SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
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FORM 6-K
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REPORT OF FOREIGN PRIVATE ISSUER
PURSUANT TO RULE 13a-16 OR 15d-16 OF
THE SECURITIES EXCHANGE ACT OF 1934
For April 16, 2004
CNOOC Limited
(Translation of registrant's name into English)
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65th Floor
Bank of China Tower
One Garden Road
Central, Hong Kong
(Address of principal executive offices)
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(Indicate by check mark whether the registrant files or will file annual
reports under cover Form 20-F or Form 40-F)
Form 20-F X Form 40-F
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(Indicate by check mark whether the registrant by furnishing the information
contained in this Form is also thereby furnishing the information to the
Commission pursuant to Rule 12g3-2(b) under the Securities Exchange Act of
1934.)
Yes No X
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(If "Yes" is marked, indicate below the file number assigned to the registrant
in connection with Rule 12g3-2(b): N/A.)
CNOOC LIMITED Annual Report 2003
Company Profile 1
Financial Summary 2
Operating Summary 3
Corporate Milestones 4
Chairman's Statement 6
Operations Overview 13
Corporate Governance 25
Health, Safety & Environment 28
Community Contributions 31
Human Resources Development 32
Directors & Senior Management 36
Report of the Directors 41
Management Discussion & Analysis 46
Auditors' Report 52
Consolidated Income Statement 53
Consolidated Balance Sheet 54
Consolidated Statement of Changes in Equity 55
Consolidated Cash Flow Statement 56
Balance Sheet 57
Notes to Financial Statements 58
Supplementary Information on Oil & Gas Producing Activities (Unaudited) 106
Notice of Annual General Meeting 110
Glossary 114
Company Information 115
Company Profile
CNOOC Limited (the "Company", together with its subsidiaries, the "Group" or
"we") - Incorporated in Hong Kong in August 1999, CNOOC Limited was listed on
the New York Stock Exchange ("NYSE") (code: CEO) and The Stock Exchange of
Hong Kong Limited ("HKSE") (code: 0883) on 27 and 28 February 2001,
respectively. The Company was admitted as a constituent stock of the Hang Seng
Index in July 2001.
The Group mainly engages in offshore oil and natural gas exploration,
development, production and sales. It is China's largest producer of offshore
crude oil and natural gas and one of the largest independent oil and gas
exploration and production companies in the world.
The Group has four major oil production areas offshore China and is the
largest offshore oil producer in Indonesia. The four offshore China areas are:
Bohai Bay, Western South China Sea, Eastern South China Sea and East China
Sea.
As at 31 December 2003, the Group owned net proved reserves of approximately
2.1 billion barrels-of-oil equivalent and its annual daily average net
production was 356,729 barrels-of-oil equivalent per day. The Group had
slightly over 2,447 employees and total assets of approximately RMB73.5
billion.
[PICTURE OMITTED]
1
CNOOC LIMITED Annual Report 2003
Financial Summary
(Amounts expressed in millions of RMB)
Consolidated Income Statement
Year ended 31 December
1999 2000 2001 2002 2003
--------------------------------------------------------------
Total revenue 15,311 24,224 20,820 26,374 40,950
Total expenses (9,490) (12,166) (10,596) (13,626) (25,267)
Interest income (expenses), net (568) (238) 201 (147) (171)
Exchange gain/(loss), net (432) 381 235 (114) (7)
Share of profit of an associate 13 218 90 165 220
Short term investment income - - 221 193 123
Non-operating income (expenses), net (1) (196) 35 (71) 315
-------- -------- -------- -------- --------
Profit before taxation 4,833 12,223 11,006 12,774 16,163
Provision for taxation (722) (1,926) (3,048) (3,541) (4,628)
-------- -------- -------- -------- --------
Net profit 4,111 10,297 7,958 9,233 11,535
======== ======== ======== ======== ========
Consolidated Balance Sheet
As at 31 December
1999 2000 2001 2002 2003
--------------------------------------------------------------
Current assets 4,987 9,472 20,030 24,486 29,263
Property, plant and equipment, net 20,908 22,654 23,828 36,072 43,124
Investment in associates 274 471 462 537 1,117
-------- -------- -------- -------- --------
Total assets 26,169 32,597 44,320 61,095 73,504
-------- -------- -------- -------- --------
Current liabilities (9,177) (8,768) (4,392) (7,134) (9,307)
Non-current liabilities (8,608) (7,707) (6,617) (13,393) (17,461)
-------- -------- -------- -------- --------
Total Liabilities (17,785) (16,475) (11,009) (20,527) (26,768)
-------- -------- -------- -------- --------
Shareholders' Equity 8,384 16,122 33,311 40,568 46,736
======== ======== ======== ======== ========
Note:
Prior to the Reorganisation, the Company and its subsidiaries (the "Group")
did not exist as separate legal entities and their business operations were
conducted by CNOOC and its various affiliates. In connection with the
Reorganisation, CNOOC's oil and gas exploration, development, production and
sales businesses and operations conducted both inside and outside of the PRC
were transferred to the Group.
As CNOOC controlled the businesses and operations transferred to the Group
before the Reorganisation and continues to control the Group after the
Reorganisation, accordingly, the transfer of the businesses and operations has
been accounted for as reorganisation of companies under common control in a
manner similar to a pooling of interests.
On the basis described above, the financial statements have been prepared to
present results of operations of the Group for the years ended 31 December
1999 to 2003 and the financial positions of the Group as at 31 December 1999
as if the businesses and operations had been transferred to the Group at the
beginning of the period presented.
2
CNOOC LIMITED Annual Report 2003
Operating Summary
Year ended 31 December
Production 1999 2000 2001 2002 2003
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Net production of crude and liquids (barrels/day)
Bohai Bay 45,205 63,797 99,978 127,756 129,506
Western South China Sea 35,163 46,434 41,277 56,910 60,944
Eastern South China Sea 88,052 90,097 81,404 73,792 72,981
East China Sea 3,249 3,557 3,967 3,223 2,536
Overseas 3,077 2,462 2,247 36,944 40,497
Total 174,745 206,347 228,873 298,625 306,464
======= ======= ======= ======= =======
Net production of natural gas (mmcf/day)
Bohai Bay 43.1 45.8 46.2 47.1 47.1
Western South China Sea 156.8 144.3 139.0 142.3 127.8
Eastern South China Sea 0 0 0 0 0
East China Sea 4.5 7.8 9.8 12.4 14.2
Overseas 0 0 0 70.8 101.9
Total 204.4 197.9 195.0 272.6 291.0
Total net production (BOE/day) 208,815 239,337 261,379 346,639 356,729
======= ======= ======= ======= =======
Reserves at year end
Net proved crude and liquids reserves (mm barrels)
Bohai Bay 915.5 923.9 961.3 992.5 990.4
Western South China Sea 190.4 141.1 131.6 160.4 173.7
Eastern South China Sea 117.4 136.8 132.2 120.3 154.7
East China Sea 8.2 4.5 12.4 12.5 13.9
Overseas 10.1 9.5 8.4 138.7 103.4
Total 1,241.6 1,215.8 1,245.9 1,424.4 1,436.1
======= ======= ======= ======= =======
Net proved natural gas reserves (bcf)
Bohai Bay 605.7 591.4 629.1 598.6 566.6
Western South China Sea 2,647.8 2,593.0 2,421.5 2,511.2 2,564.0
Eastern South China Sea 0 0 0 42.8 548.2
East China Sea 67.2 65.3 197.0 179.4 275.3
Overseas 0 0 0 215.9 200.3
Total 3,320.6 3,249.7 3,247.6 3,547.9 4,154.4
======= ======= ======= ======= =======
Total net proved reserves (million BOE)
Bohai Bay 1,016.5 1,022.4 1,066.2 1,092.3 1,084.8
Western South China Sea 631.7 573.3 535.1 578.9 601.0
Eastern South China Sea 117.4 136.8 132.2 127.5 246.1
East China Sea 19.4 15.4 45.2 42.4 59.8
Overseas 10.1 9.5 8.4 174.7 136.8
Total 1,795.1 1,757.4 1,787.1 2,015.8 2,128.5
======= ======= ======= ======= =======
Others
Reserve life (years) 23.6 20.1 18.7 15.9 16.3
Reserve replacement ratio (%) 170 104 131 281 187
======= ======= ======= ======= =======
Average realised price
Crude oil (US$/barrel) 18.91 28.21 23.34 24.35 28.11
Natural gas (US$/mcf) 2.88 3.09 3.08 2.98 2.87
======= ======= ======= ======= =======
3
CNOOC LIMITED Annual Report 2003
Corporate Milestones
[PICTURE OMITTED]
8 February
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The Company completed the acquisition of equity interest in the Tangguh LNG
project.
7 March
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The Company signed an agreement for the acquisition of a partial interest of
the Kashagan Oilfield in North Caspian Sea. The acquisition was however
withdrawn on May 12 as existing owners exercised their pre-emption rights.
[PICTURE OMITTED]
15 May
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The Company issued 10 year and 30 year global bonds totaling US$500 million
and reached an agreement for the acquisition of the Northwest Shelf Gas
Project in Australia.
16 June
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The Company's partner ConocoPhillips made two exploration discoveries in Bohai
Bay: Penglai 19-9-1 and Penglai 13-1-1.
28 July
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The Company announced major natural gas discoveries in Panyu 30-1/34-1 of the
Eastern South China Sea.
[PICTURE OMITTED]
19 August
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CNOOC reached an agreement with Sinopec, Shell and Unocal to explore and
develop the Xihu Trough.
4
CNOOC LIMITED Annual Report 2003
[PICTURE OMITTED]
16 September
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Appointed Mr Evert Henkes, the former CEO of Shell's global chemical business,
as the Company's independent non-executive director. Mr Chak Kwong So resigned
from the Board.
[PICTURE OMITTED]
23 September
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Phase 1 of the Company's largest independent gas field Dongfang 1-1 commenced
production.
[PICTURE OMITTED]
8 October
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Panyu 4-2 and Panyu 5-1 oilfields commenced production.
16 October
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Mr Chengyu Fu was appointed as the Company's Chairman and Chief Executive
Officer.
Moody's elevated the Company's credit rating to A2.
24 October
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CNOOC signed an agreement on the Gorgon LNG project. The Company is studying
the viability of investing in the project.
31 October
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The Company announced its long-term strategy.
[PICTURE OMITTED]
December
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The Company received The Best Corporate Governance Company
in China for two consecutive years in "The Asset" poll. Euromoney named CNOOC
Ltd the "Best Oil & Gas Company in Asia", and the "Best Managed Company in
China".
5
CNOOC LIMITED Annual Report 2003
[PICTURE OMITTED]
6
CNOOC LIMITED Annual Report 2003
Chairman's Statement
[PICTURE OMITTED]
Through our exploration efforts, the Company achieved significant increases in
its oil and gas reserves. The Company's net profit for the year also reached a
historical high of RMB11,535.5 million due to the continued production
commencement of new projects, stable production growth and effective cost
control. Return on equity reached 26.4%.
7
CNOOC LIMITED Annual Report 2003
Chairman's Statement
I will continue to work with the management team to pursue the established
goals of the Company: Maintaining our development strategies to achieve
sustainable, long-term growth and shareholders' value maximization.
[PICTURE OMITTED]
FU CHENGYU
Chairman and
Chief Executive Officer
8
CNOOC LIMITED Annual Report 2003
Thanks to the trust and support of our shareholders, the Company has developed
rapidly since its listing three years ago, achieving enviable results. In
October 2003, our former Chairman and Chief Executive Officer Mr Wei Liucheng
left the Company to assume a senior government position. I wish to take this
opportunity to express our sincere gratitude to Mr Wei for his invaluable
contributions to the Company.
I will continue to work with the management team to pursue the established
goals of the Company: maintaining our development strategies to achieve
sustainable long-term growth and shareholders' value maximization.
2003 was a politically and economically turbulent year. The operating
environment of the industry was presented with many challenges; however, due
to strong oil demand and persistent strength in international oil prices, the
Company has continued to achieve satisfactory results. Through our exploration
efforts, the Company achieved significant increases in our oil and gas
reserves. The Company's net profit for the year also reached a historical high
of RMB11,535.5 million, due to the continued production commencement of new
projects, stable production growth and effective cost management. Return on
equity hit 26.4%.
In view of the Company's prudent financial policies and strong financial
position, Moody's investors service has upgraded the Company's credit rating
from Baa1 to A2, creating a new ground for the Company's low cost funding in
the future.
During the year under review, the Company capitalized on the low interest rate
environment of the international market and successfully issued a tranche of
USD200 million 10 year bonds and a tranche of USD300 million 30 year bonds,
improving the Company's capital structure.
Looking forward, the Company's core strategies will remain unchanged in the
future. Working with the management, we will continue to maintain production
and reserves growth, further develop our natural gas business, maintain
prudent financial management policies and competitive cost structure and
ensure the Company's long-term growth in order to maximize shareholder's
returns.
Being an upstream E&P company, it is very important for us to find more oil
and gas reserves through exploration activities. As such, the Company intends
to apply the latest technology offshore China, with Bohai Bay and various high
potential areas being the Company's major exploration focus. We will continue
to strengthen cooperation with foreign oil companies offshore China and
advance exploration into deep-water area. While we focus our reserve and
production growth offshore China, we will continue to seize new opportunities
to acquire quality oil and gas assets overseas.
[PICTURE OMITTED]
IN VIEW OF THE COMPANY'S PRUDENT FINANCIAL POLICIES AND STRONG FINANCIAL
POSITION, MOODY'S INVESTORS SERVICE HAS UPGRADED THE COMPANY'S CREDIT RATING
FROM BAA1 TO A2, CREATING A NEW GROUND FOR THE COMPANY'S LOW COST FUNDING IN
THE FUTURE.
[PICTURE OMITTED]
9
CNOOC LIMITED Annual Report 2003
Chairman's Statement
[Graph Omitted] With a large base of proved undeveloped reserves, the
Total Revenue Company has already lined up a pipeline of development
and Net Profit projects. We expect this pipeline of development projects
1999-2003 will continue to bring stable production growth for the
Company beyond 2005.
Natural gas (including LNG) will become a major driving
force for the Company's growth. In 2003, we made two other
natural gas discoveries in Liuhua 19-5 and Panyu 35-1 in
Eastern South China Sea, following significant gas
discoveries of the Panyu 30-1 and Panyu 34-1 in South
China Sea, laying a solid foundation for the supply of
natural gas to the booming Pearl River Delta region. We
will also capitalize on the vast opportunities arising
from our parent company's LNG projects in South Eastern
China coastal areas region. Following the acquisition of
interests in the Indonesian Tangguh Project and the
Northwest Shelf Project in Australia, we have also signed
an agreement with the participants of the Australian
Gorgon project to explore the opportunity to cooperate in
the project. In 2003, offshore China's second largest gas
field, Dongfang 1-1 (phase I), commenced production
earlier than expected, and started to supply gas to Hainan
Province. This marks a new milestone for the Company's
natural gas strategy.
[Graph Omitted] In comparison with our peers, we continue to have an edge
Total Production in terms of our cost structure. Nevertheless, we will
Cost continue to strengthen our management and improve
1999-2003 operating efficiencies. We will also look for
breakthroughs in certain crucial technological fields. We
expect to reduce our cost through management and
technological innovation so as to maintain our competitive
cost structure.
The Company will continue to maintain its prudent
financial policies and investment strategies to maintain
the Company's competitive cost structure as well as its
healthy financial position.
People are our most important assets. Strengthening our
human resources development and creating a highly
efficient executive team has been a major focus of the
management over the years. In 2003, we successfully
carried out reforms in employment and remuneration
systems. This will help advocate friendly competition,
encourage creativity, and provide a solid platform for the
intellectual development of each of our staff. As a
people-oriented and caring company, we aim to create a
conducive environment whereby everyone's hard work and
creativity can be fully developed and realized so that the
operating goals of the Company can be best achieved.
[PICTURE OMITTED]
10
CNOOC LIMITED Annual Report 2003
[Graph Omitted] Protection and improvement of health, safety and the
Total Return environment has always been among the Company's
(from 1-1-03 established objectives. During 2003, we were able to
to 31-12-03) maintain our excellent record in these areas with zero
CNOOC Ltd (ADR) records in both "number of days away" and casualty rates.
During the SARS-affected period, the Company's management
placed great emphasis on combating the disease with
appropriate and effective measures. Our comprehensive
health, safety and environment systems helped to
successfully control the spread of the disease with not a
single case of infection recorded among our staff and
their families. We have been encouraged to continue and
improve on our established HSE policies.
The Company has built up quality assets, a tremendous team
of staff and excellent development potential. However, we
should not be complacent. While maintaining our growth
record, we will embark on a new development platform,
accelerate the pace of our development, increase our
earning potential and improve the quality of our projects
in order to create even better value for our shareholders.
These are the operational concepts which the management
and I are committed to implement and we shall work hard to
realize such goals.
[Graph Omitted] In appreciation of the support of our shareholders, the
Total Return Board of Directors has recommended a final dividend of
(from 1-1-03 HK$0.12 and a special dividend of HK$0.18 in view of the
to 31-12-03) year's remarkable performance and the Company's healthy
CNOOC Ltd. (HK) financial position. During 2003, we distributed a total of
HK$0.62 to our shareholders in the form of interim, final
and special dividends.
After more than a century of fabulous growth, the world
petroleum industry is experiencing some far-reaching
changes. As one bright spot in the world economy, China
has continued to maintain its growth momentum, triggering
an increase in the global demand for oil. According to
statistics, China is now the second largest country in
terms of oil consumption, offering ample development
opportunities for oil companies in China.
2003 was a year of change and remarkable performance for
CNOOC Ltd. The year 2004 continues to present challenges,
but we are confident that, through implementation of our
established strategies, we will be able to fulfill the
Company's stated objectives, creating healthy returns and
increased value for our shareholders, and harmonizing the
development of our shareholders, staff and the community.
FU CHENGYU
Chairman and Chief Executive Officer
Hong Kong, 15 March 2004
[PICTURE OMITTED]
11
CNOOC LIMITED Annual Report 2003
[PICTURE OMITTED]
12
CNOOC LIMITED Annual Report 2003
Operations Overview
[PICTURE OMITTED]
Adhering to its objective of maximizing shareholder's
value, the Company met all operating targets set at the
beginning of 2003 through continuous reserve and
production growth, maintaining cost efficiency and
improving profitability.
13
CNOOC LIMITED Annual Report 2003
Operations Overview
[Graph Omitted] 2003: Steady growth and record profit
Historical Reserve Adhering to its objective of maximizing shareholder's value,
Growth the Company met all operating targets set at the beginning
1999-2003 of 2003 through continuous reserve and production growth,
maintaining cost efficiency and improving profitability.
In 2003, the Company's oil and gas production was 356,729
boe per day, representing a 3% increase over the previous
year. Of this, crude oil production reached 306,464
barrels per day while natural gas production amounted to
291.0 Mmcf per day, representing an increase of 2.6% and
6.7% over last year respectively. Oil and gas production
in offshore China was 265,967 barrels per day and 189.1
Mmcf per day respectively. Total oil and gas production
reached 299,252 boe per day; In Indonesia, oil and gas
production was 40,497 barrels and 101.9 Mmcf per day.
Total oil and gas production was 57,477 boe per day.
[Graph Omitted] In 2003, realized oil price was US$28.11 per barrel, 15.4%
Historical increase over 2002. Realized natural gas price was US$2.87
Production per thousand cubic feet. Total oil and gas sales amounted
Growth to RMB28,116.8 million, a year-on-year increase of 18.2%;
1999-2003 the Company realised a net profit of RMB11,535.5 million,
up 24.9% over last year and reached a record high in the
Company's history. Per share earning reached RMB1.40 and
ROE was 26.4%. Sharing its success with the shareholders,
the Company recommended a final dividend of HK$0.12 and a
special final dividend of HK$0.18.
The successful commencement of production of the three
major oil and gas fields - Dongfang 1-1 (Phase I), Panyu
4-2, Panyu 5-1, made active contributions to the Company's
production growth.
The Company also increased its interests in the
Qinhuangdao 32-6 and Liuhua 11-1 oilfields.
Remarkable exploration success with 12 new oil and gas
discoveries further strengthen the Company's reserve
organic growth
In 2003, the Company recorded remarkable exploration
results, with 12 new oil and gas discoveries. Among
14
CNOOC LIMITED Annual Report 2003
them, nine are located offshore China and three are
located in Indonesia. Of the 12 discoveries, six are
independent discoveries.
The Company's reserves also grew significantly. In 2003,
the proved reserves increased by 242.9 million boe,
realizing a reserve replacement rate of 187%.
In 2003, the Company achieved major breakthroughs in the
research on new exploration areas and efforts in risk
exploration work, opening a new horizon for oil and gas
exploration. Meanwhile, the Company has closely followed
the "value emphasis exploration" strategy in its
exploration activities. Based on the past exploration
drilling results and geological features, the Company has
introduced innovative technology to effectively reduce the
finding cost of exploration, achieving a competitive
finding cost of around US$1 per barrel.
Satisfactory progress in various projects
Three oilfields commenced production in 2003, namely
Dongfang 1-1 (Phase I), Panyu 4-2 and Panyu 5-1. In
addition, the Pinghu oil & gas field expansion program and
the Jinzhou 9-3 natural gas project also successfully
completed and commenced operation.
During the year, the Company has built 21 jackets and
installed nine offshore jackets; constructed 17 platform
modules, installed five offshore platforms modules and
laid 205km undersea pipelines. The construction of one
onshore terminal has been completed while five others are
under construction.
In 2004, the Company will continue to proceed with its
engineering and construction projects in full speed. 6
projects are expected to commence operations.
Achieving solid growth in natural gas business
The Company is well positioned in developing natural gas
resources and this side of the business has become a new
growth engine for the Company's production and
profitability. During the year, the Company achieved
significant growth in its natural gas exploration and
market expansion.
[PICTURE OMITTED]
The Company has achieved major breakthroughs in natural
gas exploration in the Pearl River mouth Basin. Two other
natural gas discoveries in Liuhua 19-5 and Panyu 35-1 were
made following major natural gas discoveries in Panyu 30-1
and Panyu 34-1. This demonstrated the promising natural
gas exploration prospects in this area. With such
discoveries, the Company has entered into a new natural
gas exploration area offshore China.
Phase 1 of Dongfang 1-1, the second-largest gas field
offshore China, commenced operation successfully ahead of
schedule, and started to supply gas to end-users in Hainan
Province.
With breakthroughs in natural gas exploration and
successful expansion of marketing, the Company's leading
position in the natural gas market in the Pearl River
Delta region is further strengthened.
Innovative management and improving productivity
The Company has made constant efforts to improve the
management procedure and efficiency. In 2003, the Company
introduced reforms to its employment and remuneration
systems, as well as management systems
[PICTURE OMITTED]
15
CNOOC LIMITED Annual Report 2003
OPERATIONS OVERVIEW
[PICTURE OMITTED]
and procedures. As a result of the reform, we have
developed an entirely new employment and remuneration
system, accommodating the competitive environment in China
and the rest of the world and the Company's long-term
development strategies. As a result, the Company's
management and decision-making ability, as well as
operation efficiency, has significantly improved. In
addition, while the Company has devoted a great deal of
effort in the fundamentals of management, it has also paid
close attention to controlling costs through the promotion
in ERP system and facilitating a modern-management style.
The Company has firmly established the concept of cost
control in every segment.
The Company's operating capacity has also recorded
satisfactory growth. In July 2003 and early 2004, the
Company took over the operatorship of the Liuhua 11-1
oilfield and the Yacheng 13-1 gas field from its partner.
The successful takeover of operations of the latter and
its steady development, in particular, marked a new
milestone in the Company's operation standard.
Increasing production and reserves through overseas
opportunistic acquisitions
In 2003, CNOOC Ltd continued to cautiously identify
attractive overseas oil and gas assets and acquire
interests to strengthen the Company's production and
reserves base to further enhance the Company's long-term
and stable growth, and to maximize shareholder's value.
The Company completed the acquisition of the Tangguh
project in Indonesia on 8 February 2003. The Company's
investments in the Northwest Shelf Gas Project have also
come to fruition. An agreement was reached on 15 May,
2003, to acquire 5.3% of the project as well as a 25%
interest of the China LNG Joint Venture ("CLNG joint
venture"). The Company was also given participating rights
in future exploration undertaken over and above the
current proved reserves.
On 24 October 2003, the Company reached a new agreement
with the venture participants of the Australia Gorgon gas
development project and studied the viability of investing
in the project.
Prudent financial management and healthy financial
conditions gain market recognition
During the year, the Company's credit rating was elevated
to A2 (Positive) by renowned rating agency Moody's, on par
with China's sovereign rating. This will help the Company
to gain access to low cost financing in the future,
reinforcing the market's endorsement of the Company's
strategies and future development.
In 2003, after its successful bond issuance in 2002, the
Company once again tapped the international debt markets
and launched a 10 and 30-year bond issue with a total
value of US$500 million, which received an overwhelming
response from the market, further demonstrating the
market's recognition of the Company's encouraging business
fundamentals, healthy financial conditions and
credibility.
[PICTURE OMITTED]
16
CNOOC LIMITED Annual Report 2003
MAJOR PROPERTIES UNDER PRODUCTION AND DEVELOPMENT
Block/Property Operator Partner The Company's 2003 Actual Production Net Reserve as of
interests Net Production commencement December 31, 2003
(BOE/day) year (MMBOE)
Oil (BBL/day) Oil (MMBBL)
Gas (MMcf/day) Gas (BCF/day)
Offshore China
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Bohai Bay
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Production
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Liaoxi
Jinzhou 20-2 CNOOC Ltd. 100% 8,079 BOE 1992 45.20 MMBOE
2,816 BBL 13.99 MMBBL
32 MMcf 187.25 BCF
Jinzhou 9-3 CNOOC Ltd. 100% 13,679 BOE 1999 32.27 MMBOE
12,773 BBL 28.71 MMBBL
5 MMcf 21.37 BCF
Suizhong 36-1 CNOOC Ltd. 100% 64,203 1993 196.41
----------------------------------------------------------------------------------------------------------------------------------
Boxi
Boxi Oil fields CNOOC Ltd. 100% 14,020 BOE 1997 11.32MMBOE
12,342 BBL 9.42 MMBBL
10 MMcf 11.45 BCF
Chengbei Oil fields CNOOC Ltd. 100% 4,358 1985 9.14
----------------------------------------------------------------------------------------------------------------------------------
Qinhuangdao
Qinhuangdao 32-6 CNOOC Ltd. Chevron/Texaco 75.5% 22,444 BOE 2001 104.07
----------------------------------------------------------------------------------------------------------------------------------
11/05
Penglai 19-3 ConocoPhillips Phillips Bohai 51% 8,272 2002 136.18
----------------------------------------------------------------------------------------------------------------------------------
Bonan
Bozhong 34-2/4 CNOOC Ltd. 100% 2,298 1990 4.34
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Development
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Liaoxi
Jinzhou 21-1 CNOOC Ltd. 100% 13.82 MMBOE
5.73 MMBBL
48.51 BCF
Luda 4-2/5-2/10-1 CNOOC Ltd. 100% 76.46
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Bozhong
Nanbao 35-2 CNOOC Ltd. 100% 75.73
----------------------------------------------------------------------------------------------------------------------------------
Boxi
Qikou 18-9/18-2 CNOOC Ltd. 100% 9.62 MMBOE
8.46 MMBBL
6.99 BCF
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Bonan
Bonan Oil fields CNOOC Ltd. 100% 67.95 MMBOE
31.90 MMBBL
216.34 BCF
Bozhong 25-1/25-1S CNOOC Ltd. Chevron/Texaco 83.8% 230.21 MMBOE
217.76 MMBBL
74.65 BCF
Bozhong 34-1/34-1S CNOOC Ltd. 100% 12.30
----------------------------------------------------------------------------------------------------------------------------------
11/05
Penglai 25-6 ConocoPhillips Phillips Bohai 51% 10.70
----------------------------------------------------------------------------------------------------------------------------------
04/36
Caofeidian 11-1/11-2 Kerr-McGee Sino-American Energy 51% 47.36
Caofeidian 18-1 Kerr-McGee Sino-American Energy 51% 1.73
----------------------------------------------------------------------------------------------------------------------------------
Bohai Bay Total 137,353 BOE 1,084.81MMBOE
129,506 BBL 990.39 MMBBL
47 MMcf 566.56 BCF
----------------------------------------------------------------------------------------------------------------------------------
Eastern South China Sea
----------------------------------------------------------------------------------------------------------------------------------
Production
----------------------------------------------------------------------------------------------------------------------------------
16/08
Huizhou Oil fields CACT 51% 24,551 1990 25.01 MMBOE
18.14 MMBBLS
41.21 BCF
----------------------------------------------------------------------------------------------------------------------------------
15/11
Xijiang 24-3 ConocoPhillips, Shell 51% 16,095 1994 11.84 MMBBL
CNOOC Ltd.
----------------------------------------------------------------------------------------------------------------------------------
15/22 ConocoPhillips, Shell 40% 12,775 1995 6.72 MMBBL
Xijiang 30-2 CNOOC Ltd.
----------------------------------------------------------------------------------------------------------------------------------
29/04
Liuhua 11-1 CNOOC Ltd. 100% 13,708 1996 13.54 MMBBL
----------------------------------------------------------------------------------------------------------------------------------
16/06
Lufeng 13-1 JHN 25% 2,931 1993 1.88 MMBBL
----------------------------------------------------------------------------------------------------------------------------------
17/22
Lufeng 22-1 Statoil, CNOOC Statoil 25% 1,312 1997 0.52 MMBBL
Ltd.
----------------------------------------------------------------------------------------------------------------------------------
15/34
Panyu 4-2/5-1 Devon Burlington 51% 1,609 2003 33.41 MMBBL
----------------------------------------------------------------------------------------------------------------------------------
Development
----------------------------------------------------------------------------------------------------------------------------------
16/19
Huizhou 19-3/19-2/19-1 CACT 51% 25.59 MMBBL
----------------------------------------------------------------------------------------------------------------------------------
Liuhua 07
Panyu 30-1 CNOOC Ltd. 100% 87.16 MMBOE
2.67 MMBBL
506.94 BCF
----------------------------------------------------------------------------------------------------------------------------------
[PICTURE OMITTED]
17
CNOOC LIMITED Annual Report 2003
MAJOR PROPERTIES UNDER PRODUCTION AND DEVELOPMENT
Block/Property Operator Partner The Company's 2003 Actual Production Net Reserve as of
interests Net Production commencement December 31, 2003
(BOE/day) year (MMBOE)
Oil (BBL/day) Oil (MMBBL)
Gas (MMcf/day) Gas (BCF/day)
Xijiang 04
Xijiang 23-1 CNOOC Ltd. 100% 40.44
----------------------------------------------------------------------------------------------------------------------------------
Eastern South China Sea 72,981 246.11 MMBOE
154.75 MMBBLS
548.15 BCF
----------------------------------------------------------------------------------------------------------------------------------
Western South China Sea
----------------------------------------------------------------------------------------------------------------------------------
Production
Yulin 35
Weizhou Oil fields CNOOC Ltd. 100% 28,462 BOE 1993 55.20 MMBOE
27,494 BBL 52.62 MMBBL
6 MMcf 15.50 BCF
----------------------------------------------------------------------------------------------------------------------------------
Wenchang 13-1/13-2
Wenchang 13-1/13-2 CNOOC Ltd. Husky 60% 32,572 2002 33.44
----------------------------------------------------------------------------------------------------------------------------------
Yinggehai
Yacheng 13-1 CNOOC Ltd. (1) Kufpec BPCEPC 51% 19,047 BOE 1995 90.87 MMBOE
825 BBL 5.08 MMBBL
99 MMcf 514.73 BCF
----------------------------------------------------------------------------------------------------------------------------------
Changjiang 25
Dongfang 1-1 CNOOC Ltd. 100% 3,929 BOE 2003 234.67 MMBOE
54 BBL 1,407.99 BCF
23 MMcf
----------------------------------------------------------------------------------------------------------------------------------
Development
----------------------------------------------------------------------------------------------------------------------------------
Yangjiang 31/32
Wenchang 8-3 CNOOC Ltd. 100% 11.58
Wenchang 19-1 CNOOC Ltd. 100% 26.09
Wenchang 15-1 CNOOC Ltd. 100% 22.94
----------------------------------------------------------------------------------------------------------------------------------
Yinggehai
Yacheng 13-4 CNOOC Ltd. 100% 22.40 MMBOE
1.30 MMBBL
126.62 BCF
----------------------------------------------------------------------------------------------------------------------------------
Ledong 01
Ledong CNOOC Ltd. 100% 83.20 MMBOE
499.18 BCF
----------------------------------------------------------------------------------------------------------------------------------
Yulin 35
Weizhou 11-1 CNOOC Ltd. 100% 9.46
----------------------------------------------------------------------------------------------------------------------------------
39/05
Wenchang 14-3 CNOOC Ltd. 100% 11.17
----------------------------------------------------------------------------------------------------------------------------------
Western South China
Sea Total 84,010 BOE 601.02 MMBOE
60,945 BBL 173.68 MMBBL
128 MMcf 2,564.02 BCF
----------------------------------------------------------------------------------------------------------------------------------
East China Sea
----------------------------------------------------------------------------------------------------------------------------------
Production
----------------------------------------------------------------------------------------------------------------------------------
Luihua 07
Pinghu Gas field CNOOC Ltd. 30% 4,908 BOE 1998 12.74 MMBOE
2,536 BBLS 4.64 MMBBLS
14 MMcf 48.66 BCF
----------------------------------------------------------------------------------------------------------------------------------
Development
----------------------------------------------------------------------------------------------------------------------------------
Xihu Trough
Canxue CNOOC Ltd. Sinopec, Shell,
Unocal 30% 6.81 MMBOE
1.82 MMBBL
29.93 BCF
Duanqiao CNOOC Ltd. Sinopec, Shell,
Unocal 30% 4.71 MMBOE
1.36 MMBBL
20.12 BCF
Chunxiao CNOOC Ltd. Sinopec, Shell,
Unocal 30% 18.32 MMBOE
2.22 MMBBL
96.56 BCF
Tianwaitian CNOOC Ltd. Sinopec, Shell,
Unocal 30% 3.21 MMBOE
0.07 MMBBL
18.82 BCF
Baoyunting CNOOC Ltd. Sinopec, Shell,
Unocal 30% 11.25 MMBOE
2.69 MMBBL
51.36 BCF
Wuyunting CNOOC Ltd. Sinopec, Shell,
Unocal 30% 2.76 MMBOE
1.12 MMBBL
9.85 BCF
----------------------------------------------------------------------------------------------------------------------------------
East China Sea Total 4,908 BOE 59.80 MMBOE
2,536 BBL 13.92 MMBBL
14 MMcf 275.30 BCF
----------------------------------------------------------------------------------------------------------------------------------
Offshore China Total 299,252 BOE 1,991.74 MMBOE
265,968 BBL 1,332.74 MMBBL
189 MMcf 3,954.03 BCF
----------------------------------------------------------------------------------------------------------------------------------
Indonesia
Malacca Oil field 2,236 1994 7.06 MMBOE
----------------------------------------------------------------------------------------------------------------------------------
Indonesia SES.B.V 55,241 BOE 129.68 MMBOE
38,260 BBL 96.29 MMBBL
102 MMcf 200.32 BCF
Total 356,729 BOE 2,128.48 MMBOE
----------------------------------------------------------------------------------------------------------------------------------
306,464 BBL 1,436.09 MMBBL
291 MMcf 4,154.35 BCF
Note(1) On January 1 2004, CNOOC limited took over the Operatorship of Yacheng 13-1 from BP.
[PICTURE OMITTED]
18
CNOOC LIMITED Annual Report 2003
The 30-year tranche bond offering marked the first ever 30-year offering by
Chinese corporates, coupon rates for both the 10-year and the 30-year tranches
were the lowest among comparable offerings by Chinese corporates.
Health, Safety and Environmental Protection
In 2003, CNOOC Ltd continued to emphasize and strengthen its Health, Safety
and Environmental ("HSE") protection. With continuing improvements in HSE
activities, the Company reached a new milestone in this area.
During 2003, CNOOC Ltd recorded no major fatality, no incident of oil spillage
and no single incident that resulted in an economic loss in excess of
US$120,000.
According to the Company's OSHA statistical results, CNOOC Ltd achieved an
above-average rating as compared with major international oil companies.
Review by Area
Today, the Group has five major exploration and production areas, including
four offshore China areas, namely, the Bohai Bay, Western South China Sea,
Eastern South China Sea and the East China Sea as well as Indonesia.
In 2003, together with our foreign partners, the Company made a total of 12
discoveries. Of these, six oil discoveries were made in Bohai Bay, while two
natural gas discoveries and one oil discovery were made in South China Sea.
Three oil and gas discoveries were made overseas. These discoveries have
helped increase reserves for the Company's sustainable development.
[PICTURE OMITTED]
Bohai Bay
Bohai Bay holds the core assets of our portfolio and consists of crude oil and
natural gas fields such as Suizhong 36-1, Qinhuangdao 32-6 and many other oil
discoveries and development projects that are under development. This area
holds the largest amount of reserves and production among our five major
operating areas.
As at 31 December 2003, the Company had net proved reserves of 1,084.81 Mmboe
in this area, accounting for 50.9% of the total net proved reserves.
In 2003, daily average net production was 137,353 boe, accounting for
approximately 38.5% of our total net daily production. We currently hold
exploration licenses for nine blocks in this area while our foreign partners
have exploration licenses for six other blocks.
In 2003, the Company made six oil and gas discoveries in the area; of these,
three were independent discoveries, including Bozhong 34-1S, Bozhong 34-1 and
Bozhong 3-2. Our partner Kerr-McGee has made discoveries at Caofeidian 11-5
and Caofeidian 11-6; ConocoPhillips has made discoveries in Penglai 19-9. In
addition, the Company has successfully appraised seven hydrocarbon-bearing
structures.
During the period, the Company has increased its interests in Qinhuangdao 32-6
from 51% to 75.5%.
In 2003, 29 wells were drilled in the Bohai Bay and 2,074.5 square kilometers
of 3D seismic data were acquired. Of these, 16 were drilled by CNOOC Ltd (11
wildcat wells and five appraisal wells with 1,763.7 square kilometers of 3D
seismic data acquired). Through co-operation with our partners, 13 wells were
drilled (eight wildcat wells and five appraisal wells with 310.8 square
kilometers of 3D seismic data acquired).
In Bozhong area, the Company drilled two wildcat wells, one appraisal well,
and made one oil and gas discovery in Bozhong 3-2.
[PICTURE OMITTED]
19
CNOOC LIMITED Annual Report 2003
OPERATIONS OVERVIEW
The Company drilled six wildcat wells and two appraisal wells in the Bonan
block, with two oil and gas discoveries at Bozhong 34-1S and Bozhong 34-1,
which were successfully appraised. They are located near producing oilfield
Bozhong 34-2/4, presenting excellent commercial potential.
The Company drilled three wildcat wells and two appraisal wells in the
Liaodong block, and successfully appraised the hydrocarbon-bearing structure
in Jinzhou 25-1S.
Our partner ConocoPhillips drilled two wildcat wells in the 11/05 area and
made one oil and gas discovery in Penglai 19-9. The Company plans to drill one
appraisal well in the area in 2004.
Another partner, Kerr-McGee, drilled a total of six wildcat wells and five
appraisal wells in the blocks of 04/36, 05/36 and 09/18. It has also made two
oil discoveries in the 04/36 block, namely Caofeidian 11-5 and Caofeidian
11-6, and successfully appraised two hydrocarbon-bearing structures in
Caofeidian 11-3 and Caofeidian 11-6. Two wildcat wells were successfully
drilled in the 05/36 block, two appraisal wells, namely Caofeidian 12-1 and
Caofeidian 12-1S, were also completed successfully by Kerr-McGee.
Western South China Sea
Western South China Sea, one of our most important natural gas exploration
areas, consists of Beibu Gulf, Yinggehai and the Qiongdongnan basins. As at 31
December 2003, the Company had net proved reserves of 601.0 Mmboe in the area,
accounting for approximately 28.2% of the Company's total net proved reserves.
The average daily production in the area was 84,010 boe, or 23.6% of our total
production. At present, the Company and its partners possess twenty eight and
five exploration licenses in this area, respectively.
In 2003, we drilled six wildcat wells, two appraisal wells and acquired
7,460.8 square kilometers of 2D seismic data. Our partners drilled one wildcat
well, one appraisal well and acquired 983.2 square kilometers of 3D seismic
data.
During the year, there was one oil discovery at Weizhou 11-1N and two
hydrocarbon-bearing structures in Weizhou 11-1 and Wenchang 15-1 were
successfully appraised.
In the area of Yinggehai, preparation work for taking over the operatorship of
the Yacheng 13-1 gas field continued in 2003 and was successfully completed on
1 January 2004. This demonstrated that the Company has the ability to operate
under internationally recognized standards.
Located in Changjiang 25 block, Dongfang 1-1 gas field is the Company's
largest independent gas field. Phase 1 of the field commenced production ahead
of schedule, supplying natural gas to Hainan Province, and marking a new
milestone in the development of the Company's natural gas business.
In 2003, the Company drilled one wildcat well and one appraisal well in the
Yulin 35 block of Beibu Gulf, with a new discovery in Weizhou 11-1N, and
successfully appraised a hydrocarbon-bearing structure in Weizhou 11-1. The
Company is planning to drill two wildcat wells in the area in 2004.
During the year, the Company drilled one wildcat well in the Wenchang 20 block
of the Zhu III Sag and successfully appraised a hydrocarbon-bearing structure
in the Wenchang 15-1 area.
Eastern South China Sea
Eastern South China Sea has always been an important crude oil production area
for the Company. In 2003, major natural gas discoveries were made in Liuhua
19-5 and Panyu 35-1, opening up a new natural gas
[PICTURE OMITTED]
20
CNOOC LIMITED Annual Report 2003
[PICTURE OMITTED]
exploration area for the Company. As at 31 December 2003, the Company had net
proved reserves of 246.1 MMboe in the area, accounting for 11.6% of the
Company's total net proved reserves.
The average daily production in the area was 72,981 boe, or 20.5% of our total
production. We currently hold exploration licenses for thirty six blocks and
our partners have licenses for two blocks.
In 2003, the Company drilled eight wells (including five wildcat wells and
three appraisal wells) in Eastern South China Sea, 4,144 kilometers 2D seismic
data was collected. Our partners drilled three wildcat wells, collected 1,562
kilometers 2D seismic data and 345 kilometers 3D seismic data.
During the period, the Company made two natural gas discoveries, Liuhua 19-5
and Panyu 35-1, and successfully appraised a hydrocarbon-bearing structure,
Panyu 30-1, confirming the gas generation of Baiyun Trough and verifying the
exploration potential with its adjacent deep water area.
Initial assessments made in 2003 have confirmed that discoveries of natural
gas reserves at Panyu 30-1 and Panyu 34-1 will reach a total of 1.5 trillion
cubic feet, indicating promising natural gas exploration prospects in the
area. The discovery represented the Company's first natural gas discovery in
the Pearl River Mouth basin and the largest natural gas discovery over the
past three years.
Panyu 4-2 and Panyu 5-1 commenced production on schedule during the year. Peak
production is expected to hit in 2004 with a daily crude oil production of
60,000 barrels. The Company holds a 51% interest in both oilfield.
Taking advantage of our partners' asset restructuring program during the year,
CNOOC Ltd increased its interest in the Liuhua 11-1 oilfield and now has 100%
interests in the oilfield.
In 2003, the Company drilled one wildcat well and three appraisal wells in the
Liuhua 07 block, made one oil and gas discovery in Liuhua 19-5 and
successfully appraised the hydrocarbon-bearing structure at Panyu 30-1.
At Panyu 33 block, the Company drilled one wildcat well, and made one natural
gas discovery at Panyu 35-1.
East China Sea
As at 31 December 2003, the company had net proved reserves of 59.8 MMboe in
the area, accounting for 2.8% of the Company's total net proved reserves. The
average daily production in the area was 4,908 boe, or 1.4% of our total
production. The Company holds licenses for 56 blocks while its partners hold
exploration licenses for one block.
In 2003, the Company achieved two significant milestones in its East China Sea
operation.
In September, our parent company entered a new era with the signing of five
oil exploration and development contracts with Sinopec, Pecten Orient Company
of the United States (subsidiary company of Shell) and Unocal. The first
development under the contracts will be the Chunxiao development area which is
expected to come on stream in mid 2005.
In October, phase one of the Pinghu oil and gas field expansion project, in
which CNOOC Ltd holds a 30% interest, commenced operation as scheduled. The
project increased the daily gas supply to Shanghai by 20.8 mmcf per day,
reaching a total of 62.3 mmcf per day.
[PICTURE OMITTED]
21
CNOOC LIMITED Annual Report 2003
OPERATIONS OVERVIEW
[PICTURE OMITTED]
We are carrying out joint exploration work in the Xihu Trough with Sinopec. In
2003, the Company acquired 1,976 kilometers of 2D seismic data and drilled one
wildcat well in the Lishui Trough. In 2003, the Company acquired 2,525
kilometers of 2D seismic data in the South Huanghai area.
Overseas Operation
As at 31 December 2003, the Company had net proved reserves of 136.7 MMboe in
Indonesia, accounting for 6.4% of the Company's total net proved reserves. The
average daily production in the area was 57,477 boe, or 16.1% of our total
production.
In 2003, our partner KODECO made three oil and gas discoveries in the West
Madura PSC area in the East Java Sea of Indonesia.
Since 1 January 2003, the Company effectively acquired a 12.5% interest in the
Tangguh LNG Project in Indonesia. As a result of our partner's continuous
efforts, a series of agreements have been signed for the Tangguh LNG project
for the supply of gas to Korea and the North American markets.
New Contracts and Agreements Signed in 2003
In 2003, our parent company announced a total of 10 foreign cooperation blocks
and two new cooperation blocks, covering an area of more than 30,388 square
kilometers.
During the year, the Company signed a total of seven petroleum contracts with
international oil companies.
New Petroleum Contracts Signed in 2003
Signing Commencement Current stage/
Contract date date Block area
No. Area area (yy/mm/dd) (yy/mm/dd) Partners Interest Operator (km2)
1 Bohai 09/06 03.06.17 03.08.01 Kerr-McGee 100% Kerr-McGee 1,788
2 East China Sea Chunxiao 03.08.19 03.10.01 Shell 20% CNOOC Ltd. 1,225
Unocal 20%
Sinopec (consignor) 30%
3 East China Sea Baoyunting 03.08.19 03.10.01 Shell 20% CNOOC Ltd. 987
Unocal 20%
Sinopec (consignor) 30%
4 East China Sea 12/21 03.08.19 03.10.01 Shell 50% CNOOC Ltd. 10,175
Unocal 50%
Sinopec (consignor)
5 East China Sea 27/05 03.08.19 03.10.01 Shell 50% CNOOC Ltd. 5,349
Unocal 50%
Sinopec (consignor)
6 East China Sea 20/14 03.08.19 03.10.01 Shell 50% CNOOC Ltd. 4,372
Unocal 50%
Sinopec (consignor)
7 East China Sea 04/35 03.10.27 03.12.01 Husky 100% Husky 4,835
[PICTURE OMITTED]
22
CNOOC LIMITED Annual Report 2003
MAJOR EXPLORATION BLOCKS
Block Block Area Partner Exploration License
(km2) Commencement - Expiration
--------------------------------------------------------------------------------------------------------------------
Middle of Bohai Bay 5,310 08/16/02 - 08/16/04
Southern Bohai Bay 3,799 10/31/02 - 10/31/04
Western Bohai Bay 1,907 5/29/03 - 5/29/05
Western Liaodong Bay 3,344 3/31/00 - 04/08/06
Eastern Liaodong Bay 2,829 07/02/01 - 07/02/06
Eastern Bozhong 1,861 05/30/02 - 05/30/04
Bohai 09/11 843 04/05/02 - 04/05/04
Bohai 06/17 2,586 02/20/03 - 02/20/05
Bohai 02/31 4,990 05/29/03 - 05/29/05
--------------------------------------------------------------------------------------------------------------------
Independent Total 27,469
--------------------------------------------------------------------------------------------------------------------
Eastern Bohai 11/05 (East China Sea) 3,601 Conocophillips 08/16/02 - 02/10/04
Western Bohai 11/05 (East China Sea) 4,076 Conocophillips 02/10/02 -02/10/04
Bohai 11/19 (East China Sea) 3,185 Chevron/Texaco 05/29/03 - 05/29/05
Bohai 09/18 (East China Sea) 2,226 Kerr-McGee 04/04/01 - 04/04/04
Bohai 04/36 (East China Sea) 1,694 Kerr-McGee, Sino-American Energy 12/31/01 - 12/31/03
Bohai 05/36 (East China Sea) 1,250 Kerr-McGee, Newfield, Sino-American Energy 02/10/02 - 02/10/04
PSC Total 16,032
--------------------------------------------------------------------------------------------------------------------
Bohai Total 43,501
--------------------------------------------------------------------------------------------------------------------
Xihu Tiantai 02 (East China Sea) 4,528 06/05/03 - 06/05/05
Xihu Hangzhou 26 (East China Sea) 3,642 03/31/03 - 03/31/05
Xihu Huangyan 04 (East China Sea) 2,848 08/28/01 - 08/28/08
Xihu Hangzhou 17 (East China Sea) 4,227 08/28/01 - 08/28/08
Xihu Zhenhai 01 (East China Sea) 1,536 08/28/01 - 08/28/08
Xihu Fuyang 27 (East China Sea) 2,526 08/28/01 - 08/28/08
Lishui-Jiaojiang (East China Sea) 6,767 03/31/00 - 11/28/05
Kunshan 02 (East China Sea) 2,628 05/11/01 - 05/11/06
Jinhua 12 (East China Sea) 6,931 05/11/01 - 05/11/06
Taibei 27 (East China Sea) 7,379 07/09/01 - 07/09/06
Tiantai 32 (East China Sea) 5,400 07/17/01 - 07/17/06
Lishui 30 (East China Sea) 4,085 07/01/02 - 07/01/09
Jiangning 32 (East China Sea) 7,136 11/05/03 - 12/30/04
Western Wunansha (South Yellow Sea) 242 03/31/00 - 12/16/05
Zhucheng 14 (South Yellow Sea) 5,659 05/11/01 - 05/11/06
Qingdao 34 (South Yellow Sea) 5,745 12/07/01 - 12/07/06
North Yellow Sea 6,471 05/25/01 - 05/25/06
Changshan 01 (North Yellow Sea) 6,449 07/03/01- 07/03/06
--------------------------------------------------------------------------------------------------------------------
Independent Total 84,199
--------------------------------------------------------------------------------------------------------------------
East China Sea 32/32 513 Prime Line Petroleum 07/11/02 - 07/11/04
--------------------------------------------------------------------------------------------------------------------
PSC Total 513
--------------------------------------------------------------------------------------------------------------------
East China Sea Total 84,712
--------------------------------------------------------------------------------------------------------------------
Xijiang 04 (Pearl River Mouth) 7,969 05/11/01 - 05/11/06
Lufeng 06 (Pearl River Mouth) 4,457 05/11/01 - 05/11/06
Lufeng 08 (Pearl River Mouth) 4,723 05/11/01 - 05/11/06
Huizhou 30 (Pearl River Mouth) 5,862 05/11/01 - 05/11/06
Huizhou 31 (Pearl River Mouth) 3,074 05/11/01 - 05/11/06
Enping 15 (Pearl River Mouth) 5,833 05/11/01 - 05/11/06
Enping 10 (Pearl River Mouth) 6,547 05/11/01 - 05/11/06
Panyu 33 (Pearl River Mouth) 4,830 05/11/01 - 05/11/06
Liuhua 07 (Pearl River Mouth) 4,172 05/11/01 - 05/11/06
Chaozhou 03 (Pearl River Mouth) 4,490 05/11/01 - 05/11/06
Shantou 29 (Pearl River Mouth) 6,407 05/11/01 - 05/11/06
Kaiping 14 (Pearl River Mouth) 7,753 05/11/01 - 05/11/06
Huizhou 14 (Pearl River Mouth) 882 05/29/03 - 05/29/05
16/02 (Pearl River Mouth) 3,498 31/03/00 - 31/03/07
15/35 (Pearl River Mouth) 1,411 20/02/03 - 20/02/05
15/12 (Pearl River Mouth) 1,895 16/10/00 - 16/10/06
Nanhaichao 7,834 05/14/02 - 05/14/07
--------------------------------------------------------------------------------------------------------------------
Independent Total 81,637
--------------------------------------------------------------------------------------------------------------------
[PICTURE OMITTED]
23
CNOOC LIMITED Annual Report 2003
OPERATIONS OVERVIEW
MAJOR EXPLORATION BLOCKS
Block Block Area Partner Exploration License
(km2) Commencement - Expiration
--------------------------------------------------------------------------------------------------------------------
16/19 (Pearl River Mouth) 415 Agip, Chevron/Texaco 04/05/02 - 04/05/04
15/34 (Pearl River Mouth) 4,984 Devon, Burlington 12/24/03 - 12/24/05
--------------------------------------------------------------------------------------------------------------------
PSC Total 5,399
--------------------------------------------------------------------------------------------------------------------
Eastern South China Sea Total 87,036
--------------------------------------------------------------------------------------------------------------------
Yulin 35 6,050 05/11/01 - 05/11/06
Weizhou 12 6,980 11/05/01 - 11/05/06
Weizhou 26 4,358 11/05/03 - 05/11/06
Changjiang 25 7,434 11/05/03 - 11/05/05
Ledong 01 6,543 12/03/03 - 12/03/05
Lingao 15 6,583 11/05/03 - 05/11/06
Ledong 17 3,971 05/11/01 - 05/11/06
Songtao 18 2,566 03/31/00 - 12/16/05
Yangjiang 31 6,003 12/03/03 - 12/03/05
Qionghai 28 5,208 05/11/01 - 05/11/06
Wenchang 20 4,979 05/11/01 - 05/11/06
Yangjiang 32 3,962 12/03/01 - 05/11/06
--------------------------------------------------------------------------------------------------------------------
Independent Total 64,637
--------------------------------------------------------------------------------------------------------------------
Wanan North 21A 6,801 Benton Offshore China Company 09/30/03 - 09/30/05
Wanan North 21B 6,118 Benton Offshore China Company 09/30/03 - 09/30/05
Wanan North 21C 6,372 Benton Offshore China Company 09/30/03 - 09/30/05
Wanan North 21D 6,126 Benton Offshore China Company 09/30/03 - 09/30/05
--------------------------------------------------------------------------------------------------------------------
PSC Total 25,417
--------------------------------------------------------------------------------------------------------------------
Western South China Sea Total 90,054
--------------------------------------------------------------------------------------------------------------------
Total 305,303
--------------------------------------------------------------------------------------------------------------------
[PICTURE OMITTED]
24
CNOOC LIMITED Annual Report 2003
CORPORATE GOVERNANCE
Maximising shareholder's value has been a priority of the Company since its
listing. In 2003, we strictly complied with our corporate governance policy,
and made sure that all decisions were based on trust, fairness, compliance and
transparency, so as to protect the interest of all our shareholders.
To better serve our shareholders and to achieve good corporate governance
standards, the Company has identified Board and committee members who are
dedicated, professional and accountable. In addition, world-renowned
professional external auditors were employed and internationally recognized
figures were invited to serve on our international advisory board to further
enhance our corporate governance standards.
Board of directors
The Company's board of directors consists of eight members, four of them are
independent non-executive directors. These four non-executive directors come
from other areas outside of China, and are all professionals or scholars with
backgrounds in legal, economics, financial and investment fields. They also
have extensive experience and knowledge in corporate management, making
significant contributions to the Company's strategic decisions. The diverse
background of the board members ensures that they fully represent the
interests of all our shareholders.
The board holds three regular annual meetings per year, and extraordinary
meetings will be held if required. Events that require all board members to
vote include conflict of interest on any matter that involves a major
shareholder or a director, major asset acquisition or disposal, investments,
capital expenditure items, determination of authority, treasury policy, risk
management and important personnel changes to the management.
In 2003, Mr. Evert Henkes was appointed as a non-executive independent
director of the Company. Mr. Jack So Chak Kwong on the other hand left the
board following his appointment as Deputy Chairman and Group Managing Director
of PCCW Limited. While we appreciated Mr. So's invaluable contributions to the
Company, we believe that Mr. Henkes' extensive experience with Shell would
help enhance our corporate governance standard.
During the year, the Company's independent directors attended all board
meetings.
Besides the existing audit committee and remuneration committee, the Company
has established a nomination committee to further strengthen its corporate
governance structure.
Audit Committee
The committee consists of two independent non-executive directors, with Dr
Kenneth Courtis designated as the audit committee financial expert under the
U.S. securities laws. The committee meets at least twice a year and is
responsible for reviewing the completeness, accuracy and fairness of the
Company's accounts, evaluating the Company's auditing scope and procedures,
and evaluating internal control systems. The committee is also responsible for
setting up internal monitoring systems so as to allow the Board to monitor the
Company's entire financial position, protect the Company's assets, and prevent
major errors resulting from financial reporting or loss. The Board is
responsible for these systems and appropriate delegations and guidance have
been made. In addition, the chairman of the audit committee will each year
present a report to the Board describing the committees' major activities
during the year.
[PICTURE OMITTED]
25
CNOOC LIMITED Annual Report 2003
CORPORATE GOVERNANCE
Remuneration Committee
With three independent non-executive directors, the remuneration committee is
responsible for reviewing information pertaining to all executives' salaries,
bonuses, share options packages, performance appraisal systems and retirement
plans.
Nomination Committee
To establish proper procedures for the selection of the Company's leadership
positions, upgrade the quality of board members and perfect the Company's
corporate governance structure, the Company has established a nomination
committee in accordance with related laws and requirements. Formed by an
executive director and two independent non-executive directors, the
committee's major authority and responsibilities are: to nominate and affirm
directors candidates approved by the Board; to review the structure and
composition of the board on a regular basis and to evaluate the leadership
abilities of executive and non-executive directors to ensure the competitive
position of the organization.
Striving for better transparency and communication with investors
With a long-term strategy of being transparent, strengthening investor
relations, and providing consistent, stable and extraordinary returns to
shareholders, the Company actively ensures that information is transparent to
our investors. We have established a professionally run investor relations
department to serve as a communication channel between the Company and its
shareholders and investors, ensuring that timely information is received by
them. Besides announcing its interim and annual results to shareholders and
investors according to regulations, the Company also publicized its major
business developments through press releases, announcements and the company
website. The Company also distributed its material information and statistics
on a timely basis. During the year, we have also revamped our website to
enrich information content for investors.
[PICTURE OMITTED]
Code of Ethics
The board of directors has adopted a Code of Ethics on 28 August 2003 to
provide guidelines to the senior management in legal and ethical matters as
well as the sensitivities involved in reporting illegal and unethical matters.
The Code of Ethics covers such areas as supervisory rules, insider trading,
market malpractices, conflict of interests, company opportunities, protection
and proper use of the Company's assets as well as reporting requirements for
listed companies.
All our senior management members are required to familiarize and follow the
code of ethics in the guide book to ensure that the Company's operations are
honest and legal. Violations of the rules will be penalized and serious
offences will result in dismissals.
[PICTURE OMITTED]
26
CNOOC LIMITED Annual Report 2003
Attendance at full board meetings in 2003
Executive Directors No. of meetings attended
-----------------------------------------------------------------------------
(3 meetings in total)
Wei Liucheng (resigned on 16 October 2003) 2
Fu Chengyu 3
Jiang Longsheng 3
Zhou Shouwei 3
Luo Han 2
Independent Non-executive Directors
-----------------------------------------------------------------------------
So Chak Kwong (resigned on 15 September 2003) 2
Chiu Sung Hong 3
Kenneth S. Courtis 3
Erwin Schurtenberger 3
Evert Henkes (appointed on 15 September 2003) 1
[PICTURE OMITTED]
27
CNOOC LIMITED Annual Report 2003
HEALTH, SAFETY AND ENVIRONMENT
We placed great emphasis on participating in HSE training programs organized
by professional training institutions. Together with business partners, the
Company also organized exchange activities that were related to international
safety management, oil spillage crisis management and oilfield abandonment
management.
[PICTURE OMITTED]
28
CNOOC LIMITED Annual Report 2003
In 2003, the Company continued to emphasize and strengthen its Health, Safety
and Environment ("HSE"). Being responsible to staff members, the society and
the environment as a whole, the Company regards HSE as a top priority of its
daily operation and production, promoting strict management control, and pays
great attention to details in order to further improve the Company's HSE
performance.
During 2003, the Company recorded no major fatalities, contaminations or any
safety related liabilities that exceeded USD120,000 per incident.
According to the Company's OSHA statistical results, we achieved an
above-average rating as compared with major international oil companies,
marking a new milestone in the company's HSE standards.
Promote Systematic Management
In 2003, the Company further refined management requirements in order to
further enhance its HSE system. The Company completed its senior management
review of all branches in China and CNOOC SES LTD., established health
management systems for its offshore crew members and set out crisis management
procedures. Such procedures were proved highly effective in withstanding the
challenges during the SARS period.
During the year, the Company further strengthened safety management procedures
for high-risk activities such as those involving helicopter and diving
operations. The launch of the International Association of Oil & Gas producers
(OGP) HSE management system has also fully demonstrated our deep concern for
the safety requirements of its contractors. In addition, the application for
the ISO14000 environmental management qualification for the Company's offshore
oil and gas fields has achieved significant progress during 2003. Qinhuangdao
32-6 oilfield and Wencheng oilfields have already began operating under a
standardised system with proper documentation.
[PICTURE OMITTED]
In order to promote Bohai Bay Oil Spillage Awareness, support the
establishment of the Bohai Oil Spillage Awareness Centre and strengthen crisis
awareness capabilities in offshore work sites, CNOOC Ltd took part in the
"National Offshore Oil Spillage Awareness Plan" seminar organized by the State
Oceanic Administration, and discussed with participating oil and gas companies
issues relating to resources sharing and risk assessment in case of oil
spillage in Bohai Bay.
In accordance with changes to OSHA's statistical mechanism, the Company has
revised its internal documentation methods to keep abreast with OSHA's
standard, which uses OGP reporting methods to record the differences and
standards of particular incidents. CNOOC Ltd also formulated new OSHA and
incident reporting forms in order to better meet the requirements of
international associations such as OGP and API.
The Company has been able to deliver working hour statistics and incident
reports to investors and API on a quarterly basis.
[PICTURE OMITTED]
29
CNOOC LIMITED Annual Report 2003
HEALTH, SAFETY AND ENVIRONMENT
HSE Training and Information Exchange
During 2003, the Company organized a series of seminars covering the areas of
HSE regulations and standards, special operations and offshore life-saving
techniques in order to reinforce staff members' HSE concepts, enrich their HSE
knowledge and raise their practical skills on HSE matters.
We placed great emphasis on participating in HSE training programs organized
by professional training institutions. Together with business partners, the
Company also organized exchange activities that were related to international
safety management, oil spillage crisis management and oilfield disposal
management.
The Company has continuously studied the HSE work of other international
companies including contractors and business associates, reviewing their
experience in order to further improve on the Company's regulations and
systems. In addition, the Company has taken the initiative to study the
incident cases of its peers and analyzed their situations in order to prevent
encountering the same problems in future.
In 2003, the Company also assisted the nation's respective government
departments to speed up the formulation of HSE standards.
Employee Health and Safety
The Company spares no effort in protecting health and safety of its employees.
Apart from monitoring and guiding employees' work safety awareness during the
course of production, the Company also paid special attention to the health
and safety conditions of their employees outside of work.
The month of June is China's national safety production month. During this
period, CNOOC Ltd launched a signature campaign entitled" Treasure Your Life,
Fasten Your Belt". The campaign included road safety seminars, quiz programs
as well as the publication of a "Road Safety Tips" CD-ROM. The campaign was
intended to build up a safety culture in both work and daily life through the
relatively small act of "Fastening a Seat Belt".
During the SARS outbreak, the Company took active steps to help employees and
their families to combat the disease, established SARS Sterilized Scheme and
advocated a "zero case" system. All employees working offshore and employees
who were returning to the country from infected areas were closely monitored.
As a result of the effective implementation of such preventive measures, not a
single SARS or suspected SARS case was recorded during the period.
During the year, the Company organized various medical seminars including the
prevention of cerebrovascular disease, cardiovascular disease, cancer and
diabetes to promote healthcare knowledge among employees. The Company also
published a healthcare guidebook for its employees.
CNOOC Ltd. OSHA occupational injury & occupational disease statistics of 2003
----------------------------------------------------------------------------------------------------------------------
Incident Rate Work Delay Rate
----------------------------------------------------------------------------------------------------------------------
Man-hour Recordable Number of days Death Number of days
(In thousand) cases away & working away & working
Scope bounds bounds
----------------------------------------------------------------------------------------------------------------------
Permanent worker 2370 0.00 0.00 0.00 0.00
----------------------------------------------------------------------------------------------------------------------
Permanent worker, & other 14133 0.06 0.06 0.00 1.27
worker & direct contractor
[PICTURE OMITTED]
30
CNOOC LIMITED Annual Report 2003
COMMUNITY CONTRIBUTIONS
[PICTURE OMITTED]
While striving to improve the Company's cost efficiency and increasing
shareholder returns, we are also very happy to share its success with the
community.
In 2003, the Company continued to engage in a development project in Nima
County in the Tibet Autonomous Region. The Company also encourages its
employees to take part in welfare activities such as Lifeline Express and Help
the Needy.
CNOOC China Ltd's Shanghai Branch has taken an active part in the social
welfare activities of the city and its achievements, and has gained positive
recognition from the community. In May 2003, the Company received a "help
students in need" award from the community Xu Jiahui.
As we continue to expand our overseas operations, we will continue to follow
our social responsibility practice in these areas.
For example, CNOOC Southeast Sumatra Ltd has taken an active part in
cultivating a cordial, harmonious and mutual care relationship with the local
community in Indonesia. Apart from subsidizing the construction of a mosque
and sports facilities in the neighborhood and promoting environmental related
activities, the Company has assisted in renovating schools, ferry piers and
roads for the community.
[PICTURE OMITTED]
31
CNOOC LIMITED Annual Report 2003
HUMAN RESOURCES DEVELOPMENT
Looking forward, we will continue our commitment to perfecting our corporate
culture of "people-oriented and employee focus". The concept will also become
part of our core development strategies.
[PICTURE OMITTED]
32
CNOOC LIMITED Annual Report 2003
[PICTURE OMITTED]
"Employees are always the foundation for a company. Without the dedication and
contributions of our employees, CNOOC Ltd would never have been able to
achieve the remarkable performance today and the rosy prospects for tomorrow.
Looking forward, we will continue our commitment to perfecting our corporate
culture of "people-oriented and employee focus". The concept will also become
part of our core development strategies."
Mr. Fu Chengyu, Chairman and Chief Executive Officer
To ensure healthy and stable development of the company, we place strong
emphasis on human resources development and management to realize the
capabilities, enthusiasm and creativity of our employees.
Employment and remuneration systems reform completed
The Company's rapid development has resulted in new requirements towards our
corporate structure, job positioning and management process. The establishment
of an effective, competitive and practical job delegation and remuneration
system has become one of the top priorities of the Company to attract and
retain high calibre employees.
In 2003, we undertook a systematic and in-depth reform of our job delegation
and remuneration system, which focused on the Company's overall performance
and future development. We invited a group of external and internal
consultants to analyze and restructure the Company's management process, which
included the clarification of the authorities and responsibilities of
different departments. Based on the restructuring, we also reviewed the
functions of each department and job descriptions, and carried out a
recruitment campaign.
[PICTURE OMITTED]
33
CNOOC LIMITED Annual Report 2003
HUMAN RESOURCES DEVELOPMENT
This revolutionary reform has restructured the Company's management process,
aligning organization of all departments and subsidiaries with the Company's
overall strategy and positioning. With a more linear corporate structure, our
operating efficiency is enhanced through the streamlining of the management
chain. The creation and ranking of positions have also become more objective,
logical and systematic. We have also developed a more open recruitment
procedure, which allows the Company to absorb real talents and optimize the
location of its manpower. The implementation of such competitive mechanism has
effectively implanted a competitive mindset among the employees. The newly
established "market-oriented" remuneration system not only lays a concrete
foundation to attract, retain and motivate our people, but also enables the
flexibility in taking rewards and penalizing actions.
[PICTURE OMITTED]
Establishment of overseas human resources system
To ensure smooth implementation of our overseas development strategies, we
have established an international human resources and remuneration system to
attract and retain our management and technical talents. This system
consolidates the best practices of other international oil companies, covering
remuneration, annual leave, overseas medical policy, relocation, emergency
retreat and service process.
Establishment and improvement on appraisal systems
We have also strengthened our internal human resources system to evaluate the
results of the reform. During the year, we introduced a simple and practical
appraisal system focusing on the harmonization of individual and company
development. With reference to international standards, we have included goal
setting, individual development plan, performance tracking and reward,
[PICTURE OMITTED]
34
CNOOC LIMITED Annual Report 2003
results assessment and employees' potential and value identification in the
system. An effective appraisal system can help enhance employees' performance
while improving the overall performance and management of the Company. The
system can also identify and retain talents, help formulate reward and
training system. We believe the new system would further strengthen a
results-oriented and learning culture, which is essential in attaining the
Company's strategic targets.
Strengthening human resources development
Through the establishment and implementation of an individual development
system, we are able to organize specific trainings on various technical or
general topics. During the year, a total of 325 training workshops were held
with 6,980 participants.
Training for senior and mid-level executives on management skills has been a
key focus in our training system. Last year, three groups of senior executives
attended a seminar jointly held with the China Europe International Business
School . Among these executives, some were also selected to join the overseas
exchange program in association with our business partner. The participants
were invited to attend the management training organized by a tertiary
institution and a world renowned company, visit several prominent
international companies and our foreign partner's headquarters in the U.S.
During the tour, the executives were able to learn the latest management
theories and production techniques.
[PICTURE OMITTED]
In addition, the Company has organized a "Carnegie Leadership Training
Program" for managers in order to strengthen their management skills and
internal management quality. This program mainly focused on leadership,
planning, communication, team building, innovation, motivation, delegation and
effective decision-making skills.
[PICTURE OMITTED]
35
CNOOC LIMITED Annual Report 2003
DIRECTORS AND SENIOR MANAGEMENT
[PICTURE OMITTED]
36
CNOOC LIMITED Annual Report 2003
Executive Directors
Chengyu FU, aged 52. Mr. Fu received a B.S. degree in geology from the
Northeast Petroleum Institute in China and a Master's degree in petroleum
engineering from the University of Southern California in the United States.
He has over 29 years of experience in the oil industry in the PRC. He
previously worked in China's Daqing, Liaohe and Huabei oilfields. He joined
CNOOC in 1982 and has since been appointed as the Chairman of the Management
Committee formed through a joint venture between CNOOC, BP Amoco, Chevron,
Texaco, Phillips Petroleum, Shell and Agip. From 1994 to 1995, Mr. Fu was the
Deputy General Manager of China Offshore Oil Eastern South China Sea
Corporation, a subsidiary of CNOOC. In December 1995, he was appointed as Vice
President of Phillips China Inc. and the General Manager of the Xijiang
Development Project. In 1999, Mr. Fu was the General Manager of China Offshore
Oil Eastern South China Sea Corporation.
In 2000, Mr. Fu was appointed as Deputy General Manager of CNOOC.
Subsequently, he was appointed as a Director, Executive Vice President,
President and Chief Operating Officer of the Company in 2001. In August 2002
he became the Chairman and Chief Executive Officer of our affiliate, China
Oilfield Services Ltd.
In October 2003, Mr. Fu was appointed as President of CNOOC. He was also
appointed as the Chairman of the Board of Directors and Chief Executive
Officer of the Company, effective 16 October 2003. In November 2003, Mr. Fu
resigned his Chief Executive Officer position from China Oilfield Services
Ltd.
Longsheng JIANG, aged 58. Mr. Jiang received a B.S. degree from the Beijing
Petroleum Institute in China. He has over 34 years' experience in the oil
industry in the PRC. He was appointed as a Director of the Company in December
2000 and has been the Vice President of CNOOC since 1998. From 1994 to 1998,
he was the General Manager of China Offshore Oil Southern Drilling Company.
From 1991 to 1994, Mr. Jiang served as the Deputy Chief Drilling Engineer and
was later appointed as the Chief Drilling Engineer of China Offshore Oil
Western South China Sea Corporation. He joined CNOOC in 1982.
Shouwei ZHOU, aged 52. Mr. Zhou received a doctorate degree from the Southwest
China Petroleum Institute and is a senior engineer. He was appointed as a
Director and Executive Vice President of the Company in September 1999 and is
responsible for the management and operation of CNOOC China Limited. Mr. Zhou
was appointed the President of the Company in August 2002. Mr. Zhou is also a
Vice President of CNOOC. Mr. Zhou was the Deputy General Manager and later
promoted to General Manager of China Offshore Oil Bohai Corporation, a
subsidiary of CNOOC. He joined CNOOC in 1982.
Han LUO, aged 50. Mr. Luo received a doctorate degree from the China Petroleum
University. He has over 29 years of experience in the oil industry in the PRC.
He was appointed as a Director of the Company in December 2000. From 1993 to
1999, Mr. Luo served as the Vice President of China Offshore Oil Eastern South
China Sea Corporation and concurrently as the Chief Representative of CNOOC in
the CACT operators group, and the Executive Vice President of China Offshore
Oil East China Sea Corporation, a subsidiary of CNOOC. In 1999, he served as
the General Manager of CNOOC China Limited's Shanghai Branch. Mr. Luo is a
Vice President of CNOOC, a position he has held since 2000. He joined CNOOC in
1982.
37
CNOOC LIMITED Annual Report 2003
DIRECTORS AND SENIOR MANAGEMENT
Independent Non-executive Directors
Sung Hong CHIU, aged 57. Mr. Chiu received an LL.B. degree from the University
of Sydney. He is admitted as a solicitor of the Supreme Court of New South
Wales and the High Court of Australia. He has over 29 years' experience in
legal practice and is a director of a listed company in Australia. Mr. Chiu is
the founding member of the Board of Trustees of the Australian Nursing Home
Foundation and served as the General Secretary of Australian Chinese Community
Association of New South Wales. Mr. Chiu was appointed as an Independent
Non-executive Director of the Company in September 1999.
Dr Kenneth S. COURTIS, aged 58, is Managing Director of Goldman Sachs and Vice
Chairman of Goldman Sachs Asia. He advises the firm on economics and strategy
throughout the Asia-Pacific region as well as in Europe and North America. Dr.
Courtis has won numerous prizes and distinctions for his research and is a
valued advisor on international economic, financial and investment matters. He
has lectured and written widely on the related fields of international
finance, macro-economic policy, global capital markets and strategy. He is a
prominently quoted commentator on global economic, financial and political
developments.
He serves on the international advisory boards of a variety of leading
international firms, public policy organizations and universities. After
graduating with honors from Glendon College in Toronto, Dr. Courtis received a
M.A. in international economics from Sussex University, England, a M.B.A. in
finance and strategy from INSEAD (European Institute of Business
Administration), and a Doctorate, with honors and the highest distinction,
from the Institute of Economic and Political Studies in Paris. Prior to
joining Goldman Sachs, he served as Chief Asia Economist and Strategist for
Deutsche Bank.
Dr. Courtis was previously a member of the Company's International Advisory
Board ("IAB").
Dr Erwin SCHURTENBERGER, aged 64, was the Ambassador of Switzerland to the
People's Republic of China, the Democratic People's Republic of Korea, the
Republic of Mongolia. He joined the Swiss Foreign Services in 1969. Over the
years, he held various diplomatic positions in Bangkok, Hong Kong, Beijing and
Tokyo. He also served as the Ambassador of Switzerland to Iraq. He has been an
independent business advisor to various European multinationals, American
groups and humanitarian aid organizations. He was the President of the
Swiss-Asia Foundation. He serves on the Boards of ROBERT BOSCH RBint., BUHLER
GROUP Switzerland, FIRMENICH, SIRE Holding (China Infrastructure Fund),
TAIKANG Life Insurance, WINTERTHUR Insurances (Asia). Dr. Schurtenberger is
also a senior advisor to the China Training Center for Senior Personnel
Management Officials. He received a Ph.D. Degree in Economics and was trained
in political science and philosophy. Dr. Schurtenberger is presently Chairman
of the Company's IAB.
Evert HENKES, aged 60, was the CEO of Shell's global chemical business during
1998-2003. Since joining Shell in 1973, he served on various executive
positions worldwide, including Managing Director of Shell Chemicals UK Ltd and
a Managing Director of Shell UK, President of Billiton Metals and Shell's
Metals Co-ordinator, Shell's Chemicals Co-ordinator and Director of Strategy &
Business Services Shell International Chemicals Ltd. He also had directorships
in regional and global industry bodies, including i.e. CEFIC and ICCA.
He is also a director of Tate & Lyle Plc, BPB Plc and Outokumpu Oy.
38
CNOOC LIMITED Annual Report 2003
Company Secretary
Yunshi CAO, aged 58. Mr. Cao is the Company Secretary, the General Counsel and
a Senior Vice President of the Company. From 1992 to 1999, he was the Director
of the Legal Department of CNOOC. He has been the General Counsel of CNOOC
since 1999. Mr. Cao is a senior economist and licensed lawyer in the PRC. He
has extensive experience in production sharing contracts and over 33 years'
experience in the oil industry. He received a B.S. degree from the Beijing
Petroleum Institute and studied law at the Law School of Columbia University.
Mr. Cao joined CNOOC in 1982.
Senior Management
Yunshi CAO (Please refer to "Company Secretary")
Mark QIU, aged 40. Dr. Qiu is the Chief Financial Officer and Senior Vice
President of the Company. He worked for the investment bank Salomon Smith
Barney before CNOOC Ltd., last as the head of its Asia Oil & Gas Investment
Banking group. He previously held several management positions at Atlantic
Richfield Corporation (ARCO) of United States. He was the Federal Government
Relations Director of ARCO in Washington, D.C. Prior to that, he was a Vice
President of ARCO China Ltd., ARCO's subsidiary in China. He was a consultant
with the leadership succession planning consulting firm of RHR International.
Mr. Qiu received a MBA degree from the Sloan School of Management at
Massachusetts Institute of Technology as a Sloan Fellow. He also has a Master
degree and a Ph.D. degree in Decision Sciences from the University of Texas at
Arlington.
Hua YANG, aged 42. Mr. Yang is a Senior Vice President of the Company and
President of CNOOC International Limited. He is a senior engineer. He received
his B.S. degree from China Petroleum Institute. He has over 21 years'
experience in petroleum exploration and production. Mr. Yang joined CNOOC in
1982 and was an Acting Director of the Overseas Development Department of
CNOOC.
Wei CHEN, aged 46. Mr. Chen is a Senior Vice President and Director of the
Research Centre. A senior engineer, he received his B.S. degree from China
Petroleum University and holds an MBA degree of Tsinghua University. He has
over 21 years' experience in petroleum exploration and production. Mr. Chen
joined CNOOC in 1984 and was the Deputy Manager for the exploration and
development department of CNOOC Research Center, Deputy Manager of the
Overseas Research department, the Manager of the Information Department, the
Deputy Director of the Research Center, the General Manager of the Human
Resources Department of CNOOC and General Manager of the Administration
Department of the Company.
Guohua ZHANG, aged 42. A Senior Vice President of the Company and General
Manager of Exploration Department. Mr. Zhang is a senior engineer, responsible
for the exploration work offshore China as well as the reserve management. He
is a geologist, and received his B.S. degree from Ocean Institute of Qingdao.
He also studied in the Business Institute of University of Alberta in 2001.
Mr. Zhang joined CNOOC in 1982 and worked as Exploration Manager of China
Offshore Oil Western South China Sea Corporation, a Chief Geologist of CNOOC
Research Center and the Assistant to General Manager of CNOOC China Limited.
39
CNOOC LIMITED Annual Report 2003
DIRECTORS AND SENIOR MANAGEMENT
Jian LIU, aged 46. A Senior Vice President of the Company and General Manager
of Development and Production Department. He is a senior engineer and is
responsible for the development and production of oil & gas of the Company. He
received his B.S. degree from Huazhong Institute of Technology and MBA degree
from Tianjin University in 2000. Mr. Liu joined CNOOC in 1982 and was the
Manager of CNOOC Bohai Corporation, the Vice President of Tianjin branch
office and the President of Zhanjiang branch office.
Ning LI, aged 40. A Senior Vice President of the Company and General Manager
of Engineering and Project Department. He is a senior engineer and is
responsible for the project management of oil and gas development of the
Company. He received his B.S. degree from Petroleum University of China in
1983 and MBA degree from Tianjin University in 2000. Mr. Li joined CNOOC Bohai
Corporation in 1983, responsible for the design and engineering of oil and gas
fields in Bohai Bay, East China Sea and South China Sea. He was the Vice
President of Design & Engineering Corporation of CNOOC since 1994, and was
appointed Deputy manager of Engineering Department of CNOOC in 1998. He was
also the General Manager of the Dongfang 1-1 gas development project and the
Deputy Manager of the Zhanjiang branch office.
Changes In Directors and Senior Management
* Mr. Guohua Zhang was appointed the Senior Vice President of the Company
and ceased to be the Assistant to General Manager of CNOOC China
Limited as of March 2003. He was
also named the General Manager of Exploration Department as of April
2003.
* As of May 2003, Mr. Jian Liu and Mr. Ning Li were appointed the Senior
Vice President. They were also named the General Manager of Development
and Production Department, and Engineering and Project Department
respectively.
* In October 2003, Mr. Chengyu Fu was appointed by the Board of Directors
as the Company's Chairman and Chief Executive Officer.
* Mr. Evert Henkes has been appointed as a non-executive independent
director of the Company in September 2003. Mr. Chak Kwong So resigned
from the board of the Company following his appointment as Deputy
Chairman and Group Managing Director of PCCW Limited.
40
CNOOC LIMITED Annual Report 2003
REPORT OF THE DIRECTORS
The directors (the "Directors") of CNOOC Limited (the "Company") are pleased
to present their report together with the audited financial statements for the
year ended 31 December 2003.
Principal Activities and Operating Results
The principal activity of the Company is investment holding of its
subsidiaries (which together with the Company shall be known as the "Group"),
which are principally engaged in the exploration, development, production and
sales of crude oil and natural gas and other petroleum products.
Summary of Financial Information
Please refer to the financial statements for a summary of the assets and
liabilities of the Group as at 31 December 2003 on page 54 and the operating
results for the year then ended on page 53.
Loans
Please refer to note 26 to the financial statements on pages 84 to 85 for
details of the long-term bank loans of the Group for the year ended 31
December 2003.
Property, Plant and Equipment, net
Please refer to note 18 to the financial statements on pages 78 to 79 for
movements in property, plant and equipment, net of the Group for the year
ended 31 December 2003.
Reserves
Please refer to the statement of changes in equity on page 55 and note 32 to
the financial statements on page 91 for movements in the reserves of the Group
and the Company, respectively, for the year ended 31 December 2003.
Subsidiaries and Associated Companies
Particulars of the Company's subsidiaries and associated companies as at 31
December 2003 are set out in notes 19 and 20 to the financial statements on
pages 80 to 82.
Dividends
The Directors recommend the payment of a final dividend of HK$0.12 per share
for the year ended 31 December 2003 and a special final dividend of HK$0.18
per share.
Retirement Benefits
Please refer to note 33 to the financial statements on page 91 to 93 for
details of the retirement benefits of the Group for the year ended 31 December
2003.
Major Suppliers and Customers
Purchases from the largest supplier of the Group for the year ended 31
December 2003 represented approximately 13.0% of the Group's total purchases.
The total purchases attributable to the five largest suppliers of the Group
accounted for approximately 29.4% of the total purchases of the Group for the
year then ended.
Sales to the largest customer for the year ended 31 December 2003 represented
approximately 24.8% of the Group's total oil and gas sales. The total sales
attributable to the five largest customers of the Group accounted for
approximately 49.2% of the total oil and gas sales of the Group for the year
then ended.
None of the Directors or their respective associates (as defined in the Rules
Governing the Listing of Securities on The Stock Exchange of Hong Kong Limited
(the "Listing Rules")) or any shareholder of the Company (which to the
knowledge of the Directors owns more than 5% of the Company's share capital)
had any interests in the five largest suppliers or customers of the Group for
the year ended 31 December 2003.
Connected Transactions
The Independent Non-executive Directors confirmed that the following connected
transactions for the year ended 31 December 2003 to which the Group was a
party and the agreements governing those transactions were entered into by the
Group:
1 in the ordinary and usual course of its business;
2 either (a) on normal commercial terms, or (b) where there was no
available comparison, on terms no less favourable than those available
to independent third parties; and
3 on terms that were fair and reasonable so far as the shareholders of the
Company were concerned.
41
CNOOC LIMITED Annual Report 2003
REPORT OF THE DIRECTORS
The Independent Non-executive Directors further confirmed that:
1 the aggregate annual volume of transactions under the materials,
utilities and ancillary services supply agreements has not exceeded 10%
of the audited consolidated total revenues of the Group in the
immediate preceding financial year;
2 the aggregate annual volume of transactions in relation to technical
services has not exceeded RMB5,853 million;
3 the aggregate annual volume of transactions in relation to research
and development services for particular projects has not exceeded
RMB141 million;
4 the aggregate annual volume of transactions in relation to sales of
crude oil, condensate oil and liquefied petroleum gas has not exceeded
42% of the audited consolidated total revenues of the Group in the
immediate preceding financial year;
5 the amount paid under the general research and development services
agreement has not exceeded RMB110 million; and
6 the aggregate amounts paid under the lease and management agreements
have not exceeded RMB78 million.
The auditors of the Group have reviewed the transactions referred to in the
above paragraph 1 to paragraph 6 and confirmed to the Directors that:
1 the transactions have received the approval of the Directors;
2 the transactions were in accordance with the pricing policies as stated
in the Company's financial statements; and
3 the transactions were entered into in accordance with the terms of the
agreements governing the transactions.
Please refer to note 29 to the financial statements on pages 86 to 88 for a
summary of the related party transactions which include the Group's connected
transactions.
Share Capital
Please refer to note 31 to the financial statements on pages 88 to 90 for
details of movements in the Company's share capital for the year ended 31
December 2003.
Issue of Bonds
In May 2003, the Company successfully issued 10-year and 30-year bonds with a
total amount of US$500 million which included US$200 million 4.125% guaranteed
notes due 2013 and US$300 million 5.50% guaranteed notes due 2033. The Company
intends to use the net proceeds of the bond offerings for general corporate
purposes.
Share Option Schemes
The Company has adopted share option schemes which provide for the grant of
options to the Company's senior management. Under these share option schemes,
the remuneration committee of the Company's board of directors will from time
to time propose for the board's approval for the recipient of and the number
of shares underlying each option. These schemes provide for issuance of
options exercisable for shares granted under these schemes as described below
not exceeding 10% of the total number of the Company's outstanding shares,
excluding shares issued upon exercise of options granted under the schemes
from time to time.
On 4 February 2001, the Company adopted a pre-global offering share option
scheme (the "Pre-Global Offering Share Option Scheme"). Pursuant to the
Pre-Global Offering Share Option Scheme:
1 options for an aggregate of 4,620,000 shares have been granted;
2 the subscription price per share is HK$5.95; and 3 the period during
which an option may be exercised is as follows:
(a) 50% of the shares underlying the option shall vest 18 months after
the date of the grant; and
(b) 50% of the shares underlying the option shall vest 30 months after
the date of the grant.
The exercise period for options granted under the Pre-Global Offering Share
Option Scheme shall end not later than 10 years from 12 March 2001.
42
CNOOC LIMITED Annual Report 2003
On 4 February 2001, the Company adopted a share option scheme (the "2001 Share
Option Scheme") for the purposes of recognising the contribution that certain
individuals had made to the Company and attracting and retaining the best
available personnel to the Company.
Pursuant to the 2001 Share Option Scheme:
1 options for an aggregate of 8,820,000 shares have been granted;
2 the subscription price per share is HK$6.16; and
3 the period during which an option may be exercised is as follows:
(a) one-third of the shares underlying the option shall vest on the
first anniversary of the date of the grant;
(b) one-third of the shares underlying the option shall vest on the
second anniversary of the date of the grant; and
(c) one-third of the shares underlying the option shall vest on the
third anniversary of the date of the grant.
The exercise period for options granted under the 2001 Share Option Scheme
shall end not later than 10 years from 27 August 2001.
In view of the amendments to the relevant provisions of the Listing Rules
regarding the requirements of share option schemes of a Hong Kong listed
company effective on 1 September 2001, no further options will be granted
under the 2001 Share Option Scheme.
In June 2002, the Company adopted a new share option scheme (the "2002 Share
Option Scheme").
Under the 2002 Share Option Scheme, the Directors of the Company may, at their
discretion, invite employees, including executive directors, of the Company or
any of its subsidiaries, to take up options to subscribe for shares. The
maximum aggregate number of shares (including those that could be subscribed
for under the Pre-Global Offering Share Option Scheme and the 2001 Share
Option Scheme) which may be granted shall not exceed 10% of the total issued
share capital of the Company. The maximum number of shares which may be
granted under the 2002 Share Option Scheme to any individual in any 12 month
period up to the next grant shall not exceed 1% of the total issued share
capital of the Company from time to time.
According to the 2002 Share Option Scheme, the consideration payable by a
participant for the grant of an option will be HK$1.00. The subscription price
of a share payable by a participant upon the exercise of an option will be
determined by the Directors at their discretion at the date of grant, except
that such price may not be set below a minimum price which is the highest of:
1 the nominal value of a share;
2 the average closing price of the shares on the HKSE as stated in the
HKSE's quotation sheets for the five trading days immediately preceding
the date of grant of the option; and
3 the closing price of the shares on the HKSE as stated in the HKSE's
quotation sheets on the
date of grant of the option.
On 24 February 2003, the board of directors approved to grant options in
respect of 8,410,000 shares to the Company's senior management under the 2002
Share Option Scheme. The exercise price for the options is HK$10.54 per share.
The market price was HK$10.55 per share preceding the options granted. Options
granted under the 2002 Share Option Scheme may be exercised, in whole or in
part, in accordance with the following vesting schedule:
1 one-third of the shares underlying the option shall vest on the first
anniversary of the date of the grant;
2 one-third of the shares underlying the option shall vest on the second
anniversary of the date of the grant; and
3 one-third of the shares underlying the option shall vest on the third
anniversary of the date of the grant.
The exercise period for options granted under the 2002 Share Option Scheme
shall end not later than 10 years from the date on which the option is
granted.
As at 31 December 2003, the Directors and others had the following personal
interests in options to subscribe for shares in the Company granted under the
share option schemes of the Company:
43
CNOOC LIMITED Annual Report 2003
REPORT OF THE DIRECTORS
Closing price per share
No. of shares No. of shares immediately before
involved in the involved in the date on
Name of options outstanding the options Date of which the options Exercise
Grantee at the beginning outstanding Grant were granted Price
of the year at year end (HK$) (HK$)
----------------------------------------------------------------------------------------------------------------------
Fu Chengyu 350,000 350,000 12 March 2001 - 5.95
350,000 350,000 27 Aug 2001 7.30 6.16
- 230,000 24 Feb 2003 10.45 10.54
Zhou Shouwei 280,000 280,000 12 March 2001 - 5.95
350,000 350,000 27 Aug 2001 7.30 6.16
- 350,000 24 Feb 2003 10.45 10.54
Jiang Longsheng 280,000 280,000 12 March 2001 - 5.95
230,000 230,000 27 Aug 2001 7.30 6.16
- 230,000 24 Feb 2003 10.45 10.54
Luo Han 280,000 280,000 12 March 2001 - 5.95
230,000 230,000 27 Aug 2001 7.30 6.16
- 230,000 24 Feb 2003 10.45 10.54
Others: 3,430,000 3,430,000 12 March 2001 - 5.95
7,660,000 7,660,000 27 Aug 2001 7.30 6.16
7,370,000 24 Feb 2003 10.45 10.54
As at 31 December 2003, no options granted under the share option schemes of
the Company have been exercised.
The weighted average fair value of the options granted under the Pre-Global
Offering Share Option Scheme, the 2001 Share Option Scheme and the 2002 Share
Option Scheme at the grant dates was RMB3.40. This was estimated using the
Black-Scholes option pricing model under the following assumptions: risk-free
interest rates of 5.25%, expected volatility of 44%, an expected life of five
years and an expected dividend yield of 2.0%. The assumptions on which the
option pricing model is based represent the subjective estimations of the
Directors as to the circumstances existing at the time the options were
granted.
Purchase, Sale or Redemption of Shares
For the year ended 31 December 2003, neither the Company nor its subsidiaries
has purchased, sold or redeemed any of the Company's listed shares.
Substantial Shareholders of the Company
The register maintained by the Company pursuant to the Securities and Futures
Ordinance (the "SFO") recorded that, as at 31 December 2003, the following
corporations had interests (as defined in the SFO) in the Company set opposite
their respective names:
Ordinary Percentage
Shares of Total
Issued
Shares
------------------------------------------------------------------------------
(i) CNOOC (BVI) Limited 5,800,000,000 70.61%
("CNOOC (BVI)")
(ii) Overseas Oil & Gas 5,800,000,000 70.61%
Corporation, Limited
("OOGC")
(iii) China National Offshore 5,800,000,000 70.61%
Oil Corporation
("CNOOC")
CNOOC (BVI) is a wholly-owned subsidiary of OOGC, which is a wholly-owned
subsidiary of CNOOC.
Accordingly, CNOOC (BVI)'s interests are recorded as the interests of OOGC and
CNOOC.
All the interests stated above represent long positions. As at 31 December
2003, no short positions were
44
CNOOC LIMITED Annual Report 2003
recorded in the Register of Interests in Shares and Short Positions required
to be kept under section 336 of the SFO.
Directors and Senior Management of the Company
Please refer to pages 36 to 40 for information concerning the Directors and
senior management of the Company.
Directors' Interests
As at 31 December 2003, the interests of the Directors and the chief executive
of the Company in the equity securities of the Company and its associated
corporations (all within the meaning of Part XV of the SFO) as recorded in the
register required to be kept under section 352 of the SFO or disclosed in
accordance with the Listing Rules are detailed below.
As at 31 December 2003, the Directors had the personal interests in options to
subscribe for shares in the Company granted under the share option schemes of
the Company as disclosed in this report.
All the interests stated above represent long positions. As at 31 December
2003, no short positions were recorded in the Register of Directors' and Chief
Executives' Interests and Short Positions required to be kept under section
352 of the SFO.
Directors' Interests in Contracts
Each of the executive Directors has entered into a service contract with the
Company for a term of three years effective from 28 February 2001 and
thereafter subject to termination by either party thereto giving not less than
three months' written notice. Such contracts may be renewed or extended as
appropriate.
Apart from the foregoing, no director proposed for re-election at the
forthcoming annual general meeting has an unexpired service contract with the
Company which is not determinable by the Company within one year without
payment of compensation (other than normal statutory obligations).
No contract of significance to which the Company or any of its subsidiaries
was a party and in which a director of the Company had a material interest,
whether directly or indirectly, subsisted at the end of the year or at any
time during the year.
Emoluments of the Directors and the Five Highest Paid Individuals
Please refer to notes 12 and 13 to the financial statements on pages 73 to 76
for details of the emoluments of the Directors and the five highest paid
individuals of the Company.
Material Legal Proceedings
As at 31 December 2003, the Company was not involved in any material
litigation or arbitration and no material litigation or claims was pending or
threatened or made against the Company as far as the Company is aware of.
Compliance with the Code of Best Practice
The Company has complied with the Code of Best Practice as set out by the HKSE
in Appendix 14 to the Listing Rules throughout the year ended 31 December
2003, except that the Non-executive Directors were not appointed for a
specific term, but are subject to retirement by rotation and re-election at
the Company's annual general meeting in accordance with the Company's articles
of association.
Auditors
Ernst & Young was appointed as the auditors of the Company for the year ended
31 December 2003 and has audited the accompanying financial statements. A
resolution to re-appoint Ernst & Young as auditors of the Company will be
proposed at the forthcoming annual general meeting.
By Order of the Board
Fu Chengyu
Chairman
Hong Kong, 15 March 2004
45
CNOOC LIMITED Annual Report 2003
MANAGEMENT DISCUSSION AND ANALYSIS
Outlook
The global economy has finally bottomed out in 2003 and is on the way to
recovery. We expect that the pick up will be strengthened in 2004 and the
global economy will return to a positive trajectory. However, fragility exists
in developed economies and the risk of terrorist attacks in the world are both
reasons for our prudent expectations for global economic development in 2004.
Although the international oil price remained strong in 2003, the trend is
dependent on the fundamentals of the global economy. Political and economic
events will definitely impact the oil price, resulting in adverse effects on
the Company's development. The Company primarily operates in countries in Asia
Pacific, such as China and Indonesia. The political stability and economic
dynamism within China, where most of the Company's operations are, will
provide the necessary opportunities for the Company to gear up its
development. Meanwhile, the management will continue to remain highly alert to
the Company's business environment, and will face the difficulties on the
grounds of prudence and progressiveness.
In 2003, we have overcome the SARS epidemic, successfully dealt with the
challenges faced in exploration and development, continued to maintain a
stable growth trend and achieved satisfactory results. In 2004, we will
maintain our advantages of being a low-cost company and focus on production
enhancement based on what we have achieved in the past few years. We will
continue to implement our prudent financial policy, look for opportunistic oil
and gas acquisitions and further expand the Company's natural gas business in
order to deliver satisfactory return for our investors.
In 2004, six oil and gas projects in coastal China will commence production,
allowing the Company to achieve its pre-set production target.
Given that the Company's balanced asset portfolios, progressive and
enthusiastic management team, prudent financial policies and healthy financial
position have already laid a solid foundation for our production and
development, the management expresses optimism over the business prospects in
2004.
Consolidated Net Profit
Our consolidated net income after tax was RMB11,535.5 million (US$1,393.6
million) in 2003, an increase of RMB2,302.7 million (US$278.2 million), or
24.9% from RMB9,232.8 million in 2002.
Revenue
Our oil and gas sales for the year 2003 were RMB28,116.8 million (US$3,396.9
million), an increase of RMB4,337.5 million (US$524.0 million), or 18.2% from
RMB23,779.3 million in 2002. The increase primarily reflects the rise in
global crude oil prices and our production level. In 2003, as a result of the
commencement of production in our new oil and gas properties as well as our
successful acquisition of a portion of interests in Liuhua 11-1 and
Qinhuangdao 32-6, our production volume increased compared to 2002. The
average net production volume per day was 356,729 barrels in 2003, compared to
346,639 barrels in 2002, an increase of 3%. With the higher-than-expected oil
price this year, our Indonesian oil and gas operations achieved a
lower-than-expected net production volume based on the Indonesian oil
production sharing contract, which affected the production volume growth. Our
crude oil sales prices are determined in accordance with international crude
oil prices. The international oil price in 2003 rose sharply compared with
2002. The average realised price for our crude oil was US$28.11 per barrel in
2003, an increase of US$3.76, or 15.4% from US$24.35 per barrel in 2002. The
average realised price of natural gas was US$2.87 per thousand cubic feet in
2003, a decrease of US$0.11, or 3.7%, from US$2.98 per thousand cubic feet in
2002. The decrease was due to the lower natural gas price of our Indonesian
properties and the Dongfang gas field which commenced production recently.
In 2003, our net marketing profit, which were derived from marketing revenue
less purchase cost of crude oil and oil products, were RMB103.4 million
(US$12.5 million), an increase of RMB52.3 million (US$6.3 million), or 102.3%,
from RMB51.1 million in 2002. Since we are one of the three companies that
have the right to sell crude oil in China, upon request by our partners, we
can purchase the oil of these partners for sale in China.
46
CNOOC LIMITED Annual Report 2003
However, our ability to sell oil in China depends on our foreign partners,
and, therefore, we cannot control the amount of crude oil that we are able to
sell for a specific period.
Our other income, reported on a net basis, was derived from our other income
less corresponding costs. In 2003, the total other income was RMB84.5 million
(US$10.2 million), a decrease of RMB101.7 million (US$12.3 million) from
RMB186.2 million in 2002, resulting primarily from the decrease in project
management fees.
Expenses
Operating expenses
Our operating expenses were RMB4,512.8 million (US$545.2 million) in 2003, an
increase of RMB737.5 million (US$89.1 million), or 19.5%, from RMB3,775.3
million in 2002. The increase primarily resulted from operating expenses in
connection with the Indonesian oil and gas properties, which were based on a
full year's consolidated accounts as compared to the nine months contributions
in 2002, and the commencement of operations in new properties. Operating
expenses were RMB35.1 (US$4.25) per BOE in 2003, which were higher than
operating expenses of RMB30.3 (US$3.66) per BOE in 2002. The increase was, on
one hand, attributable to the higher operating expenses on a unit of
production basis for the Indonesian oil and gas properties, resulting from the
higher-than-expected oil price and lower net production, and its increased
weighting in the Company on an annual production basis. On the other hand, the
natural diminishing in old oilfield production and the higher maintenance cost
also resulted in the slight increase in unit cost.
Production taxes
Our production taxes for the year 2003 were RMB1,238.6 million (US$149.6
million), an increase of 21.1%, or RMB215.6 million (US$26.0 million) from
RMB1,023.0 million in 2002. The increase was due to increase in oil and gas
sales in 2003.
Exploration costs
Our exploration costs for the year 2003 were RMB848.1 million (US$102.5
million), a decrease of RMB470.2 million (US$56.8 million), or 35.7%, from
RMB1,318.3 million in 2002. The decrease primarily resulted from a higher
successful rate of exploration and drilling activities.
Depreciation, depletion and amortisation expenses
Our depreciation, depletion and amortisation expenses for 2003 were RMB4,642.8
million (US$560.9 million), an increase of RMB623.3 million (US$75.3 million),
or 15.5%, from RMB4,019.5 million in 2002. On a unit of production basis,
depreciation, depletion and amortisation expenses for the year 2003 were
RMB36.2 (US$4.37) per BOE, an increase of 12.0% compared to RMB32.3 (US$3.90)
per BOE in 2002. The primary reason for the increase was the higher weighting
for Indonesian oil and gas properties, which had a higher amortisation cost,
and the increase in amortisation cost resulted from the reserve adjustment of
some old fields.
Dismantlement
Our dismantlement costs for the year 2003 was RMB167.3 million (US$20.2
million), an increase of RMB41.2 million (US$5.0 million) from RMB126.1
million in 2002. The increase was primarily due to the increased dismantlement
costs resulting from the commencement of production at new oil and gas
properties. On a unit production basis, our dismantlement costs were RMB1.3
(US$0.16) per BOE, an increase of 30.0% compared to RMB1.0 (US$0.12) per BOE
in 2002. The increase was primarily due to an upward revision of the estimated
dismantlement costs and the increase in dismantlement costs resulting from the
reserve adjustment of some old fields.
47
CNOOC LIMITED Annual Report 2003
MANAGEMENT DISCUSSION AND ANALYSIS
Selling and administrative expenses
Our selling and administrative expenses for the year 2003 were RMB1,212.5
million (US$146.5 million), an increase of RMB206.0 million (US$24.9 million),
or 20.5%, from RMB1,006.5 million in 2002. The primary reason for the increase
was the selling and administrative expenses incurred in connection with the
Indonesian oil and gas properties. On a unit of production basis, selling and
administrative expenses were RMB9.4 (US$1.14) per BOE in 2003, an increase of
16.0% from RMB8.1 (US$0.98) per BOE in 2002. The increase was primarily
attributable to the higher selling and administrative expenses on a unit of
production basis for the Indonesian oil and gas properties, resulting from the
higher-than-expected oil price and lower net production, and its increased
weighting in the Company on an annual production basis. Our selling and
administrative expenses in China in 2003 were RMB6.6 (US$0.8) per BOE, in line
with the previous year.
Net interest expenses/income
Our net interest expense for 2003 was RMB171.4 million (US$20.7 million), in
line with the net interest expense of RMB146.9 million in 2002.
Exchange Gain/Loss, net
Our exchange loss for 2003 was RMB6.7 million (US$0.8 million), a decrease of
RMB107.1 million (US$12.9 million) when compared with an exchange loss of
RMB113.8 million in 2002. The loss in 2002 was mainly attributable to exchange
rate fluctuations related to our yen-denominated loans. Since we have prepaid
a large portion of yen-denominated loans on 27 December 2002, and the
outstanding amount of our yen-denominated loans is hedged using foreign
currency swaps, we do not expect similar exchange gains or losses for that
portion. Therefore, the exchange gain or loss this year was primarily
attributable to the exchange gain generated from day-to-day operating
activities.
Short term Investment Income
Our short term investment income for 2003 was RMB123.5 million (US$14.9
million), a decrease of RMB69.8 million (US$8.4 million) or 36.1% from
RMB193.3 million in 2002. The decrease was primarily due to a decline in short
term investment return in 2003.
Share of Profit of an Associate
Our share of profit of an associate for the year 2003 was RMB220.3 million
(US$26.6 million), an increase of RMB54.9 million (US$6.6 million), or 33.2%,
from RMB165.4 million in 2002. This item reflected our share of profit
generated by Shanghai Petroleum and Natural Gas Company Limited , our
associated company. This company experienced an increase of profit in 2003
resulting from an increase in output and oil prices.
Non-operating Income/Expenses, Net
Our net non-operating income for the year 2003 was RMB315.0 million (US$38.1
million), compared to non-operating expense for the year 2002 of RMB71.4
million. In 2003, the net non-operating income was mainly due to the tax
refund from re-investment.
Tax
Our taxation for the year 2003 was RMB4,627.8 million (US$559.1 million), an
increase of RMB1,086.4 million (US$131.3 million) or 30.7% from RMB3,541.4
million in 2002. The primary reason for the increase was the increase in
profit before tax. The effective tax rate for 2003 was 28.6%, slightly higher
than the effective rate of 27.7% in 2002.
Cash Generated from Operations
Net cash generated from operations in 2003 amounted to RMB17,818.7 million
(US$2,152.8 million), an increase of RMB3,076.7 million (US$371.7 million), or
20.9%, from RMB14,742.0 million in 2002.
The increase in cash was mainly due to an increase in profit before tax of
RMB3,389.1 million (US$409.5 million), an increase in depreciation, depletion
and amortisation expenses of RMB623.2 million (US$75.3 million), an increase
in dismantlement costs of RMB41.2 million (US$5.0 million), provision for
inventory obsolescence of RMB8.7 million (US$1.1 million), and a decrease in
short term investment income and
48
CNOOC LIMITED Annual Report 2003
amortisation of discount of long term guaranteed notes of RMB75.0 million
(US$9.1 million), a increase of net interest expense of RMB24.4 million
(US$3.0 million).
The increase of cash flow was partially offset by an increase of income tax of
RMB 668.6 million (US$ 80.8 million), our share of income of an associate of
RMB54.9 million (US$6.6 million) growth, a decrease of unpaid exchange loss of
RMB107.1 million (US$12.9 million), and a decrease in loss on disposal and
write off of property, plant and equipment of RMB398.0 million (US$48.1
million).
In addition, operating cash flow was increased due to the decrease of working
capital, mainly due to the increase in current liabilities from operating
activities of RMB935.0 million (US$113.0 million), and a simultaneous decrease
in current assets from operating activities excluding cash and bank balances
of RMB800.7 million (US$96.7 million).
Capital Expenditures and Investments
The cash outflow from investing activities in 2003 was RMB 9,512.6 million
(US$1,149.3 million), a decrease of RMB 2,211.0 million (US$ 267.1 million)
from RMB 11,723.6 million in 2002.
In line with our use of the successful efforts method of accounting, total
capital expenditures and investments primarily include successful exploration
and development expenditures. Total capital expenditures were RMB12,372.5
million (US$1,494.8 million) in 2003, an increase of RMB805.6 million (US$97.3
million), or 7.0%, from RMB11,566.9 million in 2002. Capital expenditures in
2003 mainly comprised RMB524.0 million (US$63.3 million) for capitalised
exploration activities, RMB7,747.6 million (US$936.0 million) for development
activities, and RMB4,100.9 million (US$495.5 million) for acquiring oil and
gas properties (Tangguh, acquisition of Qinhuangdao 32-6 and Liuhua 11-1
interests). Our development expenditures in 2003 related principally to the
development of Bozhong 25-1, Bonan, Weizhou 12-1 North, Dongfang 1-1,
Caofeidian and Panyu 4-2/5-1, Huizhou 19-2/19-3 oil and gas fields.
We increased our investment in associated companies of RMB450.0 million
(US$54.4 million). This cash outflow was partially offset by a decrease in
time deposits with maturities over three months and short term investment,
which were RMB2,367.0 million (US$286.0 million) and RMB942.9 million US$113.9
million) at the year end respectively.
Financing Activities
We had net cash outflows from financing activities of RMB1,744.9 million
(US$210.8 million) in 2003, resulting primarily from our repayment of RMB336.9
million (US$40.7 million) in bank loans, dividend distributions of RMB5,403.7
million (US$652.8 million). This cash outflow was partly offset by net cash
inflow of RMB3,995.8 million (US$482.8 million) resulting from our May 2003
offering of US$200 million in 4.125% 10-year guaranteed notes and US$300
million in 5.500% 30-year guaranteed notes.
The following table summarises the maturities of our long-term debt
outstanding as of 31 December 2003.
Debt maturities principal only
Original currency
Total Total
RMB US$
Due by 31 December US$ JPY RMB equivalents equivalents
(In millions, except percentages)
--------------------------------------------------------------------------------------------------------------------
2004 - 271.5 - 21.0 2.5
2005-2007 100.0 814.4 - 890.6 107.6
2008-2009 - - - - -
2010 and beyond 1,000.0 - - 8,276.7 1,000.0
Total 1,100.0 1,085.9 - 9,188.3 1,110.1
Percentage of total debt 99.1% 0.9% - 100.0% 100.0%
49
CNOOC LIMITED Annual Report 2003
MANAGEMENT DISCUSSION AND ANALYSIS
On 31 December 2003, our gearing ratio was 57.3%. Gearing ratio is calculated
as total liabilities/equity.
Market Risks
Our market risk exposures primarily consists of fluctuations in oil and gas
prices, exchange rates and interest rates.
Commodity price risk:
We are exposed to fluctuations in prices of crude oil and natural gas, which
are commodities whose prices are determined by reference to international
market prices. International oil and gas prices are volatile and this
volatility has a significant effect on our net sales and net income.
Currency risk:
Our foreign exchange exposure gives rise to market risk associated with
exchange rate movements.
Substantially all of our oil and gas sales are denominated in Renminbi and
U.S. dollars. In the last ten years, the PRC government's policy of
maintaining a stable exchange rate and China's ample foreign reserves have
contributed to the stability of the Renminbi. Recently, there has been wide
expectation in the international market that the Chinese government will
deregulate the Renminbi exchange rate. However, the Chinese government has not
yet determined if or when the exchange rate will be deregulated. Currently,
the Renminbi exchange rate remains stable.
In case of any Renminbi exchange rate deregulation going forward, our existing
assets denominated in U.S. dollars will face book conversion risks from the
appreciation of Renminbi.
As we prepaid the majority of our yen-denominated loans in 2002, the balance
of our yen-denominated loans as of the end of 2003 was only 1.09 billion yen.
Currently, since this outstanding amount of our yen loans is hedged against
foreign currency swaps, we do not expect any exchange risks relating to
Japanese yen in the future.
Interest rate risk:
As of the end of 2003, all our foreign currency debts are at fixed interest
rates. To balance our overall debt interest structure and to reduce our
financial cost benefiting from the low interest rate market environment,
during the period from July to September 2003, we arranged for a plain vanilla
interest rate swap with three financial institutions by swapping the new
offering of US$200 million 10-year global guaranteed notes in 2003 into
floating interest rate. After the swap, we received fixed interest rate of
4.125% and paid floating interest rate at LIBOR -0.771% (weighted average
interest rate). During the first interest swap in November 2003, LIBOR was
only 1.2% approximately. Through the present swap, we managed to make interest
savings of US$2.02 million.
Based on the series of robust economic data announced by the US in late 2003,
we believed that the US economy had entered into a rapid growth period, with
interest rate taking an upward trend. In January 2004, we captured the
opportunity of significant drop of US treasury yield with the US's
announcement of the poor performance of certain economic data, and terminated
the above interest swap arrangement with net gains of US$10 million. This, in
addition to the interest savings of US$2.02 million for the year 2003,
resulted in cumulative net gains of US$12.02 million, representing the
reduction of interest rate of the US$200 million guaranteed notes from 4.125%
to 3.53%.
50
CNOOC LIMITED ANNUAL REPORT 2003
Significant Investments and Material Acquisitions
Our acquisition of interest in the Tangguh Project from BP was completed. With
effect from 1 January 2003, the Company became a partner with 12.5% interest
in the Tangguh Project.
On 15 May 2003, we entered into a purchase agreement with the partners of the
North West Shelf natural gas venture ("North West Shelf Venture") for the
acquisition of output and reserves interest of its upstream oilfields. CNOOC
Ltd will assume a 25% interest in the China LNG Joint Venture ("CLNG JV"), a
joint venture to be established within the North West Shelf Venture. The
acquisition price for this project was US$348 million. If the ultimate gas
supply of the Guangdong LNG project increases, the interest acquired by the
Company will increase and the consideration paid by the Company to acquire
such interests will also increase correspondingly. This acquisition project is
not yet completed.
On 24 October 2003, we entered into a new agreement with the venture
participants of the Gorgon project in Australia based on the memorandum of
understanding previously entered into with them. According to that agreement,
after the signing and completion of the formal contract, CNOOC Ltd will
acquire certain interest in the Gorgon natural gas project.
The Company expects to fund the above two acquisitions principally from its
operating cashflow and funds raised from its issue of bonds.
Employees
We had 2,447 employees as at 31 December 2003.
To ensure the smooth implementation of our overseas strategy, we have
established an international human resources system to attract and retain our
management and technical talents.
We have adopted three stock option schemes for our senior management since 4
February 2001, and granted options under each of the Schemes.
In 2003, in line with our development strategy, we carried out a systematic
and in-depth recruitment and remuneration system reform focusing on our
overall and future developments. To ensure the reform achievements, we further
enhanced the establishment and improvement of our internal human resources
system. During the year, we established a simple but effective employee
performance evaluation system emphasizing on the integration of the
individual's development objectives and the Company's operating targets, and
which was linked up with international employee performance evaluation system.
Through the establishment and promotion of individual development schemes and
systems, we managed to organize and implement various specialized and
comprehensive management training courses. During the year, a total of 325
training courses in various areas were carried out, which were attended by
more than 6,980 participants.
At the same time, the Company attached great emphasis to the advanced
management training of senior management officers and management technique for
mid-level managers.
51
CNOOC LIMITED Annual Report 2003
REPORT OF THE AUDITORS
[LOGO OMITTED] ERNST & YOUNG
To the shareholders of
CNOOC Limited
(Incorporated in Hong Kong with limited liability)
We have audited the financial statements of CNOOC Limited (the "Company") and
its subsidiaries (the "Group") on pages 53 to 105 which have been prepared in
accordance with accounting principles generally accepted in Hong Kong.
Respective responsibilities of directors and auditors
The Companies Ordinance requires the directors to prepare financial statements
which give a true and fair view. In preparing financial statements which give
a true and fair view it is fundamental that appropriate accounting policies
are selected and applied consistently. It is our responsibility to form an
independent opinion, based on our audit, on those financial statements and to
report our opinion solely to you, as a body, in accordance with Section 141 of
the Hong Kong Companies Ordinance, and for no other purpose. We do not assume
responsibility towards or accept liability to any other person for the
contents of this report.
Basis of opinion
We conducted our audit in accordance with Statements of Auditing Standards
issued by the Hong Kong Society of Accountants. An audit includes an
examination, on a test basis, of evidence relevant to the amounts and
disclosures in the financial statements. It also includes an assessment of the
significant estimates and judgements made by the directors in the preparation
of the financial statements, and of whether the accounting policies are
appropriate to the Company's and the Group's circumstances, consistently
applied and adequately disclosed.
We planned and performed our audit so as to obtain all the information and
explanations which we considered necessary in order to provide us with
sufficient evidence to give reasonable assurance as to whether the financial
statements are free from material misstatement. In forming our opinion we also
evaluated the overall adequacy of the presentation of information in the
financial statements. We believe that our audit provides a reasonable basis
for our opinion.
Opinion
In our opinion the financial statements give a true and fair view of the state
of affairs of the Company and of the Group as at 31 December 2003 and of the
profit and cash flows of the Group for the year then ended and have been
properly prepared in accordance with the Companies Ordinance.
Ernst & Young
Certified Public Accountants
Hong Kong
15 March 2004
52
CNOOC LIMITED Annual Report 2003
CONSOLIDATED INCOME STATEMENT
Year ended 31 December 2003
(All amounts expressed in thousands of Renminbi, except per share data)
Notes 2003 2002
REVENUE
Oil and gas sales 7, 29 28,116,831 23,779,294
Marketing revenues 8 12,398,661 2,377,469
Other income 434,781 217,052
----------- -----------
40,950,273 26,373,815
----------- -----------
EXPENSES
Operating expenses (4,512,809) (3,775,334)
Production taxes (1,238,598) (1,023,049)
Exploration expenses (848,072) (1,318,323)
Depreciation, depletion and amortisation (4,642,753) (4,019,532)
Dismantlement 30 (167,326) (126,139)
Crude oil and product purchases 8 (12,295,238) (2,326,338)
Selling and administrative expenses 10 (1,212,523) (1,006,540)
Other (350,232) (30,866)
------------ ------------
(25,267,551) (13,626,121)
------------ ------------
PROFIT FROM OPERATING ACTIVITIES 15,682,722 12,747,694
Interest income 183,576 147,870
Interest expenses 11 (354,940) (294,792)
Exchange gain/(loss), net (6,746) (113,814)
Short term investment income 123,483 193,277
Share of profit of an associate 220,263 165,387
Non-operating income/(expense), net 314,968 (71,379)
---------- ----------
PROFIT BEFORE TAX 9 16,163,326 12,774,243
Tax 14 (4,627,836) (3,541,416)
----------- -----------
NET PROFIT 15 11,535,490 9,232,827
=========== ===========
DIVIDENDS
- Interim 16 1,220,132 958,314
- Special interim 16 1,568,741
- Proposed final 16 1,050,460 1,307,408
- Proposed special final 16 1,575,691 1,307,408
---------- -----------
5,415,024 3,573,130
========== ===========
EARNINGS PER SHARE
- Basic 17 RMB 1.40 RMB 1.12
- Diluted 17 RMB 1.40 RMB 1.12
DIVIDEND PER SHARE
- Interim 16 RMB 0.15 RMB 0.12
- Special interim 16 RMB 0.19 N/A
- Proposed final 16 RMB 0.13 RMB 0.16
- Proposed special final 16 RMB 0.19 RMB 0.16
53
CNOOC LIMITED Annual Report 2003
CONSOLIDATED BALANCE SHEET
31 December 2003
(All amounts expressed in thousands of Renminbi)
Group
Notes 2003 2002
NON-CURRENT ASSETS
Property, plant and equipment, net 18 43,123,801 36,071,820
Investments in associates 20 1,117,640 537,377
---------- ----------
44,241,441 36,609,197
---------- ----------
CURRENT ASSETS
Accounts receivable, net 21 4,248,570 3,063,266
Inventories and supplies 22 1,092,926 848,605
Due from related companies 29 756,283 453,290
Other current assets 757,355 1,060,955
Short term investments 23 5,684,333 6,531,278
Time deposits with maturities over three months 2,323,000 4,690,000
Cash and cash equivalents 29 14,400,394 7,839,114
---------- ----------
29,262,861 24,486,508
---------- ----------
TOTAL ASSETS 73,504,302 61,095,705
========== ==========
CURRENT LIABILITIES
Accounts payable 24 3,969,922 2,659,743
Other payables and accrued liabilities 25 1,955,783 1,712,408
Current portion of long term bank loans 26 20,618 297,518
Due to the parent company 28, 29 164,653 270,438
Due to related companies 29 474,223 231,592
Tax payable 14 2,721,331 1,962,765
---------- ----------
9,306,530 7,134,464
---------- ----------
NON-CURRENT LIABILITIES
Long term bank loans 26 889,575 941,093
Long term guaranteed notes 27 8,141,669 4,071,184
Provision for dismantlement 30 2,646,800 2,239,320
Deferred tax liabilities 14 5,783,196 6,141,156
---------- ----------
17,461,240 13,392,753
---------- ----------
CAPITAL AND RESERVES
Issued capital 31 876,978 876,978
Reserves 32 45,859,554 39,691,510
---------- ----------
46,736,532 40,568,488
---------- ----------
TOTAL EQUITY AND LIABILITIES 73,504,302 61,095,705
========== ==========
Zhou Shouwei Luo Han
Director Director
54
CNOOC LIMITED Annual Report 2003
CONSOLIDATED STATEMENT OF CHANGES IN EQUITY
31 December 2003
(All amounts expressed in thousands of Renminbi)
Issued Share Cumulative Statutory and
share premium Revaluation translation non-distributive Retained
capital account reserve reserve reserve earnings Total
Balances at 1 January 2002 876,978 20,761,205 274,671 (5,648) 1,535,360 10,166,097 33,608,663
Net profit for the year - - - - - 9,232,827 9,232,827
Appropriation to statutory
reserve - - - - 697,050 (697,050) -
Dividends (Note 16) - - - - - (2,265,054) (2,265,054)
Foreign currency translation
differences - - - (7,948) - - (7,948)
------- ---------- ------- -------- ---------- ----------- -----------
Net losses not recognised in
the income statement - - - (7,948) - - (7,948)
------- ---------- ------- -------- ---------- ----------- -----------
Balances at 1 January 2003 876,978 20,761,205 274,671 (13,596) 2,232,410 16,436,820 40,568,488
Net profit for the year - - - - - 11,535,490 11,535,490
Appropriation to statutory
reserve - - - - 818,079 (818,079) -
Dividends (Note 16) - - - - (5,403,689) (5,403,689)
Transfer to/(from) reserve
(Note 1) - - - - 5,000,000 (5,000,000) -
Foreign currency translation
differences - - - 36,243 - - 36,243
------- ---------- ------- -------- ---------- ----------- -----------
Net gains not recognised in
the income statement - - - 36,243 - - 36,243
------- ---------- ------- -------- ---------- ----------- -----------
Balances at 31 December 2003 876,978 20,761,205 274,671 22,647 8,050,489 16,750,542 46,736,532
======= ========== ======= ======== ========== =========== ===========
Note 1: During the year, one of the Company's subsidiaries - CNOOC China Limited increased its share capital through the
reinvestment of its retained earnings from prior periods. The reinvestment was approved by the relevant government
authorities in October 2003.
* These reserve accounts comprise the consolidated reserves of RMB45,859,554,000 (2002: RMB39,691,510,000) on the
consolidated balance sheet.
55
CNOOC LIMITED Annual Report 2003
CONSOLIDATED CASH FLOW STATEMENT
31 December 2003
(All amounts expressed in thousands of Renminbi)
Notes 2003 2002
CASH FLOWS FROM OPERATING ACTIVITIES
Cash generated from operations 34(a) 21,142,911 17,406,915
Income taxes paid (3,514,807) (3,013,279)
Income tax refund - 167,065
-----------
Interest received 183,576 147,870
Dividends received 90,000 90,000
Short term investment income received 55,840 79,679
Interest paid (138,801) (136,222)
----------- ------------
Net cash from operating activities 17,818,719 14,742,028
----------- ------------
INVESTING ACTIVITIES
Acquisition of and prepayment for oil and gas properties 34(b) (4,100,900) (4,734,174)
Additions of property, plant and equipment (8,271,564) (6,832,746)
Proceeds from disposal of property, plant and equipment - 446
Investment in an associate (450,000) -
Decrease/(increase) in time deposits with
maturities over three months 2,367,000 (2,640,000)
Additions of short term investments (8,144,702) (3,399,413)
Disposals of short term investments 9,087,581 5,882,305
----------- ------------
Net cash used in investing activities (9,512,585) (11,723,582)
----------- ------------
FINANCING ACTIVITIES
Issue of long term guaranteed notes 3,995,773 4,059,345
Repayment of bank loans (336,938) (3,367,347)
Dividends paid (5,403,689) (2,265,054)
----------- -----------
Net cash used in financing activities (1,744,854) (1,573,056)
----------- -----------
NET INCREASE IN CASH AND CASH EQUIVALENTS 6,561,280 1,445,390
Cash and cash equivalents at beginning of year 7,839,114 6,393,724
----------- -----------
CASH AND CASH EQUIVALENTS AT END OF YEAR 14,400,394 7,839,114
=========== ============
ANALYSIS OF BALANCES OF CASH AND
CASH EQUIVALENTS
Cash and bank balances 14,400,394 7,839,114
=========== ============
56
CNOOC LIMITED Annual Report 2003
BALANCE SHEET
31 December 2003
(All amounts expressed in thousands of Renminbi)
Company
Notes 2003 2002
NON-CURRENT ASSETS
Property, plant and equipment, net 18 271 656
Interests in subsidiaries 19 16,561,970 13,998,158
----------- -----------
16,562,241 13,998,814
----------- -----------
CURRENT ASSETS
Other current assets 152,488 1,832
Due from the parent company 28 47 43
Short term investments 23 5,684,333 6,531,278
Cash and cash equivalents 1,862,650 4,094,912
----------- -----------
7,699,518 10,628,065
----------- -----------
TOTAL ASSETS 24,261,759 24,626,879
=========== ===========
CURRENT LIABILITIES
Other payables and accrued liabilities 50,494 43,416
----------- -----------
CAPITAL AND RESERVES
Issued capital 31 876,978 876,978
Reserves 32 23,334,287 23,706,485
----------- -----------
24,211,265 24,583,463
----------- -----------
TOTAL EQUITY AND LIABILITIES 24,261,759 24,626,879
=========== ===========
Zhou Shouwei Luo Han
Director Director
57
CNOOC LIMITED Annual Report 2003
NOTES TO FINANCIAL STATEMENTS
31 December 2003
(All amounts expressed in Renminbi unless otherwise stated)
1. CORPORATE INFORMATION
CNOOC Limited (the "Company") was incorporated in the Hong Kong
Special Administrative Region ("Hong Kong"), the People's Republic of
China (the "PRC") on 20 August 1999 to hold the interests in certain
entities thereby creating a group comprising the Company and its
subsidiaries. During the year, the Company and its subsidiaries
(hereinafter collectively referred to as the "Group") were
principally engaged in the exploration, development, production and
sale of crude oil, natural gas and other petroleum.
In the opinion of the directors, the ultimate holding company is
China National Offshore Oil Corporation ("CNOOC"), a company
established in the PRC.
2. IMPACT OF NEW AND REVISED STATEMENTS OF STANDARD ACCOUNTING PRACTICE
("SSAP")
The following new and revised SSAPs are effective for the first time
for the current year's financial statements:
o SSAP 12 (Revised): "Income taxes"
o SSAP 35: "Accounting for government grants and
disclosure of government assistance"
SSAP 12 (Revised) prescribes the basis for accounting for income
taxes payable or recoverable, arising from the taxable profit or loss
for the current period (current tax); and income taxes payable or
recoverable in future periods, principally arising from taxable and
deductible temporary differences and the carryforward of the unused
tax losses (deferred tax).
The SSAP 12 (Revised) has had no significant impact for these
financial statements on the amounts recorded for income taxes.
However, the related note disclosures are now more extensive than
previously required. These are detailed in note 14 to the financial
statements and include a reconciliation between the accounting profit
and the tax expense for the year.
SSAP 35 prescribes the accounting for government grants and other
forms of government assistance.
The adoption of the SSAP 35 has had no significant impact for these
financial statements.
58
CNOOC LIMITED Annual Report 2003
NOTES TO FINANCIAL STATEMENTS
31 December 2003
(All amounts expressed in Renminbi unless otherwise stated)
3. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Basis of preparation
These financial statements have been prepared in accordance with Hong
Kong Statements of Standard Accounting Practice, accounting
principles generally accepted in Hong Kong ("Hong Kong GAAP") and the
requirements of the Hong Kong Companies Ordinance. They have been
prepared under the historical cost convention as modified by the
revaluation of land and buildings and short term investments.
Basis of consolidation
The consolidated financial statements include the financial
statements of the Company and its subsidiaries for the year ended 31
December 2003. The results of subsidiaries acquired or disposed of
during the year are consolidated from or to their effective dates of
acquisition or disposal, respectively. All significant intercompany
transactions and balances within the Group are eliminated on
consolidation.
Subsidiaries
A subsidiary is a company in which the Company, directly or
indirectly, controls more than half of its voting power or issued
share capital or controls the composition of its board of directors.
The results of subsidiaries are included in the Company's income
statement to the extent of dividends received and receivable. The
Company's interests in subsidiaries are stated at cost less any
impairment losses.
Associates
An associate is a company, not being a subsidiary or a
jointly-controlled entity, in which the Group has a long term
interest of generally not less than 20% of the equity voting rights
and over which it is in a position to exercise significant influence.
The Group's share of the post-acquisition results and reserves of the
associate is included in the consolidated income statement and
consolidated reserves, respectively. The Group's proportionate
interests in the associates are stated in the consolidated balance
sheet at the Group's share of net assets under the equity method of
accounting, less any impairment losses. The results of the associate
are included in the Company's income statement to the extent of
dividend received and receivable.
Related parties
Parties are considered to be related if one party has the ability,
directly or indirectly, to control the other party or exercise
significant influence over the other party in making financial and
operating decisions. Parties are also considered to be related if
they are subject to common control or common significant influence.
Related parties may be individuals or corporate entities.
Impairment of assets
An assessment is made whenever events or changes in circumstances
indicate that there is any indication of impairment of any assets, or
when there is any indication that an impairment loss previously
recognised for an asset in prior years may no longer exist or may
have decreased. If any such indication exists, the asset's
recoverable amount is estimated. An asset's recoverable amount is
calculated as the higher of the asset's value in use or its net
selling price.
An impairment loss is recognised only if the carrying amount of an
asset exceeds its recoverable amount. An impairment loss is charged
to the income statement in the period in which it arises, unless the
asset is carried at a revalued amount, when the impairment loss is
accounted for in accordance with the relevant accounting policy for
that revalued asset.
A previously recognised impairment loss is reversed only if there has
been a change in the estimates used to determine the recoverable
amount of an asset, however not to an amount higher than the carrying
amount that would have been determined (net of any
depreciation/amortisation), had no impairment loss been recognised
for the asset in prior years.
A reversal of an impairment loss is credited to the income statement
in the period in which it arises, unless the asset is carried at a
revalued amount, when the reversal of the impairment loss is
accounted for in accordance with the relevant accounting policy for
that revalued asset.
59
CNOOC LIMITED Annual Report 2003
NOTES TO FINANCIAL STATEMENTS
31 December 2003
(All amounts expressed in Renminbi unless otherwise stated)
3. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Property, plant and equipment
Property, plant and equipment comprise oil and gas properties, land
and buildings, and vehicles and office equipment.
(i) Oil and gas properties
For oil and gas properties, the successful efforts method of
accounting is adopted. The Group capitalises initial
acquisition costs of oil and gas properties. Impairment of
initial acquisition costs is recognised based on exploratory
experience and management judgement. Upon discovery of
commercial reserves, acquisition costs are transferred to
proved properties. The costs of drilling and equipping
successful exploratory wells, all development costs,
including those renewals and betterments which extend the
economic lives of the assets, and the borrowing costs
arising from borrowings used to finance the development of
oil and gas properties before they are substantially ready
for production are capitalised. The costs of unsuccessful
exploratory wells and all other exploration costs are
expensed as incurred.
Exploratory wells are evaluated for economic viability
within one year of completion. Exploratory wells that
discover potentially economic reserves in areas where major
capital expenditure will be required before production would
begin and when the major capital expenditure depends upon
successful completion of further exploratory work remain
capitalised and are reviewed periodically for impairment.
Productive oil and gas properties and other tangible and
intangible costs of producing properties are amortised using
the unit-of-production method on a property-by-property
basis under which the ratio of produced oil and gas to the
estimated remaining proved developed reserves is used to
determine the depreciation, depletion and amortisation
provision. Costs associated with significant development
projects are not depleted until commercial production
commences and the reserves related to those costs are
excluded from the calculation of depletion.
Capitalised acquisition costs of proved properties are
amortised by the unit-of-production method on a
property-by-property basis computed based on the total
estimated units of proved reserves.
The Group estimates future dismantlement costs for oil and
gas properties with reference to the estimates provided from
either internal or external engineers after taking into
consideration the anticipated method of dismantlement
required in accordance with current legislation and industry
practices. The associated cost is capitalised and the
liability is discounted and an accretion expense is
recognised using the credit-adjusted risk-free interest rate
in effect when the liability is initially recognised.
(ii) Land and buildings
Land and buildings represent the onshore buildings and the
land use rights and are stated at valuation less accumulated
depreciation and accumulated impairment losses. Professional
valuations are performed periodically with the last
valuation performed on 31 December 2000. In the intervening
years, the directors review the carrying value of land and
buildings and adjustment is made where in the directors'
opinion there has been a material change in value. Any
increase in land and building valuation is credited to the
revaluation reserves; any decrease is first offset against
an increase in earlier valuation in respect of the same
property and is thereafter charged to the income statement.
Depreciation is calculated on the straight-line basis at
annual rate estimated to write off the valuation of each
asset over its expected useful life, ranging from 30 to 50
years.
60
CNOOC LIMITED Annual Report 2003
NOTES TO FINANCIAL STATEMENTS
31 December 2003
(All amounts expressed in Renminbi unless otherwise stated)
3. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(iii) Vehicles and office equipment
Vehicles and office equipment are stated at cost less
accumulated depreciation and impairment losses. The
straight-line method is adopted to depreciate the cost less
any estimated residual value of these assets over their
expected useful lives. The Group estimates the useful lives
of vehicles and office equipment to be five years.
The useful lives of assets and method of depreciation, depletion and
amortisation are reviewed periodically.
The gain or loss on disposal or retirement of property, plant and
equipment recognised in the income statement is the difference
between the net sales proceeds and the carrying amount of the
relevant asset. Any revaluation reserve relating to the fixed asset
is transferred to retained earnings as a reserve movement.
Research and development costs
All research costs are charged to the income statement as incurred.
Development expenditure (other than relating to oil and gas
properties discussed above) incurred on projects is capitalised and
deferred only when the projects are clearly defined; the expenditure
is separately identifiable and can be measured reliably; there is
reasonable certainty that the projects are technically feasible and
have commercial value. Development expenditure which does not meet
these criteria is expensed when incurred. No development costs were
capitalised during the year.
Trade and other receivables
Trade and other receivables are stated at their cost, after provision
for doubtful accounts.
Short term investments
Short term investments are investments in debt and equity securities
not intended to be held on a continuing basis and are stated at their
fair values at the balance sheet date, on an individual investment
basis. The gains or losses arising from changes in the fair value of
a security are credited or charged to the income statement in the
period in which they arise.
Inventories and supplies
Inventories consist primarily of oil and supplies consist mainly of
items for repairs and maintenance of oil and gas properties.
Inventories are stated at the lower of cost and net realisable value.
Costs of inventories and supplies represent purchase or production
cost of goods and are determined on a weighted average basis. Net
realisable value is based on estimated selling prices less any
estimated costs to be incurred to completion and disposal. Supplies
are capitalised to property, plant and equipment when used for
renewals and betterments of oil and gas properties and have resulted
in an increase in the future economic values of oil and gas
properties or are recognised as expenses when used.
61
CNOOC LIMITED Annual Report 2003
NOTES TO FINANCIAL STATEMENTS
31 December 2003
(All amounts expressed in Renminbi unless otherwise stated)
3. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Cash and cash equivalents
For the purpose of the consolidated cash flow statement, cash and
cash equivalents comprise cash on hand and demand deposits, and short
term highly liquid investments which are readily convertible into
known amounts of cash and which are subject to an insignificant risk
of changes in value, and have a short maturity of generally within
three months when acquired, less bank overdrafts which are payable on
demand and form an integral part of the Group's cash management. For
the purpose of the balance sheet, cash and cash equivalents comprise
cash on hand and at banks, and term deposits with maturities of three
months or less which are not restricted to use.
Provisions
A provision is recognised when a present obligation (legal or
constructive) has arisen as a result of a past event and it is
probable that a future outflow of resources will be required to
settle the obligation, provided that a reliable estimate can be made
of the amount of the obligation.
When the effect of discounting is material, the amount recognised for
a provision is the present value at the balance sheet date of the
future expenditures expected to be required to settle the obligation.
The increase in the discounted present value amount arising from the
passage of time is included in finance costs in the income statement.
Provisions for dismantlement are made based on the present value of
the future costs expected to be incurred, on a property-by-property
basis, in respect of the Group's expected dismantlement and
abandonment costs at the end of the related oil exploration and
recovery activities.
Income tax
Income tax comprises current and deferred tax. Income tax is
recognised in the income statement or in equity if it relates to
items that are recognised in same or a different period directly in
equity.
Deferred tax is provided, using the liability method, on all
temporary differences at the balance sheet date between the tax bases
of assets and liabilities and their carrying amounts for financial
reporting purposes.
Deferred tax liabilities are recognised for all taxable temporary
differences:
o except where the deferred tax liability arises from the initial
recognition of an asset or liability and, at the time of the
transaction, affects neither the accounting profit nor taxable
profit or loss; and
o in respect of taxable temporary differences associated with
investments in subsidiaries and associates, except where the
timing of the reversal of the temporary differences can be
controlled and it is probable that the temporary differences
will not reverse in the foreseeable future.
Deferred tax assets are recognised for all deductible temporary
differences, carryforward of unused tax assets and unused tax losses,
to the extent that it is probable that taxable profit will be
available against which the deductible temporary differences, and the
carryforward of unused tax assets and unused tax losses can be
utilised:
o except where the deferred tax asset relating to the deductible
temporary differences arises from the initial recognition of an
asset or liability and, at the time of the transaction, affects
neither the accounting profit nor taxable profit or loss; and
62
CNOOC LIMITED Annual Report 2003
NOTES TO FINANCIAL STATEMENTS
31 December 2003
(All amounts expressed in Renminbi unless otherwise stated)
3. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
o in respect of deductible temporary differences associated with
investments in subsidiaries and associates, deferred tax assets
are only recognised to the extent that it is probable that the
temporary differences will reverse in the foreseeable future and
taxable profit will be available against which the temporary
differences can be utilised.
The carrying amount of deferred tax assets is reviewed at each
balance sheet date and reduced to the extent that it is no longer
probable that sufficient taxable profit will be available to allow
all or part of the deferred tax asset to be utilised. Conversely,
previously unrecognised deferred tax assets are recognised to the
extent that it is probable that sufficient taxable profit will be
available to allow all or part of the deferred tax asset to be
utilised.
Deferred tax assets and liabilities are measured at the tax rates
that are expected to apply to the period when the asset is realised
or the liability is settled, based on tax rates (and tax laws) that
have been enacted or substantially enacted at the balance sheet date.
Revenue recognition
Revenue is recognised when it is probable that the economic benefits
will flow to the Group and when the revenue can be measured reliably,
on the following bases:
(i) Oil and gas sales
Revenues represent the invoiced value of sales of oil and
gas attributable to the interests of the Group, net of
royalties and government share of allocable share oil that
are lifted and sold on behalf of the PRC government. Sales
are recognised when the significant risks and rewards of
ownership of oil and gas have been transferred to customers.
Oil and gas lifted and sold by the Group above or below the
Group's participating interests in the production sharing
contracts results in overlifts and underlifts. The Group
records these transactions in accordance with the
entitlement method under which overlifts are recorded as
liabilities and underlifts are recorded as assets at year
end oil prices. Settlement will be in kind when the liftings
are equalised or in cash when production ceases.
The Group has entered into a gas sales contract with a
customer which contains take-or-pay clauses. The clauses
require the customer to take a specified minimum volume of
gas each year. If the minimum volume of gas is not taken,
the customer must pay for the deficiency gas, even though
the gas is not taken. The customer can offset the deficiency
payment against any future purchases in excess of the
specified volume. The Group records any deficiency payments
as deferred revenue which is included in other payables
until any make-up gas is taken by the customer or the expiry
of the contract.
(ii) Marketing revenues
Marketing revenues represent sales of oil purchased from the
foreign partners under the production sharing contracts and
revenues from the trading of oil through the Company's
subsidiary in Singapore. The title, together with the risks
and rewards of the ownership of such oil purchased from the
foreign partners, is transferred to the Group from the
foreign partners and other unrelated oil and gas companies
before the Group sells such oil to its customers. The cost
of the oil sold is included in crude oil and product
purchases.
63
CNOOC LIMITED Annual Report 2003
NOTES TO FINANCIAL STATEMENTS
31 December 2003
(All amounts expressed in Renminbi unless otherwise stated)
3. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Revenue recognition (continued)
(iii) Other income
Other income mainly represents project management fees
charged to the foreign partners and handling fees charged to
customers and is recognised when the services are rendered.
(iv) Interest income
Interest income from deposits placed with banks and other
financial institutions is recognised on a time proportion
basis taking into account the effective yield on the assets.
(v) Dividend income
Dividend income is recognised when the right to receive
payment has been established.
Retirement and termination benefits
The Group provides defined contribution plans based on local laws and
regulations for full-time employees in the PRC and other countries in
which it operates. The plans provide for contributions ranging from
5% to 22.5% of employees' basic salaries. The Group's contributions
to these defined contribution plans are charged to expense in the
year to which they relate.
Share option schemes
The Company operates share option schemes for the purpose of
providing incentives and rewards to eligible participants who
contribute to the success of the Group's operations. The financial
impact of share options granted under the share option schemes is not
recorded in the Company's or the Group's balance sheet until such
time as the options are exercised, and no charge is recorded in the
income statement or balance sheet for their cost. Upon the exercise
of share options, the resulting shares issued are recorded by the
Company as additional share capital at the nominal value of the
shares, and the excess of the exercise price per share over the
nominal value of the shares is recorded by the Company in the share
premium account. Options which are cancelled prior to their exercise
date, or which lapse, are deleted from the register of outstanding
options.
Dividends
Final and final special dividends proposed by the directors are
classified as a separate allocation of retained earnings within the
capital and reserves section of the balance sheet, until they have
been approved by the shareholders in a general meeting. When these
dividends have been approved by the shareholders and declared, they
are recognised as a liability.
Interim and interim special dividends are simultaneously proposed and
declared, because the Company's memorandum and articles of
association grant the directors the authority to declare interim
dividends. Consequently, interim dividends are recognised immediately
as a liability when they are proposed and declared.
64
CNOOC LIMITED Annual Report 2003
NOTES TO FINANCIAL STATEMENTS
31 December 2003
(All amounts expressed in Renminbi unless otherwise stated)
3. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Borrowing costs
Borrowing costs directly attributable to the acquisition,
construction or production of qualifying assets, i.e. assets that
necessarily take a substantial period of time to get ready for their
intended use or sale, are capitalised as part of the cost of those
assets. The capitalisation of such borrowing costs ceases when the
assets are substantially ready for their intended use or sale.
To the extent that funds are borrowed specifically for the purpose of
obtaining a qualifying asset, the amount of borrowing costs eligible
for capitalisation on that asset is determined as the actual
borrowing costs incurred on that borrowing during the period less any
investment income on the temporary investment of those borrowings.
To the extent that funds are borrowed generally and used for the
purpose of obtaining a qualifying asset, the amount of borrowing
costs eligible for capitalisation is determined by applying a
capitalisation rate to the expenditures on that asset. The
capitalisation rate is the weighted average of the borrowing costs
applicable to the borrowings of the enterprise that are outstanding
during the period, other than borrowings made specifically for the
purpose of obtaining a qualifying asset. The amount of borrowing
costs capitalised incurred during a period should not exceed the
amount of borrowing cost incurred during that period.
Borrowing costs include interest charges and other costs incurred in
connection with the borrowing of funds, including amortisation of
discounts or premiums relating to borrowings, and amortisation of
ancillary costs incurred in connection with arranging borrowings.
Foreign currencies
The books and records of the Company and its subsidiary in China are
maintained in Renminbi ("RMB"). Foreign currency transactions are
recorded at the applicable exchange rates ruling at the transaction
dates. Monetary assets and liabilities denominated in foreign
currencies at the balance sheet date are translated at the applicable
rates of exchange ruling at that date. Exchange differences are dealt
with in the income statement.
On consolidation, the financial statements of overseas subsidiaries
are translated into RMB using the net investment method. The income
statements of overseas subsidiaries are translated into RMB at the
weighted average exchange rates for the year, and their balance
sheets are translated into RMB at the exchange rate ruling at the
balance sheet date. The resulting translation differences are
included in the cumulative translation reserve.
For the purpose of the consolidated cash flow statement, the cash
flows of overseas subsidiaries are translated into RMB at the
exchange rates ruling at the dates of the cash flows. Frequently
recurring cash flows of overseas subsidiaries which arise throughout
the year are translated into RMB at the weighted average exchange
rates for the year.
Repairs, maintenance and overhaul costs
Repairs, maintenances and overhaul costs are normally charged to the
income statement as operating expenses in the period in which they
are incurred.
Financial instruments
The Group has interest rate and currency swap contracts with
financial institutions. Those financial instruments not designated as
hedging instruments are carried at fair value, with any changes in
fair value thereof included in the income statement.
65
CNOOC LIMITED Annual Report 2003
NOTES TO FINANCIAL STATEMENTS
31 December 2003
(All amounts expressed in Renminbi unless otherwise stated)
3. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Operating leases
Leases of assets under which substantially all the risks and rewards
of ownership are retained by the lessor are classified as operating
leases. Lease payments under an operating lease are recognised as an
expense on a straight-line basis over the lease terms.
Contingencies
Contingent liabilities are not recognised in the financial
statements. They are disclosed unless the possibility of an outflow
of resources embodying economic benefits is remote.
A contingent asset is not recognised in the financial statements, but
are disclosed when an inflow of economic benefits is probable.
Subsequent events
Post-year-end events that provide additional information about the
Company's position at the balance sheet date or those that indicate
the going concern assumption is not appropriate (adjusting events)
are reflected in the financial statements. Post-year-end events that
are not adjusting events are disclosed in the notes when material.
Use of estimates
The preparation of financial statements in conformity with Hong Kong
GAAP requires management to make estimates and assumptions that
affect certain reported amounts and disclosures. Accordingly, actual
results could differ from those estimates.
4. ACQUISITIONS
(i) During the year, the Company acquired from British Petroleum
("BP") an equivalent of 12.5% stake in the proposed joint
venture known as the Tangguh LNG Project of Indonesia
("Tangguh LNG Project") for approximately US$275 million
through the acquisition of certain interests in production
sharing contracts ("PSCs") which was effective as at 1
January 2003 (the "Tangguh Acquisition"). The Tangguh LNG
Project comprises three PSC areas: the Berau PSC, the Muturi
PSC and the Wiriagar PSC. The Tangguh LNG Project partners
have signed a conditional 25-year Liquefied Natural Gas
("LNG") Supply Contract (the "LNG Supply Contract") to
provide up to 2.6 million tonnes per annum of LNG to the
Fujian LNG terminal project in the PRC, beginning in 2007.
The Company completed the Tangguh Acquisition on 8 February
2003. CNOOC has an equity interest in the Fujian LNG terminal
project.
In addition, a repurchase agreement (the "Repurchase
Agreement") was entered into whereby put options and call
options are granted to the Company and the sellers,
respectively, to sell or to repurchase the interests in the
above-mentioned PSCs. The options are exercisable if:
(1) the LNG Supply Contract is terminated due to the
non-satisfaction of the conditions precedent to the
LNG Supply Contract on or before 31 December 2004;
or
(2) the LNG Supply Contract is otherwise legally
ineffective on or before 31 December 2004.
66
CNOOC LIMITED Annual Report 2003
NOTES TO FINANCIAL STATEMENTS
31 December 2003
(All amounts expressed in Renminbi unless otherwise stated)
4. ACQUISITION (CONTINUED)
The exercise prices of the options are determined based on
the original consideration paid plus adjustments stipulated
in the Repurchase Agreement.
The consideration paid of approximately US$275 million
(equivalent to approximately RMB2,276,578,000) and
subsequent cash calls paid are included as a prepayment in
property, plant and equipment as at 31 December 2003.
(ii) In addition, the Company increased its interest in
Qinhuangdao 32-6, a PSC oilfield in Bohai Bay, from 51% to
75.5% by acquiring the 24.5% interest of BP China
Exploration and Production Company for a cash consideration
of US$150 million, plus working capital adjustments . The
acquisition was completed in July 2003.
(iii) The Company also acquired the remaining 49% interest in
Liuhua 11-1, a PSC oilfield in Southern China, from BP China
Exploration and Production Company and Kerr-McGee China
Petroleum Limited, for a total cash consideration of US$40
million, plus working capital adjustments. The acquisition
was completed in July 2003.
(iv) Pursuant to a conditional agreement dated 27 August 2001,
the Group finalised the agreement to acquire a 30% interest
in certain oil and gas fields in the Xihu Trough in the East
China Sea of the PRC from CNOOC. The total consideration of
US$45 million was paid in 2001 and the transaction was
completed in August 2003.
(v) During the year, the Company invested RMB450 million in
CNOOC Finance Corporation Limited ("CNOOC Finance"), a share
treasury operation of its parent company, China National
Offshore Oil Corporation and other affiliated group
companies. The Company's investment represents 31.8% share
of the registered capital of CNOOC Finance. The
consideration was paid in full on 31 December 2003.
5. PRODUCTION SHARING CONTRACTS
PRC
For production sharing contracts in the PRC, the foreign parties to
the contracts ("Foreign partners" are normally required to bear all
exploration costs during the exploration period and such exploration
costs can be recovered according to the production sharing formula
after commercial discoveries are made and production begins.
After the initial exploration stage, the development and operating
costs are funded by the Group and the foreign partners according to
their respective participating interest.
The Group has the option to take a participating interest as mutually
agreed by both participants in a production sharing contract and may
exercise such option after the foreign partners have independently
undertaken all the exploration risks and costs and made viable
commercial discoveries.
After the Group exercises its option to take a participating interest
in a production sharing contract, the Group accounts for the oil and
gas properties using the "Proportional method" under which the Group
recognises its share of development costs, revenues and expenses from
such operations based on its participating interest in the production
sharing contract. The Group does not account for either the
exploration costs incurred by its foreign partners or the foreign
partners' share of development costs and revenues and expenses from
such operations.
67
CNOOC LIMITED Annual Report 2003
NOTES TO FINANCIAL STATEMENTS
31 December 2003
(All amounts expressed in Renminbi unless otherwise stated)
5. PRODUCTION SHARING CONTRACTS (CONTINUED)
Part of the Group's annual gross production of oil and gas in the PRC
is distributed to the PRC government as settlement of royalties which
are payable pursuant to a sliding scale. The Group and the foreign
partners also pay a production tax to the tax bureau at a pre-
determined rate. In addition, there is a pre-agreed portion of oil
and gas designated to recover all exploration costs, development
costs, operating costs incurred and related interests according to
the participating interests between the Group and the foreign
partners. Any remaining oil after the foregoing priority allocations
is first distributed to the PRC government as government share oil on
a pre-determined ratio pursuant to a sliding scale, and then
distributed to the Group and the foreign partners based on their
respective participating interests. As the government share is not
included in the Group's interest in the annual production, the net
sales of the Group do not include the sales revenue of the government
share oil.
The foreign partners have the right either to take possession of
their allocable remainder oil for sale in the international market,
or to negotiate with the Group to sell their allocable remainder oil
to the Group for resale in the PRC market.
Overseas
The Group and the other partners to the production sharing contracts
in Indonesia are required to bear all exploration, development and
operating costs according to their respective participating
interests. Exploration, development and operating costs which qualify
for recovery can be recovered according to the production sharing
formula after commercial discoveries are made and production begins.
The Group's net interest in the production sharing contracts in
Indonesia consists of its participating interest in the properties
covered under the relevant production sharing contracts, less oil and
gas distributed to the Indonesian government and the domestic market
obligation.
6. SEGMENT INFORMATION
The Group is organised on a worldwide basis into three major
operating segments. Segment information is presented by way of two
segment formats: (i) on a primary reporting basis, by business
segment; and (ii) on a secondary segment reporting basis, by
geographical segment.
Intersegment transactions: segment revenue, segment expenses and
segment performance include transfers between business segments and
between geographical segments. Such transfers are accounted for at
cost. Those transfers are eliminated on consolidation.
(a) Business segments
The Group is involved in the upstream operating activities
of the petroleum industry that comprise production sharing
contracts with foreign partners, independent operations and
trading business. These segments are determined primarily
because the senior management makes key operating decisions
and assesses performance of the segments separately. The
Group evaluates performance based on profit or loss from
operations before income taxes.
68
CNOOC LIMITED Annual Report 2003
NOTES TO FINANCIAL STATEMENTS
31 December 2003
(All amounts expressed in Renminbi unless otherwise stated)
6. SEGMENT INFORMATION (CONTINUED)
(a) Business segments (continued)
The following tables present revenues, profit and certain
assets, liabilities and expenditures information for the
Group's business segments.
Independent Production Trading
operations sharing contracts business
Segment revenue 2003 2002 2003 2002 2003 2002
RMB' 000 RMB' 000 RMB' 000 RMB' 000 RMB' 000 RMB' 000
Sales to external customers:
Oil and gas sales 12,040,587 10,318,549 16,076,244 13,460,745 - -
Marketing revenues - - - - 12,398,661 2,377,469
Intersegment revenues - - 3,730,797 1,023,547 - -
Other income 8,468 43,513 424,493 133,108 - -
---------- ---------- ---------- ---------- ---------- ---------
Total 12,049,055 10,362,062 20,231,534 14,617,400 12,398,661 2,377,469
---------- ---------- ---------- ---------- ---------- ---------
Unallocated Eliminations Consolidated
Segment revenue 2003 2002 2003 2002 2003 2002
RMB' 000 RMB' 000 RMB' 000 RMB' 000 RMB' 000 RMB'000
Sales to external customers:
Oil and gas sales - - - - 28,116,831 23,779,294
Marketing revenues - - - - 12,398,661 2,377,469
Intersegment revenues - - (3,730,797) (1,023,547) - -
Other income 1,820 40,431 - - 434,781 217,052
----------- ----------- ----------- ----------- ----------- -----------
Total 1,820 40,431 (3,730,797) (1,023,547) 40,950,273 26,373,815
----------- ----------- ----------- ----------- ----------- -----------
Independent Production Trading
operations sharing contracts business
2003 2002 2003 2002 2003 2002
RMB' 000 RMB' 000 RMB' 000 RMB' 000 RMB' 000 RMB' 000
Segment results
Operating expenses (1,579,004) (1,268,360) (2,933,805) (2,506,974) - -
Production taxes (626,897) (556,583) (611,701) (466,466) - -
Exploration costs (590,541) (1,241,759) (257,531) (76,564) - -
Depreciation, depletion
and amortisation (1,855,983) (1,635,131) (2,786,770) (2,384,401) - -
Dismantlement (96,206) (72,751) (71,120) (53,388) - -
Crude oil and product purchases - - (3,730,797) (1,023,547) (12,295,238) (2,326,338)
Selling and administrative
expenses (62,247) (38,548) (666,369) (553,537) - -
Other (36,406) - (313,826) (30,866) - -
Interest income - - 14,302 3,831 - -
Interest expense (60,358) (62,081) (20,817) (17,100) - -
Exchange gain/(losses), net - - 124 794 - -
Short term investment income - - - - - -
Share of profit of an associate - - - - - -
Non-operating income/
(expense), net - (85,414) - (220) - -
Tax - - - - - -
----------- ----------- ----------- ----------- ----------- ---------
Net profit 7,141,413 5,401,435 8,853,224 7,508,962 103,423 51,131
----------- ----------- ----------- ----------- ----------- ---------
Other segment information
Segment assets 36,087,581 16,899,455 26,821,223 22,446,447 2,629,009 630,704
Investments in associates - - - - - -
----------- ----------- ----------- ----------- ----------- ---------
Total assets 36,087,581 16,899,455 26,821,223 22,446,447 2,629,009 630,704
Segment liabilities (3,554,720) (3,033,327) (12,620,113) (10,200,032) (2,173,828) (21,665)
Capital expenditure 5,960,071 2,770,640 2,264,625 4,396,933 - -
=========== =========== ============ ============ =========== ========
Independent Production Trading
operations sharing contracts business
2003 2002 2003 2002 2003 2002
RMB' 000 RMB' 000 RMB' 000 RMB' 000 RMB' 000 RMB' 000
Segment results
Operating expenses - - - - (4,512,809) (3,775,334)
Production taxes - - - - (1,238,598) (1,023,049)
Exploration costs - - - - (848,072) (1,318,323)
Depreciation, depletion
and amortisation - - - - (4,642,753) (4,019,532)
Dismantlement - - - - (167,326) (126,139)
Crude oil and product purchases - - 3,730,797 1,023,547 (12,295,238) (2,326,338)
Selling and administrative
expenses (483,907) (414,455) - - (1,212,523) (1,006,540)
Other - - - - (350,232) (30,866)
Interest income 169,274 144,039 - - 183,576 147,870
Interest expense (273,765) (215,611) - - (354,940) (294,792)
Exchange gain/(losses), net (6,870) (114,608) - - (6,746) (113,814)
Short term investment income 123,483 193,277 - - 123,483 193,277
Share of profit of an associate 220,263 165,387 - - 220,263 165,387
Non-operating income/
(expense), net 314,968 14,255 - - 314,968 (71,379)
Tax (4,627,836) (3,541,416) - - (4,627,836) (3,541,416)
----------- ----------- ----------- ----------- ----------- -----------
Net profit (4,562,570) (3,728,701) - - 11,535,490 9,232,827
----------- ----------- ----------- ----------- ----------- -----------
Other segment information
Segment assets 6,848,849 20,581,722 - - 72,386,662 60,558,328
Investments in associates 1,117,640 537,377 - - 1,117,640 537,377
----------- ----------- ----------- ----------- ----------- -----------
Total assets 7,966,489 21,119,099 - - 73,504,302 61,095,705
Segment liabilities (8,419,109) (7,272,193) - - (26,767,770) (20,527,217)
Capital expenditure 46,868 37,652 - - 8,271,564 7,205,225
----------- ----------- ----------- ----------- ----------- ------------
69
CNOOC LIMITED Annual Report 2003
NOTES TO FINANCIAL STATEMENTS
31 December 2003
(All amounts expressed in Renminbi unless otherwise stated)
6. SEGMENT INFORMATION (CONTINUED)
(b) Geographical segments
In determining the Group's geographical segments, revenues
and results are attributed to the segments based on the
location of the Group's customers, and assets are attributed
to the segments based on the location of the Group's assets.
The Group mainly engaged in the exploration, development and
production of crude oil and natural gas in offshore China.
Approximately 62% of the total revenue of the Group is
contributed by PRC customers, and therefore, the Group's
activities are conducted predominantly in the PRC. Any
activities outside PRC are conducted in Indonesia and
Singapore. An analysis by geographical segment is as
follows:
PRC Outside PRC Total
2003 2002 2003 2002 2003 2002
RMB'000 RMB'000 RMB'000 RMB'000 RMB'000 RMB'000
External sales 25,416,466 22,781,301 15,533,807 3,592,514 40,950,273 26,373,815
Segment assets 61,357,931 50,647,452 12,146,371 10,448,253 73,504,302 61,095,705
Capital expenditure 7,727,171 6,453,798 544,393 751,427 8,271,564 7,205,225
(c) An analysis of sales to major customers by business segment is as follows:
2003 2002
RMB'000 RMB'000
Production sharing contracts
China Petroleum & Chemical Corporation 3,848,361 3,707,536
PetroChina Company Limited 1,446,169 1,187,571
Castle Peak Power Company Limited 841,285 1,247,639
--------- ---------
6,135,815 6,142,746
--------- ---------
Independent operations
China Petroleum & Chemical Corporation 3,126,708 3,183,341
--------- ---------
9,262,523 9,326,087
========= =========
7. OIL AND GAS SALES
2003 2002
RMB'000 RMB'000
Gross sales 30,556,967 26,086,646
Royalties (478,454) (464,113)
PRC government share oil (1,961,682) (1,843,239)
----------- -----------
28,116,831 23,779,294
=========== ===========
70
CNOOC LIMITED Annual Report 2003
NOTES TO FINANCIAL STATEMENTS
31 December 2003
(All amounts expressed in Renminbi unless otherwise stated)
8. MARKETING PROFIT
2003 2002
RMB'000 RMB'000
Marketing revenues 12,398,661 2,377,469
Crude oil and product purchases (12,295,238) (2,326,338)
---------- -----------
103,423 51,131
=========== ===========
9. PROFIT BEFORE TAX
The Group's profit before tax is arrived at after (crediting)/charging:
2003 2002
RMB'000 RMB'000
Crediting:
Interest income on bank deposits (183,576) (147,870)
Interest income on investments (28,752) (52,739)
Dividend income on investments (46,140) (76,633)
Realised gains on investments (27,088) (26,940)
Unrealised gains on investments (21,503) (36,965)
---------- ----------
Short term investment income (123,483) (193,277)
---------- ----------
Charging:
Auditors' remuneration 5,790 4,500
Staff costs
- Wages, salaries and allowances 393,165 390,376
- Labour costs paid to contractors 542,292 660,029
- Pension scheme contributions and termination benefits 95,147 53,392
Depreciation, depletion and amortisation 4,643,364 4,032,970
Less: Amount included in inventories (611) (13,438)
---------- ----------
4,642,753 4,019,532
---------- ----------
Operating lease rentals 72,708 54,157
Loss on disposal of property, plant and equipment 21 85,202
Repairs and maintenance 608,603 521,561
Research and development costs 165,793 167,354
71
CNOOC LIMITED Annual Report 2003
NOTES TO FINANCIAL STATEMENTS
31 December 2003
(All amounts expressed in Renminbi unless otherwise stated)
10. SELLING AND ADMINISTRATIVE EXPENSES
2003 2002
RMB'000 RMB'000
Salary and staff benefits 393,165 390,376
Utility and office expenses 90,801 100,502
Transportation and entertainment 74,218 64,319
Rentals and maintenance 107,310 75,738
Management fee 219,771 151,860
Selling expenses 30,686 38,548
Provision for inventory obsolescence 8,745 -
Other 287,827 185,197
---------- ----------
1,212,523 1,006,540
========== ==========
11. INTEREST EXPENSES
2003 2002
RMB'000 RMB'000
Interest on bank loans which are:
- wholly repayable within five years 81,539 177,156
- not wholly repayable within five years - -
Interest on long term guaranteed notes 391,005 215,028
Other borrowing costs 34,933 12,426
--------- ---------
Total interest 507,477 404,610
Less: Amount capitalised in property, plant and equipment (note 18) (245,783) (187,714)
--------- ---------
261,694 216,896
Other finance costs:
Increase in discounted amount of provisions
arising from the passage of time (note 30) 93,246 77,896
-------- ---------
354,940 294,792
======== =========
The interest rates used for interest capitalisation represented the cost of capital from raising the related
borrowings and varied from 4.1% to 9.15% per annum for the year ended 31 December 2003.
72
CNOOC LIMITED Annual Report 2003
NOTES TO FINANCIAL STATEMENTS
31 December 2003
(All amounts expressed in Renminbi unless otherwise stated)
12. DIRECTORS' REMUNERATION
Directors' remuneration for the year disclosed pursuant to the Listing Rules
and Section 161 of the Companies Ordinance is as follows:
2003 2002
RMB'000 RMB'000
Fees for executive directors - -
Fees for non-executive directors 1,000 890
Other emoluments for executive directors
- Basic salaries and allowances 6,327 6,654
- Bonuses 2,100 1,109
- Pension scheme contributions 207 214
- Other 1,425 1,500
The number of directors whose remuneration fell within the following bands is
as follows:
Number of directors
2003 2002
Nil to HK$1,000,000 6 8
HK$1,000,001- HK$1,500,000 1 -
HK$1,500,001- HK$2,000,000 - 2
HK$2,000,001- HK$2,500,000 - 1
HK$2,500,001- HK$3,000,000 2 -
---- ----
9 11
==== ====
There was no arrangement under which a director waived or agreed to waive any
remuneration during the year.
No value in respect of the share options granted during the year (note 31) has
been charged to the income statement, or is otherwise included in the above
directors' remuneration disclosures.
13. FIVE HIGHEST PAID EMPLOYEES
Details of the remuneration of the five highest paid employees during the year
are as follows:
2003 2002
RMB'000 RMB'000
Basic salaries and allowances 15,857 8,227
Bonuses 2,550 2,518
Pension scheme contributions 1,332 505
Other 2,743 2,732
Number of directors - 4
Number of employees 5 1
73
CNOOC LIMITED Annual Report 2003
NOTES TO FINANCIAL STATEMENTS
31 December 2003
(All amounts expressed in Renminbi unless otherwise stated)
The number of highest paid employees whose remuneration fell within the
following bands is as follows:
Number of employees
2003 2002
Nil to HK$1,000,000 - 1
HK$1,500,001- HK$2,000,000 - 2
HK$2,500,001- HK$3,000,000 - 1
HK$3,500,001- HK$4,000,000 3 -
HK$4,500,001- HK$5,000,000 - 1
HK$5,000,001- HK$5,500,000 2 -
------ -----
5 5
====== =====
No value in respect of the share options granted during the year (note 31) has
been charged to the income statement, or is otherwise included in the above
five highest paid employees disclosures.
14. TAX
(i) Income tax
The Company and its subsidiaries are subject to income taxes on an entity
basis on profit arising in or derived from the tax jurisdictions in which they
are domiciled and operated. The Company is not liable for profits tax in Hong
Kong as it does not have any assessable income currently sourced from Hong
Kong.
The Company's subsidiary, CNOOC China Limited, is a wholly foreign-owned
enterprise established in the PRC. It is exempt from the 3% local surcharge
and is subject to an enterprise income tax of 30% under the prevailing tax
rules and regulations.
The Company's subsidiary in Singapore, China Offshore Oil (Singapore)
International Pte Ltd., is subject to income tax at rates of 10% and 22%, for
its oil trading activities and other income generating activities,
respectively. The Company's subsidiaries owning interests in oil and gas
properties in Indonesia along the Malacca Strait are subject to corporate and
dividend tax at the rate of 44%. The Company's subsidiaries owning interests
in oil and gas properties in Indonesia acquired from Repsol YPF, S.A. are
subject to corporate and dividend tax at the rate of 43.125% instead of the
standard rate of 48% after the application of the Malaysian Tax Treaty as
recognised by the Indonesian tax authorities. All of the Company's other
subsidiaries are not subject to any income taxes in their respective
jurisdictions for the year presented.
An analysis of the provision for tax in the consolidated income statement was
as follows:
2003 2002
RMB'000 RMB'000
Overseas income taxes
- Current 654,988 406,493
- Deferred (179,134) 26,094
PRC enterprise income tax
- Current 3,623,157 2,786,938
- Deferred 528,825 321,891
---------- ----------
Total tax charge for the year 4,627,836 3,541,416
========== ==========
74
CNOOC LIMITED Annual Report 2003
NOTES TO FINANCIAL STATEMENTS
31 December 2003
(All amounts expressed in Renminbi unless otherwise stated)
14. TAX (CONTINUED)
(i) Income tax (continued)
A reconciliation of the statutory PRC enterprise income tax rate to the
effective income tax rate of the Group is as follows:
2003 2002
% %
Statutory PRC enterprise income tax rate 33.0 33.0
Effect of tax exemption granted (3.0) (3.0)
Effect of different tax rates for overseas
subsidiaries (0.1) 0.2
Tax credit from government (1.5) (2.1)
Tax effect on other permanent differences 0.2 (0.4)
------ ------
Effective income tax rate 28.6 27.7
====== ======
The tax effect of significant temporary differences of the Group was as
follows:
2003 2002
RMB'000 RMB'000
Deferred tax assets
- Provision for retirement and termination
benefits 114,758 86,602
- Provision for dismantlement 775,725 671,796
- Provision for impairment of property, plant
and equipment and write-off of
unsuccessful exploratory drillings 759,454 933,636
--------- ---------
1,649,937 1,692,034
--------- ---------
Deferred tax liabilities
- Accelerated amortisation allowance
for oil and gas properties (7,433,133) (7,833,190)
----------- -----------
Net deferred tax liabilities (5,783,196) (6,141,156)
=========== ===========
As at 31 December 2003, there was no significant unrecognised deferred tax
liability (2002: Nil) for taxes that would be payable on the unremitted
earnings of certain of the Group's subsidiaries and associates as the Group
had no liability to additional tax should such amounts be remitted.
There are no income tax consequences attaching to the payment of dividends by
the Company to its shareholders.
SSAP 12 (Revised) was adopted during the year, as further explained in note 2
to the financial statements. There was no material impact on the Group's
financial statements upon the adoption of the SSAP.
75
CNOOC LIMITED Annual Report 2003
NOTES TO FINANCIAL STATEMENTS
31 December 2003
(All amounts expressed in Renminbi unless otherwise stated)
14. TAX (CONTINUED)
(ii) Other taxes
The Company's PRC subsidiary pays the following taxes:
- production taxes equal to 5% of independent production and production under
production sharing contracts; and
- business tax of 3% to 5% on other income.
15. NET PROFIT After Tax
The net profit after tax for the year ended 31 December 2003 dealt with in the
financial statements of the Company, was approximately RMB5,031,491,000 (2002:
RMB4,990,207,000) (see note 32).
16. DIVIDENDS
2003 2002
RMB'000 RMB'000
Dividends paid:
Final dividend 2002/2001 - HK$0.15/HK$0.15
per ordinary share 1,307,408 1,306,740
Special final dividend 2002/2001 - HK$0.15/Nil
per ordinary share 1,307,408 -
Interim dividend 2003/2002 - HK$0.14/HK$0.11 per ordinary share 1,220,132 958,314
Special interim dividend 2003/2002 - HK$0.18/Nil per ordinary share 1,568,741 -
--------- ---------
5,403,689 2,265,054
========= =========
The directors have recommended a final dividend of HK$0.12 per ordinary share
totaling HK$985,699,879 (approximately equivalent to RMB 1,050,460,000) and a
special final dividend of HK$0.18 per ordinary share totaling HK$1,478,549,818
(approximately equivalent to RMB 1,575,691,000) for the year ended 31 December
2003.
The payment of future dividends will be determined by the Company's board of
directors. The payment of dividends will depend upon, among other things,
future earnings, capital requirements and financial conditions and general
business conditions of the Company. The Company's ability to pay dividends
will also depend on the cash flows determined by the dividends, if any,
received by the Company from its subsidiaries and associated companies. As the
controlling shareholder, CNOOC will be able to influence the Company's
dividend policy.
Cash dividends to the shareholders in Hong Kong will be paid in Hong Kong
dollars and dividends to the American Depositary Share ("ADS") holders will be
paid to the depositary in Hong Kong dollars and will be converted by the
depositary into United States dollars and paid to the holders of ADSs.
76
CNOOC LIMITED Annual Report 2003
NOTES TO FINANCIAL STATEMENTS
31 December 2003
(All amounts expressed in Renminbi unless otherwise stated)
17. EARNINGS PER SHARE
The calculations of basic and diluted earnings per share are based on:
2003 2002
Earnings
Net profit attributable to shareholders, used in the
basic and diluted earnings per share calculations RMB 11,535,490,000 RMB 9,232,827,000
2003 2002
Shares
Weighted average number of ordinary shares in issue
during the year used in basic earnings
per share calculation 8,214,165,655 8,214,165,655
Weighted average number of ordinary shares assumed
issued at no consideration on deemed exercise of
all share options outstanding during the year 7,902,164 5,119,729
---------------- -----------------
Weighted average number of ordinary shares used
in diluted earnings per share calculation 8,222,067,819 8,219,285,384
================ =================
77
CNOOC LIMITED Annual Report 2003
NOTES TO FINANCIAL STATEMENTS
31 December 2003
(All amounts expressed in Renminbi unless otherwise stated)
18. PROPERTY, PLANT AND EQUIPMENT, NET
Movements in the property, plant and equipment of the Group are as follows:
Group 2003 2002
-------------------------------------------------------- ---------
Vehicles
Oil and gas Land and and office
properties buildings equipment Total Total
RMB'000 RMB'000 RMB'000 RMB'000 RMB'000
Cost or valuation:
At beginning of the year 58,321,780 824,781 93,720 59,240,281 43,575,228
Purchase price allocation adjustment (707,623) - - (707,623) -
Additions 8,538,930 - 46,868 8,585,798 7,457,609
Acquisitions (including prepayments) 4,025,441 - - 4,025,441 8,646,487
Disposals and write-off (39,798) - (604) (40,402) (440,022)
Exchange realignment (902) - (82) (984) 979
------------ -------- --------- ------------ ------------
End of year 70,137,828 824,781 139,902 71,102,511 59,240,281
============ ======== ========= ============ ============
Analysis of cost or valuation:
At cost 70,137,828 - 139,902 70,277,730 58,415,500
At revaluation - 824,781 - 824,781 824,781
------------ -------- --------- ------------ ------------
70,137,828 824,781 139,902 71,102,511 59,240,281
============ ======== ========= ============ ============
Accumulated depreciation, depletion
and amortisation:
At beginning of the year (23,059,600) (81,027) (27,834) (23,168,461) (19,010,881)
Depreciation provided during the year (4,779,271) (25,374) (6,045) (4,810,690) (4,159,109)
Disposals - - 584 584 1,777
Exchange realignment (234) - 91 (143) (248)
------------ -------- --------- ------------ ------------
End of year (27,839,105) (106,401) (33,204) (27,978,710) (23,168,461)
============ ======== ========= ============ ============
Net book value:
Beginning of year 35,262,180 743,754 65,886 36,071,820 24,564,347
============ ======== ========= ============ ============
End of year 42,298,723 718,380 106,698 43,123,801 36,071,820
============ ======== ========= ============ ============
Had the property, plant and
equipment been carried at
cost less accumulated
depreciation, depletion
and amortisation, the
carrying amount of each
class would have been:
Cost 70,137,828 550,110 139,902 70,827,840 58,965,610
Accumulated depreciation,
depletion and amortisation (27,839,105) (71,348) (33,204) (27,943,657) (23,142,565)
------------ -------- --------- ------------ ------------
42,298,723 478,762 106,698 42,884,183 35,823,045
============ ======== ========= ============ ============
78
CNOOC LIMITED Annual Report 2003
NOTES TO FINANCIAL STATEMENTS
31 December 2003
(All amounts expressed in Renminbi unless otherwise stated)
18. PROPERTY, PLANT AND EQUIPMENT, NET (CONTINUED)
During the year, the Company finalised the purchase price allocation for the
oil and gas properties acquired as a result of the acquisition of the
subsidiaries from Repsol YPF, S.A. in April 2002 and an adjustment of
approximately RMB707 million was made to reduce the fair value of the oil and
gas properties acquired with a corresponding adjustment made to reduce the
deferred tax liabilities.
The consideration paid of US$275 millions (equivalent to approximately RMB
2,276,578,000) and subsequent cash paid of approximately US$19,200,000 for the
Tangguh LNG Project (see note 4(i)) has been included as a prepayment in oil
and gas properties as at 31 December 2003.
Included in the current year additions represented an amount of RMB
245,783,000 (2002: RMB 187,714,000) in respect of interest capitalised in
property, plant and equipment.
The property, plant and equipment of the Company mainly comprised office
equipment and were stated at cost less accumulated depreciation. The movements
in property, plant and equipment of the Company are as follows:
Company 2003 2002
RMB'000 RMB'000
Cost:
Beginning of the year 5,764 5,751
Additions 69 13
-------- -------
End of year 5,833 5,764
-------- -------
Accumulated depreciation:
Beginning of the year (5,108) (3,003)
Charge for the year (454) (2,105)
-------- -------
End of year (5,562) (5,108)
-------- -------
Net book value:
Beginning of year 656 2,748
======== =======
End of year 271 656
======== =======
The land and buildings of the Group are held outside Hong Kong with lease
terms of 50 years.
The land and buildings were revalued by an independent valuer, Sallmanns (Far
East) Limited, Chartered Surveyors (the "Valuer") as at 31 December 2000 using
a depreciated replacement cost approach. The depreciated replacement cost
approach considers the cost to reproduce or replace in new condition the
property being appraised in accordance with current construction costs for
similar property in the locality with allowance for accrued depreciation as
evidenced by observed condition or obsolescence present, whether arising from
physical, functional or economic causes. The Valuer assumed that the assets
would be used for the purposes for which they are presently used and did not
consider alternative uses. Certain land use rights which were previously
granted by the PRC government at no cost.
79
CNOOC LIMITED Annual Report 2003
NOTES TO FINANCIAL STATEMENTS
31 December 2003
(All amounts expressed in Renminbi unless otherwise stated)
19. INTERESTS IN SUBSIDIARIES
Company
2003 2002
RMB'000 RMB'000
Unlisted shares, at cost 7,766,971 7,766,963
Loan to a subsidiary 4,138,290 4,138,290
Due from subsidiaries 12,245,592 6,039,152
Due to subsidiaries (7,588,883) (3,946,247)
16,561,970 13,998,158
The loan due to a subsidiary is unsecured and bear interest at 7.084% per
annum. The maturities of the balance are as follows:
2003 2002
RMB'000 RMB'000
Balances due:
- Within five years - 1,489,082
- More than five years 4,138,290 2,649,208
4,138,290 4,138,290
The amounts due from/to subsidiaries are unsecured, interest-free and are
repayable on demand.
Particulars of the principal subsidiaries are as follows:
Nominal value Percentage of
of issued equity
Place and date of ordinary share attributable to
Name incorporation capital the Company Principal activities
---------------------------- ----------------- -------------- --------------- --------------------
Directly held subsidiaries:
CNOOC China Limited Tianjin, the PRC RMB15 billion 100% Offshore petroleum
15 September 1999 exploration,
development,
production and
sale in the PRC
CNOOC International British Virgin Islands US$2 100% Investment holding
Limited 23 August 1999
China Offshore Oil Singapore S$3 million 100% Sale and marketing
(Singapore) 14 May 1993 of petroleum
International Pte., Ltd. outside of the PRC
CNOOC Finance (2002) British Virgin Islands US$1,000 100% Bond issuance
Limited 24 January 2002
CNOOC Finance (2003) British Virgin Islands US$1,000 100% Bond issuance
Limited 2 April 2003
80
CNOOC LIMITED Annual Report 2003
NOTES TO FINANCIAL STATEMENTS
31 December 2003
(All amounts expressed in Renminbi unless otherwise stated)
19. INTERESTS IN SUBSIDIARIES (CONTINUED)
Nominal value Percentage of
of issued equity
Place and date of ordinary share attributable to
Name incorporation capital the Company Principal activities
---------------------------- ----------------- -------------- --------------- --------------------
Indirectly held subsidiaries*:
Malacca Petroleum Bermuda US$12,000 100% Offshore petroleum
Limited 2 November 1995 exploration,
development
in Indonesia
OOGC America, Inc. State of Delaware, US$1,000 100% Investment holding
United States of
America
2 September 1997
OOGC Malacca Limited Bermuda US$12,000 100% Offshore petroleum
2 November 1995 exploration,
development and
production
in Indonesia
CNOOC Southeast Asia Bermuda US$12,000 100% Investment holding
Limited 16 May 1997
CNOOC ONWJ Ltd. Labuan, F.T., US$1 100% Offshore petroleum
Malaysia exploration,
27 March 2002 development and
production
in Indonesia
CNOOC SES Ltd. Labuan, F.T., US$1 100% Offshore petroleum
Malaysia exploration,
27 March 2002 development and
production
in Indonesia
CNOOC Poleng Ltd. Labuan, F.T., US$1 100% Offshore petroleum
Malaysia exploration,
27 March 2002 development and
production
in Indonesia
CNOOC Madura Ltd. Labuan, F.T., US$1 100% Offshore petroleum
Malaysia exploration,
27 March 2002 development and
production
in Indonesia
CNOOC Blora Ltd. Labuan, F.T., US$1 100% Onshore petroleum
Malaysia exploration,
27 March 2002 development and
production
in Indonesia
* Indirectly held through CNOOC International Limited.
The above table lists the subsidiaries of the Company which, in the opinion of
the directors, principally affected the results for the year or formed a
substantial portion of the net assets of the Group. To give details of other
subsidiaries would, in the opinion of the directors, result in particulars of
excessive length.
81
CNOOC LIMITED Annual Report 2003
NOTES TO FINANCIAL STATEMENTS
31 December 2003
(All amounts expressed in Renminbi unless otherwise stated)
20. INVESTMENTS IN ASSOCIATES
Investments in associates represent (1) a 30% equity interest of CNOOC China
Limited in Shanghai Petroleum and Natural Gas Company Limited ("SPC"). SPC was
incorporated on 7 September 1992 in the PRC with limited liability and is
principally engaged in offshore petroleum exploration, development, production
and sale in the South Yellow Sea and East China Sea areas. The issued and
paid-up capital of SPC is RMB900 million; and (2) a 31.8% equity interest of
CNOOC China Limited in CNOOC Finance Corporation Limited ("CNOOC Finance").
CNOOC Finance was incorporated on 13 May 2002 in the PRC with limited
liability and is principally engaged in deposit-takings and money lending
activities for the CNOOC Group. The issued and paid-up capital of CNOOC
Finance is RMB1,415 million.
Group
2003 2002
RMB'000 RMB'000
Share of net assets 1,117,640 537,377
========= =======
The directors are of the opinion that the underlying value of the investments
in associates is not less than the carrying amount of the associates as at 31
December 2003.
21. ACCOUNTS RECEIVABLE, NET
The Group's trading terms with its customers are mainly on credit, except for
new customers, where payment in advance is normally required. The customers
are required to make payment within 30 days after the delivery of oil and gas.
As at 31 December 2003 and 2002, substantially all the accounts receivable
were aged within six months.
22. INVENTORIES AND SUPPLIES
Group
2003 2002
RMB'000 RMB'000
Materials and supplies 809,827 585,431
Oil in tanks 291,844 263,174
Less: Provision for inventories obsolescence (8,745) -
---------- -------
1,092,926 848,605
========= =======
82
CNOOC LIMITED Annual Report 2003
NOTES TO FINANCIAL STATEMENTS
31 December 2003
(All amounts expressed in Renminbi unless otherwise stated)
23. SHORT TERM INVESTMENTS
As at 31 December 2003, short term investments mainly represented investments
in liquidity funds and were stated at fair value at the balance sheet date.
Details of the short term investments were as follows:
Group Company
2003 2002 2003 2002
RMB'000 RMB'000 RMB'000 RMB'000
Unlisted investments, at fair value:
Liquidity funds 3,767,179 5,537,191 3,769,179 5,537,191
Corporate bonds 1,876,880 951,876 1,876,880 951,876
Common stock 40,274 42,211 40,274 42,211
--------- --------- --------- ---------
5,684,333 6,531,278 5,684,333 6,531,278
========= ========= ========= =========
24. ACCOUNTS PAYABLE
As at 31 December 2003 and 2002, substantially all the accounts payable were
aged within six months.
25. OTHER PAYABLES AND ACCRUED LIABILITIES
Group
2003 2002
RMB'000 RMB'000
Accrued payroll and welfare payable 149,532 149,501
Provision for retirement and
termination benefits 290,955 211,321
Accrued expenses 926,867 793,823
Advances from customers 10,864 60,101
Royalties payable 205,113 208,214
Other payables 372,452 289,448
--------- ---------
1,955,783 1,712,408
========= =========
As at 31 December 2003, deferred revenue from gas sales contracts amounted to
approximately RMB1,208,000 (2002: RMB5,582,000) and was included in other
payables.
83
CNOOC LIMITED Annual Report 2003
NOTES TO FINANCIAL STATEMENTS
31 December 2003
(All amounts expressed in Renminbi unless otherwise stated)
26. LONG TERM BANK LOANS
As at 31 December 2003, the long term bank loans of the Group were used
primarily to finance the development of oil and gas properties and to meet
working capital requirements.
Group
2003 2002
RMB'000 RMB'000
Interest rate and final maturity
RMB denominated bank loans Fixed interest rate at 5.94% per annum through to 2005 - 57,270
US$ denominated bank loans Floating LIBOR rate with maturities through to 2003 - 259,907
Fixed interest rate of 9.15% per annum with
maturities through to 2006 827,615 827,730
Japanese Yen denominated Fixed interest rate of 4.1% per annum
bank with maturities through to 2007 82,578 93,704
-------- ----------
910,193 1,238,611
Less: Current portion of long
term bank loans (20,618) (297,518)
-------- ----------
889,575 941,093
======== ==========
As at 31 December 2003, all the bank loans of the Group were unsecured and
none (2002: RMB259,907,000) of the outstanding borrowings were guaranteed by
CNOOC.
The maturities of the long term bank loans are as follows:
Group
2003 2002
RMB'000 RMB'000
Balances due:
- Within one year 20,618 297,518
- After one year but within two years 24,364 27,541
- After two years but within three years 846,471 48,341
- After three years but within four years 18,740 846,471
- After four years but within five years - 18,740
-------- ----------
910,193 1,238,611
Amount due within one year shown under current liabilities (20,618) (297,518)
-------- ----------
889,575 941,093
======== ==========
84
CNOOC LIMITED Annual Report 2003
NOTES TO FINANCIAL STATEMENTS
31 December 2003
(All amounts expressed in Renminbi unless otherwise stated)
26. LONG TERM BANK LOANS (CONTINUED)
Supplemental information with respect to long term bank loans:
Maximum Average Weighted
Weighted amount amount average
average outstanding outstanding interest rate
Balance interest rate during the during the during the
at year end at year end year year* year**
RMB'000 RMB'000 RMB'000
For the year ended 31 December
2003 910,193 8.69% 1,238,611 1,074,403 7.94%
2002 1,238,611 7.19% 4,487,539 2,863,075 6.11%
* The average amount outstanding is computed by dividing the total of
outstanding principal balances as at 1 January and 31 December by two.
** The weighted average interest rate is computed by dividing the total of
weighted average interest rates as at 1 January and 31 December by two.
27. LONG TERM GUARANTEED NOTES
On 1 March 2002, CNOOC Finance (2002) Limited, a company incorporated in the
British Virgin Islands on 24 January 2002 and a wholly-owned subsidiary of the
Company, issued US$500 million of principal amount of 6.375% guaranteed notes
due in 2012. The obligations of CNOOC Finance (2002) Limited in respect of the
notes are unconditionally and irrevocably guaranteed by the Company.
On 21 May 2003, CNOOC Finance (2003) Limited, a company incorporated in the
British Virgin Islands on 2 April 2003 and a wholly-owned subsidiary of the
Company, issued US$200 million of principal amount of 4.125% guaranteed notes
due in 2013 and US$300 million of principal amount of 5.500% guaranteed notes
due in 2033. The obligations of CNOOC Finance (2003) Limited in respect of the
notes are unconditionally and irrevocably guaranteed by the Company.
28. BALANCES WITH THE PARENT COMPANY
As at 31 December 2003 and 2002, the balances with CNOOC were unsecured,
interest-free and were repayable on demand.
85
CNOOC LIMITED Annual Report 2003
NOTES TO FINANCIAL STATEMENTS
31 December 2003
(All amounts expressed in Renminbi unless otherwise stated)
29. RELATED PARTY TRANSACTIONS
The Group has entered into several agreements with CNOOC and its affiliates,
which govern the provision of materials, utilities and ancillary services, the
provision of technical services, the provision of research and development
services, the provision of bank guarantees and various other commercial
arrangements.
In addition to the transactions and balances detailed elsewhere in these
financial statements, the Group had the following material transactions with
related parties during the year:
Notes 2003 2002
RMB'000 RMB'000
Materials, utilities and ancillary services (i) 1,018,066 789,167
Technical services (ii) 3,828,282 3,279,596
Research and development services (iii) 83,280 167,354
Lease and property management services (iv) 56,867 54,421
Included in:
Exploration expenses 487,293 593,059
Operating expenses 1,176,601 993,825
Selling and administrative expenses 191,349 190,449
Capitalised under property, plant and equipment 3,131,252 2,513,205
(i) Materials, utilities and ancillary services
CNOOC China Limited has entered into materials, utilities and ancillary
services supply agreements with the affiliates of CNOOC. Under these
agreements, the affiliates of CNOOC provide to CNOOC China Limited various
materials, utilities and ancillary services.
The materials, utilities and ancillary services are provided at:
- state-prescribed prices; or
- where there is no state-prescribed price, at market prices, including
the local or national market prices or the prices at which CNOOC's
affiliates previously provided the relevant materials, utilities and
ancillary services to independent third parties; or
- where neither of the prices mentioned above is applicable, at the cost
to CNOOC's affiliates of providing the relevant materials, utilities
and services, including the cost of sourcing or purchasing from third
parties, plus a margin of not more than 5% before any applicable taxes.
(ii) Technical services
CNOOC China Limited has entered into technical service agreements with certain
affiliates of CNOOC. According to the agreements, the Group uses the technical
services including:
- offshore drilling;
- ship tugging, oil tanker transportation and security services;
86
CNOOC LIMITED Annual Report 2003
NOTES TO FINANCIAL STATEMENTS
31 December 2003
(All amounts expressed in Renminbi unless otherwise stated)
29. RELATED PARTY TRANSACTIONS (CONTINUED)
(ii) Technical services (continued)
- well survey, well logging, well cementation and other related technical
services;
- collection of geophysical data, ocean geological prospecting, and data
processing;
- platform fabrication service and maintenance; and
- design, construction, installation and test of offshore and onshore
production facilities.
(iii) Research and development services
Under the terms of a general research and development services agreement with
CNOOC's subsidiary, China Offshore Oil Research Centre (the "Centre"), the
Group pays the Centre for a term of three years from 31 December 2002, with an
annual amount of RMB110 million In addition, the Group also pays the Centre
for research and development for particular projects. The services include the
following:
- geophysical exploration services;
- seismic data processing;
- comprehensive exploration research services; and
- information technology services.
(iv) Lease and property management services
The Group has entered into lease and property agreements with the affiliates
of CNOOC for the leasing of various office, warehouse and residential
premises. The lease charges are based on the prevailing market rates.
(v) Sales of crude oil, condensated oil and liquefied petroleum gas
The Group sells crude oil, condensate oil and liquefied petroleum gas to
CNOOC's affiliates which engage in the downstream petroleum business at the
international market price. For the year ended 31 December 2003, the total
sales amounted to approximately RMB8,324,108,000 (2002: RMB4,361,852,000).
During the year, the Group placed certain deposits with CNOOC Finance
Corporation Limited ("CNOOC Finance") , a subsidiary of CNOOC. CNOOC Finance
is a non-bank finance company supervised by the People's Bank of China (the
"PBOC") and the Company is one of its customers. In the PRC, deposit rate is
set by PBOC which is applicable to all financial institutions. The interest
rates offered by CNOOC Finance were the same as the rates promulgated by the
PBOC which were applicable to account deposits with PRC banks or finance
companies and ranged from 1.44% to 1.89% per annum. The deposits placed with
CNOOC Finance as at 31 December 2003 amounted to approximately RMB3,898,000.
As explained in note 4 to the financial statements, the Company also acquired
a 31.8% interests in CNOOC Finance as at 31 December 2003.
87
CNOOC LIMITED Annual Report 2003
NOTES TO FINANCIAL STATEMENTS
31 December 2003
(All amounts expressed in Renminbi unless otherwise stated)
29. RELATED PARTY TRANSACTIONS (CONTINUED)
During the year, the Company, through its wholly-owned subsidiary, China
Offshore Oil (Singapore) International Pte Ltd., imported oil into the PRC for
trading, using CNOOC's import licence. For year ended 31 December 2003, the
total sales to its customers through such arrangements amounted to
approximately RMB1,470,832,000 (2002: Nil). The commission paid by the third
party customers to CNOOC for the year amounted to approximately RMB 8,825,000
(2002: Nil).
30. PROVISION FOR DISMANTLEMENT
Provision for dismantlement represents the estimated costs of dismantling
offshore oil platforms and abandoning oil and gas properties. The provision
for dismantlement has been classified under long term liabilities. The
associated cost is capitalised and the liability is discounted and an
accretion expense is recognised during the credit-adjusted risk-free interest
rate in effect when the liability is initially recognised. The current year
income statement charge represents the amortisation charge on the
dismantlement liabilities capitalised in accordance with SSAP 28 and is
included in the accumulated depreciation, depletion and amortisation in note
18.
The details of the provision for dismantlement are as follows:
Group
2003 2002
RMB'000 RMB'000
At the beginning of year 2,239,320 1,909,041
Additions during the year and capitalised in oil and gas properties 314,234 252,383
Increase in discounted amount of provisions arising from the passage of time 93,246 77,896
---------- ----------
End of year 2,646,800 2,239,320
31. SHARE CAPITAL
Shares
Number of shares Share capital
Authorised: HK$'000
Ordinary shares of HK$0.10 each
At 31 December 2003 and 2002 15,000,000,000 1,500,000
============== =========
Share capital
Number of shares Share capital equivalent of
HK$'000 RMB'000
Issued and fully paid:
Ordinary shares of HK$0.10 each
At 31 December 2003 and 2002 8,214,165,655 821,417 876,978
============= ======= =======
88
CNOOC LIMITED Annual Report 2003
NOTES TO FINANCIAL STATEMENTS
31 December 2003
(All amounts expressed in Renminbi unless otherwise stated)
31. SHARE CAPITAL (CONTINUED)
Share options scheme
The Company has adopted share option schemes which provide for the grant for
options to the Company's senior management. Under these share option schemes,
the remuneration committee of the Company's board of directors will from time
to time propose for the board's approval for the recipient of and number of
shares underlying each option. These schemes provide for issuance of options
exercisable for shares granted under these schemes as described below not
exceeding 10% of the total number of the Company's outstanding shares,
excluding shares issued upon exercise of options granted under the schemes
from time to time.
On 4 February 2001, the Company adopted a pre-global offering share option
scheme (the "Pre-Global Offering Share Option Scheme"). Pursuant to the
Pre-Global Offering Share Option Scheme:
1. options for an aggregate of 4,620,000 shares have been granted;
2. the subscription price per share is HK$5.95; and
3. the period during which an option may be exercised is as follows:
(a) 50% of the shares underlying the option shall vest 18 months after
the date of the grant; and
(b) 50% of the shares underlying the option shall vest 30 months after
the date of the grant.
The exercise period for options granted under the Pre-Global Offering Share
Option Scheme shall end not later than 10 years from 12 March 2001.
On 4 February 2001, the Company adopted a share option scheme (the "2001 Share
Option Scheme") for the purposes of recognising the contribution that certain
individuals had made to the Company and attracting and retaining the best
available personnel to the Company. Pursuant to the 2001 Share Option Scheme:
1. options for an aggregate of 8,820,000 shares have been granted;
2. the subscription price per share is HK$6.16; and
3. the period during which an option may be exercised is follows:
(a) one-third of the shares underlying the option shall vest on the
first anniversary of the date of the grant;
(b) one-third of the shares underlying the option shall vest on the
second anniversary of the date of the grant; and
(c) one-third of the shares underlying the option shall vest on the
third anniversary of the date of the grant.
The exercise period for options granted under the 2001 Share Option Scheme
shall end not later than 10 years from 27 August 2001.
In view of the amendments to the relevant provisions of the Listing Rules
regarding the requirements of share option schemes of a Hong Kong listed
company effective on 1 September 2001, no further options will be granted
under the 2001 Share Option Scheme.
89
CNOOC LIMITED Annual Report 2003
NOTES TO FINANCIAL STATEMENTS
31 December 2003
(All amounts expressed in Renminbi unless otherwise stated)
31. SHARE CAPITAL (CONTINUED)
Share options scheme (continued)
In June 2002, the Company adopted a new share option scheme (the "2002 Share
Option Scheme").
Under the 2002 Share Option Scheme, the directors of the Company may, at their
discretion, invite employees, including executive directors, of the Company or
any of its subsidiaries, to take up options to subscribe for shares in the
Company. The maximum aggregate number of shares (including those that could be
subscribed for under the Pre-Global Offering Share Option Scheme and the 2001
Share Option Scheme) which may be granted shall not exceed 10% of the total
issued share capital of the Company. The maximum number of shares which may be
granted under the 2002 Share Option Scheme to any individual in any 12-month
period up to the next grant of share options shall not exceed 1% of the total
issued share capital of the Company from time to time.
According to the 2002 Share Option Scheme, the consideration payable by a
participant for the grant of an option will be HK$1.00. The subscription price
of a share payable by a participant upon the exercise of an option will be
determined by the directors at their discretion at the date of the grant,
except that such price may not be set below a minimum price which is the
highest of:
1. the nominal value of shares;
2. the average closing price of the shares on The Stock Exchange of Hong
Kong Limited (the "HKSE") as stated in the HKSE's quotation sheets for
the five trading days immediately preceding the date of the grant of
the option; and
3. the closing price of the shares on the HKSE as stated in the HKSE's
quotation sheet on the date of the grant of the option.
On 24 February 2003, the board of directors approved to grant options in
respect of 8,410,000 shares to the Company's senior management under the 2002
Share Option Scheme. The exercise price for the options is HK$10.54 per share.
The market price was HK$10.55 per share preceding the options granted. Options
granted under the 2002 Share Option Scheme may be exercised, in whole or in
part, in accordance with the following vesting schedule;
1. one-third of the shares underlying the option shall vest on the first
anniversary of the date of the grant;
2. one-third of the shares underlying the option shall vest on the second
anniversary of the date of the grant; and
3. one-third of the shares underlying the option shall vest on the third
anniversary of the date of the grant.
The exercise period for options granted under the 2002 Share Option Scheme
shall end not later than 10 years from the date on which the option is
granted.
No options granted under the share option scheme and the pre-global offering
share option scheme have been exercised since the date of the grant and up to
the date when the board of directors approved the financial statements. The
total number of options exercisable as of 31 December 2003 was 10,500,000.
90
CNOOC LIMITED Annual Report 2003
NOTES TO FINANCIAL STATEMENTS
31 December 2003
(All amounts expressed in Renminbi unless otherwise stated)
32. RESERVES
According to the laws and regulations of the PRC and articles of association
of CNOOC China Limited, CNOOC China Limited is required to provide for certain
statutory funds, namely, the general reserve fund and staff and workers' bonus
and welfare funds, which are appropriated from net profit and after making
good losses from previous years, but before dividend distribution. CNOOC China
Limited is required to allocate at least 10% of its net profit as reported in
accordance with the generally accepted accounting principles in the PRC ("PRC
GAAP") to the general reserve fund until the balance of such fund has reached
50% of its registered capital. Appropriation to staff and workers' bonus and
welfare funds, which is determined at the discretion of CNOOC China Limited's
directors, is expensed as incurred under Hong Kong GAAP. The general reserve
fund can only be used, upon approval by the relevant authority, to offset
against accumulated losses or increase capital. The staff and workers' bonus
and welfare fund can only be used for special bonuses or collective welfare of
employees, and assets acquired through this fund shall not be taken as assets
of CNOOC China Limited.
As at 31 December 2003, the general reserve fund appropriated amounted to
RMB3,050,489,000 (2002: RMB2,232,410,000), representing approximately 20.4%
(2002: 22.3%) of the total registered capital of CNOOC China Limited.
Included in retained earnings is an amount of RMB577,640,000 (2002:
RMB456,377,000), being the retained earnings attributable to an associate.
The cumulative translation reserves and revaluation reserves are accounted for
in accordance with the accounting policies adopted for foreign currency
translation and the revaluation of land and buildings.
Company Share premium Retained
account earnings Total
RMB'000 RMB'000 RMB'000
Balances at 1 January 2002 20,761,205 220,127 20,981,332
Net profit for the year - 4,990,207 4,990,207
Dividends (Note 16) - (2,265,054) (2,265,054)
---------- ----------- -----------
Balances at 1 January 2003 20,761,205 2,945,280 23,706,485
---------- ----------- -----------
Net profit for the year - 5,031,491 5,031,491
Dividends (Note 16) - (5,403,689) (5,403,689)
---------- ----------- -----------
Balances at 31 December 2003 20,761,205 2,573,082 23,334,287
========== =========== ===========
As at 31 December 2003, the distributable profits of the Company amounted to
approximately RMB 2,573,082,000 (2002: RMB2,945,280,000).
33. RETIREMENT AND TERMINATION BENEFITS
All the Group's full-time employees in the PRC are covered by a government
regulated pension, and are entitled to an annual pension equal to their basic
salaries at their retirement dates. The PRC government is responsible for the
pension liabilities to these retired employees. The Group is required to make
annual contributions to the government-regulated pension at rates ranging from
12% to 22.5% of the employees' basic salaries.
91
CNOOC LIMITED Annual Report 2003
NOTES TO FINANCIAL STATEMENTS
31 December 2003
(All amounts expressed in Renminbi unless otherwise stated)
33. RETIREMENT AND TERMINATION BENEFITS (CONTINUED)
The contribution made by the Group to the PRC government pension plan for the
year ended 31 December 2003 amounted to approximately RMB15,513,000 (2002:
RMB7,042,000).
The Company is required to make contributions to a defined contribution of a
mandatory provident fund at a rate of 5% of the basic salaries for all
full-time employees in Hong Kong. The related pension costs are expensed as
incurred.
The Group provides retirement and termination benefits for all local employees
in Indonesia in accordance with Indonesia labour law, and provides employee
benefits to expatriate staff in accordance with the relevant employment
contracts. The Group has adopted an accounting policy to record liabilities
for the retirement and termination benefits. The provisions for retirement and
termination benefits in Indonesia for the year ended 31 December 2003 amounted
to approximately RMB79,634,000 (2002: RMB46,350,000).
34. NOTES TO THE CONSOLIDATED CASH FLOW STATEMENT
(a) Reconciliation of profit before tax to cash generated from operations
2003 2002
RMB'000 RMB'000
Profit before tax 16,163,326 12,774,243
Adjustments for:
Interest income (183,576) (147,870)
Interest expense 354,940 294,792
Exchange losses, net 6,746 113,814
Share of profit of an associate (220,263) (165,387)
Short term investment income (123,483) (193,277)
Provision for inventory obsolescence 8,745 -
Depreciation, depletion and amortisation 4,642,753 4,019,532
Loss on disposal and write-off of property, plant and equipment 39,818 437,799
Dismantlement 167,326 126,139
Amortisation of discount of long term guaranteed notes 11,276 6,100
----------- -----------
Operating cash flows before movements in working capital 20,867,608 17,265,885
(Increase)/decrease in accounts receivable (1,185,304) 497,959
Increase in inventories and supplies (129,678) (20,211)
Decrease/(increase) in other current assets 312,559 (705,664)
Increase in amounts due from related companies (302,993) (276,771)
(Decrease)/increase in an amount due to the parent company (105,785) 144,945
Increase in accounts payable, other payables and accrued liabilities 1,448,645 353,452
(Decrease)/increase in other taxes payable (4,772) 73,551
Increase in amounts due to related companies 242,631 73,769
----------- -----------
Cash generated from operations 21,142,911 17,406,915
=========== ===========
92
CNOOC LIMITED Annual Report 2003
NOTES TO FINANCIAL STATEMENTS
31 December 2003
(All amounts expressed in Renminbi unless otherwise stated)
34. NOTES TO THE CONSOLIDATED CASH FLOW STATEMENT (CONTINUED)
(b) Acquisitions and prepayment
2003
RMB'000
Acquisitions
Net assets acquired:
Property, plant and equipment, net 1,579,726
Other current assets 8,959
Inventories and supplies 122,777
Cash and bank balances 17,580
Accounts payable (8,294)
Other payables and accrued liabilities (47,983)
-----------
1,672,765
Prepayment for Tangguh Project 2,445,715
-----------
Satisfied by:
Cash 4,118,480
===========
An analysis of the net outflow of cash and cash equivalents in respect of the
acquisition and prepayment is as follows:
2003
RMB'000
Cash consideration 4,118,480
Cash and bank balances acquired (17,580)
-----------
Net outflow of cash and cash equivalents 4,100,900
===========
In July 2003, the Group acquired a 24.5% interest in Qinhuangdao 32-6, a PSC
oilfield in Bohai Bay and a 49% interest in Liuhua 11-1, a PSC oilfield in
Southern China. Further details of these transactions are included in note 4
to the financial statements.
93
CNOOC LIMITED Annual Report 2003
NOTES TO FINANCIAL STATEMENTS
31 December 2003
(All amounts expressed in Renminbi unless otherwise stated)
35. COMMITMENTS
(i) Capital commitments
As at 31 December 2003, the Group and the Company had the following capital
commitments, principally for the construction and purchase of property, plant
and equipment:
2003 2002
RMB'000 RMB'000
Contracted for 2,534,468 1,715,173
Authorised, but not contracted for 17,489,791 9,060,722
As at 31 December 2003, the Group had unutilised banking facilities amounting
to approximately RMB32,455,229,500 (2002: RMB31,646,389,000).
(ii) General research and development services commitments
The remaining commitments for research and development services to be provided
by the Centre (note 29(iii)) as at 31 December 2003 amounted to approximately
RMB220,000,000 (2002: RMB450,000,000).
(iii) Operating lease commitments
Operating lease commitments as at 31 December 2003 amounted to approximately
RMB20,396,000 (2002: RMB50,645,000) and were as follows:
2003 2002
RMB'000 RMB'000
Commitments due:
- Within one year 17,222 47,017
- After one year but within two years 3,174 2,131
- After two years but within three years - 1,497
------ ------
20,396 50,645
====== ======
(iv) Commitment to invest in Australia's project
On 15 May 2003, the Company entered into an Equity Sale and Purchase Agreement
and a Gas Production and Processing Agreement (the "Agreements") with the
existing North West Shelf partners to acquire an interest in the upstream
production and reserves of Australia's North West Shelf Project (the "NWS
Project"). Under the Agreement, the Company will acquire an interest of
approximately 5.3% in the NWS Project and a 25% stake in the China LNG Joint
Venture, a new joint venture to be established within the NWS Project.
According to the Agreements, the Company has the right to acquire further
interests in the NWS Project should the final quantity of LNG committed under
the LNG supply agreement to the facilities in Guangdong Province be increased.
The total consideration of the acquisition is US$348 million, subject to
certain conditions, including the LNG supply agreement to Guangdong becoming
unconditional, being fulfilled. In addition, the Company will be required to
make an upfront tariff payment relating to certain LNG processing facilities
amounting to US$180 million. CNOOC has an equity interest in the Guangdong
Province LNG project.
94
CNOOC LIMITED Annual Report 2003
NOTES TO FINANCIAL STATEMENTS
31 December 2003
(All amounts expressed in Renminbi unless otherwise stated)
35. COMMITMENTS (CONTINUED)
(iv) Commitment to invest in Australia's project (continued)
On 23 December 2003, the Company signed a Deed of Amendment to the Equity Sale
and Purchase Agreement and a Deed of Amendment to the Gas Production and
Processing Agreements (the "Deeds") and agreed to pay US$483,577,000
representing a 90% deposit of the consideration and tariff payment, to the NWS
Project participants by 2 January 2004. The payment was made by the Company on
2 January 2004 and such amount will be refunded to the Company if the
acquisition is not completed by 30 June 2004.
(v) Commitment to invest in Gorgon Joint Venture
In October 2003, the Company entered into an agreement with the participants
in Gorgon Joint Venture to place a significant volume of Gorgon LNG to supply
the growing Chinese market. Subject to the completion of formal contracts, the
Company will purchase a certain equity stake in the Gorgon gas development and
its parent company, CNOOC, will arrange to purchase LNG directly from Gorgon.
(vi) Financial instruments
(a) Currency swap contracts
As at 31 December 2003, the Group had a currency swap contract with a
financial institution to sell United States dollars in exchange for Japanese
Yen in order to hedge against future repayments of certain Japanese Yen
denominated loans. The hedged Japanese Yen loans bore interest at a fixed rate
of 4.5% per annum. The interest stipulated in the swap contract for the United
States dollars was the floating LIBOR rate.
The details are as follows:
2003 2002
Weighted Weighted
Notional average Notional average
contract contractual contract contractual
amount exchange rate amount exchange rate
(JPY'000) (JPY/US$) (JPY'000) (JPY/US$)
Year
2003 - - 271,470 95.00
2004 271,470 95.00 271,470 95.00
2005 271,470 95.00 271,470 95.00
2006 271,470 95.00 271,470 95.00
2007 271,470 95.00 271,470 95.00
95
CNOOC LIMITED Annual Report 2003
NOTES TO FINANCIAL STATEMENTS
31 December 2003
(All amounts expressed in Renminbi unless otherwise stated)
35. COMMITMENTS (CONTINUED)
(iv) Financial instruments (continued)
(b) Interest rate swap contracts
During the year, the Group also entered into interest rate swap agreements
with three financial institution to partially hedge the fixed-rate debt for
interest rate risk exposure management purposes with notional contract amount
of US$200 million. The interest rate swap agreement utilised by the Company
effectively modifies the Company's exposure to interest risk by converting the
Company's fixed-rate debt to a floating rate. This agreement involves the
receipt of fixed rate amounts in exchange for floating rate interest payments
over the life of the agreement without an exchange of the underlying principal
amount.
(c) Fair value of financial instruments
The carrying amounts of cash and cash equivalents, time deposits and short
term investments approximated fair value due to the short maturity of these
instruments.
The estimated fair value of long term bank loans based on current market
interest rates was approximately RMB1,064,895,000 as at 31 December 2003
(2002: RMB1,388,720,000).
The estimated fair value of long term guaranteed notes based on current market
interest rates was approximately RMB8,304,647,000 as at 31 December 2003
(2002: RMB4,482,378,000).
36. CONCENTRATION OF CUSTOMERS
A substantial portion of the oil and gas sales of the Group is made to a small
number of customers on an open account basis. Details of the sales to these
customers are as follows:
2003 2002
RMB'000 RMB'000
China Petroleum & Chemical Corporation 6,975,069 6,890,877
PetroChina Company Limited 1,446,169 1,187,571
Castle Peak Power Company Limited 841,285 1,247,639
37. ADDITIONAL FINANCIAL INFORMATION
As at 31 December 2003, net current assets and total assets less current
liabilities of the Group amounted to approximately RMB19,956,331,000 and
RMB64,197,772,000 (2002: RMB17,352,044,000 and RMB53,961,241,000),
respectively.
As at 31 December 2003, net current assets and total assets less current
liabilities of the Company amounted to approximately RMB7,649,024,000 and
RMB24,211,265,000 (2001: RMB10,584,649,000 and RMB24,583,463,000),
respectively.
96
CNOOC LIMITED Annual Report 2003
NOTES TO FINANCIAL STATEMENTS
31 December 2003
(All amounts expressed in Renminbi unless otherwise stated)
38. SUBSEQUENT EVENTS
(i) On 27 January 2004, the Company proposed for a 1-for-5 stock split where
each share in the Company will be split into five new shares. The Company will
submit to shareholders for approval a proposal to subdivide each of the
existing issued and unissued shares of HK$0.10 each in the capital of the
Company into five shares of HK$0.02 each, and to increase the board lot size
for trading on the Stock Exchange of Hong Kong Limited from 500 shares at
HK$0.10 each to 1,000 subdivided shares of HK$0.02 each in the coming
extraordinary general meeting. It is also proposed that upon the share
subdivision proposal becoming effective, the ratio of the Company's American
Depository Receipts (ADR) listed on the New York Stock Exchange will also be
changed such that the ADR, which currently represents 20 shares of HK$0.10
each to 100 subdivided shares of HK$0.02 each.
(ii) On 2 February 2004, one of the Company's subsidiary signed a sale and
purchase agreement with the BG Group to acquire a 20.767% interest in the
Muturi Production Sharing Contract ("Muturi PSC") for a consideration of
US$98.1 million pursuant to the exercise of its pre-emption rights. The
purchase will increase the Company's interest in the "Muturi PSC" to 64.767%,
and its interest in the Tangguh LNG Project will increase from 12.5% to
16.96%.
(iii) On 5 February 2004, the board of directors approved a grant of options
in respect of 10,140,000 shares to the Company's senior management under the
2002 Share Option Scheme. The exercise price for the options is HK$15.76 per
share. Options granted under the 2002 Share Option Scheme may be exercised, in
whole or in part, in accordance with the following vesting schedule:
1. one-third of the shares underlying the option shall vest on the first
anniversary of the date of the grant;
2. one-third of the shares underlying the option shall vest on the
second anniversary of the date of the grant; and
3. one-third of the shares underlying the option shall vest on the third
anniversary of the date of the grant.
The exercise period for options granted under the 2002 Share Option Scheme
shall end not later than 10 years from the date on which the option is
granted.
97
CNOOC LIMITED Annual Report 2003
NOTES TO FINANCIAL STATEMENTS
31 December 2003
(All amounts expressed in Renminbi unless otherwise stated)
39. SIGNIFICANT DIFFERENCES BETWEEN HONG KONG GAAP AND US GAAP
The accounting policies adopted by the Group conform to Hong Kong GAAP, which
differ in certain respects from generally accepted accounting principles in
the United States of America ("US GAAP").
(a) Net profit and net equity
(i) Revaluation of land and buildings
The Group revalued certain land and buildings on 31 August 1999 and 31
December 2000 and the related revaluation surplus was recorded on the
respective dates. Under Hong Kong GAAP, revaluation of property, plant and
equipment is permitted and depreciation, depletion and amortisation are based
on the revalued amount. Additional depreciation arising from the revaluation
for the year ended 31 December 2003 was approximately RMB9,156,000 (2002:
RMB9,156,000). Under US GAAP, property, plant and equipment are required to be
stated at cost. Accordingly, no additional depreciation, depletion and
amortisation from the revaluation is recognised under US GAAP.
(ii) Short term investments
According to Hong Kong GAAP, available-for-sale investments in marketable
securities are measured at fair value and related unrealised holding gains and
losses are included in the current period's earnings. According to US GAAP,
such investments are also measured at fair value and classified in accordance
with Statement of Financial Accounting Standards ("SFAS") No.115. Under US
GAAP, related unrealised gains and losses on available-for-sale securities are
excluded from the current period's earnings and included in other
comprehensive income.
(iii) Impairment of long-lived assets
Under Hong Kong GAAP, impairment charges are recognised when a long-lived
asset's carrying amount exceeds the higher of an asset's net selling price and
value in use, which incorporates discounting the asset's estimated future cash
flows.
Under US GAAP, long-lived assets are assessed for possible impairment in
accordance with SFAS No.144, "Accounting for the impairment or disposal of
long-lived assets". SFAS No. 144 requires the Group to (a) recognise an
impairment loss only if the carrying amount of a long-lived asset is not
recoverable from its undiscounted cash flows and (b) measure an impairment
loss as the difference between the carrying amount and fair value of the
asset. SFAS No. 144 requires that a long-lived asset to be abandoned,
exchanged for a similar productive asset, or distributed to owners in a
spin-off be considered held and used until it is disposed of.
SFAS No. 144 also requires the Group to assess the need for an impairment of
capitalised costs of proved oil and gas properties and the costs of wells and
related equipment and facilities on a property-by-property basis. If an
impairment is indicated based on undiscounted expected future cash flows, then
an impairment is recognised to the extent that net capitalised costs exceed
the estimated fair value of the property. Fair value of the property is
estimated by the Group using the present value of future cash flows. The
impairment was determined based on the difference between the carrying value
of the assets and the present value of future cash flows. It is reasonably
possible that a change in reserve or price estimates could occur in the near
term and adversely impact management's estimate of future cash flows and
consequently the carrying value of properties.
98
CNOOC LIMITED Annual Report 2003
NOTES TO FINANCIAL STATEMENTS
31 December 2003
(All amounts expressed in Renminbi unless otherwise stated)
39. SIGNIFICANT DIFFERENCES BETWEEN HONG KONG GAAP AND US GAAP (continued)
(a) Net profit and net equity (continued)
(iii) Impairment of long-lived assets (continued)
In addition, under Hong Kong GAAP, a subsequent increase in the recoverable
amount of assets is reversed to the income statement to the extent that an
impairment loss on the same asset was previously recognised as an expense when
the circumstances and events that led to write-down or write-off cease to
exist. The reversal is reduced by the amount that would have been recognised
as depreciation had the write-off not occurred. Under US GAAP, an impairment
loss establishes a new cost basis for the impaired asset and the new cost
basis should not be adjusted subsequently other than for further impairment
losses.
For the year ended 31 December 2003, there were no impairment losses
recognised under Hong Kong GAAP and US GAAP.
(iv) Stock compensation schemes
As at 31 December 2003, the Company has three stock-based employee
compensation plans, which are described more fully in Note 31. Prior to 2003,
the Company accounted for those plans under the recognition and measurement
provisions of APB Opinion No. 25, "Accounting for Stock Issued to Employees",
and related interpretations. Since certain of the options granted under those
plans had an exercise price below the market value of the underlying common
stock on the date of grant, stock-based employee compensation costs of
Rmb2,755,000 and Rmb5,632,000 for year ended 31 December 2001 and 2002,
respectively, were reflected in previously reported results. During 2003, the
Company adopted the fair value recognition provisions of FASB Statement No.
123, "Accounting for Stock-Based Compensation", for stock-based employee
compensation. All prior periods presented have been restated to reflect the
compensation cost that would have been recognised had the recognition
provisions of Statement 123 been applied to all awards granted to employees
after 1 January 1995.
Weighted average fair value of the options at the grant dates for awards under
the schemes was RMB3.40 per share which was estimated using the Black-Scholes
model with the following assumptions: dividend yield of 2.0%, an expected life
of five years; expected volatility of 44%; and risk-free interest rates of
5.25%. Weighted average exercise price of the stock options was HK$7.80 per
share.
99
CNOOC LIMITED Annual Report 2003
NOTES TO FINANCIAL STATEMENTS
31 December 2003
(All amounts expressed in Renminbi unless otherwise stated)
39. SIGNIFICANT DIFFERENCES BETWEEN HONG KONG GAAP AND US GAAP (continued)
(a) Net profit and net equity (continued)
(v) Provision for dismantlement (continued)
Hong Kong GAAP requires the provision for dismantlement to be recorded for a
present obligation whether that obligation is legal or constructive. The
associated cost is capitalised and the liability is discounted and accretion
expense is recognised using the credit-adjusted risk-free interest rate in
effect when the liability is initially recognised.
On 15 August 2001, SFAS No. 143 "Accounting for asset retirement obligation"
was released and is effective for the fiscal years beginning after 15 June
2002. SFAS No. 143 requires that the fair value of a liability for an asset
retirement obligation be recognised in the period in which it is incurred if a
reasonable estimate of fair value can be made. The associated asset retirement
costs are capitalised as part of the carrying amount of the long-lived assets.
Further, under SFAS No. 143, the liability is discounted and accretion expense
is recognised using the credit-adjusted risk-free interest rate in effect when
the liability is initially recognised.
The company adopted SFAS No. 143 on 1 January 2003, which resulted in an
increase in net property, plant and equipment of RMB863,093,000, an increase
in the provision for dismantlement of RMB240,077,000, an increase in retained
earnings of RMB436,112,000 and an increase in deferred income tax liabilities
of RMB186,904,000 to recognise the cumulative effect of retrospectively
applying the new accounting standard.
This adjustment is due to the difference in the method of accruing for
dismantlement costs under SFAS No. 143 compared with the method required by
SFAS No. 19 "Financial accounting and reporting by oil and gas producing
companies", the accounting standard that the Company has been adopted since
its establishment. Under SFAS No. 19, the dismantlement costs are accrued on a
unit-of-production basis of accounting as the oil and gas is produced. The
SFAS No. 19 method matches the accruals with the revenues generated from
production and results in most of the costs being accrued early in field life,
when production is at the highest level. Because SFAS No. 143 requires
accretion of the liability as a result of the passage of time using an
interest method of allocation, the majority of the costs will be accrued
towards the end of field life, when production is at the lowest level. The
cumulative income adjustment described above resulted from reversing the
higher liability accumulated under SFAS No. 19 in order to adjust it to the
lower present value amount resulting from transition to SFAS No. 143. This
amount being reversed in transition, which was previously charged to the
income statement under SFAS No. 19, will again be charged to the income
statement under SFAS No. 143 in future years.
A summary of the changes in the asset retirement obligation during the year is
included in the table below:
2003
RMB'000
Asset retirement obligation upon adoption of SFAS No., 143 on 1 January 2003 2,239,320
Addition of dismantlement cost 314,234
Accretion expenses 93,246
---------
Asset retirement obligation at 31 December 2003 2,646,800
=========
100
CNOOC LIMITED Annual Report 2003
NOTES TO FINANCIAL STATEMENTS
31 December 2003
(All amounts expressed in Renminbi unless otherwise stated)
39. SIGNIFICANT DIFFERENCES BETWEEN HONG KONG GAAP AND US GAAP (continued)
(a) Net profit and net equity (continued)
(v) Provision for dismantlement (continued)
The pro forma effects of the application of SFAS No.143 as if it had been
adopted on 1 January 2002 (rather than 1 January 2003) are presented below:
As reported Pro forma
31 December 2003 31 December 2002
RMB'000 RMB'000
(Restated)
Net income 11,543,397 9,223,477
Earnings per share
- Basic RMB1.41 RMB1.12
- Diluted RMB1.41 RMB1.12
(vi) Acquisition of CNOOC Finance
Under HK GAAP, the Company adopted the purchase method to account for the
acquisition of 31.8% equity interest in CNOOC Finance in December 2003. Under
the purchase method, the acquired results are included in the consolidated
results of operations of the Company from the date of the acquisition.
As the Company and CNOOC Finance are under common control of CNOOC, under US
GAAP, the acquisition is considered to be a transfer of businesses under
common control and the acquired assets and liabilities are accounted at
historical cost in a manner similar to the pooling of interests method.
Accordingly, the consolidated financial statements for all periods presented
have been retroactively restated as if the current structure and operations
had been in existence since inception. The cash consideration paid by the
Company is treated as an equity transaction in the year of the acquisition for
US GAAP purpose.
101
CNOOC LIMITED Annual Report 2003
NOTES TO FINANCIAL STATEMENTS
31 December 2003
(All amounts expressed in Renminbi unless otherwise stated)
39. SIGNIFICANT DIFFERENCES BETWEEN HONG KONG GAAP AND US GAAP (continued)
(a) Net profit and net equity (continued)
The effects on net profit and equity of the above significant differences
between Hong Kong GAAP and US GAAP are summarised below:
Net Profit
2003 2002
RMB'000 RMB'000
(Restated)
As reported under Hong Kong GAAP 11,535,490 9,232,827
Impact of US GAAP adjustments:
- Reversal of additional depreciation, depletion and
amortisation charges arising from the revaluation surplus on land and buildings 9,156 9,156
- Equity accounting for the results of CNOOC Finance 30,913 10,663
- Unrealised holding gains from available-for-sale investments in marketable securities (21,503) (36,965)
- Realised holding gains from available-for-sale marketable securities 27,088 26,940
- Additional dismantlement based on unit-of-production method - (197,079)
- Impact of income tax - 59,124
- Recognition of stock compensation cost (37,747) (19,144)
----------- -----------
Income before cumulative effect of change in accounting policy 11,543,397 9,085,522
Cumulative effect of change in accounting policy for dismantlement liabilities 436,112 -
Net profit under US GAAP 11,979,509 9,085,522
=========== ===========
Net profit per share under US GAAP
- Basic
Before cumulative effect of change in accounting policy for dismantlement liabilities RMB1.41 RMB 1.11
Cumulative effect of change in accounting policy for dismantlement liabilities RMB 0.05 -
-------- --------
RMB1.46 RMB1.11
======== ========
- Diluted
Before cumulative effect of change in accounting policy for dismantlement liabilities RMB1.41 RMB 1.11
Cumulative effect of change in accounting policy for dismantlement liabilities RMB 0.05 -
-------- --------
RMB1.46 RMB1.11
======== ========
102
CNOOC LIMITED Annual Report 2003
NOTES TO FINANCIAL STATEMENTS
31 December 2003
(All amounts expressed in Renminbi unless otherwise stated)
39. SIGNIFICANT DIFFERENCES BETWEEN HONG KONG GAAP AND US GAAP (continued)
(a) Net profit and net equity (continued)
Net equity
2003 2002
RMB'000 RMB'000
(Restated)
As reported under Hong Kong GAAP 46,736,532 40,568,488
Impact of US GAAP adjustments:
- Reversal of revaluation surplus on land and buildings (274,671) (274,671)
- Reversal of additional accumulated depreciation, depletion and
amortisation arising from the revaluation surplus on land and buildings 35,051 25,895
- Equity accounting for the results of CNOOC Finance 41,576 10,663
- Contribution from CNOOC in respect of CNOOC Finance - (450,000)
- Dividend distribution made by CNOOC Finance to CNOOC (41,576) -
- Cumulative adjustment for provision for dismantlement - (436,112)
----------- -----------
Net equity under US GAAP 46,496,912 39,444,263
=========== ===========
There are no significant GAAP differences that affect classifications within
the balance sheet or income statement but do not affect net income or
shareholders- equity.
(b) Comprehensive income
According to SFAS No. 130, "Reporting Comprehensive Income", it is required to
include a statement of other comprehensive income for revenues and expenses,
gains and losses that under US GAAP are included in comprehensive income and
excluded from net income.
2003 2002
RMB'000 RMB'000
(Restated)
Net profit under US GAAP 11,979,509 9,085,522
Other comprehensive income:
Foreign currency translation adjustments 36,243 (7,948)
Unrealised gains on short-term investments 21,503 36,965
Less: Reclassification adjustment for gains included in net income (27,088) (26,940)
----------- ----------
Comprehensive income under US GAAP 12,010,167 9,087,599
=========== ==========
103
CNOOC LIMITED Annual Report 2003
NOTES TO FINANCIAL STATEMENTS
31 December 2003
(All amounts expressed in Renminbi unless otherwise stated)
39. SIGNIFICANT DIFFERENCES BETWEEN HONG KONG GAAP AND US GAAP (continued)
(b) Comprehensive income (continued)
Roll forward of accumulated other comprehensive income components are as
follows:
Foreign Unrealised Accumulated
currency gains on other
translation short term comprehensive
adjustments investments income
RMB'000 RMB'000 RMB'000
Balance at 1 January 2002 (5,648) 43,796 38,148
Current year change (7,948) 10,025 2,077
-------- --------- --------
Balance at 1 January 2003 (13,596) 53,821 40,225
Reversal of current year realised gains - (27,088) (27,088)
Current year change 36,243 21,503 57,746
-------- --------- --------
Balance at 31 December 2003 22,647 48,236 70,883
======= ========= ========
(c) Derivative instruments
The Group had a currency swap contract with a financial institution to sell
United States dollars in exchange for Japanese Yen in order to hedge certain
Japanese Yen denominated loan repayments in the future. The derivative
contract was recorded as "Other payable and accrued liabilities" in the
consolidated balance sheet at fair value. For the year ended 31 December 2003,
the Group recognised related changes in fair value, a gain of RMB10,038,000
(2002: RMB14,485,000), and included the amount in "Exchange (loss)/gain, net"
in the consolidated income statement.
During the year, the Group also entered into interest rate swap agreements to
partially hedge the fixed-rate debt for interest rate risk exposure management
purposes with notional contract amount of US$200 million. The interest rate
swap agreements utilised by the Company effectively modifies the Company's
exposure to interest risk by converting the Company's fixed-rate debt to a
floating rate. These agreements involve the receipt of fixed rate amounts in
exchange for floating rate interest payments over the life of the agreement
without an exchange of the underlying principal amount. The net gain as of 31
December 2003 related to the ineffective portion of the interest rate swap
agreements was approximately Rmb938,000 (2002: nil).
(d) Use of estimates in the preparation of financial statements
The preparation of financial statements in conformity with accounting
principles generally accepted in the United States of America requires
management to make estimates and assumptions that affect the reported amounts
of assets and liabilities and disclosure of contingent assets and liabilities
at the date of the financial statements, and the reported amounts of revenues
and expenses during the reporting period. The most significant estimates
pertain to proved oil and gas reserve volumes and the future development,
provision for dismantlement as well as estimates relating to certain oil and
gas revenues and expenses. Actual amounts could differ from those estimates
and assumptions.
104
CNOOC LIMITED Annual Report 2003
NOTES TO FINANCIAL STATEMENTS
31 December 2003
(All amounts expressed in Renminbi unless otherwise stated)
39. SIGNIFICANT DIFFERENCES BETWEEN HONG KONG GAAP AND US GAAP (continued)
(e) Segment reporting
The Group's segment information is based on the segmental operating results
regularly reviewed by the Group's chief operating decision maker. The
accounting policies used are the same as those used in the preparation of the
Group's consolidated Hong Kong GAAP financial statements.
40. APPROVAL OF THE FINANCIAL STATEMENTS
The financial statements were approved and authorised for issue by the board
of directors on 15 March 2004.
105
CNOOC LIMITED Annual Report 2003
SUPPLEMENTARY INFORMATION ON OIL AND GAS PRODUCING ACTIVITIES (UNAUDITED)
(All amounts expressed in Renminbi unless otherwise stated)
The following disclosures are included in accordance with the United States
Statements of Financial Accounting Standards No. 69, "Disclosures about Oil
and Gas Producing Activities".
(a) Reserve quantity information
Crude oil and natural gas reserve estimates are determined through analysis of
geological and engineering date which appear, with reasonable certainty, to be
recoverable at commercial rates in the future from known oil and natural gas
reservoirs under existing economic and operating conditions.
Estimates of crude oil and natural gas reserve have been made by independent
engineers. The Group's net proved reserves consist of its percentage interest
in reserves, comprised of a 100% interest in its independent oil and gas
properties and its participating interest in the properties covered under the
production sharing contracts in PRC, less (a) an adjustment for the Group's
share of royalties payable by the Group to the PRC government and the Group's
participating interest in share oil payable to the PRC government under the
production sharing contracts, and less (b) an adjustment for production
allocable to foreign partners under the PRC production sharing contracts as
reimbursement for exploration expenses attributable to the Group's
participating interest, and its participating interest in the properties
covered under the production sharing contracts in Indonesia less an adjustment
of share oil attributable to Indonesian government and the domestic market
obligation.
The proved developed and undeveloped reserves for Indonesia in 2001 were less
than 1% to the total and no separate disclosure was made.
Proved developed and undeveloped reserves (net of royalties and PRC government
share oil):
PRC Indonesia Total
Oil Natural gas Oil Natural gas Oil Natural gas
(mmbls) (bcf) (mmbls) (bcf) (mmbls) (bcf)
31 December 2000 1,216 3,250 - - 1,216 3,250
Discoveries and extensions 199 166 - - 199 166
Production (84) (71) - - (84) (71)
Revisions of prior estimates (52) (97) - - (52) (97)
------ ------ ---- ---- ------ ------
31 December 2001 1,279 3,248 - - 1,279 3,248
Purchase of reserves - - 143 241 143 241
Discoveries and extensions 150 169 - - 150 169
Production (96) (79) (13) (26) (109) (105)
Revisions of prior estimates (46) (5) 8 - (38) (5)
------ ------ ----- ----- ------ ------
31 December 2002 1,287 3,333 138 215 1,425 3,548
Purchase of reserves 53 142 - - 53 142
Discoveries and extensions 114 506 1 2 115 508
Production (97) (69) (15) (37) (112) (106)
Revisions of prior estimates (24) 42 (21) 20 (45) 62
------ ------ ----- ----- ------ ------
31 December 2003 1,333 3,954 103 200 1,436 4,154
====== ====== ===== ===== ====== ======
106
CNOOC LIMITED Annual Report 2003
SUPPLEMENTARY INFORMATION ON OIL AND GAS PRODUCING ACTIVITIES (UNAUDITED)
(All amounts expressed in Renminbi unless otherwise stated)
(a) Reserve quantity information
Proved developed reserves:
PRC Indonesia Total
Oil Natural gas Oil Natural gas Oil Natural gas
(mmbls) (bcf) (mmbls) (bcf) (mmbls) (bcf)
31 December 2001 582 765 - - 582 765
31 December 2002 542 724 115 101 657 825
31 December 2003 459 2,054 91 135 550 2,189
(b) Results of operations
2001 2002 2003
---------- ------------------------------------- ----------------------------------------
PRC PRC Indonesia Total PRC Indonesia Total
RMB'000 RMB'000 RMB'000 RMB'000 RMB'000 RMB'000 RMB'000
Net sales to customers 17,560,788 20,280,746 3,498,548 23,779,294 23,644,659 4,472,172 28,116,831
Operating expenses (2,329,130) (2,440,210) (1,335,124) (3,775,334) (2,903,094) (1,609,715) (4,512,809)
Production taxes (883,768) (1,023,049) - (1,023,049) (1,238,598) - (1,238,598)
Exploration (1,039,297) (1,286,670) (31,653) (1,318,323) (764,165) (83,907) (848,072)
Accretion expense - - - - (93,246) - (93,246)
Depreciation, depletion
and amortisation
(including dismantlement) (2,566,920) (3,121,381) (898,151) (4,019,532) (3,700,349) (1,109,730) (4,810,079)
----------- ----------- ----------- ----------- ----------- ----------- -----------
10,741,673 12,409,436 1,233,620 13,643,056 14,945,207 1,668,820 16,614,027
Income tax expenses (3,992,578) (3,816,008) (592,138) (4,408,146) (4,483,562) (719,695) (5,203,257)
----------- ----------- ----------- ----------- ----------- ----------- -----------
Result of operations 6,749,095 8,593,428 641,482 9,234,910 10,461,645 949,125 11,410,770
=========== =========== =========== =========== =========== =========== ===========
(c) Capitalised costs
2001 2002 2003
----------- ------------------------------------- -------------------------------------
PRC PRC Indonesia Total PRC Indonesia* Total
RMB'000 RMB'000 RMB'000 RMB'000 RMB'000 RMB'000 RMB'000
Proved oil and gas 40,748,848 46,426,684 9,605,744 56,032,428 57,537,676 9,440,843 66,978,519
properties
Unproved oil and gas 428,611 521,880 - 521,880 713,594 - 713,594
properties
Accumulated depreciation,
depletion and
amortisation (18,154,653) (21,161,905) (993,316) (22,155,221) (25,740,836) (2,098,269) (27,839,105)
------------ ------------ ---------- ------------ ------------ ----------- ------------
Net capitalised costs 23,022,806 25,786,659 8,612,428 34,399,087 32,510,434 7,342,574 39,853,008
============ ============ ========== ============ ============ =========== ============
107
CNOOC LIMITED Annual Report 2003
SUPPLEMENTARY INFORMATION ON OIL AND GAS PRODUCING ACTIVITIES (UNAUDITED)
(All amounts expressed in Renminbi unless otherwise stated)
(d) Costs incurred
2001 2002 2003
--------- ------------------------------------- ----------------------------------
PRC PRC Indonesia Total PRC Indonesia* Total
RMB'000 RMB'000 RMB'000 RMB'000 RMB'000 RMB'000 RMB'000
Acquisition costs - - 4,735,826 4,735,826 1,579,726 - 1,579,726
Exploration costs 996,121 1,519,683 32,405 1,552,088 1,225,926 102,067 1,327,993
Development costs** 3,958,357 5,458,199 750,532 6,208,731 7,489,472 512,064 8,001,536
--------- --------- --------- ---------- ---------- ------- ----------
Total costs incurred 4,954,478 6,977,882 5,518,763 12,496,645 10,295,124 614,131 10,909,255
========= ========= ========= ========== ========== ======= ==========
* The amounts do not include prepayments and subsequent cash calls made for the Tangguh Project of RMB2,445,715,000.
** The development costs include estimated future dismantlement costs of dismantling offshore oil platforms and gas
properties.
(e) Standardised measure of discounted future net cash flows and changes
therein
In calculating the standardised measure of discounted future net cash flows,
year-end constant price and cost assumptions were applied to the Group's
estimated annual future production from proven reserves to determine future
cash inflows. Year end average realised oil prices used in the estimation of
proved reserves and calculation of the standardised measure were US$30 as at
31 December 2003 (2002: US$28; 2001: US$17). Future development costs are
estimated based upon constant price assumptions and assume the continuation of
existing economic, operating and regulatory conditions. Future income taxes
are calculated by applying the year-end statutory rate to estimate future
pre-tax cash flows after provision for the tax cost of the oil and natural gas
properties based upon existing laws and regulations. The discount was computed
by application of a 10% discount factor to the estimated future net cash
flows.
Management believes that this information does not represent the fair market
value of the oil and natural gas reserves or the present value of estimated
cash flows since no economic value is attributed to potential reserves, the
use of a 10% discount rate is arbitrary, and prices change constantly from
year-end levels.
Present value of estimated future net cash flows:
2001 2002 2003
----------- --------------------------------------- ----------------------------------------
Notes PRC PRC Indonesia Total PRC Indonesia Total
RMB'000 RMB'000 RMB'000 RMB'000 RMB'000 RMB'000 RMB'000
Future cash inflows (1) 261,339,180 389,025,791 37,242,644 426,268,435 422,329,692 30,135,721 452,465,413
Future production
costs (74,404,378) (89,657,677) (22,386,603) (112,044,280) (106,854,167) (17,532,095) (124,386,262)
Future development
costs (2) (38,640,756) (44,699,729) (5,381,081) (50,080,810) (52,917,280) (4,114,091) (57,031,371)
Future income taxes (39,097,483) (73,757,925) (4,301,926) (78,059,851) (72,124,755) (3,346,547) (75,471,302)
Future net cash flows (3) 109,196,563 180,910,460 5,173,034 186,083,494 190,433,490 5,142,988 195,576,478
10% discount factor (58,114,105) (84,478,856) (1,463,589) (85,942,445) (84,550,531) (1,226,300) (85,776,831)
------------ ------------ ------------ ------------- ------------ ----------- -------------
Standardised measure 51,082,458 96,431,604 3,709,445 100,141,049 105,882,959 3,916,688 109,799,647
============ ============ ============ ============= ============ =========== =============
108
CNOOC LIMITED Annual Report 2003
SUPPLEMENTARY INFORMATION ON OIL AND GAS PRODUCING ACTIVITIES (UNAUDITED)
(All amounts expressed in Renminbi unless otherwise stated)
(e) Standardised measure of discounted future net cash flows and changes
therein
(1) Future cash flows consist of the Group's 100% interest in the
independent oil and gas properties and the Group's participating
interest in the properties under production sharing contracts in PRC
less (a) an adjustment for the royalties payable to the PRC government
and share oil payable to the PRC government under production sharing
contracts and (b) an adjustment for production allocable to foreign
partners under the PRC production sharing contracts for exploration
costs attributable to the Group's participating interest, plus its
participating interest in the properties covered under the production
sharing contracts in Indonesia, less an adjustment of share oil
attributable to Indonesian government and the domestic market
obligation.
(2) Future development costs include the estimated costs of drilling future
development wells and building the production platforms.
(3) Future net cash flows have been prepared taking into consideration
estimated future dismantlement costs of dismantling offshore oil
platforms and gas properties.
Changes in the standardised measure of discounted future net cash flows:
2001 2002 2003
RMB'000 RMB'000 RMB'000
Standardised measure, beginning of year 93,390,597 51,082,458 100,141,049
Sales of production, net of royalties and production costs (14,347,890) (18,980,911) (22,345,781)
Net change in prices, net of royalties and production costs (32,289,445) 58,471,355 22,321,949
Extensions discoveries and improved recovery, net of related future costs 9,985,707 14,603,893 13,790,936
Change in estimated future development costs (9,651,681) (13,947,849) (14,673,054)
Development costs incurred during the year 3,958,357 6,208,731 7,718,863
Revisions in quantity estimates (3,272,326) (3,301,510) (2,942,902)
Accretion of discount 10,846,714 6,873,378 13,428,654
Net change in income taxes (3,241,861) (23,296,206) (6,290,099)
Purchase of properties - 15,899,375 5,363,142
Changes in timing and other (4,295,714) 6,528,335 (6,713,110)
------------ ------------ ------------
Standardised measure, end of year 51,082,458 100,141,049 109,799,647
============ ============ ============
109
CNOOC LIMITED Annual Report 2003
NOTICE OF
ANNUAL GENERAL MEETING
Notice is hereby given that the Annual General Meeting of CNOOC Limited (the
"Company) will be held on April 28, 2004 at 10:30 a.m. at Island Shangri-la
Hong Kong, Two Pacific Place, Supreme Court Road, Hong Kong for the following
purposes:
As Ordinary Business:
1. To receive and consider the Audited Accounts for the year ended 31
December 2003 together with the Reports of the Directors and the
Auditors thereon.
2. To declare the final dividend for the year ended 31 December 2003 and
special cash dividend.
3. To re-elect Directors and fix their remuneration.
4. To re-appoint the Auditors and to authorise the Directors to fix their
remuneration.
And as Special Business, to consider and, if thought fit, to pass the
following as ordinary resolutions or special resolutions:
ORDINARY RESOLUTIONS
5. "THAT:
(a) subject to paragraphs (b) and (c) below, the exercise by the
Directors during the Relevant Period (as hereinafter defined) of all
the powers of the Company to purchase shares of HK$0.02 each (or
such smaller amount as shall be approved to the shareholders of the
Company) in the capital of the Company including any form of
depositary receipts representing the right to receive such shares
("Shares") on The Stock Exchange of Hong Kong Limited (the "Stock
Exchange") or any other stock exchange recognised for this purpose
by the Securities and Futures Commission of Hong Kong and the Stock
Exchange in accordance with all applicable laws including the Hong
Kong Code on Share Repurchases and the Rules Governing the Listing
of Securities on the Stock Exchange as amended from time to time be
and is hereby generally and unconditionally approved;
(b) the aggregate nominal amount of Shares which may be purchased or
agreed conditionally or unconditionally to be purchased by the
Directors pursuant to the approval in paragraph (a) above shall not
exceed 10 percent of the aggregate nominal amount of the share
capital of the Company in issue at the date of passing this
Resolution, and the said approval shall be limited accordingly; and
(c) for the purpose of this Resolution:
"Relevant Period" means the period from the passing of this
Resolution until the earliest of:
(i) the conclusion of the next annual general meeting of the
Company;
(ii) the expiry of the period within which the next annual
general meeting of the Company is required by the Company's
articles of association (the "Articles of Association") or
the Companies Ordinance to be held; and
(iii) the revocation or variation of the authority given to the
Directors under this Resolution by ordinary resolution of
the Company's shareholders in general meeting."
6. "THAT:
(a) subject to paragraph (c) below, the exercise by the
Directors during the Relevant Period (as hereinafter
defined) of all the powers of the Company to allot, issue
and deal with additional Shares and to make or grant offers,
agreements and options which might require the exercise of
such powers be and are hereby generally and unconditionally
approved;
(b) the approval in paragraph (a) shall authorise the Directors
during the Relevant Period to make or grant offers,
agreements and options which might require the exercise of
such powers after the end of the Relevant Period;
(c) the aggregate nominal amount of share capital allotted,
issued and dealt with or agreed conditionally or
unconditionally to be allotted, issued and dealt with
(whether pursuant to an option or otherwise) by the Directors
pursuant to the approval in paragraph (a), otherwise than
pursuant to (i) a Rights Issue (as hereinafter defined),
(ii) the exercise of options granted under
110
CNOOC LIMITED Annual Report 2003
any share option scheme adopted by the Company or (iii) any
scrip dividend on Shares in accordance with the Articles of
Association, shall not exceed the aggregate of (aa) 20 per
cent. of the aggregate nominal amount of the share capital
of the Company in issue at the date of passing this
Resolution, plus (bb) (if the Directors are so authorised by
a separate ordinary resolution of the shareholders of the
Company) the aggregate nominal amount of share capital of
the Company repurchased by the Company subsequent to the
passing of this Resolution (up to a maximum equivalent to 10
per cent. of the aggregate nominal amount of the share
capital of the Company in issue at the date of passing this
Resolution), and the said approval shall be limited
accordingly; and
(d) for the purpose of this Resolution:
"Relevant Period" means the period from the passing of this
Resolution until the earliest of:
(i) the conclusion of the next annual general meeting
of the Company;
(ii) the expiry of the period within which the next
annual general meeting of the Company is required
by the Articles of Association or the Companies
Ordinance to be held; and
(iii) the revocation or variation of the authority given
to the Directors under this Resolution by ordinary
resolution of the Company's shareholders in general
meeting; and
"Rights Issue" means an offer of shares open for a period
fixed by the Directors to holders of Shares on the register
of members on a fixed record date in proportion to their
then holdings of such Shares (subject to such exclusion or
other arrangements as the Directors may deem necessary or
expedient in relation to fractional entitlements or having
regard to any legal or practical restrictions or obligations
under the laws of, or the requirements of, any recognised
regulatory body or any stock exchange in any territory
applicable to the Company) and an offer, allotment or issue
of shares by way of rights shall be construed accordingly."
7. "THAT the Directors be and are hereby authorised to exercise the
powers of the Company referred to in paragraph (a) of Resolution 6 in
respect of the share capital of the Company referred to in
sub-paragraph (bb) of paragraph (c) of such resolution."
8. To transact any other ordinary business.
SPECIAL RESOLUTION
9. "THAT:
(a) Article 2(a) of the Company's Articles of Association be
amended by adding:
"associate shall have the meaning ascribed to it under the
Rule Governing the Listing of Securities on the Stock
Exchange of Hong Kong Limited as amended from time to time."
(b) Article 78 of the Company's Articles of Association be amended
by adding:
"Where a member is, under the Rules Governing the Listing of
Securities on the Stock Exchange of Hong Kong Limited,
required to abstain from voting on any particular resolution
or restricted to voting only for or only against any
particular resolution, any votes cast by or on behalf of
such member in contravention of such requirement or
restriction shall not be counted."
(c) Article 97 of the Company's Articles of Association be amended
by deleting:
"To person other than a Director retiring at the meeting,
shall, unless recommended by the Directors for election, be
eligible for election as a Director at any general meeting
unless not less than seven (7) days before the date
appointed for the meeting there shall have been lodged at
the Office or at the head office of the Company a notice
signed by a member (other than the person to be proposed)
duly qualified to attend and vote at the meeting for which
such notice is given of his intention to propose such person
for election and also a notice signed by the person to be
proposed of his willingness to be elected."
111
CNOOC LIMITED Annual Report 2003
NOTICE OF
ANNUAL GENERAL MEETING
and replacing with the following:
"No person other than a Director retiring at the meeting,
shall, unless recommended by the Directors for election, be
eligible for election as a Director at any general meeting
unless there shall have been lodged at the Office or at the
head office of the Company a notice signed by a member
(other than the person to be proposed) duly qualified to
attend and vote at the meeting for which such notice is
given of his intention to propose such person for election
and also a notice signed by the person to be proposed of his
willingness to be elected. The period for lodgement of such
notices shall commence no earlier than the day after the
despatch of the notice of meeting appointed for such
election and end no later than seven (7) days before the
date appointed for the meeting."
(d) Article 108 be deleted and replaced with the following:
"108. A Director shall not vote (nor shall he be counted in
the quorum) on any resolution of the Board in respect of any
contract or arrangement or proposal in which he is or any of
his associates materially interested, and if he shall do so
his vote shall not be counted (nor shall he be counted in
the quorum for that resolution), but this prohibition shall
not apply to any of the following matters, namely:
(a) any contract or arrangement for the giving by the Company of
any security or indemnity to the Director or his
associate(s) in respect of money lent or obligations
incurred or undertaken by him or any of them at the request
of or for the benefit of the Company or any of its
subsidiaries;
(b) any contract or arrangement for the giving by the Company of
any security to a third party in respect of a debt or
obligation of the Company or any of its subsidiaries for
which the Director or his associate(s) has
himself/themselves assumed responsibility or guaranteed or
secured in whole or in part whether alone or jointly;
(c) any contract or arrangement concerning an offer of the
shares or debentures or other securities of or by the
Company or any other company which the Company may promote
or be interested in for subscription or purchase where the
Director or his associate(s) is/are or is/are to be
interested as a participant in the underwriting or
sub-underwriting of the offer;
(d) any contract or arrangement in which the Director or his
associate(s) is/are interested in the same manner as other
holders of shares or debentures or other securities of the
Company by virtue only of his/their interest in shares or
debentures or other securities of the Company;
(e) any contract or arrangement concerning any other company in
which the Director or his associate(s) is/are interested
whether directly or indirectly as an officer or executive or
a shareholder or in which the Director or his associate(s)
is/are beneficially interested in shares of that company other
than a company in which the Director and any of his associates
are in aggregate beneficially interested 5% or more of the
issued shares of any class of the equity share capital of such
company (or of any third company through which his interest or
that of his associates is derived) or of the voting rights
(excluding for the purpose of calculating such five per cent.
interest any indirect interest of such Director or his
associates by virtue of an interest of the Company in such
company);
(f) any proposal or arrangement for the benefit of employees of
the Company or its subsidiaries including the adoption,
modification or operation of a pension fund or retirement,
death or disability benefit scheme which relates both to
Directors, his associate(s) and employees of the Company or
of any of its subsidiaries and does not give in respect of
any Director, or his associate(s), as such any privilege or
advantage not generally accorded to the class of persons to
whom such scheme or fund relates;
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CNOOC LIMITED Annual Report 2003
(g) any proposal or arrangement concerning the adoption,
modification or operation of any employees' share scheme
involving the issue or grant of options over shares or other
securities by the Company to, or for the benefit of, the
employees of the Company or its subsidiaries under which the
Director or his associate(s) may benefit.
If any question shall arise at any meeting of the Board as to the materiality
of the interest of a Director (other than the Chairman of the meeting) or as
to the entitlement of any Director (other than such Chairman) to vote or be
counted in the quorum and such question is not resolved by his voluntarily
agreeing to abstain from voting or not to be counted in the quorum, such
question shall be referred to the Chairman of the meeting and his ruling in
relation to such other Director shall be final and conclusive except in a case
where the nature or extent of the interest of the Director as known to such
Director has not been fairly disclosed to the Board. If any question as
aforesaid shall arise in respect of the Chairman of the meeting such question
shall be decided by a resolution of the Board (for which purpose such Chairman
shall not be counted in the quorum and shall not vote thereon) and such
resolution shall be final and conclusive except in a case where the nature or
extent of the interest of such Chairman as known to such Chairman has not been
fairly disclosed to the Board."
By order of the Board
Cao Yunshi
Company Secretary
Hong Kong, 15 March 2004
Notes:
(1) Any member entitled to attend and vote at the above Meeting is
entitled to appoint one or more proxies to attend and, on a poll,
vote in his stead. A proxy need not be a member of the Company.
(2) In order to be valid, a form of proxy together with the power of
attorney or other authority (if any) under which it is signed, 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 fixed for holding
the above meeting. Completion and return of a form of proxy will not
preclude a member from attending and voting in person if he is
subsequently able to be present.
(3) The Register of Members will be closed from 16 April 2004 to 23 April
2004 (both days inclusive). In order to establish entitlements to the
proposed final dividend and special final dividend, all transfers
accompanied by the relevant share certificates must be lodged with
the Company's registrar, Hong Kong Registrars Limited, at Rooms
1712-1716, 17th Floor, Hopewell Centre, 183 Queen's Road East,
Wanchai, Hong Kong not later than 4:00 p.m. on 15 April 2004.
(4) In relation to the Ordinary Resolution set out in item 5 of the
Notice, the Directors wish to state that they have no immediate plans
to repurchase any existing shares. The Explanatory Statement
containing the information necessary to enable the shareholders to
make an informed decision on whether to vote for or against the
resolution to approve the repurchase by the Company of its own
shares, as required by the Rules Governing the Listing of Securities
on The Stock Exchange of Hong Kong Limited (the "Listing Rules"),
will be set out in a separate letter from the Company to be enclosed
with the 2003 Annual Report.
(5) In relation to the Ordinary Resolution set out in item 6 of the
Notice, the Directors wish to state that they have no immediate plans
to issue any new shares of the Company. Approval is being sought from
the shareholders as a general mandate for the purpose of Section 57B
of the Companies Ordinance and the Listing Rules.
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CNOOC LIMITED Annual Report 2003
GLOSSARY
API gravity
The America Petroleum Institute's scale for specific gravity for liquid
hydrocarbons, measured in degrees.
Appraisal well
An exploratory well drilled for the purpose of evaluating the commerciality of
a geological trap in which petroleum has been discovered.
Bbls
Barrels
Bcf
Billion cubic feet
Boe
Barrels-of-oil-equivalent
DD&A
Depreciation, depletion and amortisation
Provision for Dismantlement
Post closure and other environmental exit
Lifting costs per barrel
(Operating expenditures + production taxes)/total net production
Downstream business
Refinery and petrochemical processing
Finding costs
For a given period, costs incurred in identifying areas that may warrant
examination and in examining specific areas that are considered to have
prospects of containing oil and gas reserves, including costs of drilling
exploratory wells.
FPSO
Floating, Production, Storage and Offloading
LNG
Liquefied Natural Gas
Mbbls
Thousand barrels
Mboe
Thousand barrels of equivalent
Mcf
Thousand cubic feet
Million Boe or mmboe
Million barrels-of-oil equivalent
Mmbbls
Million barrels
Mmcf
Million cubic feet
Net Proved Reserves
"Net proved reserves" are derived from proved reserves less certain
adjustments, where: proved reserves is equal to the sum of (i) our 100%
interest in our independent oil and gas properties (excluding the proved
reserves attributable to our associated company); and (ii) our participating
interest in the properties covered under our production sharing contracts in
the PRC and Indonesia; while the adjustments equal the sum of (i) an
adjustment for our share of royalties payable to the PRC government and our
participating interest in share oil payable to the PRC government under our
production sharing contracts in the PRC; (ii) an adjustment for production
allocable to foreign partners under our production sharing contracts in the
PRC as reimbursement for exploration expenses attributable to our working
interest and (iii) an adjustment for share oil payable under our Indonesian
production sharing contracts to Pertamina, the Indonesian state-owned oil and
gas company and the domestic market obligation.
We use "Share oil" to refer to the portion of production that must be
allocated to the relevant government entity or company under our production
sharing contracts and technical assistance contracts. Net proved reserves do
not include any deduction for production taxes payable by us, which are
included in our operating expenses.
Net Production
Net production is calculated in the same way as net proved reserves.
Net reserve additions
Total additions of reserves plus or minus reserves revisions
Offshore
Areas under water with a depth of five metres or greater
PSC
Production sharing contract
Total production costs per barrel
(operating expenditures + production taxes + provision for dismantlement +
DD&A + SG&A)/total net production
Upstream business
Oil and gas exploration and production
Wildcat well
A well drilled on any geological trap for the purpose of searching for
petroleum accumulations in an area or rock formation that has no known
reserves or previous discoveries
Reserve replacement ratio
For a given year, gross additions to proved reserves divided by production
during the year.
Note: In calculating barrels-of-oil equivalent, or BOE, we have assumed that
6,000 cubic feet of natural gas equals one BOE, with the exception of natural
gas from certain fields which is converted using the actual heating value of
the natural gas.
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CNOOC LIMITED Annual Report 2003
COMPANY INFORMATION
Board of Directors:
Chengyu Fu Chairman & CEO
Longsheng Jiang Executive Director
Shouwei Zhou Executive Director & President
Han Luo Executive Director
Sung Hong Chiu Independent Non-executive Director
Dr. Kenneth S. Courtis Independent Non-executive Director
Dr. Erwin Schurtenberger Independent Non-executive Director
Evert Henkes Independent Non-executive Director
Company Secretary
Yunshi Cao
Audit Committee
Sung Hong Chiu
Dr. Kenneth S. Courtis (Financial Advisor)
Remuneration Committee
Sung Hong Chiu
Dr. Erwin Schurternberger
Evert Henkes
Nomination Committee
Han Luo
Sung Hong Chiu
Dr. Erwin Schurternberger
Senior Management
Yunshi Cao General Counsel & Senior Vice
President
Mark Qiu CFO & Senior Vice President
Hua Yang Senior Vice President
Wei Chen Senior Vice President
Guohua Zhang Senior Vice President
Jian Liu Senior Vice President
Ning Li Senior Vice President
Qiang Zhang Assistant to General Manager
CNOOC China Limited
Defu Liu Assistant to General Manager
CNOOC China Limited
Department Management
Guohua Zhang General Manager, Exploration
Department (concurrently)
Jian Liu General Manager, Development &
Production Department
(concurrently)
Ning Li General Manager,Engineering &
Project Department (concurrently)
Quan Zeng Controller, Controllers Department
Liguo Zhao General Manager, Legal Department
Lisong Song General Manager,Health, Safety &
Environmental Department
Hua Zhong General Manager, Strategic
Development & Planning Department
Chen Hezhi Human Resources Manager, Human
Resources Department
Baoguo Zheng General Manager, Marketing Department
Chi Cheng General Manager, Treasury Department
Zongwei Xiao General Manager, Investor Relations
Department
Jianbo Sheng Acting Director, Mergers and
Acquisitions Office
Branch Offices & Subsidiaries Management:
Bi Chen General Manager,
CNOOC China Limited - Tianjin Branch
Weilin Zhu General Manager,
CNOOC China Limited - Zhanjiang Branch
Mingcai Zhu General Manager,
CNOOC China Limited - Shenzhen Branch
Xuejun Cao General Manager,
CNOOC China Limited - Shanghai Branch
Wei Chen Director,
CNOOC (China) Limited Research Centre
(Concurrently)
Hua Yang President,
CNOOC International Limited
(Concurrently)
Zhi Fang Director and General Manager,
CNOOC Southeast Asia Limited
Dalu Sun Acting General Manager,
China Offshore Oil (Singapore)
International Pte. Ltd.
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CNOOC LIMITED Annual Report 2003
COMPANY INFORMATION
Principal bankers:
Bank of China, Hong Kong Branch
Hang Seng Bank Limited
Bank of China
Industrial and Commercial Bank of China
CITIC Industrial Bank
China Construction Bank
Hong Kong Share Registrar:
Hong Kong Registrars Limited
19th Floor, Room 1901-5
Hopewell Centre
183 Queen's Road East
Wan Chai
Hong Kong
ADS Depositary:
Morgan Guaranty Trust Company of New York
60 Wall Street
New York
New York 10260
United States of America
Symbol and stock code:
NYSE: CEO
HKSE: 0883
Investor / Public Relations:
Hong Kong
Tel: (852) 2213 2500
Fax: (852) 2525 9322
Beijing
Tel: (8610) 8452 1646
Fax: (8610) 8452 1441
E-mail: xiaozw@cnooc.com.cn
Registered office:
65/F, Bank of China Tower, 1 Garden Road, Hong Kong
Tel: (852) 2213 2500
Fax: (852) 2525 9322
Beijing office:
CNOOC Tower, No.6 Dong Zhi Men Wai Xiao Jie,
Beijing, 100027, China
Zip Code: 100027
Tel: (8610) 8452 1604
Fax: (8610) 6460 2503
Website: www.cnoocltd.com
116
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934,
as amended, the registrant has duly caused this report to be issued on its
behalf by the undersigned, thereunto duly authorized.
CNOOC Limited
By: /s/ Cao Yunshi
-----------------------------
Name: Cao Yunshi
Title: Company Secretary
Dated: April 16, 2004
117