its
independent oil and gas properties and its participating interest in the
properties covered under the production sharing contracts in PRC, less
(a) an adjustment for the Group's share of royalties payable by the
Group to the PRC government and the Group's participating interest in
share oil payable to the PRC government under the production sharing
contracts, and less (b) an adjustment for production allocable to
foreign partners under the PRC production sharing contracts as
reimbursement for exploration expenses attributable to the Group's
participating interest, and its participating interest in the properties
covered under the production sharing contracts in Indonesia less an
adjustment of share oil attributable to the Indonesian government and
the domestic market obligation.
Proved developed and undeveloped reserves (net of royalties and PRC
government share oil):
PRC Indonesia Total
Oil Natural gas OiL Natural gas Oil Natural gas
(mmbls) (bcf) (mmbls) (bcf) (mmbls) (bcf)
----------------------------------------------------------------------------------
31 December 2001 1,279 3,248 -- -- 1,279 3,248
Purchase of reserves -- -- 143 241 143 241
Discoveries and extensions 150 169 -- -- 150 169
Production (96) (79) (13) (26) (109) (105)
Revisions of prior estimates (46) (5) 8 -- (38) (5)
----------------------------------------------------------------------------------
31 December 2002 1,287 3,333 138 215 1,425 3,548
Purchase of reserves 53 142 -- -- 53 142
Discoveries and extensions 114 506 1 2 115 508
Production (97) (69) (15) (37) (112) (106)
Revisions of prior estimates (24) 42 (21) 20 (45) 62
----------------------------------------------------------------------------------
31 December 2003 1,333 3,954 103 200 1,436 4,154
Purchase of reserves 6 161 -- -- 6 161
Discoveries and extensions 129 414 4 157 133 571
Production (106) (103) (11) (31) (117) (134)
Revisions of prior estimates (8) (101) 5 (5) (3) (106)
----------------------------------------------------------------------------------
31 December 2004 1,354 4,325 101 321 1,455 4,646
==================================================================================
112 SUPPLEMENTARY INFORMATION CNOOC LIMITED
ON OIL AND GAS PRODUCING
ACTIVITIES (UNAUDITED)
(All amounts expressed in Renminbi unless
otherwise stated)
(a) Reserve quantity information (continued)
Proved developed reserves:
PRC Indonesia Total
Oil Natural gas OiL Natural gas Oil Natural gas
(mmbls) (bcf) (mmbls) (bcf) (mmbls) (bcf)
----------------------------------------------------------------------------------
31 December 2002 542 724 115 101 657 825
31 December 2003 459 2,054 91 135 550 2,189
31 December 2004 617 2,134 85 138 702 2,272
(b) Results of operations
2002 2003
PRC Indonesia Total PRC Indonesia Total
RMB'000 RMB'000 RMB'000 RMB'000 RMB'000 RMB'000
-------------------------------------------------------------------------------------------------------
Net sales to customers 20,280,746 3,498,548 23,779,294 23,644,659 4,472,172 28,116,831
Operating expenses (2,440,210) (1,335,124) (3,775,334) (2,903,094) (1,609,715) (4,512,809)
Production taxes (1,023,049) - (1,023,049) (1,238,598) - (1,238,598)
Exploration (1,286,670) (31,653) (1,318,323) (764,165) (83,907) (848,072)
Accretion expense - - - (93,246) - (93,246)
Depreciation, depletion
and amortisation
(including
dismantlement) (3,121,381) (898,151) (4,019,532) (3,700,349) (1,109,730) (4,810,079)
-------------------------------------------------------------------------------------------------------
12,409,436 1,233,620 13,643,056 14,945,207 1,668,820 16,614,027
Income tax expenses (3,816,008) (592,138) (4,408,146) (4,483,562) (719,695) (5,203,257)
-------------------------------------------------------------------------------------------------------
Result of operations 8,593,428 641,482 9,234,910 10,461,645 949,125 11,410,770
=======================================================================================================
2004
PRC Indonesia Total
RMB'000 RMB'000 RMB'000
-------------------------------------------------------------
Net sales to customers 32,723,277 4,162,742 36,886,019
Operating expenses (3,643,182) (1,427,162) (5,070,344)
Production taxes (1,725,674) - (1,725,674)
Exploration (1,202,203) (113,957) (1,316,160)
Accretion expense (119,707) - (119,707)
Depreciation,
depletion
and amortisation
(including
dismantlement) (4,670,988) (985,711) (5,656,699)
-------------------------------------------------------------
21,361,523 1,635,912 22,997,435
Income tax expenses (6,408,457) (705,487) (7,113,944)
-------------------------------------------------------------
Result of operations 14,953,066 930,425 15,883,491
=============================================================
(c) Capitalised costs
2002 2003
PRC Indonesia Total PRC Indonesia Total
RMB'000 RMB'000 RMB'000 RMB'000 RMB'000 RMB'000
-------------------------------------------------------------------------------------------------------
Proved oil and gas
properties 46,426,684 9,605,744 56,032,428 57,537,676 9,440,843 66,978,519
Unproved oil and gas
properties 521,880 - 521,880 713,594 - 713,594
Accumulated
depreciation,
depletion and
amortisation (21,161,905) (993,316) (22,155,221) (25,740,836) (2,098,269) (27,839,105)
-------------------------------------------------------------------------------------------------------
Net capitalised costs 25,786,659 8,612,428 34,399,087 32,510,434 7,342,574 39,853,008
=======================================================================================================
2004
PRC Indonesia Total
RMB'000 RMB'000 RMB'000
-------------------------------------------------------------
Proved oil and gas
properties 70,931,798 10,100,116 81,031,914
Unproved oil and gas
properties 437,513 4,696,237 5,133,750
Accumulated
depreciation,
depletion and
amortisation (30,462,658) (3,083,933) (33,546,591)
-------------------------------------------------------------
Net capitalised costs 40,906,653 11,712,420 52,619,073
=============================================================
Annual Report 2004 113
(d) Costs incurred
2002 2003
PRC Indonesia Total PRC Indonesia Total
RMB'000 RMB'000 RMB'000 RMB'000 RMB'000 RMB'000
-------------------------------------------------------------------------------------------------------
Acquisition costs - 4,735,826 4,735,826 1,579,726 - 1,579,726
Exploration costs 1,519,683 32,405 1,552,088 1,225,926 102,067 1,327,993
Development costs** 5,458,199 750,532 6,208,731 7,489,472 512,064 8,001,536
-------------------------------------------------------------------------------------------------------
Total costs incurred 6,977,882 5,518,763 12,496,645 10,295,124 614,131 10,909,255
=======================================================================================================
2004
PRC Indonesia* Total
RMB'000 RMB'000 RMB'000
-------------------------------------------------------------
Acquisition costs - 3,531,046 3,531,046
Exploration costs 1,806,556 137,361 1,943,917
Development costs** 11,693,183 645,501 12,338,684
-------------------------------------------------------------
Total costs incurred 13,499,739 4,313,908 17,813,647
=============================================================
* The amounts do not include prepayments made for the NWS Project of RMB
4,693,809,000.
** The development costs include estimated future dismantlement costs of
dismantling offshore oil platforms and gas properties.
(e) Standardised measure of discounted future net cash flows and changes
therein
In calculating the standardised measure of discounted future net cash
flows, year-end constant price and cost assumptions were applied to the
Group's estimated annual future production from proved reserves to
determine future cash inflows. Year end average realised oil prices used
in the estimation of proved reserves and calculation of the standardised
measure were US$32 as at 31 December 2004 (2003: US$30; 2002: US$28).
Future development costs are estimated based upon constant price
assumptions and assume the continuation of existing economic, operating
and regulatory conditions. Future income taxes are calculated by
applying the year-end statutory rate to estimate future pre-tax cash
flows after provision for the tax cost of the oil and natural gas
properties based upon existing laws and regulations. The discount was
computed by application of a 10% discount factor to the estimated future
net cash flows.
Management believes that this information does not represent the fair
market value of the oil and natural gas reserves or the present value of
estimated cash flows since no economic value is attributed to potential
reserves, the use of a 10% discount rate is arbitrary, and prices change
constantly from year-end levels.
Present value of estimated future net cash flows:
2002 2003
Notes PRC Indonesia Total PRC Indonesia Total
RMB'000 RMB'000 RMB'000 RMB'000 RMB'000 RMB'000
---------------------------------------------------------------------------------------
Future
cash inflows (1) 389,025,791 37,242,644 426,268,435 422,329,692 30,135,721 452,465,413
Future production
costs (89,657,677) (22,386,603) (112,044,280) (106,854,167) (17,532,095) (124,386,262)
Future development
costs (2) (44,699,729) (5,381,081) (50,080,810) (52,917,280) (4,114,091) (57,031,371)
Future
income taxes (73,757,925) (4,301,926) (78,059,851) (72,124,755) (3,346,547) (75,471,302)
---------------------------------------------------------------------------------------
Future net cash
flows (3) 180,910,460 5,173,034 186,083,494 190,433,490 5,142,988 195,576,478
10% discount
factor (84,478,856) (1,463,589) (85,942,445) (84,550,531) (1,226,300) (85,776,831)
---------------------------------------------------------------------------------------
Standardised measure 96,431,604 3,709,445 100,141,049 105,882,959 3,916,688 109,799,647
=======================================================================================
2004
PRC Indonesia Total
RMB'000 RMB'000 RMB'000
--------------------------------------------
Future cash inflows 467,336,822 37,198,784 504,535,606
Future production
costs (115,267,250) (20,472,914) (135,740,164)
Future development
costs (60,319,348) (6,709,341) (67,028,689)
Future income taxes (78,717,296) (4,001,019) (82,718,315)
--------------------------------------------
Future net cash
flows 213,032,928 6,015,510 219,048,438
10% discount factor (91,755,987) (1,905,679) (93,661,666)
--------------------------------------------
Standardised measure 121,276,941 4,109,831 125,386,772
============================================
114 SUPPLEMENTARY INFORMATION CNOOC LIMITED
ON OIL AND GAS PRODUCING
ACTIVITIES (UNAUDITED)
(All amounts expressed in Renminbi unless
otherwise stated)
(e) Standardised measure of discounted future net cash flows and changes
therein (continued)
(1) Future cash flows consist of the Group's 100% interest in the
independent oil and gas properties and the Group's participating
interest in the properties under production sharing contracts in
PRC less (a) an adjustment for the royalties payable to the PRC
government and share oil payable to the PRC government under
production sharing contracts and (b) an adjustment for production
allocable to foreign partners under the PRC production sharing
contracts for exploration costs attributable to the Group's
participating interest, plus its participating interest in the
properties covered under the production sharing contracts in
Indonesia, less an adjustment of share oil attributable to
Indonesian government and the domestic market obligation.
(2) Future development costs include the estimated costs of drilling
future development wells and building the production platforms.
(3) Future net cash flows have been prepared taking into consideration
estimated future dismantlement costs of dismantling offshore oil
platforms and gas properties.
Changes in the standardised measure of discounted future net cash flows:
2002 2003 2004
RMB'000 RMB'000 RMB'000
-------------------------------------------
Standardised measure, beginning of year 51,082,458 100,141,049 109,799,647
Sales of production, net of royalties and production costs (18,980,911) (22,345,781) (30,090,001)
Net change in prices, net of royalties and production costs 58,471,355 22,321,949 17,826,421
Extensions discoveries and improved recovery,
net of related future costs 14,603,893 13,790,936 20,772,271
Change in estimated future development costs (13,947,849) (14,673,054) (21,766,234)
Development costs incurred during the year 6,208,731 7,718,863 11,768,916
Revisions in quantity estimates (3,301,510) (2,942,902) (1,954,130)
Accretion of discount 6,873,378 13,428,654 14,202,072
Net change in income taxes (23,296,206) (6,290,099) (5,515,547)
Purchase of properties 15,899,375 5,363,142 2,352,004
Changes in timing and other 6,528,335 (6,713,110) 7,991,353
-------------------------------------------
Standardised measure, end of year 100,141,049 109,799,647 125,386,772
===========================================
118 GLOSSARY CNOOC LIMITED
GLOSSARY
API gravity
The America Petroleum Institute's scale for specific gravity for liquid
hydrocarbons, measured in degrees.
Appraisal well
An exploratory well drilled for the purpose of evaluating the commerciality of
a geological trap in which petroleum has been discovered.
Bbls
Barrels
Bcf
Billion cubic feet
BOE
Barrels-of-oil-equivalent
DD&A
Depreciation, depletion and amortization
Dismantlement
Post closure and other environmentle exit
Lifting costs per barrel
(Operating expenditures + production taxes)/total net production
Downstream business
Refinery and petrochemical processing
Finding costs
For a given period, costs incurred in identifying areas that may warrant
examination and in examining specific areas that are considered to have
prospects of containing oil and gas reserves, including costs of drilling
exploratory wells.
FPSO
Floating, Production, Storage and Offloading
LNG
Liquefied Natural Gas
Mbbls
Thousand barrels
MBOE
Thousand barrels of equivalent
Mcf
Thousand cubic feet
Mmboe
Million barrels-of-oil equivalent
Mmbbls
Million barrels
Mmcf
Million cubic feet
Net Proved Reserves
"Net proved reserves" are derived from proved reserves less certain
adjustments, where: proved reserves is equal to the sum of (i) our 100%
interest in our independent oil and gas properties (excluding the proved
reserves attributable to our associated company); and (ii) our participating
interest in the properties covered under our production sharing contracts in
the PRC and Indonesia; while the adjustments equal the sum of (i) an
adjustment for our share of royalties payable to the PRC government and our
participating interest in share oil payable to the PRC government under our
production sharing contracts in the PRC; (ii) an adjustment for production
allocable to foreign partners under our production sharing contracts in the
PRC as reimbursement for exploration expenses attributable to our working
interest and (iii) an adjustment for share oil payable under our Indonesian
production sharing contracts to Pertamina, the Indonesian state-owned oil and
gas company and the domestic market obligation.
We use "share oil" to refer to the portion of production that must be
allocated to the relevant government entity or company under our production
sharing contracts and technical assistance contracts. Net proved reserves do
not include any deduction for production taxes payable by us, which are
included in our operating expenses.
Net Production
Net production is calculated in the same way as net proved reserves.
Net reserve additions
Total additions of reserves plus or minus reserves revisions
Offshore
Areas under water with a depth of five metres or greater
OGP
International Association of Oil & Gas Producers
PSC
Production sharing contract
Total production costs per barrel
(operating expenditures + production taxes + dismantlement + DD&A +
SG&A)/total net production
Upstream business
Oil and gas exploration and production
Wildcat well
A well drilled on any geological trap for the purpose of searching for
petroleum accumulations in an area or rock formation that has no known
reserves or previous discoveries
Reserve replacement ratio
For a given year, total additions to proved reserves divided by production
during the year.
Note: In calculating barrels-of-oil equivalent, or BOE, we have assumed that
6,000 cubic feet of natural gas equals one BOE, with the exception of
natural gas from certain fields which is converted using the actual
heating value of the natural gas.
Annual Report 2004 COMPANY 119
INFORMATION
COMPANY INFORMATION
Board of Directors:
Fu Chengyu Chairman & CEO
Luo Han Executive Director
Jiang Longsheng Executive Director
Zhou Shouwei Executive Director & President
Chiu Sung Hong Independent Non-executive Director
Dr. Kenneth S. Courtis Independent Non-executive Director
Dr. Erwin Schurtenberger Independent Non-executive Director
Evert Henkes Independent Non-executive Director
Company Secretary
Cao Yunshi
Audit Committee
Chiu Sung Hong
Dr. Kenneth S. Courtis (Financial Advisor)
Dr. Erwin Schurtenberger
Remuneration Committee
Chiu Sung Hong
Dr. Erwin Schurtenberger
Evert Henkes
Nomination Committee
Luo Han
Chiu Sung Hong
Dr. Erwin Schurtenberger
Senior Management
Cao Yunshi General Counsel & Senior Vice President
Yang Hua CFO & Senior Vice President
Chen Wei Senior Vice President
Zhang Guohua Senior Vice President
Liu Jian Senior Vice President
Li Ning Senior Vice President
Zhang Qiang Assistant to General Manager
CNOOC China Limited
Liu Defu Assistant to General Manager
CNOOC China Limited
Department Management
Zhang Guohua General Manager,
Exploration Department (concurrently)
Liu Jian General Manager,
Development & Production Department
(concurrently)
Li Ning General Manager,
Engineering & Project Department (concurrently)
Li Feilong Financial Controller, Finance Department
Zhao Liguo General Manager, Legal Department
Song Lisong General Manager,
Health, Safety & Environmental Department
Zhong Hua General Manager,
Strategic Development & Planning Department
Chen Hezhi Human Resources Manager,
Human Resources Department
Zheng Baoguo General Manager, Marketing Department
Huang Xiaofeng Acting General Manager, Treasury Department
Xiao Zongwei General Manager, Investor Relations Department
Yang Hua General Manager, International Affairs
(concurrently)
Dong Weiliang General Manager,
Science and Technology Development
Department
Zhang Benchun General Manager,
Audit and Supervision Department
Branch Offices & Subsidiaries Management
Chen Bi General Manager,
CNOOC China Limited - Tianjin Branch
Zhu Weilin General Manager,
CNOOC China Limited - Zhanjiang Branch
Zhu Mingcai General Manager,
CNOOC China Limited - Shenzhen Branch
Cao Xuejun General Manager,
CNOOC China Limited - Shanghai Branch
Chen Wei Director,
CNOOC (China) Limited Research Center
(Concurrently)
Yang Hua President,
CNOOC International Limited (Concurrently)
Fang Zhi Director and General Manager,
CNOOC Southeast Asia Limited
Sun Dalu General Manager,
China Offshore Oil (Singapore)
International Pte. Ltd.
120 COMPANY CNOOC LIMITED
INFORMATION
Principal bankers:
Bank of China (Hong Kong) Limited
Hang Seng Bank Limited
Bank of China
Industrial and Commercial Bank of China
CITIC Industrial Bank
China Construction Bank
Hong Kong Share Registrar:
Computershare Hong Kong Investor Services Limited
19th Floor, Room 1901-5
Hopewell Center
183 Queen's Road East
Wan Chai
Hong Kong
ADS Depositary:
JPMorgan Chase Bank, N.A.
4 New York Plaza, 13th Floor
New York, NY 10004
United States of America
Symbol and stock code:
NYSE: CEO
HKSE: 0883
Investor / Public Relations:
Hong Kong
Tel: (852) 2213 2500
Fax: (852) 2525 9322
Beijing
Tel: (8610) 8452 1646
Fax: (8610) 8452 1441
E-mail: xiaozw@cnooc.com.cn
Registered office:
65/F, Bank of China Tower, 1 Garden Road, Hong Kong
Tel: (852) 2213 2500
Fax: (852) 2525 9322
Beijing office:
CNOOC Tower, No.6 Dong Zhi Men Wai Xiao Jie,
Beijing, 100027, China
Zip Code: 100027
Tel: (8610) 8452 1604
Fax: (8610) 6460 2503
Website: www.cnoocltd.com
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, as
amended, the registrant has duly caused this report on Form 6-K to be signed
on its behalf by the undersigned, thereunto duly authorized.
CNOOC Limited
By: /s/ Cao Yunshi
-----------------------------
Name: Cao Yunshi
Title: Company Secretary
Dated: April 14, 2005