SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 6-K
REPORT OF FOREIGN PRIVATE ISSUER
PURSUANT TO RULE 13a-16 OR 15d-16 OF
THE SECURITIES EXCHANGE ACT OF 1934
For December 12, 2005
CNOOC Limited
(Translation of registrant's name into English)
-----------------------------
65th Floor
Bank of China Tower
One Garden Road
Central, Hong Kong
(Address of principal executive offices)
-----------------------------
(Indicate by check mark whether the registrant files or will file annual
reports under cover Form 20-F or Form 40-F)
Form 20-F X Form 40-F
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(Indicate by check mark whether the registrant by furnishing the information
contained in this Form is also thereby furnishing the information to the
Commission pursuant to Rule 12g3-2(b) under the Securities Exchange Act of
1934.)
Yes No X
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(If "Yes" is marked, indicate below the file number assigned to the registrant
in connection with Rule 12g3-2(b): N/A.)
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THIS DOCUMENT IS IMPORTANT AND REQUIRES YOUR IMMEDIATE ATTENTION
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If you are in any doubt as to any aspect of this circular or as to the action
to be taken, you should consult a stockbroker or other registered dealer in
securities, a bank manager, solicitor, professional accountant or other
professional adviser.
If you have sold or transferred all your shares in CNOOC Limited you should at
once pass this circular to the purchaser or to the bank, stockbroker or other
agent through whom the sale was effected for transmission to the purchaser.
The Stock Exchange of Hong Kong Limited takes no responsibility for the
contents of this circular, makes no representation as to its accuracy or
completeness and expressly disclaims any liability whatsoever for any loss
howsoever arising from or in reliance upon the whole or any part of the
contents of this
circular.
_______________________________________________________________________________
[LOGO OMITTED]CNOOC
CNOOC Limited
(Translation of registrant's name into English)
(Incorporated in Hong Kong with limited liability under the Companies Ordinance)
(Stock Code: 883)
AMENDMENT TO EXISTING NON-COMPETE UNDERTAKING,
REVISED CAP FOR EXISTING CONTINUING CONNECTED TRANSACTION,
NEW CATEGORISATION FOR CONTINUING CONNECTED TRANSACTIONS
AND
ADOPTION OF NEW SHARE OPTION SCHEME
Independent Financial Adviser to the Independent Board Committee
[LOGO OMITTED]
(Translation of registrant's name into English)
DaoHengSecurities Ltd.
_______________________________________________________________________________
A notice convening an extraordinary general meeting of CNOOC Limited to be
held on 31 December 2005 at 10:30 a.m. (or such later time as the
extraordinary general meeting of the shareholders of the Company to be held at
10:00 a.m. on 31 December 2005 for the purposes of considering amendments to
the articles of association of the Company and the re-election of directors
closes) at Island Shangri-la Hong Kong, Two Pacific Place, Supreme Court Road,
Hong Kong is set out on pages 65 to 67 of this circular. Whether or not you
intend to attend such meeting, please complete and return the enclosed pink
form of proxy in accordance with the instructions printed thereon as soon as
possible and in any event not less than 48 hours before the time appointed for
holding such meeting. Completion and return of the form of proxy will not
preclude shareholders from attending and voting at the meeting or any
adjourned meeting if they so wish.
10 December 2005
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CONTENTS
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Page
Definitions .................................................................1
Letter from the Board
1. Introduction .......................................................6
2. Amendment to Existing Non-Compete Undertaking .....................7
3. Revised Cap for existing continuing connected transactions..........9
4. New Categorisation for continuing connected transactions .........13
5. Adoption of New Share Option Scheme.................................6
6. General ..........................................................29
7. Second EGM.........................................................29
8. Recommendation of the Board ......................................30
9. Recommendation of the Independent Board Committee..................30
Letter from the Independent Board Committee ................................32
Letter from the Independent Financial Adviser ..............................34
Appendix I -- General Information .................................54
Appendix II -- Summary of New Share Option..........................59
Notice of Extraordinary General Meeting ....................................65
--1--
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DEFINITIONS
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In this circular, unless the context otherwise requires, the following
expressions have the following meanings:
"2002 Share Option Scheme" the 2001 Share Option Scheme of the Company as amended
and approved by the Shareholders on 6 June 2002
"Announcement" the announcement dated 8 December 2005 made by the
Company in relation to the amendment to the Existing
Non-compete Undertaking and the Revised Cap for the
"technical services" category of continuing connected
transaction
"Articles of Association" the articles of association of the Company
"associate" has the meaning ascribed thereto under the Listing
Rules
"Board" the board of Directors of the Company
"Business" exploration, development, production and sales of
crude oil, natural gas and natural gas liquids
deposited underground in and outside the PRC
"business day" a day on which the Stock Exchange is open for the
business of dealing in securities
"Company" CNOOC Limited, a company incorporated in Hong Kong
with limited liability, the shares of which are listed
on the Stock Exchange
"CNOOC" China National Offshore Oil Corporation ( ), the
controlling shareholder of the Company indirectly
holding approximately 70.64% of all of the Shares in
issue as at the date hereof
"CNOOC BVI" CNOOC (BVI) Limited, a company incorporated in the
British Virgin Islands with limited liability, a
wholly-owned indirect subsidiary of CNOOC and the
controlling shareholder of the Company
"CNOOC Group" CNOOC and its subsidiaries (excluding the Group)
"COBGL" CNOOC Oil Base Group Limited ( ), a company
incorporated in the PRC and a subsidiary of CNOOC
--1--
"Comprehensive Framework Agreement(s)" the Comprehensive Framework Agreements dated 8
December 2005 entered into between the Company and
each of CNOOC, COSL and OOECL in relation to the New
Categories of continuing connected transactions
"COSL" China Oilfield Services Limited ([GRAPHIC
OMITTED][GRAPHIC OMITTED]), a company listed on the
main board of the Stock Exchange and incorporated in
the PRC, and a subsidiary of CNOOC
"Director(s)" director(s) of the Company
"Eligible Person" any Director or employee of the Group and any other
person (including a consultant or adviser) who in the
sole discretion of the Board has contributed or will
contribute to the Group
"Existing Non-Compete Undertaking" the undertaking agreement dated 6 April 2000 between
the Company and CNOOC, as supplemented by a
supplemental agreement dated 21 December 2000, in
relation to the non-compete undertakings given by
CNOOC for the purposes of the Company's listing on the
Stock Exchange
"Existing Categorisation" the existing categorisation for continuing connected
transactions between the Company and CNOOC and/or its
associates as set out in the 2002 Circular
"Existing Waiver" the waiver granted by the Stock Exchange in respect of
the Existing Categorisation of continuing connected
transactions between the Group and CNOOC and/or its
associates, subject to the conditions set out in the
2002 Circular
"Grantee" any Eligible Person who accepts an Offer in accordance
with the terms of the New Share Option Scheme or
(where the context so permits) any person entitled to
exercise any Option in consequence of the death of the
original Grantee
"Group" the Company and its subsidiaries from time to time
"HK$" Hong Kong dollars, the lawful currency of Hong Kong
"Hong Kong" the Hong Kong Special Administrative Region of the PRC
--2--
"Independent Board Committee" an independent committee of the Board comprising of
Mr. Sung Hong Chiu, Mr. Kenneth S. Courtis, Mr. Evert
Henkes, Mr. Tse Hau Yin, Aloysius and Mr. Lawrence J.
Lau, the independent non-executive Directors, formed
for the purpose of advising the Independent
Shareholders in relation to the terms of the amendment
to the Existing Non-Compete Undertaking, the Revised
Cap for the "technical services" category of
continuing connected transaction and the Non-Exempt
Continuing Connected Transactions (including the
Proposed Caps)
"Independent Financial Adviser" Dao Heng Securities Limited, a corporation licensed to
carry out type 1 (dealings in securities), type 4
(advising on securities) and type 6 (advising on
corporate finance) regulated activities under the
Securities and Futures Ordinance (Chapter 571 of the
Laws of Hong Kong), is the independent financial
adviser to the Independent Board Committee and the
Independent Shareholders "Independent Shareholders"
shareholders of the Company other than CNOOC and its
associates
"Latest Practicable Date" 6 December 2005, being the latest practicable date
prior to the printing of this circular for
ascertaining certain information herein
"Listing Rules" The Rules Governing the Listing of Securities on the
Stock Exchange (as amended from time to time)
"New Categories" the new categories of continuing connected
transactions between the Company and CNOOC and/or its
associates as set out in the section headed "New
Categories of continuing connected transactions under
the Comprehensive Framework Agreements" in this
circular
"New Share Option Scheme" the share option scheme in its present or any amended
form proposed to be adopted by the Company at the
Second EGM, a summary of the principal terms of the
rules of which is set out in Appendix II of this
circular
"Non-Exempt Continuing Connected Transactions" the New Categories of continuing connected
transactions other than the categories "Marketing,
management and ancillary services", "FPSO vessel
leases", and "Provision of management, technical,
facilities and ancillary services, including the
supply of materials from the Group to CNOOC and/or its
associates", as set out in the section headed "New
Categories of continuing connected transactions under
the Comprehensive Framework Agreements" in this
circular
--3--
"Offer" an offer of the grant of an Option made in
accordance with paragraph 4
"Offer Date" the date on which an Offer is made to an Eligible
Person, which must be a business day
"OOECL" Offshore Oil Engineering Co., Ltd. ([GRAPHIC
OMITTED][GRAPHIC OMITTED]), a company incorporated
in the PRC and listed on the Shanghai Stock
Exchange, and a subsidiary of CNOOC
"OOGC" Overseas Oil and Gas Corporation, Ltd, a company
incorporated in Bermuda with limited liability and
a wholly-owned subsidiary of CNOOC
"Option(s)" a right to subscribe for Shares pursuant to the
New Share Option Scheme
"Ordinary Resolution(s)" the proposed ordinary resolution(s) as referred to
in the Second EGM Notice
"PRC" The People's Republic of China, excluding for the
purposes of this circular, Hong Kong, Macau and
Taiwan
"Proposed Cap(s)" the proposed maximum annual aggregate values for
each of the New Categories of continuing connected
transactions of the Company as set out in the
paragraph headed "Proposed Caps and Rationale" of
this circular
"Pre-Global Offering Share Option Scheme" the pre-global offering share option scheme of the
Company adopted on 4 February 2001
"Revised Cap" the proposed maximum annual cap for the "technical
services" category of continuing connected
transactions of the Company using the Existing
Categorisation, as set out in the paragraph headed
"Revised Cap and Rationale" of this circular
"RMB" Renminbi, the lawful currency of the PRC
--4
"Second EGM" the second extraordinary general meeting of the
Company proposed to be convened and held on 31
December 2005 at 10:30 a.m. (or such later time as
the extraordinary general meeting of the
shareholders of the Company to be held at 10:00
a.m. on 31 December 2005 for the purposes of
considering amendments to the articles of
association of the Company and the re-election of
directors closes) in respect of, among other
things, the approval of the amendment to the
Existing Non-compete Undertaking, the Revised Cap
for the "technical services" category of
continuing connected transaction, the Non-Exempt
Continuing Connected Transactions and the adoption
of the New Share Option Scheme, or any adjournment
thereof
"Second EGM Notice" the notice dated 10 December 2005 convening the
Second EGM as set out in pages 65 to 67 of this
circular
"Shares" share(s) of HK$0.02 each in the share capital of
the Company
"Shareholders" registered holder(s) of the Shares
"Stock Exchange" The Stock Exchange of Hong Kong Limited
"Supplemental Agreement" the supplemental agreement dated 8 December 2005
between the Company and CNOOC in relation to
certain amendments to the Existing Non-Compete
Undertaking
--5--
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LETTER FROM THE BOARD
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[LOGO OMITTED]CNOOC
CNOOC Limited
(Translation of registrant's name into English)
(Incorporated in Hong Kong with limited liability under the Companies Ordinance)
(Stock Code: 883)
Board of Directors Registered office:
Fu Chengyu (Chairman) 65/F, Bank of China Tower
Luo Han 1 Garden Road
Zhou Shouwei Central
Cao Xinghe Hong Kong
Wu Zhenfang
Wu Guangqi
Yang Hua
Sung Hong Chiu*
Kenneth S. Courtis*
Evert Henkes*
Tse Hau Yin, Aloysius*
Lawrence J. Lau*
* Independent non-executive Directors
10 December 2005
To the Shareholders
Dear Sir or Madam,
AMENDMENT TO EXISTING NON-COMPETE UNDERTAKING,
REVISED CAP FOR EXISTING CONTINUING CONNECTED TRANSACTION,
NEW CATERORISATION FOR CONTINUING CONNECTED TRANSACTIONS
AND
ADOPTION OF NEW SHARE OPTION SCHEME
1. INTRODUCTION
Reference is made to the announcement of the Company dated 8 December
2005 in relation to the amendment to the Existing Non-Compete Undertaking, the
Revised Cap for the "technical services" category of continuing connected
transaction and the New Categories of continuing connected transactions. The
Directors also proposed on 28 November 2005 that the Company adopt a New Share
Option Scheme.
--6--
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LETTER FROM THE BOARD
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The purpose of this circular is to provide you with information necessary
to enable you to make an informed decision on whether to vote for or against
the resolutions to be proposed at the Second EGM relating to, inter alia,
approval of (i) the amendment to the Existing Non-compete Undertaking, (ii)
the Revised Cap for the "technical services" category of continuing connected
transaction, (iii) the Non-Exempt Continuing Connected Transactions and (iv)
adoption of the New Share Option Scheme.
2. AMENDMENT TO EXISTING NON-COMPETE UNDERTAKING
Background to the Existing Non-Compete Undertaking
Before the Company's listing in 2001, the Company's controlling
shareholder, CNOOC, gave various undertakings to the Company, which
includes, amongst others:
(i) that the Group will enjoy the exclusive right to exercise all
of CNOOC's commercial and operational rights under PRC law and
regulations relating to the exploration, development,
production and sales of the PRC offshore oil and natural gas;
and
(ii) that neither it nor any of its subsidiaries will engage or be
interested, directly or indirectly, in oil and natural gas
exploration, development, production and sales in or outside
the PRC.
The Supplemental Agreement
Amendment to Existing Non-Compete Undertaking
The Company entered into the Supplemental Agreement with CNOOC on 8
December 2005 to amend the Existing Non-Compete Undertaking, whereby
provided that it obtains the Company's prior written consent, CNOOC
and/or its subsidiaries will be able to engage in the Businesses that are
otherwise subject to the Existing Non-Compete Undertaking. No
consideration is payable by either party for entering into the
Supplemental Agreement.
The decision as to whether to give consent to CNOOC to engage in
such Businesses will be made by the Board. The independent non-executive
Directors will participate in making such decision and the reasons of the
Board (including those of the independent non-executive Directors) for
giving the written consent will be set out in an announcement, if such
consent is given and CNOOC engages in such Business.
--7--
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LETTER FROM THE BOARD
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Call option to acquire back the Business
In addition, under the Supplemental Agreement, CNOOC has also
irrevocably granted an option to the Company to acquire the relevant
Business from CNOOC and/or its subsidiaries that are the subject of the
consent. Such call option will be granted to the Company for no
consideration, for an indefinite period, and will be exercisable by the
Company at any time in the future. Therefore, even after such consent is
given, the Company may at any time in the future acquire the relevant
Business back from CNOOC and/or its subsidiaries. The consideration for
the acquisition of the relevant Businesses will be negotiated on
arms-length negotiation and on normal commercial terms, and the parties
will enter into formal sale and purchase agreement in relation to such
acquisition. The exercise of the call option and the acquisition of the
relevant Businesses will constitute a connected transaction and the
Company will comply with the requirements of Chapter 14 and 14A of the
Listing Rules (as appropriate) upon the exercise of the call option.
Conditions
The Supplemental Agreement is conditional upon the approval by the
Independent Shareholders of the terms of the amendment to the Existing
Non-Compete Undertaking as required under the Listing Rules.
Reasons for and Benefits of the Amendment to the Existing Non-Compete
Undertaking
The Existing Non-Compete Undertaking does not currently provide for
any mechanism by which CNOOC may take up opportunities even if the
Company decides that it is not in its best interest to pursue them. The
Board believes that the amendment to the Existing Non-Compete Undertaking
will give flexibility to the Company and CNOOC in handling transactions,
and will also improve the relationship between the Company and CNOOC and
CNOOC's continued support to the Company. The Board also believes that
the existence of a call option will adequately protect the Company and
ensure that the Company can share in the opportunity if the Board
considers at a later stage that it would be in the interests of the
Company to undertake such Businesses.
The Board considers that the terms of the amendment to the Existing
Non-Compete Undertaking are on normal commercial terms, fair and
reasonable and are in the interests of the Company and the Shareholders
as a whole.
--8--
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LETTER FROM THE BOARD
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3. REVISED CAP FOR EXISTING CONTINUING CONNECTED TRANSACTION
Background
Reference is made to the 2002 Circular in relation to certain
continuing connected transactions between the Group and CNOOC and/or its
associates. These continuing connected transactions include the provision
of technical services by CNOOC and/or its associates to the Group as
described below.
CNOOC, which indirectly owns approximately 70.64% of the issued
share capital of the Company, is the controlling shareholder of the
Company. Accordingly, CNOOC is a connected person of the Company and
transactions between CNOOC and/or its associates and the Group constitute
connected transactions for the Company for the purpose of the Listing
Rules. The Independent Shareholders had approved the continuing connected
transactions at an extraordinary general meeting of the Company held on
23 December 2002.
The value of the categories of continuing connected transactions
involving the provision of technical services by associates of CNOOC is
subject to an annual cap. It is also a condition of the waiver that if
any of the annual cap is exceeded, the Company will comply with the
provisions of the then Chapter 14 (currently Chapter 14A) of the Listing
Rules relating to connected transactions, unless it applies for and
obtains a waiver from the Stock Exchange.
The Directors had also been monitoring the Company's continuing
connected transactions and with the continued development and expansion
of the business of the Group and based on internal estimates of the
demand and the operating conditions of the continuing connected
transactions, the Directors note that the existing cap for 2005 for one
of the continuing connected transactions under the Existing
Categorisation, namely, the provision of technical services, will not be
sufficient for the Group's requirement, and therefore propose that the
existing cap for the continuing connected transaction involving the
provision of technical services be revised.
Technical Services
Since the establishment of CNOOC, a number of specialised companies
have been formed by CNOOC to provide sub-contracting services for CNOOC's
offshore oil and gas production activities. These specialised companies
have provided services to the Group through bidding process.
--9--
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LETTER FROM THE BOARD
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In connection with the restructuring of the Company in preparation
for its initial public offering, CNOOC's associates transferred to the
Group the existing technical services agreements with the specialized
companies. In 2002, the specialised companies novated these agreements to
COSL, who has since assumed the rights and obligations of the specialised
companies thereunder, except in relation to the provision of engineering
and construction services. The Group may terminate any of these
agreements by giving 30 days' written notice to COSL or the specialised
companies, as the case may be. The Group will continue to use the
technical and labour services provided by COSL and the specialised
companies, including:
o offshore drilling;
o ship tugging, oil tanker transportation and security services;
o well survey, well logging, well cementation and other related
technical services;
o collection of geophysical data, ocean geological prospecting,
and data processing;
o platform fabrication service and maintenance; and
o design, construction, installation and test of offshore and
onshore production facilities.
For the two years ended 31 December 2004 and the six months ended 30
June 2005, the charges for such technical services payable to COSL (or
its predecessors, as the case may be) and the specialised companies, as
the case may be, were approximately RMB3,828 million, RMB6,362 million
and RMB3,038 million, respectively. These costs are based on arm's length
negotiations with COSL and specialized companies on normal commercial
terms or on terms no less favourable than those available to independent
third parties, under prevailing local market conditions, including
considerations such as volume of sales, length of contracts, package of
services, overall customer relationship and other market factors and, in
the case of the specialised companies, are based on a bidding process.
--10--
Revised Cap and rationale
The Board has considered and proposed that the following Revised Cap
in respect of the "technical services" category of continuing connected
transactions using the Existing Categorisation be set as the maximum
annual value of such transaction for the year ended 31 December 2005:
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LETTER FROM THE BOARD
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The continuing Revised Cap for the
connected Annual limit in the financial year ended 31 Basis of determination of
transactions Historical amount Existing Waiver December 2005 the Revised Cap amount
Technical services For the two years For the three years RMB7,218 million The annual Revised Cap for
ended 31 December ended 31 December the provision of technical
2004 and the six 2005, RMB5,853 services by CNOOC and/or its
months ended 30 million, RMB7, associates to the Group has
June 2005, RMB3, 338 million and been determined with
828 million, RMB4,880 million, reference to previous
RMB6,362 million respectively transactions conducted and
and RMB3,038 transaction amounts in
million, respect of the provision of
respectively technical services by CNOOC
and/or its associates to the
Group; the rapid expansion
of the Group's operations in
2005, including overseas
expansion and acquisitions,
new discoveries and new
projects coming on stream
successfully; and increased
cost of supplies and raw
materials, the Group's
demand for which had
increased with its
expansion. In addition,
there had been adjustments
to initial development
plans, which resulted in
certain oil field
development activities being
postponed from 2003 and 2004
to 2005. These developments
were not anticipated at the
time when the relevant
annual cap was determined.
Based on the above, the
Directors are of the view
that the cap amount for such
services should be revised
to RMB7,218 million for the
financial year ending on 31
December 2005.
--11--
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LETTER FROM THE BOARD
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December 2005. Reasons for and benefits of the "technical services"
category of continuing connected transactions
Prior to the restructuring of CNOOC and establishment of the
Company, CNOOC and/or its associates and the Group operated as an
integrated organisation which undertook numerous intra-group transactions
each year. As a consequence of the restructuring and upon the listing of
the Company's shares on the Stock Exchange, a number of transactions
which have been entered into and which are to be entered into between the
Group and CNOOC and/or its associates will constitute continuing
connected transactions for the Company under the Listing Rules.
The provision of technical services under the Existing
Categorisation of continuing connected transaction are and will be
conducted in the ordinary and usual course of business of the Company.
This category of transaction will continue to be agreed on an arm's
length basis with terms that are fair and reasonable to the Company. Due
to the long-term relationship between the Group and the CNOOC Group, the
Board considers it to be beneficial to the Company to continue to enter
into the continuing connected transactions as these transactions have
facilitated and will continue to facilitate the operation and growth of
the Company's business.
The Board considers that the "technical services" category of
continuing connected transactions under the Existing Waiver have been
conducted on normal commercial terms or on terms no less favourable than
those available to independent third parties, under prevailing local
market conditions, and were entered into in the ordinary and usual course
of business of the Group, are fair and reasonable and in the interests of
the Company and our shareholders as a whole, and that the Revised Cap for
the "technical services" category of continuing connected transactions
are fair and reasonable.
Disclosure and Independent Shareholders' approval requirements
Under the Listing Rules, the above "technical services" category of
continuing connected transactions is subject to the reporting,
announcement and Independent Shareholders' approval requirements. The
Company will seek the Independent Shareholders' approval at the Second
EGM for the Revised Cap on the condition that:
1. the annual amount of the "technical services" category of continuing
connected transactions under the Existing Waiver shall not exceed
the Revised Cap;
2. (i) the above continuing connected transaction will be entered into
in the usual and ordinary course of businesses of the Group and
either (A) on normal commercial terms or (B) if there is no
available comparison, on terms no less favourable to the Group
than terms available from independent third parties; and
(ii) the above continuing connected transaction will be entered into
in accordance with the relevant agreements and on terms that
are fair and reasonable and in the interests of the
Shareholders as a whole.
--12--
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LETTER FROM THE BOARD
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The Company will comply with relevant provisions of the Listing Rules in
relation to the above continuing connected transaction.
4. NEW CATEGORISATION FOR CONTINUING CONNECTED TRANSACTIONS
Background
The Independent Shareholders had approved certain continuing
connected transactions between the Group and CNOOC and/or its associates
using the Existing Categorisation at an extraordinary general meeting of
the Company held on 23 December 2002 and the Existing Waiver was granted
to the Company in relation to these continuing connected transactions.
The Existing Waiver will expire on 31 December 2005 and the Company will,
in accordance with the requirements of the Listing Rules, seek
Independent Shareholders' approval for the Non-Exempt Continuing
Connected Transactions and the respective Proposed Caps, as described
below.
The Company has undertaken an extensive review of the categorization
of the continuing connected transactions using the Existing
Categorisation with a view to presenting a more coherent, logical and
understandable picture to shareholders, and also to enable the Company to
monitor the status of transactions following each category more
effectively going forward. New Categories of continuing connected
transactions have now been identified which achieve this purpose, further
details of the New Categories of the continuing connected transactions
are set out in paragraphs headed "New Categories of continuing connected
transactions under the Comprehensive Framework Agreements" below.
The Group proposes to enter into the following continuing connected
transactions with CNOOC and/or its associates, as set out in the
Comprehensive Framework Agreements, which are categorised using the New
Categories. The Directors expect that the Group will continuously enter
into such transactions with CNOOC and/or its associates as described
below, which will constitute continuing connected transactions for the
Company under the Listing Rules.
New Categories of continuing connected transactions under the Comprehensive
Framework Agreements
The Company entered into a Comprehensive Framework Agreement on 8
December 2005 with each of CNOOC, COSL and OOECL for the provision (1) by
the Group to CNOOC and/or its associates and (2) by CNOOC and/or its
associates to the Group, of a range of products and services which may be
required and requested from time to time by either party and/or its
associates in respect of the New Categories of continuing connected
transactions, the details of which are set out below. The term of each of
the Comprehensive Framework Agreements is for a period of two years from
1 January 2006, and is conditional upon Independent Shareholders'
approval.
o Provision of exploration, oil and gas development, oil and gas
production as well as marketing, management and ancillary
services by CNOOC and/or its associates to the Group
(a) Exploration and support services;
(b) Oil and gas field development and support services;
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LETTER FROM THE BOARD
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(c) Oil and gas field production and support services;
(d) Marketing, management and ancillary services;
(e) FPSO vessel leases;
o Provision of management, technical, facilities and ancillary
services, including the supply of materials from the Group to
CNOOC and/or its associates;
o Sales of petroleum and natural gas products by the Group to
CNOOC and/or its associates
(a) Sales of petroleum and natural gas products;
(b) Long term Sales of natural gas and liquefied natural gas.
Since the establishment of CNOOC, certain associates of CNOOC
specialising in exploration, oil and gas development, oil and gas
production, as well as marketing, management and ancillary services
provided these services to the Group through bidding process. The Group
will continue to use these services provided by associates of CNOOC,
including but not limited to COSL, OOECL and COBGL. CNOOC also provide
certain of these services from time to time. The services provided by
CNOOC and/or its associates are set out below.
--14--
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Provision of exploration, oil and gas development, oil and gas production
as well as marketing, management and ancillary services by CNOOC and/or
its associates to the Group
(a) Provision of exploration and support services to the Group
The services provided by CNOOC and/or its associates to the Group on
exploration operations include:
o well site survey;
o seismic data acquisition and processing;
o integrated exploration research services;
o exploration well operation;
o related technical services on exploration well;
o tow-boat, transportation and safety services;and
o other related technical and supporting services.
For the two years ended 31 December 2004 and the six months ended 30
June 2005, the charges for such exploration and payable to CNOOC and/or
its associates were approximately RMB854 million, RMB1,330 million and
RMB428 million respectively.
(b) Provision of oil and gas development and support services to the
Group
The services provided by CNOOC and/or its associates to the Group on
oil and gas development operations include:
o platform survey;
o drilling and completion well operation;
o related technical services on drilling and completion;
o design, construction, installation and tuning of production
facilities;
o shipping transportation;
o provision of materials;
o integrated research on development techniques; and
o other related technical and supporting services.
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For the two years ended 31 December 2004 and the six months ended 30
June 2005, the charges for such oil and gas development services payable
to CNOOC and/or its associates were approximately RMB2,765 million,
RMB4,681 million and RMB2,513 million respectively.
(c) Provision of oil and gas production and support services to the Group
The services provided by CNOOC and/or its associates to the Group on
oil and gas production operations are set out below. In addition, the
scope of business of these companies also include various facilities and
ancillary services, such as provision of different types of materials,
medical and employee welfare services, maintenance and repair of major
equipments and supply of water, electricity and heat to the Group, some
of which may not be available from independent third parties or available
on comparable terms.
o integrated research on production techniques;
o well workover;
o shipping transportation;
o oil tanker transportation;
o provision of materials;
o maintenance of platform;
o repair of equipment and pipeline;
o production operations;
o oil and gas production labour services;
o warehousing and storage;
o lease of equipment and building;
o road transportation services;
o telecommunication and network services;
o wharf services;
o construction services, including roads, wharf, buildings,
factories and water barrier;
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o maintenance and repair of major equipment;
o medical, childcare and social services;
o provision of water, electricity and heat;
o security and fire services;
o technical training;
o accommodation;
o maintenance and repair of buildings;
o catering services; and
o other related technical and supporting services.
For the two years ended 31 December 2004 and the six months ended 30
June 2005, the charges for such oil and gas production services payable
to CNOOC and/or its associates were approximately RMB1,177 million,
RMB1,354 million and RMB575 million respectively.
(d) Provision of marketing, management and ancillary services to the
Group
CNOOC and/or its associates provide marketing, administration and
management, management of oil and gas operations and integrated research
services to the Group, as well as other ancillary services relating to
the exploration, development, production and research activities of the
Group. Details of these services are set out below:
o marketing services;
o management;
o staff recruitment;
o publishing;
o telecommunications;
o leases of properties;
o property management;
o water, electricity and heat supply;
o car rental;
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o integrated services such as record keeping, filing, repair of
computer, catering and photocopying; and
o integrated research.
For the two years ended 31 December 2004 and the six months ended 30
June 2005, the charges for other marketing, management and ancillary
services excluding leases of properties and property management payable
to CNOOC and/or its associates were approximately RMB134 million, RMB249
million and RMB81 million respectively.
In addition, as part of providing administration and management
services to the Group, CNOOC and/or its associates leased certain
premises covering an aggregate area of approximately 50,000 square
meters, located throughout the PRC and in Singapore, to the Group for use
as office premises and staff quarters. In addition to leasing these
properties, CNOOC and/or its associates also provided management services
in respect of certain properties leased to the Group. CNOOC and/or its
associates which own one or more of the leased buildings have entered
into individual lease and/or management agreements with the Company. Each
agreement is in writing and for a term of less than three years.
CNOOC has also recently completed construction of a new office
building in the Dongcheng District in Beijing, PRC which the Group may
lease certain parts of as its new headquarter from January 2006. As its
business continues to expand, the Group may, subject to the annual caps
below, also enter into additional leases and management agreements with
CNOOC and/or its associates from time to time.
For the two years ended 31 December 2004 and the six months ended 30
June 2005, the aggregate rentals and management fees payable by the Group
were approximately RMB56.87 million, RMB76.72 million and RMB23.78
million, respectively. Sallmanns (Far East) Limited, an independent
property valuer, has confirmed that the payments due under each of the
lease agreements and the management agreement reflect the fair and
reasonable commercial market rent and management fee, respectively.
For the two years ended 31 December 2004 and the six months ended 30
June 2005, the aggregate charges for marketing, management and ancillary
services (including leasing and management of properties) payable to
CNOOC and/or its associates were approximately RMB191 million, RMB326
million and RMB105 million respectively.
Pricing of transactions relating to services provided by CNOOC and/or its
associates to the Group under paragraphs (a) to (d) above
The continuing connected transactions referred to in paragraphs (a)
to (d) above relate to services provided by CNOOC and/or its associates
to the Group. In general, the services provided by CNOOC and/or its
associates to the Group are based on arm's length negotiations with CNOOC
and/or its associates on normal commercial terms, or on terms no less
favourable than those available to independent third parties, under
prevailing local market conditions, including considerations such as
volume of sales, length of contracts, package of services, overall
customer relationship and other market factors.
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If, for any reason, the above pricing principle for a particular
product or service ceases to be applicable or there is no open market for
such services, whether due to a change in circumstances or otherwise,
such product or service must then be provided in accordance with the
following general pricing principles:
(i) state-prescribed prices; or
(ii) where there is no state-prescribed price, market prices,
including the local, national or international market prices;
or
(iii) when neither (i) nor (ii) is applicable, the cost to CNOOC
and/or its associates for providing the relevant product or
services (including the cost of sourcing or purchasing from
third parties) plus a margin of not more than 10%, before any
applicable taxes.
The Company expects that the costs relating to any future contract
with CNOOC and/or its associates will be on a similar basis.
It is envisaged that from time to time and as required, individual
agreements will be entered into between CNOOC and/or its associates and
the Group, providing the relevant products or services and the relevant
members of the Group requiring such products or services.
Each agreement will set out the specific products and services
requested by the relevant party and any detailed technical and other
specifications which may be relevant to those products or services. The
agreements may only contain provisions which are in all material respects
consistent with the guidelines and terms and conditions as set out above.
(e) FPSO vessel lease agreements
The Group leases floating production, storage and offloading (FPSO)
vessel from COBGL for use in oil and gas production operations at market
prices on normal commercial terms which are calculated on a daily basis.
FPSO vessels are usually located next to the offshore oil platforms and
are an integrated facility used by the Group during its offshore oil and
gas production for processing, storage and channelling of crude oil. The
terms of FPSO vessel leases are usually determined based on the expected
term of oil and gas exploration, development and production. The Company
currently leases a FPSO vessel for a term of 20 years from an associate
of CNOOC, with such term being determined based on the expected term of
oil and gas exploration, development and production. The Directors
expects that the Group may enter into other FPSO leases with CNOOC and/or
its associates from time to time as the operations of the Group expands.
The Comprehensive Framework Agreements provide that if the Company fails
to obtain approval of the annual caps for this category of continuing
connected transactions after 31 December 2007, then the agreements
falling under this category will terminate on that date. For the year
ended 31 December 2004 and the six months ended 30 June 2005, the
aggregate rentals payable by the Group were approximately RMB51.97
million and RMB74.07 million, respectively. There were no such
transactions for the year ended 31 December 2003.
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Provision of management, technical, facilities and ancillary services,
including the supply of materials to CNOOC and/or its associates
In addition to providing various services to the Group, CNOOC and/or
its associates may also utilise various types of management, facilities
and ancillary services, including the supply of materials provided by the
Group from time to time. The pricing for such services will be determined
based on the same pricing principles applicable to transactions relating
to services provided by CNOOC and/or its associates to the Group under
paragraph (a) and (d) above, which will be negotiated and agreed on
normal commercial terms between the parties. The services that may be
provided by the Group to CNOOC and/or its associates include:
o technical consulting;
o technology transfer;
o management;
o technical research services; and
o other supporting services.
There have been no such transactions for the two years ended 31
December 2004 and the six months ended 30 June 2005. However, the
development of CNOOC towards a world-class integrated energy company
requires it to continue to optimize its industrial chain. To facilitate
such development, it is anticipated that CNOOC requires the provisions of
technical consulting, technical transfer, management services, technical
research services and other related services from the Group and the Group
may provide certain of these services to CNOOC and/or its associates in
the near future.
Sales of petroleum and natural gas products by the Group to CNOOC and/or
its associates
(a) Sales of petroleum and natural gas products
The Group may sell petroleum and natural gas products, including
crude oil, condensate oil, liquefied petroleum gas, natural gas and
liquefied natural gas, to CNOOC and/or its associates which engage in
downstream petroleum business at state-prescribed prices or local,
national or international market prices and on normal commercial terms.
It is envisaged that individual sales contract will be entered into from
time to time between the Group and CNOOC and/or its associates in
relation to such sales. Although most of the natural gas and liquefied
natural gas will be sold under the long term sales contracts as described
below, the Group also sells certain volume of the natural gas and
liquefied natural gas to CNOOC and/or its associates on short-term basis
for the purpose of peak adjustment and to reap higher profits.
For the two years ended 31 December 2004 and the six months ended 30
June 2005, sales of petroleum and natural gas products to CNOOC and/or
its associates were approximately RMB8,324 million, RMB13,630 million and
RMB11,837 million respectively.
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(b) Long term sales of natural gas and liquefied natural gas
The Group sells natural gas to CNOOC and/or its associates which
engage in the downstream petroleum business at state-prescribed prices or
local, national or international market prices and on normal commercial
terms, which is subject to adjustment in accordance with movements in
international oil prices as well as other factors such as the term of the
sales agreement and length of the relevant pipeline. Due to the size of
investment and the fact that sales are usually made to markets proximate
to the exploration site, and that purchasers tend to utilize the natural
gas products in areas close to the exploration site, and in order to
ensure the return on investment from exploration of natural gas, the
Group will usually enter into long term sales contracts with a term of 15
to 20 years. It is market practice for the term of the sales contract to
be determined based on the estimated reserves and production profile of
the relevant gas fields.
The Group has also invested and acquired interests in liquefied
natural gas related upstream projects in Tangguh, Indonesia and the North
West Shelf of Australia. It is envisaged that from time to time the Group
may sell liquefied natural gas explored from these gas reserves mentioned
above and other gas reserves in which the Group may invest in the future
to CNOOC and/or its associates. In order to ensure the return on
investment and to achieve the requirement of the lenders, it is
anticipated that the terms of sales contracts in relation to the
liquefied natural gas will be around 25 years. The Group may sell
liquefied natural gas to CNOOC and/or its associates which engage in the
downstream petroleum business at state-prescribed prices or local,
national or international market prices and on normal commercial terms
taking into account the term of the sales contract.
It is envisaged that individual sales contracts will be entered into
from time to time between the Group and CNOOC and/or its associates in
relation to such sales, with a term not exceeding 25 years. The
Comprehensive Framework Agreements provide that if the Company fails to
obtain approval of the annual caps for this category of continuing
connected transactions after 31 December 2007, then the agreements
falling under this category will terminate on that date.
For the year ended 31 December 2004 and the six months ended 30 June
2005, long term sales of natural gas to CNOOC and/or its associates were
approximately RMB315 million and RMB272 million respectively. There were
no such transactions for the year ended 31 December 2003. For the two
years ended 31 December 2004 and the six months ended 30 June 2005, there
have been no sales of liquefied natural gas to CNOOC and/or its
associates.
Reasons for and benefits of the New Categories of continuing connected
transactions
Prior to the restructuring of CNOOC and establishment of the
Company, CNOOC and/or its associates and the Group operated as an
integrated organisation which undertook numerous intra-group transactions
each year. As a consequence of the restructuring and upon the listing of
the Company's shares on the Stock Exchange, a number of transactions
which have been entered into and which are to be entered into between the
Group and CNOOC and/or its associates will constitute continuing
connected transactions for the Company under the Listing Rules.
The New Categories of continuing connected transactions as referred
to in this circular are and will be conducted in the ordinary and usual
course of business of the Company. These transactions will continue to be
agreed on an arm's length basis with terms that are fair and reasonable
to the Company. Due to the
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long-term relationship between the Group and the CNOOC Group, the Board
considers it to be beneficial to the Company to continue to enter into
the continuing connected transactions as these transactions have
facilitated and will continue to facilitate the operation and growth of
the Company's business.
The Board considers that all the above New Categories of continuing
connected transactions have been conducted on normal commercial terms, or
on terms no less favourable than those available to independent third
parties, under prevailing local market conditions, and were entered into
in the ordinary and usual course of business of the Group, are fair and
reasonable and in the interests of the Company and our shareholders as a
whole, and that the annual cap for each of the above New Categories of
continuing connected transactions are fair and reasonable.
Proposed Caps and rationale
The Board has considered and proposed that the following Proposed
Caps in respect of the New Categories of continuing connected
transactions set as the maximum annual value of the relevant transactions
above for the period from 1 January 2006 to 31 December 2007:
The continuing
connected Historical amount/ Basis of determination
transactions Estimate for 2005 Proposed Caps of the Proposed Caps
Provision of exploration, oil and gas development, oil and gas production as well as marketing, management
and ancillary services by CNOOC and/or its associates to the Group
(a) Exploration For the two years For the two years The annual proposed caps
and support ended 31 December ending 31 December for the exploration and
services 2004 and the six 2007, RMB2,117 support services have
months ended 30 million and RMB2, been determined with
June 2005, RMB854 293, respectively reference to previous
million, RMB1,330 transactions conducted
million and RMB428 and transaction amounts
million, respectively in respect of the
Estimated to be RMB1, exploration and support
538 million for the services provided by
year ended 31 December CNOOC and/or its
20051,538 million for associates to the Group;
the year ended 31 the estimated increase
December 2005 in the level of exploration
activities by the Group
within the PRC; and the
expansion of overseas
risk survey. The Directors
are of the view that the
proposed caps provide
sufficient increment for
the Group to capture the
Group's future anticipated
expansion plan.
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The continuing
connected Historical amount/ Basis of determination
transactions Estimate for 2005 Proposed Caps of the Proposed Caps
(b) Oil and gas For the two years ended For the two years ending The annual proposed caps
field development 31 December 2004 and the 31 December 2007, RMB7, for the oil and gas
and support six months ended 30 June 628 million and RMB10, field development and
services 2005, RMB2,765 million, 458 million, respectively support services have
RMB4,681 million and been determined with
RMB2,513 million, reference to previous
respectively Estimated transactions conducted
to be RMB4,789 million and transaction amounts
for the year ended 31 in respect of the oil
December 2005 and gas field
development and support
services provided by
CNOOC and/or its
associates to the Group;
and the estimated
expansion of existing
oilfields and the
development of several
newly discovered
oilfields offshore
China. The Directors are
of the view that the
proposed caps provide
sufficient increment for
the Group to capture the
Group's future
anticipated expansion
plan.
(c) Oil and For the two For the two The annual proposed caps
gas field years ended 31 years ending 31 for the oil and gas
production December 2004 December 2007, field production and
and support and the six RMB3,935 million support services have
services months ended 30 and RMB4,132, been determined with
June 2005, respectively reference to previous
RMB1,177 transactions conducted
million, and transaction amounts
RMB1,354 in respect of the oil
million and and gas field production
RMB575 million, and support services
respectively provided by CNOOC and/or
Estimated to be its associates to the
RMB2,068 Group; and the estimated
million for the growth of the Group's
year ended 31 business, including the
December 2005 estimated expansion of
existing oilfields and
the development of
several newly discovered
oilfields offshore
China. The Directors are
of the view that the
proposed caps provide
sufficient increment for
the Group to capture the
Group's future
anticipated expansion
plan.
(d) Marketing, For the two For the two The annual proposed caps
Management years ended 31 years ending 31 for marketing, management
ancillary services management December 2004 and ancillaryservices have
and the six RMB478 million been determined with
months ended 30 and RMB504 reference to previous
June 2005, million, transactions conducted
RMB191 million, respectively and transaction amounts
RMB326 million in respect of the
and RMB105 marketing, management
million, and ancillary services
respectively provided by CNOOC and/or
Estimated to be its associates to the
RMB443 million Group; the continued
for the year expansion of the Group's
ended 31 business and sales of
December 2005 oil and gas; and the
potential increase in
staffing. The Directors
are of the view that the
proposed caps provide
sufficient increment for
the Group to capture the
Group's future
anticipated expansion
plan.
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The continuing
connected Historical amount/ Basis of determination
transactions Estimate for 2005 Proposed Caps of the Proposed Caps
(e) FPSO For the year For the two The annual proposed caps
vessel leases ended 31 years ending 31 for the FPSO leases have
December 2004 December 2007, been determined with
and the six RMB453 million reference to previous
months ended 30 and RMB463 transactions conducted
June 2005, million, and transaction amounts
RMB51.97 respectively in respect of the FPSO
million and leases provided by CNOOC
RMB74.07 and/or its associates to
million, the Group; and the
respectively estimated increase in
Estimated to be the number of oil fields
RMB149 million requiring FPSO vessels.
for the year The Directors are of the
ended 31 view that the proposed
December 2005 caps provide sufficient
increment for the Group
to capture the Group's
future anticipated
expansion plan.
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The continuing
connected Historical amount/ Basis of determination
transactions Estimate for 2005 Proposed Caps of the Proposed Caps
Provision of management, technical, facilities and ancillary services, including the supply of materials from
the Group to CNOOC and/or its associates
Provision of There have For the two The annual proposed caps for
management, been no such years ending 31 the provision of management,
technical, transactions December 2007, technical, facilities and
facilities for the two RMB50 million ancillary services, including
and years ended and RMB100 the supply of materials to
ancillary 31 December million, CNOOC and/or its associates
services, 2004 and the respectively have been determined with
including six months reference to the anticipated
the supply ended 30 need by CNOOC and/or its
of materials June 2005 associates for the provision
to CNOOC It is of such services as a result
and/or its expected of CNOOC's need to optimize
associates there will its industrial chain to
be no such facilitate its development
transactions towards a world-class
for the year integrated energy company.
ended 31 The Directors are of the view
December 2005 that the proposed caps
provide sufficient
flexibility for the Group's
future anticipated business
activities.
Sales of petroleum and natural gas products by the Group to CNOOC and/or its associates
(a) Sales of For the two years For the two years ending The annual proposed caps for
petroleum and ended 31 December 2004 31 December 2007, RMB33, sales of petroleum and natural
natural gas and the six months 469 million and RMB44,199 gas products by the Group to
products ended 30 June 2005, million respectively CNOOC and/or its associates
RMB8,324 million, have been determined with
RMB13,630 million and reference to historical
RMB11,837 million, transactions and transaction
respectively amounts in respect of the sales
Estimated to be of petroleum and natural gas
RMB28,320 million for products by the Group to CNOOC
the year ended 31 and/or its associates; the
December 2005 ongoing development of existing
oilfields and the development
of several new oilfields
offshore China; the estimated
resultant increase in sales;
and the potential fluctuation
and increase in the prices of
crude oil. The increases in
such cap amounts also took into
account the fact that crude oil
from new oilfields, which is
expected to be made up of a
higher proportion of heavy
crude oil, needs to undergo
refining processes which are
carried out primarily by CNOOC
and/or its associates. The
Directors are of the view that
the proposed caps provide
sufficient increment for the
Group to capture the Group's
future anticipated expansion
plan.
(b) Long term sales For the year ended 31 For the two years ending The annual proposed caps for
of natural gas and December 2004 and the 31 December 2007, RMB1, sales of petroleum and natural
liquefied natural six months ended 30 960 million and RMB3,599 gas products by the Group to
gas June 2005, RMB315 million respectively CNOOC and/or its associates
million and RMB272 have been determined with
million, respectively reference to historical
Estimated to be RMB563
million for the year
ended 31 December 2005
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The continuing
connected Historical amount/ Basis of determination
transactions Estimate for 2005 Proposed Caps of the Proposed Caps
RMB272 million, respectively transactions and transaction
Estimated to be RMB563 amounts in respect of the sales
million for the year of petroleum and natural gas
ended 31 December 2005 products by the Group to CNOOC
and/or its associates; the
ongoing development of existing
oilfields and the development
of several new oilfields in
offshore China; the estimated
resultant increase in sales;
and the potential fluctuation
and increase in the prices of
natural gas. The Directors are
of the view that the proposed
caps provide sufficient
increment for the Group to
capture the Group's future
anticipated expansion plan.
Disclosure and/or Independent Shareholders' approval requirements
Under the Listing Rules, the following categories amongst the New
Categories of continuing connected transactions are exempted from the
Independent Shareholders' approval requirement but are subject to the
reporting and announcement requirements set out in Rules 14A.45 to 14A.47
of the Listing Rules, as each of the percentage ratios (other than the
profits ratio), where applicable, in relation of each of these categories
is, on a an annual basis, expected to be less than 2.5% under Rule
14A.34(1) of the Listing Rules:
o Marketing, management and ancillary services;
o FPSO vessel leases; and
o Provision of management, technical, facilities and ancillary
services, including the supply of materials from the Group to
CNOOC and/or its associates.
Under the Listing Rules, the Non-Exempt Continuing Connected
Transactions are subject to the reporting, announcement and Independent
Shareholders' approval requirements. The Company will seek the
Independent Shareholders' approval at the Second EGM for the Non-Exempt
Continuing Connected Transactions and the applicable Proposed Caps on the
condition that:
1. The annual amount of each category of the Non-Exempt Continuing
Connected Transactions shall not exceed the applicable Proposed
Cap;
2. (i) The Non-Exempt Continuing Connected Transactions will be
entered into in the usual and ordinary course of
businesses of the Group and either (A) on normal
commercial terms or (B) if there is no available
comparison, on terms no less favourable to the Group
than terms available from independent third parties;
and
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(ii) The Non-Exempt Continuing Connected Transactions will
be entered into in accordance with the relevant
Comprehensive Framework Agreements and on terms that
are fair and reasonable and in the interests of the
Shareholders as a whole.
The Company will comply with relevant provisions of the Listing
Rules in relation to each category of the Non-Exempt Continuing Connected
Transactions.
5. ADOPTION OF NEW SHARE OPTION SCHEME AND TERMINATION OF 2002 SHARE
OPTION SCHEME
Existing Share Option Schemes
Pre-Global Offering Share Option Scheme
Under the Pre-Global Offering Share Option Scheme, as at the Latest
Practicable Date, options to subscribe for a total of 23,100,000 Shares
had been granted:
(i) no option had been exercised by any grantee under the
Pre-Global Offering Share Option Scheme;
(ii) options to subscribe for 11,950,000 shares were outstanding and
exercisable;
(iii) options to subscribe for 11,150,000 shares had lapsed; and
(iv) no option had been cancelled.
No further Options may be granted under the Pre-Global Offering
Share Option Scheme.
2001 Share Option Scheme
Under the 2001 Share Option Scheme, as at the Latest Practicable
Date, options to subscribe for a total of 44,100,000 Shares had been
granted:
(i) 1,150,000 Shares had been issued pursuant to the exercise of
Options;
(ii) options to subscribe for 26,100,000 Shares were outstanding
and exercisable;
(iii) options to subscribe for 16,850,000 Shares had lapsed; and
(iv) no option had been cancelled.
No further Options may be granted under the 2001 Share Option
Scheme.
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2002 Share Option Scheme
Under the 2002 Share Option Scheme, as at the Latest Practicable
Date, options to subscribe for a total of 158,620,000 Shares had been
granted:
(i) 1,150,100 Shares had been issued pursuant to the exercise of
Options;
(ii) options to subscribe for 30,233,333 shares were outstanding
and exercisable;
(iii) options to subscribe for 26,456,600 shares had lapsed; and
(iv) no option had been cancelled.
Upon adoption of the New Share Option Scheme and termination of the
2002 Share Option Scheme, no further Options may be granted under the
2002 Share Option Scheme.
Save as disclosed above and up to the Latest Practicable Date, no
other options have been granted to any eligible participant under any
share option schemes of the Company. The Board confirms that prior to the
Second EGM, it will not grant any further option under the 2002 Share
Option Scheme. Besides the Pre-Global Offering Share Option Scheme, the
2001 Share Option Scheme and the 2002 Share Option Scheme, there were no
other subsisting share option schemes of the Company as at the Latest
Practicable Date.
Upon termination of the 2002 Share Option Scheme, no further option
may be offered but in all other respects the provisions of the 2002 Share
Option Scheme shall remain in force. The above outstanding options under
the 2002 Share Option Scheme shall continue to be subject to the
provisions of the 2002 Share Option Scheme, and the adoption of the New
Share Option Scheme will not in any way affect the terms of the grant of
such outstanding options.
As at the Latest Practicable Date, there were in issue an aggregate
of 41,054,675,375 Shares. Assuming no further Shares are issued prior to
the date of the adoption of the New Share Option Scheme, the maximum
number of Shares which may be issued upon exercise of all options granted
under existing share option schemes of the Company, and to be granted
under the New Share Option Scheme or any other share option scheme
adopted by the Company, must not in aggregate exceed 10% of the Shares in
issue on the date of adoption (as at the Latest Practicable Date, such
10% limit represents approximately 4,105,467,537 Shares).
Reasons for the New Share Option Scheme
The Board recognizes the importance of developing the interest of
the officers and employees (including Directors) of the Group in the
growth and performance of the Group by providing such persons with the
opportunity to acquire proprietary interests in the Company. The Company
had undertaken a review of the 2002 Share Option Scheme and note that
certain provisions could be clarified and improved. Accordingly, the
Board proposes that the Company approve and adopt the New Share Option
Scheme for the granting of Options to the Directors, officers and
employees of the Group and other persons selected by the Board who have
contributed or will contribute to the Group and that the 2002 Share
Option Scheme be
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terminated.
Pursuant to the Listing Rules, the New Share Option Scheme is
required to be approved by the Shareholders in general meeting before it
may be implemented. Accordingly, the Board proposes to seek Shareholders'
approval at the Second EGM for the adoption of the New Share Option
Scheme and termination of the 2002 Share Option Scheme, a summary of the
principal terms of which is set out in Appendix II of this circular.
Number of Shares which may be issued under the New Share Option Scheme
Subject to the fulfilment of all the conditions precedent as
referred to in sub-section headed "Conditions Precedent to the New Share
Option Scheme" below, the Board will have the authority to grant to the
Directors, officers and employees of the Company and its subsidiaries,
and any other persons who in the sole discretion of the Board have
contributed or will contribute to the Group, Options to subscribe for
Shares provided that the number of Shares which may be issued upon
exercise of all options to be granted under the New Share Option Scheme
and any other share option schemes will not, in aggregate, exceed 10% of
the issued capital of the Company at the date of adoption of the New
Share Option Scheme (such 10% representing approximately 4,105,467,537
Shares). However, subject to the Company first obtaining further approval
of Shareholders in general meeting, the limit on the number of Shares
which may be issued upon exercise of all outstanding options granted and
yet to be exercised under the New Share Option Scheme and any other
schemes must not exceed 30% of the issued capital of the Company in issue
from time to time.
On each grant of Options, the Board will specify the subscription
price (being not less than the minimum price specified in the Listing
Rules), the vesting schedule and any minimum holding period or
performance targets which apply to the Options.
Value of Options
The Directors consider that it is not appropriate to state the
value of all Options that can be granted pursuant to the New Share Option
Scheme as if they had been granted on the Latest Practicable Date as a
number of variables which are crucial for the calculation of the value of
the Options have not been determined. Such variables include the exercise
price, exercise period, any lock up period, any performance targets set
and other relevant variables. The Directors believe that any calculation
of the value of the Options as at the Latest Practicable Date based on a
great number of speculative assumptions would not be meaningful and would
be misleading to Shareholders.
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LETTER FROM THE BOARD
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Conditions Precedent to the New Share Option Scheme
The New Share Option Scheme is conditional on:
(a) the Listing Committee granting approval of the listing of, and
permission to deal in, the Shares to be issued pursuant to the
exercise of Options under the New Share Option Scheme; and
(b) passing of the Ordinary Resolution No.5 (as set out on page 66
of this circular) to adopt the New Share Option Scheme by the
Shareholders in general meeting and to authorise the Directors
to grant Options to subscribe for Shares thereunder and to
allot, issue and deal with Shares pursuant to the exercise of
any Options granted under the New Share Option Scheme, and to
terminate the 2002 Share Option Scheme by the Shareholders in
general meeting.
Application will be made to the Listing Committee for the approval
of the listing of, and permission to deal in, the Shares which may fall
to be issued pursuant to the exercise of the options granted under the
New Share Option Scheme.
As at the Latest Practicable Date, no option has been granted or
agreed to be granted by the Company under the New Share Option Scheme.
6. GENERAL
The principal business activity of the Company is investment
holding. The Group principally engages in the exploration, development,
production and sales of crude oil and natural gas and other petroleum
products.
The CNOOC Group principally engages in the provision of technical
services, logistic services, chemicals and fertilizer production, natural
gas and power generation, and financial services.
7. SECOND EGM
Approvals from the Shareholders will be sought at the Second EGM
for the amendment to the Existing Non-Compete Undertaking, the Revised
Cap for the "technical services" category of continuing connected
transaction, the Non-Exempt Continuing Connected Transactions (including
the Proposed Caps) and the adoption of the New Share Option Scheme. A
notice convening the Second EGM is set out on pages 65 to 67 of this
circular.
As CNOOC indirectly owns an aggregate of approximately 70.64% of
the issued share capital of the Company, the amendment to the Existing
Non-Compete Undertaking, the Revised Cap for the "technical services"
category of continuing connected transaction and the Non-Exempt
Continuing Connected Transactions (including the Proposed Caps) are
subject to approval from the Independent Shareholders under the Listing
Rules. In view of the interests of CNOOC held indirectly through OOGC and
CNOOC BVI, OOGC, CNOOC BVI and their respective associates will abstain
from voting in relation to the resolutions approving the amendment to the
Existing Non-Compete Undertaking, the Revised Cap for the "technical
services" category of continuing connected transaction and the Non-Exempt
Continuing Connected Transactions (including the Proposed Caps).
--30--
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LETTER FROM THE BOARD
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There is no Shareholder that is materially interested in the
proposed resolutions regarding the adoption of the New Share Option
Scheme and therefore none of the Shareholders is required to abstain from
voting in respect of such resolution.
There is (i) no voting trust or other agreement or arrangement or
understanding entered into by or binding upon CNOOC; and (ii) no
obligation or entitlement of CNOOC as at the Latest Practicable Date,
whereby it has or may have temporarily or permanently passed control over
the exercise of the voting right in respect of its Shares to a third
party, either generally or on a case-by-case basis.
A pink form of proxy for use at the Second EGM is enclosed.
Shareholders are requested to complete the pink form of proxy and return
it to the registered office of the Company at 65th Floor, Bank of China
Tower, 1 Garden Road, Hong Kong in accordance with the instructions
printed on it not less than 48 hours before the time fixed for holding
the meeting, if they do not intend to be present in person at the
meeting.
8. RECOMMENDATION OF THE BOARD
The Directors are of the opinion that the terms of the amendment to
the Existing Non-Compete Undertaking, the Revised Cap for the "technical
services" category of continuing connected transaction, the Non-Exempt
Continuing Connected Transactions (including the Proposed Caps) and the
adoption of the New Share Option Scheme are in the interests of the
Company and its Shareholders as a whole. Accordingly, the Directors
recommend that the Shareholders should vote in favour of the relevant
resolutions to be proposed at the Second EGM.
9. RECOMMENDATION OF THE INDEPENDENT BOARD COMMITTEE
An Independent Board Committee has been formed to advise the
Independent Shareholders in connection with the terms of the amendment to
the Existing Non-Compete Undertaking, the Revised Cap for the "technical
services" category of continuing connected transaction and the Non-Exempt
Continuing Connected Transactions (including the Proposed Caps), and Dao
Heng Securities Limited has been appointed as the Independent Financial
Adviser to advise the Independent Board Committee and the Independent
Shareholders on the same.
Dao Heng Securities Limited considers the terms of the amendment to
the Non-Compete Undertaking, the Revised Cap for the "technical services"
category of continuing connected transaction and the Non-Exempt
Continuing Connected Transactions (including the Proposed Caps) fair and
reasonable so far as the Independent Shareholders are concerned and are
in the interests of the Company and the Shareholders as a whole. The text
of the letter of advice from Dao Heng Securities Limited containing its
recommendation in respect of the amendment to the Non-Compete
Undertaking, the Revised Cap for the "technical services" category of
continuing connected transaction and the Non-Exempt Continuing Connected
Transactions (including the Proposed Caps) is set out on pages 34 to 53
of this circular.
--31--
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LETTER FROM THE BOARD
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The Independent Board Committee, having taken into account the
advice of Dao Heng Securities Limited, considers the amendment to the
Non-Compete Undertaking, the Revised Cap for the "technical services"
category of continuing connected transaction and the Non-Exempt
Continuing Connected Transactions (including the Proposed Caps) fair and
reasonable so far as the Independent Shareholders are concerned, are in
the interests of the Company and the Shareholders as a whole.
Accordingly, the Independent Board Committee recommends that the
Independent Shareholders should vote in favour of the relevant
resolutions to be proposed at the Second EGM to approve the amendment to
the Non-Compete Undertaking, the Revised Cap for the "technical services"
category of continuing connected transaction and the Non-Exempt
Continuing Connected Transactions (including the Proposed Caps). The full
text of the letter from the Independent Board Committee is set out on
pages 32 to 33 of this circular.
Yours faithfully,
For and on behalf of the Board
CNOOC Limited
Fu Chengyu
Chairman
--32--
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LETTER FROM THE INDEPENDENT BOARD COMMITTEE
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CNOOC Limited
(Translation of registrant's name into English)
(Incorporated in Hong Kong with limited liability under the Companies Ordinance)
(Stock Code: 883)
10 December 2005
To the Independent Shareholders
Dear Sir or Madam,
We have been appointed as the Independent Board Committee to
advise you in connection with the amendment to the Non-Compete Undertaking,
the Revised Cap for the "technical services" category of continuing connected
transaction and the Non-Exempt Continuing Connected Transactions (including
the Proposed Caps), details of which are set out in the letter from the Board
contained in the circular to the Shareholders dated 10 December 2005 (the
"Circular"), of which this letter forms part. We wish to draw your attention
to the letter from Dao Heng Securities Limited as set out on pages 34 to 53 of
this Circular. Terms defined in this Circular shall have the same meanings
when used herein, unless the context otherwise requires.
Having considered the information set out in the letter from the
Board, the terms of the amendment to the Non-Compete Undertaking, the Revised
Cap for the "technical services" category of continuing connected transaction
and the Non-Exempt Continuing Connected Transactions (including the Proposed
Caps) and the advice of Dao Heng Securities Limited in relation thereto as set
out on pages 34 to 53 of the Circular, we are of the view that the terms of
the amendment to the Non-Compete Undertaking, the Revised Cap for the
"technical services" category of continuing connected transaction and the
terms of the Non-Exempt Continuing Connected Transactions (including the
Proposed Caps) are in the interests of the Company and its Shareholders as a
whole and the terms of the amendment to the Non-Compete Undertaking, the
Revised Cap for the "technical services" category of continuing connected
transaction and the terms of the Non-Exempt Continuing Connected Transactions
(including the Proposed Caps) are fair and reasonable so far as the
Independent Shareholders are concerned.
--33--
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LETTER FROM THE INDEPENDENT BOARD COMMITTEE
-------------------------------------------------------------------------------
Accordingly, we recommend the Independent Shareholders to vote in
favour of the resolutions to be proposed at the Second EGM to approve the
amendment to the Non-Compete Undertaking, the Revised Cap for the "technical
services" category of continuing connected transaction and the Non-Exempt
Continuing Connected Transactions (including the Proposed Caps).
Yours faithfully,
For and on behalf of the Independent Board Committee
Sung Hong Chiu Kenneth S. Courtis Evert Henkes
Independent non-executive Independent non-executive Independent non-executive
Director Director Director
Tse Hau Yin, Aloysius Lawrence J. Lau
Independent non-executive Independent non-executive
Director Director
--34--
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LETTER FROM INDEPENDENT FINANCIAL ADVISOR
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Set out below is the text of the letter of advice from Dao Heng Securities to
the Independent Board Committee and the Independent Shareholders prepared for
inclusion in this circular.
(Translation of registrant's name into English)
DaoHeng Securities Ltd.
10 December 2005
The Independent Board Committee and the Independent Shareholders
CNOOC Limited
65/F, Bank of China Tower
1 Garden Road
Hong Kong
Dear Sirs,
AMENDMENT TO EXISTING NON-COMPETE UNDERTAKING,
REVISED CAP FOR EXISTING CONTINUING CONNECTED TRANSACTION
AND
NEW CATEGORISATION FOR CONTINUING CONNECTED TRANSACTIONS
We refer to our engagement to advise the Independent Board
Committee and the Independent Shareholders in relation to the amendment to the
Existing Non-Compete Undertaking, Revised Cap for existing continuing
connected transaction and new categorisation for continuing connected
transactions (including determination of the Proposed Caps), details of which
are set out in the letter from the Board in a circular dated 10 December 2005
to the Shareholders (the "Circular"), of which this letter forms part. Terms
defined in the Circular shall bear the same meanings herein unless the context
otherwise requires.
The Company entered into the Supplemental Agreement with CNOOC on
8 December 2005 to amend the Existing Non-Compete Undertaking, whereby
provided that it obtains the Company's prior written consent, CNOOC and/or its
subsidiaries will be able to engage in the Businesses that are otherwise
subject to the Existing Non-Compete Undertaking. At the same time, CNOOC has
also irrevocably granted an option to the Company to acquire the relevant
Business from CNOOC and/or its subsidiaries that are the subject of the
consent. Such call option will be granted to the Company for no consideration,
for an indefinite period, and will be exercisable by the Company at any time
in the future.
As at the Latest Practicable Date, CNOOC is indirectly interested
in approximately 70.64% of the issued share capital of the Company, and
therefore is a controlling shareholder of the Company. Accordingly, CNOOC is a
connected person of the Company and transactions between CNOOC and/or its
associates and the Group constitute connected transactions for the Company for
the purpose of the Listing Rules. Prior to the restructuring of CNOOC and
establishment of the Company, CNOOC and/or its associates and the Group
operated as an integrated organisation which undertook numerous intra-group
transactions each year. As a consequence of the restructuring and upon the
listing of the Company's shares on the Stock Exchange, a number of
transactions which have been entered into and which are to be entered into
between the Group and CNOOC and/or its associates will constitute continuing
connected transactions for the Company under the Listing Rules.
--35--
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LETTER FROM INDEPENDENT FINANCIAL ADVISOR
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The Directors had been monitoring the Company's continuing
connected transactions, and with the continued development and expansion of
the business of the Group and based on internal estimates of the demand and
the operating conditions of the continuing connected transactions, the
Directors note that the existing cap for 2005 for one of the continuing
connected transactions category under the Existing Waiver, namely, the
provision of technical services, will not be sufficient for the Group's
requirement, and therefore propose that the existing cap for the continuing
connected transaction involving the provision of technical services be
revised.
The Company has undertaken an extensive review of the
categorisation of the continuing connected transactions using the Existing
Categorisation with a view to presenting a more coherent, logical and
understandable picture to Shareholders, and also to enable the Company to
monitor the status of transactions following each category more effectively
going forward. New Categories of continuing connected transactions have now
been identified which achieve this purpose, further details of the New
Categories of the continuing connected transactions are set out in the letter
from the Board in the Circular.
The Independent Board Committee, comprising all of the
independent non-executive Directors, namely Mr. Sung Hong Chiu, Mr. Kenneth S.
Courtis, Mr. Evert Henkes, Mr. Tse Hau Yin, Aloysius and Mr. Lawrence J. Lau,
has been formed to make a recommendation to the Independent Shareholders in
relation to the amendment to the Existing Non-Compete Undertaking, Revised Cap
for the "technical services" category of continuing connected transactions and
New Categories of continuing connected transactions. We have been appointed as
the independent financial adviser to the Independent Board Committee and the
Independent Shareholders in this regard.
In formulating our recommendations, we have relied on the
accuracy of the information and representations contained in the Circular and
as provided to us by the Directors. We have assumed that all information and
representations made or referred to in the Circular and all information and
representations which have been provided by the Directors, are true and
accurate in all material respects and that all expectations and intentions of
the Company or the Directors will be met or carried out as the case may be. We
have no reason to doubt the truth, accuracy and completeness of the
information and representations provided to us by the Directors and referred
to in the Circular, and we have been advised by the Directors that no material
facts have been omitted from the information provided to us and referred to in
the Circular. We consider that we have reviewed sufficient information and
have made all reasonable steps to reach an informed view. We have not,
however, conducted any form of independent investigation into the businesses
and affairs or the financial position or the future prospects of the Group.
--36--
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LETTER FROM INDEPENDENT FINANCIAL ADVISOR
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PRINCIPAL FACTORS AND REASONS CONSIDERED
I. Amendment to the Existing Non-Compete Undertaking
In arriving at our opinion as to whether the amendment to the Existing
Non-Compete Undertaking is fair and reasonable in so far as the Company and
the Independent Shareholders as a whole are concerned, we have considered the
following principal factors and reasons:
1. Recent listings
The Company has noted that in recent listings, it is a common
practice for non-compete undertakings between the listed issuer and its
controlling shareholder to allow the controlling shareholder to directly
or indirectly engage in competing businesses provided that prior written
consent of the listed issuer is obtained. For example, in the case of
China Netcom Group Corporation (Hong Kong) Limited (stock code: 906)
("China Netcom"), the decision as to whether a written consent will be
given will be made by the board of China Netcom, which includes its
independent non-executive directors.
2. Background of the Existing Non-Compete Undertaking
Prior to the listing of the Company in 2001, CNOOC has undertaken to
the Company, amongst others, that, so long as the Company's securities
are listed on the Stock Exchange or other exchanges, the Company remains
a non-wholly owned subsidiary of CNOOC, or CNOOC or any other PRC
government controlled entity remains as the Company's controlling
shareholder (or within 12 months immediately after CNOOC or any other PRC
government controlled entity ceases to be the Company's controlling
shareholder):
(i) the Group will enjoy the exclusive right to exercise all of
CNOOC's commercial and operational rights under PRC law and
regulations relating to the exploration, development,
production and sales of the PRC offshore oil and natural gas;
and
(ii) neither it nor any of its subsidiaries will engage or be
interested, directly or indirectly, in oil and natural gas
exploration, development, production and sales in or outside
the PRC.
3. Reasons for the amendment to the Existing Non-Compete Undertaking
It is stated in the letter from the Board that the Existing
Non-Compete Undertaking does not currently provide for any mechanism by
which CNOOC may take up opportunities even if the Company decides that it
is not in its best interest to pursue them. The Board believes that the
amendment to the Existing Non-Compete Undertaking will give flexibility
to the Company and CNOOC in handling transactions, and will also improve
the relationship between the Company and CNOOC and CNOOC's continued
support to the Company. The Board also believes that the existence of a
call option will adequately protect the Company and ensure that the
Company can share in the opportunity if the Board considers at a later
stage that it would be in the interests of the Company to undertake such
Businesses.
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LETTER FROM INDEPENDENT FINANCIAL ADVISOR
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4. Terms of the amendment to the Non-Compete Undertaking
Amendment to Existing Non-Compete Undertaking
The Company entered into the Supplemental Agreement with CNOOC
on 8 December 2005 to amend the Existing Non-Compete Undertaking,
whereby provided that it obtains the Company's prior written
consent, CNOOC and/or its subsidiaries will be able to engage in the
Businesses that are otherwise subject to the Existing Non-Compete
undertaking. No consideration is payable by either party for
entering into the Supplemental Agreement.
The decision as to whether to give consent to CNOOC to engage
in such Businesses will be made by the Board. The independent
non-executive Directors will participate in making such decision and
the reasons of the Board (including those of the independent
non-executive Directors) for giving the written consent will be set
out in an announcement, if such consent is given and CNOOC engages
in such Business.
Call option to acquire back the business
In addition, under the Supplemental Agreement, CNOOC has also
irrevocably granted an option to the Company to acquire the relevant
Business from CNOOC and/or its subsidiaries that are the subject of
the written consent. Such call option will be granted to the Company
for no consideration, for an indefinite period, and will be
exercisable by the Company at any time in the future. The
consideration for the acquisition of the relevant Businesses will be
negotiated on arms-length negotiation and on normal commercial
terms, and the parties will enter into formal sale and purchase
agreement in relation to such acquisition. The exercise of the call
option and the acquisition of the relevant Businesses will
constitute a connected transaction and the Company will comply with
the requirements of Chapter 14 and 14A of the Listing Rules (as
appropriate) upon the exercise of the call option.
5. Conclusion
Having considered the above principal factors and reasons, in
particular that, (i) the non-compete undertakings of some of the recent
listings of companies have also included similar arrangements; (ii) the
Board believes that the amendment to the Existing Non-Compete Undertaking
gives flexibility to the Company and CNOOC in handling transactions;
(iii) the Board considers that the existence of a call option will
adequately protect the Company and ensure that the Company can share in
the opportunity if the Board considers at a later stage that it would be
in the interests of the Company to undertake such Businesses; (iv) the
mechanism under the Supplemental Agreement, whereby provided that the
decision as to whether to give consent to CNOOC to engage in such
businesses will be made by the Board (including the independent
non-executive Directors) and that the Company intends to comply with
relevant requirements of Chapter 14 and 14A of the Listing Rules in the
event that the Company shall exercise the call option and acquire the
relevant Businesses from CNOOC and/or its subsidiaries (where they remain
the connected persons of the Company, Independent Shareholders' approval,
when appropriate, is required), are considered to be appropriate measures
to govern the Company in carrying out such decision and acquisition,
thereby safeguard the interests of the Independent Shareholders; and (v)
the amendment to the Existing Non-compete Undertaking has provided an
opportunity for the Company, in order to protect its interests and
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LETTER FROM INDEPENDENT FINANCIAL ADVISOR
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prevent unnecessary losses, to shift the operating risks of certain
high-risk projects that are not in the best interests of the Company to
CNOOC provided that CNOOC has obtained a prior written consent from the
Company, therefore, we are of the view that the terms of the amendment to
the Existing Non-Compete Undertaking are fair and reasonable and are in
the interests of the Company and its Shareholders as a whole.
II. Revised cap for the "technical services" category of continuing
connected transactions
In arriving at our opinion as to whether the revised cap for the
"technical services" category of continuing connected transactions is fair and
reasonable in so far as the Company and the Independent Shareholders as a
whole are concerned, we have considered the following principal factors and
reasons:
1. Operating environment of the Group
The global oil sector has been marked with a persistent upward trend
in oil prices, which has been mainly driven by the lack of spare
capacity. Based on the information from Bloomberg, the price for crude
oil futures has increased by approximately 87.5% since 2002. According to
an Asia Pacific Energy research report produced by The Goldman Sachs
Group, Inc., a positive industry outlook is expected and a continuing
elevating crude oil price is forecasted for the rest of 2005 and for
2006.
2. Background of the "technical services" category of continuing
connected transactions
Reference is made to the 2002 Circular in relation to the "technical
services" category of continuing connected transactions between the Group
and CNOOC and/or its associates. A number of specialised companies have
been formed by CNOOC since its establishment to provide sub-contracting
services for CNOOC's offshore oil and gas production activities. These
specialised companies have provided services to the Group through bidding
process.
In connection with the restructuring of the Company in preparation
for its initial public offering, CNOOC's associates transferred to the
Group the existing technical services agreements with the specialised
companies. In 2002, the specialised companies novated these agreements to
COSL, which has since assumed the rights and obligations of the
specialised companies thereunder, except in relation to the provision of
engineering and construction services. The Group may terminate any of
these agreements by giving 30 days' written notice to COSL or the
specialised companies, as the case may be. The Group will continue to use
the technical and labour services provided by COSL or the specialised
companies, as the case may be, including (i) offshore drilling; (ii) ship
tugging, oil tanker transportation and security services; (iii) well
survey, well logging, well cementation and other related technical
services; (iv) collection of geophysical data, ocean geological
prospecting, and data processing; (v) platform fabrication service and
maintenance; and (vi) design, construction, installation and test of
offshore and onshore production facilities.
3. Reasons for the revision of cap
Under the Existing Waiver, the charges for the above-mentioned
technical services payable to COSL (or its predecessors, as the case may
be) and the specialised companies, as the case may be, are subject to an
annual cap of RMB5,853 million, RMB7,338 million and RMB4,880 million for
each of the three financial years ending 31 December 2005. It is also a
condition of the waiver that if any of the annual cap is exceeded,
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the Company will comply with the provisions of the then Chapter 14
(currently Chapter 14A) of the Listing Rules relating to connected
transactions, unless it applies for and obtains a waiver from the Stock
Exchange.
For the two years ended 31 December 2004 and the six months ended 30
June 2005, the charges for such technical services payable to COSL (or
its predecessors, as the case may be) and the specialised companies, as
the case may be, were approximately RMB3,828 million, RMB6,362 million
and RMB3,038 million, respectively. We understand from the Directors that
these costs are based on arm's length negotiations with COSL and
specialised companies on normal commercial terms or on terms no less
favourable than those available to independent third parties, under
prevailing local market conditions, including considerations such as
volume of sales, length of contracts, package of services, overall
customer relationship and other market factors and, in the case of the
specialised companies, are based on bidding process. The Directors had
also been monitoring the Company's continuing connected transactions, and
with the continued development and expansion of the business of the Group
and based on internal estimates of the demand and the operating
conditions of the continuing connected transactions, they consider the
original annual cap for 2005 for such technical services will not be
sufficient.
We understand from the Directors that the revision of the existing
cap for 2005 for the provision of such technical services is necessary.
The annual Revised Cap has been determined with reference to previous
transactions conducted and transaction amounts in respect of the
provision of technical services by CNOOC and/or its associates to the
Group. At the time when the relevant annual cap was first determined in
2002, some of the Company's developments were not anticipated, including
many oil field development activities, which were originally scheduled
for 2003 and 2004 being postponed to 2005. Coupled with new discoveries
the Company has found, new projects coming on stream successfully, rapid
expansion of the Group's operations in 2005, including overseas expansion
and acquisitions and the increasing cost of supplies and raw materials
over the years, the Group's demand for which had increased with its
expansion, the Directors expect that the original annual cap for 2005 for
such technical services of RMB4,880 million will not be sufficient for
the Group's requirement, and therefore propose that the existing cap for
the continuing connected transaction involving the provision of technical
services be revised to RMB7,218 million.
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LETTER FROM INDEPENDENT FINANCIAL ADVISOR
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4. Terms of the revised caps for the "technical services"
category of continuing connected transactions
The Board has considered and proposed that the following Revised Cap
in respect of the "technical services" category of continuing connected
transactions using the Existing Categorisation be set for the maximum
annual value of such transaction for the year ended 31 December 2005:
Revised Cap
for the financial
Annual limit in the year ended 31
Historical amount Existing Waiver December 2005
For the two years ended 31 For the three years ending 31 RMB7,218 million
December 2004 and the six months December 2005, RMB5,853
ended 30 June 2005, RMB3,828 million, RMB7,338 million
million, RMB6,362 million and and RMB4,880 million,
RMB3,038 million, respectively respectively
It is stated in the letter from the Board that the provision of
technical services under the Existing Categorisation of continuing
connected transactions are and will be conducted in the ordinary and
usual course of business of the Company. This category of transaction
will continue to be agreed on an arm's length basis with terms that are
fair and reasonable to the Company.
Based on the above, Independent Shareholders should note that the
aggregate limit under the Existing Waiver for the three years ending 31
December 2005 amounts to RMB18,071 million while the revised cap for the
year ending 31 December 2005 of RMB7,218 million together with the actual
amount payable by the Company of approximately RMB3,828 million and
RMB6,362 million for each of the two financial years ended 31 December
2004 respectively aggregate to RMB17,408.
5. Conclusion
Considering that (i) the fluctuation of the price of crude oil from
time to time had posed difficulty for the Directors to accurately predict
the market price fluctuations and the progress of new discoveries in
advance and to take them into consideration at the time the original
annual cap was determined; (ii) the unexpected postponement of certain
oil field development activities that were originally scheduled for 2003
and 2004 to 2005; (iii) new discoveries the Company has found and new
projects coming on stream successfully, which led to rapid expansion of
the Group's operations in 2005; (iv) the proposed revision merely makes
use of the unutilised annual caps for the previous two financial years
ended 31 December 2004 under the Existing Waiver; and (v) the benefits to
the Company associated with the continuation of provision of technical
services and the long-term relationship between the Group and the CNOOC
Group, we are of the view that the Revised Cap to RMB7,218 million for
the year ending 31 December 2005, an increase of 47.9% as compared to the
previous annual limit under the Existing Waiver for the year ending 31
December 2005 of RMB4,880 million, is fair and reasonable so far as the
interests of the Company and the Independent Shareholders as a whole are
concerned.
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III. New categorisation for continuing connected transactions
In arriving at our opinion as to whether the Non-Exempt
Continuing Connected Transactions are on normal commercial terms and were
entered in the ordinary and usual course of business of the Company and the
Non-Exempt Continuing Connected Transactions and the relevant cap amounts are
fair and reasonable in so far as the Company and the Independent Shareholders
as a whole are concerned, we have considered the following principal factors
and reasons:
1. Background of the new categorisation for continuing connected
transactions
The Independent Shareholders had approved certain continuing
connected transactions between the Group and CNOOC and/or its
associates under the Existing Categorisation at an extraordinary
general meeting of the Company held on 23 December 2002 and the
Existing Waiver was granted to the Company in relation to these
continuing connected transactions. The Existing Waiver will expire on
31 December 2005.
It is stated in the letter from the Board that the Company has
undertaken an extensive review of the Existing Categorisation of the
continuing connected transactions with a view to presenting a more
consistent, logical and understandable picture to Shareholders, and
also to enable the Company to monitor the status of transactions
following each category more effectively going forward that has been
grouped in accordance to the normal operation workflow of the Company.
New Categories of continuing connected transactions have now been
identified to achieve such purposes.
The Group proposes to enter into continuing connected transactions
with CNOOC and/or its associates, as set out in the Comprehensive
Framework Agreements. The Directors expect that the Group will
continuously enter into such transactions with CNOOC and/or its
associates, which will constitute continuing connected transactions for
the Company under the Listing Rules.
2. Reasons for the new categorisation for continuing connected
transactions
Prior to the restructuring of CNOOC and the establishment of the
Company, CNOOC and/or its associates and the Group operated as an
integrated organisation, which underwent numerous intra-group
transactions each year. As a consequence of the restructuring and upon
the listing of the Company's shares on the Stock Exchange, a number of
transactions which have been entered into and which are to be entered
into between the Group and CNOOC and/or its associates will constitute
continuing connected transactions for the Company under the Listing
Rules.
It is stated in the letter from the Board that the New Categories
of continuing connected transactions are and will be conducted in the
ordinary and usual course of business of the Company. These
transactions will continue to be agreed on an arm's length basis with
terms that are fair and reasonable to the Company. Due to the long-term
relationship between the Group and the CNOOC Group, the Board considers
it to be beneficial for the Company to continue to enter into the
continuing connected transactions as these transactions have
facilitated and will continue to facilitate the operation and growth of
the Company's business.
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3. Non-Exempt Continuing Connected Transactions
The Company entered into separate Comprehensive Framework
Agreements on 8 December 2005 with each of CNOOC, COSL and OOECL for
the provision (1) by the Group to CNOOC and/or its associates and (2)
by CNOOC and/or its associates to the Group, of a range of products and
services which may be required and requested from time to time by
either party and/or its associates in respect of the New Categories of
continuing connected transactions. Amongst the New Categories of
continuing connected transactions, only the Non-Exempt Continuing
Connected Transactions are subject to Independent Shareholders'
approval requirement. The other categories of continuing connected
transactions are not subject to Independent Shareholders' approval
requirement as each of the percentage ratios is, on an annual basis,
less than 2.5% under Rule 14A.34(1) of the Listing Rules. The details
of the Non-Exempt Continuing Connected Transactions are set out below.
The term of each of the Comprehensive Framework Agreements is for a
period of two years commencing 1 January 2006, and is conditional upon
Independent Shareholders' approval.
The Non-Exempt Continuing Connected Transactions are categorised
as follows:
o Provision of exploration, oil and gas development as well as
oil and gas production provided various services by CNOOC
and/or its associates to the Group
(a) Exploration and support services;
(b) Oil and gas field development and support services; and
(c) Oil and gas field production and support services.
o Sales of petroleum and natural gas products by the Group to
CNOOC and/or its associates
(a) Sales of petroleum and natural gas products; and
(b) Long-term sales of natural gas and liquefied natural gas.
Since the establishment of CNOOC, certain associates of CNOOC
specialising in exploration, oil and gas development as well as oil
and gas production services provided these services to the Group
through bidding process. The Group will continue to use these
services provided by associates of CNOOC, including but not limited
to COSL, OOECL and COBGL. CNOOC also provides certain of these
services from time to time. The services provided by CNOOC and/or
its associates are set out below.
A. Provision of exploration, oil and gas development as well
as oil and gas production services by CNOOC and/or its
associates to the Group
(a) Provision of exploration and support services to the
Group
Under this category, the services provided by CNOOC
and/or its associates to the Group include, well site survey,
seismic data acquisition and processing, integrated
exploration
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research services, exploration well operation, related
technical services on exploration well, tow-boat,
transportation and safety services and other related
technical and supporting services.
For the two years ended 31 December 2004 and the six
months ended 30 June 2005, the charges for such exploration
and payable to CNOOC and/or its associates were
approximately RMB854 million, RMB1,330 million and RMB428
million respectively.
(b) Provision of oil and gas development and support
services to the Group
The services provided by CNOOC and/or its associates
to the Group in respect of oil and gas development
operations include, platform survey, drilling and
completion well operation, related technical services on
drilling and completion, design, construction, installation
and tuning of production facilities, shipping
transportation, provision of materials, integrated research
on development techniques and other related technical and
supporting services.
For the two years ended 31 December 2004 and the six
months ended 30 June 2005, the charges for such oil and gas
development services payable to CNOOC and/or its associates
were approximately RMB2,765 million, RMB4,681 million and
RMB2,513 million respectively.
(c) Provision of oil and gas production and support
services to the Group
The services provided by CNOOC and/or its associates
to the Group under this category include, amongst others,
integrated research on production techniques, well
workover, shipping and oil tanker transportation, provision
of materials, water, electricity and heat, maintenance and
repair of platform, equipment, pipeline, buildings,
production operations, warehousing and storage, lease of
equipment and building, technical training, accommodation,
and various services such as oil and gas production labour,
road transportation, telecommunication and network, wharf,
construction, medical, childcare and social, security and
fire and catering services.
For the two years ended 31 December 2004 and the six
months ended 30 June 2005, the charges for such oil and gas
production services payable to CNOOC and/or its associates
were approximately RMB1,177 million, RMB1,354 million and
RMB575 million respectively.
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B. Sales of petroleum and natural gas products by the Group to CNOOC
and/or its associates
(a) Sales of petroleum and natural gas products
The Group may sell petroleum and natural gas products,
including crude oil, condensate oil, liquefied petroleum gas,
natural gas and liquefied natural gas, to CNOOC and/or its
associates which engage in downstream petroleum business.
Although most of the natural gas and liquefied natural gas will
be sold under the long-term sales contracts as described below,
the Group also sells certain volume of the natural gas and
liquefied natural gas to CNOOC and/or its associates on a
short-term basis for the purpose of peak adjustment and to reap
higher profits.
For the two years ended 31 December 2004 and the six months
ended 30 June 2005, sales of petroleum and natural gas products
to CNOOC and/or its associates were approximately RMB8,324
million, RMB13,630 million and RMB11,837 million respectively.
(b) Long-term sales of natural gas and liquefied natural gas
The Group sells natural gas to CNOOC and/or its associates
which engage in the downstream petroleum business. Due to the
size of investment and the fact that sales are usually made to
markets proximate to the exploration site, and that purchasers
tend to utilise the natural gas products in areas close to the
exploration site, therefore, in order to ensure a return on
investment from the exploration of natural gas for the Group, the
Group will usually enter into long-term sales contracts with a
term of 15 to 20 years. As advised by the Directors, this is also
a common market practice for the term of the sales contract to be
determined based on the estimated reserves and production profile
of the relevant gas fields.
The Group has also invested and acquired interests in
liquefied natural gas related upstream projects in Tangguh,
Indonesia and the North West Shelf of Australia. It is envisaged
that from time to time the Group may sell liquefied natural gas
explored from such gas reserves and other gas reserves in which
the Group may invest in the future to CNOOC and/or its
associates. In order to ensure the return on investment and to
achieve the requirement of the lenders, it is anticipated that
the terms of sales contracts in relation to the liquefied natural
gas will not be more than 25 years.
For the year ended 31 December 2004 and the six months ended
30 June 2005, long-term sales of natural gas to CNOOC and/or its
associates were approximately RMB315 million and RMB272 million
respectively. There were no such transactions for the year ended
31 December 2003. For the two years ended 31 December 2004 and
the six months ended 30 June 2005, there have been no sales of
liquefied natural gas to CNOOC and/or its associates.
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4. Pricing of transactions
We have reviewed the Comprehensive Framework Agreements covering
the above Non-Exempt Continuing Connected Transactions and note that for
the case of provision of exploration, oil and gas development as well as
oil and gas production services provided by CNOOC and/or its associates
to the Group, the charges payable to CNOOC and/or its associates will be
based on arm's length negotiations with CNOOC and/or its associates on
normal commercial terms or on terms no less favourable than those
available to independent third parties, under prevailing local market
conditions, including considerations such as volume of sales, length of
contracts, package of services, overall customer relationship and other
market factors.
Should the above pricing principle for a particular product or
service cease to be applicable or there is no open market for such
services, whether due to a change in circumstances or otherwise, such
product or service must then be provided in accordance with the
following pricing principle:-
(i) state-prescribed prices; or
(ii) where there is no state-prescribed price, market prices,
including the local, national and international market
prices; or
(iii) where neither (i) or (ii) is applicable, the cost to CNOOC
and/or its associates for providing the relevant products or
services, including the cost of sourcing or purchasing from
third parties, plus a margin of not more than 10%, before any
applicable taxes.
For the case of sales of petroleum and natural gas products by
the Group to CNOOC and/or its associates, the charges payable to the
Group will be determined based on the following pricing principle:-
(i) state-prescribed prices; or
(ii) where there is no state-prescribed price, market prices,
including the local, national and international market
prices.
The priority of the above pricing structure is set under (i) to
(iii) such that the pricing mechanism in (ii) and (iii) would only apply
where the preceding pricing mechanism(s) are inapplicable. We concur
with the Directors that such basis is fair and reasonable as far as the
interests of the Company and the Independent Shareholders as a whole are
concerned, given that (i) and (ii) are based on the state-prescribed
prices and market prices, including the local, national or international
market prices respectively.
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In the event that neither of the pricing mechanisms referred to
in (i) or (ii) is applicable, the Comprehensive Framework Agreements
provides that the service charges payable will be based on the pricing
mechanism referred to in (iii), where a margin of not more than 10%
(before any applicable taxes) over the cost to CNOOC and/or its
associates or the Group (as the case may be) of providing services in
relation to oil and gas development operations, including the cost of
sourcing or purchasing from third parties will be embedded. To justify
the fairness and reasonableness of such pricing mechanism referred to in
(iii) above, we have made reference to four oil field services companies
listed on the New York Stock Exchange, namely Schlumberger Limited
(NYSE: SLB), Baker Hughes Incorporated (NYSE: BHI), Smith International
Inc. (NYSE: SII) and Halliburton Company (NYSE:HAL).
We set out below the operating profit margins of the
above-mentioned oil field service companies and their corporate
profiles.
Operating profit margin
Name of company Corporate Profile Year ended Year ended Year ended
31.12.2002 31.12.2003 31.12.2004
Schlumberger Limited one of the largest oil field services 15.6% 17.4% 17.6%
(NYSE: SLB) companies in the world which provides
a full range of oil and gas services,
including seismic surveys, drilling,
wireline logging, well construction and
completion and project management
Baker Hughes a leading provider of drilling and 15.0% 14.3% 17.4%
Incorporated formation evaluation services which
(NYSE: BHI) operates in over 90 countries worldwide
to international oil and gas companies
Smith International A leading worldwide supplier of drilling 11.7% 12.8% 13.1%
Inc. (NYSE: SII) related engineering services and
premium products to oil and gas
exploration and production companies 9.3% 11.8% 15.8%
Halliburton Company A leading provider of oil field services
(NYSE:HAL) such as pressure pumping, production
enhancement and well drilling
As the margin of not more than 10% (before any applicable taxes)
embedded into the pricing mechanism referred to in (iii) above lies in
the lower range of 9.3% and 17.6% as recorded by the above-mentioned
four comparables over the three years ended 31 December 2004, we
consider the overall pricing of the Non-Exempt Continuing Connected
Transactions fair and reasonable as far as the interests of the
Independent Shareholders are concerned.
5. Term of the transaction
We note from the Comprehensive Framework Agreements that members
of the Group may enter into separate and definitive agreements from time
to time with CNOOC and/or its associates for a term not more
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than 20 years and 25 years for the case of FPSO vessel leasing
and long-term sales of natural gas and liquefied natural gas
respectively. Under Rule 14A.35(1) of the Listing Rules, the period for
agreements in relation to non-exempt continuing connected transactions
must not exceed three years in the absence of special circumstances.
We understand from the Directors that in view of the large size
of capital investment, it is common for oil companies to enter into
agreements for a long duration in order to ensure a reasonable return
can be achieved in projects invested. In this regard, reference has been
made to information in the public domain relating to the energy sector.
It is noted in Halliburton Company's annual report for 2004 that a
company under its energy services group has contracts over five years to
cementing, stimulating, directional drilling, logging-while-drilling and
mud logging services and it is also stated that given the tightness of
service company capacity, customers are increasingly seeking to secure
oil field services with long-term contracts. Given FPSO vessels are
usually located next to the offshore oil platforms and serve as an
integrated part during offshore oil and gas production for processing,
storage and channelling of crude oil, the Directors are of the view that
the terms of FPSO vessel leases should better tie with that expected
duration of the oil and gas exploration, development and production
projects of the Group. Based on the aforesaid, we consider that it is a
normal business practice for the Company to enter into FPSO vessel lease
agreements that are of duration of more than three years.
For the case of long-term sales of natural gas and liquefied
natural gas by the Group, we understand from the Directors that it is a
market practice for the term of the sales contract to be determined
based on the estimated reserves and production profile of the relevant
gas fields in order to ensure a reasonable return on investment by oil
companies. We noted an article on (Translation of registrant's name into
English) (China Natural Gas Industry Website) that Ras Gas Company, one
of the world's leading liquefied natural gas companies, and ExxonMobil
Ras Laffan III Limited entered into coorperation agreement to develop a
liquefied natural gas project and supply the products mainly to the
United States for 25 years. We also noted in Petrochina Company
Limited's prospectus dated 27 March 2000 that Petrochina Company Limited
agreed to provide refined products, chemical products, natural gas and
crude oil to China National Petroleum Corporation for 10 years. Due to
the size of investment and the fact that sales are usually made to
markets proximate to the exploration site, and that purchasers tend to
utilise the natural gas products in areas close to the exploration site,
and in order to ensure the return on investment from exploration of
natural gas, the Directors are of the view that the term of the sales
contracts of natural gas and liquefied natural gas should be of duration
of 15 to 20 years. Based on the aforesaid, we consider that it is a
normal business practice for the Company to enter into sales contracts
of similar nature that are of duration of more than three years.
However, in any event, according to the Comprehensive Framework
Agreement, if the Company is unable to obtain approval of the annual
caps for these two categories of continuing connected transactions after
31 December 2007, then the agreements falling under these two categories
will terminate on that date.
Although the nature of the transactions under "FPSO vessel lease
agreements" and "long-term sales of natural gas and liquefied natural
gas" categories render it a normal business practice for contract of
this type to be of such duration, these two agreements, which are
subject to the overriding provisions set out in the Comprehensive
Framework Agreement and effectively have a term of two years only, would
not adversely affect the interests of the Independent Shareholders and
the Company as a whole.
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6. Proposed caps for the Non-Exempt Continuing Connected Transactions
Set out below are the details of the historical amount of each of
the Non-Exempt Continuing Connected Transaction for the two financial
years ended 31 December 2004 ("FY03" and "FY04", respectively) and
estimated amount for the year ending 31 December 2005 ("FY05" and the
relevant Proposed Caps for the two financial years ending 31 December
2007 ("FY06" and "FY07", respectively):
A. Provision of exploration, oil and gas development as well as
oil and gas production services by CNOOC and/or its associates to
the Group
The transactions Historical/estimated amount Proposed Caps
FY03 FY04 FY05 FY06 FY07
(a) Exploration and support 854 1,330 1,538 2,117 2,293
services (RMB million)
Growth rate ("%") n.a. +55.7 +15.6 +37.6 +8.3
Exploration is the first step in the production process for an
oil and gas company. As advised by the management of the Company, an
exploration activity typically takes one to two years to complete and
the success ratio in exploring an oilfield is normally approximately
30%. There are two types of exploration, namely risk exploration
(Translation of registrant's name into English) where the Company
explores a completely new site; and rollover exploration (Translation of
registrant's name into English), where the Company explores a site that
is next to an oilfield that is currently in production. After an
exploration activity has been completed successfully, the oilfield will
then proceed to the development phase. As advised by the management of
the Company, the amount of exploration and support services needed for a
particular year is dependent on the Company's long-term development plan
and the results of the exploration activities in the past years.
We are aware that the growth rate in the amount of services under
this category for FY05 of 15.6% is significantly less than that for FY04
and as advised by the management of the Company, it is a general plan of
the Company to involve in more exploration activities, however, for
FY05, some of the exploration activities that the Company has engaged in
have not resulted in success in the beginning stage and therefore, the
Company has decided not to proceed with those exploration activities and
as a result, the growth rate of the amount of services under this
category estimated for FY05 is relatively smaller even though the
Company planned to expend more in this regard in FY05.
For FY06 and FY07, the Company has planned to continue to engage
in more exploration activities, with a goal to achieve a compound annual
growth rate ("CAGR") of overall production volume of 7% to 11% for the
year ending 31 December 2010 as compared to that for FY05. The
management of the Company advised that, with the Company's increased
scale of business and in order to achieve the said CAGR in the medium
term and to attain a stable return to its Shareholders in the long term,
the Company will need to continuously engage in an increasing amount of
exploration activities, where such exploration activities may lead to
successful or unsuccessful outcome. Given that the success ratio in
exploring an oilfield is normally approximately 30% as mentioned above,
we consider that the growth rate of 37.6% for exploration and support
services (for FY06) for the Company is to achieve the goal of CAGR of 7%
to 11% in overall production volume for the year ending 31 December 2010
as compared to that of FY05.
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We have discussed with the management of the Company on the
future business plan, in particular, as regards the exploration
activities, and considered the plan was prepared by the Company after
due and careful enquiry. Taking into account the above basis, we
consider that the new cap amounts for each of the two financial years
ending 31 December 2007 set at RMB2,117 million and RMB2,293 million
respectively are fair and reasonable so far as the Company and the
Independent Shareholders as a whole are concerned.
The transactions Historical/estimated amount Proposed Caps
FY03 FY04 FY05 FY06 FY07
(b) Oil and gas field 2,765 4,681 4,789 7,628 10,458
development and
support services
(RMB million)
Growth rate ("%") n.a. +69.3 +2.3 +59.3 +37.1
As advised by the management of the Company, development of oil
and gas fields is the next step in the production process of an oil and
gas company following exploration, provided that oil or gas is found
after completion of the exploration activities. The development of an
oilfield typically takes three to four years to complete, where after
development an oilfield will then proceed to the production phase.
We are advised by the management of the Company that the
relatively higher growth rate for exploration and support services for
FY04 of 55.7% (which shows a high concentration of exploration
activities for that year) reflects the high growth rate for oil and gas
field development and support services for FY06 of 59.3% (which shows a
high concentration of development activities approximately two years
after the high concentration of exploration activities in FY04).
We are also aware that the growth rate in the amount of services
under this category for FY05 of 2.3% is significantly lower than that of
FY04 and as advised by the management of the Company, a high
concentration number of oilfields that were undergoing the development
phase reached their peak in FY03 and FY04, and hence the high growth in
the historic transaction amount for the services under this category for
FY04. According to the management of the Company, these oilfields were
expected to complete their development phase and commenced production in
FY05 and as a result, the growth rate of the estimated transaction
amount for oil and gas field development and support services for FY05
is relatively smaller. The management of the Company also advised us
that the net increase of oilfields under development for FY06 is
expected to be four, which is higher than that of FY04 and FY05 (whereas
there was one only, respectively). It is also evidenced by the fact that
the estimated oil and gas field production and support services (i.e.
the transactions described under the heading "(c) Oil and gas field
production and support services" below) for FY05 registered a
year-on-year growth of 52.7% as opposed to 15% for FY04 following a high
concentration number of oilfields have completed their development stage
in FY04, which is considered to be in line with the production workflow
of the Company.
We have discussed with the management of the Company on the
future business plan, in particular, as regards development activities,
and considered the plan was prepared by the Company after due and
careful enquiry. Taking into account the above basis, we consider that
the new cap amounts for each of the two financial years ending 31
December 2007 set at RMB7,628 million and RMB10,458 million respectively
are
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fair and reasonable so far as the Company and the Independent
Shareholders as a whole are concerned.
The transactions Historical/estimated amount Proposed Caps
FY03 FY04 FY05 FY06 FY07
(c) Oil and gas field 1,177 1,354 2,068 3,935 4,132
production and
support services
(RMB million)
Growth rate ("%") n.a. +15.0 +52.7 +90.3 +5.0
As advised by the management of the Company, when an oilfield has
completed its development phase, it will then commence production. The
production period of an oilfield differs vastly among different
oilfields, ranging from as short as three or five years to as long as 30
years.
We note that the Proposed Cap for FY06 registers a substantial
year-on-year growth as compared to those for FY04 and FY05. Having
discussed with the management of the Company, we were advised that the
significant increment in the amount of the Proposed Cap as opposed to
the historical amounts are mainly due to (i) the Company's estimated
expansion of existing oilfields, which will attribute to approximately
30% and 19% of the growth of the Proposed Cap for FY06 and FY07
respectively; (ii) the estimated increase in the number of oilfields in
production from 45 in FY05 to 52 in FY06 and to approximately 55 in
FY07; (iii) the anticipated increase in the future price of raw
materials and wage expenses, which will attribute to approximately 13%
of the growth of the Proposed Cap for FY06; and (iv) the Company's
increased involvement in the operation of oilfields, where such
oilfields are expected to reach a peak of production utilisation in
2006, which will lead to an increase in the need for oil and gas field
production and support services, where this factor will attribute to
approximately 16% of the growth of the Proposed Cap for FY06. In light
of the oilfield development activities reached its peak in FY03 and
FY04, it is considered that the significant increase in the Company's
production activities in FY05 and FY06 reasonable in light of the time
span required from oil and gas exploration to production of about four
to six years and the significant growth in expenditure for exploration
and development services in the past years.
We have discussed with the management of the Company on the
future business plan, in particular, as regards production activities,
and considered the plan was prepared by the Company after due and
careful enquiry. Taking into account the above basis, we consider that
the new cap amounts for each of the financial years ending 31 December
2007 set at RMB3,935 million and RMB4,132 million respectively are fair
and reasonable so far as the Company and the Independent Shareholders as
a whole are concerned.
B. Sales of petroleum and natural gas products by the Group to CNOOC
and/or its associates
The transactions Historical/estimated amount Proposed Caps
FY03 FY04 FY05 FY06 FY07
(a) Sales of petroleum and 8,324 13,630 28,320 33,469 44,199
natural gas products
(RMB million)
Growth rate ("%") n.a. +63.7 +107.8 +18.2 +32.1
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As advised by the management of the Company, the growth of the
historic amounts under this category was driven by (i) the growth of the
Group in its production volume of petroleum and natural gas; and (ii)
the increase in prices of crude oil. We have also taken reference to the
Company's historic overall oil and gas sales as stated in its annual
report for FY04, where the growth in overall oil and gas sales for FY04
as compared to that for FY03 was approximately 31.2%.
Having discussed with the management of the Company, we were
advised that the increment in the amount of the Proposed Cap as opposed
to the historic amounts are mainly due to (i) the estimated increase in
the number of oilfields in production from 45 in FY05 to 52 in FY06 and
to approximately 55 in FY07; (ii) the Group's involvement as operator of
certain oilfields in the future (in replacement of current operators,
who are independent third parties to the Group and to CNOOC and its
associates), which is estimated to lead to an increase in sales of
petroleum and natural gas products between the Group and CNOOC and/or
its associates by approximately 15% for FY06; (iii) the expected
increase in demand for petroleum and natural gas products from CNOOC
and/or its associates for approximately 30% and 60% for FY06 and FY07
respectively in light of the Group's increase in heavy crude oil and
natural gas output; and (iv) the anticipated increase of approximately
8% in international crude oil prices.
We have discussed with the management of the Company on the
future business plan and considered the plan was prepared by the Company
after due and careful enquiry. Taking into account the above basis, we
concur with the view of the Directors that the new cap amounts for each
of the two financial years ending 31 December 2007 set at RMB33,469
million and RMB44,199 million respectively are fair and reasonable so
far as the Company and the Independent Shareholders as a whole are
concerned.
The transactions Historical/estimated amount Proposed Caps
FY03 FY04 FY05 FY06 FY07
(b) Long-term sales of n.a. 315 563 1,960 3,599
natural gas and
liquefied natural gas
(RMB million)
Growth rate ("%") n.a. n.a. +78.7 +248.1 +83.6
As advised by the management of the Company, the relatively small
transaction amount for FY04 was due to the fact that the natural gas
field only commenced production in 2004 and has not reached its designed
natural gas production volume until 2005, which also explains the
significant 78.7% growth for FY05.
Having discussed with the management of the Company, we were
advised that the significant increment in the amount of the Proposed Cap
as opposed to the historical amounts are mainly due to (i) the
commencement of production of a total of four newly discovered natural
gas fields for FY06 and FY07 which will lead to a substantial increase
in production volume of natural gas as opposed to one natural gas field
in production for FY05; (ii) the commencement of the sale of liquefied
natural gas from the Company's liquefied natural gas project in North
West Shelf of Australia to CNOOC and/or its associates in 2006; (iii)
the expected increase in demand for natural gas and liquefied natural
gas from CNOOC and/or its associates for approximately 50% and 87% for
FY06 and FY07 respectively in light of the Group's increase
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in natural gas and liquefied natural gas output; and (iv) the
anticipated positive adjustment of natural gas prices by relevant
governmental authorities.
We have discussed with the management of the Company on the
future business plan and considered the plan was prepared by the Company
after due and careful enquiry. Taking into account the above basis, we
concur with the view of the Directors that the new cap amounts for each
of the two financial years ending 31 December 2007 set at RMB1,960
million and RMB3,599 million respectively are fair and reasonable so far
as the Company and the Independent Shareholders as a whole are
concerned.
7. Conclusion
We have reviewed the historical figures provided by the Company
for each of the Non-Exempt Continuing Connected Transactions during the
period from FY03 to FY05 and the Comprehensive Framework Agreement and
discussed with the management of the Company as to the future
development and expansion plan of the Company and the potential impact
of the volatility of future oil and natural gas prices on the Company's
future total operating revenues and total operating expenses, we are of
the view that (i) the Non-Exempt Continuing Connected Transactions will
be carried out in the ordinary course of business of the Group and on
normal commercial terms; (ii) the Proposed Caps for the Non-Exempt
Continuing Connected Transactions are reasonably determined; (iii) the
terms of the Non-Exempt Continuing Connected Transactions are fair and
reasonable so far as the Independent Shareholders are concerned; and
(iv) the entering into the Non-Exempt Continuing Connected Transactions
is in the interest of the Company and the Independent Shareholders as a
whole.
RECOMMENDATION
Having considered the above principal factors and reasons, we are of the
view that the terms of the amendment to the Existing Non-Compete Undertaking,
the Revised Cap for the "technical services" category of continuing connected
transactions and the terms of the Non-Exempt Continuing Connected Transactions
and the relevant Proposed Caps are fair and reasonable as far as the interests
of the Company and the Independent Shareholders as a whole are concerned.
Accordingly, we advise the Independent Board Committee to recommend the
Independent Shareholders to vote in favour of the ordinary resolutions to be
proposed at the EGM.
Yours faithfully,
For and on behalf of
Dao Heng Securities Limited
Venus Choi Jenny Leung
Executive Director Director, Corporate Finance
--53--
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APPENDIX I GENERAL INFORMATION
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1. RESPONSIBILITY STATEMENT
This circular includes particulars given in compliance with the Listing
Rules for the purpose of giving information with regard to the Company. The
Directors collectively and individually accept full responsibility for the
accuracy of the information contained in this circular and confirm, having
made all reasonable enquiries, that to the best of their knowledge and belief,
there are no other facts the omission of which would make any statement herein
misleading.
2. DISCLOSURE OF INTERESTS
As at the Latest Practicable Date, the interests of each Director and
chief executive of the Company in the equity or debt securities of the Company
or any associated corporations (within the meaning of the SFO) which (i) where
required to be notified to the Company and the Stock Exchange pursuant to
Divisions 7 and 8 of Part XV of the SFO (including interests and short
positions which they are taken or deemed to have under such provisions of the
SFO), (ii) where required, pursuant to section 352 of the SFO, to be entered
in the register referred to therein or (iii) where required, pursuant to the
Model Code for Securities Transactions by Directors of Listed Issuers, to be
notified to the Company and the Stock Exchange were as follows:
Interests in share options granted by the Company
Underlying shares
granted pursuant to
Name of Grantee Date of Grant Exercise Price options
(HK$)
Fu Chengyu 12 March 2001 1.19 1,750,000
27 August 2001 1.232 1,750,000
24 February 2003 2.108 1,150,000
5 February 2004 3.152 2,500,000
31 August 2005 5.62 3,500,000
Luo Han 12 March 2001 1.19 1,400,000
27 August 2001 1.232 1,150,000
24 February 2003 2.108 1,150,000
5 February 2004 3.152 1,150,000
31 August 2005 5.62 1,610,000
Zhou Shouwei 12 March 2001 1.19 1,400,000
27 August 2001 1.232 1,750,000
24 February 2003 2.108 1,750,000
5 February 2004 3.152 1,750,000
31 August 2005 5.62 2,450,000
Cao Xinghe 31 August 2005 5.62 800,000
Wu Zhenfang 31 August 2005 5.62 800,000
--54--
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APPENDIX I GENERAL INFORMATION
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Wu Guangqi 31 August 2005 5.62 1,610,000
Yang Hua 12 March 2001 1.19 1,150,000
27 August 2001 1.232 1,150,000
24 February 2003 2.108 1,150,000
5 February 2004 3.152 1,150,000
31 August 2005 5.62 1,610,000
Chiu Sunghong 5 February 2004 3.152 1,150,000
Evert Henkes 5 February 2004 3.152 1,150,000
Kenneth S Courtis 5 February 2004 3.152 1,150,000
Save as disclosed above, as at the Latest Practicable Date, none of the
Directors and chief executive of the Company was interested in the equity or
debt securities of the Company or any associated corporations (within the
meaning of the SFO) which (i) where required to be notified to the Company and
the Stock Exchange pursuant to Divisions 7 and 8 of Part XV of the SFO
(including interests and short positions which they are taken or deemed to
have under such provisions of the SFO), (ii) where required, pursuant to
section 352 of the SFO, to be entered in the register referred to therein or
(iii) where required, pursuant to the Model Code for Securities Transactions
by Directors of Listed Issuers, to be notified to the Company and the Stock
Exchange;
3. SUBSTANTIAL SHAREHOLDER
As at the Latest Practicable Date, so far as was known to the Directors
and chief executive of the Company, the persons, other than a Director or
chief executive of the Company, who had an interest or a short position in the
Shares and underlying Shares which would fall to be disclosed to the Company
under the provisions of Divisions 2 and 3 of Part XV of the SFO were as
follows:
Name of substantial
shareholder of the Approximate percentage of
Company Number of shares total issued shares
Directly held Indirectly held
CNOOC (BVI) 28,999,999,995 - 70.64%
OOGC 5 28,999,999,995 70.64%
CNOOC - 29,000,000,000 70.64%
Note: CNOOC (BVI) is a wholly-owned subsidiary of OOGC, which in turn is a
wholly-owned subsidiary of CNOOC. Accordingly, CNOOC (BVI)'s interests
are recorded as the interests of OOGC and CNOOC.
--55--
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APPENDIX I GENERAL INFORMATION
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All the interests stated above represent long positions. As at the Latest
Practicable Date, no short positions were recorded in the Register of
Interests in Shares and Short Positions required to be kept under section 336
of the SFO.
Save as disclosed above, the Directors and chief executive of the Company
are not aware that there is any party who, as at the Latest Practicable Date,
had an interest or a short position in the Shares and underlying Shares which
would fall to be disclosed to the Company under the provisions of Divisions 2
and 3 of Part XV of the SFO, or who is, directly or indirectly, interested in
10% or more of the nominal value of any class of share capital carrying rights
to vote in all circumstances at general meetings of any other member of the
Group.
4. PROFESSIONAL QUALIFICATION AND CONSENT
The following are the qualifications of the experts who have given
opinions or advice which are contained in this circular:
Names Qualifications
Dao Heng Securities Limited A corporation licensed to carry out type 1 (dealings in
securities), type 4 (advising on securities) and type 6 (advising
on corporate finance) regulated activities under the Securities
and Futures Ordinance (Chapter 571 of the Laws of Hong Kong)
Sallmanns (Far East) Limited Independent property valuer
(a) As at the Latest Practicable Date, none of Dao Heng Securities
Limited and Sallmanns (Far East) Limited has any beneficial interest
in the share capital of any member of the Group or had any right,
whether legally enforceable or not, to subscribe for or to nominate
persons to subscribe for securities in any member of the Group and
have any interest, either directly or indirectly, in any assets
which have been, since 31 December 2004, being the date to which the
latest published audited accounts of the Company were made up,
acquired or disposed of by or leased to or are proposed to be
acquired or disposed of by or leased to any member of the Group.
(b) Dao Heng Securities Limited and Sallmanns (Far East) Limited have
given and have not withdrawn their respective written consents to
the issue of this circular with inclusion of their opinion and
letter, as the case may be, and the reference to their names
included herein in the form and context in which they respectively
appear.
5. LITIGATION
Neither the Company nor any of its subsidiaries is engaged in any
litigation or arbitration of material importance and, so far as the Directors
are aware, no litigation or arbitration of material importance is pending or
threatened against the Company.
--56--
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APPENDIX I GENERAL INFORMATION
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6. MATERIAL ADVERSE CHANGE
As at the Latest Practicable Date, the Directors are not aware of any
material adverse change in the financial or trading positions of the Company
since 31 December 2004, the date to which the latest published audited
financial statement of the Company were made up.
7. SERVICE CONTRACTS
As at the Latest Practicable Date, none of the Directors had entered into
any service contract with the Company or any member of the Group (excluding
contracts expiring or determinable by the employer within one year without
payment of compensation (other than statutory compensation)).
8. INTERESTS OF DIRECTORS
(a) The Directors are not aware that any Director had, as at the Latest
Practicable Date, any interest in any business which competes or is
likely to compete, either directly or indirectly, with the business
of the Group which would be required to be disclosed under the
Listing Rules.
(b) No Director is materially interested in any contract or arrangement
subsisting at the date hereof which is significant to the business
of the Group taken as a whole.
(c) Since 31 December, 2004, the date to which the latest published
audited consolidated accounts of the Group have been made up, none
of the Directors has, or has had, any direct or indirect interest in
any assets which have been acquired or disposed of by or leased to
or which are proposed to be acquired, disposed of by or leased to,
any member of the Group.
9. PROCEDURES FOR DEMANDING A POLL
Pursuant to Article 69(a) of the Articles of Association, a resolution
put to the vote of a general meeting shall be decided on a show of hands
unless (before or on the declaration of the result of the show of hands or on
the withdrawal of any other demand for a poll) a poll is demanded by:
(a) the Chairman of such meeting; or
(b) at least three members present in person (or in the case of a member
being a corporation, by its duly authorized representative) or by
proxy and entitled to vote at the meeting; or
(c) any member or members present in person (or in the case of a member
being a corporation, by its duly authorized representative) or by
proxy and representing the aggregate not less than one-tenth of the
total voting rights of all members having the right to attend and
vote at the meeting; or
(d) any member or members present in person (or in the case of a member
being a corporation, by its duly authorized representative) or by
proxy and holding Shares conferring a right to attend and vote at
the meeting on which there have been paid up sums in the aggregate
equal to not less than one-tenth of the total sum paid up on all
shares conferring that right.
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APPENDIX I GENERAL INFORMATION
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10. GENERAL
(a) The registered office of the Company is situated at 65th Floor, Bank
of China Tower, 1 Garden Road, Hong Kong.
(b) The Company's registrar is Hong Kong Registrars Limited of Rooms
1712-1716, 17th Floor, Hopewell Centre, 183 Queen's Road East, Hong
Kong.
(c) The secretary of the Company is Cao Yunshi.
(d) The English text of this circular shall prevail over the Chinese
text.
11. DOCUMENTS AVAILABLE FOR INSPECTION
Copies of the following documents will be available for inspection during
normal business hours at the offices of Herbert Smith at 23/F, Gloucester
Tower, 11 Pedder Street, Central, Hong Kong, from the date of this circular up
to and including 27 December 2005:
(a) the Articles of Association of the Company;
(b) the Supplemental Agreement;
(c) the Comprehensive Framework Agreements entered into between the
Company and each of CNOOC, COSL and OOECL;
(d) the letter of recommendation from the Independent Board Committee,
the text of which is set out on pages 32 to 33 of this circular;
(e) the letter issued by Dao Heng Securities Limited, the text of which
is set out on pages 34 to 53 of this circular;
(f) the letter issued by Sallmanns (Far East) Limited confirming the
matters set out in the Letter from the Board on page 18 of this
circular;
(g) the rules of the New Share Option Scheme; and
(h) the written consents of Dao Heng Securities Limited and Sallmanns
(Far East) Limited referred to in paragraph 4 of this appendix.
--58--
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APPENDIX II SUMMARY OF NEW SHARE OPTION SCHEME
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The following is a summary of the terms required to be included in the
New Share Option Scheme as required by the Listing Rules:
1. Purpose of the New Share Option Scheme
The purpose of the New Share Option Scheme is to provide incentive and/or
reward to Grantees for their contribution to, and continuing efforts to
promote the interests of, the Group.
2. Eligible Grantees
Any Director or employee of the Group and any other person (including a
consultant or adviser) who, in the sole discretion of the Board, has
contributed or will contribute to the Group, are eligible to participate in
the New Share Option Scheme.
3. Maximum Number of Shares
The total number of Shares which may be issued upon exercise of all
outstanding options granted and yet to be exercised under the New Share Option
Scheme or any other share option scheme adopted by the Company must not, in
aggregate, exceed 30% (or such other percentage as may be allowed under the
Listing Rules) of the total number of Shares in issue from time to time (as at
the latest Practicable Date such 30% being approximately 12,316,402,612
Shares). As at the date of adoption of the New Share Option Scheme, the
maximum number of Shares which may be issued upon exercise of all options
granted under existing share option schemes of the Company, and to be granted
under the New Share Option Scheme or any other share option scheme adopted by
the Company must not in aggregate exceed 10% of the Shares in issue on the
date of adoption (as at the Latest Practicable Date, such 10% limit represents
4,105,467,537 Shares). Options which have lapsed shall not be counted in
calculating the 10% limit. However, the Company may renew this 10% limit with
shareholders' approval provided that each such renewal may not exceed 10% of
the Shares in issue as at the date of the shareholders' approval. The Company
may seek separate approval by Shareholders in general meeting for granting
options beyond the 10% limit provided the options in excess of the limit are
granted only to Grantees specifically identified by the Company before such
approval is sought.
The Directors consider that it is not appropriate to state the value of
all Options that can be granted pursuant to the New Share Option Scheme as if
they had been granted on the Latest Practicable Date as a number of variables
which are crucial for the calculation of the value of the Options have not
been determined. Such variables include the exercise price, exercise period,
any lock up period, any performance targets set and other relevant variables.
The Directors believe that any calculation of the value of the Options as at
the Latest Practicable Date based on a great number of speculative assumptions
would not be meaningful and would be misleading to Shareholders.
4. Maximum Number of shares per Grantee
Unless approved by Shareholders, the total number of Shares issued and to
be issued upon exercise of the Options granted to each Grantee (including both
exercised and unexercised Options) under the New Share Option Scheme or any
other share option scheme adopted by the Company, in any 12 months period,
must not exceed 1% of the Shares in issue.
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APPENDIX II SUMMARY OF NEW SHARE OPTION SCHEME
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5. Exercise of Options
(a) The period within which the Options must be exercised will be
specified by the Company at the time of grant. This period must
expire no later than 10 years from the Offer Date, subject to the
provisions of the New Share Option Scheme relating to early
termination as summarized below.
(b) Subject to paragraphs 5(c) and 13(e) below, where the holder of an
outstanding Option ceases to be an eligible person under the New
Share Option Scheme for any reason, the Option shall lapse three
months after the date of cessation and not be exercisable unless the
Board otherwise determines in which event the Option shall be
exercisable to the extent and within such period (not exceeding 90
days) as the Board may determine. The date of such cessation shall
be (i) if he is an employee of the Group, his last actual working
day at his work place with the Group whether salary is paid in lieu
of notice or not; or (ii) if he is not an employee of the Group, the
date on which the relationship constituting him an eligible person
ceases.
(c) Where the Grantee of an outstanding Option dies before exercising
the Option in full or at all, the Option may be exercised up to the
entitlement of such Grantee or, if appropriate, an election made
pursuant to paragraphs 5(d), (e) and (f) below by his or her
personal representatives within 12 months of the date of death.
(d) If a general offer by way of a take-over is made to all the
Shareholders (or all such holders other than the offeror and/or any
person controlled by the offeror and/or any person acting in
association or concert with the offeror) and such offer becomes or
is declared unconditional, the Company shall give notice thereof to
the Grantee and the Grantee (or his personal representatives) may by
notice in writing to the Company within 30 days after such offer
becoming or being declared unconditional exercise the Option to its
full extent or to the extent specified in such notice.
(e) If a general offer by way of a scheme of arrangement is made to all
the Shareholders and the scheme has been approved by the necessary
number of Shareholders at the requisite meetings, the Company shall
give notice thereof to the Grantee and the Grantee (or his personal
representatives) may thereafter (but before such time as shall be
notified by the Company) by notice in writing to the Company
exercise the Option to its full extent or to the extent specified in
such notice.
(f) In the event a notice is given by the Company to its members to
convene a general meeting for the purposes of considering, and if
thought fit, approving a resolution to voluntarily wind-up the
Company, the Company shall on the same date as or soon after it
despatches such notice to each member of the Company give notice
thereof to all Grantees (together with a notice of the existence of
the provisions of this paragraph) and thereupon, each Grantee (or
his or her personal representatives) shall be entitled to exercise
all or any of his Options at any time not later than five business
days prior to the proposed general meeting of the Company by giving
notice in writing to the Company, accompanied by a remittance for
the full amount of the aggregate subscription price for the Shares
in respect of which the notice is given whereupon the Company shall
as soon as possible and, in any event, no later than three business
days immediately prior to the date of the proposed general meeting
referred to above, issue and allot the relevant Shares to the
Grantee credited as fully paid.
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APPENDIX II SUMMARY OF NEW SHARE OPTION SCHEME
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6. Minimum Holding Period
At the time of grant of the Options, the Company may specify a minimum
period for which an Option must be held before it can be exercised. The Board
may specify the vesting schedule and other terms in the relevant Offer.
7. Performance Targets
At the time of the grant of the Options, the Company may specify
performance targets which must be achieved before the Options can be
exercised.
8. Option Price
The amount payable on acceptance of an Option is HK$1.
9. Subscription Price
The subscription price for the Shares the subject of the Options shall be
no less than the higher of (i) the closing price of the Shares as stated in
the daily quotations sheets issued by the Stock Exchange on the Offer Date;
(ii) the average closing price of the Shares as stated in the daily quotations
sheets issued by the Stock Exchange for the 5 business days immediately
preceding the Offer Date; and (iii) the nominal value of a Share on the Offer
Date. The subscription price will be established by the Board at the time the
Option is offered to the Grantee.
10. Ranking of Shares
The Shares to be allotted and issued upon the exercise of an Option will
be subject to the Company's constitutional documents for the time being in
force and will rank pari passu in all respects with the fully-paid Shares in
issue on the date the name of the Grantee is registered on the register of
members of the Company and will entitle the holders to participate in all
dividends or other distribution declared or recommended or resolved to be paid
or made in respect of a record date falling on or after the date of allotment.
11. Rights on a liquidation
Prior to the Grantee being registered on the register of members of the
Company the Grantee shall not have any voting rights, or rights to participate
in any dividends or distributions of any rights arising on a liquidation of
the Company, in respect of the Shares to be issued upon the exercise of the
Option.
12. Period of Scheme
No Options may be granted under the Share Option Scheme after the date of
the 10th anniversary of the adoption of the Share Option Scheme.
--61--
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APPENDIX II SUMMARY OF NEW SHARE OPTION SCHEME
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13. Lapse of Options
An Option shall lapse automatically and not be exercisable, to the extent
not already exercised, on the earliest of:
(a) the expiry of the Option period;
(b) the expiry of any of the periods referred to in paragraphs 5(b), (c)
or (d) above;
(c) subject to the scheme of arrangement becoming effective, the expiry
of the period referred to in paragraph 5(e) above;
(d) subject to paragraph 5(f) above, the date of the commencement of the
winding-up of the Company;
(e) the date on which the Grantee ceases to be an Eligible Person by
reason of summary dismissal for misconduct or other breach of the
terms of his employment or other contract constituting him an
Eligible Person, or the date on which he begins to appear to be
unable to pay or have no reasonable prospect of being able to pay
his debts or has become insolvent or has made any arrangements or
composition with his or her creditors generally or on which he has
been convicted of any criminal offence involving his or her
integrity or honesty. A resolution of the Board to the effect that
the employment or other relevant contract of a Grantee has or has
not been terminated on one or more of the grounds specified in this
paragraph 13 shall be conclusive; or
(f) the date on which the Grantee transfers or encumbrances any interest
in his Option.
14. Alteration of Share Capital
In the event of any alteration in the capital structure of the Company
whilst any Option have been granted and remains exercisable (whether such
alteration arises by way of capitalisation of profits or reserves, rights
issue, consolidation, subdivision or reduction of the share capital of the
Company) the number of Shares to be issued on exercise of the Options and/or
the subscription price shall be adjusted accordingly; provided that no such
adjustments shall be made in respect of an issue of securities by the Company
as consideration in a transaction, any such adjustments must be made so that
each Grantee is given the same proportion of the equity capital of the Company
as that to which he was previously entitled and no such adjustments shall be
made which would result in the subscription price for a Share being less than
its nominal value (provided that in such circumstances the subscription price
shall be reduced to the nominal value).
15. Cancellation of Options Granted
Any Options granted but not exercised may be cancelled if the Grantee so
agrees and new Options may be granted to the Grantee provided such Options
fall within the limits specified in paragraph 3 above and are otherwise
granted in accordance with the terms of the New Share Option Scheme or any
other share option scheme adopted by the Company.
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APPENDIX II SUMMARY OF NEW SHARE OPTION SCHEME
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16. Change of Controlling Interest
In the event that there is a Change of Controlling Interest as described
below, all Options which have been granted but not exercised shall become
exercisable at once and may be exercised if the Grantees have held the Options
for more than 6 months. The Exercising Period shall be 12 months from the date
of the occurrence of the Change of Controlling Interest:
(a) any person, entity or body has acquired or held more than 30% (or
the percentage of voting rights which will trigger an obligation to
make a general offer, as stipulated in the Hong Kong Code on
Takeovers and Mergers) of the issued Shares or the votes attached to
all issued voting securities of the Company, except in the case of
share repurchase by the Company or the purchase is made by an
employee welfare program;
(b) the Company participates as a party in any reorganisation, merger or
takeover which has been approved by all Shareholders; and
(c) the Company is liquidated or reorganised.
17. Termination of Scheme
The Company, by ordinary resolution of shareholders, or the Board, may at
any time terminate the operation of the New Share Option Scheme and in such
event no further Options will be offered or granted. Any unexercised Options
shall continue to be valid and exercisable in accordance with their terms of
issue after the termination of the New Share Option Scheme.
18. Transfers of Options
The Option may not be transferred or assigned and is personal to the
Grantee.
19. Alterations to the New Share Option Scheme
Those specific provisions of the New Share Option Scheme which relate to
the matters set out in Rule 17.03 of the Listing Rules, or any change to the
authority of the Remuneration Committee in relation to any alteration of the
terms of the New Share Option Scheme, cannot be altered to the advantage of
Grantees or prospective Grantees without the prior approval of Shareholders in
general meeting. Any alterations to the provisions of the New Share Option
Scheme which are of a material nature, or any change to the terms of Options
granted, must be approved by the Shareholders in general meeting, except where
the alterations take effect automatically under the existing provisions of the
New Share Option Scheme.
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APPENDIX II SUMMARY OF NEW SHARE OPTION SCHEME
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20. Cancellation of Exercised Options
On exercise of an Option by a Grantee, the Board may at its sole
discretion (which discretion may or may not be exercised on request from a
Grantee) elect to cancel such exercised Option, either in whole or in part,
and instead of issuing new Shares to the Grantee, pay to the Grantee the
aggregate of:
(a) the subscription price paid by the Grantee on exercise of the
Option;
(b) if the average closing price of the Shares (as stated in the daily
quotations sheets issued by the Stock Exchange for the five business
days immediately preceding the exercise of the subscription price)
exceeds the subscription price, an amount equal to such excess
multiplied by the number of Shares in respect of which the Option
was exercised.
Any payment made by the Company pursuant to paragraph (b) above shall be
charged to its retained profits unless otherwise required to be accounted for
in accordance with the generally accepted accounting principles which apply at
the time of such payment.
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NOTICE OF EXTRAORDINARY GENERAL MEETING
------------------------------------------------------------------------------
[LOGO OMITTED]
CNOOC Limited
(Translation of registrant's name into English)
(Incorporated in Hong Kong with limited liability under the Companies
Ordinance) (Stock Code: 883)
NOTICE OF SECOND EXTRAORDINARY GENERAL MEETING
NOTICE IS HEREBY GIVEN that an extraordinary general meeting of the
shareholders of CNOOC Limited (the "Company") will be held at Island
Shangri-la Hong Kong, Two Pacific Place, Supreme Court Road, Hong Kong on 31
December 2005 at 10:30 am (or such later time as the extraordinary general
meeting of the shareholders of the Company to be held at 10:00 a.m. on 31
December 2005 for the purposes of considering amendments to the articles of
association of the Company and the re-election of directors closes) for the
purpose of considering and, if thought fit, passing, with or without
modification, the following resolutions as Ordinary Resolutions:
ORDINARY RESOLUTIONS
1. "THAT the Supplemental Agreement in relation to certain amendments to the
Existing Non-Compete Undertaking, a copy of which has been initialled by
the Chairman and for the purpose of identification marked "A", be and is
hereby approved, ratified and confirmed and that any Director of the
Company be and is hereby authorised to do all such further acts and
things and execute such further documents or supplemental agreements or
deeds on behalf of the Company and take all such steps which in his
opinion may be necessary, desirable or expedient to implement and/or give
effect to the terms of the Supplemental Agreement and to make and agree
with such changes in the terms of the Supplemental Agreement as he may in
his discretion consider necessary, desirable and expedient and in the
interest of the Company."
2. "THAT the Revised Cap for the "technical services" category of continuing
connected transactions under the Existing Waiver, as described in the
circular of the Company dated 10 December 2005 (the "Circular"), be and
is hereby approved, ratified and confirmed."
3. "THAT the Non-Exempt Continuing Connected Transactions as described in
the Circular and set out in the Comprehensive Framework Agreements
(copies of which have been initialled by the Chairman of the meeting and
for the purpose of identification marked "B", "C" and "D"), which the
Company expects to occur on a regular and continuous basis in the
ordinary and usual course of business of the Company and its
subsidiaries, as the case may be, and to be conducted on normal
commercial terms, be and are hereby generally and unconditionally
approved and that any Director of the Company be and is hereby authorised
to do all such further acts and things and execute such further documents
and take all such steps which in their opinion may be necessary,
desirable or expedient to implement and/or give effect to the terms of
such transactions."
4. "THAT the Proposed Caps for each category of the Non-Exempt Continuing
Connected Transactions, as described in the Circular, be and are hereby
approved, ratified and confirmed."
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NOTICE OF EXTRAORDINARY GENERAL MEETING
------------------------------------------------------------------------------
5. "THAT the existing share option scheme of the Company adopted on 4
February 2001 and amended on 6 June 2002 be and is hereby terminated, and
the rules of the New Share Option Scheme of the Company (a copy of which
has been initialled by the Chairman of the meeting and for the purpose of
identification marked "E") be and are hereby approved and adopted as the
new share option scheme of the Company subject to and conditional upon
the Listing Committee of The Stock Exchange of Hong Kong Limited granting
listing of and permission to deal in the shares of the Company,
representing 10% of the issued share capital of the Company as at the
date of passing this resolution, to be issued pursuant to the exercise of
any options granted under the New Share Option Scheme and that the
Directors of the Company be and are hereby authorised, at their absolute
discretion, to grant options thereunder and to allot and issue shares of
the Company pursuant to the exercise of such option."
By Order of the Board
Cao Yunshi
Company Secretary
Hong Kong, 10 December 2005
Registered Office:
65th Floor, Bank of China Tower
1 Garden Road
Central
Hong Kong
Notes:
1. The register of members of the Company will be closed from 28 December
2005 to 31 December 2005 (both dates inclusive) during which no transfer
of shares will be registered. In order to qualify for voting at the
Second EGM, members are reminded to ensure that all instruments of
transfer of shares accompanied by the relevant share certificate(s), must
be lodged with the Company's registrar, Hong Kong Registrars Limited at
Shops 1712-1716, 17/F, Hopewell Centre, 183 Queen's Road East, Wanchai,
Hong Kong for registration not later than 4:00 p.m. on 23 December 2005.
2. A member entitled to attend and vote at the Second EGM convened by this
notice is entitled to appoint one or more proxies to attend and vote in
his stead. A proxy need not be a member of the Company.
3. To be effective, the instrument appointing a proxy together with the
power of attorney or other authority, if any, under which it is signed or
a notarially certified copy of that power or authority, must be completed
and returned to the Company's registered office at 65th Floor, Bank of
China Tower, 1 Garden Road, Hong Kong, not less than 48 hours before the
time for holding the Second EGM or any adjournment thereof.
4. A pink form of proxy for use at the meeting is enclosed. Completion and
return of the form of proxy will not preclude you from attending and
voting in person at the Second EGM or any adjournment thereof and, in
such event, the relevant form of proxy shall be deemed to be revoked.
5. Where there are joint registered holders of any Share, any one of such
persons may vote at the Second EGM,
--66--
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NOTICE OF EXTRAORDINARY GENERAL MEETING
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either personally or by proxy, in respect of such Share as if he were
solely entitled thereto; but if more than one of such joint registered
holders be present at the Second EGM personally or by proxy, then the
registered holder so present whose name stands first on the register of
members of the Company in respect of such Share will alone be entitled to
vote in respect thereof.
6. Capitalised terms used in this notice have the same meaning as is set out
in the section entitled "Definitions" at pages 1 to 5 of the circular of
the Company dated 10 December 2005.
--67--
[LOGO OMITTED]
CNOOC Limited
(Translation of registrant's name into English)
(Incorporated in Hong Kong with limited liability under the Companies
Ordinance) (Stock Code: 883)
Form of proxy for the second Extraordinary General Meeting
to be held on 31 December 2005
I/We(Note 1)
______________________________________________________________________________
of ___________________________________________________________________________
being the registered holder(s) of _______________________________shares(Note 2)
of HK$0.02 each in the share capital of the above-named Company HEREBY APPOINT
THE CHAIRMAN OF THE MEETING(Note 3) or _______________________________________
of____________________________________________________________________________
as my/our proxy to attend and act for me/us at the Extraordinary General
Meeting (and any adjournment thereof) of the said Company to be held at Island
Shangri-la Hong Kong, Two Pacific Place, Supreme Court Road, Hong Kong on 31
December 2005 at 10:30 a.m. for the purposes of considering and, if thought
fit, passing the Resolutions as set out in the Notice of Extraordinary General
Meeting and at such Meeting (and at any adjournment thereof) to vote for me/us
and in my/our name(s) in respect of the Resolutions as indicated below(Note
4).
----------------------------------------------------------------------------------------------------------------------------------
ORDINARY RESOLUTIONS FOR(Note 4) AGAINST(Note 4)
----------------------------------------------------------------------------------------------------------------------------------
1. To approve the Supplemental Agreement in relation to certain amendments to the
Existing Non-Compete Undertaking
----------------------------------------------------------------------------------------------------------------------------------
2. To approve the Revised Cap for the "technical services" category of continuing
connected transactions
----------------------------------------------------------------------------------------------------------------------------------
3. To approve the Non-Exempt Continuing Connected Transactions
----------------------------------------------------------------------------------------------------------------------------------
4. To approve the Proposed Caps for each category of the Non-Exempt Continuing
Connected Transactions
----------------------------------------------------------------------------------------------------------------------------------
5. To approve termination of the existing share option scheme of the Company and
adoption of the New Share Option Scheme
----------------------------------------------------------------------------------------------------------------------------------
Dated this ____day of ___________2005 Signed(Note 5)_____________________
Notes:
1. Full name(s) and address(es) to be inserted in BLOCK CAPITALS.
2. Please insert the number of shares registered in your name(s) to which
this proxy relates. If no number is inserted, this form of proxy will be
deemed to relate to all the shares in the Company registered in your
name(s).
3. If any proxy other than the Chairman is preferred, strike out the words
"THE CHAIRMAN OF THE MEETING" and insert the name and address of the
proxy desired in the space provided. A member may appoint one or more
proxies to attend and vote in his stead. ANY ALTERATION MADE TO THIS FORM
OF PROXY MUST BE INITIALLED BY THE PERSON WHO SIGNS IT.
4. IMPORTANT: IF YOU WISH TO VOTE FOR THE RESOLUTIONS, TICK THE APPROPRIATE
BOXES MARKED "FOR". IF YOU WISH TO VOTE AGAINST THE RESOLUTIONS, TICK THE
APPROPRIATE BOXES MARKED "AGAINST". Failure to complete any or all the
boxes will entitle your proxy to cast his votes at his discretion. Your
proxy will also be entitled to vote at his discretion on any resolution
properly put to the Meeting other than those referred to in the Notice of
Extraordinary General Meeting.
5. This form of proxy must be signed by you or your attorney duly authorised
in writing or, in the case of a corporation, must be either executed
under its common seal or under the hand of an officer or attorney or
other person duly authorised to sign the same.
--68--
6. In the case of joint holders of any share, any one of such joint holders
may vote at the Meeting, either personally or by proxy, in respect of
such shares as if he were solely entitled thereto. However, if more than
one of such joint holders is present at the Meeting, personally or by
proxy, the vote of the joint holder whose name stands first in the
Register of Members and who tenders a vote, whether in person or by
proxy, will be accepted to the exclusion of the votes of the other joint
holder(s).
7. To be valid, this form of proxy together with the power of attorney (if
any) or other authority under which it is signed (if any) or a notarially
certified copy thereof, must be deposited at the Company's registered
office at 65th Floor, Bank of China Tower, 1 Garden Road, Hong Kong not
less than 48 hours before the time for holding the Meeting or any
adjournment thereof (as the case may be).
8. The proxy need not be a member of the Company but must attend the Meeting
in person to represent you.
9. Completion and delivery of the form of proxy will not preclude you from
attending and voting at the Extraordinary General Meeting if you so wish.
In such event, the instrument appointing a proxy shall be deemed to be
revoked.
--69--
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: December 12, 2005