20-F

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 20-F

(Mark One)

¨ REGISTRATION STATEMENT PURSUANT TO SECTION 12(b) OR (g) OF THE SECURITIES EXCHANGE ACT OF 1934

OR

ý ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the fiscal year ended December 31, 2010

OR

¨ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from _________________ to _______________

OR

¨ SHELL COMPANY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

Date of event requiring this shell company report ________________

Commission File Number 1-14966

CNOOC LIMITED

(Exact name of Registrant as specified in its charter)

N/A

(Translation of Registrant’s name into English)

Hong Kong

(Jurisdiction of incorporation or organization)

65th Floor, Bank of China Tower

One Garden Road, Central

Hong Kong

(Address of principal executive offices)

Yongzhi Jiang

65th Floor, Bank of China Tower

One Garden Road, Central

Hong Kong

Tel +852 2213 2500

Fax +852 2525 9322

(Name, telephone, e-mail and/or facsimile number and address of company contact person)

Securities registered or to be registered pursuant to Section 12(b) of the Act.

Title of each class	Name of each exchange on which registered
American depositary shares, each representing 100 shares of par value HK$0.02 per share Shares of par value HK$0.02 per share	New York Stock Exchange, Inc. New York Stock Exchange, Inc.(1)

Securities registered or to be registered pursuant to Section 12(g) of the Act.  None

(Title of Class)

Securities for which there is a reporting obligation pursuant to Section 15(d) of the Act.  None

(Title of Class)

Indicate the number of outstanding shares of each of the issuer’s classes of capital or common stock as of the close of the period covered by the annual report.

Shares, par value HK$0.02 per share  44,669,199,984                

Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act.

Yes   ý    No    ¨

If this report is an annual or transition report, indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934.

Yes   ¨    No    ý

Note – Checking the box above will not relieve any registrant required to file reports pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 from their obligations under those Sections.

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the Registrant is required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.

Yes   ý    No    ¨

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).

Yes   ¨    No    ý

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, or a non-accelerated filer.  See definition of “accelerated filer and large accelerated filer” in Rule 12b-2 of the Exchange Act. (Check one):

Large accelerated filer    ý   Accelerated filer    ¨   Non-accelerated filer    ¨

Indicate by check mark which basis of accounting the registrant has used to prepare the financial statements included in this filing:

U.S. GAAP    ¨

International Financial Reporting Standards as issued by the International Accounting Standards Board    ý

Other    ¨

If “Other” has been checked in response to the previous question, indicate by check mark which financial statement item the Registrant has elected to follow.

Item 17    ¨   Item 18    ¨

If this is an annual report, indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).

Yes    ¨   No    ý

(1)       Not for trading, but only in connection with the registration of American depositary shares.

Table of Contents

Page

TERMS AND CONVENTIONS	4
FORWARD-LOOKING STATEMENTS	8
SPECIAL NOTE ON THE FINANCIAL INFORMATION AND CERTAIN STATISTICAL INFORMATION PRESENTED IN THIS ANNUAL REPORT	9
PART  I	10
ITEM 1. IDENTITY OF DIRECTORS, SENIOR MANAGEMENT AND ADVISERS	10
ITEM 2. OFFER STATISTICS AND EXPECTED TIMETABLE	10
ITEM 3. KEY INFORMATION	10

A.	Selected Financial Data	10
B.	Capitalization and Indebtedness	12
C.	Reasons for the Offer and Use of Proceeds	12
D.	Risk Factors	12
ITEM 4. INFORMATION ON THE COMPANY		17
A.	History and Development	17
B.	Business Overview	19
C.	Organizational Structure	50
D.	Property, plants and equipment	51
ITEM 4A. UNRESOLVED STAFF COMMENTS		51
ITEM 5. OPERATING AND FINANCIAL REVIEW AND PROSPECTS		52
A.	Operating Results	52
B.	Liquidity and Capital Resources	62
C.	Research and Development, Patents and Licenses, etc.	67
D.	Trend Information	67
E.	Off-Balance Sheet Arrangements	68
F.	Tabular Disclosure of Contractual Obligations	68
G.	Safe Harbor	68
ITEM 6. DIRECTORS, SENIOR MANAGEMENT AND EMPLOYEES		69
A.	Directors and Senior Management	69
B.	Compensation	75
C.	Board Practice	76
D.	Employees	78
E.	Share Ownership	78
ITEM 7.  MAJOR SHAREHOLDERS AND RELATED PARTY TRANSACTIONS		80
A.	Major Shareholders	80
B.	Related Party Transactions	80
C.	Interests of Experts and Counsel	86
ITEM 8.  FINANCIAL INFORMATION		86
A.	Consolidated Statements and Other Financial Information	86
B.	Significant Changes	87
ITEM 9.  THE OFFER AND LISTING		88
ITEM 10.  ADDITIONAL INFORMATION		88
A.	Share Capital	88
B.	Memorandum and Articles of Association	88
C.	Material Contracts	92
D.	Exchange Controls	92
E.	Taxation	92
F.	Dividends and Paying Agents	96
G.	Statement by Experts	96
H.	Documents on Display	96
I.	Subsidiary Information	96
ITEM 11.  QUALITATIVE AND QUANTITATIVE DISCLOSURES ABOUT MARKET RISK		96
ITEM 12.  DESCRIPTION OF SECURITIES OTHER THAN EQUITY SECURITIES		98
A.	Debt Securities	98
B.	Warrants and Rights	98
C.	Other Securitiess	98
D.	American Depositary Shares	98
PART  II		100
ITEM 13.  DEFAULTS, DIVIDEND ARREARAGES AND DELINQUENCIES		100
ITEM 14.  MATERIAL MODIFICATIONS TO THE RIGHTS OF SECURITY HOLDERS AND USE OF PROCEEDS		100
A.	Material Modifications to the Instruments Defining the Rights of Security Holders	100

2

B.	Material Modifications to the Rights of Registered Securities by Issuing or Modifying Any Other Class of Securities	100
C.	Withdrawal or Substitution of a Material Amount of the Assets Securing Any Registered Securities	100
D.	Change of Trustees or Paying Agents for Any Registered Securities	100
E.	Use of Proceeds	100

ITEM 15.  CONTROLS AND PROCEDURES	100
ITEM 16A.  AUDIT COMMITTEE FINANCIAL EXPERT	101
ITEM 16B.  CODE OF ETHICS	101
ITEM 16C.  PRINCIPAL ACCOUNTANT FEES AND SERVICES	101
ITEM 16D.  EXEMPTIONS FROM THE LISTING STANDARDS FOR AUDIT COMMITTEES	102
ITEM 16E.  PURCHASES OF EQUITY SECURITIES BY THE ISSUER AND AFFILIATED PURCHASERS	102
ITEM 16F.  CHANGE IN REGISTRANT'S CERTIFYING ACCOUNTANT	102
ITEM 16G.  CORPORATE GOVERNANCE	102
PART  III	103
ITEM 17. FINANCIAL STATEMENTS	103
ITEM 18. FINANCIAL STATEMENTS	103
ITEM 19. EXHIBITS	103

3

TERMS AND CONVENTIONS

Definitions

Unless the context otherwise requires, references in this annual report to:

l   “CNOOC” are to our controlling shareholder, China National Offshore Oil Corporation, a PRC state-owned enterprise, and its affiliates, excluding us and our subsidiaries;

l   “CNOOC Limited” are to CNOOC Limited, a Hong Kong limited liability company and the registrant of this annual report;

l   “Our company”, “we”, “our” or “us” are to CNOOC Limited and its subsidiaries;

l   “ADRs” are to the American depositary receipts that evidence our ADSs;

l   “ADSs” are to our American depositary shares, each of which represents 100 shares of par value HK$0.02 per share;

l   “China” or “PRC” are to the People’s Republic of China, excluding for purposes of geographical reference in this annual report, the Hong Kong Special Administrative Region, the Macau Special Administrative Region and Taiwan;

l   “Hong Kong” are to the Hong Kong Special Administrative Region of the People’s Republic of China;

l   “Hong Kong Stock Exchange” or “HKSE” are to The Stock Exchange of Hong Kong Limited;

l   “HK$” are to the Hong Kong dollar, the legal currency of the Hong Kong Special Administrative Region;

l   “HKICPA” are to the Hong Kong Institute of Certified Public Accountants;

l   “HKFRS” are to all Hong Kong Financial Reporting Standards and Hong Kong Accounting Standards and Interpretations approved by the Council of the HKICPA;

l   “IASB” are to the International Accounting Standards Board;

l   “IFRS” are to all International Financial Reporting Standards, including International Accounting Standards and Interpretations, as issued by the International Accounting Standards Board;

l   “NYSE” are to the New York Stock Exchange;

l   “Rmb” are to Renminbi, the legal currency of the PRC; and

l   “US$” are to U.S. dollar, the legal currency of the United States of America.

Conventions

We publish our financial statements in Renminbi.  Unless otherwise indicated, we have translated amounts from Renminbi into U.S. dollars solely for the convenience of the reader at the noon buying rate for cable transfers of Renminbi per U.S. dollar certified for customs purposes by the Federal Reserve Bank of New York, as set forth in the H.10 weekly statistical release of the Federal Reserve Board on December 30, 2010 of US$1.00=Rmb 6.6000.  We have also translated amounts in Hong Kong dollars solely for the convenience of the reader at the noon buying rate for cable transfers of Hong Kong dollars per U.S. dollar certified for customs purposes by the Federal Reserve Bank of New York, as set forth in the H.10 weekly statistical release of the Federal Reserve Board on December 30, 2010 of US$1.00=HK$7.7810.  We make no representation that the Renminbi amounts or Hong Kong dollar amounts could have been, or could be, converted into U.S. dollars at those rates on December 30, 2010, or at all.  For further information on exchange rates, see “Item 3—Key Information—Selected Financial Data.”

4

Totals presented in this annual report may not total correctly due to rounding of numbers.

Except as otherwise noted, all information in this annual report relating to our oil and natural gas reserves is based upon estimates prepared by independent petroleum engineering consulting companies and reviewed by us, except for the information relating to certain of our oil and natural gas reserves for the year 2010, which was evaluated by us independently, such as Wenchang 13-1, Wenchang 13-2 and Dongfang 1-1 oil and gas fields offshore China, and Akpo and Egina oil fields in Nigeria. Our reserve data for 2009 and 2010 were prepared in accordance with the SEC’s final rules on “Modernization of Oil and Gas Reporting”, which became effective for accounting periods ended on or after December 31, 2009.

In calculating barrels-of-oil equivalent amounts, for reserves, we have assumed that 6,000 cubic feet of natural gas equals one BOE, with the exception of natural gas from South America which we have assumed that 5,800 cubic feet of natural gas equals one BOE. For production, we have used actual thermal unit of each oil and gas field for such conversion purpose.

Glossary of Technical Terms

Unless otherwise indicated in the context, references to:

l   “API gravity” means the American Petroleum Institute’s scale for specific gravity for liquid hydrocarbons, measured in degrees.

l   “appraisal well” means an exploratory well drilled after a successful wildcat well to gain more information on a newly discovered oil or gas reserve.

l   “condensate” means a mixture of hydrocarbons that exists in the gaseous phase at original reservoir temperature and pressure and exists in the liquid phase at surface pressure and temperature when produced.

l   “crude oil” means crude oil and liquids, including condensate, natural gas liquids and liquefied petroleum gas.

l   “developed oil and gas reserves” are reserves of any category that can be expected to be recovered:

(i) through existing wells with existing equipment and operating methods or in which the cost of the required equipment is relatively minor compared to the cost of a new well; and

(ii) through installed extraction equipment and infrastructure operational at the time of the reserves estimate if the extraction is by means not involving any well.

l   “exploratory well” means a well drilled to find either a new field or a new reservoir in a field previously found to be productive of oil or gas in another reservoir. Generally, an exploratory well is any well that is not a development well, an extension well, a service well, or a stratigraphic test well.

l   “LNG” means liquefied natural gas.

l   “natural gas liquids” means light hydrocarbons that can be extracted in liquid form from natural gas through special separation plants.

5

l   “net wells” means a party’s working interest in wells.

l   “proved oil and gas reserves” means those quantities of oil and gas, which, by analysis of geoscience and engineering data, can be estimated with reasonable certainty to be economically producible—from a given date forward, from known reservoirs, and under existing economic conditions, operating methods, and government regulations— prior to the time at which contracts providing the right to operate expire, unless evidence indicates that renewal is reasonably certain, regardless of whether deterministic or probabilistic methods are used for the estimation. The project to extract the hydrocarbons must have commenced or the operator must be reasonably certain that it will commence the project within a reasonable time.

(i) The area of the reservoir considered as proved includes: (A) The area identified by drilling and limited by fluid contacts, if any, and (B) Adjacent undrilled portions of the reservoir that can, with reasonable certainty, be judged to be continuous with it and to contain economically producible oil or gas on the basis of available geosciences and engineering data.

(ii) In the absence of data on fluid contacts, proved quantities in a reservoir are limited by the lowest known hydrocarbons (LKH) as seen in a well penetration unless geosciences, engineering, or performance data and reliable technology establishes a lower contact with reasonable certainty.

(iii) Where direct observation from well penetrations has defined a highest known oil (HKO) elevation and the potential exists for an associated gas cap, proved oil reserves may be assigned in the structurally higher portions of the reservoir only if geosciences, engineering, or performance data and reliable technology establish the higher contact with reasonable certainty.

(iv) Reserves which can be produced economically through application of improved recovery techniques (including, but not limited to, fluid injection) are included in the proved classification when: (A) Successful testing by a pilot project in an area of the reservoir with properties no more favorable than in the reservoir as a whole, the operation of an installed program in the reservoir or an analogous reservoir, or other evidence using reliable technology establishes the reasonable certainty of the engineering analysis on which the project or program was based; and (B) The project has been approved for development by all necessary parties and entities, including governmental entities.

(v) Existing economic conditions include prices and costs at which economic producibility from a reservoir is to be determined. The price shall be the average price during the 12-month period prior to the ending date of the period covered by the report, determined as an unweighted arithmetic average of the first-day-of-the-month price for each month within such period, unless prices are defined by contractual arrangements, excluding escalations based upon future conditions.

l   “PSC” means production sharing contract. For more information about PSC, see “Item 4—Information on the Company—Business Overview—Fiscal Regimes.”

l   “share oil” means the portion of production that must be allocated to the relevant government entity under our PSCs in the PRC.

l   “undeveloped oil and gas reserves” means reserves of any category that are expected to be recovered from new wells on undrilled acreage, or from existing wells where a relatively major expenditure is required for recompletion.

(i) Reserves on undrilled acreage shall be limited to those directly offsetting development spacing areas that are reasonably certain of production when drilled, unless evidence using reliable technology exists that establishes reasonable certainty of economic producibility at greater distances.

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(ii) Undrilled locations can be classified as having undeveloped reserves only if a development plan has been adopted indicating that they are scheduled to be drilled within five years, unless the specific circumstances, justify a longer time.

(iii) Under no circumstances shall estimates for undeveloped reserves be attributable to any acreage for which an application of fluid injection or other improved recovery technique is contemplated, unless such techniques have been proved effective by actual projects in the same reservoir or an analogous reservoir, or by other evidence using reliable technology establishing reasonable certainty.

For further definitions relating to reserves:

l   “reserve replacement ratio” means, for a given year, total additions to proved reserves, which consist of additions from purchases, discoveries and extensions and revisions of prior reserve estimates, divided by production during the year.  Reserve additions used in this calculation are proved developed and proved undeveloped reserves; unproved reserve additions are not used.  Data used in the calculation of reserve replacement ratio is derived directly from the reserve quantity reconciliation prepared in accordance with U.S. Accounting Standards Codification 932-235-50, which reconciliation is included in “Supplementary Information on Oil and Gas Producing Activities” beginning on page S-1 of this annual report.

Our reserve replacement ratio reflects our ability to replace proved reserves.  A rate higher than 100% indicates that more reserves were added than produced in the period.  However, this measure has limitations, including its predictive and comparative value.  Reserve replacement ratio measures past performance only and fluctuates from year to year due to differences in the extent and timing of new discoveries and acquisitions.  It is also not an indicator of profitability because it does not reflect the cost or timing of future production of reserve additions.  It does not distinguish between reserve additions that are developed and those that will require additional time and funding to develop.  As such, reserve replacement ratio is only one of the indices used by our management in formulating its acquisition, exploration and development plans.

l   “reserve life” means the ratio of proved reserves to annual production of crude oil or, with respect to natural gas, to wellhead production excluding flared gas, also known as reserve-to-production ratio.

l   “seismic data” means data recorded in either two-dimensional (2D) or three-dimensional (3D) form from sound wave reflections off of subsurface geology.

l   “success” means a discovery of oil or gas by an exploratory well.  Such an exploratory well is a successful well and is also known as a discovery.  A successful well is commercial, which means there are enough hydrocarbon deposits discovered for economical recovery.

l   “wildcat well” means an exploratory well drilled on any rock formation for the purpose of searching for petroleum accumulations in an area or rock formation that has no known reserves or previous discoveries.

References to:

l   bbls means barrels, which is equivalent to approximately 0.134 tons of oil (33 degrees API);

l   mmbbls means million barrels;

l   BOE means barrels-of-oil equivalent;

l   mcf means thousand cubic feet;

l   mmcf means million cubic feet;

l   bcf means billion cubic feet, which is equivalent to approximately 28.32 million cubic meters; and

l   BTU means British Thermal Unit, a universal measurement of energy.

7

FORWARD-LOOKING STATEMENTS

This annual report includes “forward-looking statements” within the meaning of the United States Private Securities Litigation Reform Act of 1995. The words “believe”, “intend”, “expect”, “anticipate”, “project”, “estimate”, “plan”, “predict” and similar expressions are also intended to identify such forward-looking statements.

These forward-looking statements address, among others, such issues as:

· the amount and nature of future exploration, development and other capital expenditures,

· wells to be drilled or reworked,

· development projects,

· exploration prospects,

· estimates of proved oil and gas reserves,

· potential reserves,

· development and drilling potential,

· expansion and other development trends of the oil and gas industry,

· business strategy,

· production of oil and gas,

· development of undeveloped reserves,

· expansion and growth of our business and operations,

· oil and gas prices and demand,

· future earnings and cash flow, and

· our estimated financial information.

These statements are based on assumptions and analyses made by us in light of our experience and our perception of historical trends, current conditions and expected future developments, as well as other factors we believe are appropriate under the circumstances.  However, whether actual results and developments will meet our expectations and predictions depend on a number of risks and uncertainties which could cause our actual results, performance and financial condition to differ materially from our expectations, including those associated with fluctuations in crude oil and natural gas prices, our exploration or development activities, our capital expenditure requirements, our business strategy, the highly competitive nature of the oil and natural gas industry, our foreign operations, environmental liabilities and compliance requirements, and economic and political conditions in the PRC and overseas.  For a description of these and other risks and uncertainties, see “Item 3—Key Information—Risk Factors.”

Consequently, all of the forward-looking statements made in this annual report are qualified by these cautionary statements.  We cannot assure that the results or developments anticipated by us will be realized or, even if substantially realized, that they will have the expected effect on us, our business or our operations.

8

SPECIAL NOTE ON THE FINANCIAL INFORMATION AND CERTAIN STATISTICAL INFORMATION PRESENTED IN THIS ANNUAL REPORT

Our consolidated financial statements for the years ended December 31, 2008, 2009 and 2010 included in this annual report on Form 20-F have been prepared in accordance with International Financial Reporting Standards, or IFRS, as issued by the International Accounting Standards Board.

In accordance with rule amendments adopted by the U.S. Securities and Exchange Commission, or the SEC, which became effective on March 4, 2008, we are not required to provide reconciliation to Generally Accepted Accounting Principles in the United States.

The statistical information set forth in this annual report on Form 20-F relating to China is taken or derived from various publicly available government publications that have not been prepared or independently verified by us. This statistical information may not be consistent with other statistical information from other sources within or outside China.

9

PART I

ITEM 1. IDENTITY OF DIRECTORS, SENIOR MANAGEMENT AND ADVISERS

Not applicable, but see “Item 6—Directors, Senior Management and Employees—Directors and Senior Management.”

ITEM 2. OFFER STATISTICS AND EXPECTED TIMETABLE

Not applicable.

ITEM 3. KEY INFORMATION

A. SELECTED FINANCIAL DATA

The following tables present selected historical financial data of our company as of and for the years ended December 31, 2007, 2008, 2009 and 2010. Except for amounts presented in U.S. dollars, the selected historical consolidated statement of financial position data and consolidated statement of comprehensive income data as of and for the years ended December 31, 2007, 2008, 2009 and 2010 set forth below are derived from, should be read in conjunction with, and are qualified in their entirety by reference to, our consolidated financial statements and their notes under “Item 18—Financial Statements” and “Item 5—Operating and Financial Review and Prospects” in this annual report. As disclosed above under Special Note on the Financial Information and Certain Statistical Information Presented in this annual report, our consolidated financial statements as of and for the years ended December 31, 2007, 2008, 2009 and 2010 have been prepared and presented in accordance with IFRS.

	Year ended December 31,
	2007			2008			2009			2010			2010
	Rmb			Rmb			Rmb			Rmb			US$
	(in millions, except per share and per ADS data)
Statement of Comprehensive Income Data:
Operating revenues:
Oil and gas sales		73,037			100,831			83,914			149,119			22,594
Marketing revenues		17,397			22,967			20,752			32,446			4,916
Other income		290			2,179			529			1,488			225
Total operating revenues		90,724			125,977			105,195			183,053			27,735
Expenses:
Operating expenses		(8,040	)		(9,990	)		(12,490	)		(16,204	)		(2,455	)
Taxes other than income tax		(3,657	)		(5,150	)		(3,889	)		(8,204	)		(1,243	)
Exploration expenses		(3,432	)		(3,410	)		(3,234	)		(5,580	)		(845	)
Depreciation, depletion and amortization		(7,936	)		(10,058	)		(15,943	)		(27,687	)		(4,195	)
Special oil gain levy		(6,837	)		(16,238	)		(6,357	)		(17,706	)		(2,683	)
Impairment and provision		(614	)		(1,541	)		(7	)		(27	)		(4	)
Crude oil and product purchases		(17,083	)		(22,675	)		(20,455	)		(32,236	)		(4,884	)
Selling and administrative expenses		(1,741	)		(1,743	)		(2,264	)		(3,063	)		(464	)
Others		(185	)		(1,307	)		(231	)		(941	)		(143	)
		(49,525	)		(72,112	)		(64,870	)		(111,648	)		(16,916	)
Interest income		673			1,091			638			704			107
Finance costs		(2,032	)		(415	)		(535	)		(1,222	)		(185	)
Exchange gains, net		1,856			2,551			54			995			151
Investment income		902			476			200			427			65
Share of profits of associates		719			374			173			199			30
Non-operating income/ (expenses), net		(7	)		(62	)		(34	)		142			21
Profit before tax		43,310			57,880			40,821			72,650			11,008
Income tax expense		(12,052	)		(13,505	)		(11,335	)		(18,240	)		(2,764	)
Profit for the year		31,258			44,375			29,486			54,410			8,244

10

Year ended December 31,
2007	2008	2009	2010	2010
Rmb	Rmb	Rmb	Rmb	US$
(in millions, except per share and per ADS data)

Earnings per share (basic)(1)	0.72		0.99		0.66		1.22		0.18
Earnings per share (diluted) (2)	0.72		0.99		0.66		1.21		0.18
Earnings per ADS (basic) (1)	71.68		99.44		66.01		121.81		18.46
Earnings per ADS (diluted) (2)	71.48		99.08		65.86		121.39		18.39
Dividend per share
Interim	0.12	2	0.17	5	0.17	6	0.18	1	0.03
Proposed final	0.15	9	0.17	6	0.17	6	0.21	1	0.03

	As of December 31,
	2007		2008		2009		2010		2010
	Rmb		Rmb		Rmb		Rmb		US$
	(in millions)
Statement of Financial Position Data:
Cash and cash equivalents		23,357		19,762		22,615		39,571		5,996
Available-for sale financial assets		6,688		11,661		8,582		18,940		2,870
Current assets		55,732		63,770		70,871		100,653		15,250
Property, plant and equipment, net		118,880		138,358		165,320		212,330		32,171
Investments in associates		2,031		1,785		1,727		1,781		270
Intangible assets and goodwill		1,331		1,206		1,230		3,022		458
Long term available-for-sale financial assets		1,819		1,550		3,120		8,704		1,319
Total assets		179,793		206,669		242,268		327,926		49,686
Current liabilities		21,402		18,799		31,042		69,410		10,517
Long term loans and borrowings, net of current portion		11,046		13,864		18,570		11,716		1,775
Total long term liabilities		24,077		27,632		37,291		42,750		6,477
Total liabilities		45,479		46,431		68,333		112,160		16,994
Capital stock		41,986		43,078		43,078		43,078		6,527
Shareholders’ equity		134,315		160,238		173,936		215,766		32,692

(1) Earnings per share (basic) and earnings per ADS (basic) for each year from 2007 to 2010 have been computed, without considering the dilutive effect of the shares underlying our share option schemes and, as applicable, convertible bonds, by dividing profit by the weighted average number of shares and the weighted average number of ADSs of 43,605,437,212 and 436,054,372, respectively, for 2007, 44,623,856,311 and 446,238,563, respectively, for 2008, 44,669,199,984 and 446,692,000, respectively, for 2009 and 44,669,199,984 and 446,692,000, respectively, for 2010, in each case based on a ratio of 100 shares to one ADS.

(2) Earnings per share (diluted) and earnings per ADS (diluted) for each year from 2007 to 2010 have been computed, after considering the dilutive effect of the shares underlying our share option schemes and, as applicable, convertible bonds, by using 43,731,936,869 shares and 437,319,369 ADSs for 2007, 44,786,097,516 shares and 447,860,975 ADSs for 2008, 44,771,714,329  shares and  447,717,143 ADSs for 2009 and 44,821,187,466 shares and 448,211,875 ADSs for 2010.

	Year ended December 31,
	2007			2008			2009			2010			2010
	Rmb			Rmb			Rmb			Rmb			US$
	(in millions, except percentages and ratios)
Other Financial Data:
Capital expenditures paid(1)		23,895			33,161			39,376			29,512			4,472
Cash provided by (used for):
Operating activities		38,254			52,489			49,624			83,498			12,651
Investing activities		(18,327	)		(45,735	)		(37,307	)		(64,800	)		(9,818	)
Financing activities		(10,799	)		(10,129	)		(9,403	)		(1,284	)		(195	)
Gearing ratio(2)		7.9%			8.0%			9.7%			13.4%			13.4%

(1)           Capital expenditures paid exclude acquisition capital expenditures.

(2)           Interest bearing debt divided by the sum of interest bearing debt and equity.

The following table sets forth the noon buying rates between U.S. dollars and Renminbi as set forth in the H.10 weekly statistical release of the Federal Reserve Board for the periods indicated:

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	Noon Buying Rate
Period	End		Average(1)		High		Low
	(Rmb per US$1.00)
2006		7.8041		7.9723		8.0702		7.8041
2007		7.2946		7.5806		7.8127		7.2946
2008		6.8225		6.9477		7.2946		6.7800
2009		6.8259		6.8307		6.8470		6.8176
2010		6.6000		6.7696		6.8330		6.6000
October 2010		6.6707		—		6.6912		6.6397
November 2010		6.6670		—		6.6892		6.6330
December 2010		6.6000		—		6.6745		6.6000
January 2011		6.6017		—		6.6364		6.5809
February 2011		6.5713		—		6.5965		6.5520
March 2011		6.5483		—		6.5743		6.5483

(1) Determined by averaging the noon buying rates on the last business day of each month during the relevant period.

As of March 31, 2011, the noon buying rate between U.S. dollars and Renminbi as set forth in the H.10 weekly statistical release of the Federal Reserve Board was Rmb6.5483 to US$1.00.

The following table sets forth the noon buying rates between U.S. dollars and Hong Kong dollars as set forth in the H.10 weekly statistical release of the Federal Reserve Board for the periods indicated.

	Noon Buying Rate
Period	End		Average(1)		High		Low
	(HK$ per US$1.00)
2006		7.7771		7.7681		7.7928		7.7506
2007		7.7984		7.8008		7.8289		7.7497
2008		7.7499		7.7862		7.8159		7.7497
2009		7.7536		7.7514		7.7618		7.7495
2010		7.7810		7.7687		7.8040		7.7506
October 2010		7.7515		—		7.7642		7.7515
November 2010		7.7649		—		7.7656		7.7501
December 2010		7.7810		—		7.7833		7.7612
January 2011		7.7926		—		7.7978		7.7683
February 2011		7.7883		—		7.7957		7.7823
March 2011		7.7750		—		7.8012		7.7750

(1) Determined by averaging the noon buying rates on the last business day of each month during the relevant period.

As of March 31, 2011, the noon buying rate between U.S. dollars and Hong Kong dollars as set forth in the H.10 weekly statistical release of the Federal Reserve Board was HK$7.7750 to US$1.00.

B. CAPITALIZATION AND INDEBTEDNESS

Not applicable.

C. REASONS FOR THE OFFER AND USE OF PROCEEDS

Not applicable.

D. RISK FACTORS

We urge you to consider carefully the risks described below. Although we have established the Enterprise Risk Management system to identify, evaluate and manage risks, our business activities are subject to the following risks, each of which could have a material adverse effect on our operations and financial condition.

Risks Relating to Our Operations

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Our business, revenues and profits fluctuate with changes in oil and gas prices

Prices for crude oil may fluctuate widely in response to relatively minor changes in the supply and demand for oil, market uncertainty and various other factors that are beyond our control, including, but not limited to overall economic conditions, consumer demand for oil, political developments, the ability of petroleum producing nations to set and maintain production levels and prices, the price and availability of other energy sources, domestic and foreign government regulations, and weather conditions.

In addition, our typical contracts with gas buyers include provisions for periodic resets and adjustment formulas that depend on a basket of crude oil prices and inflation as well as various other factors.  These resets and adjustment formulas can result in natural gas price fluctuations.

Even relatively modest declines in crude oil and/or natural gas prices may adversely affect our business, revenues and profits.  Lower oil and gas prices may result in the write-off of higher cost reserves and other assets and may lower our earnings or cause losses.  Lower oil and gas prices may also reduce the amount of oil and natural gas we can produce economically and render existing contracts that we have entered into uneconomical.

The oil and gas reserve estimates in this annual report may require substantial revision as a result of future drilling, testing, production and oil and gas price changes

The reliability of reserve estimates depends on a number of factors, including the quality and quantity of technical and economic data, the prevailing oil and gas prices for our production, the production performance of reservoirs, extensive engineering judgments, and the fiscal regime in the PRC and overseas where we have operations or assets.

Many of the factors, assumptions and variables involved in estimating reserves are beyond our control and may prove to be incorrect over time.  In addition, many of the factors involved in estimating reserves over which we do have control, such as the recovery factor estimates and the projected production decline rates, may also prove to be incorrect over time.  Consequently, the results of drilling, testing and production and oil and gas price changes may require substantial upward or downward revisions in our initial reserve data.

Any failure to replace reserves and develop our proved undeveloped reserves could adversely affect our business and our financial position

Exploring for, developing and acquiring reserves is highly risky and capital intensive. Our exploration and development activities involve inherent risks, including the risk that we will not encounter commercially productive oil or gas reservoirs. In addition, approximately 49.1% of our proved reserves were undeveloped as of December 31, 2010.  Our future success will depend on our ability to develop these reserves in a timely and cost-effective manner.  There are various risks in developing reserves, including construction, operational, geophysical, geological and regulatory risks.

Our future prospects largely depend on our capital expenditures, which are subject to various risks

Our ability to maintain and increase our revenues, profit and cash flows depends upon continuous capital spending, which is subject to a number of contingencies, some of which are beyond our control.  These variables include: cash flows from operations, the availability and terms of external financing, our ability to execute our project plans and commence production on time, weather conditions, the availability of services and facilities, approvals required from the PRC and foreign governments for certain capital expenditures and investments, and economic, political and other conditions in the PRC and overseas where we have operations or assets.

Therefore, our actual capital expenditures and investments in the future may differ significantly from our current planned amounts. If we are unable to obtain sufficient funding for our operations or development plans, our business, revenues, profit and cash flows could be adversely affected.

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Any failure to implement our natural gas business strategy may adversely affect our business and financial position

As part of our business strategy and to meet increasing market demand in China, we continue to expand our natural gas business.  In addition to the risks that affect our business generally, this strategy involves certain risks and uncertainties, including our limited market share compared to PetroChina Company Limited, or PetroChina, and China Petroleum & Chemical Corporation, or Sinopec, and the underdeveloped natural gas transportation and supply infrastructure and market in China. We are evaluating the options to invest in CNOOC’s LNG projects in China.  However, we have not decided whether to exercise these options.  The options are subject to various conditions including certain governmental approvals, the prospects of such projects and, if applicable, independent shareholders’ approval.

CNOOC largely controls us and we regularly enter into related party transactions with CNOOC and its affiliates

CNOOC indirectly owned 64.41% of our shares as of March 31, 2011.  As a result, CNOOC is able to control the composition of the board of directors of our company, or our Board, determine the timing and amount of our dividend payments and otherwise control us. If CNOOC takes actions that favor its interests over ours, our results of operations and financial position may be adversely affected.

In addition, we regularly enter into transactions with CNOOC and its affiliates, such as China Oilfield Services Limited, or COSL, Offshore Oil Engineering Co., Ltd, or COOEC, and China BlueChemical Ltd. Some of our transactions with CNOOC and its affiliates constitute connected transactions under the Hong Kong Stock Exchange Listing Rules.  Furthermore, these connected transactions are subject to review by the Hong Kong Stock Exchange and may also be subject to the prior approval of our independent shareholders.  For example, we have obtained the independent shareholders’ approval in respect of certain continuing connected transactions under a comprehensive framework agreement with the CNOOC on November 24, 2010.  If we do not obtain these approvals, we will not be allowed to effect these transactions and our business operations and financial condition could be adversely affected.

Under current PRC law, CNOOC has the exclusive right to enter into PSCs with foreign oil and gas companies for the petroleum resources exploitation in offshore China. Although CNOOC has undertaken to us that it will transfer all of its rights and obligations under any new PSCs to us, except those relating to its administrative functions, the interests of CNOOC in entering into PSCs with international oil and gas companies may differ from our interests, especially with respect to the criteria for determining whether, and on what terms, to enter into PSCs.  Our future business development may be adversely affected if CNOOC does not enter into new PSCs on terms that are acceptable to us.

Our business performance relies heavily on our sales to large domestic customers and a substantial drop in such sales could have a material adverse effect on our results of operations

We sell a significant proportion of our production to CNOOC-affiliated companies, Sinopec, and PetroChina. However, we currently do not have long-term crude oil sales contracts with these customers. Our business, results of operations and financial condition could be adversely affected if any of them significantly reduced their crude oil purchases from us.

We have limited control over our investments in joint ventures and our operations with partners

Many of our operations are conducted with partners or in joint ventures in which we have limited ability to influence or control their operation or future development.  For instance, in 2010, we, through our wholly-owned subsidiary, CNOOC International Limited, acquired a 33.33% interest in Chesapeake Energy Corporation’s 600,000 net oil and natural gas leasehold acres in the Eagle Ford Shale project in South Texas. Our limited ability to influence or control the operation or future development of such joint venture could materially and adversely affect the realization of our target returns on capital and lead to unexpected future costs.

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Blowout incidents may result in platform explosions, fire accidents and oil spills

Our operations are mainly conducted offshore. Although we have adopted standard workflow procedures and various measures to control the risks of blowouts, we cannot assure you that we could avoid the potential losses caused by blowouts.  If one or more blowout incidents occur, platform explosions and fire accidents caused by blowouts may result in casualties, property losses and environmental damages, which may have a material adverse effect on our business, financial condition and results of operation.

Extreme weather conditions may have a material adverse impact on us and could result in losses that are not covered by insurance

Our exploration, development and production activities can be adversely affected by extreme weather conditions, which could result in loss of hydrocarbons, environmental pollution, damage to our properties, cessation of activities, delay of project plans, shareholders lawsuits, government penalty, and increases in costs of drilling, completing and operating wells.

We maintain insurance coverage against some, but not all, potential losses. We do not maintain business interruption insurance for all of our oil and gas fields. We may suffer material losses resulting from uninsurable or uninsured risks or insufficient insurance coverage.

Our controlling shareholder, CNOOC, or its affiliates’ current or future activities in certain countries that are the subject of U.S. sanctions could result in negative media and investor attention to us and possible imposition of sanctions on CNOOC, which could materially and adversely affect our shareholders

We cannot predict the interpretation or implementation of government policy at the U.S. federal, state or local levels with respect to any current or future activities by CNOOC or its affiliates in countries that are the subject of U.S. sanctions. It is possible that the United States could subject CNOOC to sanctions due to these activities.  Certain U.S. state and local governments and colleges have restrictions on the investment of public funds or endowment funds, respectively, in companies that are members of corporate groups with activities in certain countries that are the subject of U.S. sanctions, such as Iran or Sudan.  It is possible that the activities of CNOOC or its affiliates may affect the investment in our shares by such U.S. state and local governments and colleges.

It is possible that, as a result of activities by CNOOC or its affiliates in these countries, we may be subject to negative media or investor attention, which may distract management, consume internal resources and affect investors’ perception of our company.

Further, the Iran Sanctions Act, as amended in July 2010, or ISA, authorizes the imposition of sanctions on companies that export certain levels of refined petroleum products to Iran, or provide certain levels of assistance to Iran in developing petroleum resources or in importing or producing refined petroleum products. It is possible that CNOOC could engage in activities targeted by ISA. If the U.S. President determined that CNOOC in fact engaged in the prohibited activities, he could select from among nine sanctions options available under ISA, which range from restrictions on U.S. exports or bank financing to outright blocking of CNOOC’s property within U.S. jurisdiction. If the most extreme sanction, blocking, were applied to CNOOC’s property, including controlled subsidiaries, CNOOC Limited could be prohibited from engaging in business activities in the United States or with U.S. individuals or entities, and U.S. transactions in our securities and distributions to U.S. individuals and entities with respect to our securities could also be prohibited.

Risks Relating to the Petroleum Industry

The oil and natural gas industries are very competitive

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We compete in the PRC and international markets with integrated and independent oil and gas companies for oil and gas properties or leases, customers, capital financing and business opportunities, including desirable oil and gas prospects. We also compete for the equipment and personnel required to explore, develop and operate oil and gas properties.

Changes in laws and regulations could have an adverse effect on our operation in overseas

We currently have operations and assets mainly in the PRC and also in various foreign countries and regions, including Indonesia, Australia, Nigeria, Myanmar, Iraq, Argentina, the United States and certain other countries, and may expand our operations into other countries to further enhance our reserve base and diversify our geographic risk profile.

Our interests may be adversely affected by changes in governmental policies or social instability or other political, economic or diplomatic developments in or affecting these foreign nations which are not within our control, including, among other things, a change in crude oil or natural gas pricing policy, expropriation, nationalization, renegotiation or nullification of existing concessions and contracts, taxation policies, foreign exchange and repatriation restrictions, changing political conditions and currency controls.

Our operations are subject to laws and regulations in countries in which we operate. Changes in such laws and regulations could change environmental protection requirements and increase taxes, royalties and other amounts payable to governments or governmental agencies. Such changes may increase our cost of compliance or tax burden, which could materially and adversely affect our net income and result of operations.

In addition, the operations and assets that we currently have or in the future may have in foreign countries and regions may be materially and adversely affected by trade or economic sanctions that may be imposed by other countries due to their deteriorated relations with each other.

War and acts of terrorism could materially and adversely affect us

We have operations and assets in various countries and regions, including Indonesia, Australia, Nigeria, Myanmar, Iraq, Argentina, the United States and certain other countries, some of which are deemed to be with a high degree of political risk.  We face the risks of kidnapping, damage to property and business interruption caused by terrorism activities.  Acts of terrorism could materially and adversely affect our business, financial condition and results of operations.

We may be penalized if we fail to comply with existing or future environmental laws and regulations

Our business is subject to environmental protection laws and regulations in the PRC, as well as other jurisdictions where we operate. Our compliance with such laws or regulations may require us to incur significant capital expenditures or other obligations or liabilities, which could create a substantial financial burden on us. Furthermore, these jurisdictions may impose fees and fines for the discharge of waste substances or serious environmental pollution, and authorize a government, at its discretion, to close or suspend any facility which fails to comply with orders requiring it to cease or cure operations causing environmental damage.

Risks Relating to the PRC

Changes in PRC laws and regulations could have an adverse effect on our operation

Our operations and assets are mainly in the People's Republic of China.  The PRC government exercises control over the PRC petroleum industry, including licensing, exploring, producing, distributing, pricing, taxing, importing, exporting and allocating of various resources.  We have benefited from various favorable PRC government policies, laws and regulations that have been enacted to encourage the development of the offshore petroleum industry. We cannot guarantee that the legal and fiscal regimes affecting our businesses will remain substantially unchanged or that we will continue to benefit from favorable PRC government policies.  For instance, in 2006, the State Council of the PRC issued the Decision to Impose a Special Oil Gain Levy and the Ministry of Finance promulgated the Management Rules on the Administration of Special Oil Gain Levy, effective March 26, 2006.  For detailed information on the Special Oil Gain Levy, see “Item 4. Information on the Company—B. Business Overview—Regulatory Framework—Special Policies Applicable to the Offshore Petroleum Industry in China.” In addition, see “—Government control of currency conversion and future movements in exchange rates may adversely affect our operations and financial condition” and “—Certain legal restrictions on dividend distribution may have a material adverse effect on our cash flows” for detailed information on the risks related to government control of currency conversion and the risks related to certain legal restrictions on dividend distribution, respectively.

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In addition, existing PRC regulations require us to obtain various PRC government licenses and other approvals, including in some cases approvals for amendments and extensions of existing licenses and approvals to conduct exploration and development activities off the shores of China.  If we are unable to obtain any necessary approvals, our reserves and production would be adversely affected.

Government control of currency conversion and future movements in exchange rates may adversely affect our operations and financial condition

A portion of our Renminbi revenue may need to be converted into other currencies by our wholly owned subsidiary in the PRC, CNOOC China Limited, to meet our substantial requirements for foreign currencies, including: debt service on foreign currency denominated debt, overseas acquisitions of oil and gas properties, purchases of imported equipment, and payment of dividends declared in respect of shares held by international investors.

Foreign exchange transactions under the capital account, including principal payments with respect to foreign currency denominated obligations, are subject to the approval requirements of the State Administration for Foreign Exchange.

The value of Renminbi against U.S. dollar and other currencies may fluctuate and is affected by, among other things, changes in China’s political and economic conditions. The appreciation of Renminbi against U.S. dollar may cause a decrease in our oil sales, since the benchmark oil prices are usually in U.S. dollars.

Certain legal restrictions on dividend distribution may have a material adverse effect on our cash flows

We are a holding company. Our businesses are owned and conducted through various wholly owned subsidiaries, including CNOOC China Limited, our wholly owned subsidiary in the PRC. Accordingly, our future cash flows will consist principally of dividends and other distributions from our subsidiaries. Our PRC subsidiary’s ability to pay dividends and other distributions to us is subject to PRC laws and regulations.  For example, legal restrictions in the PRC permit payment of dividends only out of profits determined in accordance with PRC accounting standards and regulations.  Substantially all our dividend payments result from dividends paid to us as a holding company by CNOOC China Limited. CNOOC China Limited must follow the laws and regulations of the PRC and its articles of association in determining its dividends. As a wholly foreign owned enterprise in China, CNOOC China Limited has to provide for a reserve fund and staff and workers’ bonus and welfare fund, each of which is appropriated from net profit after taxation but before dividend distributions according to the prevailing accounting rules and regulations in the PRC.  Therefore, there is a risk that we may not be able to maintain sufficient cash flows due to these restrictions on dividend distribution.

ITEM 4. INFORMATION ON THE COMPANY

A. HISTORY AND DEVELOPMENT

Our legal and commercial name is CNOOC Limited.  We were incorporated with limited liability on August 20, 1999 in Hong Kong under the Hong Kong Companies Ordinance.  Our business registration number in Hong Kong is 685974.  Under our memorandum of association, we may do anything which we are permitted to do by any enactment or rule of law.  Our registered office is located at 65th Floor, Bank of China Tower, One Garden Road, Central, Hong Kong, and our telephone number is 852-2213-2500.

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The PRC government established CNOOC, our controlling shareholder, as a state-owned offshore petroleum company in 1982 under the Regulation of the PRC on the Exploitation of Offshore Petroleum Resources in Cooperation with Foreign Enterprises. CNOOC assumed certain responsibility for the administration and development of PRC offshore petroleum operations with foreign oil and gas companies.

Prior to CNOOC’s reorganization in 1999, CNOOC and its various affiliates performed both commercial and administrative functions relating to oil and natural gas exploration and development in offshore China.

In 1999, CNOOC transferred all of its then current operational and commercial interests in its offshore petroleum business, including the related assets and liabilities, to us. As a result, we and our subsidiaries are the only vehicles through which CNOOC engages in oil and gas exploration, development, production and sales activities both in and outside the PRC.

CNOOC retained its commercial interests in operations and projects not related to oil and gas exploration and production, as well as all of the administrative functions it performed prior to the reorganization.

CNOOC has undertaken to us that:

l   we will enjoy the exclusive right to exercise all of CNOOC’s commercial and operational rights under PRC laws and regulations relating to the exploration, development, production and sales of oil and natural gas in offshore China;

l   it will transfer to us all of its rights and obligations under any new PSCs and geophysical exploration operations, except those relating to its administrative functions;

l   it will not engage or be interested, directly or indirectly, in oil and natural gas exploration, development, production and sales in or outside the PRC;

l   we will be able to participate jointly with CNOOC in negotiating new PSCs and to set out our views to CNOOC on the proposed terms of new PSCs;

l   we will have unlimited and unrestricted access to all data, records, samples and other original data owned by CNOOC relating to oil and natural gas resources;

l   we will have an option to invest in LNG projects in which CNOOC invested or proposed to invest, and CNOOC will at its own expense help us to procure all necessary government approvals needed for our participation in these projects; and

l   we will have an option to participate in other businesses related to natural gas in which CNOOC invested or proposed to invest, and CNOOC will procure all necessary government approvals needed for our participation in such business.

The undertakings from CNOOC will cease to have any effect:

l   if we become a wholly owned subsidiary of CNOOC;

l   if our securities cease to be listed on any stock exchange or automated trading system; or

l   12 months after CNOOC or any other PRC government-controlled entity ceases to be our controlling shareholder.

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For information on our capital expenditures, see “Item 5—Operating and Financial Review and Prospects—Liquidity and Capital Resources—Capital Expenditures and Investments.

B. BUSINESS OVERVIEW

Overview

We are an upstream company specializing in the exploration, development and production of oil and natural gas. We are the dominant oil and natural gas producer in offshore China and, in terms of reserves and production, we are also one of the largest independent oil and natural gas exploration and production companies in the world. As of the end of 2010, we had net proved reserves of 2.99 billion BOE, including approximately 1.92 billion barrels of crude oil and 6,458.3 bcf of natural gas. In 2010, we had an average daily production of approximately 721,534 barrels of crude oil and approximately 1,040.0 mmcf of natural gas, representing a total net oil and gas production of 900,702 BOE per day.

Competitive Strengths

We believe that our historical success and future prospects are directly related to a combination of our strengths, including the following:

l   large and diversified asset base with significant exploitation opportunities;

l   sizable operating areas in offshore China with demonstrated exploration potential;

l   successful independent exploration and development track record;

l   reduced risks and access to capital and technology through PSCs in offshore China;

l   competitive cost structure with strong margins; and

l   experienced management team and a high level of corporate governance standard.

Large and diversified asset base with significant exploitation opportunities

We have a large net proved reserve base spread across offshore China and globally. As of December 31, 2010, we had approximately 2.99 billion BOE of net proved reserves.  Our core operating area, offshore China, contributed to 2.23 billion BOE, or 74.6%, of our net proved reserves, while overseas contributed to the balance of 25.4%.

In addition to offshore China, we have a diversified global portfolio which provides us with further exploration and exploitation potential. We have a strong track record of successfully acquiring and operating many quality overseas upstream assets worldwide. Currently, we have assets in resource rich countries such as Indonesia, Nigeria, Australia and Argentina.

As of December 31, 2010, approximately 49.1% of our net proved reserves were classified as net proved undeveloped. Our large proved reserve base gives us the opportunity to achieve substantial production growth.

Sizable operating areas in offshore China with demonstrated exploration potential

We are the dominant oil and gas producer in offshore China, a region that we believe has substantial exploration upside. As of December 31, 2010, our total major exploration areas acreage in offshore China was 256.4 thousand km2. We believe that offshore China is relatively underexplored, compared to other prolific offshore exploration areas such as the shallow water of the U.S. Gulf of Mexico, providing us with substantial exploration upside.

We have maintained an active drilling exploration program, which continues to demonstrate the exploration potential of offshore China. During 2010, we and our foreign partners have together drilled a total of 97 exploratory wells in offshore China, of which 59 were wildcat wells. During the same year, we and our foreign partners made 13 new discoveries in offshore China.

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Successful independent exploration and development track record

We have a strong record of growing our reserves base for oil and natural gas, both independently and with our foreign partners through PSCs. In recent years, we have been adding reserves and production mainly through independent exploration and development. As of the end of 2010, in offshore China, approximately 77.1% of our net proved reserves were independent and approximately 68.6% of our production came from independent projects.

In 2010, in offshore China, our independent exploration resulted in 12 new discoveries. We also successfully appraised 12 oil and gas structures by 18 appraisal wells. On the development front, in 2010, our major new development projects progressed smoothly with 9 new projects on stream.

Reduced risks and access to capital and technology through PSCs in offshore China

Our parent, CNOOC, holds exclusive right from the PRC government to enter into PSCs with foreign partners relating to the petroleum resources exploitation in offshore China. CNOOC assigned us all of its rights and obligations under then-existing PSCs in 1999 and has undertaken to assign to us its future PSCs except for those relating to its administrative functions. PSCs help us minimize our offshore China finding costs, exploration risks and capital requirements because our foreign partners are responsible for all costs associated with exploration under the usual case. Our foreign partners recover their exploration costs only when a commercially viable discovery is made and production begins.

For more information about PSC, see “Item 4—Information on the Company—Business Overview—Fiscal Regimes.”

Competitive cost structure with strong margins

Despite cost escalation in global oil field services and raw materials, we have managed to maintain a competitive cost structure. During 2010, our production cost, not including ad valorem and severance taxes, decreased to US$7.47 per BOE from US$8.04 per BOE in 2009. Through enhanced operating efficiencies, our selling and administrative expenses also decreased to US$1.41 per BOE in 2010 from US$1.46 per BOE in 2009.

Experienced management team and a high level of corporate governance standard

Our senior management team has extensive experience in the oil and gas industry. Most of our executives have been with CNOOC, our controlling shareholder, since its inception in 1982. Many of our management team and staff members have worked closely with international partners both within and outside China through numerous joint operations.

We have a proven track record of complying with a high level of corporate governance standard, which was recognized by the industry. For example, we won “Energy Company of the Year”, the highest award of Platts Global Energy Awards in 2010. In addition, we were awarded the “Corporate Governance Asia Recognition Awards 2010 – One of the Best Companies in China” by Corporate Governance Asia in 2010.

Business Strategy

We intend to continue expanding our oil and gas exploration and production activities.  The principal components of our strategy are as follows:

l   focus on reserve and production growth;

l   develop natural gas business; and

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l   maintain prudent financial policy.

Focus on reserve and production growth

As an upstream company specializing in the exploration, development, production and sales of oil and natural gas, we consider reserve and production growth as top priority. We plan to increase our reserves through drill bits and value-driven acquisitions. We plan to concentrate independent exploration efforts on major existing operating areas, especially in major areas of offshore China. In the meantime, we plan to continue to enter into PSCs with foreign partners to lower capital requirements and exploration risks. In 2010, we achieved a reserve replacement ratio of 202%.

We plan to increase production primarily through the development of net proved undeveloped reserves. As of December 31, 2010, approximately 49.1% of our proved reserves were classified as net proved undeveloped, which gives us the opportunity to achieve future production growth, as long as these reserves are developed faster than the depletion rate of our currently producing reserves.

Develop natural gas business

We plan to capitalize on the growth potential of the PRC natural gas market, and continue to explore and develop natural gas fields. To the extent we invest in businesses and geographic areas where we have limited experience and expertise, we plan to structure our investments as alliances or partnerships with parties possessing the relevant experience and expertise.

From 2006 to 2010, our partners made several gas discoveries in deepwater South China Sea, including Liwan 3-1, Liuhua 34-2 and Liuhua 29-1. We expect that our natural gas production would increase with these gas fields on stream.

Maintain prudent financial policy

We will continue to maintain our prudent financial policy, so as to preserve our low cost structure and operational efficiency. As an essential part of our corporate culture, we continue to promote the cost consciousness among both our management team and other employees. Also, in our performance evaluation system, cost control is always one of the most important key performance indicators.

Aiming to keep our competitive cost structure, we plan to actively promote the regional planning and development of oil and gas field groups to share the production facilities and reduce production cost. In addition, we plan to apply up-to-date drilling, production and offshore engineering technology to our operations.

Currently, we have a strong financial profile with a low gearing ratio. We intend to maintain our financial strength by managing key measures such as capital expenditures, cash flows and fixed charge coverage. We also intend to actively manage our trade receivable and inventory positions to enhance liquidity and improve profitability. We will continue to monitor our foreign currency denominated debt and to minimize exposure to foreign exchange rate fluctuations.

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Selected Operating and Reserves Data

The following table sets forth our operating data and our net proved reserves as of the date and for the periods indicated.

Our reserve data for 2009 and 2010 were prepared in accordance with the SEC’s final rules on “Modernization of Oil and Gas Reporting”, which became effective for accounting periods ended on or after December 31, 2009.  The comparative information for 2008 is not restated.

	Year ended December 31,
	2008		2009		2010
Net Production:
Oil (daily average bbls/day)		422,068		509,696		721,534
Gas (daily average mmcf/day)		621.1		653.5		1,040.0
Oil equivalent (BOE/day)		530,728		623,896		900,702
Net Proved Reserves (end of period):
Oil (mmbbls)		1,578.2		1,667.8		1,915.1
Gas (bcf)		5,623.3		5,944.0		6,458.3
Total (million BOE)		2,515.4		2,658.4		2,994.5
Proved developed reserves (million BOE)		1,009.1		1,283.6		1,524.6
Proved undeveloped reserves (million BOE)		1,506.3		1,374.8		1,469.8
Annual reserve replacement ratio(1)		60%	163％			202%
Estimated reserve life (years)		13.0		11.7		9.1
Standardized measure of discounted future net cash flow (million Rmb)		111,277		226,663		293,768

(1) For information on the calculation of this ratio, see “Terms and Conventions—Glossary of Technical Terms—reserve replacement ratio.”

Except as otherwise noted, all information in this annual report relating to our oil and natural gas reserves is based upon estimates prepared by independent petroleum engineering consulting companies and reviewed by us, except for the information relating to certain of our oil and natural gas reserves for the year 2010, which was evaluated by us independently, such as Wenchang 13-1, Wenchang 13-2 and Dongfang 1-1 oil and gas fields offshore China, and Akpo and Egina oil fields in Nigeria. For further information regarding our reserves, see “Item 3—Key Information—Risk Factors—Risks Relating to Our Operations—The oil and gas reserve estimates in this annual report may require substantial revision as a result of future drilling, testing, production and oil and gas price changes” and “Item 4—Information on the Company—Business Overview—Exploration, Development and Production.”

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Summary of Oil and Gas Reserves

The following table sets forth summary information with respect to our estimated net proved reserves of crude oil and natural gas as of the dates indicated.

	Net proved reserves at December 31,				Net proved reserves at December 31, 2010
	2008		2009		Oil		Natural Gas		Total
	(mmboe)		(mmboe)		(mmbbls)		(bcf)		(mmboe) (1)
Developed
Offshore China
Bohai Bay		452.8		560.2		585.8		390.5		650.9
Western South China Sea		258.6		307.9		127.2		970.7		289.0
Eastern South China Sea		137.8		143.9		135.3		478.5		215.0
East China Sea		1.7		2.0		0.1		8.6		1.5
Subtotal		850.9		1,013.9		848.4		1,848.3		1,156.4
Overseas
Asia		97.2		131.8		44.5		396.9		110.6
Oceania		60.9		52.6		8.5		173.0		37.4
Africa		—		75.7		57.1		—		57.1
North America		—		9.7		1.2		42.9		8.3
South America		—		—		108.5		268.5		154.8
Subtotal		158.1		269.8		219.8		881.3		368.2
Total Developed		1,009.1		1,283.6		1,068.2		2,729.7		1,524.6
Undeveloped
Offshore China
Bohai Bay		612.3		598.9		411.9		337.7		468.2
Western South China Sea		355.8		317.4		132.8		1,063.3		310.0
Eastern South China Sea		210.1		187.7		89.8		775.9		219.1
East China Sea		73.1		72.0		18.8		362.0		79.2
Subtotal		1,251.3		1,176.1		653.3		2,539.0		1,076.5
Overseas
Asia		100.9		102.4		5.5		619.8		108.8
Oceania		65.0		82.0		12.1		324.9		66.3
Africa		89.1		14.3		88.6		—		88.6
North America		—		—		—		—		—
South America		—		—		87.5		245.0		129.7
Subtotal		255.0		198.7		193.7		1,189.7		393.4
Total Undeveloped		1,506.3		1,374.8		847.0		3,728.7		1,469.8
TOTAL PROVED		2,515.4		2,658.4		1,915.1		6,458.3		2,994.5

(1) In calculating barrels-of-oil equivalent amounts, we have assumed that 6,000 cubic feet of natural gas equals one BOE, with the exception of natural gas from South America for which we have assumed that 5,800 cubic feet of natural gas equals one BOE.

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The following tables set forth net proved crude oil reserves, net proved natural gas reserves and total net proved reserves, as of the dates indicated, for our independent and non-independent operations in each of our operating areas.

Total Net Proved Crude Oil Reserves

(mmbbls)

	As of December 31,				As of December 31, 2010
	2008		2009		Developed		Undeveloped		Total
Offshore China
Independent
Bohai Bay		603.6		675.1		379.7		324.6		704.3
Western South China Sea		227.9		235.3		110.7		127.9		238.6
Eastern South China Sea		104.6		100.8		84.9		45.1		130.0
East China Sea		17.8		17.5		0.1		18.8		18.9
Subtotal		953.9		1,028.7		575.4		516.4		1,091.8
PSCs
Bohai Bay		330.0		353.0		206.1		87.3		293.4
Western South China Sea		17.8		23.6		16.5		4.8		21.4
Eastern South China Sea		97.8		90.1		50.4		44.7		95.1
East China Sea		—		—		—		—		—
Subtotal		445.6		466.7		273.0		136.9		409.9
Combined
Bohai Bay		933.6		1,028.2		585.8		411.9		997.7
Western South China Sea		245.8		258.9		127.2		132.8		260.0
Eastern South China Sea		202.4		190.9		135.3		89.8		225.1
East China Sea		17.8		17.5		0.1		18.8		18.9
Subtotal		1,399.5		1,495.5		848.4		653.3		1,501.7
Overseas
Asia		64.8		53.8		44.5		5.5		49.9
Oceania		24.8		26.4		8.5		12.1		20.7
Africa		89.1		90.0		57.1		88.6		145.7
North America		—		2.0		1.2		—		1.2
South America		—		—		108.5		87.5		196.0
Subtotal		178.7		172.2		219.8		193.7		413.5
Total		1,578.2		1,667.8		1,068.2		847.0		1,915.1

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Total Net Proved Natural Gas Reserves

(bcf)

	As of December 31,				As of December 31, 2010
	2008		2009		Developed		Undeveloped		Total
Offshore China
Independent
Bohai Bay		789.2		785.4		390.5		337.7		728.3
Western South China Sea		1,957.4		1,953.4		743.1		1,063.3		1,806.5
Eastern South China Sea		848.8		838.6		470.2		405.4		875.6
East China Sea		342.2		339.0		8.6		362.0		370.6
Subtotal		3,937.6		3,916.4		1,612.4		2,168.5		3,780.9
PSCs
Bohai Bay		—		—		—		—		—
Western South China Sea		254.3		245.2		227.6		—		227.6
Eastern South China Sea		24.5		5.0		8.3		370.5		378.8
East China Sea		—		—		—		—		—
Subtotal		278.8		250.2		235.9		370.5		606.4
Combined
Bohai Bay		789.2		785.4		390.5		337.7		728.3
Western South China Sea		2,211.6		2,198.6		970.7		1,063.3		2,034.1
Eastern South China Sea		873.3		843.6		478.5		775.9		1,254.4
East China Sea		342.2		338.9		8.6		362.0		370.6
Subtotal		4,216.4		4,166.5		1,848.3		2,539.0		4,387.3
Overseas
Asia		799.8		1,082.5		396.9		619.8		1,016.7
Oceania		607.1		648.9		173.0		324.9		498.0
North America		—		46.0		42.9		—		42.9
South America		—		—		268.5		245.0		513.4
Subtotal		1,406.9		1,777.4		881.3		1,189.7		2,071.0
Total		5,623.3		5,944.0		2,729.7		3,278.7		6,458.3

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Total Net Proved Reserves

(million BOE)

	As of December 31,				As of December 31, 2010
	2008		2009		Developed		Undeveloped		Total
Offshore China
Independent
Bohai Bay		735.1		806.0		444.8		380.9		825.7
Western South China Sea		554.2		560.8		234.5		305.1		539.6
Eastern South China Sea		246.1		240.6		163.3		112.6		275.9
East China Sea		74.8		74.0		1.5		79.2		80.7
Subtotal		1,610.2		1,681.4		844.1		877.8		1,721.9
PSCs
Bohai Bay		330.0		353.0		206.1		87.3		293.4
Western South China Sea		60.2		64.5		54.5		4.8		59.3
Eastern South China Sea		101.8		91.0		51.7		106.5		158.2
East China Sea		—		—		—		—		—
Subtotal		492.0		508.5		312.3		198.6		511.0
Combined
Bohai Bay		1,065.1		1,159.1		650.9		468.2		1,119.1
Western South China Sea		614.4		625.3		289.0		310.0		599.0
Eastern South China Sea		347.9		331.5		215.0		219.1		434.1
East China Sea		74.8		74.0		1.5		79.2		80.7
Subtotal		2,102.2		2,190.0		1,156.4		1,076.5		2,232.9
Overseas
Asia		198.1		234.2		110.6		108.8		219.4
Oceania		125.9		134.6		37.4		66.3		103.7
Africa		89.1		90.0		57.1		88.6		145.7
North America		—		9.7		8.3		—		8.3
South America		—		—		154.8		129.8		284.5
Subtotal		413.2		468.5		368.2		393.4		761.6
Total		2,515.4		2,658.4		1,524.6		1,469.8		2,994.5

Proved Undeveloped Reserves

As of December 31, 2010, we had proved undeveloped reserves of 1,470 million BOE, including 847.0 million barrels of crude oil and 3,728.7 bcf of natural gas, representing an increase of 95 million BOE as compared to proved undeveloped reserves of 1,375 million BOE as of December 31, 2009.

The changes in our proved undeveloped reserves mainly include:

l   increase of 361 million BOE due to new discoveries and extensions;

l   increase of 141 million BOE due to acquisitions;

l   decrease of 259 million BOE due to proved undeveloped reserves converted into proved developed reserves;

l   decrease of 104 million BOE due to revisions; and

l   decrease of  44 million BOE due to output.

In 2010, we spent US$1.77 billion on developing proved undeveloped reserves into proved developed reserves. US$1.44 billion, or 81.7%, were spent on 25 major development projects in Bohai Bay, Western South China Sea and Eastern South China Sea in offshore China and the Akpo oilfield in Nigeria. The remaining 18.3% was spent on our domestic infill drilling programs in Bohai Bay and Eastern South China Sea.

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As of December 31, 2010, 208 million BOE of our proved undeveloped reserves were first booked before 2006. These proved undeveloped reserves were mainly located in East China Sea, Eastern South China Sea and Western South China Sea, including (i) 73 million BOE in East China Sea, more than half of which is planned to be developed together with certain new discoveries; (ii) 46 million BOE in Eastern South China Sea, including Panyu 34-1 gas field associated with Liwan 3-1 gas field located in the same area that is currently under construction; and (iii) 89 million BOE in Western South China Sea, including Yacheng 13-4 gas field associated with Yacheng 13-1 gas field located in the same area that has been supplying gas to Hong Kong for several years. Yacheng 13-4 gas field is expected to commence production in 2013.

Qualifications of Reserve Technical Oversight Group and Internal Controls over Proved Reserves

Since 2001, we have engaged independent third party consulting firms, including Ryder Scott Company, Gaffney, Cline & Associates and RPS, to perform annual estimates for our proved oil and gas reserves. In 2010, the reserves of certain fields were evaluated by us independently, which accounted for approximately 11% of our total net proved reserves.

The reserve data that we disclosed were all based on the definitions and disclosure guidelines contained in the SEC Title 17: “Code of Federal Regulations–Modernization of Oil and Gas Reporting–Final Rule” in the Federal Register (SEC regulations) that was released on January 14, 2009 and related accounting standards.

While we engage third parties to conduct our annual estimates for most of our reserves, we continue to enhance the supervision over our procedures to ensure the quality control of our reserve evaluation process.

As part of our efforts to improve the evaluation and oversight of our reserves, we established the Reserve Management Group, or RMG, which is led by one of our Executive Vice Presidents and comprises the general managers of the relevant departments.

The RMG’s main responsibilities are to:

l   review our reserve policies;

l   review our proved reserves and other categories of reserves; and

l   select our reserve estimators and auditors.

The RMG follows certain procedures to appoint our internal reserve estimators and reserve auditors, who are required to have undergraduate degrees and at least five years and ten years of experience related to reserves estimation, respectively.

The reserves estimators and auditors are required to be members of China Petroleum Society, or CPS, and are required to take the professional trainings and examinations provided by CPS and us.

The RMG delegates its daily operation to our Reserves Office, which is led by our Chief Reserves Supervisor. The Reserves Office is mainly responsible for supervising reserves estimates and auditing. It reports to the RMG periodically and is independent from operating divisions such as the exploration, development and production departments. Our Chief Reserve Supervisor has 28 years’  experience in oil and gas industry.

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Besides engaging third parties to perform annual estimates for most of our reserves, we also implement rigorous internal control system that monitors the entire reserves estimation procedure and certain key metrics in order to ensure that the process and results of reserves estimates fully comply with the relevant SEC rules.

Exploration, Development and Production

Summary

In offshore China, the Company engages in oil and natural gas exploration, development and production activities in Bohai Bay, Western South China Sea, Eastern South China Sea and East China Sea either independently or through cooperation with foreign partners by PSCs. As of the end of 2010, approximately 74.6% of the Company’s net proved reserves and approximately 79.9% of its production were from offshore China.

In respect of independent operations: in recent years, the Company has been adding reserves and production mainly through independent exploration and development in offshore China. Approximately 77.1% of it net proved reserves and approximately 68.6% of its production offshore China came from the independent projects as of the end of 2010.

In respect of PSC operations: the controlling shareholder of the Company, CNOOC, has the exclusive right to explore and develop oil and natural gas in offshore China with foreign partners through PSCs. CNOOC has transfered all its rights and obligations of all the PSCs except those relating to its administrative functions to the Company, including new PSCs that will be signed in the future. As of the end of 2010, 30 PSCs with 22 partners were in force.

In overseas, the Company holds interests in oil and natural gas blocks in Indonesia, Australia, Nigeria, Argentina, the U.S. and various other countries. As of 31 December 2010, the Company’s overseas net proved reserves and net production accounted for approximately 25.4% and 20.1% of its total net proved reserves and total net production, respectively.

Exploration

In 2010, the Company continued to carry out oil exploratory activities around sags with rich resources in Bohai Bay and Eastern South China Sea, and actively explored new scope of areas in mature regions. In addition, the Company enhanced its natural gas exploratory activities in Eastern South China Sea and Western South China Sea, especially in deepwater exploration. The Company achieved highly effective results from its exploratory activities, making great progress and breakthroughs in the areas of Bohai Bay and South China Sea.

In 2010, the Company’s independent exploration resulted in 12 new discoveries offshore China. We also successfully appraised 12 oil and gas structures by 18 appraisal wells. Our PSC partners’ exploration efforts resulted in 1 new discovery and 3 oil and gas structures successfully appraised by 5 appraisal wells.

The Company’s major achievements from its exploratory activities in 2010 included:

First, in respect of crude oil exploration, we made significant progress in both new areas and mature areas.

We made breakthroughs of oil exploration in four new areas: In Bohai Bay, a significant discovery of Penglai 9-1 in the Miaoxi uplift area, with potential to be developed into a large sized oilfield; a breakthrough in Laidong-Miaonan structure with the discovery of Kenli 6-4 and Kenli 6-5. In Eastern South China Sea, we made the discovery of Enping 24-2, representing the first commercial discovery in the Enping sag. We also made the new discovery of Liuhua 16-2 in Northeast wing of the Baiyun sag in Eastern South China Sea. These new discoveries opened up the new field for our oil exploratory activities in the related areas and set a clear direction for our future activities in such areas.

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Outstanding outcome from rolling exploratory activities in mature areas was achieved. Rolling exploration is one of the main contributors of the additional reserve growth with relatively low risk and high success rate. Major achievements in 2010 were as follows: the successful expansion of Qinnan sag with the discovery of Qinhuangdao 29-2 East; another new discovery, Qinhuangdao 33-1 South, in the Shijiutuo uplift area; the successful expansion of the mature area around Yellow River Mouth with the discovery of Bozhong 34-1 West; and the enlarging reserve size by rolling exploration in Weixinan in Western South China Sea.

Second, in respect of natural gas exploration, we made important discoveries in Yinggehai Basin and deepwater areas in South China Sea.

Remarkable progress has been made in natural gas exploration in Yinggehai. The deep middle formation of Yinggehai basin in Western South China Sea has huge exploration potential, although its high temperature and high pressure environment has made the exploration rather difficult. In 2010, a new discovery of Dongfang 13-1 was made in this area, opening up a new area for natural gas exploration in the middle formation. The Company has possessed enough knowledge on many similar structures in the area, which will become important targets for the exploration of natural gas in the next step.

Furthermore, we made another deepwater exploration breakthrough in South China Sea. Following the discoveries of Liwan 3-1 and Liuhua 34-2, our partner, Husky, has made another important discovery of Liuhua 29-1 in the deepwater area of Baiyun sag. The successful discovery and appraisal of Liuhua 29-1 not only inspired our deepwater exploratory activities in South China Sea, but also deepened our understanding of the geologic structure in the area. In addition, our other partner, BG, drilled an exploratory well of Lingshui 22-1-1 on Block 64/11 in Qiongdongnan basin and encountered the gas-bearing sands, which unveiled the resource potential in this region.

These outstanding results demonstrated the Company’s unique advantage of being the exploration expertise on the continental shelf of offshore China. Our in-depth knowledge of the geology of offshore China and continuous efforts in deepwater exploration are important to assure the Company’s future growth.

In 2010, the Company’s major exploratory activities are shown in the table below:

	Exploration Wells								New Discoveries				Successful Appraisal Wells				Seismic Data
	Independent				PSC												2D				3D
	Wildcat		Appraisal		Wildcat		Appraisal		Independent		PSC		Independent		PSC		Independent		PSC		Independent		PSC
Offshore China
Bohai Bay		17		13		1		–		7		–		9		—		–		–		6,185		–
Western South China Sea		17		14		2		–		2		–		6		—		8,227		–		2,135		837
Eastern South China Sea		9		4		6		5		2		1		3		5		11,793		–		2,567		1,371
East China Sea		5		2		2		–		1		–		—		—		2,578		–		–		554
Offshore China Subtotal		48		33		11		5		12		1		18		5		22,598		–		10,887		2,762
Overseas		–		–		4		–		–		–		—		—		–		960		–		477
Total		48		33		15		5		12		1		18		5		22,598		960		10,887		3,240

Development and Production

In 2010, our development and production made impressive results including:

Firstly, new oilfields commenced production one after another, bolstering the Company’s production growth.  The project development schedule was quite tight during the year, and the sea ice in Bohai Bay area at the beginning of the year seriously affected the operation of the Company. However, with careful planning, we have been able to put the new oilfields into production as scheduled, and the production of each oilfield has either met or exceeded the expected target output, becoming a new driving force for the production growth of the Company. During the year, a total of 9 projects came on-stream one after another including Bozhong 3-2, Bozhong 29-4, Bozhong 19-4, Caofeidian 18-1, Bozhong 26-3 and Luda 32-2 in Bohai Bay, Weizhou 11-1 East and Weizhou 6-8 in Western South China Sea as well as Huizhou 25-3 in Eastern South China Sea.

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Secondly, the composite decline rate of producing oil and gas fields was under effective control, enabling us to maintain robust production activities. Through in-depth geology and reservoir research for oil reserves conducted in producing oilfields, a strategy to lay out the infill drilling was deployed according to the underground reservoir conditions. During the year, the production of newly commenced infill drilling wells, roughly 170, a record high, was far higher than expected, making a significant contribution to the Company’s production growth. The production time efficiency of the producing oil and gas fields offshore China reached 95% and was better than expected. Furthermore, the composite decline rate of each producing oil and gas field has been kept at a low level through enhancing water flooding efficiency which achieved great results. Some oilfields such as Suizhong 36-1 and ChengBei have recorded zero decline rates.

In addition, although the oil and gas fields of the Company repeatedly suffered from typhoons, it did not result in significant impact due to our proactive warning systems and proper deployment of resources. The safety of oilfields was secured, and there were no major accidents relating to health, safety and environment.

In overseas, the production from Akpo oilfield of OML 130 block in Nigeria enjoyed the steady growth and has achieved the designed peak production. The decline rate of mature oilfields in Indonesia remained at low level through infill drilling, water flooding and other measures.

In 2010, the Company’s net oil and gas production amounted to 328.8 million BOE, representing a growth of 44.4% over the previous year, which brought our production base to a new height and further strengthened our leading position as a global independent oil and gas exploration and production company.

New Overseas Projects

The Company’s acquisition activities are “value-driven”. When selecting and evaluating a potential project, we follow three criteria. First, whether the project will provide rich resources. Second, whether the project will provide attractive returns. Third, whether the risks are controllable.

In 2010, the Company has completed a number of successful acquisitions, mainly including:

First, the Company has successfully entered into the resource rich South America and the Middle East. In March 2010, the Company announced to reorganize Bridas Corporation, or Bridas, to a 50%/50% joint venture with Bridas Energy Holding Ltd., or BEH, building up a solid platform in South America for further development. In November 2010, Bridas signed an agreement to purchase 60% interest in Pan American Energy LLC, or PAE, from BP for a consideration of US$7.06 billion. This deal is expected to be closed in the first half of 2011. Upon completion of these two transactions, the Company will indirectly own 50% interest in PAE.

In addition, the Company has entered into the Middle East through a Technical Service Contract for Missan oilfields in Iraq.

Second, the Company was for the first time involved in the shale oil and gas projects. The development on shale oil and gas has become one of the hotspot areas in the global oil and gas exploration and development, especially in North America where the shale gas has been discovered and explored in large scale and accounted for important share in the natural gas supply in the U.S. In November 2010 and early 2011, the Company has completed the acquisition of 33.3% interest of Eagle Ford shale oil and gas project and 33.3% interest of Niobrara project from Chesapeake respectively. The Company believes that entering into the shale oil and gas business will derive new technologies for the sustainable growth and open up new room for development.

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Through several acquisitions mentioned above, the Company’s overseas reserves and production were increased and its portfolio became more balanced therefore allowing the Company to capture the growth opportunities within the industry in the future and broaden the Company's development potential.

Principal Oil and Gas Regions

Offshore China

Bohai Bay

Bohai Bay is the most important crude oil producing area for the Company. The crude oil produced in this region is mainly heavy oil, but a few light oil discoveries have been gradually made in the recent years such as Jinzhou 25-1. As of the end of 2010, the reserve and production volume in Bohai Bay are 1,119.1 million BOE and 429,008 BOE/day respectively, representing approximately 37.4% and 47.6% of the Company’s total reserves and production. The operation area in Bohai Bay is mainly shallow waters with a depth of 10 to 30 meters.

Rich in oil and gas resources, Bohai Bay has been one of the Company’s core areas for exploration and development. In recent years, the Company has made a number of commercial discoveries there every year. In 2010, the Company made seven successful discoveries in Bohai Bay, namely Qinhuangdao 29-2 East, Qinhuangdao33-1 South, Jinzhou 20-5, Penglai 9-1, Kenli 6-4, Kenli 6-5 and Bozhong 34-1 West. Apart from that, four oil and gas structures were successfully appraised, including Kenli 10-1, Qikou 18-1, Bozhong 34-1 West and Qinhuangdao33-1 South. A few important accomplishments are stated as follows:

First, an important discovery was made in the Miaoxi uplift area, namely Penglai 9-1. In light of the high viscosity and high density of the heavy oil of the structure, thermal oil extraction was conducted and satisfactory results were achieved.  Breakthroughs made in such structures not only increased our crude oil reserves but the methodology applied during the test also provided us with experiences for the future exploration and development of heavy oil.

Second, breakthroughs were achieved in the Laidong-Miaonan structure with new discoveries of Kenli 6-4 and Kenli 6-5. Of these discoveries, the successful drilling in Kenli 6-4 structure opened up a new area for oil and gas exploration. This was followed by another successful drilling in Kenli 6-5, located at southeast of Kenli 6-4. The exploration breakthrough achieved in Laidong-Miaonan structure increased the chance of discovering a large scale oil and gas fields in this new area.

Third, several exploration achievements made in mature areas. Following the discovery of Qinhuangdao 29-2 oil and gas field in Qinnan trough in 2009, Qinhuangdao 29-2 East structure was successfully drilled. The discovery of Qinhuangdao 29-2 East further increased our reserves in such area. In addition, the Company discovered Qinhuangdao 33-1 South in Shijiutuo uplift area and Bozhong 34-1 West in the mature area around Yellow River Mouth.

The development and production in Bohai Bay, which represented a major source for the Company’s production growth, achieved outstanding performance in 2010.

First of all, the projects in Bohai Bay including Bozhong 3-2, Bozhong 29-4, Bozhong 19-4, Caofeidian 18-1, Bozhong 26-3 and Luda 32-2 commenced production on schedule, boosting the Company’s rapid production growth.

Besides, the production from the producing oilfields performed better than expected. In view of the relatively large number of producing oil and gas fields in Bohai Bay, the Company continued to lay out extensive infill drilling programs, achieving the production additions better than expected. In addition, while maintaining high production time efficiency as well as low composite decline rate, some oilfields even reached zero decline rates through better management. For example, being the largest independent oilfield in Offshore China and in production for roughly 20 years, Suizhong 36-1 was able to maintain a stable production through comprehensive adjustment measures, such as construction of new platforms and infill drilling.

31

Western South China Sea

Western South China Sea is one of the most important natural gas producing areas for the Company. As of the end of 2010, the typical water depth of the major operation area in this region ranges from 40 to 120 meters. As of the end of 2010, the reserve and production volume in Western South China Sea reached 599.0 million BOE and 145,274 BOE/day respectively, representing approximately 20.0% and 16.1% of the Company’s total reserves and production.

In 2010, the Company made a new discovery of Dongfang 13-1 in Yinggehai basin in Western South China Sea, opening up a new area of natural gas exploration in the middle formation. Furthermore, the Company’s rolling exploration in Weixinan resulted in another new discovery of Wushi 1-5, expanding the scale of reserves in this area. In addition, the Company also successfully appraised the structures of Weizhou 11-1, Weizhou 11-2, Weizhou 10-3 West and Weizhou 12-2 in Western South China Sea and achieved satisfactory outcome.

From the deepwater perspective, our partner BG drilled an exploratory well Lingshui 22-1-1 on Block 64/11 in Qiongdongnan basin and encountered the gas-bearing sands. This is the first deepwater well in Qiongdongnan basin, and the Company was encouraged by such drilling result.

As for development and production, Weizhou 11-1 East and Weizhou 6-8 commenced production one after another, boosting the Company’s production in the area. Furthermore, the Company is actively preparing the regional development on the small to medium sized oilfields in this area that are currently under appraisal.

Eastern South China Sea

Eastern South China Sea is one of the Company’s most important crude oil producing areas. As of today, the typical water depth of the Company’s operation area in this region ranges from 100 to 300 meters. The crude oil produced is mostly of light to medium gravity. As of the end of 2010, the reserve and production volume in Eastern South China Sea reached 434.1 million BOE and 144,712 BOE/day respectively, representing approximately 14.5% and 16.1% of the Company’s total reserves and production.

In 2010, major breakthroughs were made in the exploration of Eastern South China Sea.

First, following Liwan 3-1 and Liuhua 34-2, another significant discovery in deepwater exploration, was made, namely Liuhua 29-1. The Liuhua 29-1 structure is located in the deepwater area of Baiyun sag. The discovery and appraisal of Liuhua 29-1 not only brought the additions to our reserves but also deepened our understanding of the geologic conditions in the area, facilitating explorations in the deepwater area of South China Sea.

Second, the first commercial discovery was made in Enping sag. Exploration in the Enping area has been on going for many years. While the Enping sag was proven to have resource potential, no commercial discovery had ever been made. In 2010, the first commercial discovery of Enping 24-2 opened up a new exploration area in the Enping sag.

Third, opening up new area for oil exploration with a new discovery of Liuhua 16-2 in the Northeastern wing of Baiyun sag. Luihua 16-2 represented the first oil discovery in Baiyun sag, bringing a new age of exploration for the area.

Besides the new discoveries mentioned above, the Company has successfully appraised the oil and gas structures of Huizhou 25-8 and Enping 24-2. Our partner has successfully appraised Liwan 3-1, Liwan 34-2, and Liuhua 29-1.

32

In 2010, the Company actively carried out the preparation work regarding the development of deepwater natural gas project Liwan 3-1. In addition, the successful commencement of production of Huizhou 25-3 oilfield in Eastern South China Sea has injected new energy to the production growth in this area. To effectively reduce production costs and increase efficiency, the Company has also achieved the regional development and operation of oilfield groups in Eastern South China Sea. According to the actual conditions of Xijiang 24-3, Xijiang 30-2, and Xijiang 23-1 oilfields, and in order to optimize the resources in those areas, the Company combined those oilfields.

In 2010, the Company completed the acquisition of 24.5% interest in block 15/34 from Devon Energy Corporation. CNOOC Limited acted as the operator of such block. Following the completion of the transaction, the Company’s interest in block 15/34 increased to 75.5%.

East China Sea

East China Sea is the least explored area among the Company’s four principal producing regions in offshore China. The typical water depth of the Company’s operation area in this region is approximately 90 meters. As of the end of 2010, approximately 2.7% of the reserves and 0.1% of the production of the Company were from East China.

Overseas

Asia

Asia is the first overseas region that the Company has entered into and has become one of the Company’s major overseas oil and gas producing areas. As of today, the Company holds oil and gas assets mainly in Indonesia and Iraq. As of the end of 2010, the reserves and production volume from the Asia region excluding China reached 219.4 million BOE and 58,421 BOE/day respectively, representing approximately 7.3% and 6.5% of the Company’s total reserves and production.

Indonesia

In Indonesia, the Company mainly owns interests in the following PSCs: the Malacca Strait, the SES, the ONWJ, the West Madura and Poleng Technical Assistance Contract, among which, the Company is the operator of the SES block and owns approximately 65.54% of its interests. All the PSCs mentioned above are currently at the production stage.

In addition, the Company owns partial interests in South East Palung Aru, Batanghari and HOML PSCs.

The Company also owns approximately 13.90% of the interests in the Tangguh LNG Project in Indonesia. Located in West Papua and comprising three blocks of Berau, Muturi and Wiriagar, this project commenced production in 2009.

In 2010, in view of the fact that most producing oil and gas fields in Indonesia are mature, the Company adopted various measures to maintain and increase production such as water flooding and infill drilling, so as to keep the decline rate of these mature oilfields at a low level.

Iraq

In 2010, the Company entered into a Technical Service Contract for the development and production of Missan oilfields in Iraq. According to the contract, the Company will act as the operator and hold 63.75% participating interest.

Other Regions in Asia

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The Company owns interests in several blocks in Myanmar, Cambodia and Qatar. These blocks are still under exploration.

Oceania

Currently, the Company’s oil and gas resources in Oceania are all located in Australia. As of the end of 2010, the reserves and production volume from Oceania reached 103.7 million BOE and 27,217 BOE/day respectively, representing approximately 3.5% and 3.0% of the Company’s total reserves and production.

Australia

The Company owns 5.3% of the interests in Australia’s North West Shelf Project. The project has commenced production and is currently supplying gas to customers such as the Dapeng LNG Terminal in Guangdong, China.

In addition, the Company owns interests in one exploration block in Australia.

Africa

Africa is one of the overseas areas with a large reserve base. The Company’s assets in Africa are primarily located in Nigeria. As of the end of 2010, the reserves and production volume from Africa reached 145.7 million BOE and 62,609 BOE/day respectively, representing approximately 4.9% and 7.0% of the Company’s total reserves and production.

Nigeria

The Company owns 45% interest in the OML 130 block in Nigeria. The OML 130 Project is a deepwater project and made up of four oilfields, namely Akpo, Egina, South Egina and Preowei among which Akpo commenced production in March 2009. Since its commencement of production, this oilfield has been steadily increasing its production and its current output has reached its designed peak production.

Other Regions in Africa

Besides Nigeria, the Company also owns interests in several blocks in Kenya, Equatorial Guinea, the Republic of Congo and Algeria. In 2010, the first phase of exploration of blocks in Kenya has been completed and the Company gradually faded out its presence in Kenya. Other blocks are currently under exploration.

North America

The Company holds interests in oil and gas blocks in the U.S. and Trinidad and Tobago in North America. In addition, the Company holds interests in MEG Energy Corporation, or MEG, in Canada.

U.S.

In 2010, the Company completed the acquisition of 33.3% undivided interest in Eagle Ford Shale project from Chesapeake. The project is located in South Texas with 600,000 net leasehold acres.

In early 2011, the Company completed another acquisition of 33.3% undivided interest in Chesapeake’s Niobrara oil and gas project, which is located in northeast Colorado and southeast Wyoming with 800,000 net leasehold acres.

The exploration on shale oil and gas has become one of the hotspots for the world’s oil and gas exploration and development. The Company believes that entering into such business will bring new energy to its sustainable growth and create value for its shareholders.

In addition, the Company also holds interests in several oil and gas blocks at Gulf of Mexico.

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Trinidad and Tobago

In 2009, the Company, through a joint-venture company, acquired a 12.5% interest in the 2C block and a 12.75% interest in the 3A block in Trinidad and Tobago. The 2C block has commenced producing crude oil since 2005 and is expected to begin producing natural gas in 2011.

Canada

In 2005, the Company acquired partial shares of MEG in Canada. In August 2010, MEG was listed on the Toronto Stock Exchange in Canada, resulting in the large appreciation of the value of the Company’s holdings in MEG. At present, the Company’s ownership of MEG is 14.2%.

South America

As for South America, the Company mainly holds 50% interest in Bridas in Argentina. As of the end of 2010, the reserves and production volume from South America reached 284.5 million BOE and 31,780 BOE/day respectively, representing approximately 9.5% of the reserves and 3.5% of the production of the Company.

Argentina

In March 2010, the Company announced to reorganize Bridas to a 50%/50% joint venture with BEH for a consideration of approximately US$3.1 billion in cash. The transaction has been completed. CNOOC Limited and BEH each holds a 50% interest in Bridas, and jointly make management decisions. At that time, Bridas held 40% interest in PAE.

In November 2010, Bridas and BP entered into a share purchase agreement in which Bridas proposed to acquire 60% interests in PAE held by BP for a consideration of approximately US$7.06 billion. CNOOC Limited and BEH each agreed to contribute approximately US$2.47 billion to Bridas to finance this transaction. Upon the completion of the transaction, Bridas will hold 100% interests in PAE.

Bridas engages in oil and gas exploration and production activities in Argentina and other countries through its affiliates (including its interest in PAE). The above mentioned two transactions not only benefited our overseas production and reserves growth but also expanded our business into the resource rich South America for the first time.

Other Oil and Gas Data

Oil and Gas Production, Production Prices and Production Costs

The following table sets forth our net production, average sales price and average production cost (excluding ad valorem and severance taxes) in the years of 2008, 2009 and 2010.

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	Net Production						Average Sales Price				Average Production Cost
	Total		Oil		Gas		Oil		Gas
	(BOE/day)		(Bbls/day)		(Mmcf/day)		(US$/bbl)		(US$/Mmcf)		(US$/boe)
2010
Offshore China
Bohai Bay		429,008		408,946		120.4		—		—		—
Western South China Sea		145,274		84,116		354.0		—		—		—
Eastern South China Sea		144,712		121,454		139.5		—		—		—
East China Sea		972		53		5.5		—		—		—
Subtotal		719,966		614,569		619.4		77.74		4,963		6.77
Overseas
Asia		58,421		20,892		225.2		79.53		3,790		17.17
Oceania		27,217		6,210		107.0		77.65		3,252		7.17
Africa		62,609		62,609		—		79.05		—		6.51
North America		709		709		—		85.32		—		20.23
South America		31,780		16,545		88.4		64.24		1,824		7.38
Subtotal		180,736		106,965		420.6		76.77		3,238		10.26
Total		900,702		721,534		1,040.0		77.59		4,265		7.47
2009
Offshore China
Bohai Bay		267,079		253,884		79.2		—		—		—
Western South China Sea		120,745		72,605		275.4		—		—		—
Eastern South China Sea		126,765		118,395		50.2		—		—		—
East China Sea		1,057		63		6.0		—		—		—
Subtotal		515,646		444,947		410.8		59.88		4,440		7.23
Overseas
Asia		45,555		22,163		140.3		55.57		3,350		17.10
Oceania		26,337		6,228		102.4		59.69		3,184		6.94
Africa		35,591		35,591		—		69.77		—		8.72
North America		767		767		—		69.45		—		13.66
Subtotal		108,250		64,749		242.7		65.60		3,280		11.85
Total		623,896		509,696		653.5		60.61		4,009		8.04
2008
Offshore China
Bohai Bay		230,896		218,478		74.5		—		—		—
Western South China Sea		106,764		56,761		284.7		—		—		—
Eastern South China Sea		127,490		122,813		28.1		—		—		—
East China Sea		1,225		85		6.8		—		—		—
Subtotal		466,375		398,137		394.1		89.16		4,206		6.32
Overseas
Asia		42,632		19,262		140.2		93.74		3,199		17.81
Oceania		21,721		4,669		86.8		90.64		3,168		7.86
Subtotal		64,353		23,931		227.0		93.13		3,187		14.71
Total		530,728		422,068		621.1		89.39		3,833		7.54

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Drilling and Other Exploratory and Development Activities

The following table sets forth our net exploratory wells and development wells drilled in the years of 2008, 2009 and 2010.

	Net Exploratory Wells Drilled						Net Development Wells Drilled
	Total		Productive		Dry		Total		Productive		Dry
2010
Offshore China
Independent
Bohai Bay		30		24		6		177		177		—
Western South China Sea		31		14		17		18		18		—
Eastern South China Sea		13		10		3		15		15		—
East China Sea		7		4		3		—		—		—
Subtotal		81		52		29		210		210		—
PSCs
Bohai Bay		—		—		—		93		93		—
Western South China Sea		—		—		—		3		3		—
Eastern South China Sea		—		—		—		12		12		—
East China Sea		—		—		—		3		3		—
Subtotal		—		—		—		110		110		—
Overseas
Asia		0.9		—		0.9		12		12		—
Oceania		—		—		—		—		—		—
Africa		1.4		—		1.4		2		2		—
North America		—		—		—		—		—		—
South America		—		—		—		—		—		—
Subtotal		2.3		—		2.3		14		14		—
2009
Independent
Offshore China
Bohai Bay		39		25		14		162		162		—
Western South China Sea		27		8		19		17		17		—
Eastern South China Sea		10		4		6		11		11		—
East China Sea		1		1		—		—		—		—
Subtotal		77		38		39		190		190		—
PSCs
Bohai Bay		—		—		—		67.9		67.9		—
Western South China Sea		—		—		—		1.2		1.2		—
Eastern South China Sea		—		—		—		6.7		6.7		—
East China Sea		—		—		—		0.3		0.3		—
Subtotal		—		—		—		76.1		76.1		—
Overseas
Asia		8.5		1.3		7.2		11.9		11.9		—
Oceania		3.0		—		3.0		—		—		—
Africa		—		—		—		6.3		6.3		—
North America		—		—		—		—		—		—
Subtotal		11.5		1.3		10.2		18.2		18.2		—
2008
Independent
Offshore China
Bohai Bay		37		22		15		49		49		—
Western South China Sea		27		14		3		13		13		—
Eastern South China Sea		10		3		7		15		15		—
East China Sea		—		—		—		—		—		—
Subtotal		74		39		25		77		77		—
PSCs
Bohai Bay		—		—		—		27.2		27.2		—
Western South China Sea		—		—		—		—		—		—
Eastern South China Sea		—		—		—		1.5		1.5		—
East China Sea		—		—		—		—		—		—
Subtotal		—		—		—		28.7		28.7		—
Overseas
Asia		6.0		1.1		4.9		4.9		4.9		—
Oceania		—		—		—		—		—		—
Africa		—		—		—		4.0		4.0		—
North America		—		—		—		—		—		—
Subtotal		6.0		1.1		4.9		8.9		8.9		—

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Present Activities

The following tables set forth our present activities as of December 31, 2010.

	Wells Being Drilled				Waterfloods Being Installed
	Gross		Net		Gross		Net
Offshore China
Bohai Bay		27		27.0		301		266.1
Western South China Sea		5		3.5		24		24.0
Eastern South China Sea		4		3.5		—		—
East China Sea		1		1.0		—		—
Subtotal		37		35.0		325		290.1
Overseas
Asia		—		—		—		—
Oceania		—		—		—		—
Africa		30		12.9		10		0.5
North America		15		4.6		—		—
South America		1		0.2		631		126.2
Subtotal		46		17.7		641		126.7

Oil and Gas Properties, Wells, Operations, and Acreage

The following table sets forth our productive wells, developed acreage and undeveloped acreage as of December 31, 2010.

	Productive Wells								Developed Acreage (km2)				Undeveloped Acreage (km2)
	Crude Oil				Natural Gas
	Gross		Net		Gross		Net		Gross		Net		Gross		Net
Offshore China
Bohai Bay		1,368		1,152.9		28		28.0		2,071		2,071		42,194		42,194
Western South China Sea		172		159.2		69		62.1		1,663		1,663		73,388		73,388
Eastern South China Sea		252		202.5		16		12.6		1,710		1,710		55,424		55,424
East China Sea		12		3.6		20		7.6		—		—		85,413		85,413
Subtotal		1,804		1,518.2		133		110.3		5,444		5,444		256,419		256,419
Overseas
Asia		739		383.3		101		36.1		28,896		10,948		96,402		78,698
Oceania		—		—		57		3.0		3,950		209		4,200		4,200
Africa		16		7.2		—		—		1,295		583		8,153		3,448
North America		77		20.7		6		2.0		135		17		3,438		938
South America		3,299		659.8		180		36.0		12,890		1,273		27,892		4,688
Subtotal		4,131		1,071.0		344		77.1		47,166		13,030		140,085		91,972
Total		5,935		2,589.2		477		187.4		53,253		18,474		396,504		348,391

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The gross acreage disclosed above includes the total number of acres in major blocks that we own an interest. The net acreage includes our wholly owned interests and the sum of our fractional interests in gross acreage.

Delivery Commitment

We have certain delivery commitments under the take-or-pay contracts for sales of natural gas. In 2010, the annual sales from our largest gas contract contributed to only approximately 1.1% of our total oil and gas sales. Moreover, total revenues from gas sales account for less than 7.4% of our total oil and gas sales in 2010.  Therefore, we believe that we did not have any material delivery commitment as of the end of 2010.

Sales and Marketing

Sales of Crude Oil

The Company sells its crude oil produced offshore China to the PRC market through CNOOC China Limited, its wholly owned subsidiary. For the overseas production, the Company sells such crude oil to the international and the domestic markets through China Offshore Oil (Singapore) International Pte Ltd, also its wholly owned subsidiary.

The Company’s sale prices are primarily determined by the prices of international benchmark crude oil of similar quality, with certain premium or discount subject to change in market conditions. Although the prices are quoted in U.S. dollars, customers in China usually pay Renminbi. The Company currently sells three types of crude oil in China, namely light crude, medium crude and heavy crude which are benchmarked by Tapis, Daqing, and Duri respectively. The Company’s major customers in China are CNOOC, Sinopec and PetroChina.

In 2010, with the strong signal of global economic recovery and the depreciation of the US dollar, international oil prices continued to rise steadily. The average price of West Texas Intermediate, or WTI, was US$79.49/barrel, representing an increase of 22.4% over the previous year. With the rapid growth of emerging markets including China and India, the demand for crude oil, product oil and fuel oil remained strong, putting upward pressure on benchmark prices of medium and heavy oil in the Far East. The spread between Duri, the reference price of the Company’s heavy oil and WTI tightened further.

Having captured the opportunities arising from strong domestic demand for crude oil in China and the higher benchmark oil price in the Far East, the Company has been closely monitoring the market movements and understanding the customers’ demand to keep the Company’s average realized oil price at a higher level. In 2010, the Company’s average realized oil price was US$77.59/barrel, 28.0% higher than that of previous year.

		Year ended December 31,
		2008		2009		2010
Sales and Marketing Volumes (mmbbls)(1)	Benchmark Prices
Light Crude	APPI(2) Tapis(3)		19.4		12.6		11.3
Medium Crude	Daqing OSP(4)		81.1		94.9		121.8
Heavy Crude	ICP Duri(5)		94.3		109.3		148.6

(1)    Includes the sales volumes of us and our foreign partners under production sharing contracts.

(2)    Asia Petroleum Price Index.

(3)    Tapis is a light crude oil produced in Malaysia.

(4)    Daqing official selling price. Daqing is a medium crude oil produced in northeast China.

(5)    Duri is a heavy crude oil produced in Indonesia. The Indonesian crude price (“ICP”) Duri has been the sole benchmark price for heavy crude since 2006.

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Sales of Natural Gas

The Company’s natural gas sales prices are determined by negotiations between the Company and its customers. The natural gas sales agreements are generally long-term contracts, and their provisions normally contain the periodic price adjustment mechanism. The Company’s natural gas customers are primarily located in the southeast coast of China, including Hong Kong Castle Peak Power Company Limited, CNOOC Gas and Power Group, and China BlueChemical Ltd.

In 2010, in considering the development of the domestic natural gas market, the Company raised its natural gas sales prices for certain customers through negotiations, which resulted in the overall improvement of the natural gas prices. Our average realized gas price was US$4.27/mcf, representing a 6.5% increase over the previous year.

The table below sets forth the average realized prices for our crude oil and natural gas for the periods indicated.

	Year ended December 31,
	2008		2009		2010
Average Realized Prices
Crude Oil (US$/bbl)		89.39		60.61		77.59
Natural Gas (US$/mcf)		3.83		4.01		4.27
West Texas Intermediate (US$/bbl)		100.10		61.99		79.49

The international benchmark crude oil price, West Texas Intermediate, was US$91.38 per barrel as of December 31, 2010 and US$106.72 per barrel as of March 31, 2011.

The following table presents, for the periods indicated, our revenues sourced in and outside the PRC:

	Year ended December 31,
	2008			2009			2010
	(Rmb in millions, except percentages)
Revenues sourced in the PRC		91,040			80,198			133,631
Revenues sourced outside the PRC		34,937			24,997			49,422
Total revenues		125,977			105,195			183,053
% of revenues sourced outside the PRC		27.7	%		23.8	%		27.0	%

Procurement of Services

We usually outsource work in connection with the acquisition and processing of seismic data, well drilling, well logging and perforating services and well control and completion service to independent third parties, or CNOOC and its affiliates.

Besides building floating production storage and offloading, or FPSO, with our partners, we employ independent third parties or CNOOC and/or its affiliates for FPSO services and other services.

We conduct a bidding process to determine who we employ to construct platforms, terminals and pipelines, to drill production wells and to install offshore production facilities.  Both independent third parties and CNOOCaffiliates participate in the bidding process. We are closely involved in the design and management of services by contractors and exercise extensive control over their performance, including their costs, schedule, quality and health, safety, and environment measures.

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Research and Development

In 2010, the Company’s R & D focused on meeting the demand of exploration and production. Certain research findings have been applied to the daily operations and generated positive results.

In 2010, the Company continued to enhance its research efforts on important technical fields such as offshore frontier exploration and technologies, enhancement of offshore oil recovery factor, offshore marginal oilfield development and heavy oil development. Some key researches made noticeable progress. A number of key research findings have been applied to the daily operation and encouraging outcome was achieved. Guided by the new theories and technologies from the exploration research, new discoveries were obtained in some new exploration areas. By promoting the application of large-scale offshore infill drilling in Suizhong 36-1 and other oilfields, the recovery rate has been improved. At Weizhou 6-1 oilfield, the Company successfully transported the compressed natural gas from a long distance via soft pipelines made in China, which was the first approach ever and effectively reduced the construction cost. At Nanbao 35-2 oilfield, the Company has successfully tested on new technology of oil extraction in offshore heavy oilfield and discovered a new path for the effective development of offshore heavy oilfields.

In addition, we have intensified the research on deepwater exploration such as the project “Key Technologies and Facilities for Deepwater Exploration and Development in South China Sea”. These research projects progressed smoothly in 2010.

Health, Safety and Environmental Policy, or HSE

As an offshore E&P company, we face huge operational risk and therefore always emphasize on HSE. The Company promotes the philosophy and culture of HSE among its employees. Until now, the Company has established a comprehensive management system to improve the employee’s awareness of HSE during operations, and strengthen their ability of risk identification and risk management skills.

In 2010, the HSE in oil industry faced critical challenges. The oil spill incidents at Gulf of Mexico and other regions have caused serious environmental pollution and thus caught high public attention. On the other hand, the pressure on production safety, environmental protection and occupational heath conditions has been intensified due to the Company’s intensive workloads on development. As a result, the Company continues to enhance the risk identification and control on HSE and try to identify and prevent the key potential risks in advance.

In 2010, the Company conducted inspections on trial production and safety appraisals for various oil and gas fields and production facilities, and completed the evaluation on the HSE system for branches such as Shenzhen to further improve the Company’s operational system and management effectiveness.

After the oil spill incident at Gulf of Mexico, the Company organized safety inspections on all oil and gas fields as well as the production facilities to prevent the risks embedded in the operation of drilling, development and production. The proper measures have been performed to cope with the potential risks identified. In addition, the Company has further improved the stipulations on the operational safety and environmental protection on well drilling and completion.

The Company was also well prepared for typhoon attacks and procedures for evacuation. In 2010, more than 10 typhoons passed the Company’s production and operation areas. As such, the Company has dispatched more than 400 helicopters and 40 ships to evacuate the workers, during which there were no casualties or losses on properties. Those typhoons had made no significant impact to our operation.

The Company has also imposed HSE standards to our service contractors. To further regulate the safety management of helicopters, the Company renewed the engagement of professional assessment companies to conduct safety checks on helicopter contractors. The contractors were required to rectify all problems identified. Likewise, the Company also enhanced the management of diving safety and carried out annual safety checks on 18 diving service contractors.

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In order to improve the emergency response capability, the headquarters organized numerous professional trainings in areas such as safety certificates and safety supervision in 2010. More than 400 employees participated in those trainings. Further, over 30,000 staff members and contractors in various branches attended the professional trainings organized by the Company.

In 2010, there was no accident causing critical casualties, and neither was there any liability claims for losses of over Rmb 1 million. The Company’s Occupational Safety and Health Administration, or OSHA, statistics remained at a good level, and our performance continued to improve.

Operating Hazards and Uninsured Risks

Our operations are subject to hazards and risks inherent in the drilling, production and transportation of crude oil and natural gas, including pipeline ruptures and spills, fires, explosions, encountering formations with abnormal pressures, blowouts, cratering and natural disasters, any of which can result in loss of hydrocarbons, environmental pollution and other damage to our properties and the properties of operators under PSCs.  In addition, certain of our crude oil and natural gas operations are located in areas that are subject to tropical weather disturbances such as typhoons, some of which can be severe enough to cause substantial damage to facilities and interrupt production.

As part of the protection against operating hazards, we maintain insurance coverage against some, but not all, potential losses, including the loss of wells, blowouts, pipeline leakage or other damage, certain costs of pollution control and physical damages on certain assets.  Our insurance coverage includes offshore oil and gas field properties all risks insurance and construction insurance, protection and indemnity insurance, operator extra expenses insurance, marine cargo insurance and third party liabilities and comprehensive general liability insurance.  The operators of the projects in which we participate overseas are required by local law to purchase insurance policies customarily taken out by international oil and gas companies.

We carry third-party liability insurance policies to cover (i) claims made against us by or on behalf of individuals who are not our employees in the event of personal injury or death and (ii) legal liabilities for environmental damages resulting from our onshore and offshore activities, including oil spills.  In addition, we impose contractual requirements upon our contractors to purchase insurance policies that cover their liabilities for the personal injuries of their own employees.  Our contractors are obligated to indemnify us against such claims.

As of December 31, 2010, we paid an annual insurance premium of approximately US$79.62 million and US$18.71 million for operational insurance and all risk construction insurance, respectively, to maintain our insurance coverage.  We believe that our level of insurance is adequate and customary for the PRC petroleum industry and international practices.  However, we may not have sufficient coverage for some of the risks we face, either because insurance is not available or because of high premium costs.  See “Item 3—Key Information—Risk Factors—Risks Relating to Our Operations—Extreme weather conditions may have a material adverse impact on us and could result in losses that are not covered by insurance.”

We have purchased a number of insurance policies with varying policy limits to meet our risk management requirements and cover our potential liabilities in the event that any of our rigs is involved in an explosion or similar event at any of our offshore locations.  The policy limits and other terms and conditions of these insurance policies comply with all applicable laws and regulations in the PRC and other relevant jurisdictions.  We currently have 52 insurance policies in effect in 2010, including 37 for operational insurance and 15 for construction insurance. The coverage under operational insurance policies and construction insurance policies are subject to policy limits of US$14.9 billion in aggregate and US$2.5 billion in aggregate, respectively. The coverage under operator’s extra-expense and third-party liabilities insurance policies are subject to policy limits of US$20 million to US$40 million for each and every occurrence. The deductible for each insurance policy ranges from US$2 million to US$5 million for different types of insurance policies.

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For all of our offshore operations, we have conducted comprehensive environmental impact evaluations and adopted emergency plans to deal with potential oil spills.  Pursuant to the requirements of the PRC government, the evaluations and plans for our offshore operations in the PRC have been reviewed and approved by the industry experts and have been filed with the PRC government.  The evaluations and plans for our offshore operations overseas have complied with the legal and regulatory requirements of the relevant local jurisdictions.

In addition, we currently have seven oil spill emergency handling bases, to which we have contributed land and funds for construction, separately located in seven cities in the PRC, namely Suizhong, Tanggu, Longkou, Huizhou, Shenzhen, Zhuhai and Weizhou. All the oil spill emergency handling bases are close to our workplaces of operations, and in the event of any oil spill, explosion or other similar events, they would react promptly and assist us in coping with such accidents effectively. We also cooperate with Oil Spill Response Limited, an industry-funded company specializing in oil spill response with operating bases in the United Kingdom, Singapore and Bahrain, to deal with the environmental impact that would occur in the event of oil spills or leakage resulting from our offshore operations. We have entered into contracts with Oil Spill Response Limited for certain of our exploration projects, including our project in Equatorial Guinea.

Competition

Domestic Competition

The oil and gas industry is very competitive.  We compete in the PRC and in international markets for customers as well as capital to finance our exploration, development and production activities.  Our principal competitors in the PRC are PetroChina and Sinopec.

We price our crude oil on the basis of comparable crude oil prices in the international market.  The majority of our customers for crude oil are refineries affiliated with CNOOC, Sinopec and PetroChina to which we have been selling crude oil, from time to time.  Based on our past experiences with these refineries, we believe that we have established stable business relationships with them.

We are the dominant player in the oil and gas industry in offshore China and, through CNOOC, are the only company permitted to engage in oil and gas exploration and production in offshore China with foreign parties under PSCs.  We may face increasing competition in the future from other oil and gas companies in obtaining new PRC offshore oil and gas properties, or, as a result of changes in current PRC laws or regulations permitting an expansion of existing companies’ activities or new entrants into the industry.

As part of our business strategy, we intend to expand our natural gas business to meet rapidly increasing domestic demand.  Our competitors in the PRC natural gas market are PetroChina and Sinopec.

Foreign Competition

Imports of crude oil are subject to import licenses, handling fees and other restrictions.  The PRC government also restricts the availability of foreign exchange with which the imports must be purchased.  The combination of licenses and restrictions on foreign exchange has, to some extent, limited the competition from imported crude oil.

As a result of China joining the World Trade Organization as a full member on December 11, 2001, it is required to further reduce its import tariffs and other trade barriers over time, including with respect to certain categories of petroleum and crude oil.  At present, CNOOC, Sinopec, PetroChina and several other domestic state-owned enterprises have received permission to import crude oil on their own.  Foreign owned or foreign invested entities and other non-state-owned enterprises are subject to certain import quotas.

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Segment Information

The following table shows the breakdown of our total consolidated operating revenues for each of the periods indicated and the percentage contribution of each revenue component to our total operating revenues:

	Year ended December 31,
	2008						2009						2010
	Rmb in thousands			%			Rmb in thousands			%			Rmb in thousands			%
Independent operations		54,682,326			43.4			44,656,654			42.5			85,916,019			46.9
PSC/Joint-arrangements		56,019,745			44.5			48,598,484			46.2			82,200,173			44.9
Trading businesses		22,966,752			18.2			20,751,961			19.7			32,445,867			17.7
Unallocated and elimination		(7,691,441	)		(6.1	)		(8,812,022	)		(8.4	)		(17,508,974	)		(9.5	)
Total operating revenues		125,977,382			100.0			105,195,077			100.0			183,053,085			100.0

We are mainly engaged in the exploration, development, production and sales of crude oil and natural gas primarily in offshore China.  For the year ended December 31, 2010, approximately 73% of our total revenue was sourced in the PRC.  Our overseas activities are mainly conducted in Indonesia, Australia, Nigeria, Argentina, the U.S. and other countries.

Fiscal Regimes

Offshore China

We conduct exploration and production operations either independently or jointly with foreign partners under our PSCs. The PRC government has established different fiscal regimes for crude oil and natural gas production from our independent operations and from the operations under our PSCs.

Fiscal regimes for independent operations

Royalties paid to the PRC government are based on our gross production from both independent operations and oil and gas fields under PSCs.  The amount of the royalties varies up to 12.5% based on the annual production of the relevant property.  The PRC government has provided companies such as us with a royalty exemption for up to one million tons, or approximately seven million BOE, per year for our crude oil production and for up to 70.6 billion cubic feet, or approximately 11.8 million BOE, per year for our natural gas production.  The limits in these exemptions apply to our total production from both independent properties and properties under PSCs.  In addition, we pay production taxes to the PRC government equal to 5% of our crude oil and gas produced independently and under PSCs.

Fiscal regimes for PSC operations

Under our PSCs, production of crude oil and gas is allocated among us, the foreign partners and the PRC government according to a formula contained in the contracts.  Under this formula, a percentage of production under our PSCs is allocated to the PRC government as its share oil.

When exploration and production operations in offshore China are conducted through a PSC, the operator of the oil or gas field must submit a detailed evaluation report and an overall development plan to a joint management committee established under the PSC upon the discovery of commercially viable oil and gas reserves. The plan must be subsequently confirmed by CNOOC and approved by the PRC government before the parties to the PSC begin the commercial development of the oil and gas field.

Under PRC law, only a state-owned company, such as CNOOC, may negotiate a PSC with foreign partners. CNOOC assigned to us all of its rights and obligations under then-existing PSCs in 1999 and has undertaken to assign to us its future PSCs except for those relating to CNOOC’s administrative functions.

Bidding Process

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CNOOC and foreign partners enter into new PSCs primarily through bidding organized by CNOOC and direct negotiation. During a typical bidding process, CNOOC determines which blocks are open for bidding and invites foreign enterprises to bid. Potential bidders are required to provide information, including minimum work commitments, exploration expenditures and percentages of share oil payable to the PRC government; and CNOOC evaluates each bid and negotiates a PSC with the successful bidder. CNOOC has agreed to allow us to participate in all negotiations for new PSCs.

Terms of PSCs

Term of Length. PSCs typically last for 30 years: (1) the exploration period is generally divided into three phases, with three years, two years and two years, respectively. During the exploration period, exploratory and appraisal work is conducted in order to discover petroleum and to enable the parties to determine the commercial viability of any petroleum discovery; (2) the development period begins when the relevant PRC regulatory authorities have approved the overall development plan and ends when the design, construction, installation, drilling and related research work for the realization of petroleum production as planned have been completed; and (3) the production period begins when commercial production commences and usually lasts for 15 years.

Minimum Work Commitment. The foreign partners must complete a minimum amount of work during the exploration period, generally including: drilling a minimum number of wildcat(s); acquiring a fixed amount of seismic data; and incurring a minimum amount of exploration expenditures. Foreign partners are required to pay all exploration costs, which can be recovered according to the production sharing formula after commercial discoveries are made and production begins. Foreign partners are required to relinquish 25% of the contract area, excluding the development and production areas, to CNOOC at the end of each phase of the exploration period and to relinquish all areas, excluding the development areas, production areas and areas under evaluation, to CNOOC at the end of the exploration period.

Participating Interests. We have the right to take participating interests up to 51% in any oil or gas field discovered in the contract area and may exercise this right after the foreign partners have made commercially viable discoveries.  The foreign partners retain the remaining participating interests.

Production Sharing Formula. A chart illustrating the production sharing formula under our PSCs is shown below.

Percentage of annual gross production	Allocation
5.0%	Production tax payable to the PRC government(1)
0.0% — 12.5%(2)	Royalty oil payable to the PRC government
50.0% — 62.5%(2)	Cost recovery oil allocated according to the following priority: 1. recovery of current year operating costs by us and foreign partner(s); 2. recovery of earlier exploration costs by foreign partner(s); 3. recovery of development costs and deemed interest by us and foreign partner(s) based on participating interests; and 4. any excess, allocated to the remainder oil.
32.5%(3)	Remainder oil allocated according to the following formula: 1. (1-X) multiplied by 32.5% represents share oil payable to the PRC government; and 2. X multiplied by 32.5% represents remainder oil distributed according to each partner’s participating interest.

(1) In this annual report and in our consolidated financial statements included elsewhere in this annual report, references to production tax on oil and gas produced offshore China are the value-added tax set out in our PSCs offshore China.

(2) Assumes annual gross production of more than four million metric tons, approximately 30 million BOE.  For lower amounts of production, the royalty rate will be lower and the cost recovery will be greater than 50.0% by the amount that the royalty rate is less than 12.5%.

(3) The ratio “X” is agreed in each PSC based on commercial considerations and ranges from 8% to 100%.

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The first 5.0% of the annual gross production is paid to the PRC government as production tax.  The PRC government is also entitled to a royalty payment equal to the next 0% to 12.5% of the annual gross production as follows:

Annual gross production of oil(1)	Royalty rate
Less than 1 million tons	0.0%
1–1.5 million tons	4.0%
1.5–2.0 million tons	6.0%
2.0–3.0 million tons	8.0%
3.0–4.0 million tons	10.0%
Above 4 million tons	12.5%

(1) The royalties for natural gas reach a maximum at 3.0%.

We calculate and pay oil and gas production tax and royalty to the PRC government on a monthly basis and make adjustments for any overpayment or underpayment at the end of the year. The foreign partners have the right to either take possession of their allocable remainder oil for sale in the international market, or sell such crude oil to us in the PRC market.

Management and Operator. A party will be designated as the operator to undertake the execution of the petroleum operations which includes preparing work programs and budgets, procuring equipment and materials relating to operations, establishing insurance programs, and issuing cash-call notices to the parties to the PSC to raise funds.

A joint management committee will be set up to perform supervisory functions. Each of us and the foreign partners has the right to appoint an equal number of representatives to form the joint management committee. We designate the chairman of the committee and the foreign partners as a group designate the vice chairman.  The joint management committee has the authority to make decisions on matters including reviewing and approving operational and budgetary plans, determining the commercial viability of each petroleum discovery, reviewing and adopting the overall development plan; and approving significant procurements and expenditures as well as insurance coverage.

After the foreign partner has fully recovered its exploration and development costs under PSCs in which the foreign partner is the operator, we have the right to take over the operation of the particular oil or gas field.  With the consent of the foreign partner, we may also take over the operation before the foreign partner has fully recovered its exploration and development costs.

Ownership of Data and Assets. All data, records, samples, vouchers and other original information obtained by foreign partners in the process of exploring, developing and producing offshore petroleum become the property of CNOOC as a state-owned oil company under PRC law.  Through CNOOC, we have unlimited and unrestricted access to such information.

We and our foreign partners have joint ownership in all of the assets purchased, installed or constructed under the PSCs until either the foreign partners have fully recovered their development costs, or upon the expiration of the PSCs. After that, CNOOC will assume ownership of all of the assets under the PSCs, and our foreign partners and we retain the exclusive right to use the assets during the production period.

Abandonment Costs. Any party to our PSCs shall pay its share of the abandonment cost when such party either abandons the production of an oil field or gas field during a production period or when the production period of the oil field or gas field expires.

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Overseas

In addition to our PSCs in the PRC, we are subject to other fiscal regimes in the foreign countries and regions where we conduct operations, including Indonesia, Australia, Nigeria, Argentina, the U.S. and certain other countries. See “Item 4—Information on the Company—Business Overview—Overseas.”

In countries including Indonesia, Nigeria and Trinidad and Tobago, we conduct our operations through PSCs.  For example, the OML130 block in Nigeria involves a production sharing arrangement.  We and the other partners to overseas PSCs are required to bear all exploration, development and operating costs according to our 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.

Our net interest in the PSCs overseas consists of our participating interest in the properties covered under the relevant PSCs, less oil and gas distributed to the local government and/or the domestic market obligation, as applicable.

In Australia, the U.S. and Argentina, we conduct our operations through exploration and production permits, licenses or leases. We, as one of the title owners under these permits, licenses or leases, are required to bear all exploration, development and operating costs together with other co-owners. Once production occurs, a certain percentage of the annual production or revenue will first be distributed to the landowner, in most of cases in the form of royalty, severance tax and other payments, and the rest of the annual production or revenue will be allocated among the co-owners. Exploration, development and operating costs are deductible for the purpose of income tax calculation in accordance with local tax regulations.

Regulatory Framework in the PRC

Government Control

The PRC government owns all of China’s petroleum resources and exercises regulatory control over oil exploration and production activities in China.  We are required to obtain various governmental approvals, including those from the Ministry of Land and Resources, the State Oceanic Administration, the National Development and Reform Commission and the Ministry of Commerce before we are permitted to conduct production activities.  Our sales are coordinated by the National Development and Reform Commission.  For independent operations and joint exploration and production with foreign enterprises, we are required to obtain various governmental approvals, through CNOOC, including permit for exploration blocks, approval of a reserve report, the PSCs between CNOOC and the foreign enterprises, environmental impact report submitted through CNOOC, overall development plan, and extraction permit.

We explore and develop our offshore China reserves under exploration and production licenses granted by the PRC government.  Exploration licenses, which are generally granted for individual blocks, require holders to make an annual minimum exploration investment and pay an annual exploration license fee.  The annual minimum investment and license fees are based on the area under license and increase over the life of the exploration license.  Production licenses, which are generally granted for individual fields, require holders to pay an annual production right usage fee based on the area under license.  All of our proved reserves in offshore China are under production licenses granted by the PRC government.

Special Policies Applicable to the Offshore Petroleum Industry in China

Since the early 1980s, the PRC government has adopted policies and measures to encourage the development of the offshore petroleum industry.  These policies and measures, which were applicable to CNOOC’s operations prior to the reorganization, became applicable to our operations in accordance with an undertaking agreement between us and CNOOC.  As approved by the PRC government, these policies and measures have provided us with benefits mainly including the exclusive right to explore for, develop and produce petroleum in designated areas in offshore China in cooperation with international oil and gas companies and to sell petroleum in China, and the flexibility to set our prices in accordance with international market prices and determine where to sell our crude oil, with only minimal supervision from the PRC government.

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Although we historically have benefited from the foregoing special policies, we cannot assure that such policies will continue in the future.

In March 2006, the PRC government imposed a special oil gain levy at progressive rates from 20% to 40% on any income derived from sales of locally produced crude oil by an oil exploration and production company at a price which exceeds US$40 per barrel.  The special oil gain levy is collected on a quarterly basis.  For the years ended December 31, 2008, 2009 and 2010 we paid approximately Rmb 16.2 billion, Rmb 6.4billion and Rmb 17.7 billion (US$2.68 billion) for the Special Oil Gain Levy.  As international oil prices, the exchange rate of Renminbi and our crude oil production fluctuate, we cannot ascertain the full impact of the Special Oil Gain Levy going forward.

The rates of the special oil gain levy are shown in the table below:

Realized Oil Price (US$/bbl)	Rate of the Levy
40-45 (Include 45)	20%
45-50 (Include 50)	25%
50-55 (Include 55)	30%
55-60 (Include 60)	35%
Above 60	40%

In addition, the PRC government imposed an export tariff of 5% on crude oil in November 2006.

Policies Applicable to International Oil and Gas Companies Operating Offshore China

The PRC government encourages foreign participation in offshore oil and gas exploration and production. Currently, international oil and gas companies can only undertake offshore oil and gas exploration and production activities in China after they have entered into a PSC with CNOOC.

Environmental Regulation

Our operations are required to comply with various applicable environmental laws and regulations, including PRC laws and regulations administered by the national and local government environmental protection bureaus for our operations in China.  We are also subject to the environmental rules introduced by governments in whose jurisdictions our logistical support facilities are located.

Government agencies set national or local environmental protection standards. The relevant environment protection bureau must approve or review each stage of a project.  We must file an environmental impact statement or, in some cases, an environmental impact assessment outline before an approval can be issued.  The filing must demonstrate that the project conforms to applicable environmental standards.  The relevant environmental protection bureau generally issues approvals and permits for projects using modern pollution control measurement technology.

The PRC national and local environmental laws and regulations impose fees for the discharge of waste substances above prescribed levels, require the payment of fines for serious violations and provide that the PRC national and local governments may at their own discretion close or suspend any facility which fails to comply with orders requiring it to cease or cure operations causing environmental damage.

The PRC environmental laws require offshore petroleum developers to pay abandonment costs.  Our financial statements include provisions for costs associated with the dismantlement of oil and gas fields as of December 31, 2008, 2009 and 2010 of approximately Rmb 8,340.0 million, Rmb 11,281.1 million and Rmb 16,026.8 million (US$ 2,428.3 million), respectively.

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According to the interpretation made by the Legal Affairs Office of the State Council, investors of the offshore oil and gas fields shall take responsibility for abandonment of the offshore oil and gas production facilities and perform the obligation in relation to environmental protection and ecological restoration, and shall provide and allocate special fund for the aforesaid purpose in accordance with the relevant laws and regulations. The investors include us and the foreign parties to our PSCs.

Environmental protection and prevention costs and expenses in connection with the operation of offshore petroleum exploitation are covered either under PSCs, or by us for independent operations.  Each platform has its own environmental protection and safety staff responsible for monitoring and operating the environmental protection equipment.  However, no assurance can be given that the PRC government will not impose new or stricter regulations which would require additional environmental protection expenditures.

We believe that our environmental protection systems and facilities comply with applicable national and local environmental protection regulations.

Patents and Trademarks

We own or have licenses to use two trademarks which are of value in the conduct of our business.  CNOOC is the owner of the two trademarks.  Under two non-exclusive license agreements between CNOOC and us, we have obtained the right to use the two trademarks for a nominal consideration.

Real Properties

Our corporate headquarters is located in Hong Kong.  We lease several other properties from CNOOC in China and Singapore.  The rental payments under these lease agreements are determined with reference to market rates.  See “Item 7—Major Shareholders and Related Party Transactions—Related Party Transactions.”

We own the following main property interests in the PRC:

l   51% interest in land, various buildings and structures at Yacheng 13-1 Processing Plants, Hainan Province and Hong Kong;

l   land, various buildings and structures at Xingcheng JZ 20-2 Natural Gas Separating Plant, Liaoning Province;

l   land, various buildings and structures located at Boxi Processing Plant, Tianjin;

l   land, various buildings and structures at Weizhou Terminal Processing Plant, Guangxi Zhuang Autonomous Region;

l   land, various buildings and structures at Suizhong 36-1 Base, Liaoning Province;

l   land, various buildings and structures located at Bonan Processing Plant, Shandong Province;

l   land, various buildings and structures located at Dongfang 1-1 Processing Plant, Hainan Province;

l   land, various buildings and structures located at Panyu Huizhou Gas Processing Plant, Guangdong Province; and

l   land, various buildings and structures located at a Gas Processing Plant, Ningbo, Zhejiang Province.

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Employees and Employee Benefits

During the years ended December 31, 2008, 2009 and 2010, we employed 3,584 persons, 4,019 persons and 4,650 persons, respectively.  Of the 4,650 employees we employed as of December 31, 2010, approximately 76.6% were involved in oil exploration, development and production activities, approximately 5.1% were involved in accounts and finance work and the remainder were senior management, coordinators of PSCs, safety and environmental supervisors and others. Workers for the operation of the oil and gas fields, maintenance personnel and ancillary service workers are hired on a contract basis.

We have a union that protects employees’ rights, organizes educational programs, assists in the fulfillment of economic objectives, encourages employee participation in management decisions, and assists in mediating disputes between us and individual employees.

We have not been subject to any strikes or other labor disturbances and believe that relations with our employees are good.

The total remuneration of employees includes salary, bonuses and allowances.  Bonus for any given period is based primarily on individual and our performance.  Employees also receive health benefits and other miscellaneous subsidies.

We have implemented an occupational health and safety program similar to that employed by other international oil and gas companies.  Under this program, we closely monitor and record health and safety incidents and promptly report them to government agencies and organizations.  We believe this program is broadly in line with the United States government’s Occupational Safety & Health Administration guidelines.

All full-time employees in the PRC are covered by a government-regulated pension and are entitled to an annual pension at their retirement dates.  The PRC government is responsible for the pension liabilities to these retired employees under this government pension plan.  The actual pension payable to each retiree is subject to a formula based on the status of the individual pension account, general salary and inflation movements.  We are required to make monthly contributions to the government pension plan at rates ranging from 11% to 22% of our employees’ salaries, with each employee contributing 8% of his or her salary for retirement.  The contributions vary from region to region.

We are required to make contributions to a mandatory provident fund at a rate of 5% of the base salaries for full-time employees in Hong Kong.

As of December 31, 2010, our Indonesian subsidiaries employed 773 employees, including 36 expatriates.We provide benefits to expatriates that we believe to be in line with customary international practices.  Our local staffs in Indonesia enjoy welfare benefits mandated by Indonesian labor laws.

For further details regarding retirement benefits, see note 30to our consolidated financial statements included elsewhere in this annual report.

As an oil and gas exploration and production company operating in highly competitive markets, we depend in large part on our employees for effective and efficient operations.  We devote significant resources to train our employees.  During 2010, we held approximately 6,300 training workshops, which were attended by approximately 75,000 participants.  To ensure smooth implementation of our overseas strategy, we have established an international human resources system to attract and retain talent in the international market.  In order to enhance the planning and budget control of our labor costs, we have installed target benchmarks in performance appraisals to guide various business units to cut their labor costs and to increase the accuracy of their budgets.

C. ORGANIZATIONAL STRUCTURE

CNOOC indirectly owned or controlled an aggregate of approximately 64.41% of our shares as of March 31, 2011.  Accordingly, CNOOC continues to be able to exercise all the rights of a controlling shareholder, including electing our directors and voting to amend our articles of association.  Although CNOOC has retained a controlling interest in us, the management of our business will be our directors’ responsibility.

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The following chart sets forth our controlling entities and our directly-held subsidiaries as of March 31, 2011 and notes our significant indirectly-held subsidiaries.

(1) Overseas Oil & Gas Corporation, Ltd. also directly owns five shares of our company.

(2) Owner of our overseas interests in oil exploration and production businesses and operations, including our indirect wholly-owned subsidiaries CNOOC Southeast Asia Limited (Bermuda), CNOOC Exploration & Production Nigeria Limited (Nigeria) and CNOOC NWS Private Limited, and our jointly-controlled entity, Bridas Corporation.

(3) Owner of substantially all of our PRC oil exploration and production businesses, operations and properties.

(4) Business vehicle through which we engage in sales and marketing activities in the international markets.

(5) Includes CNOOC Finance (2002) Limited, CNOOC Finance (2003) Limited and CNOOC Finance (2011) Limited, all  of which are our financing vehicles. These finance companies are our wholly owned subsidiaries with our company as their sole corporate director.

D. PROPERTY, PLANTS AND EQUIPMENT

See “Item 4—Information on the Company—Business Overview.”

ITEM 4A. UNRESOLVED STAFF COMMENTS

None.

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ITEM 5. OPERATING AND FINANCIAL REVIEW AND PROSPECTS

A. OPERATING RESULTS

You should read the following discussion and analysis in conjunction with our consolidated financial statements, selected historical consolidated financial data and operating and reserves data, in each case together with the accompanying notes, contained in this annual report. Certain statements set forth below constitute “forward-looking statements” within the meaning of the United States Private Securities Litigation Reform Act of 1995.  See “Forward-Looking Statements.”

Overview

Our revenues and profitability are largely determined by our production volume and the prices we realize on our crude oil and natural gas, as well as the costs of our exploration and development activities.  Although crude oil prices depend on various market factors and have been volatile historically, our total net production volume has increased over the past few years.

Factors Affecting Our Results of Operations

There are many factors that affect our results of operations and financial condition, mainly including the following:

Oil and Gas Prices

Substantially all of our revenues are from the sales of oil and natural gas. Therefore, one of the primary factors affecting our revenues is the prices for crude oil and natural gas. Crude oil prices are subject to fluctuations due to market uncertainty and various other factors that are beyond our control, including, but not limited to overall economic conditions, supply and demand dynamics for crude oil and natural gas, political developments, the ability of petroleum producing nations to set and maintain production levels and prices, the price and availability of other energy sources and weather conditions.

In addition, our typical contracts with natural gas buyers include provisions for periodic resets and adjustment formulas which may result in selling price fluctuations.

In addition to directly affecting our revenues and earnings, declines in crude oil and/or natural gas prices may also result in the write-off of higher cost reserves and other assets. Furthermore, lower crude oil and natural gas prices may reduce the amount of crude oil and natural gas we can produce economically and render existing contracts that we have entered into uneconomical.

The following table sets forth our average net realized prices for crude oil and natural gas for the periods indicated:

	Year ended December 31,
	2008		2009		2010
Average net realized prices:
Crude oil (US$ per bbl)		89.39		60.61		77.59
Natural gas (US$ per mcf)		3.83		4.01		4.27

Production and Sales Volumes

Our revenues are also greatly affected by our production and sales volume as well as our product mix. Our crude oil and natural gas production volumes depend primarily on our ability to keep a high reserve replacement ratio and to develop currently undeveloped reserves in a timely and cost-effective manner.

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We produce and sell different mixes of crude oil and natural gas, each having different market prices. Therefore, in any given period, our product mix is subject to change, which will also affect our results of operations.

The following table sets forth our average daily net production of crude oil and natural gas for the periods indicated.

	Year ended December 31,
	2008		2009		2010
Net production of crude oil (bbl/day)		422,068		509,696		721,534
Net production of natural gas (mmcf/day)		621.1		653.5		1,040.0

For a description of other factors affecting our results of operations, see “Item 3—Key Information—Risk Factors.”

Critical Accounting Policies

We prepare our consolidated financial statements in accordance with IFRS issued by the IASB, HKFRS issued by the HKICPA, accounting principles generally accepted in Hong Kong, and the Hong Kong Companies Ordinance.  The preparation of these financial statements requires management to make estimates and judgments that affect the reported amounts of our assets and liabilities, the disclosure of our contingent assets and liabilities as of the date of our financial statements, if any, and the reported amounts of our revenues and expenses during the periods reported.  Management makes these estimates and judgments based on historical experience and other factors that are believed to be reasonable under the circumstances.  Actual results may differ from these estimates under different assumptions or conditions.  We believe that the following significant accounting policies may involve a higher degree of judgment in the preparation of our consolidated financial statements. For additional discussion of our significant accounting policies, see note 3 to our consolidated financial statements included elsewhere in this annual report.

Oil and Gas Properties

For oil and gas exploration, we have adopted the successful efforts method of accounting.  As a result, we capitalize initial acquisition costs of oil and gas properties. Impairment of initial acquisition costs is recognized based on exploratory experience and management judgment which includes, but is not limited to, that any dry hole has been drilled on the property; that any drilling activity has commenced on the property or on other properties nearby and is still under way or has been firmly planned or determined; that the carrying amount of the exploration and evaluation asset is unlikely to be recovered in full from successful development or by sale; and that the period during which we have the right to explore in the specific area has expired or will expire in the near future and is not expected to be renewed. Upon discovery of commercial reserves, we transfer acquisition costs to proved properties and capitalize the costs of drilling and equipping successful exploratory wells, all development expenditure on construction, installation or completion of infrastructure facilities such as platforms, pipelines, processing plants and the drilling of development wells, and the building of enhanced recovery facilities, including those renewals and betterments that extend the economic lives of the assets, and the related borrowing costs.

The costs incurred in installing enhanced recovery facilities are capitalized together with the development costs of the relevant oil and gas properties.  We treat the costs of unsuccessful exploratory wells and all other related exploration costs as expenses when incurred.  Productive oil and gas properties and other tangible and intangible costs of producing properties are amortized 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 provision of depreciation, depletion and amortization. Common facilities that are built specifically to service production directly attributed to designated oil and gas properties are amortized based on the proved developed reserves of the respective oil and gas properties on a pro-rata basis.  Generally, common facilities that are not built specifically to service identified oil and gas properties are depreciated using the straight-line method over their estimated useful lives.  Costs associated with significant development projects are not depreciated until commercial production commences and the reserves related to those costs are excluded from the calculation of depreciation.  We amortize capitalized acquisition costs of proved properties by the unit-of-production method on a property-by-property basis based on the total estimated units of proved reserves.

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We recognized the amount of the estimated cost of dismantlement and discounted the amount to its present value using a current pre-tax rate that reflects, where appropriate, the risks specific to the liability. Changes in the estimated timing of dismantlement cost estimates are dealt with prospectively by recording an adjustment to the provision, and a corresponding adjustment to property, plant and equipment. We included the unwinding of the discount on the dismantlement provision as a finance cost.

Reserves Estimation

Pursuant to the amendments to the oil and gas reserve estimation requirements under the SEC’s final rules on “Modernization of Oil and Gas Reporting”, which became effective for accounting periods ended on or after December 31, 2009, we use the unweighted average, first-day-of-the-month oil prices during the 12-month period before the ending date of the period covered by the consolidated financial statements to estimate our proved oil and gas reserves. Year-end prices were used for the estimation in the accounting periods ended before December 31, 2009. However, it is neither practical nor cost-effective for our management to estimate the effect of such change in accounting precisely.

Impairment of Assets

We make an assessment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable, or when there is any indication that an impairment loss previously recognized for an asset in prior years may no longer exist or may have decreased.  In any event, we would make an estimate of the asset’s recoverable amount, which is calculated as the higher of the asset’s value in use or its net selling price.  We recognize an impairment loss only if the carrying amount of an asset exceeds its recoverable amount.  We charge an impairment loss to the consolidated statement of comprehensive income in the period in which it arises. A reversal of an impairment loss is credited to the consolidated statement of comprehensive income in the period in which it arises.

Business acquisition

Business combinations are accounted for using the acquisition method. The cost of an acquisition is measured as the aggregate of the consideration transferred, measured at acquisition date fair value and the amount of any non-controlling interest in the acquiree. For each business combination, the acquirer measures the non-controlling interest in the acquiree either at fair value or at the proportionate share of the acquiree’s identifiable net assets. Acquisition costs incurred are expensed and included in administrative expenses.

Goodwill is initially measured at cost being the excess of the aggregate of the consideration transferred and the amount recognized for non-controlling interest over the net identifiable assets acquired and liabilities assumed. If this consideration is lower than the fair value of the net assets of the subsidiary acquired, the difference, after measurement, is recognized in profit or loss.

Provisions

We recognize a provision 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 recognized for a provision is the present value at the reporting 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 consolidated statement of comprehensive income.

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We make provisions for dismantlement based on the present value of our future costs expected to be incurred, on a property-by-property basis, in respect of our expected dismantlement and abandonment costs at the end of the related oil exploration and recovery activities.

Deferred Tax

Deferred tax is provided, using the liability method, on all temporary differences at the reporting date between the tax bases of assets and liabilities and their carrying amounts for financial reporting purposes.

Deferred tax liabilities are recognized for all taxable temporary differences, except:

·   where the deferred tax liability arises from the initial recognition of an asset or liability in a transaction that is not a business combination and, at the time of the transaction, affects neither accounting profit or loss nor taxable profit or loss; and

·   in respect of taxable temporary differences associated with investments in subsidiaries, associates and interests in a joint venture, 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.

A typical example of transactions that are not business combinations and, at the time of the transaction, affect neither accounting profit or loss nor taxable profit or loss is the acquisition of an asset, such as an exploration license or concession, where no previous activity has taken place, whereby the consideration paid is higher than its tax base.  The facts and circumstances of each transaction need to be considered in order to determine whether the definition of “business” under the relevant accounting standard has been met.

Recognition of Revenue from Oil and Gas Sales and Marketing

We recognize revenue when it is probable that the economic benefits will flow to us and when the revenue can be measured reliably.  For oil and gas sales, our revenues represent the invoiced value of sales of oil and gas attributable to our interests, net of royalties and any government share oil that is lifted and sold on behalf of the government.  We have adopted a net basis of reporting for royalties and government share oil when we have no legal rights to the underlying reserves.  As such, we act as an agent for the relevant governments or royalty holders when we sell the portion of oil and gas on their behalves.  Sales are recognized when the significant risks and rewards of ownership of oil and gas have been transferred to customers.  Oil and gas lifted and sold by us above or below our participating interests in any PSC result in overlifts and underlifts.  We record 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 or in cash when the liftings are equalized or in cash when production ceases.  We enter into gas sales contracts with customers which often contain take-or-pay clauses.  Under these contracts, we make a long term supply commitment in return for a commitment from the buyer to pay for minimum quantities, whether or not it takes delivery. These commitments contain protective provisions, such as force majeure provision, and adjustment provisions. If a buyer has a right to get a “make up” delivery at a later date, revenue recognition is deferred. If no such option exists according to the contract terms, revenue is recognized when the take-or-pay penalty is triggered.

Our marketing revenues principally represent sales of oil purchased from the foreign partners under our PSCs and revenues from the trading of oil through our subsidiaries.  The title, together with the risks and rewards of the ownership of such oil purchased from the foreign partners, are transferred to us from the foreign partners and other unrelated oil and gas companies before we sell such oil to our customers.  The cost of the oil sold is included in crude oil and product purchases.

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Results of Operations

Overview

The following table summarizes the components of our revenues and net production as percentages of our total revenues and total net production for the periods indicated:

	Year ended December 31,
	2008				2009				2010
	(Rmb in millions, except percentages, production data and prices)
Revenues:
Oil and gas sales:
Crude oil		94,779	75.2	%		77,383	73.6	%		138,149	75.5	%
Natural gas		6,052	4.8	%		6,531	6.2	%		10,970	6.0	%
Total oil and gas sales		100,831	80.0	%		83,914	79.8	%		149,119	81.5	%
Marketing revenues		22,967	18.2	%		20,752	19.7	%		32,446	17.7	%
Other income		2,179	1.7	%		529	0.5	%		1,488	0.8	%
Total revenues		125,977	100.0	%		105,195	100.0	%		183,053	100.0	%
Net production (million BOE):
Crude oil		154.4	79.5	%		186.0	81.7	%		263.4	80.1	%
Natural gas		39.8	20.5	%		41.7	18.3	%		65.4	19.9	%
Total net production		194.2	100.0	%		227.7	100.0	%		328.8	100.0	%
Average net realized prices:
Crude oil (US$ per bbl)		89.39				60.61				77.59
Natural Gas (US$ per mcf)		3.83				4.01				4.27

The following table sets forth, for the periods indicated, certain income and expense items in our consolidated statement of comprehensive income as a percentage of total revenues:

	Year ended December 31,
Operating Revenues:	2008			2009			2010
Oil and gas sales		80.0	%		79.8	%		81.5	%
Marketing revenues		18.2	%		19.7	%		17.7	%
Other income		1.7	%		0.5	%		0.8	%
Total revenues		100.0	%		100.0	%		100.0	%
Expenses:
Operating expenses		(7.9	)%		(11.9	)%		(8.9	)%
Taxes other than income tax		(4.1	)%		(3.7	)%		(4.5	)%
Exploration expenses		(2.7	)%		(3.1	)%		(3.0	)%
Depreciation, depletion and amortization		(7.9	)%		(15.2	)%		(15.1	)%
Special oil gain levy		(12.9	)%		(6.0	)%		(9.7	)%
Impairment and provision		(1.2	)%		(0.0	)%		(0.0	)%
Crude oil and product purchases		(18.0	)%		(19.4	)%		(17.6	)%
Selling and administrative expenses		(1.4	)%		(2.2	)%		(1.7	)%
Others		(1.0	)%		(0.2	)%		(0.5	)%
		(57.2	)%		(61.7	)%		(61.0	)%
Interest income		0.9	%		0.6	%		0.5	%
Finance costs		(0.3	)%		(0.5	)%		(0.7	)%
Exchange gain, net		2.0	%		0.1	%		0.5	%
Investment income		0.4	%		0.2	%		0.2	%
Share of profits of associates		0.3	%		0.2	%		0.1	%
Non-operating income (expenses), net		0.0	%		0.0	%		0.1	%
Profit before tax		45.9	%		38.8	%		39.7	%
Income tax expense		(10.7	)%		(10.8	)%		(10.0	)%
Profit for the year		35.2	%		28.0	%		29.7	%

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Calculation of Revenues

China

We report total revenues, which consist of oil and gas sales, marketing revenues and other income, in our consolidated financial statements included elsewhere in this annual report.  With respect to revenues derived from our offshore China operations, oil and gas sales represent gross oil and gas sales less royalties and share oil payable to the PRC government.

The gross oil and gas sales consist of our percentage interest in total oil and gas sales, comprised of (i) a 100% interest in our independent oil and gas properties and (ii) our participating interest in the properties covered under our PSCs, less an adjustment for production allocable to foreign partners under our PSCs as reimbursement for exploration costs attributable to our participating interest.

Marketing revenues represent our sales of our foreign partners’ oil and gas produced under our PSCs and purchased by us from our foreign partners under such contracts as well as from international oil and gas companies through our wholly owned subsidiary in Singapore.  Net marketing revenues represent the marketing revenues net of the cost of purchasing oil and gas from foreign partners and from international oil and gas companies.  Our foreign partners have the right to either take possession of their oil and gas for sale in the international market or to sell their oil and gas to us for resale in the PRC market.

Other income mainly represents project management fees charged to our foreign partners and handling fees charged to end customers—both fees are recognized when the services are rendered.  Reimbursement of insurance claims is recognized when the compensation becomes receivable.

Our share of the oil and gas sales of unconsolidated investees is not included in our revenues, but our share of the profit or loss of this investee is included as part of our share of profits of associates as shown in our consolidated statements of comprehensive income.

Indonesia

The oil and gas sales from our subsidiaries in Indonesia consist of our participating interest in the properties covered under the relevant PSCs, less adjustments for oil and gas distributable to the Indonesian government under our Indonesian PSCs and for a domestic market obligation under which the contractor must sell a specified percentage of its crude oil to the local Indonesian market at a reduced price.

Australia

The oil and gas sales from our subsidiaries in Australia consist of our participating interest in the properties of the North West Shelf project.

Nigeria

The oil and gas sales from our subsidiaries in Nigeria consist of our participating interest in the properties covered under the relevant PSCs.  We record revenue from oil sales in accordance with the entitlement method. The revenue is calculated based on our participating interest less the rental concession, royalty, and oil and gas distributable to the host country.  The royalty rates applicable to deepwater properties are zero.

Trinidad and Tobago

The oil and gas sales from our subsidiaries in Trinidad and Tobago consist of our participating interest in the properties covered under the relevant PSCs.

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Argentina

Our oil and gas sales from South America are derived from Bridas Corporation, a 50%/50% joint venture we reorganized with BEH in May 2010. Bridas Corporation formerly was a wholly-owned subsidiary of BEH and owns a 40% equity interest in PAE.

2010 versus 2009

Consolidated net profit

Our consolidated net profit increased 84.5% to Rmb 54,409.5 million (US$8,243.9 million) in 2010 from Rmb 29,485.6 million in 2009. The primary driving factors for the profit increase were higher production and sales volume, higher realized prices, and effective operating cost control. However, these positive factors were partially offset by higher special oil gain levy, higher income tax payments due to production volume and higher realized prices, and higher depreciation.

Revenues

Our oil and gas sales increased 77.7% to Rmb 149,118.7 million (US$22,593.7 million) in 2010 from Rmb 83,914.4 million in 2009, mainly due to the substantial increase in oil and gas production and higher realized oil prices. We sold 262.8 million barrels of crude oil in 2010, representing an increase of 40.6% from 186.9 million barrels in 2009. Sales volume of our natural gas increased 56.8% to 65.4 million BOE (379,595 mmcf) in 2010 from 41.7 million BOE (238,480 mmcf) in 2009. In 2010, our oil and gas production was 328.8 million BOE, of which offshore China and overseas operations contributed 262.8 million BOE and 66.0 million BOE, respectively. The overseas production accounted for 20.1% of our total net production in 2010, compared with 17.4% in 2009.

The average realized crude oil price increased by US$16.98 per barrel, or 28.0%, to US$77.59 per barrel in 2010 from US$60.61 per barrel in 2009. The average realized natural gas price increased by US$0.26/mcf, or 6.5%, to US$4.27/mcf, in 2010 from US$4.01/mcf, in 2009. In 2010, having taken the opportunities arising from strong domestic demand for crude oil in China and the higher benchmark oil price in the Far East, we have achieved higher realized oil prices by closely monitoring the market movements and understanding the customers’ needs. On the other hand, based on the development of the domestic natural gas market, we raised the natural gas sales prices for certain customers through negotiations, which improved the overall natural gas prices.

In 2010, our net marketing profit, which is marketing revenues less costs of purchases, decreased 29.4% to Rmb 209.4 million (US$31.7 million) from Rmb 296.7 million in 2009. Our realized marketing profit margin, which is our net marketing profit calculated as a percentage of marketing revenues, decreased from 1.4% in 2009 to 0.7% in 2010, primarily due to less willingness to purchase oil at increasing prices by our major customers.

Operating expenses

Our operating expenses increased 29.7% to Rmb 16,204.1 million (US$2,455.2 million) in 2010 from Rmb 12,490.4 million in 2009. Apart from the commencement of production of new oil and gas fields, the increase of operating expenses is also mainly attributable to the intensive operation workload of the existing producing fields. Operating expenses per BOE decreased 10.0% to Rmb 49.3 (US$7.47) per BOE in 2010 from Rmb 54.8 per BOE in 2009. Operating expenses per BOE offshore China decreased 9.5% to Rmb 44.7 (US$6.77) per BOE in 2010 from Rmb 49.4 per BOE in 2009. The decrease is attributable to the economies of scale resulted from the increase in oil and gas production. Overseas operating expenses per BOE decreased 16.3% to Rmb 67.7 (US$10.26) per BOE in 2010 from Rmb 80.9 per BOE in 2009, primarily contributed by increased production percentage from low-cost oil and gas fields, such as Akpo oilfield in OML130, as well as the lower operating costs of newly-acquired oil and gas fields.

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Taxes other than income tax

Our taxes other than income tax increased 111.0% to Rmb 8,204.0 million (US$1,243.0 million) in 2010 from Rmb 3,888.6 million in 2009, primarily as a result of increased tax payments due to the increase in oil and gas production and higher realized oil and gas prices, as well as including the local tax payments on our recently acquired overseas projects, such as Bridas.

Exploration expenses

Our exploration expenses increased 72.6% to Rmb 5,579.9 million (US$845.4 million) in 2010 from Rmb 3,233.7 million in 2009, primarily as a result of our continuously enhancing exploratory activities including more wells being drilled and more seismic data being acquired. In 2010, our independent exploration activities consisted of 48 wildcat wells and 33 appraisal wells. Meanwhile, we acquired 22,598 km 2D and 10,887 km2 3D seismic data in 2010. The continuing efforts made on the above mentioned items brought up a series of important discoveries on reserves.

Depreciation, depletion and amortization

Our depreciation, depletion and amortization increased 73.7% to Rmb 27,687.1 million (US$4,195.0 million) in 2010 from Rmb 15,942.9 million in 2009. Our average depreciation, depletion and amortization per barrel increased by 20.3% to Rmb 84.2 (US$12.76) per BOE in 2010 from Rmb 70.0 per BOE in 2009, mainly attributable to the commencement of production on new oil and gas fields in 2009 and 2010, which were developed under the environment of increasing prices of raw materials and services over the past few years.

The dismantlement provisions related depreciation, depletion and amortization costs increased  78.9% to Rmb 1,662.0 million (US$251.8 million) in 2010 from Rmb 929.1 million in 2009. Our average dismantling costs per barrel increased 24.0% to Rmb 5.06 (US$0.77) per BOE in 2010 from Rmb 4.08  per BOE in 2009. In addition to the new oil and gas fields and higher projected service fees and raw material prices, the increase in dismantlement cost is also attributable to the increased dismantlement obligations as a result of re-evaluation of expected work commitments.

Special Oil Gain Levy

Our Special Oil Gain Levy increased 178.5% to Rmb 17,705.6 million (US$2,682.7 million) in 2010 from Rmb 6,357.3 million in 2009, primarily as a result of our increased sales volume and higher realized oil prices offshore China.

Impairment and provision

Our impairment and provision increased 284.1% to Rmb 26.5 million (US$4.0 million) in 2010 from Rmb 6.9 million in 2009, primarily due to the inventory provision during the year.

Selling and administrative expenses

Our selling and administrative expenses increased 35.3% to Rmb 3,062.6 million (US$464.0 million) in 2010 from Rmb 2,264.0 million in 2009, mainly due to the increased selling expenses resulting from the higher sales volume, and the commission expenses incurred in 2010 for the acquisitions of new projects. Our selling and administrative expenses per barrel decreased 6.2% to Rmb 9.32 (US$1.41) per BOE in 2010 from Rmb 9.94 per BOE in 2009, primarily as a result of the economies of scale from increased production.

Finance costs/Interest income

Our finance costs increased 128.6% to Rmb 1,222.0 million (US$185.2 million) in 2010 from Rmb 534.5 million in 2009, primarily due to the interest payment from additional debt obligations as well as the increase in unwinding of discount on provision for dismantlement in 2010. Our interest income increased 10.3% to Rmb 703.8 million (US$106.6 million) in 2010 from Rmb 638.3 million in 2009 as a result of more interest earned from the enlarged scale of banking deposits.

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Exchange gains, net

Our net exchange gains increased 1,749.1% to Rmb 994.8 million (US$150.7 million) in 2010 from Rmb 53.8 million in 2009, primarily as a result of the exchange rate fluctuation in Renminbi during the year. In 2010, the exchange rates of Renminbi against U.S. dollar and Hong Kong dollar increased 3.1% and 3.5%, respectively.

Investment income

Our investment income increased 113.9% to Rmb 427.5 million (US$64.8 million) in 2010 from Rmb 199.9 million in 2009, primarily attributable to the increased investments on corporate wealth management products under the condition that the products are of good liquidity and low risk.

Share of profits of associates

Contributed by good performance of our associated companies, our share of profits of associates increased 14.6% to Rmb 198.9 million (US$30.1 million) in 2010 from Rmb 173.5 million in 2009.

Income tax expense

Our income tax expense increased 60.9% to Rmb 18,240.4 million (US$2,763.7 million) in 2010 from Rmb 11,335.5 million in 2009, primarily as a result of the increase in revenues and profit due to the increase of sales volume and average realized oil and gas prices. Our effective tax rate decreased to 25.1% in 2010 from 27.7% in 2009, primarily as a result of the tax benefit obtained in 2010 of OML130 project in Nigeria.

2009 versus 2008

Consolidated net profit

Our consolidated net profit decreased 33.6% to Rmb 29,485.6 million in 2009 from Rmb 44,375.3 million in 2008.

Revenue

Our oil and gas sales decreased 16.8% to Rmb 83,914.4 million in 2009 from Rmb 100,831.3 million in 2008, primarily as a result of significantly lower average realized oil prices in 2009. The average realized price for our crude oil decreased by US$28.78 per barrel, or 32.2%, to US$60.61 per barrel in 2009 from US$89.39 per barrel in 2008. We sold 186.9 million barrels of crude oil in 2009, representing a 22.4% increase from 152.7 million barrels in 2008. The average realized price for our natural gas increased US$0.18 per thousand cubic feet, or 4.7%, to US$4.01 per thousand cubic feet in 2009 from US$3.83 per thousand cubic feet in 2008. Sales volume of our natural gas increased 4.8% to 41.7 million BOE in 2009 from 39.8 million BOE in 2008.

Our net marketing profit, which is marketing revenue less purchase costs, increased 1.7% to Rmb 296.7 million in 2009 from Rmb 291.7 million in 2008. Our realized marketing profit margin, which is our net marketing profit as a percentage of marketing revenues, was 1.4% in 2009, generally the same as that of 1.3% in 2008.

Operating expenses

Our operating expenses increased 25.0% to Rmb 12,490.4 million in 2009 from Rmb 9,990.4 million in 2008. Operating expenses per BOE increased 6.6% to Rmb 54.8 per BOE in 2009 from Rmb 51.4 per BOE in 2008. Such increase is attributable to the commencement of production of oil and gas fields in 2009, the upgrade of operational equipment to improve the safety and reliability of production facilities, and the heavier operation workload at producing oil and gas fields.

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Operating expenses per BOE offshore China increased 10.5% to Rmb 49.4 per BOE in 2009 from Rmb 44.7 per BOE in 2008, the increase is attributable to the upgrade of operational equipment to improve the safety and reliability of production facilities and the heavier operation workload. Operating expenses per BOE overseas decreased 19.4% to Rmb 80.9 per BOE in 2009 from Rmb 100.3 per BOE in 2008, primarily as a result of the lower average operating costs of overseas oil and gas fields commencing production in 2009.

Taxes other than income tax

Our production taxes decreased 24.5% to Rmb 3,888.6 million in 2009 from Rmb 5,149.7 million in 2008, primarily as a result of lower crude oil sales due to significantly lower average realized oil prices in 2009.

Exploration expenses

Our exploration expenses decreased 5.2% to Rmb 3,233.7 million in 2009 from Rmb 3,409.5 million in 2008. In 2009, we continued to enhance our exploration activities and due to higher drilling success rate, our exploration expenses in 2009 decreased slightly from that in 2008.

Depreciation, depletion and amortization

Our depreciation, depletion and amortization other than dismantlement expenditures increased 60.1% to Rmb 15,013.8 million in 2009 from Rmb 9,380.5 million in 2008. Our average depreciation, depletion and amortization per barrel increased 36.5% to Rmb 65.9 per BOE in 2009 from Rmb 48.3 per BOE in 2008, primarily as a result of the commencement of production in 2008 and 2009 of such oil and gas fields which were successively developed in recent years under an environment of the rising costs in both service fees and raw materials.

The depreciation, depletion and amortization related to our dismantlement provisions increased 37.2% to Rmb 929.1 million in 2009 from Rmb 677.2 million in 2008. Our average dismantling costs increased 16.9% to Rmb 4.08 per BOE in 2009 from Rmb 3.49  per BOE in 2008. Apart from the commencement of production of oil and gas fields, the increase is also attributable to higher estimated future dismantlement obligations arising from upward reevaluation of expected work commitments and higher projected service fees and raw material prices.

Special Oil Gain Levy

Our Special Oil Gain Levy decreased 60.8% to Rmb 6,357.3 million in 2009 from Rmb 16,238.2 million in 2008, primarily as a result of our lower realized oil price, and correspondingly, the lower applicable progressive rates imposed by the levy.

Impairment and provision

Our impairment and provision decreased 99.6% to Rmb 6.9 million in 2009 from Rmb 1,541.5 million in 2008. The current year expense primarily included the provisions for inventory obsolescence in 2009.

Selling and administrative expenses

As compared to 2008, there was higher marketing costs in line with rising sales volume; higher wages and social security costs due to increasing staff headcounts; and higher leasing and outsourcing fees corresponding to market condition. In 2009, in light of these factors, our selling and administrative expenses increased 29.9% to Rmb 2,264.0 million in 2009 from Rmb 1,742.6 million in 2008. Our selling and administrative expenses increased 10.8% to Rmb 9.94 per BOE in 2009 from Rmb 8.97  per BOE in 2008.

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Finance costs / interest income

Our finance costs increased 28.7% to Rmb 534.5 million in 2009 from Rmb 415.3 million in 2008, primarily as a result of the increase in unwinding the discount on the provisions for dismantlement in 2009. Our interest income decreased 41.5% to Rmb 638.3 million in 2009 from Rmb 1,091.0 million in 2008, primarily as a result of the lower banking deposit interest rates due to the liquidity excesses in both the domestic and overseas financial markets.

Exchange gains, net

Our net exchange gains decreased 97.9% to Rmb 53.8 million in 2009 from Rmb 2,551.3 million in 2008 primarily as a result of the relatively stable exchange rate between Renminbi and U.S. dollars in 2009 compared to 2008.

Investment income

Our investment income decreased 58.0% to Rmb 199.9 million in 2009 from Rmb 475.9 million in 2008, primarily as a result of lower realized gains due to market conditions and redemptions to avoid the potential losses due to the volatile financial markets.

Share of profits of associates

Our share of profits of associates decreased 53.6% to Rmb 173.5 million in 2009 from Rmb 374.1 million in 2008, primarily as a result of significantly lower average realized oil price in an associated company in 2009.

Income tax expense

Our income tax expense decreased 16.1% to Rmb 11,335.5 million in 2009 from Rmb 13,505.0 million in 2008, primarily as a result of lower revenue and profit due to lower average realized oil price. Our effective tax rate increased to 27.7% in 2009 from 23.3% in 2008. In 2008, the Company had a lower effective tax rate primarily because of the tax exemption on the income from the sale of working interests in certain assets. In addition, the larger profit contribution from our overseas business units and the increased tax rate in Indonesia have attributed to the higher effective tax rate in 2009.

B. LIQUIDITY AND CAPITAL RESOURCES

Our primary source of cash during 2010 was cash flow from operating activities. We used cash primarily to fund capital spending program and dividends. The following table summarizes our cash flows for the periods presented:

	Year ended December 31,
	2008			2009			2010
	(Rmb in millions)
Cash generated from (used for):
Operating activities		52,489			49,624			83,498
Investing activities		(45,735	)		(37,307	)		(64,800	)
Financing activities		(10,129	)		(9,403	)		(1,284	)
Net increase/(decrease) in cash and cash equivalents		(3,375	)		2,914			17,414

Cash Generated from Operating Activities

In 2010, our cash inflow from operating activities was Rmb 83,498.2 million (US$12,651.2 million) as compared to Rmb 49,624.2 million in 2009, representing an increase of 68.3% from 2009. The increase in cash inflow from operating activities was mainly due to the increase of sales volume and higher realized oil and gas prices. The increase was also partially offset by corresponding costs, expenditures and other working capital occupied.

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Capital Expenditures and Investments

Net cash outflow from investing activities in 2010 was Rmb 64,800.0 million (US$9,818.2 million), representing an increase of Rmb 27,493.0 million, or 73.7% from Rmb 37,307.0 million in 2009. The increase in cash outflow from investing activities was mainly due to the Rmb 20,760.6 million used for reorganizing Bridas Corporation to a 50%/50% joint venture with Bridas Energy Holding Ltd., and Rmb 3,546.3 million used for acquisition of 24.5% interest in Block 15/34 located in the Pearl River Basin, South China Sea from Devon Energy Corporation; and Rmb 7,762.4 million used for acquisition of 33.3% undivided interest of Eagle Ford Shale project in Texas from Chesapeake Energy Corporation.

In 2010, our capital expenditures, other than the acquisitions mentioned above, decreased 25.1% to Rmb 29,512.1 million (US$4,471.5 million) from Rmb 39,376.3 million in 2009, primarily as a result of the decrease in the number of on-going projects, the improvement of operational efficiency, and the adverse impact on operations due to adverse weather conditions. Our development expenditures in 2010 are primarily related to the development of OML130, Bozhong26-3, Jinzhou25-1, Jinzhou25-1S, Penglai19-3, Jinxian1-1, Lufeng13-2 and the expenses incurred for improving the recovery factor of the producing fields.

In addition, our cash used in investing activities was also attributable to purchase of available-for-sale financial assets of Rmb 32,129.0 million (US$4,868.0 million) and held-to-maturity financial assets of Rmb 6,351.1 million (US$962.3 million). Our cash generated from investing activities was mainly from the proceeds from the sales of Rmb 21,881.8 million (US$3,315.4 million) of available-for-sale financial assets and Rmb 3,310.9 million (US$501.7 million) of held-to-maturity financial assets respectively, and from reducing Rmb 8,894.4 million (US$1,347.6 million) in time deposits with maturity of more than three months.

For 2011, we have budgeted approximately US$8.6 billion for capital expenditures for exploration and development. The following table sets forth actual or budgeted capital expenditures on an accrual basis for our key operating areas for the periods indicated.

	Year ended December 31,
	2008(1)		2009(1)		2010(1)		2010(1)		2011(2)
	(Rmb million)		(Rmb million)		(Rmb million)		(US$ million)		(US$ million)
Offshore China
Bohai Bay
Development		13,701.1		23,425.2		14,802.1		2,242.7		1,871.2
Exploration		2,049.1		2,919.7		2,480.1		375.8		514.2
Western South China Sea
Development		3,570.8		4,675.4		2,337.6		354.2		516.8
Exploration		2,063.3		1,388.1		1,774.2		268.8		249.5
Eastern South China Sea
Development		3,476.3		2,874.6		4,484.5		679.5		2,399.7
Exploration		1,064.3		1,146.1		1,634.1		247.6		294.1
East China Sea
Development		117.2		81.5		137.0		20.8		61.6
Exploration		102.7		264.0		512.8		77.7		79.4
Others
Development		—		—		—		—		452.0
Exploration		179.7		130.4		137.8		20.8		34.5
Subtotal		26,324.5		36,905.0		28,300.2		4,287.9		6,473.1
Overseas
Development		8,616.6		4,373.5		4,470.2		677.3		1,762.6
Exploration		917.3		1,435.8		1,268.3		192.2		391.2
Subtotal		9,533.9		5,809.3		5,738.5		869.5		2,153.8
Total		35,858.4		42,714.3		34,038.7		5,157.4		8,626.9

(1) Figures for 2008, 2009, and 2010 represent our actual spending for capital expenditure purposes, including expensed exploration costs.

(2) Figures for 2011 represent our budgeted capital expenditures.

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In addition to the budgeted development and exploration expenditures relating to the oil and gas properties described above, we may make additional capital expenditures and investments consistent with our business strategy.  See “Item 4—Information on the Company—Business Overview—Business Strategy.”  We expect to fund our capital expenditures with our cash flows from operations and external financing.

Our ability to maintain and grow our revenues, profit and cash flows depends upon continued capital spending.  Generally, we adjust our capital expenditure and investment budget on an annual basis.  Our capital expenditure plans are subject to a number of risks, contingencies and other factors, some of which are beyond our control.  Therefore, our actual future capital expenditures and investments will likely be different from our current planned amounts, and such differences may be significant.  See “Item 3—Key Information—Risk Factors—Risks Relating to Our Operations—Our future prospects largely depend on our capital expenditures, which are subject to various risks.”

Financing Activities

Net cash outflow from financing activities in 2010 was Rmb 1,284.2 million (US$194.6 million), representing a decrease of Rmb 8,119.1 million, or 86.3% from Rmb 9,403.3 million in 2009. In 2010, the net cash outflow was mainly due to the distribution of dividends of Rmb 14,389.8 million (US$2,180.3 million) and the repayment of bank loans of Rmb 4,303.8 million (US$652.1 million). It was partially offset by cash inflow which was mainly due to bank borrowings of Rmb 17,245.6 million (US$2,613.0 million).

At the end of 2010, our total debt outstanding was Rmb 33,346.7 million (US$5,052.5 million), compared to Rmb 18,692.2 million at the end of 2009. The increase in debt in 2010 was primarily attributed to the acquisition activities and increase in general borrowings. Our gearing ratio, which is defined as interest bearing debt divided by the sum of interest bearing debt plus equity, was 13.4%.

We have debt service obligations consisting of principal and interest payments on our outstanding indebtedness. The following table summarizes the maturities of our long-term debt outstanding as of December 31, 2010.

	Debt maturities (principal only)
Due by December 31,	Original currency      US$		Total Rmb equivalents		Total US$ equivalents
	(in millions, except percentages)
2011		783.1		5,186.0		783.1
2012-2014		1,015.0		6,722.0		1,015.0
2015-2016		111.9		740.8		111.9
2017 and beyond		651.6		4,315.5		651.6
Total		2,561.5		16,964.3		2,561.5
Percentage of total debt		50.9%		50.9%		50.9%

In January 2011, we, through CNOOC Finance (2011) Limited, our wholly owned subsidiary, issued US$1,500 million 4.25% guaranteed notes due 2021 and US$500 million 5.75% guaranteed notes due 2041. The obligations of CNOOC Finance (2011) Limited in respect of the notes are unconditionally and irrevocably guaranteed by us.

As of March 31, 2011, we had total foreign currency debt of US$6,843.0 million, all of which is in U.S. dollars.

As of December 31, 2010, we had unutilized banking facilities amounting to approximately Rmb 179,029.5 million (US$27,125.7 million) as compared to Rmb 174,843.1 million as of December 31, 2009.

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In 2008, 2009 and 2010, we paid dividends totaling Rmb 14,651.8 million, Rmb 15,747.1 million and Rmb 15,893.8 million (US$2,408.2 million) (before PRC withholding tax deducted), respectively.  The payment and the amount of any dividends in the future will depend on our results of operations, cash flows, financial condition, the payment by our subsidiaries of cash dividends to us, future prospects and other factors which our directors may consider relevant.  The amount of dividends we paid historically is not indicative of the dividends that we will pay in the future.

We believe our future cash flows from operations, borrowing capacity and funds raised from our debt offerings will be sufficient to fund planned capital expenditures and investments, debt maturities and working capital requirements through at least 2011.  However, our ability to obtain adequate financing to satisfy our capital expenditures and debt service requirements may be limited by our financial condition and results of operations and the liquidity of international and domestic financial markets.  See “Item 3—Key Information—Risk Factors—Risks Relating to Our Operations—Our future prospects largely depend on our capital expenditures, which are subject to various risks.”

Holding Company Structure

We are a holding company.  Our entire oil exploration, development, production and sales business in the PRC is owned and conducted by CNOOC China Limited, our wholly owned subsidiary in the PRC.  Our entire oil exploration, development and production business outside the PRC is owned and conducted by CNOOC International Limited, our wholly owned subsidiary incorporated in the British Virgin Islands.  International sales of crude oil are conducted by China Offshore Oil (Singapore) International Pte Ltd, our wholly owned subsidiary incorporated in Singapore.  Accordingly, our future cash flows will consist principally of dividends from our subsidiaries.  The subsidiaries’ ability to pay dividends to us is subject to various restrictions, including legal restrictions in their jurisdictions of incorporation.  For example, legal restrictions in the PRC permit payment of dividends only out of profit determined in accordance with PRC accounting standards and regulations.  In addition, under PRC law, CNOOC China Limited is required to set aside a portion of its profit each year to fund certain reserve funds.  These reserves are not distributable as cash dividends.

Inflation/Deflation

According to the China Statistical Bureau, as represented by the general consumer price index, China experienced an overall inflation rate of 5.9% in 2008, an overall inflation rate of -0.7% in 2009 and an overall inflation rate of 3.3% in 2010.  Neither deflation nor inflation has had a significant impact on our results of operations in the respective years.

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Taxation

We are subject to income taxes on an entity basis on income arising in or derived from the tax jurisdictions in which we and each of our subsidiaries are domiciled and operate.  Our profits arising in or derived from Hong Kong are subject to tax at a rate of 16.5%, which is qualified as a foreign tax credit to offset the PRC corporate income tax starting from January 1, 2008.

We received a formal approval from the State Administration of Taxation of the PRC on October 19, 2010, confirming that we are regarded as a Chinese Resident Enterprise, or CRE, pursuant to the provisions of the “Notice regarding Matters on Determination of Tax Residence Status of Chinese-controlled Offshore Incorporated Enterprises under Rules of Effective Management”, the “Enterprise Income Tax Law of the People’s Republic of China” and the “Detailed Rules for the Implementation of the Enterprise Income Tax Law of the People’s Republic of China”. According to the formal approval, we are subject to the PRC enterprise income tax at a rate of 25% starting from January 1, 2008.

Pursuant to the above laws and regulations, we are required to withhold 10% corporate income tax when we make dividend distributions to our non-Chinese resident enterprise shareholders.

Our PRC subsidiary, CNOOC China Limited, as a wholly foreign-owned enterprise, is subject to an enterprise income tax rate of 25% under the prevailing tax rules and regulations.

The PRC corporate income tax is levied based on taxable income, including income from both operations and other components of earnings, as determined in accordance with the generally accepted accounting principles in the PRC, or PRC GAAP.

Besides income taxes, our PRC subsidiary also pays certain other taxes, including:

l   production taxes of 5% on independent production and production under PSCs;

l   export tariffs of 5% on the export value of petroleum oil;

l   business tax at rates of 3% to 5% on other income;

l   city construction tax at rate of 1% or 7% on the actual paid business tax and production taxes (effective as of December 1, 2010); and

l   educational surcharge at rate of 3% on the actual paid business tax and production taxes (effective as of December 1, 2010).

In addition, other taxes paid and payable by our non-PRC subsidiaries and jointly controlled entities include gross production assessments, duties and export tariffs, as well as taxes levied on petroleum related income, profits and budgeted operating and capital expenditures.

Our subsidiaries domiciled outside of the PRC are subject to income tax rates ranging from 10% to 56%.

Some of our oil and gas interests in Indonesia are held through Labuan-incorporated companies. According to an amendment to the tax rules enacted by the Indonesian government in December 2009, Labuan-incorporated companies no longer enjoy the tax rates under the previous tax treaty between Indonesia and Malaysia. Therefore, the applicable tax rates would increase from the range between 43.125% and 51.875% to the range between 44% and 56%. The amendment became effective on January 1, 2010.

We calculate our deferred tax to account for the temporary differences between our tax base, which is used for income tax reporting and prepared in accordance with applicable tax guidelines, and our accounting base, which is prepared in accordance with applicable financial reporting requirements.  The temporary differences include accelerated amortization allowances for oil and gas properties, which are partially offset by provisions for dismantlement and for impairment of property, plant and equipment and write-off of unsuccessful exploratory drilling.  As of December 31, 2008, 2009 and 2010, we had Rmb 5,428.3 million, Rmb 7,439.6 million and Rmb 13,122.1 million (US$1,988.2 million), respectively, in net deferred tax liabilities. See note 12 to our consolidated financial statements included elsewhere in this annual report.

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Impact of Recently Issued Accounting Standards

IFRS and HKFRS

We have adopted the IFRS as issued by the IASB since January 1, 2008. Therefore, our consolidated financial statements for 2010 have been prepared in due compliance with both IFRS and HKFRS.

The IASB has issued a number of new and revised IFRSs and IFRIC Interpretations , which are first effective for the current accounting year commencing January 1, 2010 or later, but available for early adoption. The equivalent new and revised HKFRSs and HKFRS Interpretations consequently issued by the HKICPA have the same effective dates as those issued by the IASB and are in all material aspects identical to the pronouncements issued by the IASB. There have been no other material changes to HKFRSs.  Except for IFRS 3/HKFRS 3 (Revised) – Business Combinations, which introduces significant changes in the accounting for business combinations, and IAS 27/HKAS 27 (Amended) – Consolidated and Separate Financial Statements, which requires that a change in the ownership interest of a subsidiary (without loss of control) be accounted for as a transaction of the owners in their capacity as owners of the interest in such subsidiary, the adoption of the other new and revised IFRS,  and HKFRS, rules and the amendments have no impact on our results of operations or financial position for the year ended December 31, 2010.

A number of new and revised IFRSs and HKFRSs become effective for fiscal years beginning on or after January 1, 2011.  We have not early applied these IFRSs and HKFRSs to our consolidated financials statements included elsewhere in this annual report.  We are in the process of making an assessment of the impact of these new and revised IFRSs and HKFRSs upon application. We conclude that, while certain new or revised IFRSs and HKFRSs, such as IFRS 9/HKFRS 9 - Financial Instruments: Classification and Measurement and IAS 24/HKAS 24 (Revised) - Related Party Disclosures, may result in future changes of our financial results or disclosures, other new and revised IFRSs and HKFRSs are unlikely to have a significant impact on our results of operations and financial position.

For details, please refer to notes 2.1 and 2.2 to our consolidated financial statements included elsewhere in this annual report.

C. RESEARCH AND DEVELOPMENT, PATENTS AND LICENSES, ETC.

See “Item 4—Information on the Company—Business Overview—Research and Development”, “Item 4—Information on the Company—Business Overview—Patents and Trademarks”.

D. TREND INFORMATION

Crude oil prices are a major driver of our results of operations.  We price our crude oil with reference to the international crude oil prices, which have fluctuated considerably over the years. For more information about crude oil prices, see “Item 3—Key Information—Risk Factors—Risks Relating to Our Operations—Our business, revenues and profits fluctuate with changes in oil and gas prices,” “Item 4—Information on the Company—Business Overview—Sales and Marketing—Sales of Crude Oil,” and “Item 5—Operating and Financial Review and Prospects—Operating Results—Results of Operations—2010 versus 2009.”

In addition to crude oil, natural gas is becoming an increasingly important part of our business.  The Chinese government promotes the use of natural gas as a clean and efficient fuel.  Demand for natural gas in the PRC is likely to increase significantly.  We have expanded and will continue to expand our natural gas business and intend to exploit our natural gas reserves to meet growing demand for natural gas.  For more information about our natural gas business, see “Item 3—Key Information—Risk Factors—Risks Relating to Our Operations—Any failure to implement our natural gas business strategy may adversely affect our business and financial position.”

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Other than as disclosed above and elsewhere in this annual report, we are not aware of any trends that are likely to have a material effect on our net sales or revenues, income from continuing operations, profitability, liquidity or capital resources, or that would cause reported financial information not necessarily to be indicative of future operating results or financial conditions.

E. OFF-BALANCE SHEET ARRANGEMENTS

None.

F. TABULAR DISCLOSURE OF CONTRACTUAL OBLIGATIONS

The following table sets forth information regarding our contractual obligations for the periods indicated.

	Payments due by period
Contractual Obligations	Total		Less than 1 year		1-3 years		3-5 years		More than 5 years
	Rmb’000		Rmb’000		Rmb’000		Rmb’000		Rmb’000
Long-term debt obligations		16,964,278		5,185,989		6,340,610		751,212		4,686,467
Operating lease obligations		2,676,968		824,338		1,037,148		330,397		485,085
Provision for dismantlement(1)		16,213,797		186,992		—		—		16,026,805
Total		35,855,043		6,197,319		7,377,758		1,081,609		21,198,357

(1) Provision for dismantlement represents the discounted present value of retirement obligations in connection with upstream assets, which primarily relate to asset removal costs at the completion date of the relevant project.

As of December 31, 2008, 2009 and 2010 we had the following capital commitments, principally for the construction and purchase of property, plant and equipment:

Capital Commitments	2008		2009		2010
	Rmb’000		Rmb’000		Rmb’000
Contracted, but not provided for		12,293,984		5,650,199		9,620,691
Authorized, but not contracted for		30,093,605		48,907,804		46,125,374

The capital commitments disclosed above do not include investment commitments for acquisitions of equity interest or working interest, which have been disclosed in note 4 and note 37 respectively to our consolidated financial statements included elsewhere in this annual report.

G. SAFE HARBOR

The safe harbor provided in Section 27A of the Securities Act and Section 21E of the Exchange Act, or the statutory safe harbors, shall apply to forward-looking information provided pursuant to Item 5.F above.  For our cautionary statement on the forward looking statement in this annual report, see the section “Forward-Looking Statements” on page 8 of this annual report.

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ITEM 6. DIRECTORS, SENIOR MANAGEMENT AND EMPLOYEES

A. DIRECTORS AND SENIOR MANAGEMENT

In accordance with Hong Kong law and our Articles of Association, our affairs are managed by our Board, which has 11 members, including three executive directors, three non-executive directors and five independent non-executive directors.

The table below sets forth information about our directors and senior officers:

Name Year of Birth Position

Yilin Wang 1956 Chairman of our Board and Non-executive Director (effective April 15, 2011)

Chengyu Fu	1951	Chairman of our Board and Non-executive Director (re-designated from Executive Director to Non-executive Director, effective September 16, 2010; resigned as Chairman of the Board and Non-executive Director, effective April 15, 2011)
Hua Yang	1961	Vice Chairman of our Board (since September 16, 2010), Executive Director and Chief Executive Officer (since September 16, 2010)
Fanrong Li	1963	Executive Director (appointed as Non-executive Director, effective May 24, 2010, and re-designated from Non-executive Director to Executive Director, effective September 16, 2010) and President (since September 16, 2010)
Guangqi Wu	1957	Executive Director and Compliance Officer
Shouwei Zhou	1950	Non-executive Director
Xinghe Cao	1949	Non-executive Director (retired, effective May 24, 2010)
Zhenfang Wu	1952	Non-executive Director
Edgar W. K. Cheng	1943	Independent Non-executive Director
Sung Hong Chiu	1947	Independent Non-executive Director
Lawrence J. Lau	1944	Independent Non-executive Director
Aloysius Hau Yin Tse	1948	Independent Non-executive Director
Tao Wang	1931	Independent Non-executive Director
Guangyu Yuan	1959	Executive Vice President
Weilin Zhu	1956	Executive Vice President
Liguo Zhao	1953	General Counsel
Bi Chen	1961	Executive Vice President and General Manager of CNOOC China Limited Tianjin Branch
Wei Chen	1958	Senior Vice President and General Director of CNOOC Research Institute
Guohua Zhang	1960	Senior Vice President and General Manager of CNOOC China Limited Shanghai Branch

Zhi Fang	1962	Vice President and President of CNOOC International Limited
Hua Zhong	1960	Chief Financial Officer (since September 16, 2010)
Yongzhi Jiang	1973	Joint Company Secretary
May Sik Yu Tsue	1973	Joint Company Secretary

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We have a management team with extensive experience in the oil and gas industry.  As a result of our cooperation with international oil and gas companies, the management team and staff have had the opportunity to work closely with foreign partners both within and outside China.  Such opportunities, in conjunction with management exchange programs with foreign partners, have provided valuable training to our personnel in international management practices.  A description of the business experience and present position of each director and senior officer is provided below.  Our registered office is located at 65th Floor, Bank of China Tower, One Garden Road, Central, Hong Kong.

Executive Directors

Hua YangBorn in 1961, Mr. Yang is a senior engineer and graduated from China University of Petroleum with a B.S. degree in petroleum engineering. He also received an MBA degree from the Sloan School of Management at MIT as a Sloan Fellow. Mr. Yang joined CNOOC in 1982 and has over 29 years of experience in petroleum exploration and production. From 1982 to 1992, Mr. Yang served in a number of positions in CNOOC Research Center including the Director of Field Development Department, the Manager of Reservoir Engineering Department and the Project Manager. Thereafter, Mr. Yang was mainly involved in international business, corporate finance and capital market operations in the Company and its subsidiaries. From 1993 to 1999, he served as the Deputy Chief Geologist, the Deputy Director and the Acting Director for Overseas Development Department of the Company and the Vice President of CNOOC International Limited, a subsidiary of the Company. In 1999, Mr. Yang became a Senior Vice President of the Company and served as Chief Financial Officer of the Company from January 2005 to September 2010, Executive Vice President of the Company from October 2005 to March 2009, and President of the Company from March 2009 to September 2010. He was Director and President of CNOOC Southeast Asia Limited, a subsidiary of the Company, from 2002 to 2003, General Manager of CNOOC China Limited, a subsidiary of the Company, from February 2009 to September 2010, Chairman and Director of CNOOC Southeast Asia Limited, a subsidiary of the Company, from July 2009 to September 2010, and Chairman and Director of CNOOC Deepwater Development Limited from January 2010 to September 2010. He also served as an Assistant President of CNOOC from January 2009 to April 2010 and a Director of CNOOC Finance Corporation Limited, a subsidiary of CNOOC, from May 2005 to December 2010. Mr. Yang was appointed as Vice Chairman of the Board and Chief Executive Officer of the Company, with effect from September 16, 2010. He serves as Chairman and Director of CNOOC China Limited and CNOOC International Limited, both being subsidiaries of the Company. He also serves as Vice President of CNOOC. Mr. Yang was appointed as an Executive Director of the Company, with effect from August 31, 2005.

Fanrong Li Born in 1963, Mr. Li is a senior engineer. He obtained a B.S. degree majoring in oil production from Jiang Han Petroleum Institute in China in 1984, and received an MBA degree from the Business School of Cardiff University in United Kingdom in July 2003. Mr. Li has been working in the oil and gas industry in China for more than 27 years. He joined CNOOC in 1984. From 1984 to 1989, he was a Petroleum Engineer in Nanhai East Oil Corporation of CNOOC. From 1989 to 2001, he worked as Offshore Platform Supervisor in Huizhou Oil Field for ACT (AGIP-Chevron-Texaco) Operators Group, later as Production Manager in Liuhua Oil Field Joint Operating Group with Amoco Orient Company, and Assistant to President of CNOOC China Limited Shenzhen Branch and Managing Director of Lufeng 22-1 Oil Field Joint Operating Group with Statoil (Orient) Inc. From January 2002 to November 2005, Mr. Li worked as Vice President of CNOOC China Limited Shenzhen Branch and Chief Representative of Joint Management Committee in CACT (CNOOC-AGIP-Chevron-Texaco) Operators Group. From November 2005 to February 2007, he worked as General Manager of Development and Production Department of the Company. From February 2007 to January 2009, he worked as President of CNOOC China Limited Shenzhen Branch. From January 2009 to April 2010, he was appointed as an Assistant President of CNOOC. Mr. Li serves as President of CNOOC Energy Technology & Services Limited since February 2009, and serves as Vice President of CNOOC since May 2010. Mr. Li was appointed as President of the Company, with effect from September 16, 2010. He also serves as a Director of CNOOC China Limited and CNOOC International Limited and Chairman and Director of CNOOC Southeast Asia Limited and CNOOC Deepwater Development Limited, all being subsidiaries of the Company. Mr. Li was appointed as a Non-executive Director of the Company, with effect from May 24, 2010 and was re-designated from Non-executive Director to Executive Director, with effect from September 16, 2010.

Guangqi Wu Born in 1957, Mr. Wu is a geologist, senior economist and Certified Senior Enterprise Risk Manager and graduated with a B.S. degree from the Ocean University of China, majoring in Marine Geology. He also holds a master degree in Management from China University of Petroleum and a doctor degree in Management from Huazhong University of Science and Technology. Mr. Wu joined CNOOC in 1982. From 1994 to 2001, he served as the Deputy General Manager of CNOOC Oil Technical Services Company, a subsidiary of CNOOC, the Director of the Administration Department of CNOOC and the Director of the Ideology Affairs Department of CNOOC successively. Mr. Wu was appointed as an Assistant President of CNOOC in 2003, and has been the Vice President of CNOOC since 2004. Mr. Wu also served as an Independent Non-executive Director of China Yangtze Power Limited, a company listed on the Shanghai Stock Exchange, from May 2003 to July 2010, and the Chief Compliance Officer of the Company since June 1, 2005. Mr. Wu also serves as a Director of CNOOC China Limited, CNOOC International Limited and CNOOC Deepwater Development Limited, all being the subsidiaries of the Company. Mr. Wu was appointed as an Executive Director of the Company, with effect from June 1, 2005.

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Non-executive Directors

Yilin WangBorn in 1956, Mr. Wang is a professor-level senior engineer. He graduated from China University of Petroleum majoring in petroleum geology and exploration and received a doctorate degree. He has nearly 30 years of working experience in China’s oil and gas industry. From June 1996 to September 1999, Mr. Wang served as the deputy director and chief exploration geologist of Xinjiang Petroleum Administration Bureau. From September 1999 to May 2004, he served as the general manager of Xinjiang Oilfield Company. From June 2001 to May 2004, he served as the senior executive of Xinjiang Petroleum Administration Bureau. From July to December 2003, he served as the Assistant to General Manager of China National Petroleum Corporation (“CNPC”). From December 2003 to April 2011, he served as the Deputy General Manager of CNPC. From July 2004 to July 2007, he also served as the safety director of CNPC. From November 2005 to April 14, 2011, he served as a Director of PetroChina Company Limited, a company listed on the New York Stock Exchange, The Stock Exchange of Hong Kong Limited and Shanghai Stock Exchange respectively. Since April 8, 2011, Mr. Wang serves as Chairman of China National Offshore Oil Corporation. Mr. Wang was appointed as Chairman and Non-executive Director of the Company, with effect from April 15, 2011.

Chengyu Fu Born in 1951, Mr. Fu received a B.S. degree in geology from the Northeast Petroleum Institute in China and a master degree in petroleum engineering from the University of Southern California in the United States. He has over 31 years of experience in the oil industry in China. He previously worked in China’s Daqing, Liaohe and Huabei oil fields. He joined CNOOC in 1982 and served as the Chinese Deputy Chief Representative, Chief Representative, Secretary to the Management Committees and Chairman of the Management Committees formed through joint ventures between CNOOC and Amoco, Chevron, Texaco, Phillips Petroleum, Shell and Agip, and later as the Deputy General Manager of CNOOC Nanhai East Corporation, a subsidiary of CNOOC, Vice President of Phillips Asia Inc., General Manager of the Xijiang Development Project, General Manager of CNOOC Nanhai East Corporation and Vice President of CNOOC. Subsequently, he became Executive Vice President, President and Chief Operating Officer of the Company in 2001. From September 2002 to August 2010, he served as Chairman of China Oilfield Services Limited, or COSL, a company listed on The Stock Exchange of Hong Kong Limited and Shanghai Stock Exchange, a subsidiary of CNOOC.  Mr. Fu served as Chief Executive Officer of the Company from October 2003 to September 2010, Chairman of the Board of Directors of CNOOC China Limited from October 2003 to September 2010 and Chairman of the Board of Directors of CNOOC International Limited from August 1999 to September 2010, both being subsidiaries of the Company. Mr. Fu was appointed as Chairman of the Board of the Company on October 2003. He served as the President of CNOOC from October 2003 to April 8, 2011. He serves as Chairman of China Petrochemical Corporation since April 8, 2011. He also serves as Chairman of CNOOC Finance Corporation Limited and Zhonghai Trust Co. Ltd. Mr. Fu is also a Chairman of the Presidium of China Federation of Industrial Economics and the Vice-chairman of China Chamber of International Commerce. Mr. Fu was appointed as an Executive Director of the Company, with effect from August 23, 1999 and was re-designated from Executive Director to Non-executive Director, with effect from September 16, 2010. He resigned as Chairman of the Board and Non-executive Director of the Company, with effect from April 15, 2011.

Shouwei Zhou Born in 1950, Mr. Zhou, a member of Chinese Academy of Engineering, received a doctorate degree from the Southwest Petroleum Institute in China majoring in petroleum and natural gas engineering. He joined CNOOC in 1982. Mr. Zhou served as the Deputy General Manager of CNOOC Bohai Corporation, a subsidiary of CNOOC and the General Manager of CNOOC China Limited Tianjin Branch. He was appointed as an Executive Vice President of the Company in September 1999 and served as the President of the Company from July 2002 to March 2009. Since 2000, Mr. Zhou has been a Vice President of CNOOC. He also served as a Director and the General Manager of CNOOC China Limited, a subsidiary of the Company. From October 2004 to July 2009, Mr. Zhou served as a Director of CNOOC International Limited, a subsidiary of the Company. From April 2003 to July 2009, Mr. Zhou also served as the Chairman of CNOOC Southeast Asia Limited, a subsidiary of the Company. From December 2003 to December 2010, Mr. Zhou served as the Chairman of Offshore Oil Engineering Co., Ltd., a listed company on the Shanghai Stock Exchange and a subsidiary of CNOOC. Mr. Zhou was appointed as an Executive Director of the Company, with effect from August 23, 1999 and was re-designated from Executive Director to Non-executive Director, with effect from March 31, 2009.

Xinghe Cao Born in 1949, Mr. Caograduated from Tianjin Politics and Law Management College majoring in Economic Laws and later studied MBA in Capital University of Economics and Business. Mr. Cao has over 40 years of experience in the petroleum industry since he started work in 1965. He worked for Shengli oilfield and Dagang oilfield before he joined CNOOC in 1982. From 1985 to 2003, Mr. Cao worked as the Manager of Bohai Oil Commercial Company, later as the Manager of Bohai Oil Transportation Company, both being subsidiaries of CNOOC, and Deputy General Manager and General Manager of CNOOC Bohai Corporation, a subsidiary of CNOOC, successively. From April 2003 to July 2004, Mr. Cao worked as Assistant President of CNOOC and became Vice President of CNOOC in August 2004. Mr. Cao also serves as Chairman of the Board of Directors of CNOOC Energy Technology & Services Limited and Chairman of the Board of Directors of China Ocean Oilfields Services (Hong Kong) Limited, both being subsidiaries of CNOOC. Mr. Cao was appointed as an Executive Director of the Company, with effect from August 31, 2005 and was re-designated from Executive Director to Non-executive Director, with effect from September 1, 2006. Mr. Cao retired as a Non-executive Director of the Company on May 24, 2010.

Zhenfang Wu Born in 1952, Mr. Wu is a senior engineer and graduated with a bachelor degree from Dalian University of Technology, majoring in Offshore Petroleum Engineering and Construction. He later studied EMBA in Shanghai Jiao Tong University. Mr. Wu joined the petroleum industry in 1971. He joined CNOOC in 1980 when it was still in the pre-establishment stage. From 1993 to 2000, he was Deputy General Manager of CNOOC Nanhai West Corporation, a subsidiary of CNOOC and the President of CNOOC Chemical Limited, a subsidiary of CNOOC. He was also the Chairman of the Board of Directors of Fudao Fertilizer Limited and CNOOC Chemical Limited, both being subsidiaries of CNOOC, from 2001 to 2003 and from 2003 to 2005 respectively. From 2003 to 2004, Mr. Wu was an Assistant President of CNOOC and then appointed Vice President of CNOOC in August 2004. Mr. Wu also served as the Chairman and President of CNOOC Gas and Power Group (formerly known as CNOOC Gas and Power Limited), as the Chairman and General Manager of CNOOC Oil & Petrochemicals Co., Ltd., both being subsidiaries of CNOOC, as well as the Chairman of a number of subsidiaries of CNOOC. Mr. Wu also serves as Chairman of CNOOC and Shell Petrochemical Co. Ltd and a number of subsidiaries of CNOOC. Mr. Wu was appointed as an Executive Director of the Company, with effect from August 31, 2005 and was re-designated from Executive Director to Non-executive Director, with effect from September 1, 2006.

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Independent Non-executive Directors

Edgar W. K. Cheng Born in 1943, Dr. Cheng was a graduate from the University of Notre Dame and the Medical College of Wisconsin, USA. He was Clinical Associate Professor of Medicine at Cornell University Medical College and practiced medicine and conducted clinical research at the Memorial Sloan-Kettering Cancer Centre in New York. Dr. Cheng was a former Chairman of the University Grants Commission in Hong Kong, a former member of the Education Commission and former Chairman of the Council of The Chinese University of Hong Kong. In addition to his academic experience, Dr. Cheng is currently the Chairman of the World-Wide Investment Co. Ltd. and had been in many other financial market positions such as Chairman of the Stock Exchange of Hong Kong, Vice-Chairman and non-executive director of the Hang Seng Bank Ltd., Vice President of the International Federation of Stock Exchange, Founding Chairman of the Hong Kong Securities Institute, Chairman of the Steering Committee on the Feasibility Study on the Financial Services Institute, Member of the Board of Directors of the Hong Kong Futures Exchange Ltd., Member of the Conference Board’s Global Advisory Council, an independent non-executive director of the Standard Chartered Bank (Hong Kong) Ltd., a member of the Board of Directors of the Hong Kong Institute for Monetary Research and an independent non-executive director of American International Assurance Co. Ltd. He is currently an independent non-executive director of Shui On Land Limited. In his other public service capacity, Dr. Cheng served as the Head of the Central Policy Unit of the Government of Hong Kong Special Administrative Region from 1999 to 2001. He was a member of the Greater Pearl River Delta Business Council, a member of the Commission on Strategic Development and Chairman of the Council for Sustainable Development. He is currently a member of the Judicial Officers Recommendation Commission. Dr. Cheng also plays an active role in Hong Kong-China affairs. He was appointed by the Chinese Government as a Hong Kong Affairs Advisor (1991–1997). He became a Member of the Preparatory Committee and also the Selection Committee for the Hong Kong Special Administrative Region of the National People’s Congress (1996-1997). At present, he is a member of the 11th Chinese People’s Political Consultative Conference National Committee. Dr. Cheng was appointed as an Independent Non-executive Director of the Company, with effect from May 24, 2006.

Sung Hong ChiuBorn in 1947, Mr. Chiu received an LL.B. degree from the University of Sydney. He was admitted as a solicitor of the Supreme Court of New South Wales and the High Court of Australia. He has over 30 years’ experience in legal practice and had been a director of a listed company in Australia. Mr. Chiu was the founding member of the Board of Trustees of the Australian Nursing Home Foundation and served as the General Secretary of the Australian Chinese Community Association of New South Wales. Mr. Chiu is also an Independent Non-executive Director of Yunnan Enterprises Holdings Limited since April 2008, a company listed on The Stock Exchange of Hong Kong Limited. Mr. Chiu was appointed as an Independent Non-executive Director of the Company, with effect from September 7, 1999.

Lawrence J. Lau Born in 1944, Professor Lau graduated with a B.S. (with Great Distinction) in Physics and Economics from Stanford University in 1964, and received his M.A. and Ph.D. degrees in Economics from the University of California at Berkeley in 1966 and 1969 respectively. He joined the faculty of the Department of Economics at Stanford University in 1966, becoming Professor of Economics in 1976, the first Kwoh-Ting Li Professor in Economic Development in 1992, and Kwoh-Ting Li Professor in Economic Development, Emeritus in 2006.  From 2004 to 2010, Professor Lau served as Vice-chancellor (President) of The Chinese University of Hong Kong. He is also concurrently Ralph and Claire Landau Professor of Economics at The Chinese University of Hong Kong. Professor Lau specializes in economic development, economic growth, and the economies of East Asia, including that of China. He has authored, co-authored, or edited five books and published more than 160 articles and notes in professional journals. A member of the 11th National Committee of the Chinese People’s Political Consultative Conference and a Vice-Chairman of its Subcommittee of Population, Resources and Environment. Professor Lau also serves as a non-official member of the HKSAR Government’s Executive Council, as a member of the Commission on Strategic Development, the Exchange Fund Advisory Committee and its Currency Board and Governance Sub-Committees, the Greater Pearl River Delta Business Council and the Honours Committee, 2011 Non-Official Justices of the Peace (JP) Selection Committee and as an adviser to the Hong Kong-Taiwan Economic and Cultural Cooperation and Promotion Council. He was appointed a Justice of the Peace in Hong Kong in July 2007. He currently serves as Chairman of CIC International (Hong Kong) Co., Limited, Vice-Chairman of the Board of Directors of CITIC Capital Holdings Limited in Hong Kong, as an Independent Non-executive Director of Far EasTone Telecommunications Company Limited and Shin Kong Life Insurance Company Limited in Taiwan, and as a member of the Board of Directors of Precoad, Inc. in the United States of America. Professor Lau was appointed as an Independent Non-executive Director of the Company, with effect from August 31, 2005.

Aloysius Hau Yin TseBorn in 1948, Mr. Tse is a fellow of The Institute of Chartered Accountants in England and Wales, and the Hong Kong Institute of Certified Public Accountants (“HKICPA”). Mr. Tse is a past president and the current Chairman of the Audit Committee of the HKICPA. He joined KPMG in 1976, became a partner in 1984 and retired in March 2003. Mr. Tse was a non-executive Chairman of KPMG’s operations in the PRC and a member of the KPMG China advisory board from 1997 to 2000. Mr. Tse is currently an independent non-executive director of China Telecom Corporation Limited, Wing Hang Bank Limited, Linmark Group Limited, SJM Holdings Limited and Sinofert Holdings Limited, companies listed on The Stock Exchange of Hong Kong Limited. He was an independent non-executive director of China Construction Bank Corporation, which is listed on the HKSE Main Board from 2004 to 2010. Mr. Tse is also a member of the International Advisory Council of the People’s Municipal Government of Wuhan. Mr. Tse was appointed as an Independent Non-executive Director of the Company, with effect from June 8, 2005.

Tao Wang Born in 1931, Mr. Wang studied at the Moscow Institute of Oil in the former Soviet Union from 1954 to 1963, where he obtained his deputy doctoral degree in Geological Mineralogy. Mr. Wang is the Chairman of the Chinese National Committee for World Petroleum Council and the Chairman of Chinese-Saudi Arabia Friendship Association. He also serves as adjunct professor and/or doctoral advisor in several institutions, including China University of Petroleum. Mr. Wang has been working in the oil and gas sector for more than 50 years, and served as the Chief Geologist in Beijing Research Institute of Petroleum Science, the Deputy Commander and Chief Geologist of the North China Oil Exploration Command Office, the Deputy Director-General and Chief Geologist of Liao River Petroleum Exploration Bureau and the Principal of the Preparation and Construction Office for the Pearl River Mouth Project in the Command Office of South China Sea Oil Exploration. He became the General Manager of CNOOC Nanhai East Corporation in June 1983, the Minister and Secretary of the Party Leadership Group of the Ministry of Petroleum Industry in June 1985 and the General Manager and Secretary of the Party Leadership Group of China National Petroleum Corporation in May 1988 successively. He was also a Member of the 12th, 13th and 14th Central Committees of the Communist Party of China, a Member of the Standing Committee of the 9th National People’s Congress and the Vice-chairman of the Environmental Protection and Resources Conservation Committee of the National People’s Congress. He also served successively as the Vice Chairman and Senior Vice Chairman of the World Petroleum Council from 1994 to 2005. Mr. Wang is the Honorary Chairman and an Executive Director of Sino Union Petroleum & Chemical International Limited, a company listed on The Stock Exchange of Hong Kong Limited. Mr. Wang was appointed as Independent Non-executive Director of the Company, with effect from May 29, 2008.

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Other Members of Senior Management

Guangyu Yuan Born in 1959, Mr. Yuan is an Executive Vice President of the Company, responsible for the operation safety, engineering and construction, and drilling and completion. Mr. Yuan is a senior engineer. He graduated from China University of Petroleum with a bachelor’s degree in drilling engineering. He obtained a master degree from the Capital University of Economics and Business in 2001. He graduated from the CEO Class and the EMBA program of China Europe International Business School in 2004 and 2007 respectively with an MBA degree. With over 29 years of experience in the oil and gas industry, Mr. Yuan joined CNOOC in 1982, having served as Deputy Manager of CNOOC Bohai Drilling Company, Deputy General Manager of CNOOC China Offshore Oil Northern Drilling Company, Deputy General Manager of Operational Department of CNOOC, General Manager of CNOOC China Offshore Oil Northern Drilling Company, Chairman of the Board of Directors and General Manager of CNOOC Services, and Vice Chairman of the Board of Directors, Executive Director, Chief Executive Officer and President of COSL. Mr. Yuan also serves as the Director of CNOOC China Limited, CNOOC International Limited, CNOOC Southeast Asia Ltd. and CNOOC Deepwater Development Limited, all being the subsidiaries of the Company. In November 2006, Mr. Yuan was appointed as the Assistant President of CNOOC. In March 2009, Mr. Yuan was appointed as the Executive Vice President of the Company.

Weilin Zhu Born in 1956, Mr. Zhu is the Chief Geologist of CNOOC, Executive Vice President of the Company and General Manager of Exploration Department of the Company. Mr. Zhu graduated from Shanghai Tongji University with a Ph.D. degree. Mr. Zhu joined CNOOC in 1982. Prior to 1999, he conducted researches in CNOOC Research Center and served as the Deputy Director and Director of the Research Department and Deputy Chief Geologist and Chief Geologist of the Research Center. From 1999 to 2007, Mr. Zhu served as the Deputy Manager of Exploration Department of CNOOC, Deputy General Manager and General Manager of Exploration Department of the Company, General Manager of CNOOC China Limited Zhanjiang Branch and Vice President of the Company. Mr. Zhu also serves as the Director of CNOOC China Limited and CNOOC Deepwater Development Limited, both being the subsidiaries of the Company. Mr. Zhu has spent a long time in exploration research and management of oil and natural gas in offshore China. He was granted the Special Subsidies from the government, nominated as candidate for the “National Hundred, Thousand, and Ten Thousand Talent Project”, named as an Excellent Science and Technology Worker of the Nation and awarded the Li Siguang Award for Geosciences, the highest tribute in geosciences awards level. In August 2007, Mr. Zhu was appointed as the Chief Geologist of CNOOC and Executive Vice President of the Company, responsible for the Company’s oil and gas exploration operations.

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Liguo ZhaoBorn in 1953, Mr. Zhao is the General Counsel of the Company. He graduated from the Faculty of Law, Peking University in 1983 with a bachelor of laws’ degree. In 1988, he studied at the Law School of Niigata University in Japan for a year. Mr. Zhao joined CNOOC in 1983. He served as Head of Contract Negotiation Division, Deputy General Manager and General Manager of Legal Department of CNOOC. At present, he serves as the General Counsel of CNOOC and the Company. Mr. Zhao was granted PRC lawyer qualification in 1985 and corporate counsel qualification in 1998. He is an arbitrator of China International Economic and Trade Arbitration Commission and a member of the China Maritime Arbitration Commission. Mr. Zhu also serves as the Director of CNOOC China Limited and CNOOC International Limited, both being the subsidiaries of the Company. Mr. Zhao was appointed as the General Counsel of the Company, with effect from November 2, 2009.

Bi Chen Born in 1961, Mr. Chen is an Executive Vice President of the Company and is responsible for development, production and sales of the Company. Mr. Chen graduated from the Southwest Petroleum University and received a bachelor degree in oil production. He received a master degree of petroleum engineering from Edinburgh Heriot-Watt University in 1988, an MBA degree from Tsinghua University in 2000 and an honorary doctoral degree in petroleum engineering from Edinburgh Heriot-Watt University in 2010. Mr. Chen joined CNOOC in 1982 and has over 29 years of experience in the oil and natural gas industry. He served as the Deputy Manager of CNOOC Nanhai West Corporation Oil Production Company, Director of Production Section, Deputy Manager and General Manager of Development and Production Department of the Company, and General Manager of CNOOC China Limited Tianjin Branch. Mr. Chen also serves as the Director of CNOOC China Limited, CNOOC International Limited and CNOOC Deepwater Development Limited, all being the subsidiaries of the Company. In December 2005, Mr. Chen was appointed as Vice President of the Company and General Manager of CNOOC China Limited Tianjin Branch. In March 2009, Mr. Chen was appointed as the Executive Vice President of the Company.

Wei Chen Born in 1958, Mr. Chen is a Senior Vice President of the Company and the General Director of CNOOC Research Institute (formerly CNOOC Research Center). He received his B.S. degree from China University of Petroleum and MBA from Tsinghua University. He has over 29 years of experience in the oil and gas industry. Mr. Chen joined CNOOC in 1984 and previously served as the Deputy Manager for the Development Department, the Deputy Manager of the Overseas Research Department, the Manager of the Information Department, and the Deputy Director of CNOOC Research Center. He has also served as General Manager of Human Resources Department of CNOOC, and the Senior Vice President of the Company and General Manager of Administration Department of the Company. In July 2003, Mr. Chen was appointed as the Director of CNOOC Research Center (later became President of CNOOC Research Institute).

Guohua ZhangBorn in 1960, Mr. Zhang is a Senior Vice President of the Company and the General Manager of CNOOC China Limited Shanghai Branch. He graduated from Shandong Oceanographic Institute (now Ocean University of China) with a bachelor degree. He studied in the Business Institute of University of Alberta in Canada in 2001. He joined CNOOC in 1982 and served as Deputy Chief Geologist and General Manager of Exploration Department of CNOOC Naihai West Corporation, a subsidiary of CNOOC, Chief Geologist of CNOOC Research Center, Assistant to General Manager of CNOOC China Limited and the General Manager of Exploration Department of the Company. In October 2005, Mr. Zhang was appointed as General Manager of CNOOC China Limited Shanghai Branch.

Zhi Fang Born in 1962, Mr. Fang is a Vice President of the Company and the President of CNOOC International Limited and is responsible for the Company’s International affairs. He graduated from Zhejiang University with a bachelor degree in science and received a MBA degree from University of Birmingham in 1995. Mr. Fang joined CNOOC in 1982. He served as Deputy Director of the Research Center of CNOOC Nanhai East Corporation, Deputy General Manager of CNOOC-AMOCO Liuhua Joint Operating Group, Deputy General Manager of Exploration and Development Department of CNOOC Nanhai East Corporation, the Deputy General Manager and General Manager of CNOOC China Limited Shenzhen Branch, and the President of CNOOC Southeast Asia Ltd. Mr. Fang also serves as the Director of CNOOC International Limited and CNOOC Southeast Asia Ltd., both being the subsidiaries of the Company. In October 2005, Mr. Fang was appointed as the Vice President of the Company. In April 2009, Mr. Fang was appointed as President of CNOOC International Limited.

Hua Zhong Born in 1960, Mr. Zhong is Chief Financial Officer of the Company. Mr. Zhong is a senior engineer and graduated from Southwest Petroleum Institute with a bachelor’s degree in Oil Exploitation. He received a master’s degree in Petroleum Engineering from Heriot - Watt University in the United Kingdom in 1988. He joined CNOOC in 1982, and has been working in the oil and gas industry for over 29 years. From 1982 to 1999, Mr. Zhong served as Petroleum Engineer, Expro Northsea Staff in UK, Deputy Manager of Downhole Services Company, Manager of Wei 10-3 Oilfield, Oilfield Superintendent of CNOOC Indonesia Project, Supervisor of Ya 21-1-3 HTHP Well Testing Project, Deputy Manager of Drilling and Exploitation Institute, Manager of Science and Technology Department and Manager of Administration Department of China Offshore Oil Nanhai West Corporation. From September 1999 to August 2005, Mr. Zhong was General Manager of Administration Department and General Manager of Development and Planning Department of CNOOC Ltd. From August 2005 to September 2010, Mr. Zhong served as Vice President, Executive Vice President, Executive Vice President and Chief Financial Officer of COSL. On September 16, 2010, Mr. Zhong was appointed as Chief Financial Officer of the Company.

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Joint Company Secretaries

Yongzhi Jiang Born in 1973, Mr. Jiang is the Joint Company Secretary of the Company. He is a CFA Charterholder and qualified PRC lawyer. In 1995, Mr. Jiang graduated from China University of Political Science and Law with a bachelor of laws degree majoring in International Economic Law. In 1997, he completed his study in Mattei School (“La Scuola Superiore della’ Mattei”) in Milan, Italy with a Master degree in Energy and Environmental Management and Economics, majoring in Management of Energy Company. In 2003, he obtained his MBA degree from Kelley School of Business, Indiana University in United States of America, majoring in Finance and Accounting. From 1995 to 2001, Mr. Jiang worked in China National Petroleum Corporation and then in Petrochina Company Limited as a legal counsel for the international business. Mr. Jiang joined the Company in 2003. He firstly served as the Senior Supervisor of Mergers & Acquisitions in the Controllers Department, then as the Commercial Manager in CNOOC International Limited, a subsidiary of the Company, and as the Assistant Chief Financial Officer of the Company from 2007 to 2009. Mr. Jiang serves as the General Manager of the Investor Relations Department and Director of the Office for the Board of Directors of the Company since December 14, 2009. Mr. Jiang was appointed as the Joint Company Secretary of the Company, with effect from January 29, 2010.

May Sik Yu Tsue Born in 1973, Ms. Tsue is the Joint Company Secretary of the Company. She graduated from Curtin University of Technology in Australia with a bachelor of commerce in accounting. Ms. Tsue furthered her education at The Hong Kong Polytechnic University in Master of Corporate Governance from 2004 to 2006. She is an associate member of both the Institute of Chartered Secretaries and Administrators and the Hong Kong Institute of Chartered Secretaries since 2007. Furthermore, she is also a fellow member and certified risk trainer of the Institute of Crisis and Risk Management and an associate member of CPA Australia. From August 1998 to March 1999, Ms. Tsue worked in LG International (HK) Ltd. as a senior accounts clerk. Ms. Tsue joined China Ocean Oilfield Services (HK) Limited in 1999 as an accountant. She helped to manage the finance of the CNOOC Insurance Limited since 2000 and became its employee in 2004 as a manager of finance department. She serves as company secretary of CNOOC Insurance Limited since March 2007. Ms. Tsue was appointed as Joint Company Secretary of the Company, with effect from November 25, 2008.

B. COMPENSATION

The aggregate amount of fees, salaries, bonus, housing allowances, other allowances and benefits in kind paid to our directors for the year ended December 31, 2010 was approximately Rmb 19.3 million  (US$2.9 million), while the amount paid to our other senior management for the same period was approximately Rmb 6.6 million (US$1.0 million).  In addition, under our pension plan for 2010, we set aside an aggregate amount of Rmb 746,983 (US$112,791) for pension and similar benefits for our directors (other than independent non-executive directors) and senior management.  Our directors (other than independent non-executive directors) and senior management contributed an additional Rmb 496,653 (US$74,993) to the pension plan for 2010.  Each director’s annual compensation, including fees, salaries, allowances, benefits in kind, pension benefits and share option benefits, is disclosed in note 10 to our consolidated financial statements included elsewhere in this annual report.  Note 11 to our consolidated financial statements included elsewhere in this annual report discloses our five highest paid employees or directors during 2010.  For further details regarding share options granted to our directors, officers and employees, see “Item 6—Directors, Senior Management and Employees—Share Ownership”.  For further details regarding our employee compensation, see “Item 4—Information on the Company—Business Overview—Employees and Employee Benefits.”

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C. BOARD PRACTICE

Committees

We have established an audit committee, a remuneration committee and a nomination committee.  Our audit committee meets at least twice a year and is responsible for reviewing the completeness, accuracy and fairness of our accounts, evaluating our auditing scope and procedures, as well as its internal control systems.  Our audit committee is also responsible for overseeing the operation of the internal monitoring systems, so as to ensure our Board is able to monitor our overall financial position, to protect our assets, and to prevent major errors or losses resulting from financial reporting.  Our Board is responsible for these systems and appropriate delegations and guidance have been made.  Our audit committee regularly reports to our Board.  Our audit committee consists of Mr. Aloysius Hau Yin Tse as the audit committee financial expert for the purposes of U.S. securities laws and chairman of the audit committee, Mr. Sung Hong Chiu and Professor Lawrence J. Lau.

The primary responsibilities of our remuneration committee are to review and approve all our executive directors’ salaries, bonuses, share option packages, performance appraisal systems and retirement plans.  In 2010, our remuneration committee consisted of two independent non-executive directors (Mr. Sung Hong Chiu as chairman and Mr. Aloysius Hau Yin Tse) and one non-executive director (Mr. Zhenfang Wu). Mr. Cao retired from our Board on May 24, 2010 and is no longer a member of our remuneration committee. Mr. Fanrong Li served as remuneration committee member from May 24, 2010 to September 16, 2010 when he was a non-executive director of the Company. Mr. Zhenfang Wu was appointed as remuneration committee member on September 16, 2010.

The primary responsibilities of our nomination committee include nominating candidates for directors subject to our Board’s approval, conducting routine examination of the structure, scale and composition of our Board, and review the leadership capabilities of our directors in order to ensure that we remain competitive.  In 2010, our nomination committee consisted of Mr. Shouwei Zhou as chairman, Dr. Edgar W. K. Cheng, Professor Lawrence J. Lau and Mr. Tao Wang.

For information on our audit committee financial expert and our code of ethics, see “Item 16A—Audit Committee Financial Expert,” and “Item 16B—Code of Ethics.”

Directors Service Contracts

Our executive directors and non-executive directors have entered into directors service contracts with us and under such contracts, there is no severance pay arrangements for our directors.

Summary of Significant Differences in Corporate Governance Practices for Purposes of Section 303A.11 of the New York Stock Exchange Listed Company Manual

We are incorporated under the laws of Hong Kong. The principal trading market for our shares is the Hong Kong Stock Exchange. In addition, because our shares are registered with the United States Securities and Exchange Commission and are listed on the New York Stock Exchange, or the NYSE, we are subject to certain corporate governance requirements. However, many of the corporate governance rules in the NYSE Listed Company Manual, or the NYSE Standards, do not apply to us as a “foreign private issuer” and we are permitted to follow the corporate governance practices in Hong Kong in lieu of most corporate governance standards contained in the NYSE Standards. Section 303A.11 of the NYSE Standards requires NYSE-listed foreign private issuers to describe the significant differences between their corporate governance practices and the corporate governance standards applicable to U.S. domestic companies listed on the NYSE, or U.S. domestic issuers. We set forth below a brief summary of such significant differences.

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1. Board and Committee Independence

While NYSE Standards require U.S. domestic issuers to have a majority of independent directors, we are not subject to this requirement. Five of our eleven directors are independent non-executive directors.

NYSE Standards require U.S. domestic issuers to schedule an executive session at least once a year to be attended by only independent directors. We are not subject to such requirement and our independent directors attend all board meetings where possible. We also schedule meetings between our chairman and our independent non-executive directors.

NYSE Standards require U.S. domestic issuers to disclose a method for interested parties to communicate directly with the presiding director or with non-management directors as a group. We are not subject to such requirement and we have not adopted such a method yet.

2. Audit Committee

If an audit committee member simultaneously serves on the audit committees of more than three public companies, and the listed company does not limit the number of audit committees on which its audit committee members serve to three or less, then in each case, the boards of directors of U.S. domestic issuers are required to determine that such simultaneous service would not impair the ability of such member to effectively serve on its audit committee and disclose such determination in its annual proxy statement or annual report. We are not subject to such requirement and we have not addressed this in our audit committee charter.

NYSE Standards require audit committees of U.S. domestic issuers to discuss guidelines and policies that govern the process by which risk assessment and risk management are handled and include such responsibilities in their audit committee charters. We are not subject to such requirement and our audit committee charter does not have such provision. Our audit committee charter only provides that our audit committee shall review with our auditors and the Director of Internal Audit the scope, adequacy and effectiveness of our corporate accounting and financial controls, internal control and risk management systems, and any related significant findings regarding risks or exposures and consider recommendations for improvement of such controls according to the Hong Kong Stock Exchange Listing Rules.

NYSE Standards require audit committees of U.S. domestic issuers to produce an audit committee report annually and include such report in their annual proxy statements. We are not subject to such requirement and we have not addressed this in our audit committee charter.

3. Remuneration Committee

NYSE Standards require U.S. domestic issuers to have a compensation committee composed entirely of independent directors. We are not subject to such requirement and have a remuneration committee that consists of two independent non-executive directors and one non-executive director.

NYSE Standards require U.S. domestic issuers to address in their remuneration committee charters matters regarding committee member removal and committee structure and operations (including authority to delegate to subcommittees). We are not subject to such requirement and we have not addressed this in our remuneration committee charter.

NYSE Standards require remuneration committees of U.S. domestic issuers to produce a remuneration committee report annually and include such report in their annual proxy statements or annual reports on Form 10-K. We are not subject to such requirement and we have not addressed this in our remuneration committee charter. We disclose the amounts of compensation of our directors on a named basis and the five highest paid employees in our annual reports according to the requirements of Hong Kong Stock Exchange Listing Rules.

4. Nomination Committee

While NYSE Standards require U.S. domestic issuers to have only independent directors on their nomination committee, we are not subject to such requirement and our nomination committee consists of three independent non-executive directors and one non-executive director.

NYSE Standards require U.S. domestic issuers to address in their nomination committee charters matters regarding committee member removal and committee structure and operations (including authority to delegate to subcommittees). We are not subject to such requirement and we have not addressed this in our nomination committee charter.

NYSE Standards require U.S. domestic issuers to adopt and disclose corporate governance guidelines. They must state in their annual proxy statements or annual reports that such corporate governance guidelines are available on their website and in print form to any shareholder who requests it. We are not subject to such requirement. We have adopted a set of corporate governance guidelines in accordance with the Hong Kong Stock Exchange Listing Rules, including the CNOOC Limited Code of Ethics for Directors and Senior Officers (the “Code of Ethics”), to govern various aspects of our corporate governance. We have posted the Code of Ethics on our website.  See “Item 16B—Code of Ethics.”

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D. EMPLOYEES

See “Item 4—Information on the Company—Business Overview—Employees and Employee Benefits.”

E. SHARE OWNERSHIP

As of March 31, 2011, our directors and employees had the following personal interests in options to subscribe for shares granted under our share option schemes:

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Name of Grantee	Number of shares involved in the options outstanding as of January 1, 2010	Number of shares involved in the options outstanding as of March 31, 2011	Date of Grant	Date of Expiration(1)	Closing price per share immediately before the date of grant (HK$)	Exercise Price (HK$)
Executive Directors:
Hua Yang	1,150,000	—	March 12, 2001	March 12, 2011(2)	1.23	1.19
	1,150,000	1,150,000	August 27, 2001	August 27, 2011	1.46	1.232
	1,150,000	1,150,000	February 24, 2003	February 24, 2013	2.09	2.108
	1,150,000	1,150,000	February 5, 2004	February 5, 2014	3.13	3.152
	1,610,000	1,610,000	August 31, 2005	August 31, 2015	5.75	5.62
	1,770,000	1,770,000	June 14, 2006	June 14, 2016	5.30	5.56
	1,857,000	1,857,000	May 25, 2007	May 25, 2017	7.43	7.29
	1,857,000	1,857,000	May 29, 2008	May 29, 2018	14.20	14.828
	2,835,000	2,835,000	May 27, 2009	May 27, 2019	9.33	9.93
	—	2,000,000	May 20, 2010	May 20, 2020	12.22	12.696
Guangqi Wu	1,610,000	1,610,000	August 31, 2005	August 31, 2015	5.75	5.62
	1,770,000	1,770,000	June 14, 2006	June 14, 2016	5.30	5.56
	1,857,000	1,857,000	May 25, 2007	May 25, 2017	7.43	7.29
	1,857,000	1,857,000	May 29, 2008	May 29, 2018	14.20	14.828
	1,857,000	1,857,000	May 27, 2009	May 27, 2019	9.33	9.93
	—	1,857,000	May 20, 2010	May 20, 2020	12.22	12.696

Non-executive Directors:
Chengyu Fu(3)	1,750,000	—	March 12, 2001	March 12, 2011(2)	1.23	1.19
	1,750,000	1,750,000	August 27, 2001	August 27, 2011	1.46	1.232
	1,150,000	1,150,000	February 24, 2003	February 24, 2013	2.09	2.108
	2,500,000	2,500,000	February 5, 2004	February 5, 2014	3.13	3.152
	3,500,000	3,500,000	August 31, 2005	August 31, 2015	5.75	5.62
	3,850,000	3,850,000	June 14, 2006	June 14, 2016	5.30	5.56
	4,041,000	4,041,000	May 25, 2007	May 25, 2017	7.43	7.29
	4,041,000	4,041,000	May 29, 2008	May 29, 2018	14.20	14.828
	4,041,000	4,041,000	May 27, 2009	May 27, 2019	9.33	9.93
	—	2,100,000	May 20, 2010	May 20, 2020	12.22	12.696
Shouwei Zhou	1,400,000	—	March 12, 2001	March 12, 2011(2)	1.23	1.19
	1,750,000	1,750,000	August 27, 2001	August 27, 2011	1.46	1.232
	1,750,000	1,750,000	February 24, 2003	February 24, 2013	2.09	2.108
	1,750,000	1,750,000	February 5, 2004	February 5, 2014	3.13	3.152
	2,450,000	2,450,000	August 31, 2005	August 31, 2015	5.75	5.62
	2,700,000	2,700,000	June 14, 2006	June 14, 2016	5.30	5.56
	2,835,000	2,835,000	May 25, 2007	May 25, 2017	7.43	7.29
	2,835,000	2,835,000	May 29, 2008	May 29, 2018	14.20	14.828
	1,800,000	1,800,000	May 27, 2009	May 27, 2019	9.33	9.93
	—	1,800,000	May 20, 2010	May 20, 2020	12.22	12.696
Xinghe Cao(4)	800,000	—	August 31, 2005	August 31, 2015	5.75	5.62
	1,770,000	—	June 14, 2006	June 14, 2016	5.30	5.56
	1,857,000	—	May 25, 2007	May 25, 2017	7.43	7.29
	1,857,000	—	May 29, 2008	May 29, 2018	14.20	14.828
	1,800,000	—	May 27, 2009	May 27, 2019	9.33	9.93
	—	—	May 20, 2010	May 20, 2020	12.22	12.696
Zhenfang Wu	800,000	800,000	August 31, 2005	August 31, 2015	5.75	5.62
	1,770,000	1,770,000	June 14, 2006	June 14, 2016	5.30	5.56
	1,857,000	1,857,000	May 25, 2007	May 25, 2017	7.43	7.29
	1,857,000	1,857,000	May 29, 2008	May 29, 2018	14.20	14.828
	1,800,000	1,800,000	May 27, 2009	May 27, 2019	9.33	9.93
	—	1,800,000	May 20, 2010	May 20, 2020	12.22	12.696
Independent Non-executive Directors:
Sung Hong Chiu	1,150,000	1,150,000	February 5, 2004	February 5, 2014	3.13	3.152
Other Employees In Aggregate:
	3,250,000	—	March 12, 2001	March 12, 2011(2)	1.23	1.19
	9,950,000	9,300,000	August 27, 2001	August 27, 2011	1.46	1.232
	12,449,966	10,649,966	February 24, 2003	February 24, 2013	2.09	2.108
	20,749,935	17,649,934	February 5, 2004	February 5, 2014	3.13	3.152
	35,756,667	27,230,000	August 31, 2005	August 31, 2015	5.75	5.62
	48,583,333	40,370,000	June 14, 2006	June 14, 2016	5.30	5.56
	58,919,000	47,848,000	May 25, 2007	May 25, 2017	7.43	7.29
	63,514,000	61,032,000	May 29, 2008	May 29, 2018	14.20	14.828
	80,400,000	75,876,000	May 27, 2009	May 27, 2019	9.33	9.93
	—	92,335,000	May 20, 2010	May 20, 2020	12.22	12.696
Total	420,263,901	466,154,900

(1) Except for share options granted under the Pre-Global Offering Share Option Scheme, all share options granted are subject to a vesting schedule pursuant to which one third of the options granted vest on the first, second and third anniversaries of the date of grant, respectively, such that the options granted are fully vested on the third anniversary of the date of grant.

(2) 50% of the share options granted are vested 18 months after the date of grant, the remaining 50% are vested 30 months after the date of grant.

(3)  Mr. Chengyu Fu was re-designated to Non-executive Director of the Company, with effect from September 16, 2010, and resigned as Chairman of the Board and Non-executive Dircetor of the Company, with effect from April 15, 2011.

(4)  Mr. Xinghe Cao retired as a Non-executive Director of the Company, with effect from May 24, 2010.

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For the year ended December 31, 2010, no share options granted under our share option schemes were exercised.  For the period from January 1, 2011 to March 31, 2011, no share options were exercised.

As of December 31, 2010, we had 474,054,900 share options outstanding under our share option schemes, which represented approximately 1.06% of our shares in issue as of that date.

For further details about our share option schemes, see notes 10 and 27 to our consolidated financial statements included elsewhere in this annual report.

As of March 31, 2011, none of our directors or employees owned 1% or more of our shares including the shares underlying the share options granted as of that date.

ITEM 7.  MAJOR SHAREHOLDERS AND RELATED PARTY TRANSACTIONS

A. MAJOR SHAREHOLDERS

The following table sets forth information regarding the ownership of our outstanding shares by major shareholders as of March 31, 2011.

Shareholder	Number of Shares Owned		Percentage
CNOOC(1)		28,772,727,273		64.41%

(1) CNOOC owns our shares indirectly through its wholly owned subsidiaries, CNOOC (BVI) Limited and Overseas Oil & Gas Corporation, Ltd.

Our major shareholder listed above does not have voting rights different from our other shareholders.  Except as set forth in the above table, we are not aware of any shareholders that hold more than 5% of our shares.  Except as disclosed above, we are not aware of any significant changes in the percentage ownership of our major shareholder over the course of the past three years.  To our knowledge, no arrangements are currently in place that could lead to a change of control of our company.

As of March 31, 2011, 12,945,022 ADSs were outstanding in the United States, representing approximately 2.9% of our then outstanding shares.  At such date, the number of registered ADS holders in the United States was 42.

B. RELATED PARTY TRANSACTIONS

Overview

We regularly enter into transactions with related parties, including CNOOC and its associates, as defined under the Hong Kong Stock Exchange Listing Rules.  Since CNOOC indirectly owns an aggregate of approximately 64.41% of our issued share capital, some of these transactions constitute connected transactions under the Hong Kong Stock Exchange Listing Rules, and are regulated by the Hong Kong Stock Exchange.

Apart from transactions with CNOOC and its associates, we have transactions with other state-owned enterprises, including, but not limited to, the following:

·   Sales and purchase of goods and services;

·   Purchases of assets, goods and services;

·   Leases of assets; and

·   Bank deposits and borrowings.

These transactions are conducted in the ordinary course of business.

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Categories of Continuing Connected Transactions

We entered into four comprehensive framework agreements with each of CNOOC, COSL, COOEC and China BlueChemical Ltd., on November 8, 2007, for the provision of a range of products and services which may be required and requested from time to time by either party and/or its associates in respect of the continuing connected transactions.  The term of each of the comprehensive framework agreements is for a period of three years from January 1, 2008.  The continuing connected transactions and relevant annual caps were approved by our independent shareholders on December 6, 2007. The approved continuing connected transactions are set out below:

1.   Provision of exploration, oil and gas development, oil and gas production as well as marketing, management and ancillary services by CNOOC and/or its associates to us

a) Provision of exploration and support services

b) Provision of oil and gas development and support services

c) Provision of oil and gas production and support services

d) Provision of marketing, management and ancillary services

e)  FPSO vessel leases

2.   Provision of management, technical, facilities and ancillary services, including the supply of materials by us to CNOOC and/or its associates

3.   Sales of petroleum and natural gas products by us to CNOOC and/or its associates

a)   Sales of petroleum and natural gas products (other than long term sales of natural gas and LNG)

b)   Long term sales of natural gas and LNG

Pricing principles

The continuing connected transactions referred to in paragraphs (1)(a) to (1)(d) provided by CNOOC and/or its associates to us and in paragraph (2) above provided by us to CNOOC and/or its associates are based on negotiations with CNOOC and/or its associates on normal commercial terms, or on terms no less favorable than those available to us from independent third parties, under prevailing local market conditions, including considerations such as volume of sales, length of contracts, package of services, overall customer relationship and other market factors.

If, for any reason, the above pricing principle for a particular service ceases to be applicable or there is no open market for services, whether due to a change in circumstances or otherwise, such services must then be provided in accordance with the following general pricing principles:

(i)        state-prescribed prices; or

(ii)        where there is no state-prescribed price, market prices, including the local, national or international market prices; or

(iii)        when neither (i) nor (ii) is applicable, the cost for providing the relevant services (including the cost of sourcing or purchasing from third parties) plus a margin of not more than 10%, before any applicable taxes.

The continuing connected transactions referred to in paragraph (1)(e) above provided by CNOOC and/or its associates to us are at market prices on normal commercial terms which are calculated on a daily basis.

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The continuing connected transactions referred to in paragraphs (3)(a) above provided by us to CNOOC and/or its associates are at state-prescribed prices or local, national or international market prices and on normal commercial terms.

The continuing connected transactions referred to in paragraphs (3)(b) above provided by us to CNOOC and/or its associates are at state-prescribed prices or local, national or international market prices and on normal commercial terms, which is subject to adjustment in accordance with movements in international oil prices as well as other factors such as the term of the sales agreement and the length of the relevant pipeline.

A detailed discussion of significant connected transactions entered into in the ordinary course of business between us and our related parties during 2010 and the balances arising from connected transactions at the end of 2010 is included in note 29 to our consolidated financial statements included elsewhere in this annual report.

Disclosure and/or Independent Shareholders’ approval requirements

Under the Hong Kong Stock Exchange Listing Rules, the following categories of continuing connected transactions are exempted from the independent shareholders’ approval requirement but are subject to the reporting and announcement requirements set out in Rules 14A.45 to 14A.47 of the Hong Kong Stock Exchange Listing Rules, because the percentage ratios for these categories under the Hong Kong Stock Exchange Listing Rules (other than the profits ratio) are expected to be less than 2.5% on an annual basis:

· Provision of marketing, management and ancillary services by CNOOC and/or its associates to us; and

· Provision of management, technical, facilities and ancillary services, including the supply of materials from us to CNOOC and/or its associates.

Under the Hong Kong Stock Exchange Listing Rules, the following categories of continuing connected transactions, or the non-exempt continuing connected transactions, are subject to the reporting, announcement and independent shareholders’ approval requirements:

· Provision of exploration, oil and gas development, oil and gas production as well as marketing, management and ancillary services by CNOOC and/or its associates to us

(a)  Provision of exploration and support services;

(b)  Provision of oil and gas development and support services;

(c)  Provision of oil and gas production and support services; and

(d)  FPSO vessel leases.

· Sales of petroleum and natural gas products by us to CNOOC and/or its associates

(a) Sales of petroleum and natural gas products (other than long-term sales of natural gas and LNG); and

(b) Long term sales of natural gas and LNG.

We obtained independent shareholders’ approval at the extraordinary general meetings held on December 6, 2007 for our continuing connected transactions and the annual caps with CNOOC and/or its associates for the period from January 1, 2008 to December 31, 2010, respectively. The annual caps and the conditions are specified as follows:

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Category of continuing connected transactions Relevant Annual Caps

Provision of exploration, oil and gas development, oil and gas production as well as marketing, management and ancillary services by CNOOC and/or its associates to us
(a) Provision of exploration and support services	For the three years ending December 31, 2010, Rmb 6,296 million, Rmb 7,555 million and Rmb 9,066 million, respectively
(b) Provision of oil and gas development and support services	For the three years ending December 31, 2010, Rmb 18,608 million, Rmb 22,879 million and Rmb 26,759 million, respectively
(c) Provision of oil and gas production and support services	For the three years ending December 31, 2010, Rmb 5,124 million, Rmb 6,147 million and Rmb 7,253 million, respectively
(d) Provision of marketing, management and ancillary services	For the three years ending December 31, 2010, Rmb 789 million, Rmb 854 million and Rmb 967 million, respectively
(e) FPSO vessel leases	For the three years ending December 31, 2010, Rmb 1,908 million, Rmb 3,182 million and Rmb 3,250 million, respectively
Provision of management, technical, facilities and ancillary services, including the supply of materials from us to CNOOC and/or its associates
Provision of management, technical, facilities and ancillary services, including the supply of materials to CNOOC and/or its associates	For the three years ending December 31, 2010, Rmb 100 million, Rmb 100 million and Rmb 100 million, respectively
Sales of petroleum and natural gas products by us to CNOOC and/or its associates
(a) Sales of petroleum and natural gas products (other than long-term sales of natural gas and liquefied natural gas)	For the three years ending December 31, 2010, Rmb 94,440 million, Rmb 156,692 million and Rmb 181,782 million, respectively
(b) Long-term sales of natural gas and liquefied natural gas	For the three years ending December 31, 2010, Rmb 4,844 million, Rmb 7,118 million and Rmb 8,763 million, respectively

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The non-exempt continuing connected transactions for the year ended December 31, 2010 to which any member of us was a party were entered into by us:

(i) in the ordinary and usual course of our business;

(ii) either (a) on normal commercial terms, or (b) if there is no available comparison, on terms no less favorable to us than terms available from independent third parties; and

(iii) in accordance with the relevant agreements governing them on terms that were fair and reasonable so far as our shareholders were concerned and in the interests of our company and shareholders as a whole.

We confirmed that the annual amount of each category of the non-exempt continuing connected transactions for the year ended December 31, 2010 did not exceed the applicable annual caps; and we have complied with other relevant provisions of the Hong Kong Stock Exchange Listing Rules in relation to each category of the non-exempt continuing connected transactions.

Renewal of Continuing Connected Transactions

In anticipation of  the expiration of the comprehensive framework agreements dated November 8, 2007 and our intention to continue the continuing connected transactions after December 31, 2010, we entered into a new comprehensive framework agreement on November 1, 2010 with CNOOC for the provision (1) by us to CNOOC and/or its associates and (2) by CNOOC and/or its associates to us of a range of products and services which may be required and requested from time to time by either party and/or its associates in respect of the continuing connected transactions. The term of the comprehensive framework agreement is for a period of three years from January 1, 2011. The comprehensive framework agreement is substantially on the same terms as those contained in the four comprehensive framework agreements we entered into on November 8, 2007.The continuing connected transactions and the relevant annual caps for the three years from January 1, 2011 were approved by our independent shareholders on November 24, 2010. The annual caps and the conditions are specified as follows:

Category of continuing connected transactions Relevant Annual Caps

Provision of exploration, oil and gas development, oil and gas production as well as marketing, management and ancillary services by CNOOC and/or its associates to us
(a) Provision of exploration and support services	For the three years ending December 31, 2013, Rmb 6,676 million, Rmb 7,431 million and Rmb 7,737 million, respectively
(b) Provision of oil and gas development and support services	For the three years ending December 31, 2013, Rmb 24,067 million, Rmb 37,906 million and Rmb 38,822 million, respectively
(c) Provision of oil and gas production and support services	For the three years ending December 31, 2013, Rmb 8,228 million, Rmb 9,051 million and Rmb 9,956 million, respectively
(d) Provision of marketing, management and ancillary services	For the three years ending December 31, 2013, Rmb 820.98 million, Rmb 856.52 million and Rmb 905.09 million, respectively

(e) FPSO vessel leases	For the three years ending December 31, 2013, Rmb 1,401 million, Rmb 1,390 million and Rmb 1,546 million, respectively
Provision of management, technical, facilities and ancillary services, including the supply of materials from us to CNOOC and/or its associates
Provision of management, technical, facilities and ancillary services, including the supply of materials to CNOOC and/or its associates	For the three years ending December 31, 2013, Rmb 100 million, Rmb 100 million and Rmb 100 million, respectively
Sales of petroleum and natural gas products by us to CNOOC and/or its associates
(a) Sales of petroleum and natural gas products (other than long-term sales of natural gas and liquefied natural gas)	For the three years ending December 31, 2013, Rmb 152,315 million, Rmb 158,163 million and Rmb 165,561 million, respectively
(b) Long-term sales of natural gas and liquefied natural gas	For the three years ending December 31, 2013, Rmb 8,034 million, Rmb 9,146 million and Rmb 21,155 million, respectively

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Transactions with CNOOC Finance Corporation Limited

On October 14, 2008, we entered into a financial services framework agreement with CNOOC Finance Corporation Limited, our 31.8% owned associate and a subsidiary of CNOOC, pursuant to which CNOOC Finance Corporation Limited provides us with settlement, depository, discounting, loans and entrustment loans services.

For the period from October 14, 2008 to August 19, 2010, the maximum daily outstanding balance of deposits (including accrued interest) we placed with CNOOC Finance Corporation Limited (excluding funds placed for the purpose of extending entrustment loans pursuant to the entrustment loan services), did not exceed Rmb 4,480 million. During such period, the maximum daily outstanding balance of deposits did not exceed 2.5% of the relevant percentage ratios under the Hong Kong Stock Exchange Listing Rules. Pursuant to the amendment to the Listing Rules in June 2010, we announced on August 20, 2010 to revise the maximum daily outstanding balance (including accrued interest) placed by us with CNOOC Finance Corporation Limited (excluding funds placed for the purpose of extending entrustment loans pursuant to the entrustment loan services) not to exceed Rmb 9,800 million. For the period from August 20, 2010 to December 31, 2010, the maximum daily outstanding balance did not exceed Rmb 9,800 million. During such period, the maximum daily outstanding balance of deposits did not exceed 5% of the relevant percentage ratios under the Hong Kong Stock Exchange Listing Rules.

On August 20, 2010, we also entered into a renewal agreement with CNOOC Finance Corporation Limited to renew the financial services framework agreement entered into by us and CNOOC Finance Corporation Limited dated October 14, 2008. The renewal agreement is effective from January 1, 2011 to December 31, 2013. According to the renewal agreement, the maximum daily outstanding balance should not exceed Rmb 9,800 million for the period from January 1, 2011 (being the effective date of the renewal agreement) to December 31, 2013. The depository services were exempted from independent shareholders’ approval requirements and the settlement, discounting, loans and entrustment loans services were exempted from the reporting, announcement, annual review and independent shareholders’ approval requirements under the Hong Kong Stock Exchange Listing Rules.

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C. INTERESTS OF EXPERTS AND COUNSEL

Not applicable.

ITEM 8.  FINANCIAL INFORMATION

A. CONSOLIDATED STATEMENTS AND OTHER FINANCIAL INFORMATION

See pages beginning on page F-1 following Item 19.

Legal Proceedings

We are not a defendant in any material litigation or arbitration, and we know of no pending or threatened proceeding which would have a material adverse effect on our financial condition.

Dividend Distribution Policy

The payment of any future dividends will be determined by our Board, subject to shareholders’ approval for all dividends other than interim dividends, based upon, among other things, our future earnings, capital requirements, financial conditions, future prospects and other factors which our Board may consider relevant. Our ability to pay dividends will also depend on the cash flows determined by the dividends, if any, received by us from our subsidiaries and associates.  Holders of our shares will be entitled to receive such dividends declared by our Board pro rata according to the amounts paid up or credited as paid up on the shares.  Subject to the factors described above, we currently intend to pursue a dividend policy consistent with other international oil and gas exploration and production companies.

Dividends may be paid only out of our distributable profits as permitted under Hong Kong law, which does not restrict the payment of dividends to nonresident holders of our securities.  To the extent profits are distributed as dividends, such portion of profits will not be available to be reinvested in our operations.

Holders of our ADSs will be entitled to receive dividends, subject to the terms of the deposit agreement, to the same extent as holders of our shares, less the fees and expenses payable under the deposit agreement and withholding taxes of 10%.  Cash dividends will be paid to the depositary in Hong Kong dollars and will be converted by the depositary into U.S. dollars and paid to holders of ADSs. Stock dividends, if any, will be distributed to the depositary and will be distributed by the depositary, in the form of additional ADSs, to holders of the ADSs.

In 2008, we declared and paid dividends totaling Rmb 14,651.8 million.  In 2009, we declared and paid dividends totaling Rmb 15,747.1 million.  In 2010, we declared and paid dividends totaling Rmb 15,893.8 million (US$2,408.2 million).  The amount of dividends we paid historically is not indicative of the dividends that we will pay in the future.

Substantially all our dividend payments result from dividends paid to us by CNOOC China Limited.  CNOOC China Limited must follow the laws and regulations of the PRC and its articles of association in determining its dividends.  As a wholly foreign owned enterprise in China, CNOOC China Limited has to provide for a reserve fund and staff and workers’ bonus and welfare fund, each of which is appropriated from net profit after taxation but before dividend distribution according to the prevailing accounting rules and regulations in the PRC.  CNOOC China Limited is required to allocate at least 10% of its net profit to the reserve fund until the balance of this fund has reached 50% of its registered capital, which amount was reached in 2009.  Appropriations to the staff and workers’ bonus and welfare fund, which are determined at the discretion of the directors of CNOOC China Limited, are charged to expense as incurred in our consolidated financial statements, which were prepared under IFRS. In accordance with the “Temporary Regulation for Safety Expense Financial Management of High Risk Industry” and the implementation guidance issued by the Ministry of Finance of the PRC, a safety fund has been accrued for our oil and gas exploration and production activities within the PRC. The accrued safety fund will be utilized for improving the safety conditions of our production. Included in other reserves was a provision for safety fund under the PRC regulation amounting to Rmb 13.5 million (US$2.0 million), which was Rmb 25.1 million in 2009. None of the contributions of CNOOC China Limited to these statutory funds may be used for dividend purposes.

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For the years ended December 31, 2008, 2009 and 2010, CNOOC China Limited made the following appropriations to the statutory reserves:

	For the year ended December 31, 2008				For the year ended December 31, 2009				For the year ended December 31, 2010
	Percentage of Net Profits		Rmb (in millions)		Percentage of Net Profits		Rmb (in millions)		Percentage of Net Profits		Rmb (in millions)
Reserve fund		0.0%		—		0.0%		—		0.0%		—
Staff and workers’ bonus and    welfare fund		0.0%		—		0.0%		—		0.3%		154.3
Safety fund		0.8%		372.7		1.4%		407.3		1.2%		628.6

Contingent Liabilities

On January 8, 2006, the Company signed a definitive agreement with South Atlantic Petroleum Limited, or SAPETRO, to acquire a 45% working interest in the Offshore Oil Mining Lease 130, or OML130, in Nigeria, or the OML130 Transaction. The OML130 Transaction was completed on April 20, 2006.

In 2007, a local tax office in Nigeria conducted a tax audit on SAPETRO. According to the preliminary tax audit results, the Nigeria local tax office has raised a disagreement with the tax filings made for the OML130 Transaction.

The tax audit assessment made by the Nigeria local tax office has been contested by the Company in accordance with Nigerian laws. After seeking legal and tax advice, the Company’s management believes that the Company has reasonable grounds in making the contest. Consequently, no provision has been made for any expenses which might arise as a result of the dispute.

The Company has extended interest-free intercompany loans to CNOOC International Limited, a wholly-owned subsidiary, to provide onward funding to its subsidiaries domiciled outside the PRC. Upon receipt of a formal approval from the State Administration of Taxation of the PRC on October 19, 2010, which confirmed that the Company should be treated as a Chinese Resident Enterprise, the Company may be liable to pay taxes on the deemed interest income for the intercompany loans to CNOOC International Limited starting from January 1, 2008. The Company is currently applying to, and awaiting confirmation from its in-charge tax authority for an exemption on this possible deemed interest income.

B. SIGNIFICANT CHANGES

 Notes issuance

In January 2011, we, through CNOOC Finance (2011) Limited, our wholly owned subsidiary, issued US$1,500 million 4.25% guaranteed notes due 2021 and US$500 million 5.75% guaranteed notes due 2041. The obligations of CNOOC Finance (2011) Limited in respect of these notes are unconditionally and irrevocably guaranteed by us.

Acquisition

In February 2011, we completed the acquisition of 33.3% interest of undivided interest in Chesapeake’s 800,000 net oil and natural gas leasehold acres in the Niobrara project.  The consideration for the transaction was US$570 million in cash.  In addition, we agreed to fund 66.7% of Chesapeake’s share of drilling and completion costs up to US$697 million, which Chesapeake expects to occur by year-end 2014.

On March 29, 2011, we entered into sale and purchase agreements with Tullow Oil plc for the acquisition of its one third interests in exploration areas 1, 2 and 3A in Uganda. Total consideration of the transaction is approximately US$1.467 billion in cash, subject to closing adjustments. Completion of the transaction is subject to certain terms and conditions, including, among other things, all necessary government and regulatory approvals by the relevant authorities in the Republic of Uganda and the PRC.

Changes of Directors

On April 15, 2011, Mr. Chengyu Fu resigned as Chairman of the Board and Non-executive Director of the Company, with effect on the same day; Mr. Yilin Wang was appointed as Chairman of the Board and Non-executive Director of the Company, with effect on the same day.

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ITEM 9.  THE OFFER AND LISTING

Not applicable, except for Item 9.A.4 and Item 9.C.

We listed our shares on the Hong Kong Stock Exchange and our ADSs on the New York Stock Exchange in February 2001.  Our shares are listed on the Hong Kong Stock Exchange under the stock code “00883” and our ADSs are listed on the New York Stock Exchange under the symbol “CEO.”  The following table sets forth, for the periods indicated, the high and low closing prices per share, as reported on the Hong Kong Stock Exchange and adjusted retroactively to reflect the stock split, and per ADS, as reported on the New York Stock Exchange.

	Hong Kong Stock Exchange				New York Stock Exchange
Period	High		Low		High		Low
		(HK$ per share)			(US$ per ADS)
2006		7.39		5.25		94.63		67.19
2007		16.92		6.16		216.49		78.18
2008		15.90		4.24		203.00		56.04
2009		12.90		6.08		166.63		76.63
2010		18.48		11.02		238.80		139.83
2009 Financial Quarter
1st Quarter		8.39		6.08		108.50		76.63
2nd Quarter		11.14		7.85		143.93		103.19
3rd Quarter		11.02		8.82		142.30		113.27
4th Quarter		12.90		10.24		166.63		131.15
2010 Financial Quarter
1st Quarter		13.24		11.02		169.73		139.83
2nd Quarter		14.06		11.58		180.95		150.65
3rd Quarter		15.08		12.26		194.30		155.81
4th Quarter		18.48		15.76		238.80		196.39
2011 Financial Quarter
1st Quarter		19.60		16.12		253.04		210.64
Last Six Months
October 2010		16.80		15.76		213.34		196.39
November 2010		18.02		16.48		233.67		214.20
December 2010		18.48		17.00		238.80		224.05
January 2011		19.40		17.20		249.73		220.49
February 2011		17.80		16.12		229.00		210.64
March 2011		19.60		17.24		253.04		217.94

ITEM 10.  ADDITIONAL INFORMATION

A. SHARE CAPITAL

Not applicable.

B. MEMORANDUM AND ARTICLES OF ASSOCIATION

We were incorporated with limited liability on August 20, 1999 in Hong Kong under the Companies Ordinance (Chapter 32 of the Laws of Hong Kong), or the Hong Kong Companies Ordinance.  Our company registration number in Hong Kong is 685974.  Under section three of our memorandum of association, we have the capacity and the rights, powers and privileges of a natural person and we may also do anything which we are permitted or required to do by any enactment or rule of law.  The following are summaries of provisions of our memorandum and articles of association and the Hong Kong Companies Ordinance.  For further details, you should read our memorandum of association, which was filed as an exhibit to our registration statement on Form F-1 (Registration No.333-10862) and our articles of association, as amended, which is filed as Exhibit 1.1 to this annual report.

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Issue of Shares

Under the Hong Kong Companies Ordinance our directors may, without obtaining the prior approval of our shareholders, offer to allot new shares in our company to existing shareholders on a pro rata basis.  Our directors may not allot new shares of our company in any other manner without the prior approval of our shareholders at a general meeting.  Any approval given at a general meeting granting our directors power to allot shares or securities convertible into shares generally shall continue in force from the date of the passing of the resolution until the earliest of:

·   the conclusion of the next annual general meeting;

·   the expiration of the period within which the next annual general meeting is required by any applicable laws or our articles of association to be held; or

·   the revocation or variation of the authority given under an ordinary resolution of the shareholders, in a general meeting of our company.

If such an approval for a general mandate to issue shares is given, the unissued shares of our company shall be at the disposal of our Board.  Our directors may offer, allot, grant options over or otherwise dispose of the unissued shares to persons at such times and for such consideration and upon such terms and conditions as our directors may determine, subject to the restrictions under the Hong Kong Stock Exchange Listing Rules.

In accordance with Hong Kong Stock Exchange Listing Rules, any such approval of the shareholders must be limited to shares not exceeding 20% of our share capital in issue as of the date of granting such approval plus the share capital repurchased by us since the granting of such approval.

Dividends

Subject to the Hong Kong Companies Ordinance, the shareholders at a general meeting may declare dividends to be paid to shareholders.  However, under our articles of association, dividends cannot be declared in excess of the amount recommended by our Board.

In addition to dividends declared at a general meeting, our Board may declare and pay to the shareholders interim dividends as our Board deems justified by our financial position.  Our Board may also pay any fixed dividend on any shares of our company semi-annually or at other suitable intervals, whenever our financial position, in their opinion, justifies such payment.

Winding Up

If we are wound up, the surplus assets remaining after payment to all creditors are to be divided among our shareholders in proportion to the capital paid up on the shares held by them respectively, and if such surplus assets are insufficient to repay the whole of the paid-up capital, they are to be distributed so that the losses are borne by our shareholders in proportion to the capital paid up on the shares held by them respectively.  The liquidator may, with the sanction of a special resolution, divide among our shareholders in specie or in kind the whole or any part of our assets or vest any part of our assets in trustees upon such trusts for the benefit of our shareholders or any of them as the resolution shall provide.

Voting Rights

Under the Hong Kong Companies Ordinance, any action to be taken by the shareholders at a general meeting requires the affirmative vote of either an ordinary or a special resolution passed at such meeting.

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·   An ordinary resolution is a resolution passed by the majority of shareholders that are entitled to, and do, vote in person or by proxy at a general meeting;

·   A special resolution is a resolution passed by not less than 75% of shareholders that are entitled to, and do, vote in person or by proxy at a general meeting.

Generally, resolutions of shareholders are passed by ordinary resolution.  However, the Hong Kong Companies Ordinance provides that certain specified matters may only approved by shareholders by way of special resolutions.  These matters include, for example:

·   alteration of the object clause;

·   alteration of the articles;

·   change of a company’s name;

·   reduction of share capital; and

·   voluntary winding up.

Subject to the requirement of the Hong Kong Stock Exchange Listing Rules, voting at any general meeting is by a show of hands unless a poll is demanded.  If voting is by a show of hands, every shareholder who is present at the meeting in person or by proxy has one vote.  On a poll, every shareholder who is present in person or by proxy has one vote for every share held or represented by him.  A poll may be demanded by:

·   the chairman of the meeting;

·   at least three members present in person (or in the case of a member being a corporation, by its duly authorized representative) or by proxy and entitled to vote at the meeting;

·   any member or members present in person (or in the case of a member being a corporation, by its duly authorized representative) or by proxy and representing in the aggregate not less than 10% of the total voting rights of all members having the right to attend and vote at the meeting; or

·   any member or members present in person (or in the case of a member being a corporation, by its duly authorized representative) or by proxy and holding shares conferring a right to attend and vote at the meeting on which there have been paid up sums in the aggregate equal to not less than 10% of the total sum paid up on all shares conferring that right.

Any action to be taken by the shareholders requires the affirmative vote of the requisite majority of the shares at a general meeting.  There are no cumulative voting rights.  Accordingly, the holders of a majority of the shares voting for the election of directors can elect all the directors if they choose to do so.

Under Hong Kong law and our memorandum and articles of association, shareholders who are not residents of Hong Kong may hold, vote and transfer their shares in our company in the same manner as our shareholders who are Hong Kong residents.

General Meetings

We are required to hold an annual general meeting each year within fifteen months from the date of our last annual general meeting.  We may also hold extraordinary general meetings from time to time.  Our Board may convene an extraordinary general meeting at will, and shall on requisition in accordance with the Hong Kong Companies Ordinance, proceed to convene an extraordinary general meeting.  Our annual general meeting and a meeting called for the purpose of passing a special resolution require at least twenty-one days’ prior notice, and any other general meeting requires at least fourteen days’ prior notice.  The notice must specify the place, day and time of the meeting and, in the case of special business, the general nature of that business.  The quorum for a general meeting is two shareholders present in person or by proxy.  If within thirty minutes from the time appointed for the meeting a quorum is not present, the meeting, if convened upon requisition in accordance with the Hong Kong Companies Ordinance, must be dissolved; but in any other case it must stand adjourned to the same day in the next week at the same time and place, or to such other day, time and place as the chairman of the meeting may determine.  If at such adjourned meeting a quorum is not present within thirty minutes from the time appointed for the meeting, the member or members present in person or by proxy shall be a quorum and may transact the business for which the meeting is called.

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At each annual general meeting one third of our directors are to retire from office by rotation, save any director holding office as chairman or chief executive officer.  The directors to retire every year are to be those who have been longest in office since their last election and the retiring directors will be eligible for re-election.

Modification of Rights

Subject to the Hong Kong Companies Ordinance, any of the rights attaching to any class of shares, unless otherwise provided for by the terms of issue of the shares of that class, may be varied or abrogated with the written consent of the holders of not less than 75% of the issued shares of that class or with the sanction of a special resolution passed at a separate general meeting of the holders of shares of that class.

Borrowing Powers

Our Board may exercise all the powers of our company to borrow money and to mortgage or charge all or any part of our undertaking, property and assets, whether present or future, and uncalled capital.  Our Board may issue debentures, debenture stock, bonds or other securities of our company, whether outright or as collateral security for any debt, liability or obligation of our company or of any third party.  These borrowing powers are subject to variation by a special resolution of our company.

Interested Transactions

Subject to the exceptions described below, none of our directors may vote on any contract, arrangement or proposal in which the director or any of his or her associates is materially interested.  For this purpose, existence of material interest is presumed if a company, in which the director and/or his or her associates beneficially own 5% or more of any class of its shares or voting rights, is materially interested in the transaction.  Our directors may, however, vote on the following matters:

·        any contract or arrangement to give security or indemnity to the director or his or her associates for money lent or obligations undertaken by such director or his or her associates at the request of or for the benefit of our company or subsidiaries;

·        any contract or arrangement to give security or indemnity to a third party for our debts or debts of our subsidiaries for which such director or his or her associates assumed responsibility by giving guarantee or security;

·        any contract or arrangement concerning offering of securities by us (or any company which we may promote or be interested in purchasing) for which the director or his or her associates participate in the underwriting or sub-underwriting;

·        any contract or arrangement in which the director or his or her associates are interested only by virtue of their interest in our securities;

·        any contract or arrangement concerning any other company in which the director or his or her associates are interested as an officer or executive or a shareholder in which the director or his or her associates are beneficially interested in shares of that company other than a company in which they in aggregate beneficially own more than 5% of the issued shares of any class or voting rights;

·        any proposal or arrangement concerning employee benefits that do not provide privileges to our directors or their associates not generally accorded to the class of persons to whom such scheme or fund relates, including pension fund or retirement, death or disability benefits schemes; and

·        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 us to, or for the benefit of, our employees or employees of our subsidiaries under which the director or his or her associates may benefit.

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C. MATERIAL CONTRACTS

We have not entered into any material contracts in the last two years other than in the ordinary course of business and other than those described in “Item 7―Major Shareholders and Related Party Transactions―Related Party Transactions.”

D. EXCHANGE CONTROLS

For information on foreign exchange controls in the PRC, foreign exchange rates, hedging activities and related foreign exchange risks, see “Item 3—Key Information—Selected Financial Data,” “Item 3—Key Information—Risk Factors—Risks Relating to the PRC—Government control of currency conversion and future movements in exchange rates may adversely affect our operations and financial condition” and “Item 11—Qualitative and Quantitative Disclosure about Market Risk.”

E. TAXATION

The taxation of income and capital gains of holders of our shares or ADSs is subject to the laws and practices of the PRC, Hong Kong and of jurisdictions in which holders of our shares or ADSs are resident or otherwise subject to tax.  The following is a summary of taxation provisions that are anticipated to be material based on current law and practice.  This summary is subject to change and does not constitute legal or tax advice.  The discussion does not deal with all possible tax consequences relating to an investment in our shares or ADSs. In particular, the discussion does not address the tax consequences under state, local or other laws, such as non-PRC, non-Hong Kong or non-U.S. federal laws.  Accordingly, we urge you to consult your tax adviser regarding the tax consequences of an investment in our shares and ADSs. The discussion is based upon laws and relevant interpretations in effect as of the date of this annual report, all of which are subject to changes.  There is no reciprocal tax treaty in effect between Hong Kong and the United States.

The PRC

In 2007, the PRC National People’s Congress passed the Enterprise Income Tax Law, and the PRC State Council subsequently issued the Implementation Regulations of the Enterprise Income Tax Law (together, the “New EIT Law”).  On April 22, 2009, the State Administration of Taxation of the PRC (the “SAT”) issued the “Notice regarding Matters on Determination of Tax Residence Status of Chinese-controlled Offshore Incorporated Enterprises under Rules of Effective Management” (the “Notice”).

Pursuant to the New EIT Law and the Notice, enterprises established outside of China whose “de facto management bodies” are located in China are considered Chinese Resident Enterprises, or CREs. According to the formal approval from the SAT in October 2010, we are regarded as a CRE pursuant to the provisions of the New EIT Law and the Notice, Accordingly, we will withhold PRC income tax of up to 10%, or a lower rate if tax treaty benefits are available, on dividends we pay to non-resident enterprise holders of our ADSs or ordinary shares.  Dividends we pay to non-resident non-enterprise holders, including individuals, of our ADSs or ordinary shares who hold our ADSs or ordinary shares in the names of non-resident enterprises in the registers of members of our Depositary or share registrar may also be subject to a 10% PRC withholding tax.  The 10% dividend withholding tax rate will not be reduced under the 1984 Agreement between the United States and the People’s Republic of China for the Avoidance of Double Taxation (the “PRC Treaty”).

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Currently, gains realized by foreign individual investors upon the sale of overseas-listed shares issued by PRC companies are not subject to tax on capital gains. In accordance with the New EIT Law, capital gains realized by foreign enterprises which are non-resident enterprises in China upon the sale of overseas-listed shares are generally subject to a PRC enterprise income tax levied at a rate of 10%, unless exempted or reduced pursuant to an applicable double-taxation treaty or other exemptions.

Hong Kong

Tax on Dividends

Under the current practices of the Hong Kong Inland Revenue Department, no tax is payable in Hong Kong in connection with dividends paid by us.

Profits Tax

No tax is imposed in Hong Kong in respect of capital gains from the sale of property, such as the shares and ADSs.  Trading gains from the sale of property by persons carrying on a trade, profession or business in Hong Kong where such gains are derived from or arise in Hong Kong from such trade, profession or business will be chargeable to Hong Kong profits tax which is currently imposed at a rate of 16.5% on corporations and at a maximum rate of 15% on individuals.  Gains from sales of shares effected on the Hong Kong Stock Exchange will be considered to be derived from or arise in Hong Kong.  Liability for Hong Kong profits tax will therefore arise in respect of trading gains from sales of shares realized by persons carrying on a business of trading or dealing in securities in Hong Kong.

Stamp Duty

Hong Kong stamp duty, currently charged at the rate of HK$1.00 per HK$1,000 or part thereof on the higher of the consideration for, or the value of, the shares, will be payable by the purchaser on every purchase and by the seller on every sale of shares.  A total of HK$2.00 per HK$1,000 or part thereof is currently payable on a typical sale and purchase transaction involving shares.  In addition, a fixed duty of HK$5.00 is currently payable on any instrument of transfer of shares.  The withdrawal of shares upon the surrender of ADSs, and the issuance of ADSs upon the deposit of shares, will also attract stamp duty at the rate described above for sale and purchase transactions unless the withdrawal or deposit does not result in a change in the beneficial ownership of the shares under Hong Kong law.  The issuance of the ADSs upon the deposit of shares issued directly to the depositary or for the account of the depositary does not incur stamp duty if it does not involve a change of beneficial ownership in the shares.  No Hong Kong stamp duty is payable upon the transfer of ADSs outside Hong Kong.

United States

U.S. Federal Income Tax Considerations

The following is a discussion of the material U.S. federal income tax consequences of owning and disposing of ADSs or shares by U.S. Holders (as defined below), but it does not purport to be a comprehensive description of all the tax considerations that may be relevant to a particular person’s decision to hold such ADSs or shares.  This discussion does not address U.S. state, local and non-U.S. tax consequences.  The discussion applies only to U.S. Holders who hold ADSs or shares as capital assets for U.S. federal income tax purposes and does not address special classes of holders, such as:

·       certain financial institutions;

·       dealers or traders in securities who use a mark-to-market method of tax accounting;

·       persons holding ADSs or shares as part of a hedge, straddle, conversion, integrated transaction or similar transaction;

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·       persons whose functional currency for U.S. federal income tax purposes is not the U.S. dollar;

·       partnerships or other entities classified as partnerships for U.S. federal income tax purposes;

·       persons liable for the alternative minimum tax;

·       tax-exempt entities, including “individual retirement accounts” or “Roth IRAs”;

·       persons that own or are deemed to own 10% or more of our voting stock;

·       persons who acquired our ADSs or shares pursuant to the exercise of an employee stock option or otherwise as compensation; or

·       persons holding shares in connection with a trade or business conducted outside of the United States.

If an entity that is classified as a partnership for U.S. federal income tax purposes holds ADSs or shares, the U.S. federal income tax treatment of a partner will generally depend on the status of the partner and the activities of the partnership.  Partnerships holding ADSs or shares and partners in such partnerships should consult their tax advisers as to the particular U.S. federal income tax consequences of holding and disposing of the ADSs or shares.

This discussion is based on the Internal Revenue Code of 1986, as amended, administrative pronouncements, judicial decisions, final, temporary and proposed U.S. Treasury regulations and the PRC Treaty, all as of the date hereof.  These laws are subject to change, possibly on a retroactive basis. It is also based in part on representations by the Depositary and assumes that each obligation under the Deposit Agreement and any related agreement will be performed in accordance with its terms. U.S. Holders should consult their tax advisers concerning the U.S. federal, state, local and non-U.S. tax consequences of holding and disposing of ADSs or shares in their particular circumstances.

As used herein, a ‘‘U.S. Holder’’ is a beneficial owner of ADSs or shares that is, for U.S. federal income tax purposes: (i) an individual citizen or resident of the United States; (ii) a corporation, or other entity taxable as a corporation, created or organized in or under the laws of the United States or any political subdivision thereof; or (iii) an estate or trust the income of which is subject to U.S. federal income taxation regardless of its source.

In general, a U.S. Holder who owns ADSs should be treated as the owner of the underlying shares represented by those ADSs for U.S. federal income tax purposes.  Accordingly, no gain or loss should be recognized if a U.S. Holder exchanges ADSs for the underlying shares represented by those ADSs.

The U.S. Treasury has expressed concerns that parties to whom American depositary shares are released before delivery of shares to the depositary, or pre-release, or intermediaries in the chain of ownership between holders and the issuer of the securities underlying the American depository shares, may be taking actions that are inconsistent with the claiming of foreign tax credits by holders of American depositary shares.  Such actions would also be inconsistent with the claiming of the reduced rate of tax, described below, applicable to dividends received by certain non-corporate holders.  Accordingly, the availability of the reduced tax rate for dividends received by certain non-corporate holders, described below, could be affected by actions taken by such parties or intermediaries.

This discussion assumes that we were not, and will not become, a passive foreign investment company, or PFIC, as described below.

Taxation of Distributions

Distributions received by a U.S. Holder on ADSs or shares, other than certain pro rata distributions of common shares to all shareholders, will constitute foreign-source dividend income to the extent paid out of our current or accumulated earnings and profits (as determined for U.S. federal income tax purposes).  Because we do not maintain calculations of our earnings and profits under U.S. federal income tax principles, it is expected that distributions generally will be reported to U.S. Holders as dividends.  The amount of the dividend a U.S. Holder will be required to include in income will equal the U.S. dollar value of the Hong Kong dollar distribution, calculated by reference to the exchange rate in effect on the date the payment is received by the depositary (or, in the case of shares, received by the holder), regardless of whether the payment is converted into U.S. dollars on the date of receipt.  If the dividend is converted into U.S. dollars on the date of receipt, a U.S. Holder should not be required to recognize foreign currency gain or loss in respect of the dividend income.  A U.S. Holder may have foreign currency gain or loss if the dividend is converted into U.S. dollars after the date of receipt.  Corporate U.S. Holders will not be entitled to claim the dividends-received deduction with respect to dividends paid by us.

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Subject to applicable limitations, dividends paid by “qualified foreign corporations” to certain non-corporate U.S. Holders in taxable years beginning before January 1, 2013, are taxable at a maximum rate of 15%.  A foreign corporation is treated as a qualified foreign corporation with respect to dividends paid on stock that is readily tradable on an established securities market in the United States, such as the New York Stock Exchange where our ADSs are traded. Non-corporate U.S. Holders should consult their own tax advisers to determine whether these favorable rates may apply to dividends they receive from us and whether they are subject to any special rules that limit their ability to be taxed at this favorable rate.

As described in “—Taxation—The PRC,” according to a formal reply from the SAT in October 2010, we are regarded as a CRE pursuant to the provisions of the New EIT Law and the Notice. Accordingly, dividends paid with respect to our ordinary shares or ADSs may be subject to PRC withholding taxes.  For U.S. federal income tax purposes, the amount of a dividend would include any amounts withheld by us in respect of PRC taxes.  Subject to applicable limitations, any PRC income taxes withheld from dividends on ADSs or shares at a rate not exceeding the rate provided by the PRC Treaty may be creditable against the U.S. Holder’s U.S. federal income tax liability.  PRC taxes withheld in excess of the rate applicable under the PRC Treaty will not be eligible for credit against a U.S. Holder’s federal income tax liability. The rules governing foreign tax credits are complex, and U.S. Holders should consult their tax advisers regarding the creditability of foreign taxes in their particular circumstances.  Instead of claiming a credit, a U.S. Holder may, at the U.S. Holder’s election, deduct such PRC taxes, if any, in computing taxable income. An election to deduct foreign taxes instead of claiming foreign tax credits must apply to all taxes paid or accrued in the taxable year to foreign countries and possessions of the United States.

Sale or Other Disposition of ADSs or Shares

A U.S. Holder will generally recognize capital gain or loss on the sale or other disposition of ADSs or shares, which will be long-term capital gain or loss if the holder has held such ADSs or shares for more than one year.  The amount of the U.S. Holder’s gain or loss will be equal to the difference between the amount realized on the sale or other disposition (as determined in U.S. dollars) and such holder’s tax basis in the ADSs or shares (as determined in U.S. dollars).  Any gain or loss will generally be U.S.-source gain or loss for foreign tax credit purposes.

Passive Foreign Investment Company Considerations

We believe that we were not a PFIC for U.S. federal income tax purposes for our taxable year ended December 31, 2010.  In general, a non-U.S. company will be considered a PFIC for U.S. federal income tax purposes for any taxable year in which (i) 75% or more of its gross income consists of passive income (such as dividends, interest, rents and royalties) or (ii) 50% or more of the average quarterly value of its assets consists of assets that produce, or are held for the production of, passive income.  As PFIC status depends upon the composition of our income and assets and the market value of our assets (including, among other things, any equity investments in less than 25%-owned entities) from time to time, and since there are uncertainties in the manner of application of the PFIC rules, there can be no assurance that we will not be considered a PFIC for any taxable year.

If we were to be treated as a PFIC for any taxable year during which a U.S. Holder held ADSs or shares, certain adverse U.S. federal income tax rules would apply on a disposition (including a pledge) of ADSs or shares by the U.S. Holder.  In general, under those rules, gain recognized by the U.S. Holder on a sale or other disposition of ADSs or shares would be allocated ratably over the U.S. Holder’s holding period for the ADSs or shares.  The amounts allocated to the taxable year of the sale or other disposition and to any year before we became a PFIC would be taxed as ordinary income.  The amount allocated to each other taxable year would be subject to tax at the highest rate in effect for individuals or corporations, as appropriate, for such taxable year, and an interest charge would be imposed on the amount allocated to each such taxable year.  Further, any distribution in respect of ADSs or shares in excess of 125% of the average of the annual distributions on ADSs or shares received by the U.S. Holder during the preceding three years or the U.S. Holder’s holding period, whichever is shorter, would be subject to taxation in the same manner as gain, described immediately above.  Certain elections may be available (including a mark-to-market election) to U.S. Holders that may mitigate the adverse tax consequences resulting from PFIC status.

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In addition, if we were to be treated as a PFIC in a taxable year in which we pay a dividend or the prior taxable year, the 15% dividendrate discussed above with respect to dividends received by certain non-corporate U.S. Holders would not apply.

Pursuant to legislation enacted in 2010, if we are a PFIC in any taxable year, a U.S. Holder may be required to file an annual report with the Internal Revenue Service containing such information as the Treasury Department may require.

Information Reporting and Backup Withholding

Payments of dividends and sales proceeds that are made within the United States or through certain U.S.-related financial intermediaries generally are subject to information reporting, and may be subject to backup withholding, unless the U.S. Holder is an exempt recipient or, in the case of backup withholding, the U.S. Holder provides a correct taxpayer identification number and certifies that it is not subject to backup withholding. The amount of any backup withholding from a payment to a U.S. Holder will be allowed as a credit against the holder’s U.S. federal income tax liability and may entitle such holder to a refund, provided that the required information is timely furnished to the Internal Revenue Service.

F. DIVIDENDS AND PAYING AGENTS

Not applicable.

G. STATEMENT BY EXPERTS

Not applicable.

H. DOCUMENTS ON DISPLAY

We are subject to the informational requirements of the Exchange Act and accordingly file reports and other information with the Securities and Exchange Commission.  You may inspect and copy our reports and other information we file with the Securities and Exchange Commission at the public reference facilities maintained by the Securities and Exchange Commission. Copies of such material may also be obtained at prescribed rates by writing to the Public Reference Section of the Securities and Exchange Commission at 100 F Street, NE, Washington, D.C. 20549.  Please call 1-800-SEC-0330 for information on the location and operation of the Securities and Exchange Commission’s public reference facilities.  Our filings with the Securities and Exchange Commission are also available to the public over the internet at its website at http://www.sec.gov.

I. SUBSIDIARY INFORMATION

Not applicable.

ITEM 11.  QUALITATIVE AND QUANTITATIVE DISCLOSURES ABOUT MARKET RISK

Our market risk exposures primarily consist of fluctuations in oil and gas prices, exchange rates and interest rates.

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Commodity Price Risks

We are exposed to fluctuations in prices of crude oil.  International oil prices are volatile and this volatility has a significant effect on our net sales and profit. We do not hedge market risk resulting from fluctuations in oil prices. See “Item 4—Information on the Company—Business Overview—Overview” and “Item 3—Key Information—Risk Factors—Risks Relating to Our Operations—Our business, revenues and profits fluctuate with changes in oil and gas prices.”

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.  During the ten years prior to 2005, the PRC government’s policy of maintaining a stable exchange rate and China’s ample foreign reserves had contributed to the stability of Renminbi.  On July 21, 2005, China reformed its exchange rate regime by adopting a managed floating exchange rate approach that is based on market supply and demand and with reference to a basket of currencies.  Renminbi is no longer pegged to U.S. dollars.  From January 1, 2010 to March 31, 2011, Renminbi appreciated approximately 4.1% against U.S. dollar. However, the Chinese government has not yet determined if or when the exchange rate will be deregulated.

Our management has assessed our exposure to foreign currency risk using a sensitivity analysis.  Based on a five percent change in the value of the U.S. dollar occurring on December 31, 2010, the exposure of our results of operations, monetary assets and liabilities and investments in foreign subsidiaries would each be less than 0.8% of our profit for the year.

The appreciation of Renminbi against U.S. dollar may have the following impact on us:

·       Our oil and gas sales may decrease, because the benchmark oil and gas prices are usually in U.S. dollars;

·       Our cost for imported equipment and materials will decrease, because most of these costs are denominated in U.S. dollars; and

·       Our debt repayment burden will decrease, since all of our debt is denominated in U.S. dollars.

For further information on our currency risk, see “Item 3—Key Information—Risk Factors—Risks Relating to the PRC—Government control of currency conversion and future movements in exchange rates may adversely affect our operations and financial condition.”

Interest Rate Risk

We are exposed to interest rate risk arising from our debts.  An upward fluctuation in interest rates increases the cost of new debt and the cost of servicing our floating rate debt.  We may use interest rate swap transactions, from time to time, to hedge our interest rate exposure when considered appropriate, based on existing and anticipated market conditions.

As of December 31, 2010, the interest rates for 25% of our outstanding debts were fixed.  The term of the weighted average balance was approximately 2.7 years.  A fixed interest rate can reduce the volatility of finance costs in uncertain markets. We do not currently engage in any interest rate hedging activities.

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As of December 31, 2010, the interest rates for 49.4% of our total outstanding long-term debts were fixed. The following table sets forth additional information about the expected maturity dates of our outstanding long-term debt as of December 31, 2010.

	2011	2012	2013	2014	2015	2016 and after	Total	Fair value as of December 31, 2010
	(Rmb in millions, except percentages)
Long-term loans, including current portion
Fixed rate	152.9	185.2	136.3	103.9	60.2	124.9	763.4	776.7
Average interest rate	5.84%	5.97%	6.21%	6.77%	7.67%	8.25%
Floating rate	4,869.7	787.5	432.3	277.5	309.7	1,912.4	8,589.1	9,410.3
Interest rate	Libor + 0.23%~5.5%	Libor + 0.23%~5.5%	Libor +  0.23%~5.5%	Libor + 0.23%~5.5%	Libor +  0.23%~5.5%	Libor +  0.23%~5.5%
Long-term guaranteed notes, including current portion
Fixed rate	163.4	3,474.8	1,324.5	-	-	2,649.1	7,611.8	8,038.7
Average interest rate	5.93%	5.74%	5.70%	6.09%	6.09%	6.09%

For additional discussions of our market risks, see “Item 3—Key Information—Risk Factors.”

ITEM 12.  DESCRIPTION OF SECURITIES OTHER THAN EQUITY SECURITIES

A. DEBT SECURITIES

Not applicable.

B. WARRANTS AND RIGHTS

Not applicable.

C. OTHER SECURITIES

Not applicable.

D. AMERICAN DEPOSITARY SHARES

JPMorgan Chase Bank, N.A. is our Depositary.  The depositary’s office is located at 4 New York Plaza, New York, NY 10004. Each of our ADSs represents 100 shares of par value HK$0.02 per share.

ADR Fees Payable by Investors

The Depositary may charge each person to whom ADRs are issued against deposits of shares, including deposits in respect of share distributions, rights and other distributions, and each person surrendering ADRs for withdrawal of deposited securities (including, without limitation, on the termination of the deposit agreement), US$5.00 for each 100 ADSs (or portion thereof) evidenced by the ADRs delivered or surrendered.

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The charges of the Depositary payable by investors are as follows:

Category (as defined by SEC)	Depositary Actions	Associated Fee
(a)  Depositing or substituting the underlying shares	Each person to whom ADRs are issued against deposits of Shares, including deposits and issuances in respect of: · Share distributions, stock split, rights, merger · Exchange of securities or any other transaction or event or other distribution affecting the ADSs or the Deposited Securities	US$5.00 for each 100 ADSs (or portion thereof) evidenced by the new ADRs delivered
(b)  Withdrawing an underlying security	Acceptance of ADRs surrendered for withdrawal of deposited securities	US$5.00 for each 100 ADSs (or portion thereof) evidenced by the ADRs surrendered

Payments Received by Foreign Private Issuer

The Depositary has agreed to reimburse certain company expenses related to our ADS program and incurred by us in connection with the program. The Depositary reimbursed us, or paid amounts on our behalf to third parties, or waived its fees and expenses, of US$487,846.51 for the year ended December 31, 2010.

Direct Payments

The table below sets forth the types of expenses that the Depositary has agreed to reimburse, and the invoices relating to the year ended December 31, 2010 that were reimbursed:

Category of Expenses	Amount Reimbursed for Fiscal Year Ended December 31, 2010 (US$)
NYSE Listing fees		38,000
Investor relations(1)		118,190
Legal expenses		79,091
Broker reimbursements(2)		102,564
Total		337,846

(1) Includes United States depositary receipt training and investor relations expenses for road show in 2009.

(2) Broker reimbursements are fees payable to Broadridge and other service providers for the distribution of hard copy material to beneficial ADR holders in the Depositary Trust Company. Corporate material includes information related to shareholders’ meetings and related voting instruction cards. These fees are SEC approved.

Indirect Payments

The Depositary has also agreed to waive fees for standard costs associated with the administration of the ADS program and has paid certain expenses directly to third parties on our behalf. The table below sets forth those expenses that the Depositary waived or paid directly to third parties relating to the year ended December 31, 2010:

Category of Expenses	Amount Reimbursed for Fiscal Year Ended  December 31, 2010 (US$)
Fees waived		150,000

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PART  II

ITEM 13.  DEFAULTS, DIVIDEND ARREARAGES AND DELINQUENCIES

None.

ITEM 14.  MATERIAL MODIFICATIONS TO THE RIGHTS OF SECURITY HOLDERS AND USE OF PROCEEDS

A. MATERIAL MODIFICATIONS TO THE INSTRUMENTS DEFINING THE RIGHTS OF SECURITY HOLDERS

None.

B. MATERIAL MODIFICATIONS TO THE RIGHTS OF REGISTERED SECURITIES BY ISSUING OR MODIFYING ANY OTHER CLASS OF SECURITIES

None.

C. WITHDRAWAL OR SUBSTITUTION OF A MATERIAL AMOUNT OF THE ASSETS SECURING ANY REGISTERED SECURITIES

Not applicable.

D. CHANGE OF TRUSTEES OR PAYING AGENTS FOR ANY REGISTERED SECURITIES

Not applicable.

E. USE OF PROCEEDS

Not applicable.

ITEM 15.  CONTROLS AND PROCEDURES

(a)           Disclosure Controls and Procedures

An evaluation was carried out under the supervision and with the participation of management, including our Chief Executive Officer and Chief Financial Officer, of the effectiveness, as of December 31, 2010, of the design and operation of our disclosure controls and procedures (as defined in Rule 13a-15(e) under the Securities Exchange Act of 1934, as amended, or the Exchange Act).

Based upon this evaluation, our Chief Executive Officer and Chief Financial Officer concluded that, as of December 31, 2010, our disclosure controls and procedures were effective to ensure that information required to be disclosed by us in our reports filed or submitted under the Exchange Act is recorded, processed, summarized and reported as and when required by the SEC’s rules and forms and is accumulated and communicated to our management, including our Chief Executive Officer and Chief Financial Officer, as appropriate to allow timely decisions regarding required disclosure.

(b)           Management’s annual report on internal control over financial reporting

Our management is responsible for establishing and maintaining adequate internal control over financial reporting, as defined in Rule 13a-15(f) under the Exchange Act.

Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.

Our management assessed the effectiveness of our internal control over financial reporting as of December 31, 2010 using the criteria set forth in Internal Control – Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO). Based on this assessment, our management has concluded that our internal control over financial reporting as of December 31, 2010 was effective.

100

(c)           Attestation Report of the Registered Public Accounting Firm

Our independent auditors have issued an audit report on the effectiveness of our internal control over financial reporting. This report appears on page F-4.

(d)           Changes in Internal Control over Financial Reporting

There were no changes in our internal control over financial reporting that occurred during the year ended December 31, 2010 that have materially affected, or that were reasonably likely to materially affect, our internal control over financial reporting.

ITEM 16A.  AUDIT COMMITTEE FINANCIAL EXPERT

Mr. Aloysius Hau Yin Tse has been designated by our Board as an audit committee financial expert.  Mr. Tse is independent as defined in the listing standards of the New York Stock Exchange.

ITEM 16B.  CODE OF ETHICS

Our Board adopted a code of ethics to provide guidelines to our senior management and directors in legal and ethical matters as well as the sensitivities involved in reporting illegal and unethical matters.  Such code of ethics covers such areas as supervisory rules, insider dealing, market malpractices, conflict of interests, company opportunities, protection and proper use of our assets as well as reporting requirements.  Pursuant to new provisions of the Hong Kong Stock Exchange Listing Rules effective January 1, 2010, we reviewed our code of ethics and adopted the revised code of ethics, or the New Code of Ethics, in August 2010, as part of our continuing efforts to improve our corporate governance standard.

We have provided all our directors and senior officers with a copy of the New Code of Ethics and require them to comply with it in order to ensure our operations are proper and lawful.  We will take disciplinary actions against any act which is in breach of the New Code of Ethics.  Any change or waiver, explicit or implicit, with respect to our New Code of Ethics, must be disclosed to our shareholders either in our annual report or on our internet website, www.cnoocltd.com.

We have posted our code of ethics on our website. To request a copy of our code of ethics free of charge, please contact Mr. Cao Yan, our investor relations manager, by email to caoyan@cnooc.com.cn.

ITEM 16C.  PRINCIPAL ACCOUNTANT FEES AND SERVICES

Audit Fees

The aggregate fees billed for professional services rendered by our principal accountants for the audit of our annual financial statements or services that are normally provided by the accountants in connection with statutory and regulatory filings or engagements were Rmb 15.4 million for 2009 and Rmb 17.7 million (US$2.7 million) for 2010.

Audit-Related Fees

The aggregate fees billed for assurance and related services by our principal accountants that are reasonably related to the performance of the audit or review of financial statements and are not reported under “Audit Fees” were Rmb 1.1 million for 2009 and Rmb 1.6 million (US$0.2 million) for 2010.

Tax Fees

The aggregate fees billed for professional service rendered by the principal accountant for tax compliance, tax advice and tax planning were approximately Rmb 0.05 million for 2009 and Rmb 0.41 million (US$0.06 million) for 2010.

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All Other Fees

The aggregate fees billed for professional services rendered by our principle accountant for risk management advisory services and information systems reviews were Rmb 1.5 million for 2009 and Rmb 0.42 million (US$0.06 million) for 2010.

The aggregate fees billed for products and services provided by our principal accountant, other than the services reported above, were nil for fiscal years 2009 and 2010.

Audit Committee’s pre-approval policies and procedures

Our audit committee under our Board is responsible for the appointment, compensation and oversight of the work of our principal accountant.Our audit committee adopted a policy calling for the audit committee’s pre-approval for the engagement of our principal accountant for audit and permitted non-audit services.  Our Board has also ratified the policy and procedures.  Under this audit committee policy, proposed services may be pre-approved by our audit committee either on an annual basis or on a case-by-case basis.  Appendices to the audit committee policy set forth (1) the audit, audit-related, tax and other services that may be subject to the general annual pre-approval of the audit committee; and (2) a list of prohibited non-audit services.  Our audit committee will periodically review and revise these appendices based on its subsequent determinations.  The audit committee policy also provides for procedures to establish annual fee levels or budgets for pre-approved services and ratios between different categories of pre-approved services.  In addition, the audit committee policy contains provisions that deal with compliance, monitoring, reporting and other related matters.

During 2010, all fees for audit-related services, tax services and all other services paid to our principal accountant were approved by our audit committee.

ITEM 16D.  EXEMPTIONS FROM THE LISTING STANDARDS FOR AUDIT COMMITTEES

Not applicable.

ITEM 16E.  PURCHASES OF EQUITY SECURITIES BY THE ISSUER AND AFFILIATED PURCHASERS

None.

ITEM 16F.  CHANGE IN REGISTRANT’S CERTIFYING ACCOUNTANT

Not applicable.

ITEM 16G.  CORPORATE GOVERNANCE

See “Item 6—Directors, Senior Management and Employees—Board Practice—Summary of Significant Differences in Corporate Governance Practices for Purposes of Section 303A.11 of the New York Stock Exchange Listed Company Manual.”

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PART  III

ITEM 17. FINANCIAL STATEMENTS

Not applicable.

ITEM 18. FINANCIAL STATEMENTS

See pages beginning on page F-1 following Item 19.

ITEM 19. EXHIBITS

The following documents are filed as part of this annual report:

Exhibit Number	Document
1.1	Articles of Association of the Registrant, as amended in 2009.
1.2	Memorandum of Association of the Registrant, incorporated by reference to Exhibit 3.2 to our Registration Statement on Form F-1 filed with the Securities and Exchange Commission (File Number: 333-10862).
2.1	Form of Indenture, incorporated by reference to Exhibit 2.1 to our annual report on Form 20-F for fiscal year 2002 filed with the Securities and Exchange Commission (File Number: 1-14966).
2.2	Trust Deed dated December 15, 2004 among CNOOC Limited, CNOOC Finance (2004) Limited and J.P. Morgan Corporate Trustee Services Limited, incorporated by reference to Exhibit 2.2 to our annual report on Form 20-F for fiscal year 2004 filed with the Securities and Exchange Commission (File Number: 1-14966).
2.3	Indentures dated January 26, 2011 among CNOOC Finance (2011) Limited, as Issuer, CNOOC Limited, as Guarantor, and The Bank of New York Mellon, as Trustee*.
4.1	The Asset Swap Agreement dated July 20, 1999 between CNOOC and Offshore Oil Company Limited, incorporated by reference to Exhibit 10.1 to our Registration Statement on Form F-1 filed with the Securities and Exchange Commission (File Number: 333-10862).
4.2	The Asset Allocation Agreement dated July 20, 1999 between CNOOC and Offshore Oil Company Limited, incorporated by reference to Exhibit 10.2 to our Registration Statement on Form F-1 filed with the Securities and Exchange Commission (File Number: 333-10862).
4.3	The Reorganization Agreement dated September 13, 1999 between CNOOC, Offshore Oil Company Limited and CNOOC Limited, incorporated by reference to Exhibit 10.3 to our Registration Statement on Form F-1 filed with the Securities and Exchange Commission (File Number: 333-10862).
4.4	Form of the Equity Transfer Agreement between CNOOC and CNOOC Limited, incorporated by reference to Exhibit 10.4 to our Registration Statement on Form F-1 filed with the Securities and Exchange Commission (File Number: 333-10862).

* Pursuant to Instruction 2(b)(i) to Item 19 of Form 20-F, we undertake to furnish this document upon request of the Securities and Exchange Commission.

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4.5	Form of the Transfer Agreement dated October 1, 1999 between CNOOC and Offshore Oil Company Limited regarding the transfer of the rights and obligations of CNOOC under the 37 PSCs and one geophysical exploration agreement, incorporated by reference to Exhibit 10.5 to our Registration Statement on Form F-1 filed with the Securities and Exchange Commission (File Number: 333-10862).
4.6	Form of Equity Transfer Agreement between China Offshore Oil East China Sea Corporation and Offshore Oil Company Limited regarding the transfer of the rights and obligations under Joint Venture Contract of Shanghai Petroleum and Natural Gas Company Limited dated July 28, 1992 to Offshore Oil Company Limited, incorporated by reference to Exhibit 10.6 to our Registration Statement on Form F-1 filed with the Securities and Exchange Commission (File Number: 333-10862).
4.7	Transfer Agreement dated September 9, 1999 between CNOOC and Offshore Oil Company Limited regarding the transfer of the rights and obligations of CNOOC under the Natural Gas Sale and Purchase Contract dated December 22, 1992 to Offshore Oil Company Limited, incorporated by reference to Exhibit 10.7 to our Registration Statement on Form F-1 filed with the Securities and Exchange Commission (File Number: 333-10862).
4.8	Transfer Agreement dated September 9, 1999 between CNOOC and Offshore Oil Company Limited regarding the transfer of the rights and obligations of CNOOC under the Natural Gas Sale and Purchase Contract dated November 7, 1992 to Offshore Oil Company Limited, incorporated by reference to Exhibit 10.8 to our Registration Statement on Form F-1 filed with the Securities and Exchange Commission (File Number: 333-10862).
4.9	Transfer Agreement dated September 9, 1999 among CNOOC, Offshore Oil Company Limited, the four PRC subsidiaries and CNOOC’s affiliates regarding the transfer of the rights and obligations of the technical services agreements to Offshore Oil Company Limited, incorporated by reference to Exhibit 10.9 to our Registration Statement on Form F-1 filed with the Securities and Exchange Commission (File Number: 333-10862).
4.10	Nanshan Terminal Leasing Agreement dated September 9, 1999 between CNOOC, Hainan China Oil and Offshore Natural Gas Company and Offshore Oil Company Limited, incorporated by reference to Exhibit 10.10 to our Registration Statement on Form F-1 filed with the Securities and Exchange Commission (File Number: 333-10862).
4.11	Trademark License Agreement dated September 9, 1999 between CNOOC, Offshore Oil Company Limited and CNOOC Limited, incorporated by reference to Exhibit 10.11 to our Registration Statement on Form F-1 filed with the Securities and Exchange Commission (File Number: 333-10862).
4.12	Trademark License Agreement dated September 9, 1999 between China Offshore Oil Marketing Company, CNOOC Limited and Offshore Oil Company Limited, incorporated by reference to Exhibit 10.12 to our Registration Statement on Form F-1 filed with the Securities and Exchange Commission (File Number: 333-10862).
4.13	Trademark License Agreement between CNOOC, CNOOC Limited and CNOOC China Limited, incorporated by reference to Exhibit 4.13 to our Annual Report on Form 20-F for fiscal year 2008 filed with the Securities and Exchange Commission (File Number: 1-14966).
4.14	Trademark License Agreement between CNOOC, CNOOC Limited and CNOOC China Limited, incorporated by reference to Exhibit 4.14 to our Annual Report on Form 20-F for fiscal year 2008 filed with the Securities and Exchange Commission (File Number: 1-14966).
4.15	Property Leasing Agreement dated September 9, 1999 between Wui Hai Enterprise Company Limited and Offshore Oil Company Limited in respect of the office premises at 6th, 7th and 8th Floors, CNOOC Plaza, No. 6 Dong Zhi Men Wai Xiao Jie, Beijing, incorporated by reference to Exhibit 10.18 to our Registration Statement on Form F-1 filed with the Securities and Exchange Commission (File Number: 333-10862).

104

4.16	Property Leasing Agreement dated September 9, 1999 between China Offshore Oil Western South China Sea Corporation and Offshore Oil Company Limited in respect of the office premises at 1st to 9th Floors, Nantiao Road, Potou District Zhangjiang, Guangdong, incorporated by reference to Exhibit 10.19 to our Registration Statement on Form F-1 filed with the Securities and Exchange Commission (File Number: 333-10862).
4.17	Property Leasing Agreement dated September 9, 1999 between China Offshore Oil Bohai Corporation and Offshore Oil Company Limited in respect of the office premises at 1st to 7th Floors and 9th Floor, 2-37 He Kou Jie, Tanggu District, Tianjin, incorporated by reference to Exhibit 10.20 to our Registration Statement on Form F-1 filed with the Securities and Exchange Commission (File Number: 333-10862).
4.18	Property Leasing Agreement dated September 9, 1999 between China Offshore Oil East China Sea Corporation and Offshore Oil Company Limited in respect of the office premises at 20th, 22nd and 23rd Floors, 583 Ling Ling Road, Shanghai, the PRC, incorporated by reference to Exhibit 10.21 to our Registration Statement on Form F-1 filed with the Securities and Exchange Commission (File Number: 333-10862).
4.19	Property Leasing Agreement dated September 9, 1999 between China Offshore Oil Eastern South China Sea Corporation and Offshore Oil Company Limited in respect of the office premises at 3rd Floor and 6th to 11th Floors, 1 Second Industrial Road, Shekou, Shenzhen, the PRC, incorporated by reference to Exhibit 10.22 to our Registration Statement on Form F-1 filed with the Securities and Exchange Commission (File Number: 333-10862).
4.20	Property Leasing Agreement dated September 9, 1999 between China Offshore Oil Bohai Corporation and Offshore Oil Company Limited in respect of the Chengbei Warehouse, Chengbei Road, Tanggu District, Tianjin City, the PRC, incorporated by reference to Exhibit 10.23 to our Registration Statement on Form F-1 filed with the Securities and Exchange Commission (File Number: 333-10862).
4.21	Property Leasing Agreement dated September 9, 1999 between Overseas Oil & Gas Corporation, Ltd. and China Offshore Oil (Singapore) International Pte Ltd in respect of the residential premises at 10-01 and 17-002 Aquamarine Tower, 50 Bayshore Road, 13-05 Jade Tower, 60 Bayshore Road, Singapore, incorporated by reference to Exhibit 10.24 to our Registration Statement on Form F-1 filed with the Securities and Exchange Commission (File Number: 333-10862).
4.22	Suizhong Pier Agreement dated September 9, 1999 between Offshore Oil Company Limited and China Offshore Bohai Corporation, incorporated by reference to Exhibit 10.25 to our Registration Statement on Form F-1 filed with the Securities and Exchange Commission (File Number: 333-10862).
4.23	Form of Novation Agreement among CNOOC, CNOOC China Limited, the Banks and other financial institution and the Fuji Bank Limited Hong Kong Branch, as agent, in respect of the transfer of the US$110 million syndicated loan, incorporated by reference to Exhibit 10.26 to our Registration Statement on Form F-1 filed with the Securities and Exchange Commission (File Number: 333-10862).
4.24	Form of the Undertaking Agreement between CNOOC and CNOOC Limited, incorporated by reference to Exhibit 10.27 to our Registration Statement on Form F-1 filed with the Securities and Exchange Commission (File Number: 333-10862).
4.25	Form of Pre-Global Offering Share Option Scheme for the Senior Management of CNOOC Limited, incorporated by reference to Exhibit 10.31 to our Registration Statement on Form F-1 filed with the Securities and Exchange Commission (File Number: 333-10862).
4.26	Form of Share Option Scheme for the Senior Management of CNOOC Limited, incorporated by reference to Exhibit 10.32 to our Registration Statement on Form F-1 filed with the Securities and Exchange Commission (File Number: 333-10862).

105

4.27	CNOOC Limited Share Option Scheme adopted on December 31, 2005, incorporated by reference to Exhibit 4.37 to our Annual Report on Form 20-F for fiscal year 2005 filed with the Securities and Exchange Commission (File Number: 1-14966).
4.28	Subscription Agreement dated March 17, 2000 among CNOOC Limited, CNOOC (BVI) Limited, Overseas Oil & Gas Corporation, Ltd., et al., incorporated by reference to Exhibit 10.33 to our Registration Statement on Form F-1 filed with the Securities and Exchange Commission (File Number: 333-10862).
4.29	Subscription Agreement dated May 31, 2000 among CNOOC Limited, CNOOC (BVI) Limited, Overseas Oil & Gas Corporation, Ltd. and Hutchison International Limited, incorporated by reference to Exhibit 10.34 to our Registration Statement on Form F-1 filed with the Securities and Exchange Commission (File Number: 333-10862).
4.30	Subscription Agreement dated May 31, 2000 among CNOOC Limited, CNOOC (BVI) Limited, Overseas Oil & Gas Corporation, Ltd. and Hong Kong Electric Holdings Limited, incorporated by reference to Exhibit 10.35 to our Registration Statement on Form F-1 filed with the Securities and Exchange Commission (File Number: 333-10862).
4.31	Subscription Agreement dated June 28, 2000 among CNOOC Limited, CNOOC (BVI) Limited, Overseas Oil & Gas Corporation, Ltd., et al., incorporated by reference to Exhibit 10.36 to our Registration Statement on Form F-1 filed with the Securities and Exchange Commission (File Number: 333-10862).
4.32	Corporation Placing Agreement dated February 6, 2001 among CNOOC Limited, China National Offshore Oil Corporation, Shell Eastern Petroleum (Pte) Limited and Merrill Lynch Far East Limited, incorporated by reference to Exhibit 10.37 to our Registration Statement on Form F-1 filed with the Securities and Exchange Commission (File Number: 333-10862).
4.33	Equity Transfer Agreement dated September 5, 2003 between CNOOC China Limited and CNOOC (Summary Translation), incorporated by reference to Exhibit 4.38 to our annual report on Form 20-F for fiscal year 2003 filed with the Securities and Exchange Commission (File Number: 1-14966).
4.34	Framework Agreement dated April 8, 2004 with CNOOC Finance Corporation Limited (Summary Translation), incorporated by reference to Exhibit 4.39 to our annual report on Form 20-F for fiscal year 2003 filed with the Securities and Exchange Commission (File Number: 1-14966).
4.35	Framework Agreement dated December 8, 2005 with CNOOC (Summary Translation), incorporated by reference to Exhibit 4.45 to our Annual Report on Form 20-F for fiscal year 2005 filed with the Securities and Exchange Commission (File number: 1-14966).
4.36	Framework Agreement dated December 8, 2005 with China Oilfield Services Limited (Summary Translation), incorporated by reference to Exhibit 4.46 to our Annual Report on Form 20-F for fiscal year 2005 filed with the Securities and Exchange Commission (File number: 1-14966).
4.37	Framework Agreement dated December 8, 2005 with Offshore Oil Engineering Co., Ltd. (Summary Translation), incorporated by reference to Exhibit 4.47 to our Annual Report on Form 20-F for fiscal year 2005 filed with the Securities and Exchange Commission (File number: 1-14966).
4.38	Sale and Purchase Agreement, dated January 8, 2006 between CNOOC Exploration & Production Limited and South Atlantic Petroleum Limited (certain statements, marked with an asterisk in brackets [*], have been omitted from this agreement pursuant to a request for confidential treatment pursuant to Rule 24b-2 under the Securities Exchange Act of 1934, as amended, and the omitted materials have been filed separately in paper form with the Securities and Exchange Commission), incorporated by reference to Exhibit 4.49 to our Annual Report on Form 20-F for fiscal year 2005 filed with the Securities and Exchange Commission (File number: 1-14966).

106

4.39	Framework Agreement dated November 8, 2007 with China BlueChemical Ltd. (Summary Translation), incorporated by reference to Exhibit 4.37 to our Annual Report on Form 20-F for fiscal year 2007 filed with the Securities and Exchange Commission (File number: 1-14966).
4.40	Framework Agreement dated November 8, 2007 with CNOOC (Summary Translation), incorporated by reference to Exhibit 4.38 to our Annual Report on Form 20-F for fiscal year 2007 filed with the Securities and Exchange Commission (File number: 1-14966).
4.41	Framework Agreement dated November 8, 2007 with China Oilfield Services Limited (Summary Translation), incorporated by reference to Exhibit 4.39 to our Annual Report on Form 20-F for fiscal year 2007 filed with the Securities and Exchange Commission (File number: 1-14966).
4.42	Framework Agreement dated November 8, 2007 with Offshore Oil Engineering Co., Ltd. (Summary Translation), incorporated by reference to Exhibit 4.40 to our Annual Report on Form 20-F for fiscal year 2007 filed with the Securities and Exchange Commission (File number: 1-14966).
4.43	Framework Agreement dated November 1, 2010 with CNOOC (Summary Translation).
8.1	List of Subsidiaries.
10.1	Letter from CNOOC Limited dated May 23, 2002 regarding receipt of certain representations from Arthur Andersen & Co pursuant to the requirements of the Securities and Exchange Commission, incorporated by reference to Exhibit 10 to our annual report on Form 20-F for fiscal year 2001 filed with the Securities and Exchange Commission (File Number: 1-14966).
11.1	Code of Ethics for Directors and Senior Officers, as amended in 2010.
12.1	Certification by the Chief Executive Officer in accordance with Section 302 of the Sarbanes-Oxley Act of 2002.
12.2	Certification by the Chief Financial Officer in accordance with Section 302 of the Sarbanes-Oxley Act of 2002.
13.1	Sarbanes-Oxley Act of 2002 Section 906 Certification furnished to (not filed with) the Securities and Exchange Commission.
15.1	2010 Reserves Reports of Ryder Scott Company, L.P.
15.2	2010 Reserves Report of Gaffney, Cline & Associates (Consultants) Pte Ltd.
15.3	2010 Reserves Report of RPS.

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SIGNATURE

The registrant hereby certifies that it meets all of the requirements for filing on Form 20-F and that it has duly caused and authorized the undersigned to sign this annual report on its behalf.

	CNOOC Limited
	By:	/s/ Yongzhi Jiang
		Name: Yongzhi Jiang
		Title:   Joint Company Secretary
Date: April 29, 2011

CNOOC LIMITED

CONSOLIDATED FINANCIAL STATEMENTS

FOR THE YEARS ENDED DECEMBER 31, 2008, 2009 AND 2010

TOGETHER WITH REPORT OF INDEPENDENT PUBLIC ACCOUNTING FIRM

F-1

INDEX TO FINANCIAL STATEMENTS

	Page
CNOOC LIMITED
Report of independent registered public accounting firm on financial statements	F-3
Report of independent registered public accounting firm on internal control over financial reporting	F-4
Consolidated statements of comprehensive income for the years ended December 31, 2008, 2009 and 2010	F-5
Consolidated statements of financial position as of December 31, 2009 and 2010	F-6
Consolidated statements of changes in equity for the years ended December 31, 2008, 2009 and 2010	F-7
Consolidated statements of cash flows for the years ended December 31, 2008, 2009 and 2010	F-9
Notes to the consolidated financial statements	F-10

F-2

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM ON FINANCIAL STATEMENTS

To the Board of Directors and Shareholders of CNOOC Limited

(Incorporated in Hong Kong with limited liability)

We have audited the accompanying consolidated statements of financial position of CNOOC Limited (the “Company”) and its subsidiaries (the “Group”) as of December 31, 2010 and 2009, and the related consolidated statements of comprehensive income, statements of changes in equity and statements of cash flows for each of the three years in the period ended December 31, 2010.  These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on these financial statements based on our audits.

We conducted our audit in accordance with the standards of the Public Company Accounting Oversight Board (United States) and Hong Kong Standards on Auditing issued by the Hong Kong Institute of Certified Public Accountants. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement.  An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.

In our opinion, the financial statements referred to above present fairly, in all material respects, the consolidated financial position of the Group at December 31, 2010 and 2009 and the consolidated results of their operations and their cash flows for each of the three years in the period ended December 31, 2010, in conformity with International Financial Reporting Standards as issued by the International Accounting Standards Board and Hong Kong Financial Reporting Standards as issued by the Hong Kong Institute of Certified Public Accountants.

We have also audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), the Group’s internal control over financial reporting as of December 31, 2010, based on criteria established on Internal Control-Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission and our report dated March 23, 2011 expressed an unqualified opinion thereon.

/S/ Ernst & Young

Certified Public Accountants

Hong Kong

March 23, 2011

F-3

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM ON INTERNAL CONTROL OVER FINANCIAL REPORTING

The Board of Directors and Shareholders of CNOOC Limited

(Incorporated in Hong Kong with limited liability)

We have audited CNOOC Limited’s internal control over financial reporting as of December 31, 2010, based on criteria established in Internal Control—Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (the COSO criteria). CNOOC Limited’s management is responsible for maintaining effective internal control over financial reporting, and for its assessment of the effectiveness of internal control over financial reporting included in the accompanying “Management’s annual report on internal control over financial reporting”. Our responsibility is to express an opinion on the company’s internal control over financial reporting based on our audit.

We conducted our audit in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether effective internal control over financial reporting was maintained in all material respects. Our audit included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, testing and evaluating the design and operating effectiveness of internal control based on the assessed risk, and performing such other procedures as we considered necessary in the circumstances. We believe that our audit provides a reasonable basis for our opinion.

A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company’s internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use or disposition of the company’s assets that could have a material effect on the financial statements.

Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.

In our opinion, CNOOC Limited maintained, in all material respects, effective internal control over financial reporting as of December 31, 2010, based onthe COSO criteria.

We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), the consolidated statements of financial position of CNOOC Limited as of December 31, 2010 and 2009, and the related consolidated statements of comprehensive income, statements of changes in equity and statements of cash flows for each of the three years in the period ended December 31, 2010 of CNOOC Limited and our report dated March 23, 2011 expressed an unqualified opinion thereon.

/S/ Ernst & Young

Certified Public Accountants

Hong Kong

March 23, 2011

F-4

CNOOC LIMITED

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

FOR THE YEARS ENDED DECEMBER 31, 2008, 2009 AND 2010

		2008			2009			2010			2010
	Notes	RMB’000			RMB’000			RMB’000			US$’000
REVENUE
Oil and gas sales	6		100,831,333			83,914,379			149,118,670			22,593,738
Marketing revenues			22,966,752			20,751,961			32,445,867			4,916,040
Other income			2,179,297			528,737			1,488,548			225,538
			125,977,382			105,195,077			183,053,085			27,735,316
EXPENSES
Operating expenses			( 9,990,368	)		( 12,490,363	)		( 16,204,099	)		( 2,455,167	)
Taxes other than income tax	12 (ii)		( 5,149,698	)		( 3,888,641	)		( 8,204,043	)		( 1,243,037	)
Exploration expenses			( 3,409,546	)		( 3,233,683	)		( 5,579,864	)		( 845,434	)
Depreciation, depletion and amortization	8		( 10,057,665	)		( 15,942,902	)		( 27,687,095	)		( 4,195,014	)
Special oil gain levy	7		( 16,238,234	)		( 6,357,304	)		( 17,705,577	)		( 2,682,663	)
Impairment and provision	20, 21		( 1,541,458	)		( 6,903	)		( 26,536	)		( 4,021	)
Crude oil and product purchases			( 22,675,049	)		( 20,455,217	)		( 32,236,448	)		( 4,884,310	)
Selling and administrative expenses			( 1,742,597	)		( 2,263,957	)		( 3,062,608	)		( 464,031	)
Others			( 1,307,613	)		( 231,527	)		( 941,467	)		( 142,647	)
			( 72,112,228	)		( 64,870,497	)		( 111,647,737	)		( 16,916,324	)
PROFIT FROM OPERATING ACTIVITIES			53,865,154			40,324,580			71,405,348			10,818,992
Interest income	8		1,091,024			638,252			703,849			106,644
Finance costs	9		( 415,271	)		( 534,539	)		( 1,222,023	)		( 185,155	)
Exchange gains, net	8		2,551,260			53,799			994,795			150,727
Investment income	8		475,925			199,925			427,491			64,771
Share of profits of associates			374,111			173,459			198,854			30,129
Non-operating income/(expenses), net			( 61,917	)		( 34,385	)		141,677			21,466
PROFIT BEFORE TAX	8		57,880,286			40,821,091			72,649,991			11,007,574
Income tax expense	12(i)		( 13,505,032	)		( 11,335,516	)		( 18,240,443	)		( 2,763,703	)
PROFIT FOR THE YEAR ATTRIBUTABLE TO OWNERS OF THE PARENT			44,375,254			29,485,575			54,409,548			8,243,871
OTHER COMPREHENSIVE INCOME/(LOSS)
Exchange differences on translation of foreign operations			( 5,074,423	)		( 158,312	)		( 2,496,081	)		( 378,194	)
Net gain/(loss) on available-for-sale financial assets, net of tax	19		10,310			( 73,736	)		5,590,380			847,027
Share of other comprehensive income of associates			4,316			6,979			2,752			417
OTHER COMPREHENSIVE INCOME/(LOSS) FOR THE YEAR, NET OF TAX			( 5,059,797	)		( 225,069	)		3,097,051			469,250
TOTAL COMPREHENSIVE INCOME FOR THE YEAR ATTRIBUTABLE TO OWNERS			39,315,457			29,260,506			57,506,599			8,713,121
EARNINGS PER SHARE ATTRIBUTABLE TO ORDINARY EQUITY HOLDERS OF THE PARENT
Basic	14	RMB0.99			RMB0.66			RMB1.22				US$0.18
Diluted	14	RMB0.99			RMB0.66			RMB1.21				US$0.18

The accompanying notes are an integral part of these financial statements.

F-5

CNOOC LIMITED

CONSOLIDATED STATEMENTS OF FINANCIAL POSITION

AS OF DECEMBER 31, 2009 AND 2010

		2009		2010		2010
	Notes	RMB’000		RMB’000		US$’000
NON-CURRENT ASSETS
Property, plant and equipment	15		165,319,871		212,330,626		32,171,307
Intangible assets and goodwill	16		1,230,127		3,022,201		457,909
Investments in associates	17		1,726,806		1,781,090		269,862
Available-for-sale financial assets	19, 33		3,119,955		8,703,726		1,318,746
Other non-current assets			-		1,435,781		217,543
Total non-current assets			171,396,759		227,273,424		34,435,367
CURRENT ASSETS
Inventories and supplies	20		3,145,855		4,076,296		617,621
Trade receivables	21		6,397,601		10,865,442		1,646,279
Due from related companies			6,952,572		9,548,246		1,446,704
Held-to-maturity financial assets			-		3,040,200		460,636
Available-for-sale financial assets	19, 33		8,582,364		18,939,974		2,869,693
Other current assets			2,308,035		2,636,015		399,396
Time deposits with maturity over three months	22		20,870,000		11,975,623		1,814,488
Cash and cash equivalents	22		22,615,037		39,571,023		5,995,610
Total current assets			70,871,464		100,652,819		15,250,427
CURRENT LIABILITIES
Loans and borrowings	25		122,092		21,630,674		3,277,375
Trade and accrued payables	23		7,544,830		10,222,389		1,548,847
Due to the parent company			368,464		306,637		46,460
Due to related companies			8,062,810		8,328,088		1,261,832
Other payables and accrued liabilities	24		9,405,093		17,853,579		2,705,087
Taxes payable			5,538,661		11,068,719		1,677,079
Total current liabilities			31,041,950		69,410,086		10,516,680
NET CURRENT ASSETS			39,829,514		31,242,733		4,733,747
TOTAL ASSETS LESS CURRENT LIABILITIES			211,226,273		258,516,157		39,169,114
NON-CURRENT LIABILITIES
Loans and borrowings	25		18,570,061		11,716,049		1,775,159
Provision for dismantlement	26		11,281,089		16,026,805		2,428,304
Deferred tax liabilities	12(i)		7,439,620		13,122,064		1,988,191
Other non-current liabilities			-		1,885,292		285,650
Total non-current liabilities			37,290,770		42,750,210		6,477,304
Net assets			173,935,503		215,765,947		32,691,810
EQUITY
Equity attributable to owners of the parent
Issued capital	27		949,299		949,299		143,833
Reserves	28		172,986,204		214,816,648		32,547,977
Total equity			173,935,503		215,765,947		32,691,810

The accompanying notes are an integral part of these financial statements.

F-6

CNOOC LIMITED

CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY

FOR THE YEARS ENDED DECEMBER 31, 2008, 2009 AND 2010

	Attributable to owners of the parent
	Issued capital		Share  premium  and capital  redemption  reserve			Cumulative  translation  reserve			Statutory and non- distributable  reserves			Other  reserves			Retained  earnings			Proposed  final dividend			Total
	RMB’000		RMB’000			RMB’000			RMB’000			RMB’000			RMB’000			RMB’000			RMB’000
At  January 1, 2008		942,541		41,043,786			(5,632,454	)		20,000,000			4,848,022			66,060,398			7,052,445			134,314,738
Total comprehensive income for the year		-		-			(5,074,423	)		-			14,626			44,375,254			-			39,315,457
2007 final dividend		-		-			-			-			-			230,915			(7,052,445	)		(6,821,530	)
2008 interim dividend		-		-			-			-			-			(7,830,243	)		-			(7,830,243	)
Proposed 2008 final dividend		-		-			-			-			-			(7,878,753	)		7,878,753			-
Conversion from bonds**		6,732		1,080,461			-			-			-			-			-			1,087,193
Excercise of share options		26		4,848			-			-			-			-			-			4,874
Equity-settled share option expense		-		-			-			-			167,219			-			-			167,219
Appropriation and utilization of safety fund, net		-		-			-			-			33,831			(33,831	)		-			-
At December 31, 2008		949,299		42,129,095	*		(10,706,877	)*		20,000,000	*		5,063,698	*		94,923,740	*		7,878,753	*		160,237,708
At January 1, 2009		949,299		42,129,095			(10,706,877	)		20,000,000			5,063,698			94,923,740			7,878,753			160,237,708
Total comprehensive income for the year		-		-			(158,312	)		-			( 66,757	)		29,485,575			-			29,260,506
2008 final dividend		-		-			-			-			-			5,360			(7,878,753	)		(7,873,393	)
2009 interim dividend		-		-			-			-			-			(7,873,661	)		-			(7,873,661	)
Proposed 2009 final dividend		-		-			-			-			-			(7,855,526	)		7,855,526			-
Equity-settled share option expense		-		-			-			-			184,343			-			-			184,343
Appropriation and utiliazation of safety fund, net		-		-			-			-			( 8,679	)		8,679			-			-
At December 31, 2009		949,299		42,129,095	*		(10,865,189	)*		20,000,000	*		5,172,605	*		108,694,167	*		7,855,526	*		173,935,503

F-7

CNOOC LIMITED

CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY

FOR THE YEARS ENDED DECEMBER 31, 2008, 2009 AND 2010

	Attributable to owners of the parent
	Issued capital		Share  premium  and capital  redemption  reserve			Cumulative  translation  reserve			Statutory and  non- distributable  reserves			Other reserves			Retained earnings			Proposed final dividend			Total
	RMB’000		RMB’000			RMB’000			RMB’000			RMB’000			RMB’000			RMB’000			RMB’000
At January 1, 2010		949,299		42,129,095			( 10,865,189	)		20,000,000			5,172,605			108,694,167			7,855,526			173,935,503
Total comprehensive income for the year		-		-			( 2,496,081	)		-			5,593,132			54,409,548			-			57,506,599
2009 final dividend		-		-			-			-			-			61,733			(7,855,526	)		(7,793,793	)
2010 interim dividend		-		-			-			-			-			(8,099,995	)		-			(8,099,995	)
Proposed 2010 final dividend		-		-			-			-			-			(9,421,069	)		9,421,069			-
Equity-settled share option expense		-		-			-			-			217,633			-			-			217,633
Appropriation and utilization of safety fund, net		-		-			-			-			(11,659	)		11,659			-			-
At December 31, 2010		949,299		42,129,095	*		( 13,361,270	)*		20,000,000	*		10,971,711	*		145,656,043	*		9,421,069	*		215,765,947

* These reserve accounts comprise the consolidated reserves of approximately RMB214,816,648,000 (2009: RMB172,986,204,000, 2008: RMB159,288,409,000) in the consolidated statements of financial position.

** On February 21, 2008, the Group extinguished the outstanding convertible bonds by exercising an early redemption option. The withdrawal of listing of the convertible bonds on the Stock Exchange of Hong Kong Limited (“HKSE”) was effective at the close of business on March 6, 2008. The Group currently has no outstanding convertible bonds.

The accompanying notes are an integral part of these financial statements.

F-8

CNOOC LIMITED

CONSOLIDATED STATEMENTS OF CASH FLOWS

FOR THE YEARS ENDED DECEMBER 31, 2008, 2009 AND 2010

		2008			2009			2010			2010
	Notes	RMB’000			RMB’000			RMB’000			US$’000
CASH FLOWS FROM OPERATING ACTIVITIES
Cash generated from operations	31		67,932,458			58,384,839			98,745,419			14,961,427
Income taxes paid			(15,442,948	)		(8,760,638	)		(15,247,173	)		( 2,310,178	)
Net cash generated from operating activities			52,489,510			49,624,201			83,498,246			12,651,249
CASH FLOWS FROM INVESTING ACTIVITIES
Acquisition of oil and gas properties			(1,003,702	)		(1,016,821	)		(11,308,667	)		( 1,713,434	)
Additions of property, plant and equipment			(33,068,113	)		(39,183,023	)		(29,427,169	)		( 4,458,662	)
Additions of intangible assets			(93,317	)		(193,258	)		(84,892	)		(12,862	)
Acquisition of interest in a jointly-controlled entity	4(i)		-			-			(20,760,607	)		( 3,145,547	)
Decrease/(increase) in time deposits with maturity over three months			(14,100,000	)		430,000			8,894,377			1,347,633
Proceeds from disposal of non-current assets held for sale			1,552,228			-			-			-
Dividends received from associates			624,271			238,787			147,322			22,322
Interest received			1,091,024			764,804			598,392			90,665
Investment income received			75,881			22,382			309,864			46,949
Purchases of long term available-for-sale financial assets			-			(1,572,415	)		-			-
Purchases of current available-for-sale financial assets			(6,490,784	)		(6,080,000	)		(32,129,000	)		( 4,868,030	)
Proceeds from sale of current available-for-sale financial assets			1,920,283			9,257,081			21,881,807			3,315,425
Purchase of held-to-maturity financial assets			-			(3,000,000	)		(6,351,100	)		(962,288	)
Proceeds from disposal of held-to-maturity financial assets			3,000,000			3,000,000			3,310,900			501,652
Proceeds from disposal of property, plant and equipment			756,846			25,439			118,760			17,994
Net cash flows used in investing activities			(45,735,383	)		(37,307,024	)		(64,800,013	)		( 9,818,183	)
CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from financial notes			-			-			677,540			102,658
Proceeds from bank loans			4,803,807			5,306,969			17,245,649			2,612,977
Repayment of bank loans			(249,903	)		(500,000	)		(4,303,789	)		(652,089	)
Dividends paid			(14,651,773	)		(14,175,349	)		(14,389,805	)		( 2,180,273	)
Interest paid			(36,044	)		(34,907	)		(513,785	)		(77,846	)
Proceeds from exercise of share options			4,874			-			-			-
Net cash flows used in financing activities			(10,129,039	)		(9,403,287	)		(1,284,190	)		(194,573	)
NET INCREASE/(DECREASE) IN CASH AND CASH EQUIVALENTS			(3,374,912	)		2,913,890			17,414,043			2,638,493
Cash and cash equivalents at beginning of year			23,356,569			19,761,618			22,615,037			3,426,521
Effect of foreign exchange rate changes, net			(220,039	)		(60,471	)		(458,057	)		(69,404	)
CASH AND CASH EQUIVALENTS AT END OF YEAR	22		19,761,618			22,615,037			39,571,023			5,995,610

The accompanying notes are an integral part of these financial statements.

F-9

CNOOC LIMITED

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(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”) of the People’s Republic of China (the “PRC”) on August 20, 1999 to hold the interests in certain entities thereby creating a group comprising the Company and its subsidiaries (hereinafter collectively referred to as the “Group”). During the year, the Group was principally engaged in the exploration, development, production and sales of crude oil, natural gas and other petroleum products.

The registered office address of the Company is 65/F, Bank of China Tower, 1 Garden Road, Hong Kong.

In the opinion of the directors of the Company (the “Directors”), the parent and the ultimate holding company of the Company is China National Offshore Oil Corporation (“CNOOC”), a company established in the PRC.

Particulars of the principal subsidiaries are as follows:

Name of entity	Place and date of establishment	Nominal value of issued and paid-up/ registered ordinary share capital	Percentage of equity attributable to the Group	Principal activities
Directly held subsidiaries:
CNOOC China Limited	Tianjin, PRC September 15, 1999	RMB20 billion	100%	Offshore petroleum exploration, development, production and sales in the PRC
CNOOC International Limited	British Virgin Islands August 23, 1999	US$2	100%	Investment holding
China Offshore Oil (Singapore) International Pte Ltd	Singapore May 14, 1993	SG$3 million	100%	Sale and marketing of petroleum products outside the PRC
CNOOC Finance (2002) Limited	British Virgin Islands January 24, 2002	US$1,000	100%	Bond issuance
CNOOC Finance (2003) Limited	British Virgin Islands April 2, 2003	US$1,000	100%	Bond issuance
CNOOC Finance (2011) Limited	British Virgin Islands December 31, 2010	US$1,000	100%	Bond issuance
Indirectly held subsidiaries*:
Malacca Petroleum Limited	Bermuda November 2, 1995	US$12,000	100%	Petroleum exploration, development and production in Indonesia
OOGC America, Inc.	State of Delaware, United States of America August 28, 1997	US$1,000	100%	Investment holding
OOGC Malacca Limited	Bermuda November 23, 1995	US$12,000	100%	Petroleum exploration, development and production in Indonesia
CNOOC Southeast Asia Limited	Bermuda May 16, 1997	US$12,000	100%	Investment holding
CNOOC ONWJ Ltd.	Labuan, F.T., Malaysia March 27, 2002	US$1	100%	Petroleum exploration, development and production in Indonesia
CNOOC SES Ltd.	Labuan, F.T., Malaysia March 27, 2002	US$1	100%	Petroleum exploration, development and production in Indonesia
CNOOC Poleng Ltd.	Labuan, F.T., Malaysia March 27, 2002	US$1	100%	Petroleum exploration, development and production in Indonesia

F-10

CNOOC LIMITED

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(All amounts expressed in Renminbi unless otherwise stated)

Name of entity	Place and date of establishment	Nominal value of issued and paid-up/ registered ordinary share capital	Percentage of equity attributable to the Group	Principal activities
Indirectly held subsidiaries* (continued):
CNOOC Madura Ltd.	Labuan, F.T., Malaysia March 27, 2002	US$1	100%	Petroleum exploration, development and production in Indonesia
CNOOC NWS Private Limited	Singapore October 8, 2002	SG$2	100%	Offshore petroleum exploration, development and production in Australia
CNOOC Muturi Limited	Isle of Man February 8, 1996	US$7,780,770	100%	Petroleum exploration, development and production in Indonesia
CNOOC Exploration & Production Nigeria Limited	Nigeria January 6, 2006	Naira10 million	100%	Petroleum exploration, development and production in Africa

* 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.

F-11

CNOOC LIMITED

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(All amounts expressed in Renminbi unless otherwise stated)

2.1 STATEMENT OF COMPLIANCE

These financial statements have been prepared in accordance with International Financial Reporting Standards “IFRSs” (which also include International Accounting Standards (“IASs”) and Interpretations) issued by the International Accounting Standards Board (the “IASB”), Hong Kong Financial Reporting Standards “HKFRSs” (which also include Hong Kong Accounting Standards (“HKASs”) and Interpretations) issued by the Hong Kong Institute of Certified Public Accountants (the “HKICPA”), accounting principles generally accepted in Hong Kong and the Hong Kong Companies Ordinance. A summary of the significant accounting policies adopted by the Group is set out below.

2.2 CHANGES IN ACCOUNTING POLICY AND DISCLOSURES

The IASB has issued a number of new and revised IFRSs and IFRIC Interpretations that are first effective for the current accounting year commencing January 1, 2010 or later but available for early adoption. The equivalent new and revised HKFRSs and HKFRS Interpretations consequently issued by the HKICPA have the same effective dates as those issued by the IASB and are in all material aspects identical to the pronouncements issued by the IASB. There have been no other material changes to HKFRSs.

(a) Standards, revisions and amendments to IFRSs and HKFRSs which are applicable to the Group, and have been adopted for the first time for the current year’s financial statements:

IFRS 3/HKFRS 3 (Revised) – Business Combinations

IFRS 3/HKFRS 3 (Revised) introduces significant changes in the accounting for business combinations occurring on or after January 1, 2010. Changes affect the valuation of non-controlling interests, the accounting for transaction costs, the initial recognition and subsequent measurement of a contingent consideration and business combinations achieved in stages. These changes impact the amount of goodwill recognized, the reported results in the period that an acquisition occurs and future reported results. The adoption of the revised standard has no significant impact on the Group.

IAS 27/HKAS 27 (Amended) – Consolidated and Separate Financial Statements

IAS 27/HKAS 27 (Amended) requires that a change in the ownership interest of a subsidiary (without loss of control) is accounted for as a transaction with owners in their capacity as owners. Therefore, such transactions will no longer give rise to goodwill, nor will it give rise to a gain or loss. The Group has not entered into a transaction that involved a change in the ownership interest of a subsidiary (without loss of control) and, therefore, the adoption of the Amendments did not have any impact on its consolidated and separate financial statement.

The changes introduced by the above revised standards have been applied prospectively.

F-12

CNOOC LIMITED

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(All amounts expressed in Renminbi unless otherwise stated)

2.2 CHANGES IN ACCOUNTING POLICY AND DISCLOSURES (continued)

(b) Standards, amendments and revisions which are applicable to the Group, and that are effective for accounting periods beginning on or after January 1, 2011, and will only be adopted by the Group upon or after their respective effective dates:

IFRS 9/HKFRS 9 - Financial Instruments: Classification and Measurement

IFRS 9/HKFRS 9 issued in November 2009 is the first part of Phase I of a comprehensive project to entirely replace IAS 39/HKAS 39 – Financial Instruments: Recognition and Measurement. IFRS 9/HKFRS 9 uses a single approach to determine whether a financial asset is measured at amortized cost or fair value, replacing the many different rules in IAS 39/HKAS 39. The approach in IFRS 9/HKFRS 9 is based on how an entity manages its financial instruments (its business model) and the contractual cash flow characteristics of the financial assets. This new standard will become effective on January 1, 2013. The adoption of the first phase of IFRS 9/HKFRS 9 will have an effect on the classification and measurement of the Group’s financial assets. The Group has not yet determined the extent of the impact of IFRS 9/HKFRS 9.

IAS 24/HKAS 24 (Revised) - Related Party Disclosures

IAS 24/HKAS 24 (Revised) clarifies and simplifies the definition of related parties.  It also provides for a partial exemption of related party disclosure to government-related entities for transactions with the same government or entities that are controlled, jointly controlled or significantly influenced by the same government.  The Group expects to adopt IAS 24/HKAS 24 (Revised) from January 1, 2011 and the comparative related party disclosures will be amended accordingly.

Improvements to IFRSs/HKFRSs

Apart from the above, the IASB/HKICPA has also issued Improvements to IFRSs/HKFRSs which set out amendments to a number of IFRSs/HKFRSs primarily with a view to removing inconsistencies and clarifying wording. The adoption of those amendments upon their effective dates in 2010 did not have any impact on the accounting policies, financial position or performance of the Group. While the adoption of some of the amendments when they will become effective after January 1, 2011 may result in changes in accounting policy, none of them are expected to have a material financial impact on the Group. Besides, the Group has also considered all other IFRICs/HKFRICs issued and they are unlikely to have any financial impact on the Group.

F-13

CNOOC LIMITED

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(All amounts expressed in Renminbi unless otherwise stated)

3. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Basis of preparation

These financial statements have been prepared under the historical cost convention, except for available-for-sale financial assets and derivative financial instruments, which have been measured at fair value. These financial statements are presented in Renminbi (“RMB”) and all values are rounded to the nearest thousand except when otherwise indicated.

Basis of consolidation

The consolidated financial statements include the financial statements of the Company and its subsidiaries for the year ended December 31, 2010.

The results of subsidiaries are consolidated from the date of acquisition being the date on which the Group obtains control and continue to be consolidated until the date that such control ceases. The financial statements of the subsidiaries are prepared for the same reporting period as the parent company, using consistent accounting policies.

The results of subsidiaries are included in the Company’s statement of comprehensive income to the extent of dividends received and receivable. The Company’s interests in subsidiaries are stated at cost less any impairment losses.

All intra-group balances, income and expenses and unrealized gains and losses and dividends resulting from intra-group transactions are eliminated in full.

Business combinations and goodwill

Business combinations are accounted for using the acquisition method. The cost of an acquisition is measured as the aggregate of the consideration transferred, measured at acquisition date fair value and the amount of any non-controlling interest in the acquiree. For each business combination, the acquirer measures the non-controlling interest in the acquiree either at fair value or at the proportionate share of the acquiree’s identifiable net assets. Acquisition costs incurred are expensed and included in administrative expenses.

When the Group acquires a business, it assesses the financial assets and liabilities assumed for appropriate classification and designation in accordance with the contractual terms, economic circumstances and pertinent conditions as at the acquisition date.

In a business combination achieved in stages, the Group shall remeasure its previously held equity interest in the acquiree at its acquisition date fair value and recognize the resulting gain or loss, if any, in profit or loss or other comprehensive income, as appropriate.

Any contingent consideration to be transferred by the acquirer will be recognized at fair value at the acquisition date. Subsequent changes to the fair value of the contingent consideration which is classified as an asset or liability, will be recognized in accordance with IAS 39/HKAS 39 either in profit or loss or as a change to other comprehensive income. If the contingent consideration is classified as equity, it should not be remeasured and its subsequent settlement shall be accounted for within equity.

Goodwill is initially measured at cost being the excess of the aggregate of the consideration transferred and the amount recognized for non-controlling interest over the net identifiable assets acquired and liabilities assumed. If this consideration is lower than the fair value of the net assets of the subsidiary acquired, the difference, after measurement, is recognized in profit or loss.

F-14

CNOOC LIMITED

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(All amounts expressed in Renminbi unless otherwise stated)

3. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)

Business combinations and goodwill（continued）

After initial recognition, goodwill is measured at cost less any accumulated impairment losses. Goodwill is tested for impairment annually or more frequently if events or changes in circumstances indicate that the carrying amount may be impaired. The Group performs its impairment test at each reporting date. For the purpose of impairment testing, goodwill acquired in a business combination is, from the acquisition date, allocated to each of the Group’s cash-generating units that are expected to benefit from thecombination, irrespective of whether other assets or liabilities of the acquiree are assigned to those units.

Impairment is determined by assessing the recoverable amount of the cash-generating unit (group of cash-generating units) to which the goodwill relates. Where the recoverable amount of the cash-generating unit (group of cash-generating units) is less than the carrying amount, an impairment loss is recognized. An impairment loss recognized for goodwill is not reversed in a subsequent period.

Where goodwill forms part of a cash-generating unit and part of the operation within that unit is disposed of, the goodwill associated with the operation disposed of is included in the carrying amount of the operation when determining the gain or loss on disposal of the operation. Goodwill disposed of in this circumstance is measured based on the relative values of the operation disposed of and the portion of the cash-generating unit retained.

Business combinations prior to January 1, 2010 but after January 1, 2005

In comparison to the above-mentioned requirements which were applied on a prospective basis, the following difference applied to business combinations prior to January 1, 2010:

Business combinations were accounted for using the purchase method. Transaction costs directly attributable to the acquisition formed part of the acquisition costs. The non-controlling interest was measured at the proportionate share of the acquiree’s identifiable net assets.

Contingent consideration was recognized if, and only if, the Group had a present obligation, the economic outflow was more likely than not and a reliable estimate was determinable. Subsequent adjustments to the contingent consideration were recognized as part of goodwill.

Subsidiaries

A subsidiary is an entity 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; or over which the Company has a contractual right to exercise a dominant influence with respect to that entity’s financial and operating policies. The results of subsidiaries are included in the Company’s statement of comprehensive income 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 an entity in which the Group has significant influence. The Group’s investments in its associates are accounted for using the equity method of accounting. The investments in the associates are carried in the statement of financial position at cost plus post acquisition changes in the Group’s share of net assets of the associate.

The Group’s share of the post-acquisition results and reserves of the associates are included in the consolidated statement of comprehensive income and consolidated reserves, respectively.

Unrealised gains and losses resulting from transactions between the Group and its associates are eliminated to the extent of the Group’s interests in the associates.

F-15

CNOOC LIMITED

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(All amounts expressed in Renminbi unless otherwise stated)

3. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)

Associates (continued)

The results of associates are included in the Company’s statement ofcomprehensive income to the extent of dividends received and receivable. The Company’s interests in associates are treated as non-current assets and are stated at cost less any impairment losses. Adjustments are made where necessary to bring the accounting policies in line with those of the Group.

Joint ventures

Certain of the Group’s activities are conducted through joint arrangements, including the production sharing arrangements. These arrangements are a form of joint venture whereby a contractual arrangement exists between two or more parties to undertake an economic activity that is subject to joint control. These joint arrangements are included in the consolidated financial statements in proportion to the Group’s interests in the income, expenses, assets and liabilitiesof these arrangements. The financial statements of the joint ventures are prepared for the same reporting period as the parent company. Adjustments are made where necessary to bring the accounting policies in line with those of the Group.

Reimbursement of the joint venture operator’s costs

When the Group acting as an operator receives reimbursement of direct costs recharged to a joint venture, such recharges represent reimbursements of costs that the operator incurred as an agent for the joint venture and therefore have no effect on the consolidated statement of comprehensive income.

In many cases, the Group also incurs certain general overhead expenses in carrying out activities on behalf of the joint venture. As these costs cannot often be specifically identified, joint venture agreements allow the operator to recover the general overhead expenses incurred by charging an overhead fee that is based on a fixed percentage of the total costs incurred for the year. Although the purpose of this recharge is very similar to the reimbursement of direct costs, the Group is not acting as an agent in this case. Therefore, the general overhead expenses and the overhead fee are recognized in the consolidated statement of comprehensive income as an expense and income, respectively.

Jointly-controlled assets

A jointly controlled asset involves joint control and offers joint ownership by the Group and other venturers of assets contributed to or acquired for the purpose of the joint venture, without the formation of a corporation, partnership or other entity.

The Group accounts for its share of the jointly-controlled assets, any liabilities it has incurred, its share of any liabilities jointly incurred with other ventures, income from the sale or use of its share of the joint venture’s output, together with its share of the expenses incurred by the joint venture, and any expenses it incurs in relation to its interest in the joint venture.

Jointly-controlled entities

A jointly-controlled entity is a corporation, partnership or any other entity in which each participant holds an interest. A jointly-controlled entity operates in the same way as other entities, controlling the assets of the joint venture, earning its own income and incurring its own liabilities and expenses. Interests in jointly-controlled entities are accounted for using the proportionate consolidation method. Adjustments are made where necessary to bring the accounting policies in line with those of the Group.

Related parties

A party is considered to be related to the Group if:

(a) the party, directly or indirectly through one or more intermediaries, (i) controls, is controlled by, or is under common control with, the Group; (ii) has an interest in the Group that gives it significant influence over the Group; or (iii) has joint control over the Group;

(b) the party is an associate;

F-16

CNOOC LIMITED

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(All amounts expressed in Renminbi unless otherwise stated)

3. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)

Related parties (continued)

(c) the party is a jointly-controlled entity;

(d) the party is a member of the key management personnel of the Group or its parent;

(e) the party is a close member of the family of any individual referred to in (a) or (d); or

(f) the party is an entity that is controlled, jointly controlled or significantly influenced by or for which significant voting power in such entity resides with, directly or indirectly, any individual referred to in (d) or (e).

Impairment of non-financial assets other than goodwill

Where an indication of impairment exists, or when annual impairment testing for an asset is required (other than inventories, deferred tax assets and financial assets), the asset’s recoverable amount is estimated. An asset’s recoverable amount is calculated as the higher of the asset’s or cash-generating unit’s value in use and its fair value less costs to sell, and is determined for an individual asset, unless the asset does not generate cash inflows that are largely independent of those from other assets or groups of assets, in which case the recoverable amount is determined for the cash-generating unit to which the asset belongs.

An impairment loss is recognized only if the carrying amount of an asset exceeds its recoverable amount. In assessing value in use, the estimated future cash flows are discounted to their present value using a pre-tax discount rate that reflects current market assessments of the time value of money and the risks specific to the asset. An impairment loss is charged to the consolidated statement of comprehensive income in the period in which it arises.

An assessment is made at the end of each reporting period as to whether there is any indication that previously recognized impairment losses may no longer exist or may have decreased. If such an indication exists, the recoverable amount is estimated. A previously recognized impairment loss of an asset other than goodwill is reversed only if there has been a change in the estimates used to determine the recoverable amount of that asset, but not to an amount higher than the carrying amount that would have been determined (net of any depreciation/amortization) had no impairment loss been recognized for the asset in prior years. A reversal of such an impairment loss is credited to the consolidated statement of comprehensive income in the period in which it arises.

Property, plant and equipment

Property, plant and equipment comprise oil and gas properties, and vehicles and office equipment.

(a)  Oil and gas properties

For oil and gas properties, the successful efforts method of accounting is adopted. The Group capitalizes the initial acquisition costs of oil and gas properties. Impairment of initial acquisition costs is recognized 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 expenditures on construction, installation or completion of infrastructure facilities such as platforms, pipelines, processing plants and the drilling of development wells and the building of enhanced recovery facilities, including those renewals and betterments that extend the economic lives of the assets, and the related borrowing costs are capitalized. The costs of unsuccessful exploratory wells and all other exploration costs are expensed as incurred.

F-17

CNOOC LIMITED

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(All amounts expressed in Renminbi unless otherwise stated)

3. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)

Property, plant and equipment (continued)

(a)  Oil and gas properties (continued)

The Group carries exploratory well costs as an asset when the well has found a sufficient quantity of reserves to justify its completion as a producing well and where the Group is making sufficient progress assessing the reserves and the economic and operating viability of the project. Exploratory well costs not meeting these criteria are charged to expenses. 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 the successful completion of further exploratory work remain capitalized and are reviewed periodically for impairment.

Productive oil and gas properties are depreciated on a unit-of-production basis over the proved developed reserves. Common facilities that are built specifically to service production directly attributed to designated oil and gas properties are depreciated based on the proved developed reserves of the respective oil and gas properties on a pro-rata basis. Common facilities that are not built specifically to service identified oil and gas properties are depreciated using the straight-line method over their estimated useful lives. Costs associated with significant development projects are not depreciated until commercial production commences and the reserves related to those costs are excluded from the calculation of depreciation.

Capitalized acquisition costs of proved properties are depreciated on a unit-of-production method over the total proved reserves of the relevant oil and gas properties.

(b) 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.

Where parts of an item of property, plant and equipment have different useful lives, the cost of that item is allocated on a recoverable basis among the parts and each part is depreciated separately.

Residual values, useful lives and the depreciation method are reviewed and, adjusted if appropriate, at each reporting date.

Any gains and losses on disposals of property, plant and equipment (calculated as the difference between the net disposal proceeds and the carrying amount of the asset) are included in the consolidated statement of comprehensive income.

Intangible assets (other than goodwill)

Intangible assets with finite lives are carried at cost, less accumulated amortization and accumulated impairment losses. The cost of intangible assets acquired in a business combination is the fair value as at the date of acquisition. Such intangible assets except for gas processing rights, are amortized on a straight-line basis over the useful economic life and assessed for impairment whenever there is an indication that the intangible asset may be impaired. The amortization period and the amortization method for an intangible asset with a finite useful life are reviewed at least at each financial year end.

The intangible asset regarding the gas processing rights has been amortized upon the commercial production of the liquefied natural gas on a unit-of-production basis over the total proved reserves of the relevant asset. The intangible assets regarding software have been amortized on a straight-line basis over three to five years.

F-18

CNOOC LIMITED

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(All amounts expressed in Renminbi unless otherwise stated)

3. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)

Major maintenance and repairs

Expenditure on major maintenance refits or repairs comprises the cost of replacement assets or parts of assets and overhaul costs. Where an asset or part of an asset that was separately depreciated and is now written off is replaced and it is probable that future economic benefits associated with the item will flow to the Group, the replacement expenditure is capitalized. Where part of the asset was not separately considered as a component, the replacement value is used to estimate the carrying amount of the replaced assets which is immediately written off. All other maintenance costs are expensed as incurred.

Research and development costs

All research costs are expensed as incurred.

Expenditure (other than that relating to oil and gas properties discussed above) incurred on projects to develop new products is capitalized and deferred only when the Group can demonstrate the technical feasibility of completing the intangible asset so that it will be available for use or sale, its intention to complete and its ability to use or sell the asset, how the asset will generate future economic benefits, the availability of resources to complete the project and the ability to measure reliably the expenditure during the development. Product development expenditure which does not meet these criteria is expensed when incurred. No development costs were capitalized during the year.

Financial assets

Initial recognition and measurement

Financial assets within the scope of IAS 39/HKAS 39 are classified as financial assets at fair value through profit or loss, loans and receivables, held-to-maturity investments, and available-for-sale financial assets, as appropriate. The Group determines the classification of its financial assets at initial recognition. When financial assets are recognized initially, they are measured at fair value, plus, in the case of investments not at fair value through profit or loss, directly attributable transaction costs.

Purchases or sales of financial assets that require delivery of assets within a time frame established by regulation or convention in the marketplace (regular way purchases or sales) are recognized on the trade date, that is, the date that the Group commits to purchase or sell the asset.

Subsequent measurement

The subsequent measurement of financial assets depends on their classifications as follows:

(a)   Financial assets at fair value through profit or loss

Financial assets at fair value through profit or loss are financial assets designated upon initial recognition at fair value through profit or loss. This category includes derivative financial instruments entered into by the Group that are not designated as hedging instruments in hedge relationship as defined by IAS 39/HKAS 39. Financial assets at fair value through profit and loss are carried in the statement of financial position at fair value with changes in fair value recognized in “Finance income” or ”Finance costs” in the statement of comprehensive income.

(b)   Loans and receivables

Loans and receivables are non-derivative financial assets with fixed or determinable payments that are not quoted in an active market. Such assets are subsequently carried at amortized cost using the effective interest method less any allowance for impairment. Gains and losses are recognized in the consolidated statement of comprehensive income when the loans and receivables are derecognized or impaired, as well as through the amortization process.

F-19

CNOOC LIMITED

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(All amounts expressed in Renminbi unless otherwise stated)

3. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)

Subsequent measurement (continued)

(c)   Held-to-maturity investments

Non-derivative financial assets with fixed or determinable payments and fixed maturity are classified as held to maturity when the Group has the positive intention and ability to hold to maturity. Held-to-maturity investments are subsequently measured at amortized cost less any allowance for impairment. Amortized cost is computed to the amount initially recognized minus principle repayment, plus or minus the cumulative amortization using the effective interest method of any difference between the initially recognized amount and the maturity amount. Gains and losses are recognized in the consolidated statement of comprehensive income when the investments are derecognized or impaired, as well as through the amortization process.

(d)   Available-for-sale financial assets

Available-for-sale financial assets are non-derivative financial assets in listed and unlisted equity securities that are designated as available-for-sale or are not classified in any of the other three categories. After initial recognition, available-for-sale financial assets are measured at fair value, with unrealized gains or losses recognized directly in equity until the investment is derecognized or until the investment is determined to be impaired, at which time the cumulative gain or loss previously reported in equity is included in the consolidated statement of comprehensive income. When the fair value of unlisted equity securities cannot be reliably measured because (a) the variability in the range of reasonable fair value estimates is significant for that investment or (b) the probabilities of the various estimates within the range cannot be reasonably assessed and used in estimating fair value, such securities are stated at cost less any impairment losses.

Fair value

The fair value of financial instruments that are traded in active markets at each reporting date is determined by reference to quoted market prices or dealer price quotations, without any deduction for transaction costs.

For financial instruments not traded in an active market, the fair value is determined using appropriate valuation techniques. Such techniques may include using recent arm’s length market transactions; reference to the current fair value of another instrument that is substantially the same; a discounted cash flow analysis or other valuation models.

An analysis of fair values of financial instruments and further details as to how they are measured are provided in note 33.

Impairment of financial assets

The Group assesses at each reporting date whether there is any objective evidence that a financial asset or a group of financial assets is impaired.

(a)   Assets carried at amortized cost

If there is objective evidence that an impairment loss on loans and receivables or held-to-maturity investments carried at amortized cost has been incurred, the amount of the loss is measured as the difference between the asset’s carrying amount and the present value of estimated future cash flows (excluding future credit losses that have not been incurred) discounted at the financial asset’s original effective interest rate (the effective interest rate computed at initial recognition). The carrying amount of the asset is reduced either directly or through the use of an allowance account. The amount of the impairment loss is recognized in the consolidated statement of comprehensive income.

If, in a subsequent year, the amount of the estimated impairment loss increases or decreases and the decrease can be related objectively to an event occurring after the impairment was recognized, the previously recognized impairment loss is increased or reduced by adjusting the allowance account. Any subsequent reversal of an impairment loss is recognized in the consolidated statement of comprehensive income, to the extent that the carrying value of the asset does not exceed amortized cost at the reversal date.

F-20

CNOOC LIMITED

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(All amounts expressed in Renminbi unless otherwise stated)

3. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)

Impairment of financial assets (continued)

(a)   Assets carried at amortized cost (continued)

In relation to trade and other receivables, a provision for impairment is made when there is objective evidence (such as the probability of insolvency or significant financial difficulties of the debtor and significant changes in the technological, market, economic or legal environment that have an adverse effect on the debtor) that the Group will not be able to collect all of the amounts due under the original terms of an invoice.

(b)   Assets carried at cost

If there is objective evidence that an impairment loss has been incurred on an unquoted equity instrument that is not carried at fair value because its fair value cannot be reliably measured, the amount of the loss is measured as the difference between the asset’s carrying amount and the present value of estimated future cash flows discounted at the current market rate of return for a similar financial asset. Impairment losses on these assets are not reversed.

(c)   Available-for-sale financial assets

If an available-for-sale asset is impaired, an amount comprising the difference between its cost (net of any principal payment and amortization) and its current fair value, less any impairment loss previously recognized in the consolidated statement of comprehensive income, is transferred from equity to the consolidated statement of comprehensive income.

Equity investments are impaired if there is a significant or prolonged decline in fair value of the investment below its cost or where other objective evidence of impairment exists. Impairment of debt instruments is assessed based on the same criteria as assets carried at amortized cost. Impairment losses on equity instruments are not reversed through the consolidated statement of comprehensive income; increases in their fair value after impairments are recognized directly in equity. Impairment losses on debt instruments are reversed through the consolidated statement of comprehensive income, if the increase in fair value of the instruments can be objectively related to an event occurring after the impairment loss was recognized directly in the other comprehensive income.

Derecognition of financial assets

A financial asset (or, where applicable a part of a financial asset or part of a group of similar financial assets) is derecognized where:

i)   the rights to receive cash flows from the asset have expired;

ii) the Group retains the rights to receive cash flows from the asset, but has assumed an obligation to pay the received cash flows in full without material delay to a third party under a “pass-through” arrangement; or

iii) the Group has transferred its rights to receive cash flows from the asset and either (a) has transferred substantially all the risks and rewards of the asset, or (b) has neither transferred nor retained substantially all the risks and rewards of the asset, but has transferred control of the asset.

Where the Group has transferred its rights to receive cash flows from an asset and has neither transferred nor retained substantially all the risks and rewards of the asset nor transferred control of the asset, the asset is recognized to the extent of the Group’s continuing involvement in the asset. Continuing involvement that takes the form of a guarantee over the transferred asset is measured at the lower of the original carrying amount of the asset and the maximum amount of consideration that the Group could be required to repay.

F-21

CNOOC LIMITED

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(All amounts expressed in Renminbi unless otherwise stated)

3. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)

Financial liabilities at amortized cost (including interest-bearing loans and borrowings)

Financial liabilities including trade and other payables and interest-bearing loans and borrowings are initially stated at fair value less directly attributable transaction costs and are subsequently measured at amortized cost, using the effective interest method. The related interest expense is recognized within “Finance costs” in the consolidated statement of comprehensive income.

Gains and losses are recognized in the consolidated statement of comprehensive income when the liabilities are derecognized as well as through the amortization process.

Financial guarantee contracts

A financial guarantee contract is recognized initially at its fair value including transaction costs that are directly attributable to the issue of the guarantee. Subsequent to initial recognition, the liability is measured at the higher of the best estimate of the expenditure required to settle the present obligation at the reporting date and the amount recognized less cumulative amortization.

Derecognition of financial liabilities

A financial liability is derecognized when the obligation under the liability is discharged, cancelled, or expires.

When an existing financial liability is replaced by another from the same lender on substantially different terms, or the terms of an existing liability are substantially modified, such an exchange or modification is treated as a derecognition of the original liability and a recognition of a new liability, and the difference between the respective carrying amounts is recognized in the consolidated statement of comprehensive income.

Offsetting of financial instruments

Financial assets and liabilities are offset and the net amount reported in the consolidated statement of financial position, if and only if, there is a currently enforceable legal right to offset the recognized amounts and there is an intention to settle on a net basis, or to realize the assets and settle the liabilities simultaneously.

Inventories and supplies

Inventories primarily consist of oil and supplies, including items for repairs and maintenance of oil and gas properties. Inventories are stated at the lower of cost and net realizable value. Costs of inventories and supplies represent purchase or production cost of goods and are determined on a weighted average basis.

Cash and cash equivalents

Cash and cash equivalents comprise cash at banks and on hand and short term deposits with an original maturity of three months or less.

Provisions

(a)   General

A general provision is recognized 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 recognized for a provision is the present value at the reporting 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 consolidated statement of comprehensive income.

F-22

CNOOC LIMITED

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(All amounts expressed in Renminbi unless otherwise stated)

3. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)

Provisions (continued)

(b)   Dismantlement liability

Dismantlement liability is recognized when the Group has a present legal or constructive obligation as a result of the past events, and it is probable that an outflow of resources will be required to settle the obligation, and a reliable estimate of the amount of the obligation can be made. A corresponding amount equivalent to the provision is also recognized as part of the cost of the related property, plant and equipment. The amount recognized is the estimated cost of dismantlement, discounted to its present value using a current pre-tax rate that reflects, where appropriate, the risks specific to the liability. Changes in the estimated timing of dismantlement or dismantlement cost estimates are dealt with prospectively by recording an adjustment to the provision, and a corresponding adjustment to property, plant and equipment. The unwinding of the discount on the dismantlement provision is included as a finance cost.

The Group recognizes a deferred tax asset and deferred tax liability regarding the temporary difference on the dismantlement liability and the dismantlement asset respectively.

Income tax

Income tax comprises current and deferred tax. Income tax is recognized in the consolidated statement of comprehensive income, either as an expense as it relates to operating activities or as a component of the applicable categories of other comprehensive income or loss.

Current tax assets and liabilities for the current and prior periods are measured at the amount expected to be recovered from or paid to the taxation authorities. The tax rates and tax laws used to compute the amount are those that are enacted or substantially enacted, by the reporting date, in the countries where the Group operates and generates taxable income.

Deferred tax is provided, using the liability method, on all temporary differences at the reporting date between the tax bases of assets and liabilities and their carrying amounts for financial reporting purposes.

Deferred tax liabilities are recognized for all taxable temporary differences, except:

·   where the deferred tax liability arises from the initial recognition of an asset or liability in a transaction that is not a business combination and, at the time of the transaction, affects neither the accounting profit nor taxable profit or loss; and

·   in respect of taxable temporary differences associated with investments in subsidiaries, associates and interests in joint ventures, 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.

As at December 31, 2010, deferred tax liabilities related to undistributed earnings of certain of the Company’s subsidiaries have not been recognized, since the timing of the reversal of the taxable temporary difference can be controlled by the Company and it is probable that the temporary difference would not reverse in the foreseeable future.

Deferred tax assets are recognized for all deductible temporary differences, carryforward of unused tax credits 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 credits and unused tax losses can be utilized, except:

·   where the deferred tax assets relating to the deductible temporary differences arise from the initial recognition of an asset or liability in a transaction that is not a business combination and, at the time of the transaction, affects neither the accounting profit nor taxable profit or loss; and

F-23

CNOOC LIMITED

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(All amounts expressed in Renminbi unless otherwise stated)

3. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)

Income tax (continued)

·   in respect of deductible temporary differences associated with investments in subsidiaries, associates and interests in joint ventures, deferred tax assets are only recognized 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 utilized.

The carrying amount of deferred tax assets is reviewed at each reporting 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 utilized. Unrecognized deferred tax assets are reassessed at each reporting date and are recognized 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 utilized.

Deferred tax assets and liabilities are measured at the tax rates that are expected to apply to the period when the asset is realized or the liability is settled, based on tax rates (and tax laws) that have been enacted or substantively enacted at the reporting date.

Deferred tax assets and deferred tax liabilities are offset if a legally enforceable right exists to set off current tax assets against current tax liabilities and the deferred taxes relate to the same taxable entity and the same taxation authority.

Revenue recognition

Revenue is recognized 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:

(a)   Oil and gas sales

Oil and gas sales represent the invoiced value of sales of oil and gas attributable to the interests of the Group, net of royalties and the government share oil that is lifted and sold on behalf of the government. Revenue from the sale of oil is recognized when the significant risks and rewards of ownership have been transferred, which is when title passes to the customer. This generally occurs when product is physically transferred into a vessel, pipe or other delivery mechanism. Revenue from the production of oil in which the Group has an interest with other producers is recognized based on the Group’s working interest and the terms of the relevant production sharing contracts. Differences between production sold and the Group’s share of production are not significant.

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 equalized or in cash when production ceases.

The Group has entered into gas sale contracts with customers, which contain take-or-pay clauses. Under these contracts, the Group makes a long term supply commitment in return for a commitment from the buyer to pay for minimum quantities, whether or not it takes delivery. These commitments contain protective (force majeure) and adjustment provisions. If a buyer has a right to get a ‘make up’ delivery at a later date, revenue recognition is deferred. If no such option exists according to the contract terms, revenue is recognized when the take-or-pay penalty is triggered.

F-24

CNOOC LIMITED

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(All amounts expressed in Renminbi unless otherwise stated)

3. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)

Revenue recognition (continued)

(b)   Marketing revenues

Marketing revenues principally represent the sale of oil and gas purchased from the foreign partners under the production sharing contracts and revenues from the trading of oil and gas through the Company’s subsidiaries. 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 and gas sold is included in “Crude oil and product purchases”.

(c)   Other income

Other income mainly represents project management fees charged to foreign partners and handling fees charged to customers and is recognized when the services have been rendered. Reimbursement of insurance claims is recognized when the compensation becomes receivable.

(d)   Dividend income

Dividend income is recognized when the Group’s right to receive payment is established.

(e)   Interest income

Interest income is recognized as it accrues using the effective interest method.

The Group presents taxes collected from customers in the consolidated statement of comprehensive income on a net basis.

Share-based payment transactions

Employees (including directors) of the Group receive remuneration in the form of share-based payment transactions, whereby employees render services as consideration for equity instruments (“equity-settled transactions”).

The cost of equity-settled transactions with employees is measured by reference to the fair value at the date at which they are granted. The fair value is determined by using the Black-Scholes option pricing model, further details of which are given in note 27.

The cost of equity-settled transactions is recognized, together with a corresponding increase in equity, over the period in which the performance and/or service conditions are fulfilled. The cumulative expense recognized for equity-settled transactions at the end of the each reporting period until the vesting date reflects the extent to which the vesting period has expired and the Group’s best estimate of the number of equity instruments that will ultimately vest. The charge or credit to the consolidated statement of comprehensive income for a period represents the movement in the cumulative expense recognized as at the beginning and end of that period.

No expense is recognized for awards that do not ultimately vest for the Group.

No equity-settled award was modified or cancelled during the years ended December 31, 2010 and 2009.

The dilutive effect of outstanding options is reflected as additional share dilution in the computation of earnings per share.

Retirement and termination benefits

The Group participates in defined contribution plans in accordance with 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 11% to 22% of the employees’ basic salaries. The Group’s contributions to these defined contribution plans are charged to the consolidated statement of comprehensive income in the year to which they relate.

F-25

CNOOC LIMITED

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(All amounts expressed in Renminbi unless otherwise stated)

3. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)

Borrowing costs

Borrowing costs consist of interest and other costs that an entity incurs in connection with the borrowing of funds. Borrowing costs directly relating to the acquisition, construction or production of a qualifying asset that necessarily takes a substantial period of time to get ready for its intended use or sale are capitalized as part of the cost of the respective assets. All other borrowing costs are expensed in the period in which they are incurred.

Foreign currencies

These financial statements are presented in RMB. Each entity in the Group maintains its books and records in its own functional currency. Foreign currency transactions recorded by the entities of the Group are initially recorded using their respective functional currency rates ruling at the dates of the transactions. Monetary assets and liabilities denominated in foreign currencies are retranslated at the functional currency rates of exchange ruling at the end of the reporting period. All differences are taken to the consolidated statement of comprehensive income. Non-monetary items that are measured in terms of historical cost in a foreign currency are translated using the exchange rates at the dates of the initial transactions. Non-monetary items measured at fair value in a foreign currency are translated using the exchange rates at the date when the fair value was determined.

The functional currencies of certain entities within the Group are currencies other than RMB. As at the end of the reporting period, the assets and liabilities of these entities are translated into the presentation currency of the Group at the exchange rates ruling at the reporting date, and their statement of comprehensive income are translated into RMB at the weighted average exchange rates for the year. The resulting exchange differences are included in the cumulative translation reserve. On disposal of a foreign operation, the deferred cumulative amount recognized in equity relating to that particular foreign operation is recognized in profit or loss.

Operating leases

Leases where substantially all the rewards and risks of ownership of assets remain with the lessor are accounted for as operating leases. Where the Group is the lessee, rentals payable under operating leases are charged to the consolidated statement of comprehensive income on a straight-line basis over the lease terms.

Contingencies

A contingent liability is disclosed when the existence of an obligation will only be confirmed by future events or when the amount of the obligation cannot be measured reliably.

A contingent asset is not recognized in the financial statements, but is disclosed when an inflow of economic benefits is probable.

Significant accounting judgements, estimates and assumptions

The preparation of the consolidated financial statements in conformity with IFRSs and HKFRSs requires management to make estimates and assumptions that affect the reported amounts of assets, liabilities and contingent liabilities at the date of the consolidated financial statements and the reported amounts of revenues and expenses during the reporting period. Estimates and judgements are continuously evaluated and are based on management’s experience and other factors, including expectations of future events that are believed to be reasonable under the circumstances. However, actual outcomes can differ from these estimates.

F-26

CNOOC LIMITED

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(All amounts expressed in Renminbi unless otherwise stated)

3. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)

Significant accounting judgements, estimates and assumptions (continued)

In the process of applying the Group’s accounting policies, the directors have made the following judgements, apart from those involving estimates, which have the most significant effect on the amounts recognized in the consolidated financial statements.

(a)   Reserve base

Oil and gas properties are depreciated on a unit-of-production basis at a rate calculated by reference to proved reserves. Commercial reserves are determined using estimates of oil in place, recovery factors and future oil prices, the latter having an impact on the proportion of the gross reserves which are attributable to the host government under the terms of the production sharing contracts. The level of estimated commercial reserves is also a key determinant in assessing whether the carrying value of any of the Group’s oil and gas properties has been impaired.

Pursuant to the amendments to oil and gas reserve estimation requirements under US Securities and Exchange Commission's final rules on "Modernization of Oil and Gas Reporting", which became effective for accounting periods ended on or after December 31, 2009, the Group uses the average, first-day-of-the-month oil price during the 12-month period before the ending date of the period covered by the consolidated financial statements to estimate its proved oil and gas reserves. Year-end prices were used for the estimation in the accounting periods ended before December 31, 2009. However, it is not operational and cost-practical for management to estimate the effect of such change in accounting estimate precisely.

(b)   Carrying value of oil and gas assets

The calculation of the unit-of-production rate for oil and gas properties amortization could be impacted to the extent that actual production in the future is different from current forecast production based on proved reserves. This would generally result from significant changes in any of the factors or assumptions used in estimating reserves. These factors could include changes in proved reserves, the effect on proved reserves of differences between actual commodity prices and commodity price assumptions and unforeseen operational issues.

(c)   Impairment indicators

The recoverable amounts of cash-generating units and individual assets have been determined based on the higher of value in use and fair value less costs to sell. These calculations require the use of estimates and assumptions. It is reasonably possible that the oil price assumption may change which may then impact the estimated life of the field and may then require a material adjustment to the carrying value of tangible assets. The Group monitors internal and external indicators of impairment relating to its tangible and intangible assets.

(d)   Dismantlement costs

Dismantlement costs will be incurred by the Group at the end of the operating life of certain of the Group’s facilities and properties. The ultimate dismantlement costs are uncertain and cost estimates can vary in response to many factors including changes to relevant legal requirements, the emergence of new restoration techniques or experience at other production sites. The expected timing and amount of expenditure can also change, for example, in response to changes in reserves or changes in laws and regulations or their interpretation. As a result, there could be significant adjustments to the provisions established which would affect future financial results.

F-27

CNOOC LIMITED

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(All amounts expressed in Renminbi unless otherwise stated)

3. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)

Significant accounting judgements, estimates and assumptions (continued)

(e)   Taxes

Uncertainties exist with respect to the interpretation of complex tax regulations (including those applicable to tax credits) and the amount and timing of future taxable income. Given the wide range of international business relationships and the long term nature and complexity of existing contractual agreements, differences arising between the actual results and the assumptions made, or future changes to such assumptions, could necessitate future adjustments to tax income and expense already recorded. The Group establishes provisions, based on best estimates, for possible consequences of audits by the tax authorities of the respective countries in which it operates. The amount of such provisions is based on various factors, such as the Group’s experience of previous tax audits and differing interpretations of tax regulations by the taxable entity and the responsible tax authority. Such differences of interpretation may arise on a wide variety of issues depending on the conditions prevailing in the respective Group company's domicile.

4. ACQUISITIONS AND OTHER VENTURES

(i) On March 13, 2010, CNOOC International Limited (“CNOOC International”), a wholly-owned subsidiary of the Company, entered into agreements with Bridas Energy Holdings Ltd. (“BEH”) to form a 50:50 joint venture in Bridas Corporation, formerly a wholly-owned subsidiary of BEH, for cash consideration of approximately US$3.1 billion. This transaction is aligned with the Company’s growth strategy by expanding its reach into Latin America and establishes a foundation for future growth in the region and other countries. Bridas Corporation, through its affiliates (including a 40% interest in Pan American Energy LLC, “PAE”) has oil and gas exploration and production activities in Argentina, Bolivia and Chile. On May 4, 2010, the Company completed its acquisition at a total consideration of US$3.1 billion.

The Group accounts for its investment in Bridas Corporation using the proportionate consolidation method.

The fair values of the identifiable assets and liabilities of Bridas Corporation attributable to the Group's 50% interest as at the date of acquisition are as follows:

	Fair value recognized on acquisition
	RMB’000
Property, plant and equipment		26,596,053
Other non-current assets		1,514,508
Trade receivables		472,653
Other current assets		141,713
Cash and bank balances		497,228
Trade payables		(430,057	)
Taxes payable		(479,752	)
Other current liabilities		(19,387	)
Loans and borrowings		(1,954,916	)
Deferred tax liabilities		(6,640,853	)
Other non-current liabilities		(371,078	)
		19,326,112
Goodwill on acquisition		1,931,723
Satisfied by cash		21,257,835

F-28

CNOOC LIMITED

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(All amounts expressed in Renminbi unless otherwise stated)

4. ACQUISITIONS AND OTHER VENTURES (continued)

(i) (continued)

The fair values disclosed above are provisional subject to finalisation of valuation for the identifiable assets and liabilities. The review of the fair value of the assets and liabilities acquired will be completed within 12 months after the acquisition date.

An analysis of the net outflow of cash and cash equivalents in respect of the acquisition is as follows:

	RMB’000
Cash consideration		21,257,835
Cash and bank balances acquired		(497,228	)
Net outflow of cash and cash equivalents in respect of the acquisition		20,760,607

Since its acquisition, Bridas Corporation contributed RMB3,060,317,000 to the Group’s turnover and RMB202,832,000 to the consolidated profit for the year.

If the acquisition had taken place at the beginning of the year, the contribution of Bridas Corporation to the revenue from continuing operations of the Group and the profit of the Group for the year would have been RMB4,511,896,000 and RMB383,170,000, respectively.

(ii) The Company and BEH, through Bridas Corporation, entered into a share purchase agreement with BP PLC (“BP”) on November 28, 2010, pursuant to which Bridas Corporation will acquire a 60% equity interest in PAE from BP for a consideration of approximately US$7.06 billion. The acquisition excludes PAE’s assets in Bolivia.

CNOOC International and BEH have agreed to contribute an aggregate amount of approximately US$4.94 billion to Bridas Corporation, to finance 70% of the consideration of the acquisition. The contribution will be made in equal amounts, i.e. approximately US$2.47 billion, by each of CNOOC International and BEH. The remaining 30% of the consideration, or approximately US$2.12 billion, will be satisfied by third party loans to be arranged by Bridas Corporation and/or additional contributions from CNOOC International and BEH.

Completion of the acquisition is conditional on, amongst others, all necessary governmented and regulatory approvals, and is expected to take place in the first half of 2011.

(iii) On April 30, 2010, CNOOC China Limited, a wholly-owned subsidiary of the Company, signed a sales and purchase agreement to acquire an additional 24.5% participating interest in Block 15/34 from Devon Energy Corporation (“Devon”) for a cash consideration of US$515 million. On June 18, 2010, the Company completed its acquisition. Block 15/34 is located in the Pearl River Mouth Basin of South China Sea.

The Company is the operator of the block. Upon completion, the Company increased its participating interest to 75.5%.

(iv) On May 17, 2010, CNOOC International, Türkiye Petrolleri A.O. (“TPAO”) and Iraqi Drilling Company (“IDC”) (collectively, the “Contractors”) entered into a Technical Service Contract (“TSC”) for the Missan oil fields in Iraq. The Contractors are engaged to achieve stipulated production targets through improved and enhanced recovery measures. The TSC provides for a cost recovery mechanism and remuneration fee on incremental production. The TSC has a contract term of 20 years, with an option to extend for additional five years with relevant approval.

F-29

CNOOC LIMITED

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(All amounts expressed in Renminbi unless otherwise stated)

4. ACQUISITIONS AND OTHER VENTURES (continued)

(iv) (continued)

CNOOC International will act as the lead contractor and hold a 63.75% participating interest while TPAO will hold 11.25%. IDC will hold the remaining 25% participating interest. As a state partner, IDC will be entitled to receive a 25% participating interest of remuneration fee without paying any expenditure.

 (v) On October 10, 2010, CNOOC International through its wholly-owned subsidiary, OOGC America, Inc., signed a purchase agreement with Chesapeake Exploration, LLC, a subsidiary of Chesapeake Energy Corporation (“Chesapeake”), to purchase a 33.3% undivided interest in Chesapeake’s Eagle Ford Shale project in Texas with a cash consideration of approximately US$1.08 billion plus an upward adjustment of US$40 million plaid on closing. In addition, CNOOC International has agreed to fund 75% of Chesapeake’s share of development costs in the project until an additional US$1.08 billion has been paid. The deal was closed on November 15, 2010.

F-30

CNOOC LIMITED

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(All amounts expressed in Renminbi unless otherwise stated)

5. SEGMENT INFORMATION

(a) Operating segments

The Group is organized on a worldwide basis into three major operating segments. The Group is involved in the upstream operating activities of the petroleum industry that comprise independent operations (in which the Group owns 100% participating interest), operations under production sharing contracts or other joint arrangements and trading business. These segments are determined primarily because the Group’s chief operating decision maker makes key operating decisions and assesses performance of the segments separately. The Group evaluates the performance of each segment based on profit or loss from operations before income tax.

The following table presents the segment financial information for the Group’s operating segments for the years ended December 31, 2008, 2009 and 2010.

	Independent operations									Production sharing contracts / Other joint arrangements									Trading business									Corporate									Eliminations									Consolidated
	2008			2009			2010			2008			2009			2010			2008			2009			2010			2008			2009			2010			2008			2009			2010			2008			2009			2010
	RMB’000			RMB’000			RMB’000			RMB’000			RMB’000			RMB’000			RMB’000			RMB’000			RMB’000			RMB’000			RMB’000			RMB’000			RMB’000			RMB’000			RMB’000			RMB’000			RMB’000			RMB’000
Sales to external customers:
Oil and gas sales		53,058,086			44,314,655			85,425,181			47,773,247			39,599,724			63,693,489			-			-			-			-			-			-			-			-			-			100,831,333			83,914,379			149,118,670
Marketing revenues		-			-			-			-			-			-			22,966,752			20,751,961			32,445,867			-			-			-			-			-			-			22,966,752			20,751,961			32,445,867
Intersegment revenues		1,035,292			102,278			-			6,787,259			8,828,793			17,638,325			-			-			-			-			-			-			(7,822,551	)		(8,931,071	)		(17,638,325	)		-			-			-
Other income		588,948			239,721			490,838			1,459,239			169,967			868,359			-			-			-			131,110			119,049			129,351			-			-			-			2,179,297			528,737			1,488,548
Total		54,682,326			44,656,654			85,916,019			56,019,745			48,598,484			82,200,173			22,966,752			20,751,961			32,445,867			131,110			119,049			129,351			(7,822,551	)		(8,931,071	)		(17,638,325	)		125,977,382			105,195,077			183,053,085
Segment results
Operating expenses		( 4,543,039	)		( 6,184,270	)		( 7,775,179	)		( 5,447,329	)		( 6,306,093	)		( 8,428,920	)		-			-			-			-			-			-			-			-			-			( 9,990,368	)		( 12,490,363	)		(16,204,099	)
Taxes other than income tax		( 2,769,550	)		( 2,245,181	)		( 4,434,340	)		( 2,380,148	)		( 1,643,460	)		( 3,769,703	)		-			-			-			-			-			-			-			-			-			( 5,149,698	)		( 3,888,641	)		(8,204,043	)
Exploration expense		( 2,534,409	)		( 2,400,933	)		( 4,120,482	)		( 875,137	)		( 832,750	)		( 1,459,382	)		-			-			-			-			-			-			-			-			-			( 3,409,546	)		( 3,233,683	)		(5,579,864	)
Depreciation, depletion and amortization		( 5,223,311	)		( 6,845,081	)		( 12,833,219	)		( 4,834,354	)		( 9,097,821	)		(14,853,876	)		-			-			-			-			-			-			-			-			-			( 10,057,665	)		( 15,942,902	)		(27,687,095	)
Special oil gain levy		( 9,135,879	)		( 4,039,689	)		( 12,047,825	)		( 7,102,355	)		( 2,317,615	)		( 5,657,752	)		-			-			-			-			-			-			-			-			-			( 16,238,234	)		( 6,357,304	)		(17,705,577	)
Impairment and provision		( 5,425	)		( 7,265	)		( 26,941	)		( 1,536,033	)		362			405			-			-			-			-			-			-			-			-			-			( 1,541,458	)		( 6,903	)		(26,536	)
Crude oil and product purchases		-			-			-			-			-			-			(22,675,049	)		(20,455,217	)		(32,236,448	)		-			-			-			-			-			-			( 22,675,049	)		( 20,455,217	)		(32,236,448	)
Selling and administrative expenses		( 67,069	)		( 32,858	)		( 122,101	)		( 404,058	)		( 989,237	)		( 1,290,249	)		-			-			-			( 1,271,470	)		( 1,241,862	)		( 1,650,258	)		-			-			-			( 1,742,597	)		( 2,263,957	)		(3,062,608	)
Others		( 1,136,879	)		-			( 533,432	)		( 119,309	)		( 206,896	)		(280,199	)		-			-			-			(51,425	)		( 24,631	)		(127,836	)		-			-			-			( 1,307,613	)		( 231,527	)		(941,467	)
Interest income		-			-			-			948			4,689			113,471			-			-			-			1,090,076			633,563			590,378			-			-			-			1,091,024			638,252			703,849
Finance costs		( 225,337	)		( 295,777	)		( 502,041	)		( 181,001	)		( 211,432	)		( 518,374	)		-			-			-			(8,933	)		( 27,330	)		(201,608	)		-			-			-			( 415,271	)		( 534,539	)		(1,222,023	)
Exchange gains/(losses), net		360			-			-			( 46,062	)		25,434			34,189			-			-			-			2,596,962			28,365			960,606			-			-			-			2,551,260			53,799			994,795
Investment income		-			-			-			-			-			-			-			-			-			475,925			199,925			427,491			-			-			-			475,925			199,925			427,491
Share of profits of associates		-			-			-			-			-			-			-			-			-			374,111			173,459			198,854			-			-			-			374,111			173,459			198,854
Non-operating income/(expenses), net		-			-			-			-			-			-			-			-			-			(61,917	)		( 34,385	)		141,677			-			-			-			( 61,917	)		( 34,385	)		141,677
Income tax expense		-			-			-			-			-			-			-			-			-			(13,505,032	)		(11,335,516	)		(18,240,443	)		-			-			-			( 13,505,032	)		( 11,335,516	)		(18,240,443	)
Segment profit for the year		29,041,788			22,605,600			43,520,459			33,094,907			27,023,665			46,089,783			291,703			296,744			209,419			(10,230,593	)		(11,509,363	)		(17,771,788	)		(7,822,551	)		(8,931,071	)		(17,638,325	)		44,375,254			29,485,575			54,409,548
Other segment information
Segment assets		59,570,546			83,722,039			93,405,225			98,263,175			112,632,892			171,417,568			671,307			2,202,254			3,159,646			46,378,831			41,984,232			58,162,714			-			-			-			204,883,859			240,541,417			326,145,153
Investments in associates		-			-			-			-			-			-			-			-			-			1,785,155			1,726,806			1,781,090			-			-			-			1,785,155			1,726,806			1,781,090
Total assets		59,570,546			83,722,039			93,405,225			98,263,175			112,632,892			171,417,568			671,307			2,202,254			3,159,646			48,163,986			43,711,038			59,943,804			-			-			-			206,669,014			242,268,223			327,926,243
Segment liabilities		(11,897,451	)		(16,557,308	)		(20,740,249	)		(19,979,928	)		( 31,698,358	)		(65,916,382	)		( 284,690	)		( 428,178	)		(1,357,630	)		(14,269,237	)		(19,648,876	)		(24,146,035	)		-			-			-			( 46,431,306	)		( 68,332,720	)		(112,160,296	)
Total liabilities		(11,897,451	)		(16,557,308	)		(20,740,249	)		(19,979,928	)		( 31,698,358	)		(65,916,382	)		( 284,690	)		( 428,178	)		(1,357,630	)		(14,269,237	)		(19,648,876	)		(24,146,035	)		-			-			-			( 46,431,306	)		( 68,332,720	)		(112,160,296	)
Capital expenditures		19,444,927			30,415,023			24,707,475			17,808,777			13,251,396			54,392,838			-			-			1,334			146,318			41,358			91,964			-			-			-			37,400,022			43,707,777			79,193,611

F-31

CNOOC LIMITED

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(All amounts expressed in Renminbi unless otherwise stated)

5. SEGMENT INFORMATION (continued)

(b) Geographical information

The Group mainly engages in the exploration, development and production of crude oil, natural gas and other petroleum products in offshore China. Activities outside the PRC are mainly conducted in Indonesia, Australia, Nigeria, Argentina, the United States of America, Canada and Singapore.

In presenting the Group’s geographical information, revenues from external customers are based on the location of the Group’s customers, and non-current assets are attributed to the segments based on the location of the Group’s assets. No further analysis of geographical information is presented for revenues from external customers as over 73% of the Group’s revenues are generated from PRC customers, and revenues generated from customers in other locations are individually less than 10%.

The following table presents certain non-current assets and capital expenditure information for the Group’s geographical information for the years ended December 31, 2008, 2009 and 2010.

	PRC			Asia excluding PRC			Oceania			Africa			North America			South America			Consolidation and elimination						Total
	2008	2009	2010	2008	2009	2010	2008	2009	2010	2008	2009	2010	2008	2009	2010	2008	2009	2010	2008		2009		2010		2008	2009	2010
	RMB’000	RMB’000	RMB’000	RMB’000	RMB’000	RMB’000	RMB’000	RMB’000	RMB’000	RMB’000	RMB’000	RMB’000	RMB’000	RMB’000	RMB’000	RMB’000	RMB’000	RMB’000	RMB’000		RMB’000		RMB’000		RMB’000	RMB’000	RMB’000
Non-current assets	91,074,990	115,498,324	126,562,393	13,889,189	14,471,808	13,008,029	3,388,331	3,117,455	2,782,040	33,009,769	33,901,366	30,817,872	-	1,301,173	16,526,562	-	-	28,885,677	(13,343	)	(13,322	)	(12,875	)	141,348,936	168,276,804	218,569,698
Capital expenditures	26,671,778	36,881,164	31,938,380	4,314,306	1,891,349	1,788,516	252,003	444,104	-	6,161,935	3,163,512	2,539,979	-	1,327,648	15,640,517	-	-	27,286,219	-		-		-		37,400,022	43,707,777	79,193,611

The information on non-current assets above is based on the location of assets and excludes financial instruments.

(c) Information about a major customer

The current year revenue of approximately RMB34,383,928,000 (2009: RMB24,332,653,000, 2008: RMB46,482,906,000) was derived from sales by the independent operations and production sharing contracts segments to a single customer, including sales to a group of entities which are known to be under common control with that customer.

F-32

CNOOC LIMITED

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(All amounts expressed in Renminbi unless otherwise stated)

6. OIL AND GAS SALES

	2008			2009			2010
	RMB’000			RMB’000			RMB’000
Gross sales		105,643,389			87,762,658			155,872,376
Less: Royalties		( 845,543	)		( 1,463,385	)		( 3,523,914	)
PRC government’s share of oil		( 3,966,513	)		( 2,384,894	)		( 3,229,792	)
Oil and gas sales		100,831,333			83,914,379			149,118,670

7. SPECIAL OIL GAIN LEVY

In 2006, a Special Oil Gain Levy (“SOG Levy”) was imposed by the Ministry of Finance of the PRC at the progressive rates from 20% to 40% on the portion of the monthly weighted average sales price of the crude oil lifted in the PRC exceeding US$40 per barrel. The SOG Levy paid can be claimed as a deductible expense for corporate income tax purposes and is calculated based on the actual volume of the crude oil entitled.

F-33

CNOOC LIMITED

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(All amounts expressed in Renminbi unless otherwise stated)

8. PROFIT BEFORE TAX

The Group’s profit before tax is arrived at after charging/(crediting):

	2008			2009			2010
	RMB’000			RMB’000			RMB’000
Crediting:
Interest income on bank deposits		(1,091,024	)		(638,252	)		(703,849	)
Exchange gains, net		(2,551,260	)		(53,799	)		(994,795	)
Investment income:
– Net gain from available-for-sale financial assets		(475,925	)		(199,925	)		(425,037	)
– Net gain from held-to-maturity financial assets		-			-			(2,454	)
		(475,925	)		(199,925	)		(427,491	)
Charging:
Auditors’ remuneration:
– Audit fee		23,424			15,447			17,674
– Other fees		1,707			2,619			2,468
		25,131			18,066			20,142
Employee benefit expense (including directors’ remuneration (note 10)):
– Wages, salaries and allowances		837,817			952,319			1,580,704
– Labour costs paid to contractors		1,521,710			1,696,767			2,190,133
– Equity-settled share option expenses		167,219			184,343			217,633
		2,526,746			2,833,429			3,988,470
Depreciation, depletion and amortization:
– Property, plant and equipment		10,238,038			15,819,121			27,886,422
– Intangible assets		139,017			167,776			195,203
Less: net amount capitalized		(319,390	)		(43,995	)		(394,530	)
		10,057,665			15,942,902			27,687,095
Operating lease rentals:
– Office properties		111,508			127,008			128,111
– Equipment		1,237,954			1,653,464			1,819,079
		1,349,462			1,780,472			1,947,190
Loss/(gain) on disposal of property, plant and equipment		274,537			(1,564	)		65,192
Repairs and maintenance		1,822,773			1,846,688			2,985,135
Research and development costs		507,078			539,233			823,448
Provision for inventory obsolescence		5,374			6,955			26,381

F-34

CNOOC LIMITED

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(All amounts expressed in Renminbi unless otherwise stated)

9. FINANCE COSTS

	2008			2009			2010
	RMB’000			RMB’000			RMB’000
Interest on bank loans
which are repayable within five years		107,853			87,394			356,529
Interest on other loans (including convertible bonds)		416,265			386,838			383,604
Other borrowing costs		35,932			33,593			34,059
Total borrowing costs		560,050			507,825			774,192
Less: Amount capitalized in property, plant and equipment (note 15)		(524,006	)		(439,850	)		( 394,492	)
		36,044			67,975			379,700
Other finance costs:
Unwinding of discount on provision for dismantlement (note 26)		379,227			466,439			762,394
Other		–			125			79,929
		415,271			534,539			1,222,023

The interest rates used to determine the amount of related borrowing costs for capitalization varied from 4.1% to 6.375% (2009: from 4.1% to 6.375%, 2008: from 4.1% to 6.375%) per annum during the year.

F-35

CNOOC LIMITED

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(All amounts expressed in Renminbi unless otherwise stated)

10. DIRECTORS’ REMUNERATION

			Salaries						Total
			allowances		Performance		Pension		paid/payable
			and benefits		related		scheme		during		Share option
	Fees (1)		in kind (1)		bonuses		contributions		the year		benefits (13)
	RMB’000		RMB’000		RMB’000		RMB’000		RMB’000		RMB’000
2010
Executive directors:
Yang Hua (5)		828		2,607		2,004		81		5,520		4,732
Li Fanrong (3)		483		807		576		26		1,892		-
Wu Guangqi		828		1,298		663		77		2,866		4,011
Subtotal		2,139		4,712		3,243		184		10,278		8,743
Non-executive directors:
Fu Chengyu (4)		828		1,988		1,704		58		4,578		8,728
Zhou Shouwei (9)		924		-		-		-		924		5,360
Cao Xinghe (2)		345		-		-		-		345		-
Wu Zhenfang		828		-		-		-		828		3,969
Subtotal		2,925		1,988		1,704		58		6,675		18,057
Independent non-executive
directors:
Edgar W. K. Cheng (6)		-		-		-		-		-		-
Chiu Sung Hong		924		-		-		-		924		-
Lawrence J. Lau (7)		414		-		-		-		414		-
Tse Hau Yin, Aloysius		959		-		-		-		959		-
Wang Tao  (8)		-		-		-		-		-		-
Subtotal		2,297		-		-		-		2,297		-
Total		7,361		6,700		4,947		242		19,250		26,800
2009
Executive directors:
Fu Chengyu		837		3,014		-		87		3,938		6,489
Yang Hua		837		2,415		-		79		3,331		2,982
Wu Guangqi		837		1,311		-		78		2,226		2,982
Subtotal		2,511		6,740		-		244		9,495		12,453
Non-executive directors:
Luo Han (10)		233		-		-		-		233		-
Cao Xinghe		837		-		-		-		837		2,982
Wu Zhenfang		837		-		-		-		837		2,982
Zhou Shouwei (9)		910		611		-		20		1,541		4,553
Subtotal		2,817		611		-		20		3,448		10,517
Independent non-executive
directors:
Edgar W. K. Cheng (6)		-		-		-		-		-		-
Chiu Sung Hong		934		-		-		-		934		-
Lawrence J. Lau (7)		-		-		-		-		-		-
Tse Hau Yin, Aloysius		969		-		-		-		969		-
Wang Tao		419		-		-		-		419		-
Subtotal		2,322		-		-		-		2,322		-
Total		7,650		7,351		-		264		15,265		22,970

F-36

CNOOC LIMITED

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(All amounts expressed in Renminbi unless otherwise stated)

10. DIRECTORS’ REMUNERATION (continued)

			Salaries						Total
			allowances		Performance		Pension		paid/payable
			and benefits		related		scheme		during		Share option
	Fees (1)		in kind (1)		bonuses		contributions		the year		benefits
	RMB’000		RMB’000		RMB’000		RMB’000		RMB’000		RMB’000
2008
Executive directors:
Fu Chengyu		847		3,051		2,616		88		6,602		5,445
Zhou Shouwei		847		2,475		1,766		79		5,167		3,817
Yang Hua		847		2,349		1,665		77		4,938		2,503
Wu Guangqi		847		1,327		678		78		2,930		2,503
Subtotal		3,388		9,202		6,725		322		19,637		14,268
Non-executive directors
Luo Han		945		-		-		-		945		2,503
Cao Xinghe		847		-		-		-		847		2,124
Wu Zhenfang		847		-		-		-		847		2,124
Subtotal		2,639		-		-		-		2,639		6,751
Independent non-executive
directors:
Edgar W. K. Cheng (6)		-		-		-		-		-		-
Chiu Sung Hong		945		-		-		-		945		-
Evert Henkes (11)		424		-		-		-		424		-
Lawrence J. Lau (7)		-		-		-		-		-		-
Tse Hau Yin, Aloysius		981		-		-		-		981		-
Wang Tao (12)		502		-		-		-		502		-
Subtotal		2,852		-		-		-		2,852		-
Total		8,879		9,202		6,725		322		25,128		21,019

Notes:

(1)   Fees and salaries, allowances and benefits in kind represent the gross amount (before applicable individual salary tax) paid/payable to individual directors.

(2)   Mr. Cao Xinghe retired as a non-executive director of the Company with effect from May 24, 2010.

(3)   Mr. Li Fanrong was appointed as a non-executive director with effect from May 24, 2010 and was re-designated to executive director with effect from September 16, 2010.

(4)   Mr. Fu Chengyu was re-designated from executive director to non-executive director with effect from September 16, 2010.

(5)   Mr. Yang Hua was appointed as the Vice Chairman of the Board of Directors of the Company with effect from September 16, 2010.

(6)   Dr. Edgar W. K. Cheng has voluntarily waived his remuneration as director in 2008, 2009 and 2010.

(7)   Professor Lawrence J. Lau has voluntarily waived his remuneration as director from January to June in 2010 and has voluntarily waived his remuneration as director in 2008 and 2009.

(8)   Mr. Wang Tao has voluntarily waived his remuneration as director in 2010.

(9)   Mr. Zhou Shouwei was re-designated from executive director to non-executive director with effect from March 31, 2009.

(10)   Mr. Luo Han retired as a non-executive director of the Company with effect from March 31, 2009.

(11)   Mr. Evert Henkes retired as an independent non-executive director with effect from May 29, 2008.

F-37

CNOOC LIMITED

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(All amounts expressed in Renminbi unless otherwise stated)

10. DIRECTORS’ REMUNERATION (continued)

(12)   Mr. Wang Tao was elected as an independent non-executive director with effect from May 29, 2008.

(13)  During the year, certain directors were granted share options in respect of their services to the Group under the applicable share option schemes of the Company, further details of which are set out in note 27.

Save as disclosed above, there was no arrangement under which a director waived or agreed to waive any remuneration during the year.

F-38

CNOOC LIMITED

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(All amounts expressed in Renminbi unless otherwise stated)

11. FIVE HIGHEST PAID EMPLOYEES

The five highest paid employees during the year included three (2009: four, 2008: four) directors and two (2009: one, 2008: one) non-director employee. Their remuneration and share option benefits are as follows:

	2008		2009		2010
	RMB’000		RMB’000		RMB’000
Fees*		3,388		4,309		2,484
Basic salaries, allowances and benefits in kind*		11,548		8,845		8,533
Performance related bonuses		7,569		703		5,528
Pension scheme contributions		426		356		383
Amount paid/payable during the year		22,931		14,213		16,928
Share option benefits**		16,661		18,438		23,931
		39,592		32,651		40,859
Number of directors		4		4		3
Number of non-director employee		1		1		2

* Fees and salaries, allowances and benefits in kind represent the gross amount (before applicable individual salary tax) paid/payable to individual employees.

** During the year, share options were granted to certain of the five highest paid employees in respect of their services to the Group. Further details are included in note 27.

The five highest paid individuals in the Group for each of the three years ended December 31, 2008, 2009 and 2010 were also the five highest paid directors or senior management and their emoluments are reflected in the analysis shown above.

The number of the five highest paid directors and senior management whose remuneration and share option benefits fell within the following bands is as follows:

	2008		2009		2010
Nil to RMB5,000,000		-		1		-
RMB5,000,001 to RMB5,500,000		1		1		2
RMB5,500,001 to RMB6,000,000		1		-		-
RMB6,000,001 to RMB6,500,000		-		2		-
RMB6,500,001 to RMB8,000,000		1		-		1
RMB8,000,001 to RMB10,000,000		1		-		-
RMB10,000,001 to RMB12,000,000		-		1		1
RMB12,000,001 to RMB14,000,000		1		-		1
		5		5		5

12. TAX

(i) Income tax

The Company and its subsidiaries are subject, on an entity basis, to income taxes on profits arising in or derived from the tax jurisdictions in which the entities of the Group are domiciled and operate. The Company is subject to profits tax at a rate of 16.5% (2009:16.5%) on profits arising in or derived from Hong Kong, which is qualified as a foreign tax credit to offset the PRC corporate income tax starting from January 1, 2008.

The Company received a formal approval (the “Chinese Resident Enterprise Approval”) from the State Administration of Taxation of the PRC on October 19, 2010 confirming that the Company is regarded as a Chinese Resident Enterprise (the “CRE”) pursuant to the provisions of the "Notice regarding Matters on Determination of Tax Residence Status of Chinese-controlled Offshore Incorporated Enterprises under Rules of Effective Management", the "Enterprise Income Tax Law of the People's Republic of China" and the "Detailed Rules for the Implementation of the Enterprise Income Tax Law of the People's Republic of China". According to the Chinese Resident Enterprise Approval, the Company is subject to the PRC corporate income tax at the rate of 25% starting from January 1, 2008.

F-39

CNOOC LIMITED

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(All amounts expressed in Renminbi unless otherwise stated)

12. TAX (continued)

(i) Income tax (continued)

Pursuant to the above laws and regulations, the Company is required to withhold 10% corporate income tax when it makes dividend distributions to its non-Chinese resident enterprise shareholders.

The Company’s subsidiary in Mainland China, CNOOC China Limited, is a wholly-owned foreign enterprise. It is subject to corporate income tax at the rate of 25% under the prevailing tax rules and regulations.

Subsidiaries of the Group domiciled outside the PRC are subject to income tax at rates ranging from 10% to 56%.

Some of the Group’s oil and gas interests in Indonesia are held though Labuan incorporated companies. According to an amendment to the tax rules enacted by the Indonesian government in December 2009, Labuan incorporated companies will no longer enjoy the tax rates under the old tax treaty between Indonesia and Malaysia and the tax rates will increase from the existing range of 43.125% to 51.875% to the range of 44% to 56%. The amendment took effect from January 1, 2010.

As of December 31, 2010, management of the Company has not provided any deferred tax liabilities related to earnings derived by the Company from its overseas subsidiaries since the timing of the reversal of the taxable temporary differences can be controlled by the Company and it is probable that the temporary differences would not reverse in the foreseeable future.

An analysis of the tax expense in the Group’s consolidated statement of comprehensive income is as follows:

	2008			2009		2010
	RMB’000			RMB’000		RMB’000
Overseas
Current income tax		934,420			657,614		1,430,030
Deferred tax		(631,329	)		1,362,833		796,294
PRC
Current income tax		13,203,815			8,663,709		17,433,444
Deferred tax		(1,874	)		651,360		(1,419,325	)
Total tax charge for the year		13,505,032			11,335,516		18,240,443

A reconciliation of the statutory PRC corporate income tax rate to the effective income tax rate of the Group is as follows:

	2008			2009			2010
	%			%			%
Statutory PRC enterprise income tax rate		25.0			25.0			25.0
Effect of different tax rates for the Company and overseas subsidiaries		(1.1	)		3.0			0.3
Tax credit from the government		(0.2	)		(0.3	)		(0.1	)
Profit attributable to associates		(0.2	)		(0.1	)		(0.1	)
Other permanent differences		(0.2	)		0.1			-
Group’s effective income tax rate		23.3			27.7			25.1

F-40

CNOOC LIMITED

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(All amounts expressed in Renminbi unless otherwise stated)

12. TAX (continued)

(i) Income tax (continued)

The movements of deferred tax liabilities are as follows:

	2008			2009			2010
	RMB’000			RMB’000			RMB’000
At January 1		6,293,559			5,428,323			7,439,620
Credited to the consolidated statements of comprehensive income		(633,203	)		2,014,193			(623,031	)
Acquisition (note 4 (i))		-			-			6,640,853
Exchange differences		(232,033	)		(2,896	)		(335,378	)
At December 31		5,428,323			7,439,620			13,122,064

Principal components of deferred tax balances are as follows:

	2009			2010
	RMB’000			RMB’000
Deferred tax assets
Provision for retirement and termination benefits		69,893			95,542
Provision for dismantlement		1,719,078			2,187,530
Impairment of property, plant and equipment		1,046,875			1,046,875
Overseas tax losses		193,660			-
Others		145,948			222,758
		3,175,454			3,552,705
Deferred tax liabilities
Accelerated tax depreciation of oil and gas properties		( 10,462,348	)		( 16,310,541	)
Others		(152,726	)		(364,228	)
		( 10,615,074	)		( 16,674,769	)
Net deferred tax liabilities		(7,439,620	)		( 13,122,064	)

(ii) Other taxes

The Company’s PRC subsidiary pays the following other taxes:

– Production taxes of 5% on independent production and production under production sharing contracts;

– Export tariffs of 5% on the export value of petroleum oil;

– Business tax at rates of 3% to 5% on other income;

– City construction tax at the rate of 1% or 7% on the actual paid production taxes and business tax (first effective from December 1, 2010); and

– Educational surcharge at the rate of 3% on the actual paid production taxes and business tax (first effective from December 1, 2010).

In addition, other taxes paid and payable by the Company's non-PRC subsidiaries and jointly controlled entities include gross production assessments, duties and export tariffs as well as taxes levied on petroleum related income, profit, budgeted operating and capital expenditures.

F-41

CNOOC LIMITED

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(All amounts expressed in Renminbi unless otherwise stated)

13. DIVIDENDS

	2008		2009		2010
	RMB’000		RMB’000		RMB’000
Declared and paid during the year:
Interim dividend		7,830,243		7,873,661		8,099,995
Final dividend		6,821,530		7,873,393		7,793,793
Total dividends paid in the year		14,651,773		15,747,054		15,893,788
Weighted average number of ordinary shares		44,623,856,311		44,669,199,984		44,669,199,984
Dividend per ordinary share	RMB0.33		RMB0.35		RMB0.36
Final dividend proposed for approval at annual general meeting at HK$0.25 per ordinary share (2009: HK$0.20 per ordinary share, 2008: HK$0.20 per ordinary share) - not recognized as liability as at  the end of the reporting period		7,878,753		7,855,526		9,421,069

Pursuant to the Chinese Tax Resident Approval (details included in note 12 (i)), the Company is regarded as a CRE. The Company is required to withhold corporate income tax at the rate of 10% when it distributes dividends to its non-Chinese resident enterprise shareholders, with effect from the distribution of the 2008 final dividend. In respect of all shareholders whose names appear on the Company’s register of members and who are not individuals (including HKSCC Nominees Limited, corporate nominees or trustees such as securities companies and banks, and other entities or organizations, which are all considered as non-Chinese resident enterprise shareholders), the Company will distribute the dividend after deducting corporate income tax of 10%.

F-42

CNOOC LIMITED

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(All amounts expressed in Renminbi unless otherwise stated)

14. EARNINGS PER SHARE

	2008		2009		2010
Earnings
Profit for the year attributable to ordinary equity holders for the basic and diluted earnings per share calculations	RMB44,375,254,000		RMB29,485,575,000		RMB54,409,548,000
Number of shares
Number of ordinary shares issued at the beginning of the year		44,302,616,976		44,669,199,984		44,669,199,984
Weighted average effect of:
New shares issued during the year		320,534,053		-		-
Share options exercised during the year		705,282		-		-
Weighted average number of ordinary shares for the basic earnings per share calculation		44,623,856,311		44,669,199,984		44,669,199,984
Effect of dilutive potential ordinary shares under the share option schemes		138,262,808		102,514,345		151,987,482
Effect of dilutive potential ordinary shares for convertible bonds		23,978,397		-		-
Weighted average number of ordinary shares for the purpose of diluted earnings per share		44,786,097,516		44,771,714,329		44,821,187,466
Earnings per share:
Basic	RMB0.99		RMB0.66		RMB1.22
Diluted	RMB0.99		RMB0.66		RMB1.21

F-43

CNOOC LIMITED

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(All amounts expressed in Renminbi unless otherwise stated)

15. PROPERTY, PLANT AND EQUIPMENT

	Oil and gas properties			Vehicles and office equipment			Total
	RMB’000			RMB’000			RMB’000
Cost:
At January 1, 2009		203,455,633			609,333			204,064,966
Additions		42,054,570			41,794			42,096,364
Acquisitions of assets		1,016,821			–			1,016,821
Disposals and write-offs		(910,881	)		(4,694	)		(915,575	)
Exchange differences		(57,185	)		(14	)		(57,199	)
At December 31, 2009		245,558,958			646,419			246,205,377
At January 1, 2010		245,558,958			646,419			246,205,377
Additions		33,577,662			93,917			33,671,579
Acquisitions of assets		45,425,795			–			45,425,795
Disposals and write-offs		( 1,770,663	)		(66,704	)		(1,837,367	)
Exchange differences		( 2,959,380	)		(418	)		(2,959,798	)
At December 31, 2010		319,832,372			673,214			320,505,586
Accumulated depreciation, depletion and amortization:
At January 1, 2009		(65,445,135	)		( 261,695	)		(65,706,830	)
Depreciation charge for the year		(15,774,141	)		(44,980	)		(15,819,121	)
Disposals and write-offs		626,203			4,132			630,335
Exchange differences		10,109			1			10,110
At December 31, 2009		(80,582,964	)		( 302,542	)		(80,885,506	)
At January 1, 2010		(80,582,964	)		( 302,542	)		(80,885,506	)
Depreciation charge for the year		( 27,829,069	)		(57,353	)		(27,886,422	)
Disposals and write-offs		34,497			8,120			42,617
Exchange differences		553,993			358			554,351
At December 31, 2010		(107,823,543	)		( 351,417	)		( 108,174,960	)
Net book value:
At January 1, 2010		164,975,994			343,877			165,319,871
At December 31, 2010		212,008,829			321,797			212,330,626

Included in the current year’s additions was an amount of approximately RMB394,492,000 (2009: approximately RMB439,850,000) in respect of interest capitalized in property, plant and equipment (note 9). Included also in the depreciation charge for the year was an amount of approximately RMB1,702,988,000 (2009: approximately RMB929,088,000) in respect of a depreciation charge on dismantlement cost capitalized in oil and gas properties.

F-44

CNOOC LIMITED

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(All amounts expressed in Renminbi unless otherwise stated)

16. INTANGIBLE ASSETS AND GOODWILL

	Gas processing right under NWS Project			Software			Goodwill			Total
	RMB’000			RMB’000			RMB’000			RMB’000
Cost:
At January 1, 2009		1,254,167			165,510			-			1,419,677
Additions		-			193,258			-			193,258
Exchange differences		(1,174	)		-			-			(1,174	)
At December 31, 2009		1,252,993			358,768			-			1,611,761
At January 1, 2010		1,252,993			358,768			-			1,611,761
Additions		-			142,307			1,931,723			2,074,030
Disposal		-			(9,861	)		-			( 9,861	)
Exchange differences		(37,710	)		-			(57,615	)		(95,325	)
At December 31, 2010		1,215,283			491,214			1,874,108			3,580,605
Accumulated amortization:
At January 1, 2009		(138,837	)		(75,195	)		-			(214,032	)
Amortization charge for the year		(85,061	)		(82,715	)		-			(167,776	)
Exchange differences		174			-			-			174
At December 31, 2009		(223,724	)		(157,910	)		-			(381,634	)
At January 1, 2010		(223,724	)		(157,910	)		-			(381,634	)
Amortization charge for the year		(81,604	)		(113,599	)		-			(195,203	)
Disposal		-			9,861			-			9,861
Exchange differences		8,572			-			-			8,572
At December 31, 2010		(296,756	)		(261,648	)		-			(558,404	)
Net book value:
At January 1, 2010		1,029,269			200,858			-			1,230,127
At December 31, 2010		918,527			229,566			1,874,108			3,022,201

Goodwill is acquired through the acquisition of equity interest of Bridas Corporation (note 4 (i)) and has been allocated to “Production sharing contracts or other joint arrangements” segment. The balance of goodwill represents provisional value acquired through acquisition of equity interest in a jointly-controlled entity, Bridas Corporation, and therefore as at December 31, 2010 is not subject to impairment testing.

F-45

CNOOC LIMITED

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(All amounts expressed in Renminbi unless otherwise stated)

17. INVESTMENTS IN ASSOCIATES

			Percentage
			of equity
	Place and date of		attributable to
Name of associates	establishment	Registered capital	the Group			Principal activities
Shanghai Petroleum	Shanghai, PRC	RMB900 million		30	%	Offshore petroleum exploration,
Corporation Limited	September 7, 1992					development and production
						and sales in the PRC
CNOOC Finance	Beijing, PRC	RMB1,415 million		31.8	%	Provision of deposit, transfer,
Corporation Limited	June 14, 2002					settlement, loan, discounting
						and other financing services to
						CNOOC and its member entities

CNOOC Finance Corporation Limited is not audited by Ernst & Young Hong Kong or other member firm of the Ernst & Young global network.

The Group’s investments in associates represent:

	2009		2010
	RMB’000		RMB’000
Share of net assets		1,726,806		1,781,090

The following table illustrates the summarized financial information of the Group’s associates extracted from their management accounts:

	2009		2010
	RMB’000		RMB’000
Assets		52,365,599		70,027,322
Liabilities		47,267,962		64,722,340
Revenue		1,934,398		2,211,344
Profit		542,045		676,119

F-46

CNOOC LIMITED

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(All amounts expressed in Renminbi unless otherwise stated)

18. INVESTMENT IN JOINTLY-CONTROLLED ENTITIES

Particulars of the principal jointly-controlled entities are as follows:

Name of entity Place and date of establishment Nominal value of issued and paid-up/ registered ordinary share capital Percentage of equity attributable to the Group Principal activities

Jointly-controlled entities:

Husky Oil (Madura) Ltd.	British Virgin Islands December 28, 2005	No par value	50%	Petroleum exploration, development, production and sales in Indonesia
Chaoyang Petroleum (BVI) Limited	British Virgin Islands February 4, 2009	US$10	50%	Investment holding
Bridas Corporation (note 4 (i))	British Virgin Islands September 15, 1993	US$102,325,582	50%	Investment holding

The interest in the jointly-controlled entities is accounted for using the proportionate consolidation method in the consolidated financial statements.

Summarized financial information of the Group’s jointly-controlled entities is disclosed below:

	2009			2010
	RMB’000			RMB’000
Share of the jointly-controlled entities’ assets and liabilities:
Current assets		83,623			13,080,827
Non-current assets		1,781,115			30,835,706
Current liabilities		(1,792,408	)		(35,070,715	)
Non-current liabilities		-			( 8,509,500	)
Net assets		72,330			336,318
Share of the jointly-controlled entities’ results:
Revenue		132,895			3,209,883
Total expense		( 58,608	)		( 2,889,021	)
Profit before tax		74,287			320,862
Income tax		-			( 48,560	)
Profit for the year		74,287			272,302

The Group’s share of the post-acquisition results of Bridas Corporation is included in the consolidated statement of comprehensive income for the period from May 4, 2010 to December 31, 2010.

F-47

CNOOC LIMITED

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(All amounts expressed in Renminbi unless otherwise stated)

19. AVAILABLE-FOR-SALE FINANCIAL ASSETS

	2009		2010
	RMB’000		RMB’000
Current:
Non-listed investments, at fair value:
Private equity funds		19,227		15,841
Corporate wealth management  products (1)		-		13,000,000
Liquidity funds (2)		8,563,137		5,924,133
		8,582,364		18,939,974
Non-current:
Non-listed investments, at cost:
Equity investments held by Bridas Corporation		-		87,289
Listed investments, at fair value:
Equity investment in MEG (3)		3,119,995		8,616,437
		3,119,995		8,703,726

The fair values of listed investments are based on quoted market prices. The fair values of non-listed investments are based on fund managers’ quotations or quoted market prices. The directors believe that the estimated fair values quoted by fund managers are reasonable, and that they are the most appropriate values at the reporting date.

(1)  The corporate wealth management products will mature from January 7, 2011 to December 15, 2011.

(2)  The liquidity funds have no fixed maturity date and no coupon rate.

(3)  The equity investment represents investment in the equity securities of MEG Energy Corporation (“MEG”). As of December 31, 2009, the investment was measured at cost. In August 2010, MEG listed its shares on the Toronto Stock Exchange. Therefore, fair value of the investment to MEG can be reliably measured. As at December 31, 2010, the investment in MEG was stated at quoted market price. MEG is principally engaged in the exploitation and production of oil sands.

During the year, the gross income of the Group’s available-for-sale investments recognized directly in other comprehensive income amounted to RMB5,590,380,000 (2009 loss: RMB22,053,000, and 2008 gain: RMB41,457,000).

In addition, there are no realized gains of the Group transferred from other comprehensive income to the profit and loss for the year (2009: RMB51,683,000, and 2008: RMB31,147,000) upon the disposal of the related available-for-sale financial assets due to no debt security was held in 2010.

None of the financial assets above is either past due or impaired.

F-48

CNOOC LIMITED

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(All amounts expressed in Renminbi unless otherwise stated)

20. INVENTORIES AND SUPPLIES

	2009			2010
	RMB’000			RMB’000
Materials and supplies		2,882,523			3,315,923
Oil in tanks		331,958			854,691
Less: Provision for inventory obsolescence		( 68,626	)		( 94,318	)
		3,145,855			4,076,296

The provision for inventory obsolescence during the year was approximately RMB26,381,000 (2009: approximately RMB6,955,000).

21. TRADE RECEIVABLES

The Group’s trading terms with its customers are mainly on credit, except for new customers, where payment in advance is normally required. The credit terms of the Group are generally within 30 days after the delivery of oil and gas. Trade receivables are non-interest-bearing.

As at December 31, 2010 and 2009, substantially all the trade receivable were aged within 30 days. All customers have a good repayment history and all receivables are not past due. A provision for doubtful debt of RMB155,000 has been made as at December 31, 2010 according to the Group’s accounting policy (December 31, 2009: Nil).

22. CASH AND CASH EQUIVALENTS AND TIME DEPOSITS WITH MATURITY OVER THREE MONTHS

The Group’s cash and cash equivalents mainly consist of current deposits and time deposits with maturity within seven days. The bank balances are deposited with creditworthy banks with no recent history of default.

The weighted average effective interest rates of the Group’s bank deposits were 2.3% (2009: 2.4% per annum),  for the year ended December 31, 2010.

CNOOC China Limited, a wholly-owned subsidiary of the Company, deposited RMB12.0 billion with Bank of China to secure loans of US$1.77 billion (note 25) granted by Bank of China. The amount was recorded as time deposits with maturity over three months.

23. TRADE AND ACCRUED PAYABLES

As at December 31, 2010 and 2009, substantially all the trade and accrued payables were aged within six months. The trade and accrued payables are non-interest-bearing and are normally settled within six months.

F-49

CNOOC LIMITED

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(All amounts expressed in Renminbi unless otherwise stated)

24. OTHER PAYABLES AND ACCRUED LIABILITIES

	2009		2010
	RMB’000		RMB’000
Accrued payroll and welfare payable		507,904		822,269
Provision for retirement and termination benefits		338,488		373,174
Accrued expenses		138,073		76,188
Advances from customers		1,361,265		2,016,858
Royalties payable		682,577		881,532
Special oil gain levy payable		3,039,437		5,694,806
Provision for dismantlement (note 26)		477,891		186,992
Other payables*		2,859,458		7,801,760
		9,405,093		17,853,579

* As disclosed in note 4 (v), the current portion and the non-current portion of the unpaid funding of 75% of Chesapeake’s share of development costs in the Eagle Ford Shale project have been recognized in “Other payables and accrued liabilities” and “Other non-current liabilities” respectively, totaling up to US$1.02 billion as at December 31, 2010.

Other payables are non-interest-bearing and have an average term of less than one year.

F-50

CNOOC LIMITED

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(All amounts expressed in Renminbi unless otherwise stated)

25. LOANS AND BORROWINGS

Current

		2009						2010
		RMB’000						RMB’000
	Effective interest rate and final maturity	Bank loan		Notes /Bonds		Total		Bank loan		Notes /Bonds			Total
Short-term loans and borrowings
General loans	LIBOR+0.7% to 1.3%  per annum within one year		-		-		-		16,358,069		-			16,358,069
Loans proportionate consolidated from Bridas Corporation	1.38% per annum with maturity within one year		-		-		-		86,616		-			86,616
			-		-		-		16,444,685		-			16,444,685
Loans and borrowings due within one year
For Tangguh LNG Project****	LIBOR+0.23% to 0.38% per annum with maturity within one year		122,092		-		122,092		184,398		-			184,398
For Nigeria OML130 Project	LIBOR+4% per annum with maturity within one year		-		-		-		4,652,116		-			4,652,116
Loans and notes proportionate consolidated from Bridas Corporation	4.14%-12.25% and LIBOR+5% to 5.5% per annum with maturity within one year		-		-		-		186,035		163,440	*		349,475
			122,092		-		122,092		5,022,549		163,440			5,185,989
			122,092		-		122,092		21,467,234		163,440			21,630,674

F-51

CNOOC LIMITED

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(All amounts expressed in Renminbi unless otherwise stated)

25. LOANS AND BORROWINGS (continued)

Non-Current

		2009						2010
		RMB’000						RMB’000
	Effective interest rate and final maturity	Bank loan		Notes /Bonds		Total		Bank loan		Notes /Bonds		Total
For Tangguh LNG Project****	LIBOR+0.23% to 0.38% per annum with maturity through 2021		3,025,942		-		3,025,942		2,910,795		-		2,910,795
For Nigeria OML130 Project	LIBOR+4% per annum with maturity through 2015		8,790,966		-		8,790,966		387,428		-		387,428
Loans and notes proportionate consolidated from Bridas Corporation	4.14%-12.25% and LIBOR+3.75% to 5.5% per annum with maturity through 2012-2018		-		-		-		1,031,658		825,709*		1,857,367
Finance (2002)**			-		3,401,014		3,401,014		-		3,304,516		3,304,516
Finance (2003)***			-		3,352,139		3,352,139		-		3,255,943		3,255,943
			11,816,908		6,753,153		18,570,061		4,329,881		7,386,168		11,716,049

* These represent long-term bonds issued by Pan American Energy LLC, a jointly-controlled entity of the Company. One of the bonds will mature in 2012 with total principal amount of US$50 million, bearing effective interest rate of 7.75%, another one will mature in 2021 with total principal amount of US$100 million, bearing effective interest rate of 7.875%.

** The principal amount of US$500 million of 6.375% guaranteed notes due in 2012 issued by CNOOC Finance (2002) Limited, a wholly-owned subsidiary of the Company. The obligations of CNOOC Finance (2002) Limited in respect of the notes are unconditionally and irrevocably guaranteed by the Company.

***  The principal amount of US$200 million of 4.125% guaranteed notes due in 2013 and the principal amount of US$300 million of 5.500% guaranteed notes due in 2033 issued by CNOOC Finance (2003) Limited, a wholly-owned subsidiary of the Company. The obligations of CNOOC Finance (2003) Limited in respect of the notes are unconditionally and irrevocably guaranteed by the Company.

**** The amount represented the Group’s share of utilized bank loans in Tangguh Liquified Natural Gas Project (the “Tangguh LNG Project”).

F-52

CNOOC LIMITED

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(All amounts expressed in Renminbi unless otherwise stated)

25. LOANS AND BORROWINGS (continued)

The Company delivered a guarantee dated October 29, 2007 in favour of Mizuho Corporate Bank, Ltd., which acts as the facility agent for and on behalf of various international commercial banks under a US$884 million commercial loan agreement dated October 29, 2007 in connection with the Tangguh LNG Project in Indonesia. The Company guarantees the payment obligations of the trustee borrower under the subject loan agreement and is subject to a maximum cap of approximately US$164,888,000. Together with the loan agreement dated July 31, 2006 with a maximum cap of approximately US$487,862,000, the total maximum guarantee cap is US$652,750,000.

An agreement in respect of the sale of a 3.05691% interest of the Company in the Tangguh LNG Project to Talisman Energy Inc. (“Talisman”) for a consideration of US$212.5 million became effective on January 1, 2008. The transaction was completed through the equity transfer of an indirect subsidiary of the Company. The Company through its subsidiary continues to hold a 13.89997% interest in the Tangguh LNG Project after the sale.

In addition, a letter of credit agreement was signed between the Company and Talisman with the execution of the aforesaid agreement. Accordingly, Talisman has delivered valid and unexpired standby letters of credit with the amount of US$120 million to the Company (as the beneficiary) as a counter-guarantee to offset the exposure of the Company’s guarantee for the aforesaid interest of 3.05691% in respect of the Tangguh LNG Project financing.

As at December 31, 2010, except for the general loans of US$1.77 billion secured by time deposits (see note 22), all the bank loans of the Group were unsecured, and none of the outstanding borrowings were guaranteed by CNOOC.

F-53

CNOOC LIMITED

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(All amounts expressed in Renminbi unless otherwise stated)

25. LOANS AND BORROWINGS (continued)

The maturities of the long term bank loans are as follows:

	2009			2010
	RMB’000			RMB’000
Repayable:
Within one year		122,092			5,022,549
After one year but within two years		165,272			972,670
After two years but within three years		196,752			568,610
After three years but within four years		228,232			381,342
After four years but within five years		259,713			369,870
After five years		10,966,939			2,037,389
		11,939,000			9,352,430
Amount due within one year shown under current liabilities		( 122,092	)		(5,022,549	)
		11,816,908			4,329,881

Supplemental information with respect to the 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

For the year ended

at year end

at year end

year

year*

year**

December 31

RMB’000

RMB’000

RMB’000

2010

9,352,430

3.33

%

13,267,282

10,645,715

3.40

%

2009

11,939,000

3.47

%

11,939,000

9,535,515

3.96

%

* The average amount outstanding is computed by averaging the outstanding principal balances as at January 1 and December 31 of each year.

** The weighted average interest rate is computed by averaging the interest rates as at January 1 and December 31 of each year.

There was no default of principal, interest or redemption terms of the long term bank loans during the year.

F-54

CNOOC LIMITED

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(All amounts expressed in Renminbi unless otherwise stated)

26. PROVISION FOR DISMANTLEMENT

	2009			2010
	RMB’000			RMB’000
At January 1		8,339,734			11,758,980
Capitalized in oil and gas properties		3,052,095			4,009,613
Utilized		(98,932	)		(290,899	)
Unwinding of discount* (note 9)		466,439			762,394
Exchange differences		(356	)		(26,291	)
		11,758,980			16,213,797
Current portion of dismantlement included in other payables and accrued liabilities (note 24)		(477,891	)		(186,992	)
At December 31		11,281,089			16,026,805

* The discount rate used for calculating the amount of unwinding of the discount is 5% (2009: 5%).

27. SHARE CAPITAL

			Share capital		Issued share capital equivalent of
Shares	Number of shares		HK$’000		RMB’000
Authorized:
Ordinary shares of HK$0.02 each
as at December 31, 2010 and December 31, 2009		75,000,000,000		1,500,000
Issued and fully paid:
Ordinary shares of HK$0.02 each as at January 1, 2009		44,669,199,984		893,384		949,299
As at December 31, 2009		44,669,199,984		893,384		949,299
As at December 31, 2010		44,669,199,984		893,384		949,299

Share option schemes

The Company has adopted the following share option schemes for the grant of options to the Company’s directors, senior management and other eligible grantees:

1. Pre-Global Offering Share Option Scheme (as defined below);

2. 2001 Share Option Scheme (as defined below);

3. 2002 Share Option Scheme (as defined below); and

4. 2005 Share Option Scheme (as defined below).

F-55

CNOOC LIMITED

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(All amounts expressed in Renminbi unless otherwise stated)

27. SHARE CAPITAL (continued)

Share option schemes (continued)

Under these share option schemes, the Remuneration Committee of the Board will from time to time propose for the Board’s approval the grant of share options and the number of share options to be granted to the relevant grantees. The maximum aggregate number of shares (including those that could be subscribed for under the Pre-Global Offering Share Option Scheme, the 2001 Share Option Scheme, the 2002 Share Option Scheme and the 2005 Share Option Scheme) which may be issued upon exercise of all options granted shall not exceed 10% of the total issued share capital of the Company as at December 31, 2005, being the date on which the shareholders of the Company approved the 2005 Share Option Scheme, excluding shares under options which have lapsed.

Pre-Global Offering Share Option Scheme

On February 4, 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 to subscribe for an aggregate of 23,100,000 shares have been granted; and

2. the exercise price for such options is HK$1.19 per share.

The exercise periods for the options granted under the Pre-Global Offering Share Option Scheme shall end not later than 10 years from March 12, 2001. No further options may be granted under the Pre-Global Offering Share Option Scheme.

2001 Share Option Scheme

On February 4, 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 for attracting and retaining the best available personnel to the Company. Pursuant to the 2001 Share Option Scheme:

1. options to subscribe for an aggregate of 44,100,000 shares have been granted; and

2. the exercise price for such options price is HK$1.232 per share.

The exercise periods for the options granted under the 2001 Share Option Scheme shall end not later than 10 years from August 27, 2001. No further options may be granted under the 2001 Share Option Scheme.

2002 Share Option Scheme

In June 2002, the Company adopted a new share option scheme (the “2002 Share Option Scheme”) for the purpose of recognising the contribution that certain individuals had made to the Company and for attracting and retaining the best available personnel to the Company.

Under the 2002 Share Option Scheme, the Board may, at its discretion, offer to grant to the directors and employees of the Company or any of its subsidiaries options to subscribe for shares of the Company. The maximum number of shares in respect of which options may be granted under the 2002 Share Option Scheme to any individual in any 12-month period up to the date of the latest grant shall not exceed 1% of the total issued share capital of the Company from time to time.

F-56

CNOOC LIMITED

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(All amounts expressed in Renminbi unless otherwise stated)

27. SHARE CAPITAL (continued)

Share option schemes (continued)

2002 Share Option Scheme (continued)

According to the 2002 Share Option Scheme, the consideration payable by a grantee for the grant of options will be HK$1.00. The exercise price for such options will be determined by the Board at its discretion at the date of grant, except that such price shall be not less than the higher of:

1. the nominal value of a share of the Company on the date of grant;

2. the average closing price of the shares on the Stock Exchange of Hong Kong Limited (“HKSE”) as stated in the HKSE’s quotation sheets for the five trading days immediately preceding the date of grant; and

3. the closing price of the shares on the HKSE as stated in the HKSE’s quotation sheet on the date of grant.

The exercise periods for the options granted under the 2002 Share Option Scheme shall end not later than 10 years from the date of grant.

On December 31, 2005, the Company terminated the 2002 Share Option Scheme. Upon termination of the 2002 Share Option Scheme, no further options may be granted under the 2002 Share Option Scheme, but in all other respects the provisions of the 2002 Share Option Scheme shall remain in force. The outstanding options under the 2002 Share Option Scheme shall continue to be subject to the provisions of the 2002 Share Option Scheme.

2005 Share Option Scheme

On December 31, 2005, the Company adopted a new share option scheme (the “2005 Share Option Scheme”). Under the 2005 Share Option Scheme, the Board has the authority to grant options to subscribe for shares to the directors, officers and employees of the Company and its subsidiaries, and any other persons who in the sole discretion of the Board, have contributed or will contribute to the Group. Unless approved by the shareholders, the total number of shares issued and to be issued upon exercise of the options granted to each individual (including exercised and unexercised options) under the 2005 Share Option Scheme or any other share option scheme adopted by the Company, in any 12-month period, must not exceed 1% of the shares in issue of the Company.

According to the 2005 Share Option Scheme, the consideration payable by a grantee for the grant of options will be HK$1.00. The exercise price for such options will be determined by the Board at its discretion at the date of grant, except that such price shall be at least the higher of:

1. the nominal value of a share of the Company on the date of grant;

2. the average closing price of the shares as stated in the HKSE’s daily quotation sheets for the five trading days immediately preceding the date of grant; and

3. the closing price of the shares as stated in the HKSE’s daily quotation sheet on the date of grant.

The period within which the options must be exercised, as well as any minimum holding period or performance targets which apply to the options, will be specified by the Board of the Company at the time of grant. The exercise periods for options granted under the 2005 Share Option Scheme shall end not later than 10 years from the date of grant. No options may be granted under the 2005 Share Option Scheme after the date of the 10th anniversary of the adoption of the 2005 Share Option Scheme.

F-57

CNOOC LIMITED

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(All amounts expressed in Renminbi unless otherwise stated)

27. SHARE CAPITAL (continued)

Share option schemes (continued)

The fair value of the share options granted during the year was approximately RMB364,350,000 (2009: RMB254,389,000, 2008: RMB312,758,000) and the Group recognized an equity-settled share option expense of approximately RMB217,633,000 (2009: RMB184,343,000, 2008: RMB167,219,000) during the year.

The fair value of equity-settled share options granted during the year was estimated as at the date of grant, using the Black-Scholes option pricing model, taking into account the terms and conditions upon which the options were granted. The expected volatility was based on the historical volatility of the Company’s stock prices over a period that is commensurate with the expected life of the options.

The following table lists the inputs to the model used:
	2008		2009		2010
Dividend yield		2.18%		4.09%		3.27%
Expected volatility		39.07%		47.55%		48.58%
Risk-free interest rate		2.89%		1.96%		1.63%
Expected life of options	5 years		5 years		5 years
Weighted average share price per share		HK$13.74		HK$9.79		HK$12.22

F-58

CNOOC LIMITED

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(All amounts expressed in Renminbi unless otherwise stated)

27. SHARE CAPITAL (continued)

Share option schemes (continued)

Details of the share options outstanding are as follows:

	2009					2010
	Number of share options			Weighted average exercise price		Number of share options			Weighted average exercise price
				HK$					HK$
Outstanding at the beginning of the year		376,084,233			7.34		420,263,901			8.05
Granted during the year		97,848,000			9.93		106,188,000			12.70
Forfeited during the year		( 53,668,332	)		6.56		(52,397,001	)		7.53
Exercised during the year		-			-		-			-
Outstanding at end of year		420,263,901			8.05		474,054,900			9.14
Exercisable at the end of the year		249,689,668			6.00		288,864,001			7.25

No share options had been cancelled or modified during the years ended December 31, 2010 and 2009.

At the date of approval of these financial statements, the share options outstanding under these share option schemes represented approximately 1.06% of the Company’s shares in issue as at that date. The weighted average remaining contractual life of share options outstanding at the end of the year was 6.76 years (2009: 7.03 years, 2008: 7.22 years). The exercise in full of the outstanding share options would, under the present capital structure of the Company, result in the issue of 474,054,900 additional ordinary shares of the Company and additional share capital of RMB8,067,751 and share premium of RMB3,680,720,850.

28. RESERVES

According to the laws and regulations of the PRC and the articles of association of CNOOC China Limited, CNOOC China Limited is required to provide for certain statutory funds, namely, the general reserve fund and staff and workers’ bonus and welfare fund, which are appropriated from net profit (after making good losses from previous years), but before dividend distribution.

CNOOC China Limited is required to allocate at least 10% of its net profit as reported in accordance with the generally accepted accounting principles in the PRC (“PRC GAAP”) to the general reserve fund until the balance of such fund reaches 50% of its registered capital. The general reserve fund can only be used, upon approval by the relevant authority, to offset against accumulated losses or to increase capital.

Appropriation to the staff and workers’ bonus and welfare fund, which is determined at the discretion of the board of directors of CNOOC China Limited, is expensed as incurred under IFRSs/HKFRSs. The staff and workers’ bonus and welfare fund can only be used for special bonuses or collective welfare of employees.

As at December 31, 2010, the general reserve fund amounted to RMB10,000,000,000 (2009: RMB10,000,000,000), representing 50% (2009: 50%) of the total registered capital of CNOOC China Limited.

In accordance with the “Temporary Regulation for Safety Expense Financial Management of High Risk Industry” and the implementation guidance issued by the Ministry of Finance of the PRC, a safety fund has been accrued for the Group’s oil and gas exploration and production activities within the PRC. The accrued safety fund will be utilized for improving the safety conditions of production.  Included in other reserves as at December 31, 2010 was a provision for the safety fund under PRC regulations amounting to RMB13,493,000 (2009:RMB 25,152,000).

In accordance with the relevant accounting principles required by the local authorities, as at December 31, 2010, the aggregate amount of the Group’s retained earnings available for distribution to the Company’s shareholders amounted to approximately RMB154,030,069,000 (2009: RMB115,554,182,000).

F-59

CNOOC LIMITED

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(All amounts expressed in Renminbi unless otherwise stated)

29. RELATED PARTY TRANSACTIONS

The majority of the Group’s business activities are conducted with state-owned enterprises (including CNOOC and its associates). As the Group is controlled by CNOOC, transactions with CNOOC and its associates are disclosed as related party transactions. The Group considers that transactions with other state-owned enterprises (other than CNOOC and its associates) are in the ordinary course of business and there are no indicators that the Group influenced, or was influenced by, those state-owned enterprises. Accordingly, the Group has not disclosed such transactions with other state-owned enterprises (other than CNOOC and its associates) as related party transactions.

The Company entered into four comprehensive framework agreements with each of CNOOC, China Oilfield Services Limited (“COSL”), Offshore Oil Engineering Co., Ltd. (“CNOOC Engineering”) and China BlueChemical Ltd. (“China BlueChem”) on November 8, 2007 respectively (Collectively referred as “2007 Framework Agreements”)for the provision of a range of products and services which may be required and requested from time to time by either party and/or its associates in respect of the related party/continuing connected transactions. The term of each of the comprehensive framework agreements is for a period of three years from January 1, 2008. The related party/continuing connected transactions and relevant annual caps were approved by the independent shareholders of the Company on December 6, 2007. The approved related party/continuing connected transactions are as follows:

1. Provision of exploration, oil and gas development, oil and gas production as well as marketing, management and ancillary services by CNOOC and/or its associates to the Group:

a) Provision of exploration and support services

b) Provision of oil and gas development and support services

c) Provision of oil and gas production and support services

d) Provision of marketing, management and ancillary services

e) FPSO vessel leases

2. Provision of management, technical, facilities and ancillary services, including the supply of materials by the Group to CNOOC and/or its associates; and

3. Sales of petroleum and natural gas products by the Group to CNOOC and/or its associates:

a) Sales of petroleum and natural gas products (other than long term sales of natural gas and liquefied natural gas)

b) Long term sales of natural gas and liquefied natural gas

On November 1, 2010, the Company entered into a comprehensive framework agreement ("Comprehensive Framework Agreement") with CNOOC for the provision (1) by the Group to CNOOC and/or its associates and (2) by CNOOC and/or its associates to the Group, of a range of products and services which may be required and requested from time to time by either party and/or its associates in respect of the continuing connected transactions. The term of the Comprehensive Framework Agreement is for a period of three years from January 1, 2011. The Comprehensive Framework Agreement is substantially on the same terms as the terms contained in the 2007 Framework Agreements entered into by the Company on November 8, 2007. The renewal of the continuing connected transactions and the relevant annual caps for the three years from January 1, 2011 were approved by the independent shareholders of the Company on November 24, 2010.

Pricing principles

The continuing connected transactions referred to in paragraphs 1(a) to 1(d) above provided by CNOOC and/or its associates to the Group and in paragraph 2 above provided by the Group to CNOOC and/or its associates are based on negotiations with CNOOC and/or its associates on normal commercial terms, or on terms no less favourable than those available to the Group from independent third parties, under prevailing local market conditions, including considerations such as volume of sales, length of contracts, package of services, overall customer relationship and other market factors.

F-60

CNOOC LIMITED

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(All amounts expressed in Renminbi unless otherwise stated)

29. RELATED PARTY TRANSACTIONS (continued)

Pricing principles (continued)

If, for any reason, the above pricing principle for a particular service ceases to be applicable or there is no open market for the service, whether due to a change in circumstances or otherwise, such service must then be provided in accordance with the following general pricing principles:

(i) state-prescribed prices; or

(ii) where there is no state-prescribed price, market prices, including the local, national or international market prices; or

(iii) when neither (i) nor (ii) is applicable, the costs of CNOOC and/or its associates for providing the relevant service (including the cost of sourcing or purchasing from third parties) plus a margin of not more than 10%, before any applicable taxes.

The continuing connected transactions referred to in paragraph 1(e) above provided by CNOOC and/or its associates to the Group are conducted at market prices on normal commercial terms which are calculated on a daily basis.

The continuing connected transactions referred to in paragraphs 3(a) above provided by the Group to CNOOC and/or its associates are at state-prescribed prices or local, national or international market prices and on normal commercial terms.

The continuing connected transactions referred to in paragraphs 3(b) above provided by the Group to CNOOC and/or its associates are at state-prescribed prices or local, national or international market prices and on normal commercial terms, which are subject to adjustment in accordance with movements in international oil prices as well as other factors such as the term of the sales agreement and the length of the relevant pipelines.

The following is a summary of significant related party transactions entered into in the ordinary course of business between the Group and its related parties during the year and the balances arising from related party transactions at the end of the year.

(i) Provision of exploration, oil and gas development, oil and gas production as well as marketing, management and ancillary services by CNOOC and/or its associates to the Group

	2008		2009		2010
	RMB’000		RMB’000		RMB’000
Provision of exploration and support services		4,445,370		4,421,900		5,461,687
– Inclusive of amounts capitalized under property, plant and equipment		2,210,128		2,487,698		2,358,849
Provision of oil and gas development and support services		9,984,609		21,974,786		14,190,008
Provision of oil and gas production and support services (Note a)		3,656,027		4,115,604		5,229,151
Provision of marketing, management and ancillary services (Note b)		542,703		702,113		759,305
FPSO vessel leases (Note c)		1,037,255		1,631,799		1,451,935
		19,665,964		32,846,202		27,092,086

F-61

CNOOC LIMITED

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(All amounts expressed in Renminbi unless otherwise stated)

29. RELATED PARTY TRANSACTIONS (continued)

(ii) Provision of management, technical, facilities and ancillary services, including the supply of materials by the Group to CNOOC and/or its associates

The Group did not enter into any transactions in this category for the years ended December 31, 2008, 2009 and 2010.

(iii) Sales of petroleum and natural gas products by the Group to CNOOC and/or its associates

	2008		2009		2010
	RMB’000		RMB’000		RMB’000
Sales of petroleum and natural gas products (other than long term sales of natural gas and liquefied natural gas) (Note d)		39,543,073		54,606,257		90,868,876
Long term sales of natural gas and liquefied natural gas (Note e)		2,636,674		2,909,648		4,434,094
		42,179,747		57,515,905		95,302,970

(iv) Transactions with CNOOC Finance Corporation Limited (“CNOOC Finance”)

(a) Interest income received by the Group

	2008		2009		2010
	RMB’000		RMB’000		RMB’000
Interest income from deposits in CNOOC Finance (Note f)		3,423		86,493		72,410

(b) Deposits made by the Group

	2008		2009		2010
	RMB’000		RMB’000		RMB’000
Deposits in CNOOC Finance (Note f)		4,412,014		4,480,000		7,871,581

Notes:

a) These represent the services for production operations, the provision of various facilities and ancillary services, such as the provision of different types of materials, medical and employee welfare services, maintenance and repair of major equipment and supply of water, electricity and heat to the Group, some of which may not be available from independent third parties or available on comparable terms.

b) These include the marketing, administration and management, management of oil and gas operations and the provision of integrated research services as well as other ancillary services relating to exploration, development, production and research activities of the Group. In addition, CNOOC and/or its associates leased certain premises to the Group for use as office premises and staff quarters out of which they provided management services to certain properties.

c) CNOOC Energy Technology & Services Limited (formerly known as “CNOOC Oil Base Group Limited”) leased floating production, storage and offloading (FPSO) vessels to the Group for use in oil production operations.

F-62

CNOOC LIMITED

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(All amounts expressed in Renminbi unless otherwise stated)

29. RELATED PARTY TRANSACTIONS (continued)

Notes (continued):

d) The sales include crude oil, condensate oil, liquefied petroleum gas, natural gas and liquefied natural gas to CNOOC and/or its associates. Individual sales contracts were entered into from time to time between the Group and CNOOC and/or its associates.

e) It is market practice for sales terms to be determined based on the estimated reserves and production profile of the relevant gas fields. The long term sales contracts usually last for 15 to 20 years.

f) CNOOC Finance is a 31.8% owned associate of the Company and also a subsidiary of CNOOC. Under the financial services framework agreement with CNOOC Finance dated October 14, 2008, CNOOC Finance provided to the Group settlement, depository, discounting, loans and entrustment loans services. The depository services were exempted from independent shareholders’ approval requirements under the Rules Governing the Listing of Securities on the HKSE (the “Listing Rules”) as the applicable percentage ratios in respect of the depositary services under the agreement is less than 5%. The stated deposits in (iv) (b) above represent the maximum daily outstanding balance for deposits (including accrued interest) during the year.

The related party transactions in respect of items listed above also constitute connected transactions or continuing connected transactions as defined in Chapter 14A of the Listing Rules.

Details of the compensation of the key management personnel of the Group are disclosed in note 10 to the consolidated financial statements.

The amount due to the parent company and amounts due from/to related parties are unsecured, interest-free and are repayable on demand.

30. RETIREMENT AND TERMINATION BENEFITS

All the Group’s full-time employees in the PRC are covered by a state-managed retirement benefit plan operated by the government of the PRC, and are entitled to an annual pension. The PRC government is responsible for the pension liabilities to these retired employees. The Group is required to make annual contributions to the state-managed retirement benefit plan at rates ranging from 11% to 22% of the employees’ basic salaries.

The Company is required to make contributions to a defined contribution mandatory provident fund at a rate of 5% of the basic salaries of all full-time employees in Hong Kong. The related pension costs are expensed as incurred.

The Group provides retirement and termination benefits for all local employees in Indonesia in accordance with Indonesian labour law, and provides employee benefits to expatriate staff in accordance with the relevant employment contracts.

During the year, the Group’s pension costs charged to the consolidated financial statement of comprehensive income amounted to RMB117,831,000 (2009: RMB96,336,000, and 2008: RMB67,374,000).

F-63

CNOOC LIMITED

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(All amounts expressed in Renminbi unless otherwise stated)

31. NOTES TO THE CONSOLIDATED STATEMENTS OF CASH FLOWS

Reconciliation of profit before tax to cash generated from operations

	2008			2009			2010
	RMB’000			RMB’000			RMB’000
Profit before tax		57,880,286			40,821,091			72,649,991
Adjustments for:
Interest income on bank deposits		(1,091,024	)		(638,252	)		(703,849	)
Finance costs		404,210			523,664			1,213,571
Exchange gains, net		(2,551,260	)		(53,799	)		(994,795	)
Share of profits of associates		(374,111	)		(173,459	)		(198,854	)
Gain on disposal of non-current asset held for sale		(992,136	)		-			-
Investment income		(475,925	)		(199,925	)		(427,491	)
Provision for inventory obsolescence		5,374			6,955			26,381
Depreciation, depletion and amortization		10,057,665			15,942,902			27,687,095
Loss/(gain) on disposal and write-off of property, plant and equipment		435,158			(1,564	)		1,618,575
Unwinding of discount of long term guaranteed notes		11,061			10,875			8,452
Impairment losses		1,536,032			-			-
Equity-settled share option expense		167,219			184,343			217,633
Others		161,291			255,620			155
		65,173,840			56,678,451			101,096,864
(Increase) /decrease in trade receivables		4,421,122			(7,482,513	)		(6,771,263	)
Increase in inventories and supplies		(204,452	)		(678,572	)		(440,041	)
(Increase)/decrease in other current assets		(834,420	)		327,804			(190,259	)
Increase/(decrease) in trade and accrued payables, other payables and accrued liabilities		(94,246	)		6,484,381			2,258,240
Increase/(decrease) in other taxes payable		(529,386	)		3,055,288			2,791,878
Net cash flows from operations		67,932,458			58,384,839			98,745,419

32. COMMITMENTS

(i) Capital commitments

As at December 31, 2010, the Group had the following capital commitments, principally for the construction and purchase of property, plant and equipment:

	2009		2010
	RMB’000		RMB’000
Contracted, but not provided for		5,650,199		9,620,691
Authorized, but not contracted for		48,907,804		46,125,374

The capital commitments do not include investment commitments for acquisitions of equity interest or working interest, which have been disclosed in note 4 and note 37.

The capital commitments contracted, but not provided for, include the estimated payments to the Ministry of Land and Resources of the PRC for the next five years with respect to the Group’s exploration and production licenses.

As at December 31, 2010, the Group had unutilized banking facilities amounting to approximately RMB179,029,474,000 (2009: RMB174,843,128,000).

F-64

CNOOC LIMITED

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(All amounts expressed in Renminbi unless otherwise stated)

32. COMMITMENTS (continued)

(ii) Operating lease commitments

(a) Office properties

The Group leases certain of its office properties under operating lease arrangements. Leases for properties are negotiated for terms ranging from 1 month to 9 years.

As at December 31, 2010, the Group had total minimum lease payments under non-cancellable operating leases falling due as follows:

	2009		2010
	RMB’000		RMB’000
Commitments due:
Within one year		61,792		121,052
In the first to second years, inclusive		35,319		51,642
After the second but before the fifth years, inclusive		52,494		23,250
		149,605		195,944

(b) Plant and equipment

The Group leases certain of its plant and equipment under operating lease arrangements for a term from 7 months to 10 years.

As at December 31, 2010, the Group had total minimum lease payments under non-cancellable operating leases falling due as follows:

	2009		2010
	RMB’000		RMB’000
Commitments due:
Within one year		600,892		703,286
In the first to second years, inclusive		598,867		546,798
After the second but before the fifth years, inclusive		1,182,880		745,877
After five years		443,562		485,063
		2,826,201		2,481,024

F-65

CNOOC LIMITED

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(All amounts expressed in Renminbi unless otherwise stated)

32. COMMITMENTS (continued)

(iii) Contingent liabilities

(a) On January 8, 2006, the Company signed a definitive agreement with South Atlantic Petroleum Limited   (“SAPETRO”) to acquire a 45% working interest in the Offshore Oil Mining Lease 130 (“OML130”) with Nigeria (the “OML130 Transaction”) and the OML130 Transaction was completed on April 20, 2006.

In 2007, a local tax office in Nigeria (the “Nigerian Local Tax Office”) conducted a tax audit on SAPETRO. According to the preliminary tax audit results, the Nigerian Local Tax Office has raised a disagreement in the tax filings made for the OML130 Transaction.

The tax audit assessment made by the Nigerian Local Tax Office has been contested by the Company in accordance with Nigerian laws. After seeking legal and tax advice, the Company’s management believes that the Company has reasonable grounds in making the contest. Consequently, no provision has been made for any expenses which might arise as a result of the dispute.

(b) The Company has extended interest-free intercompany loan to CNOOC International, a wholly-owned subsidiary, to provide onward funding to its subsidiaries domiciled outside the PRC. Upon receipt of the Chinese Resident Enterprise Approval, the Company may be liable to pay taxes on the deemed interest income for the intercompany loan to CNOOC International starting from January 1, 2008. The Company is currently applying to, and awaiting confirmation from its in-charge tax authority for an exemption on this possible deemed interest income.

33. FINANCIAL INSTRUMENTS

Fair value of financial instruments

The carrying values of the Group’s cash and cash equivalents, time deposits, trade receivables, other current assets, trade and accrued payables and other payables approximated to their fair values at the reporting date due to the short maturity of these instruments.

The estimated fair value of the Group’s long term bank loans with fixed interest rates was the present value of the loans’ future cash flows discounted by the interest rates as at the reporting date. The estimated fair value of the Group’s long term bank loans with fixed interest rates was approximately RMB776,684,000 as a December 31, 2010 (2009: Nil). The fair value of the Group’s long term bank loans with floating interest rates approximated to the carrying amount of RMB9,410,268,000 as at December 31, 2010 (2009: RMB12,491,754,000).

The estimated fair value of the Group’s long term guaranteed notes based on current market interest rates was approximately RMB8,038,656,000 as at December 31, 2010 (2009: RMB7,113,542,000), which was determined by reference to the market price as at December 31, 2010.

Fair value hierarchy

The Group uses the following hierarchy that reflects the significance of the inputs used in making the measurement:

Level 1: quoted prices (unadjusted) in active markets for identical assets or liabilities;

Level 2: inputs other than quoted prices included within Level 1 that are observable for the asset or liability, either directly or indirectly; and

Level 3: inputs for the asset or liability that are not based on observable market data (unobservable inputs).

F-66

CNOOC LIMITED

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(All amounts expressed in Renminbi unless otherwise stated)

33. FINANCIAL INSTRUMENTS (continued)

Fair value hierarchy (continued)

As at December 31, 2010 and 2009, the Group held the following financial instruments measured at fair value for each hierarchy respectively:

	December 31, 2010 RMB’000		Level 1 RMB’000		Level 2 RMB’000		Level 3 RMB’000
Assets measured at fair value
Available-for-sale financial assets-current
Private equity funds*		15,841		-		15,841		-
Corporate wealth management products*		13,000,000		-		13,000,000		-
Liquidity funds**		5,924,133		5,924,133		-		-
		18,939,974		5,924,133		13,015,841		-
Available-for-sale financial assets-non current
Equity investment in MEG**		8,616,437		8,616,437		-		-
		8,616,437		8,616,437		-		-
Liabilities measured at fair value
Foreign exchange forward contracts***		80,054		-		80,054		-

	December 31, 2009 RMB’000		Level 1 RMB’000		Level 2 RMB’000		Level 3 RMB’000
Assets measured at fair value Available-for-sale financial assets
Private equity funds*		19,227		-		19,227		-
Liquidity funds**		8,563,137		8,563,137		-		-
		8,582,364		8,563,137		19,227		-
Liabilities measured at fair value
Foreign exchange forward contracts***		125		-		125		-

* The fair values of private equity funds and corporate wealth management products are based on the fund managers’ quotations.

** The fair values of liquidity funds and equity investment in MEG are based on quoted market prices.

*** The fair value of foreign currency forward contracts was determined using forward exchange rates as at December 31, 2010 and 2009 respectively.

These contracts are entered into for a 12-month period consistent with the US dollars payment exposures, which are not designated as cash flows, fair value or net investment hedge. These foreign currency forward contracts are categorised as financial liabilities at fair value through profit or loss.  Changes in fair value of these contracts were recognised in the statement of comprehensive income in other finance costs (note 9).

F-67

CNOOC LIMITED

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(All amounts expressed in Renminbi unless otherwise stated)

34. CONCENTRATION OF CUSTOMERS

A substantial portion of the oil and gas sales of the Group is made to a small number of third parties on credit. Details of the gross sales to these top five customers are as follows:

	2008		2009		2010
	RMB’000		RMB’000		RMB’000
China Petroleum & Chemical Corporation		46,482,906		24,332,653		34,383,928
PetroChina Company Limited		17,704,346		7,721,285		13,217,599
Unipec Asia Company		190,837		175,836		6,811,123
Dong Ying  Hua Lian		-		1,093,440		2,830,082
Gunvor Singapore Pte Ltd.		-		-		2,404,267

35. FINANCIAL RISK MANAGEMENT OBJECTIVES AND POLICIES

The Group’s principal financial instruments comprise bank loans, long term guaranteed notes, available-for-sale financial assets, cash and short term deposits. The Group has various other financial assets and liabilities such as trade receivables and trade payables, which arise directly from its operations.

The Group is exposed to credit risk, oil price risk, currency risk, interest rate risk, business risk and liquidity risk.

The Group’s senior management oversees the management of these risks. The Group’s senior management is supported by various departments that advise on financial risks and the appropriate financial risks governance framework for the Group. Those departments provide assurance to the Group’s senior management that the Group’s financial risk-taking activities are governed by appropriate policies and procedures and that financial risks are identified, measured and managed in accordance with group policies and group risk appetite.

(i)   Credit risk

The carrying amounts of the Group’s cash and cash equivalents, time deposits and liquidity funds investments, trade receivables and other receivables, and other current assets except for prepayments represent the Group’s maximum exposure to credit risk in relation to its financial assets.

The significant portion of the Group’s trade receivables is related to the sale of oil and natural gas to third party customers. The Group performs ongoing credit evaluations of the customers’ financial condition and generally does not require collateral on trade receivables. The Group made an impairment allowance on doubtful receivables and actual losses have been within management’s expectation.

Since the Group trades only with recognized and creditworthy third parties, there is no requirement for collateral. Concentrations of credit risk are managed by customer/counterparty and by geographical region. At the reporting date, the Group has certain concentrations of credit risk as 16% (2009: 17%) and 31% (2009: 32%) of the Group’s trade receivables were due from the Group’s largest customer and the five largest customers, respectively.

No other financial assets carry a significant exposure to credit risk.

(ii) Oil price risk

As our realized oil prices are mainly determined by reference to oil prices in international market, international oil prices are highly volatile and could have a significant impact on our revenue and profit.

F-68

CNOOC LIMITED

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(All amounts expressed in Renminbi unless otherwise stated)

35. FINANCIAL RISK MANAGEMENT OBJECTIVES AND POLICIES (continued)

(iii) Currency risk

Substantially all of the Group’s oil and gas sales are denominated in Renminbi and United States dollars (“US dollars”). In the past decade, the PRC government’s policies of maintaining a stable exchange rate and China’s ample foreign reserves have contributed to the stability of the Renminbi. Starting from July 21, 2005, China reformed the exchange rate regime by moving into a managed floating exchange rate regime based on market supply and demand with reference to a basket of currencies. Renminbi would no longer be pegged to the US dollars. From January 1, 2010 to December 31, 2010 (the last working day in 2010), Renminbi has appreciated by approximately 3.1% against the US dollars. At the reporting date, approximately 62.1% (2009: 69.1%) of the Group’s cash and cash eqivalents and time deposits with maturity over three months were Renminbi, and remaining amounts are US dollars and Hong Kong dollars.

Management has assessed the Group’s exposure to foreign currency risk by using a sensitivity analysis on the change in foreign exchange rate of US dollars, to which the Group is mainly exposed to as at December 31, 2009 and 2010. Based on management’s assessment, a reasonably possible change in foreign exchange rate of the US dollars of 5% is used, and the exposures of the Group’s results of operations, monetary assets and liabilities and investments in its foreign subsidiaries were assumed to be less than 0.77% of the profit of the year and 0.83% of the equity, had the change in the US dollars currency rate occurred at December 31, 2010.

Senior management are closely monitoring the Group’s net exposure to foreign currency risk. The appreciation of Renminbi against the US dollars may have the following impact on the Group. On one hand, since the benchmark oil and gas prices are usually in US dollars against Renminbi, the Group’s oil and gas sales may decrease due to the depreciation of US dollars against Renminbi. On the other hand, the depreciation of US dollars against Renminbi will also decrease the Group’s costs for imported equipment and materials, most of which are denominated in the US dollars. In addition, the debt repayment by the Group will decrease since all of the Group’s debts are also denominated in the US dollars.

(iv) Interest rate risk

The interest rate risk is closely monitored by the Group’s senior management. As at the end of 2010, the interest rates for 25% of the Group’s debts were fixed. The term of the weighted average balance was approximately 2.7 years. The fixed interest rates can reduce the volatility of finance costs under uncertain environments and the Group’s exposure to changes in interest rates is not expected to be material.

(v)  Business risk

The major operations of the Group are conducted in the PRC and many countries and accordingly are subject to special considerations and significant risks not typically associated with investments in equity securities of the United States of America and Western European companies. These include risks associated with, among others, the oil and gas industry, the political, economic and legal environments, influence of the national authorities over price setting and competition in the industry.

(vi) Liquidity risk

The Group manages its liquidity risk by regularly monitoring its liquidity requirements and its compliance with debt covenants to ensure that it maintains sufficient cash and cash equivalents, and readily realizable available-for-sale financial assets, and adequate time deposits to meet its liquidity requirements in the short and long term. In addition, bank facilities have been put in place for contingency purposes.

The Group’s trade and accrued payables, other payables and accrued liabilities are all due for settlement within one year after the reporting date.

F-69

CNOOC LIMITED

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(All amounts expressed in Renminbi unless otherwise stated)

35. FINANCIAL RISK MANAGEMENT OBJECTIVES AND POLICIES (continued)

(vii) Capital management

The primary objective of the Group’s capital management is to safeguard the Group’s ability to continue as a going concern and to maintain healthy capital ratios in order to support its business and maximize shareholders’ value.

The Group manages its capital structure and makes adjustments to it in light of changes in economic conditions. To maintain or adjust the capital structure, the Group may return capital to shareholders, raise new debt or issue new shares. No changes were made in the objectives, policies or processes for managing capital during the years end December 31, 2010 and December 31, 2009.

The Group monitors capital on the basis of the debt to capital ratio (Gearing ratio), which is calculated as interest-bearing debts divided by total capital (equity attributable to owners of the parent plus interest-bearing debts).

	2008			2009			2010
	RMB’000			RMB’000			RMB’000
Interest-bearing debts		13,880,629			18,692,153			33,346,723
Equity attributable to owners of the parent		160,237,708			173,935,503			215,765,947
Total capital		174,118,337			192,627,656			249,112,670
Gearing ratio		8.0	%		9.7	%		13.4	%

36. CHARGE OF ASSETS

CNOOC NWS Private Limited, a wholly-owned subsidiary of the Group, together with the other joint venture partners and the operator of the NWS Project, signed a Deed of Cross Charge and an Extended Deed of Cross Charge whereby certain liabilities incurred or to be incurred, if any, by the Company in respect of the NWS Project are secured by its interest in the NWS Project.

37. SUBSEQUENT EVENTS

(i)   On January 26, 2011, CNOOC Finance (2011) Limited, a wholly owned subsidiary of the Company, issued US$1,500 million 4.25% guaranteed notes due 2021 and US$500 million 5.75% guaranteed notes due 2041 (collectively referred as the “Notes”). The obligations of CNOOC Finance (2011) Limited in respect of the Notes are unconditionally and irrevocably guaranteed by the Company.

(ii)   On January 29, 2011, CNOOC International through its wholly-owned subsidiary OOGC America, Inc. signed a purchase agreement with Chesapeake Exploration, LLC, a subsidiary of Chesapeake to purchase a 33.3% undivided interest in the Denver-Julesburg (DJ) and Powder River Basins in northeast Colorado and southeast Wyoming with a cash consideration of US$570 million. In addition, CNOOC International has agreed to fund 66.7% of Chesapeake’s share of drilling and completion costs in the project until an additional US$697 million has been paid, which Chesapeake expects to occur by year end of 2014. The deal was closed on February 11, 2011.

F-70

CNOOC LIMITED

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(All amounts expressed in Renminbi unless otherwise stated)

37. SUBSEQUENT EVENTS (continued)

(iii)   On February 28, 2011, Bridas Corporation acquired 100% interests of Exxon Mobile's refining and fuels marketing business in Argentina, Uruguay and Paraguay. The consideration is US$520 million. The sale and purchase agreement was signed by the parties on February 28, 2011 in London. The closing of the transaction is expected to occur in the third quarter of 2011 after the required antitrust approval is obtained from Argentina and Uruguay government.

38. COMPARATIVE AMOUNTS

Certain comparative amounts have been reclassified to conform to the current year’s presentation, and those reclassifications are not significant.

39. APPROVAL OF THE FINANCIAL STATEMENTS

The financial statements were approved and authorized for issue by the Board of Directors on March 23, 2011.

F-71

CNOOC LIMITED

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 FASB Accounting Standard Codification 932 “Extractive Activities-Oil and Gas (the “ASC 932”), To align with the amendments to oil and gas reserve estimation requirements under US Securities and Exchange Commission's final rules on "Modernization of Oil and Gas Reporting" (the “SEC Final Rule”), which became effective for accounting periods ended on or after 31 December 2009, FASB issued Accounting Standards Update No. 2010-03 to amend Topic 932 (“ASC 932 Update”) in January 2010. It’s not operational and cost-practical for the management to present the comparative information in accordance with these amendments. Therefore, the comparative information for 2008 has not been restated.

The regional analysis presented below is on a continent basis, with separate disclosure for countries that contain 15% or more of the total proved reserve, in accordance with SEC and FASB requirements.

(a)  Reserve quantity information

Crude oil and natural gas reserve estimates are determined through analysis of geological and engineering data which appear, with reasonable certainty, to be economically producable in the future from known oil and natural gas reservoirs under existing economic and operating conditions. The reserve data that we disclosed were all based on the definitions and disclosure guidelines contained in the SEC Final Rule.

For the years ended or before 31 December 2009, we engaged independent third party consulting firms to perform annual estimates for our proved oil and gas reserves except for reserves of investee accounted for by the equity method. In 2010, approximately 11% of our total proved reserves were evaluated by us, and the remaining were evaluated by independent third party.

We implemented rigorous internal control system that monitors the entire reserves estimation procedure and certain key metrics in order to ensure that the process and results of reserves estimates fully comply with the relevant SEC rules.

We established the Reserve Management Group, or RMG, which is led by one of our Executive Vice Presidents and comprises the general managers of the relevant departments.

The RMG’s main responsibilities are to:

● review our reserves policies;

● review our proved reserves and other categories of reserves; and

● select our reserves estimators and auditors.

The RMG follows certain procedures to appoint our internal reserves estimators and reserves auditors, who are required to have undergraduate degrees and five years and ten years, respectively, or more of experience related to reserves estimation.

The reserves estimators and auditors are required to be members of China Petroleum Society, or CPS, and are required to take the professional trainings and examinations provided by CPS and the Company.

F-72

CNOOC LIMITED

SUPPLEMENTARY INFORMATION ON OIL AND GAS PRODUCING ACTIVITIES

(UNAUDITED)

(All amounts expressed in Renminbi unless otherwise stated)

(a)  Reserve quantity information (continued)

The RMG delegates its daily operation to our Reserves Office, which is led by our Chief Reserve Supervisor. The Reserves Office is mainly responsible for supervising reserves estimates and auditing. It reports to the RMG periodically and is independent form operating divisions such as the exploration, development and production departments. Our Chief Reserve Supervisor has 28 years’ experience in oil and gas industry.

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 the PRC, less (i) 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 (ii) 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 plus the participating interest in the properties covered under the production sharing contracts in oversea countries, less adjustments, if any, of share oil attributable to the host government and the domestic market obligation.

Pursuant to SEC Final Rule, the Group uses the average, first-day-of-the-month oil price during the 12-month period before the ending date of the period covered by the consolidated financial statements to estimate its proved oil and gas reserves in 2009 and 2010. Year-end prices were used for the estimation in 2008.

The Company determines its net entitlement oil and gas reserves under production sharing contracts using the economic interest method.

F-73

CNOOC LIMITED

SUPPLEMENTARY INFORMATION ON OIL AND GAS PRODUCING ACTIVITIES

(UNAUDITED)

(All amounts expressed in Renminbi unless otherwise stated)

(a)  Reserve quantity information (continued)

Proved developed and undeveloped reserves:

	PRC						Asia(excluding PRC)						Oceania						Africa					North America						South America						Total
	Oil			Natural gas			Oil			Natural gas			Oil			Natural gas			Oil			Natural gas		Oil			Natural gas			Oil			Natural gas			Oil			Natural gas
	(mmbbls)			(bcf)			(mmbbls)			(bcf)			(mmbbls)			(bcf)			(mmbbls)			(bcf)		(mmbbls)			(bcf)			(mmbbls)			(bcf)			(mmbbls)			(bcf)
Consolidated entities
31 December 2007		1,405			4,427			55			1,009			29			760			72			-		-			-			-			-			1,561			6,196
Purchase/(Disposal) of reserves		-			-			-			(134	)		-			-			-			-		-			-			-			-			-			(134	)
Discoveries and extensions		150			162			-			8			-			-			17			-		-			-			-			-			167			170
Production		(146	)		(150	)		(7	)		(51	)		(2	)		(38	)		-			-		-			-			-			-			(155	)		(239	)
Revisions of prior estimates		(9	)		(223	)		17			(32	)		(3	)		(115	)		-			-		-			-			-			-			5			(370	)
31 December 2008		1,400			4,216			65			800			24			607			89			-		-			-			-			-			1,578			5,623
Purchase/(Disposal) of reserves		(3	)		-			-			-			-			-			-			-		2			46			-			-			(1	)		46
Discoveries and extensions		139			319			1			1			-			8			-			-		-			-			-			-			140			328
Production		(162	)		(155	)		(8	)		(51	)		(3	)		(44	)		(13	)		-		-			-			-			-			(186	)		(250	)
Revisions of prior estimates		121			(214	)		(4	)		333			5			78			15			-		-			-			-			-			137			197
31 December 2009		1,495			4,166			54			1,083			26			649			91			-		2			46			-			-			1,668			5,944
Purchase of reserves		22			-			-			-			-			-			-			-		-			-			202			546			224			546
Discoveries and extensions		178			828			3			120			-			-			75			-		-			-			-			-			256			948
Production		(224	)		(226	)		(8	)		(82	)		(2	)		(46	)		(23	)		-		-			-			(6	)		(33	)		(263	)		(387	)
Revisions of prior estimates		30			(381	)		1			(104	)		(3	)		(105	)		3			-		( 1	)		(3	)		-			-			30			(593	)
31 December 2010		1,501			4,387			50			1,017			21			498			146			-		1			43			196			513			1,915			6,458
Enterprise’s share of equity method investees:
31 December 2008		2			23			-			-			-			-			-			-		-			-			-			-			2			23
Purchase/(Disposal) of reserves		-			-			-			-			-			-			-			-		-			-			-			-			-			-
Discoveries and extensions		-			-			-			-			-			-			-			-		-			-			-			-			-			-
Production		-			(4	)		-			-			-			-			-			-		-			-			-			-			-			(4	)
Revisions of prior estimates		-			(2	)		-			-			-			-			-			-		-			-			-			-			-			(2	)
31 December 2009		2			17						-			-			-			-			-		-			-			-			-			2			17
Purchase/(Disposal) of reserves		-			-						-			-			-			-			-		-			-			-			-			-			-
Discoveries and extensions		-			-						-			-			-			-			-		-			-			-			-			-			-
Production		(1	)		(4	)					-			-			-			-			-		-			-			-			-			(1	)		(4	)
Revisions of prior estimates		-			1						-			-			-			-			-		-			-			-			-			-			1
31 December 2010		1			14			-			-			-			-			-			-		-			-			-			-			1			14
Total consolidated and equity
Interests in reserves
31 December 2008		1,402			4,239			65			800			24			607			89			-		-			-			-			-			1,580			5,646
31 December 2009		1,497			4,183			54			1,083			26			649			91			-		2			46			-			-			1,670			5,961
31 December 2010		1,502			4,401			50			1,017			21			498			146			-		1			43			196			513			1,916			6,472

F-74

CNOOC LIMITED

SUPPLEMENTARY INFORMATION ON OIL AND GAS PRODUCING ACTIVITIES

(UNAUDITED)

(All amounts expressed in Renminbi unless otherwise stated)

(a)  Reserve quantity information (continued)

Proved developed reserves:

	PRC				Asia(excluding PRC)				Oceania				Africa				North America				South America				Total
	Oil		Natural gas		Oil		Natural gas		Oil		Natural gas		Oil		Natural gas		Oil		Natural gas		Oil		Natural gas		Oil		Natural gas
	(mmbbls)		(bcf)		(mmbbls)		(bcf)		(mmbbls)		(bcf)		(mmbbls)		(bcf)		(mmbbls)		(bcf)		(mmbbls)		(bcf)		(mmbbls)		(bcf)
Consolidated entities
31 December 2008		661		1,140		60		220		14		283		-		-		-		-		-		-		735		1,643
31 December 2009		761		1,516		51		487		11		243		77		-		2		46		-		-		902		2,292
31 December 2010		848		1,848		45		397		9		173		57		-		1		43		108		268		1,068		2,729
Enterprise’s share of equity
method investee:
31 December 2008		2		23		-		-		-		-		-		-		-		-		-		-		2		23
31 December 2009		2		17		-		-		-		-		-		-		-		-		-		-		2		17
31 December 2010		1		14		-		-		-		-		-		-		-		-		-		-		1		14

Proved undeveloped reserves:

PRC

Asia(excluding PRC)

Oceania

Africa

North America

South America

Total

Oil

Natural gas

Oil

Natural gas

Oil

Natural gas

Oil

Natural gas

Oil

Natural gas

Oil

Natural gas

Oil

Natural gas

(mmbbls)

(bcf)

(mmbbls)

(bcf)

(mmbbls)

(bcf)

(mmbbls)

(bcf)

(mmbbls)

(bcf)

(mmbbls)

(bcf)

(mmbbls)

(bcf)

Consolidated entities

31 December 2008

739

3,076

5

580

10

325

89

-

-

-

-

-

843

3,980

31 December 2009

734

2,650

3

596

15

406

14

-

-

-

-

-

766

3,652

31 December 2010

653

2,539

5

620

12

325

89

-

-

-

88

245

847

3,729

Enterprise’s share of equity

method investee:

31 December 2008

–

–

–

–

–

–

–

–

–

–

–

–

–

–

31 December 2009

–

–

–

–

–

–

–

–

–

–

–

–

–

–

31 December 2010

–

–

–

–

–

–

–

–

–

–

–

–

–

–

F-75

CNOOC LIMITED

SUPPLEMENTARY INFORMATION ON OIL AND GAS PRODUCING ACTIVITIES

(UNAUDITED)

(All amounts expressed in Renminbi unless otherwise stated)

(b) Results of operations

	2008
	Consolidated entities
	PRC			Asia(excluding PRC)			Oceania			Africa			North America		South America		Total
	RMB’000			RMB’000			RMB’000			RMB’000			RMB’000		RMB’000		RMB’000
Consolidated entities
Net sales to customers		93,327,439			5,722,549			1,781,345			–			–		–		100,831,333
Operating expenses		(7,628,224	)		(1,930,307	)		(431,837	)		–			–		–		(9,990,368	)
Taxes other than income tax		(4,889,272	)		–			(260,426	)		–			–		–		(5,149,698	)
Exploration		(2,600,862	)		(473,821	)		(211,514	)		(123,349	)		–		–		(3,409,546	)
Accretion expense		(379,227	)		–			–			–			–		–		(379,227	)
Depreciation, depletion and amortization
(including dismantlement)		(8,792,636	)		(1,079,985	)		(184,574	)		(470	)		–		–		( 10,057,665	)
Special oil gain levy		(16,238,234	)		–			–			–			–		–		( 16,238,234	)
		52,798,984			2,238,436			692,994			(123,819	)		–		–		55,606,595
Income tax expenses		(13,199,746	)		(1,101,586	)		(346,984	)		–			–		–		( 14,648,316	)
Result of operations		39,599,238			1,136,850			346,010			(123,819	)		–		–		40,958,279
Enterprise’s share of equity method investee
Result of operations		250,388			–			–			–			–		–		250,388
Total result of operations for producing activities		39,849,626			1,136,850			346,010			(123,819	)		–		–		41,208,667

F-76

CNOOC LIMITED

SUPPLEMENTARY INFORMATION ON OIL AND GAS PRODUCING ACTIVITIES

(UNAUDITED)

(All amounts expressed in Renminbi unless otherwise stated)

(b) Results of operations (continued)

	2009
	Consolidated entities
	PRC			Asia(excluding PRC)			Oceania			Africa			North America			South America		Total
	RMB’000			RMB’000			RMB’000			RMB’000			RMB’000			RMB’000		RMB’000
Net sales to customers		71,337,711			4,513,280			1,736,572			6,193,921			132,895			–		83,914,379
Operating expenses		(9,294,653	)		(1,941,572	)		(454,734	)		(773,293	)		(26,111	)		–		(12,490,363	)
Taxes other than income tax		(3,647,153	)		–			(241,488	)		–			–			–		(3,888,641	)
Exploration		(2,503,688	)		(219,130	)		(443,985	)		(66,880	)		–			–		(3,233,683	)
Accretion expense		(442,944	)		–			–			(23,495	)		–			–		(466,439	)
Depreciation, depletion and amortization
(including dismantlement)		(11,502,378	)		(1,122,729	)		(257,021	)		(3,034,381	)		(26,393	)		–		(15,942,902	)
Special oil gain levy		(6,357,304	)		–			–			–			-			–		(6,357,304	)
		37,589,591			1,229,849			339,344			2,295,872			80,391			–		41,535,047
Income tax expenses		(9,397,398	)		(576,096	)		(117,459	)		(1,280,016	)		(40,196	)		–		(11,411,165	)
Result of operations		28,192,193			653,753			221,885			1,015,856			40,195			–		30,123,882

2009

Enterprise’s share of equity method investee

PRC

Asia(excluding PRC)

Oceania

Africa

North America

South America

Total

RMB’000

RMB’000

RMB’000

RMB’000

RMB’000

RMB’000

RMB’000

Net sales to customers

347,277

–

–

–

–

–

347,277

Operating expenses

(117,802

)

–

–

–

–

–

(117,802

)

Taxes other than income tax

(12,441

)

–

–

–

–

–

(12,441

)

Exploration

(24,969

)

–

–

–

–

–

(24,969

)

Accretion expense

(3,103

)

–

–

–

–

–

(3,103

)

Depreciation, depletion and amortization

(including dismantlement)

(64,680

)

–

–

–

–

–

(64,680

)

Special oil gain levy

–

–

–

–

–

–

–

124,282

–

–

–

–

–

124,282

Income tax expenses

(31,070

)

–

–

–

–

–

(31,070

)

Result of operations

93,212

–

–

–

–

–

93,212

Total result of operations for producing activities

28,285,405

653,753

221,885

1,015,856

40,195

–

30,217,094

F-77

CNOOC LIMITED

SUPPLEMENTARY INFORMATION ON OIL AND GAS PRODUCING ACTIVITIES

(UNAUDITED)

(All amounts expressed in Renminbi unless otherwise stated)

(b) Results of operations (continued)

	2010
	Consolidated entities
	PRC			Asia(excluding PRC)			Oceania			Africa			North America			South America			Total
	RMB’000			RMB’000			RMB’000			RMB’000			RMB’000			RMB’000			RMB’000
Net sales to customers		125,444,633			6,190,996			2,054,459			12,251,825			149,566			3,027,191			149,118,670
Operating expenses		(11,735,204	)		(2,415,410	)		(470,273	)		(983,355	)		(34,537	)		(565,320	)		(16,204,099	)
Taxes other than income tax		(6,512,697	)		–			(332,220	)		(256,879	)		–			(1,102,247	)		(8,204,043	)
Exploration		(4,449,641	)		(563,901	)		–			(468,055	)		(13	)		(98,254	)		(5,579,864	)
Accretion expense		(719,314	)		(1,980	)		–			(32,426	)		–			(8,674	)		(762,394	)
Depreciation, depletion and amortization
(including dismantlement)		(19,920,183	)		(1,634,834	)		(247,164	)		(4,918,904	)		(22,303	)		(943,707	)		(27,687,095	)
Special oil gain levy		(17,705,577	)		–			–			–			–			–			(17,705,577	)
		64,402,017			1,574,871			1,004,802			5,592,206			92,713			308,989			72,975,598
Income tax expenses		(16,100,504	)		(959,007	)		(301,440	)		(1,384,391	)		(46,357	)		(108,145	)		(18,899,844	)
Result of operations		48,301,513			615,864			703,362			4,207,815			46,356			200,844			54,075,754

F-78

CNOOC LIMITED

SUPPLEMENTARY INFORMATION ON OIL AND GAS PRODUCING ACTIVITIES

(UNAUDITED)

(All amounts expressed in Renminbi unless otherwise stated)

(b) Results of operations (continued)

2010

Enterprise’s share of equity method investee

PRC

Asia(excluding PRC)

Oceania

Africa

North America

South America

Total

RMB’000

RMB’000

RMB’000

RMB’000

RMB’000

RMB’000

RMB’000

Net sales to customers

353,991

–

–

–

–

–

353,991

Operating expenses

(106,664

)

–

–

–

–

–

(106,664

)

Taxes other than income tax

(20,841

)

–

–

–

–

–

(20,841

)

Exploration

(83,089

)

–

–

–

–

–

(83,089

)

Accretion expense

(3,231

)

–

–

–

–

–

(3,231

)

Depreciation, depletion and amortization

(including dismantlement)

(54,098

)

–

–

–

–

–

(54,098

)

Special oil gain levy

–

–

–

–

–

–

–

86,068

–

–

–

–

–

86,068

Income tax expenses

(12,910

)

–

–

–

–

–

(12,910

)

Result of operations

73,158

–

–

–

–

–

73,158

Total result of operations for producing activities

48,374,671

615,864

703,362

4,207,815

46,356

200,844

54,148,912

F-79

CNOOC LIMITED

SUPPLEMENTARY INFORMATION ON OIL AND GAS PRODUCING ACTIVITIES

(UNAUDITED)

(All amounts expressed in Renminbi unless otherwise stated)

(c)  Capitalized costs

	2008
	PRC			Asia(excluding PRC)			Oceania			Africa		North America		South America		Total
	RMB’000			RMB’000			RMB’000			RMB’000		RMB’000		RMB’000		RMB’000
Consolidated entities:
Proved oil and gas properties		143,571,499			20,940,087			2,553,937			24,731,295		–		–		191,796,818
Unproved oil and gas properties		1,982,529			1,071,983			–			8,604,303		–		–		11,658,815
Accumulated depreciation, depletion and amortization		(56,902,775	)		( 8,261,424	)		( 280,936	)		–		–		–		(65,445,135	)
Net capitalized costs		88,651,253			13,750,646			2,273,001			33,335,598		–		–		138,010,498
Enterprise’s share of equity method investee
Net capitalized costs		539,669			–			–			–		–		–		539,669

	2009
	Consolidated entities
	PRC			Asia(excluding PRC)			Oceania			Africa			North America			South America		Total
	RMB’000			RMB’000			RMB’000			RMB’000			RMB’000			RMB’000		RMB’000
Proved oil and gas properties		177,356,742			23,642,729			2,541,343			34,673,635			940,621			–		239,155,070
Unproved oil and gas properties		3,204,267			1,272,808			–			1,540,966			385,847			–		6,403,888
Accumulated depreciation, depletion    and amortization		(67,695,170	)		(9,613,728	)		(453,156	)		(2,794,531	)		(26,379	)		–		(80,582,964	)
Net capitalized costs		112,865,839			15,301,809			2,088,187			33,420,070			1,300,089			–		164,975,994

F-80

CNOOC LIMITED

SUPPLEMENTARY INFORMATION ON OIL AND GAS PRODUCING ACTIVITIES

(UNAUDITED)

(All amounts expressed in Renminbi unless otherwise stated)

(c)  Capitalized costs (continued)

2009

Enterprise’s share of equity method investee

PRC

Asia (excluding PRC)

Oceania

Africa

North America

South America

Total

RMB’000

RMB’000

RMB’000

RMB’000

RMB’000

RMB’000

RMB’000

Proved oil and gas properties

1,848,255

–

–

–

–

–

1,848,255

Unproved oil and gas properties

–

–

–

–

–

–

–

Accumulated depreciation, depletion    and amortization

(1,364,872

)

–

–

–

–

–

(1,364,872

)

Net capitalized costs

483,383

–

–

–

–

–

483,383

	2010
	Consolidated entities
	PRC			Asia (excluding PRC)			Oceania			Africa			North America			South America			Total
	RMB’000			RMB’000			RMB’000			RMB’000			RMB’000			RMB’000			RMB’000
Proved oil and gas properties		209,914,973			22,735,504			2,464,860			34,672,175			1,314,766			20,220,558			291,322,836
Unproved oil and gas properties		2,961,178			1,456,766			–			2,477,750			15,259,183			6,354,659			28,509,536
Accumulated depreciation, depletion and amortization		(88,038,779	)		(10,695,261	)		(601,349	)		(7,518,329	)		(47,386	)		(922,439	)		(107,823,543	)
Net capitalized costs		124,837,372			13,497,009			1,863,511			29,631,596			16,526,563			25,652,778			212,008,829

F-81

CNOOC LIMITED

SUPPLEMENTARY INFORMATION ON OIL AND GAS PRODUCING ACTIVITIES

(UNAUDITED)

(All amounts expressed in Renminbi unless otherwise stated)

(a)   Capitalized costs (continued)

2010

Enterprise’s share of equity method investees

PRC

Asia (excluding PRC)

Oceania

Africa

North America

South America

Total

RMB’000

RMB’000

RMB’000

RMB’000

RMB’000

RMB’000

RMB’000

Proved oil and gas properties

1,848,255

–

–

–

–

–

1,848,255

Unproved oil and gas properties

–

–

–

–

–

–

–

Accumulated depreciation, depletion and amortization

(1,418,970

)

–

–

–

–

–

(1,418,970

)

Net capitalized costs

429,285

–

–

–

–

–

429,285

(d)  Costs incurred in oil and gas property acquisition, exploration and development

2008

PRC

Asia (excluding PRC)

Oceania

Africa

North America

South America

Total

RMB’000

RMB’000

RMB’000

RMB’000

RMB’000

RMB’000

RMB’000

Consolidated entities

Acquisition costs:

–Proved

–

–

–

–

–

–

–

–Unproved

–

1,003,702

–

–

–

–

1,003,702

Exploration costs

5,459,087

522,532

250,624

144,187

–

–

6,376,430

Development costs*

22,296,503

2,789,063

–

6,017,465

–

–

31,103,031

Total costs incurred

27,755,590

4,315,297

250,624

6,161,652

–

–

38,483,163

Investees’ cost of property acquisition, exploration, and development

116,677

–

–

–

–

–

116,677

F-82

CNOOC LIMITED

SUPPLEMENTARY INFORMATION ON OIL AND GAS PRODUCING ACTIVITIES

(UNAUDITED)

(All amounts expressed in Renminbi unless otherwise stated)

(d) Costs incurred in oil and gas property acquisition, exploration and development (continued)

	2009
	Consolidated entities
	PRC		Asia (excluding PRC)		Oceania		Africa		North America		South America		Total
	RMB’000		RMB’000		RMB’000		RMB’000		RMB’000		RMB’000		RMB’000
Acquisition costs:
–Proved		–		–		–		–		866,158		-		866,158
–Unproved		–		40,990		–		–		109,673		-		150,663
Exploration costs		5,848,339		520,919		444,268		192,299		278,307		-		7,284,132
Development costs*		32,960,214		1,369,501		–		3,601,335		73,008		-		38,004,058
Total costs incurred		38,808,553		1,931,410		444,268		3,793,634		1,327,146		-		46,305,011

2009

Enterprise’s share of equity method investee

PRC

Asia (excluding PRC)

Oceania

Africa

North America

South America

Total

RMB’000

RMB’000

RMB’000

RMB’000

RMB’000

RMB’000

RMB’000

Acquisition costs:

–Proved

–

–

–

–

–

–

–

–Unproved

–

–

–

–

–

–

–

Exploration costs

24,969

–

–

–

–

–

24,969

Development costs*

8,394

–

–

–

–

–

8,394

Total costs incurred

33,363

–

–

–

–

–

33,363

F-83

CNOOC LIMITED

SUPPLEMENTARY INFORMATION ON OIL AND GAS PRODUCING ACTIVITIES

(UNAUDITED)

(All amounts expressed in Renminbi unless otherwise stated)

(d) Costs incurred in oil and gas property acquisition, exploration and development (continued)

	2010
	Consolidated entities
	PRC		Asia (excluding PRC)		Oceania		Africa		North America		South America		Total
	RMB’000		RMB’000		RMB’000		RMB’000		RMB’000		RMB’000		RMB’000
Acquisition costs:
–Proved		3,546,266		–		–		–		–		20,062,282		23,608,548
–Unproved		–		575,909		–		–		14,905,880		6,335,458		21,817,247
Exploration costs		6,538,986		217,058		–		327,226		320,365		117,457		7,521,092
Development costs*		25,573,348		994,215		–		2,212,753		413,653		849,562		30,043,531
Total costs incurred		35,658,600		1,787,182		–		2,539,979		15,639,898		27,364,759		82,990,418

2010

Enterprise’s share of equity method investee

PRC

Asia (excluding PRC)

Oceania

Africa

North America

South America

Total

RMB’000

RMB’000

RMB’000

RMB’000

RMB’000

RMB’000

RMB’000

Acquisition costs:

–Proved

–

–

–

–

–

–

–

–Unproved

–

–

–

–

–

–

–

Exploration costs

83,089

–

–

–

–

–

83,089

Development costs*

–

–

–

–

–

–

–

Total costs incurred

83,089

–

–

–

–

–

83,089

* The development costs include estimated future dismantlement costs of dismantling offshore oil platforms and gas properties.

F-84

CNOOC LIMITED

SUPPLEMENTARY INFORMATION ON OIL AND GAS PRODUCING ACTIVITIES

(UNAUDITED)

(All amounts expressed in Renminbi unless otherwise stated)

(e)  Standardized measure of discounted future net cash flows and changes therein

In calculating the standardized measure of discounted future net cash flows, year-end constant price and cost assumptions were applied to the Group’s estimated annual future production from proved reserves to determine future cash inflows in 2008.

In 2009 and 2010, pursuant to ASC 932, the average of first-day-of-the-month oil price during the 12-month period before the yearend, were used to estimate annual future production form proved reserves to determine future cash inflows.

Future development costs are estimated based upon constant price assumptions and the assumption of 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 the 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.

F-85

CNOOC LIMITED

SUPPLEMENTARY INFORMATION ON OIL AND GAS PRODUCING ACTIVITIES

(UNAUDITED)

(All amounts expressed in Renminbi unless otherwise stated)

(e)  Standardized measure of discounted future net cash flows and changes therein (continued)

Present value of estimated future net cash flows:

			2008
			PRC			Asia(excluding PRC)			Oceania			Africa			North America		South America		Total
	Note		RMB’000			RMB’000			RMB’000			RMB’000			RMB’000		RMB’000		RMB’000
Consolidated entities
Future cash inflows		(1)		428,460,753			39,055,645			18,412,221			23,122,996			–		–		509,051,615
Future production costs				(135,861,828	)		(20,139,037	)		(5,192,471	)		(8,478,984	)		–		–		(169,672,320	)
Future development costs		(2)		(96,122,573	)		(6,926,997	)		(3,993,942	)		(4,790,993	)		–		–		(111,834,505	)
Future income taxes				(31,741,475	)		(2,521,318	)		(1,852,744	)		-			–		–		(36,115,537	)
																–		–
Future net cash flows		(3)		164,734,877			9,468,293			7,373,064			9,853,019			–		–		191,429,253
10% discount factor				(68,489,102	)		(4,474,890	)		(3,537,828	)		(3,650,923	)		–		–		(80,152,743	)
Standardized measure of discounted future net cash flows				96,245,775			4,993,403			3,835,236			6,202,096			–		–		111,276,510
Enterprise’s share of equity
method investees:
Standardized measure of
discounted future net cash flows				696,618			–			–			–			–		–		696,618
Total standardized measure of discounted future net cash flows				96,942,393			4,993,403			3,835,236			6,202,096			–		–		111,973,128

F-86

CNOOC LIMITED

SUPPLEMENTARY INFORMATION ON OIL AND GAS PRODUCING ACTIVITIES

(UNAUDITED)

(All amounts expressed in Renminbi unless otherwise stated)

(e) Standardized measure of discounted future net cash flows and changes therein (continued)

Present value of estimated future net cash flows:

			2009
			Consolidated entities
			PRC			Asia(excluding PRC)			Oceania			Africa			North America			South America		Total
	Note		RMB’000			RMB’000			RMB’000			RMB’000			RMB’000			RMB’000		RMB’000
Future cash inflows		(1)		701,601,954			45,538,229			24,518,701			36,435,678			1,166,311			-		809,260,873
Future production costs				(207,539,062	)		(18,634,540	)		(9,621,104	)		(6,341,506	)		(348,197	)		-		(242,484,409	)
Future development costs		(2)		(107,067,740	)		(20,036,178	)		(4,268,397	)		(5,420,061	)		(213,368	)		-		(137,005,744	)
Future income taxes				(74,085,808	)		(1,479,611	)		(2,350,493	)		(4,339,219	)		-			-		(82,255,131	)
Future net cash flows		(3)		312,909,344			5,387,900			8,278,707			20,334,892			604,746			-		347,515,589
10% discount factor				(112,142,779	)		(1,853,805	)		(3,826,089	)		(3,250,273	)		(192,658	)		-		(121,265,604	)
Standardized measure of
discounted future net cash flows				200,766,565			3,534,095			4,452,618			17,084,619			412,088			-		226,249,985

			2009
			Enterprise’s share of equity method investee
			PRC			Asia(excluding PRC)		Oceania		Africa		North America		South America		Total
	Note		RMB’000			RMB’000		RMB’000		RMB’000		RMB’000		RMB’000		RMB’000
Future cash inflows		(1)		1,292,021			-		-		-		-		-		1,292,021
Future production costs				(656,468	)		-		-		-		-		-		(656,468	)
Future development costs		(2)		(156,203	)		-		-		-		-		-		(156,203	)
Future income taxes				(42,572	)		-		-		-		-		-		(42,572	)
Future net cash flows		(3)		436,778			-		-		-		-		-		436,778
10% discount factor				(23,447	)		-		-		-		-		-		(23,447	)
Standardized measure of
discounted future net cash flows				413,331			-		-		-		-		-		413,331
Total standardized measure of discounted future net cash flow				201,179,896			3,534,095		4,452,618		17,084,619		412,088		-		226,663,316

F-87

CNOOC LIMITED

SUPPLEMENTARY INFORMATION ON OIL AND GAS PRODUCING ACTIVITIES

(UNAUDITED)

(All amounts expressed in Renminbi unless otherwise stated)

(e) Standardized measure of discounted future net cash flows and changes therein (continued)

			2010
			Consolidated entities
			PRC			Asia(excluding PRC)			Oceania			Africa			North America			South America			Total
	Note		RMB’000			RMB’000			RMB’000			RMB’000			RMB’000			RMB’000			RMB’000
Future cash inflows		(1)		934,723,665			51,454,657			21,427,150			75,599,083			1,074,498			54,033,567			1,138,312,620
Future production costs				(315,974,670	)		(19,398,498	)		(6,900,390	)		(25,576,882	)		(368,290	)		(24,223,935	)		(392,442,665	)
Future development costs		(2)		(146,786,460	)		(14,608,643	)		(3,184,115	)		(14,084,300	)		(82,188	)		(671,095	)		(179,416,801	)
Future income taxes				(91,552,559	)		(4,880,212	)		(2,498,716	)		(3,167,837	)		-			(7,229,061	)		(109,328,385	)
Future net cash flows		(3)		380,409,976			12,567,304			8,843,929			32,770,064			624,020			21,909,476			457,124,769
10% discount factor				(131,875,517	)		(4,818,631	)		(3,437,611	)		(11,786,980	)		(149,350	)		(11,795,411	)		(163,863,500	)
Standardized measure of
discounted future net cash flows				248,534,459			7,748,673			5,406,318			20,983,084			474,670			10,114,065			293,261,269

			2010
			Enterprise’s share of equity method investee
			PRC			Asia(excluding PRC)		Oceania		Africa		North America		South America		Total
	Note		RMB’000			RMB’000		RMB’000		RMB’000		RMB’000		RMB’000		RMB’000
Future cash inflows		(1)		1,339,079			-		-		-		-		-		1,339,079
Future production costs				(544,979	)		-		-		-		-		-		(544,979	)
Future development costs		(2)		(167,487	)		-		-		-		-		-		(167,487	)
Future income taxes				(82,277	)		-		-		-		-		-		(82,277	)
Future net cash flows		(3)		544,336			-		-		-		-		-		544,336
10% discount factor				(38,077	)		-		-		-		-		-		(38,077	)
Standardized measure of
discounted future net cash flows				506,259			-		-		-		-		-		506,259
Total standardized measure of discounted future net cash flow				249,040,718			7,748,673		5,406,318		20,983,084		474,670		10,114,065		293,767,528

F-88

CNOOC LIMITED

SUPPLEMENTARY INFORMATION ON OIL AND GAS PRODUCING ACTIVITIES

(UNAUDITED)

(All amounts expressed in Renminbi unless otherwise stated)

(e) Standardized measure of discounted future net cash flows and changes therein (continued)

(1) Future cash flows consist of the Group’s 100% interest in the independent oil and gas properties and the Group’s participating interest in the properties under production sharing contracts in the PRC less (i) an adjustment for the royalties payable to the PRC government and share oil payable to the PRC government under production sharing contracts and (ii) 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 the participating interest in the properties covered under the production sharing contracts in oversea countries, less adjustments, if any, of share oil attributable to the host 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.

F-89

CNOOC LIMITED

SUPPLEMENTARY INFORMATION ON OIL AND GAS PRODUCING ACTIVITIES

(UNAUDITED)

(All amounts expressed in Renminbi unless otherwise stated)

(e) Standardized measure of discounted future net cash flows and changes therein (continued)

Changes in the standardized measure of discounted future net cash flows:

	2008
	Consolidated
	RMB’000
Standardized measure, beginning of year		313,926,334
Sales of production, net of royalties and production costs		(85,926,542	)
Net change in prices, net of royalties and production costs		(180,109,420	)
Extensions discoveries and improved recovery, net of related future costs		16,211,871
Change in estimated future development costs		(20,618,379	)
Development costs incurred during the year		28,181,961
Revisions in quantity estimates		(4,466,372	)
Accretion of discount		38,268,027
Net change in income taxes		68,114,626
Purchase/(Disposal) of properties		(1,142,744	)
Changes in timing and other		(61,162,852	)
Standardized measure, end of year		111,276,510

F-90

CNOOC LIMITED

SUPPLEMENTARY INFORMATION ON OIL AND GAS PRODUCING ACTIVITIES

(UNAUDITED)

(All amounts expressed in Renminbi unless otherwise stated)

(e) Standardized measure of discounted future net cash flows and changes therein (continued)

	Consolidated entities			Equity share of equity method investee			2009 Consolidated Entities and equity share of equity method investee
	RMB’000			RMB’000			RMB’000
Standardized measure, beginning of year		111,276,510			696,618			111,973,128
Sales of production, net of royalties and production costs		(67,776,863	)		(214,637	)		(67,991,500	)
Net change in prices, net of royalties and production costs		142,949,041			(130,989	)		142,818,052
Extensions discoveries and improved recovery, net of related future costs		28,003,616			-			28,003,616
Change in estimated future development costs		(39,191,345	)		(58,962	)		(39,250,307	)
Development costs incurred during the year		34,950,769			54,113			35,004,882
Revisions in quantity estimates		20,810,699			(67,297	)		20,743,402
Accretion of discount		13,199,108			81,539			13,280,647
Net change in income taxes		(32,595,979	)		79,138			(32,516,841	)
Purchase of properties		267,801			-			267,801
Changes in timing and other		14,356,628			(26,192	)		14,330,436
Standardized measure, end of year		226,249,985			413,331			226,663,316

	Consolidate entities			Equity share of equity method investee			2010 Consolidated Entities and equity share of equity method investee
	RMB’000			RMB’000			RMB’000
Standardized measure, beginning of year		226,249,985			413,331			226,663,316
Sales of production, net of royalties and production costs		(124,710,528	)		(234,053	)		(124,944,581	)
Net change in prices, net of royalties and production costs		115,643,704			317,208			115,960,912
Extensions discoveries and improved recovery, net of related future costs		75,809,374			-			75,809,374
Change in estimated future development costs		(46,375,694	)		(14,866	)		(46,390,560	)
Development costs incurred during the year		25,836,856			-			25,836,856
Revisions in quantity estimates		(8,599,175	)		65,718			(8,533,457	)
Accretion of discount		27,124,800			43,997			27,168,797
Net change in income taxes		(17,909,175	)		(37,448	)		(17,946,623	)
Purchase of properties		18,281,756			-			18,281,756
Changes in timing and other		1,909,366			(47,628	)		1,861,738
Standardized measure, end of year		293,261,269			506,259			293,767,528

F-91

EX-1.1

Exhibit 1.1

THE COMPANIES ORDINANCE (CHAPTER 32)

Company Limited by Shares

NEW ARTICLES OF ASSOCIATION*

OF

CNOOC LIMITED

(中國海洋石油有限公司)

*as amended by special resolutions passed on 14 June 2004, 31 December 2005 and 27 May 2009

PRELIMINARY

1. The regulations in Table A in the First Schedule to the Ordinance shall not apply to the Company.

INTERPRETATION

2. (a) In these Articles save where the context otherwise requires:

Associate shall have the meaning ascribed to it under the Listing Rules as amended from time to time;

Auditors means the Auditors of the Company for the time being;

Chairman means the Chairman presiding at any meeting of members or the Board;

Company means the above-named Company;

Ordinance means the Companies Ordinance (Chapter 32 of the Laws of Hong Kong), and includes every other ordinance incorporated therewith or substituted therefor, and in the case of any such substitution the references in these Articles to the provisions of the Ordinance shall be read as references to the provisions substituted therefor in the new ordinance;

Board and Directors means the directors for the time being of the Company or the Directors present at a duly convened meeting of directors at which a quorum is present;

call includes any instalment of a call and, in the application of provisions of these Articles to forfeiture of shares, a sum which, by the terms of issue of a share, is payable at a fixed time either in respect of the nominal value of the share or by way of premium;

capital means the share capital from time to time of the Company;

Clearing House shall mean a recognised clearing house within the meaning of Part 1 of Schedule 1 to the Securities and Futures Ordinance (Chapter 571) as amended from time to time;

Dividend includes distributions in specie or in kind, capital distributions and capitalisation issues;

Dollars and $ means dollars in the lawful currency of Hong Kong;

Hong Kong means the Hong Kong Special Administrative Region of the People’s Republic of China;

Listing Rules means the Rules Governing the Listing of Securities on the Stock Exchange of Hong Kong Limited as amended from time to time;

month means calendar month;

Office means the registered office of the Company for the time being;

paid up includes credited as paid up;

Register means the register of members of the Company kept pursuant to the Ordinance and includes any branch register kept pursuant to the Ordinance;

Seal means the common seal of the Company or any official seal that the Company may have as permitted by the Ordinance;

Secretary means the person or persons appointed for the time being to perform for the Company the duties of a secretary;

share means a share in the capital of the Company and includes stock except where a distinction between stock and shares is expressed or implied;

Stock Exchange means The Stock Exchange of Hong Kong Limited;

Subsidiary and holding company shall have the meanings ascribed to them under the Listing Rules;

these Articles means these Articles of Association in their present form or as altered from time to time;

in writing and written includes facsimile and telex messages and any mode of reproducing words in a legible and non-transitory form.

(b) In these Articles, if not inconsistent with the subject or context, words importing the singular number only shall include the plural number and vice versa, words importing any gender shall include all other genders and references to persons shall include corporations (acting, where applicable, by their duly authorised representatives).

(c) Subject as aforesaid, any words defined in the Ordinance shall, if not inconsistent with the subject or context, bear the same meaning in these Articles.

(d) The headings and any marginal notes are inserted for convenience only and shall not affect the construction of these Articles.

Page 2

THE OFFICE

3. The Office shall be at such place in Hong Kong as the Directors shall from time to time appoint.

SHARES

4. Shares may be issued with a preferential or qualified right to dividends and in the distribution of assets of the Company and with a special, or without any, right of voting.

5. Without prejudice to any special rights, privileges or restrictions for the time being attached to any issued shares, any unissued or forfeited shares may be issued or re-issued upon such terms and conditions, and with such rights, privileges and restrictions attached thereto, whether in regard to dividends, voting, repayment or redemption of share capital, or otherwise, as the Company may, subject to the Ordinance, from time to time determine or, in the absence of any such determination, as the Directors shall determine.

6. The Board may, subject to the approval by the members in general meeting, issue warrants to subscribe for any class of shares or securities of the Company on such terms as the Board may from time to time determine.  Where warrants are issued to bearer, no certificate thereof shall be issued to replace one that has been lost unless the Board is satisfied beyond reasonable doubt that the original certificate thereof has been destroyed and the Company has received an indemnity in such form as the Board shall think fit with regard to the issue of any such replacement certificate.

7. Save as provided by contract or the Ordinance or these Articles to the contrary, all unissued shares shall be at the disposal of the Directors who may allot, grant options over or otherwise deal with or dispose of the same to such persons, at such times, for such consideration and generally upon such terms and conditions as they shall in their absolute discretion think fit, provided that no shares of any class shall be issued at a discount except in accordance with section 50 of the Ordinance.

8. The Company may make arrangements on the issue of shares for a difference between the holders of such shares in the amount of calls to be paid and the time of payment of such calls.

9. If by the conditions of allotment of any shares the whole or part of the issue price thereof shall be payable by instalments, every such instalment shall, when due, be paid to the Company by the person who for the time being and from time to time shall be the registered holder of the shares, or his legal personal representative.

10. Subject to the provisions of section 49 of the Ordinance, any preference share may, with the sanction of a special resolution, be issued on the terms that it is, or at the option of the Company is liable, to be redeemed.

11. Subject to the provisions of these Articles, except as required by law or ordered by a court of competent jurisdiction, no person shall be recognised by the Company as holding any share upon any trust, and except as aforesaid, the Company shall not be bound by or required in any way to recognise any contingent, future, partial or equitable interest in any share or in any fractional part of a share or any other right in respect of any share or any other claim to or in respect of any such share on the part of any person (even when having notice thereof) except an absolute right to the entirety thereof in the registered holder.

Page 3

12. The Company may in connection with the issue of any shares exercise all powers of paying interest out of capital and of paying commission and brokerage conferred or permitted by the Ordinance.

13. No person shall become a member until his name shall have been entered into the Register.

JOINT HOLDERS OF SHARES

14. Where two or more persons are registered as the holders of any share they shall be deemed to hold the same as joint tenants with the benefit of survivorship, subject to the following provisions:

(a) the Company shall not be bound to register more than four persons as the holders of any shares except in the case of the legal personal representatives of a deceased member;

(b) the joint holders of any shares shall be liable severally as well as jointly in respect of all payments which ought to be made in respect of such shares;

(c) on the death of any one of such joint holders the survivor or survivors shall be the only person or persons recognised by the Company as having any title to such shares, but the Directors may require such evidence of death as they may deem fit;

(d) any one of such joint holders may give effectual receipts for any dividend, bonus or return of capital payable to such joint holders; and

(e) the Company shall be at liberty to treat the person whose name stands first in the Register as one of the joint holders of any shares as solely entitled to delivery of the certificate relating to such shares, or to receive notices from the Company, or to attend or vote at general meetings of the Company, and any notice given to such person shall be deemed notice to all the joint holders; but any one of such joint holders may be appointed the proxy of the persons entitled to vote on behalf of such joint holders, and as such proxy to attend and vote at general meetings of the Company, but if more than one of such joint holders be present at any meeting personally or by proxy that one so present whose name stands first in the Register in respect of such shares shall alone be entitled to vote in respect thereof.

SHARE CERTIFICATES

15. Every person whose name is entered as a member in the Register shall be entitled without payment to receive within two months after allotment or lodgment of an instrument of transfer duly stamped, or within such other period as the conditions of issue shall provide, one certificate for all his shares of any particular class, or if he shall so request, upon payment of a fee (not exceeding HK$2.50 or such greater sum as the Stock Exchange may from time to time permit) for every certificate after the first, as the Directors shall from time to time determine, such number of certificates for shares in Stock Exchange board lots or multiples thereof as he shall request and one for the balance (if any) of the shares in question, provided that in the event of a member transferring part of the shares represented by a certificate in his name a new certificate in respect of the balance thereof shall be issued in his name without payment and, in the case of a share or shares held jointly by several persons the Company shall not be bound to issue a certificate or certificates to each such person, and the issue and delivery of a certificate or certificates to one of several joint holders shall be sufficient delivery to all such holders. In any event, the Company shall, within 10 business days (being any day on which a recognised stock market is open for the business of dealing in securities) after the date on which a transfer of any of its shares, debentures or debenture stock is lodged with the Company, complete and have ready for delivery the certificates of all shares, the debentures and the certificates of all debenture stock so transferred, unless the conditions of issue of the shares, debentures or debenture stock otherwise provide.

Page 4

16. Every share certificate shall be issued under the Seal (which for this purpose may be any official seal as permitted by section 73A of the Ordinance) and shall specify the number and class of shares and, if required, the distinctive numbers thereof, to which the certificate relates, and the amount paid up thereon and may otherwise be in such form as the Board may from time to time determine.  If at any time the share capital of the Company is divided into different classes of shares, every share certificate issued at that time shall comply with section 57A of the Ordinance, and no certificate shall be issued in respect of more than one class of shares.

17. Subject to section 71A of the Ordinance, if any share certificate shall be worn out, defaced, destroyed or lost, it may be replaced on payment of such fee, if any (not exceeding HK$2.50 or such greater sum as the Stock Exchange may from time to time permit), on such evidence being produced as the Directors shall require, and in case of wearing out or defacement, on delivery up of the old certificate, and in case of destruction or loss, on the execution of such indemnity (if any), as the Directors may require.  In case of destruction or loss, the person to whom such replacement certificate is given shall also bear and pay to the Company all expenses incidental to the investigation by the Company of the evidence of such destruction or loss and of the production of such indemnity.

CALLS ON SHARES

18. (a) The Directors may from time to time make calls upon the members in respect of all moneys unpaid on their shares whether on account of the nominal value of the shares or by way of premium but subject always to the terms of issue of such shares, and any such call may be made payable by instalments.

(b) Each member shall, subject to receiving at least fourteen days’ notice specifying the time or times and place of payment, pay to the Company the amount called on his shares and at the time or times and place so specified.  The non-receipt of a notice of any call by, or the accidental omission to give notice of a call to, any of the members shall not invalidate the call.

19. A call shall be deemed to have been made at the time when the resolution of the Directors authorising such call was passed.  A call may be revoked, varied or postponed as to all or any of the members liable therefor as the Directors may determine.  A person on whom a call is made will remain liable for calls made upon him notwithstanding the subsequent transfer of the shares in respect whereof the call was made.

20. If any part of a call is not paid before or on the day appointed for payment thereof, the person from whom the payment is due shall be liable to pay all costs, charges and expenses that the Company may have incurred by reason of such non-payment together with interest on the outstanding part thereof at such rate as the Directors shall determine (not exceeding twenty per cent. per annum) from the day appointed for the payment of such call or instalment to the time of discharge thereof in full; but the Directors may, if they shall think fit, waive the payment of such costs, charges, expenses or interest or any part thereof.

21. If, by the terms of the issue of any shares or otherwise, any amount is made payable upon allotment or at any fixed time, whether on account of the nominal amount of the shares or by way of premium, every such amount shall be payable as if it were a call duly made and payable on the date on which by the terms of issue the same becomes payable; and all the provisions hereof with respect to the payment of calls and interest thereon, or to the forfeiture of shares for non-payment of calls, shall apply to every such amount and the shares in respect of which it is payable in the case of non-payment thereof.

Page 5

22. The Directors may, if they shall think fit, receive from any member willing to advance the same (either in money or money’s worth) all or any part of the moneys uncalled and unpaid or instalments payable upon any shares held by him; and upon all or any of the moneys so paid in advance the Directors may (until the same would, but for such payment in advance, become presently payable) pay interest at such rate as may be agreed upon between the member paying the moneys in advance and the Directors (not exceeding twenty per cent. per annum).  But a payment in advance of a call shall not entitle the member to receive any dividend or to exercise any other rights or privileges as a member in respect of the share or the due portion of the shares upon which payment has been advanced by such member before it is called.  The Directors may also at any time repay the amount so advanced upon giving to such member one month’s notice in writing unless before the expiration of such notice the amount so advanced shall have been called up on the shares in respect of which it was advanced.

23. On the trial or hearing of any action for the recovery of any money due for any call, it shall be sufficient to prove that the name of the member sued is entered in the Register as the holder, or one of the holders, of the shares in respect of which such money is due; that the resolution making the call is duly recorded in the minute book of the Company; and that notice of such call was duly given to the member sued in pursuance of these Articles, and it shall not be necessary to prove the appointment of the Directors who made such call, nor any other matter whatsoever, but the proof of the matters aforesaid shall be conclusive evidence that the money is due.

24. No member shall, unless the Directors otherwise determine, be entitled to receive any dividend or bonus, or to receive notice of or to be present or vote at any general meeting, either personally or (save as proxy for another member) by proxy, or to exercise any privileges as a member, or be reckoned in a quorum, until he shall have paid all calls or other sums for the time being due and payable on every share held by him, whether alone or jointly with any other person, together with interest and expenses (if any).

FORFEITURE

25. If any member fails to pay in full any call or any instalment of a call on the day appointed for payment thereof, the Directors may at any time thereafter, during such time as any part of the call remains unpaid without prejudice to the provisions of Article 24, serve a notice on him requiring him to pay so much of the call as is unpaid together with interest accrued and any expenses incurred by reason of such non-payment.

26. The notice shall name a further day (not being less than fourteen days from the date of the notice) on or before which such call or part thereof and all interest accrued and expenses incurred by reason of such non-payment are to be paid, and it shall also name the place where payment is to be made, such place being either the Office, or some other place at which calls of the Company are usually made payable.  The notice shall also state that, in the event of non-payment at or before the time and at the place appointed, the shares in respect of which such call is payable will be liable to forfeiture.

27. If the requirements with regard to payment of any such notice as aforesaid are not complied with, any shares in respect of which such notice has been given may, at any time thereafter and before the payment required by the notice has been made, be forfeited by a resolution of the Directors to that effect, and any such forfeiture shall extend to all dividends and bonuses declared in respect of the shares so forfeited but not payable until after such forfeiture.  The Directors may accept surrender of any shares liable to be forfeited hereunder and in such cases references in the Articles to forfeiture shall include surrender.

Page 6

28. Any shares so forfeited shall be deemed for the purposes of this Article to be the property of the Company and may be sold, re-allotted or otherwise disposed of either subject to or discharged from all calls made prior to the forfeiture, to any person, upon such terms as to subscription price and otherwise and in such manner and at such time or times as the Directors think fit.  For the purpose of giving effect to any such sale or other disposition the Directors may authorise the transfer of the shares so sold or otherwise disposed of to the purchaser thereof or any other person becoming entitled thereto.  The Directors shall account to the person whose shares have been forfeited with the balance (if any) of monies received by the Company in respect of those shares after deduction of expenses of forfeiture, sale or disposal of the shares and any amount due to the Company in respect of the shares.

29. The Directors may, at any time before any shares so forfeited shall have been sold, re-allotted or otherwise disposed of, annul the forfeiture thereof upon such conditions as they think fit or permit the share forfeited to be redeemed upon the terms of payment of all calls and interest due thereon and all expenses incurred in respect of the share, and upon such further terms (if any) they think fit.

30. Any person whose shares have been forfeited shall cease to be a member in respect of the forfeited shares but shall notwithstanding the forfeiture be and remain liable to pay to the Company all moneys which, at the date of forfeiture, were payable by him to the Company in respect of the shares, together with interest thereon from the date of forfeiture until payment at such rate as the Directors may prescribe (not exceeding twenty per cent. per annum), and the Directors may enforce the payment of such moneys or any part thereof and without any deduction or allowance for the value of the shares at the date of forfeiture, but his liability shall cease if and when the Company shall have received payment in full of all such moneys in respect of the shares.  For the purposes of this Article any sum which, by the terms of issue of a share payable thereon at a fixed time which is subsequent to the date of forfeiture, whether on account of the nominal value of the share or by way of premium, shall notwithstanding that that time has not yet arrived be deemed to be payable at the date of forfeiture, and the same shall become due and payable immediately upon the forfeiture, but interest thereon shall only be payable in respect of any period between the said fixed time and the date of actual payment.

31. When any shares have been forfeited, notice of the resolution shall be given to the member in whose name it stood immediately prior to the forfeiture and an entry shall be made in the Register recording the forfeiture and the date thereof but no forfeiture shall be in any manner invalidated by any omission or neglect to give such notice or make any such entry, and so soon as the shares so forfeited have been sold or otherwise disposed of an entry shall also be made of the manner and date of the sale or disposal thereof.

LIEN

32. The Company shall have a first and paramount lien on every share (not being a fully paid-up share) for all moneys outstanding in respect of such share whether presently payable or not, and the Company shall also have a first and paramount lien on every share (other than fully paid-up shares) standing registered in the name of a member, whether singly or jointly with any other person or persons, for all the debts and liabilities of such member or his estate to the Company, whether the same shall have been incurred before or after notice has been given to the Company of any interest of any person other than such member, and whether the time for the payment or discharge of the same shall have already arrived or not, and notwithstanding that the same are joint debts or liabilities of such member or his estate and any other person, whether a member or not.  The Company’s lien on a share shall extend to all dividends payable thereon.  The Directors may at any time either generally or in any particular case waive any lien that has arisen, or declare any share to be wholly or in part exempt from the provisions of this Article.

Page 7

33. The Company may sell in such manner as the Directors think fit any share on which the Company has a lien, but no sale shall be made unless some sum in respect of which the lien exists is presently payable or the liability or engagement in respect of such lien exists is liable to be presently fulfilled or discharged, nor until the expiration of fourteen days after a notice in writing stating and demanding payment of the sum presently payable and giving notice of intention to sell in default shall have been given to the holder for the time being of the share or the person entitled thereto by reason of his death, bankruptcy or winding-up or otherwise by operation of law or court order.

34. The net proceeds of such sale after payment of the costs of such sale shall be applied in or towards payment or satisfaction of the debts or liabilities in respect whereof the lien exists so far as the same are presently payable and any residue shall (subject to a like lien for debts or liabilities not presently payable as existed upon the shares prior to the sale) be paid to the person entitled to the shares at the time of the sale.  For giving effect to any such sale the Directors may authorise some person to transfer the shares so sold to the purchaser thereof and may enter the purchaser’s name in the Register as holder of the shares, and the purchaser shall not be bound to see to the application of the purchase money, nor shall his title to the shares be affected by any irregularity or invalidity in the proceedings in reference to the sale.

35. A statutory declaration in writing that the declarant is a Director or the Secretary of the Company and that a share has been duly forfeited or surrendered or sold on a date stated in the declaration shall be conclusive evidence of the facts therein stated as against all persons claiming to be entitled to the share.  Such declaration and the receipt of the Company for the consideration (if any) given for the share on the sale, re-allocation or disposal thereof together with the share certificate delivered to a purchaser or allottee thereof shall (subject to the execution of a transfer if the same be required) constitute a good title to the share and the person to whom the share is sold, re-allotted or disposed of shall be registered as the holder of the share and shall not be bound to see to the application of the purchase money (if any) nor shall his title to the share be affected by any irregularity or invalidity in the proceedings in reference to the forfeiture, surrender, sale, re-allotment or disposal of the share.

TRANSFER OF SHARES

36. The instrument of transfer of any shares in the Company shall be in writing in the usual common form or in such other form as the Board may accept and may be under hand only or, if the transferor or transferee is a Clearing House (or its nominee), by hand or by machine imprinted signature or by such other manner of execution as the Board may approve from time to time and shall be executed by or on behalf of the transferor and by or on behalf of the transferee.  The transferor shall remain the holder of the shares concerned until the name of the transferee is entered in the Register in respect thereof.  Nothing in these Articles shall preclude the Board from recognising a renunciation of the allotment or provisional allotment of any share by the allottee in favour of some other person.

37. Every instrument of transfer shall be lodged at the Office for registration (or at such other place the Board may appoint for such purpose) accompanied by the certificate relating to the shares to be transferred and such other evidence as the Directors may require in relation thereto.  All instruments of transfer which shall be registered shall be retained by the Company, but save where fraud is suspected any instrument of transfer which the Directors may decline to register shall, on demand, be returned to the person depositing the same.

Page 8

38. There shall be paid to the Company in respect of the registration of a transfer and of any Grant of Probate or Letters of Administration, Certificate of Marriage or Death, Power of Attorney or other document relating to or affecting the title to any share or for making of any entry in the Register affecting the title to any share such fee (if any) as the Directors may from time to time require or prescribe (but not exceeding HK$2.50 or such greater sum as the Stock Exchange may from time to time permit).

39. The registration of transfers may be suspended at such times and for such periods as the Directors may, in accordance with section 99 of the Ordinance, from time to time determine and either generally or in respect of any class of shares.

40. The Directors may, subject to section 69 of the Ordinance, at any time in their absolute discretion and without assigning any reason therefor decline to register any transfer of any share (not being a fully paid-up share).  If the Directors refuse to register a transfer they shall, within two months after the date on which the transfer was lodged with the Company, send to the transferor and transferee notice of the refusal.

41. The Directors may also decline to register any transfer unless:

(a) the instrument of transfer is in respect of only one class of share;

(b) in the case of a transfer to joint holders, the number of transferees does not exceed four;

(c) the shares concerned are free of any lien in favour of the Company;

(d) the instrument of transfer is properly stamped;

(e) such other conditions as the Directors may from time to time impose for the purpose of guarding against losses arising from forgery are satisfied;

(f) a fee not exceeding the maximum fee prescribed or permitted from time to time by the Stock Exchange is paid to the Company in respect thereof;

(g) the instrument of transfer is accompanied by the certificate of the shares to which it relates, and such other evidence as the Board may reasonably require to show the right of the transferor to make the transfer.

42. No transfer may be made to an infant or to a person of unsound mind or under other legal disability.

TRANSMISSION OF SHARES

43. In the case of the death of a member, the survivor or survivors where the deceased was a joint holder, and the legal personal representatives of the deceased where he was a sole or only surviving holder, shall be the only persons recognised by the Company as having any title to his shares; but nothing herein contained shall release the estate of a deceased holder, whether sole or joint, from any liability in respect of any share solely or jointly held by him.

44. Any person becoming entitled to shares in the Company in consequence of the death, bankruptcy or winding-up of any member or otherwise by operation of law or by court order shall, upon procuring such evidence of his title as the Directors may require, have the right either to be registered himself as the holder of the shares upon giving to the Company notice in writing of such his desire or to transfer such shares to some other person.  All the limitations, restrictions and provisions of these Articles and the Ordinance relating to the right to transfer and the registration of transfers of shares shall be applicable to any such notice or transfer as if the same were a transfer of shares by a member, including the Directors’ right to refuse or suspend registration.

Page 9

45. A person becoming entitled to shares in the Company in consequence of the death, bankruptcy or winding-up of any member or otherwise by operation of law or by court order shall have the right to receive and give a discharge for any dividends or other moneys payable in respect of the shares, provided always that the Directors may at any time give notice requiring any such person to elect to be registered himself or to transfer the shares, and if the notice is not complied with within sixty days, the Directors may thereafter withhold payment of all dividends or other moneys payable in respect of the shares until the requirements of the notice have been complied with but, subject to the requirements of Article 76 being met, such a person may vote at meetings.

STOCK

46. The Company may from time to time by ordinary resolution convert any fully paid-up shares into stock and may reconvert any stock into fully paid-up shares of any denomination.  After the passing of any resolution converting all the fully paid-up shares of any class in the capital of the Company into stock, any shares of that class which subsequently become fully paid-up and rank pari passu in all other respects with such shares shall, by virtue of this Article and such resolution, be converted into stock transferable in the same units as the shares already converted.

47. The holders of stock may transfer the same or any part thereof in the same manner and subject to the same regulations as the shares from which the stock arose might prior to conversion have been transferred or as near thereto as circumstances admit.  The Directors may from time to time fix the minimum amount of stock transferable and restrict or forbid the transfer of fractions of such minimum, but the minimum shall not, without the sanction of an ordinary resolution of the Company, exceed the nominal amount of each of the shares from which the stock arose.  No warrants to bearer shall be issued in respect of any stock.

48. The holders of stock shall, according to the amount of the stock held by them, have the same rights as regards dividends, participation in assets on a winding-up, voting at general meetings of the Company and other matters as if they held the shares from which the stock arose, but no such right (except as to participation in dividends, profits and in assets on a reduction of capital or a winding-up) shall be conferred by an amount of stock which would not, if existing in shares, have conferred such right.

49. Such of these Articles as are applicable to fully paid-up shares shall apply mutatis mutandis to stock, and the words “share” and “shareholder” shall include “stock” and “stockholder”.

INCREASE OF CAPITAL AND PURCHASE OF OWN SHARES

50. The Company may, from time to time, by ordinary resolution increase its authorised capital by such sum divided into shares of such amounts as the resolution shall prescribe.

51. The general meeting resolving upon the creation of any new shares may direct that the same or any of them shall be offered in the first instance, and either at par or at a premium or (subject to the provisions of the Ordinance) at a discount, to all the holders for the time being of any class of shares in the capital of the Company, in proportion to the number of shares of such class held by them respectively, or make any other provisions as to the issue and allotment of the new shares, and in default of any such direction, or so far as the same shall not extend, the new shares shall be at the disposal of the Directors, and Article 7 shall apply thereto.  The Company may exercise any powers conferred or permitted by the Ordinance or any other ordinance from time to time to purchase or otherwise acquire its own shares and warrants (including any redeemable shares) at any price or to give, directly or indirectly, by means of a loan, guarantee, the provision of security or otherwise, financial assistance for the purpose of or in connection with a purchase or other acquisition made or to be made by any person of any shares or warrants in the Company and should the Company purchase or otherwise acquire its own shares or warrants neither the Company nor the Board shall be required to select the shares or warrants to be purchased or otherwise acquired ratably or in any other particular manner as between the holders of shares or warrants of the same class or as between them and the holders of shares or warrants of any other class or in accordance with the rights as to dividends or capital conferred by any class of shares provided always that (a) purchases not made through the market or by tender shall be limited to a maximum price, and (b) if purchases are by tender, tenders shall be available to all shareholders alike and provided further that any such purchase or other acquisition or financial assistance shall only be made or given in accordance with any relevant rules or regulations issued by the Stock Exchange or the Securities and Futures Commission from time to time in force.

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52. Subject to any direction or determination that may be given or made in accordance with the powers contained in these Articles, all new shares created pursuant to Article 50 shall be subject to the same provisions herein contained with reference to the payment of calls, transfer, transmission, forfeiture, lien and otherwise as the existing shares of the Company.

ALTERATION OF SHARE CAPITAL

53.           The Company may by ordinary resolution:

(a) subdivide its existing shares or any of them into shares of smaller amount than is fixed by the Memorandum of Association of the Company, provided that in the subdivision of an existing share the proportion between the amount paid and the amount (if any) unpaid on each reduced share shall be the same as it was in the case of the share from which the reduced share is derived, and that the resolution whereby any share is subdivided may determine that as between the holders of the shares resulting from such subdivision one or more of the shares may, as compared with the others, have any such preferred, deferred or other special rights or be subject to any such restrictions as the Company has power to attach to unissued or new shares;

(b) divide its shares into several classes and attach thereto respectively any preferential, deferred, qualified or special rights, privileges or conditions;

(c) consolidate and divide its share capital or any part thereof into shares of larger amount than its existing shares;

(d) cancel any shares which at the date of the passing of the resolution have not been taken or agreed to be taken by any person and diminish the amount of its authorised capital by the amount of the shares so cancelled; or

(e) make provision for the issue and allotment of shares which do not carry any voting rights.

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54. The Company may by special resolution reduce its share capital and any capital redemption reserve fund or any share premium account in any manner allowed by law.

55. Where any difficulty arises in regard to any consolidation and division under paragraph (c) of Article 53, the Directors may settle the same as they think expedient and in particular may arrange for the sale of the shares representing fractions and the distribution of the net proceeds of sale in due proportion amongst the members who would have been entitled to the fractions, and for this purpose the Directors may authorise some person to transfer the shares representing fractions to the purchaser thereof, who shall not be bound to see to the application of the purchase money nor shall his title to the shares be affected by any irregularity or invalidity in the proceedings relating to the sale.

MODIFICATION OF RIGHTS

56. All or any of the special rights attached to any class of shares (unless otherwise provided for by the terms of issue of the shares of that class) for the time being in issue may subject to the provisions of the Ordinance, at any time, as well before as during liquidation, be altered or abrogated either with the consent in writing of the holders of not less than three-fourths of the issued shares of that class or with the sanction of a special resolution passed at a separate general meeting of the holders of shares of that class, and all the provisions contained in these Articles relating to general meetings shall mutatis mutandis apply to every such meeting but so that the quorum thereof shall be not less than two persons holding or representing by proxy one-third in nominal value of the issued shares of the class, and that any holder of shares of that class present in person or by proxy may demand a poll.

57. The provisions of the foregoing Article shall apply to the variation or abrogation of the special rights attached to some only of the shares of any class as if each group of shares of the class differently treated formed a separate class the rights whereof are to be varied.

58. The special rights conferred upon the holders of shares or any class of shares shall not, unless otherwise expressly provided in the rights attaching to or the terms of issue of such shares, be deemed to be altered by the creation or issue of further shares ranking pari passu therewith.

GENERAL MEETINGS

59. The Company shall in each year hold a general meeting as its annual general meeting in addition to any other meetings in that year.  The annual general meeting shall be held at such time (within a period of not more than fifteen months, or such longer period as the Registrar of Companies may authorise in writing, after the holding of the last preceding annual general meeting) and place as may be determined by the Directors.  All other general meetings shall be called extraordinary general meetings.

60. The Directors may wherever they think fit, and shall on requisition in accordance with the Ordinance, proceed to convene an extraordinary general meeting.

NOTICE OF GENERAL MEETINGS

61. Subject to section 116C of the Ordinance, an annual general meeting and a meeting called for the passing of a special resolution shall be called by not less than twenty-one days’ notice in writing, and any other general meeting shall be called by not less than fourteen days’ notice in writing.  The notice shall specify the place, date and time of meeting, and, in the case of special business, the general nature of that business.  The notice convening an annual general meeting shall specify the meeting as such, and the notice convening a meeting to pass a special resolution shall specify the intention to propose the resolution as a special resolution.  There shall appear on every such notice with reasonable prominence a statement that a member entitled to attend and vote is entitled to appoint one or more proxies to attend and vote instead of him and that a proxy need not be a member of the Company.

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62. Notwithstanding that a meeting of the Company is called by shorter notice than that specified in these Articles or required by the Ordinance, it shall be deemed to have been duly called if it is so agreed:

(a) in the case of a meeting called as the annual general meeting, by all the members entitled to attend and vote thereat; and

(b) in the case of any other meeting, by a majority in number of the members having the right to attend and vote at the meeting, being a majority together holding not less than 95 per cent. in nominal value of the shares giving that right.

63. The accidental omission to give notice of a meeting or (in cases where instruments of proxy are sent out with the notice) the accidental omission to send such instrument of proxy to, or the non-receipt of notice of a meeting or such instrument of proxy by, any person entitled to receive such notice shall not invalidate the proceedings at that meeting.

PROCEEDINGS AT GENERAL MEETINGS

64. All business shall be deemed special that is transacted at an extraordinary general meeting and at an annual general meeting with the exception of:

(a) the receipt of the accounts and balance sheet and the reports of the Directors and other documents required to be annexed to the accounts;

(b) the declaration and sanction of dividends;

(c) the election of Directors in place of those retiring (if any);

(d) the election or re-election of the Auditors of the Company; and

(e) the fixing of, or the determination of the method of fixing, the remuneration or extra remuneration of the Directors and of the Auditors of the Company.

65. No business save the election of a Chairman of the meeting shall be transacted at any general meeting unless a quorum is present when the meeting proceeds to business.  Two members present in person or by proxy and entitled to vote shall be a quorum for all purposes.

66. If, within thirty minutes from the time appointed for the meeting a quorum be not present, the meeting, if convened upon requisition in accordance with the Ordinance, shall be dissolved; but in any other case it shall stand adjourned to the same day in the next week at the same time and place, or to such other day, time and place as the Chairman of the meeting may determine.  If at such adjourned meeting a quorum be not present within thirty minutes from the time appointed for the meeting, the member or members present in person or by proxy shall be a quorum and may transact the business for which the meeting is called.

67. The Chairman (if any) of the Board shall preside as Chairman at every general meeting.  If there is no such Chairman or if at any meeting the Chairman is not present within fifteen minutes after the time appointed for holding the meeting, or if the Chairman is not willing to act as Chairman at the meeting, the Directors present shall choose one of their number to act, or if one Director only is present he shall preside as Chairman if willing to act.  If no Director is present, or if each of the Directors present declines to act as Chairman, the persons present and entitled to vote shall elect one of their number to be Chairman of the meeting.

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68. The Chairman of any general meeting at which a quorum is present may, with the consent of the meeting, and shall, if so directed by the meeting, adjourn the meeting from time to time and from place to place or sine die; but no business shall be transacted at any adjourned meeting other than business which might have been transacted at the meeting from which the adjournment took place unless due notice thereof is given or such notice is waived in the manner prescribed by these Articles.  When a meeting is adjourned for thirty days or more, or sine die, notice of the adjourned meeting shall be given as in the case of an original meeting.  Save as aforesaid, it shall not be necessary to give any notice of an adjourned meeting or the business to be transacted thereat.  Where a meeting is adjourned sine die the time and place for the adjourned meeting shall be fixed by the Directors.

VOTING

69. (a) At any general meeting a resolution put to the vote of the meeting shall be decided on a show of hands unless (before or on the declaration of the result of the show of hands or on the withdrawal of any other demand for a poll) a poll is demanded by:

(i) the Chairman of the meeting; or

(ii) at least three members present in person (or in the case of a member being a corporation, by its duly authorised representative) or by proxy and entitled to vote at the meeting; or

(iii) any member or members present in person (or in the case of a member being a corporation, by its duly authorised representative) or by proxy and representing in the aggregate not less than one-tenth of the total voting rights of all members having the right to attend and vote at the meeting; or

(iv) any member or members present in person (or in the case of a member being a corporation, by its duly authorised representative) or by proxy and holding shares conferring a right to attend and vote at the meeting on which there have been paid up sums in the aggregate equal to not less than one-tenth of the total sum paid up on all shares conferring that right.

(b) Unless a poll is so demanded and the demand is not withdrawn, a declaration by the Chairman that a resolution has, on a show of hands, been carried unanimously or by a particular majority or lost shall be final and conclusive, and an entry to that effect in the minute book of the Company shall be conclusive evidence of the fact without proof of the number or proportion of the votes recorded for or against such resolution.

70. A demand for a poll may be withdrawn only with the approval of the Chairman of the meeting, at any time before the close of the meeting or the taking of the poll, whichever is earlier.  If a poll be directed or demanded in the manner (including the use of ballot or voting papers or tickets) above mentioned it shall (subject to the provisions of Article 72 hereof) be taken at such time (being not later than thirty days after the date of the demand) and in such manner as the Chairman of the meeting may appoint.  No notice need be given of a poll not taken immediately.  The result of such poll shall be deemed for all purposes to be the resolution of the meeting at which the poll was so directed or demanded.

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71. In the case of an equality of votes at any general meeting, whether upon a show of hands or on a poll, the Chairman of the meeting shall be entitled to a second or casting vote.

72. A poll demanded upon the election of a Chairman or upon a question of adjournment shall be taken forthwith.  Any business, other than that upon which a poll has been demanded, may be proceeded with pending the taking of the poll.

73. (a) Save as expressly provided in these Articles, no person other than a member duly registered and who shall have paid everything for the time being due from him payable to the Company in respect of his shares shall be entitled to be present or to vote (save as proxy for another member) either personally or by proxy, or to be reckoned in a quorum at any general meeting.

(b) No objection shall be made to the validity of any vote except at a meeting at which such vote shall be tendered and every vote whether given personally or by proxy not disallowed at such meeting shall be deemed valid for all purposes whatsoever of such meeting or poll.

(c) In case of any dispute as to voting the Chairman shall determine the same, and such determination shall be final and conclusive.

74. Subject to the provisions of the Ordinance, a resolution in writing signed by all the members for the time being entitled to receive notice of and to attend and vote at general meetings shall be as valid and effective as if the same had been passed at a general meeting of the Company duly convened and held.  A written notice of confirmation of such resolution in writing signed by or on behalf of a member shall be deemed to be his signature to such resolution in writing for the purposes of this Article.  Such resolution in writing may consist of several documents each signed by or on behalf of one or more members.

VOTES OF MEMBERS

75. Subject to Article 85 and to any special rights, privileges or restrictions as to voting for the time being attached to any class or classes of shares, every member who (being an individual) is present in person or (being a corporation) is present by a representative duly authorised under section 115 of the Ordinance at any general meeting shall be entitled, on a show of hands, to one vote only and, on a poll, to one vote for every fully paid-up share of which he is the holder.

76. Any person entitled under Article 45 to be registered as the holder of any shares may vote at any general meeting in respect thereof in the same manner as if he were the registered holder of such shares, provided that at least 48 hours before the time of the holding of the meeting or adjourned meeting (as the case may be) at which he proposes to vote, he shall satisfy the Board of his right to be registered as the holder of such shares or the Board shall have previously admitted his right to vote at such meeting in respect thereof.

77. On a poll, votes may be given either personally or by proxy and a member entitled to more than one vote need not use all his votes or cast all the votes he uses in the same way.

78. A member of unsound mind, or in respect of whom an order has been made by any court having jurisdiction in lunacy, may vote, whether on a show of hands or on a poll, by his committee, curator bonis or other person in the nature of a committee or curator bonis appointed by that court, and such committee, curator bonis or other person may on a poll, vote by proxy.  If any member be a minor he may vote by his guardian or one of his guardians who may give their votes personally or by proxy.  Where a member is, under the Listing Rules, 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.

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PROXIES

79. (a) A proxy need not be a member of the Company.

(b) An instrument appointing a proxy shall be in writing in any usual or common form or in any other form which the Directors may accept, and shall be deemed, subject to the proviso hereinafter contained, to confer authority upon the proxy to vote on any resolution (or amendment thereto) put to the meeting for which it is given as the proxy thinks fit.

Provided that any form issued to a member for use by him for appointing a proxy to attend and vote at an extraordinary general meeting or at an annual general meeting at which special business (determined as provided in Article 64) is to be transacted shall be such as to enable the member according to his intention to instruct the proxy to vote in favour of or against (or, in default of instructions, to exercise his discretion in respect of) each resolution dealing with any such special business and shall, unless the contrary is stated therein, be valid as well for any adjournment of the meeting as for the meeting to which it relates.

80. The instrument appointing a proxy shall be signed by the appointor, or his duly authorised attorney, of if such appointor be a corporation, under its common seal or signed by some officer, attorney or other person duly authorised in that behalf.

81. The instrument appointing a proxy and the power of attorney or other authority (if any) under which it is signed, or a notarially certified copy of such power or authority, shall be deposited at the Office at least forty-eight hours before the time fixed for holding the meeting at which the person named in such instrument proposes to attend and vote or, in the case of a poll, at least thirty-six hours before the time appointed for the taking of the poll; otherwise the person so named shall not be entitled to vote at that meeting (or as the case may be) except with the approval of the Chairman of the meeting.  No instrument appointing a proxy shall be valid after the expiration of twelve months from the date of its execution, except at an adjourned meeting or on a poll demanded at a meeting or an adjourned meeting in cases where the meeting was originally held within twelve months from such date.  Delivery of an instrument appointing a proxy shall not preclude a member from attending and voting in person at the meeting or poll concerned and, in such event, the instrument appointing a proxy shall be deemed to be revoked.

82. Any member may by power of attorney appoint any person to be his attorney for the purpose of attending and voting at any meeting, and such power may be a special power limited to any particular meeting or a general power extending to all meetings at which such member is entitled to vote.  Every such power shall be deposited at the Office at least thirty-six hours before the time fixed for holding the meeting at which such attorney proposes to attend and vote or, in the case of a poll, at least twenty-four hours before the time appointed for the taking of the poll; otherwise the attorney shall not be entitled to vote at that meeting (or as the case may be) except with the approval of the Chairman of the meeting.

83. (a) An instrument of proxy may be revoked by forwarding to the Office written notification of such revocation signed by or on behalf of the person who issued or authorised the issue of the instrument of proxy.

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(b) A vote given in accordance with the terms of an instrument of proxy or power of attorney or by the duly authorised representative of a corporation shall be valid notwithstanding the previous death or insanity of the principal, or revocation of the proxy or power of attorney or other authority, or transfer of the shares in respect of which the proxy is given, provided no intimation in writing of the death, insanity, revocation or transfer shall have been received at the Office at least twenty-four hours before the time fixed for holding the meeting, or adjourned meeting, or the taking of the poll, at which the instrument of proxy is used.

84. Any corporation which is a member of the Company may, by resolution of its directors or other governing body or by power of attorney, authorise such persons at it thinks fit to act as its representative at any meeting of the Company or of any class of members of the Company, and the person so authorised shall be entitled to exercise the same powers on behalf of the corporation which he represents as that corporation could exercise if it were an individual member of the Company.  References in these Articles to a member present in person at a meeting shall, unless the context otherwise requires, include a corporation which is a member represented at the meeting by such duly authorised representative.

85. Without prejudice to the generality of Article 84, where that shareholder and/or warrantholder is a Clearing House or its nominee(s), it may authorise such person or persons as it thinks fit to act as its representative(s) or proxy(ies) at any shareholders' meetings or any meetings of any class of shareholders and/or warrantholders provided that, if more than one person is so authorised, the authorisation or proxy form must specify the number and class of shares and/or warrants in respect of which each such person is so authorised.  The person so authorised will be deemed to have been duly authorised without the need of producing any documents of title, notarized authorization and/or further evidence for substantiating the facts that it is duly authorised and will be entitled to exercise the same power on behalf of the Clearing House as that clearing house or its nominee(s) could exercise if it were an individual shareholder and/or warrantholder of the Company.

DIRECTORS

86. Unless and until otherwise determined by an ordinary resolution of the Company, the Directors shall be not fewer than two in number, and there shall be no maximum number of Directors.

87. The Company shall keep in accordance with the Ordinance a register containing the names and addresses and occupations of its Directors and shall from time to time notify to the Registrar of Companies any change that takes place in such Directors as required by the Ordinance.

88. A Director need not hold any shares in the Company.  If invited by the Company, a Director who is not a member of the Company shall nevertheless be entitled to attend and speak at general meetings.

DIRECTORS’ REMUNERATION

89. (a) Without prejudice to the provisions of Article 90, the Directors shall be entitled to receive by way of remuneration for their services such sum as shall from time to time be determined by the Company in general meeting, such sum (unless otherwise directed by the resolution by which it is voted) is to be divided amongst the Directors in such proportions and in such manner as the Board may determine, or failing agreement, equally, except that in such event any Director holding office for less than the whole of the relevant period in respect of which the remuneration is paid shall only rank in such division in proportion to the time during such period for which he has held office. The foregoing provisions shall not apply to a Director who holds any salaried employment or office in the Company except in the case of sums paid in respect of directors' fees.

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(b) The Directors shall also be entitled to be repaid their reasonable travelling, hotel and other expenses incurred by them in or about the performance of their duties as Directors, including their expenses of travelling to and from board meetings, committee meetings or general meetings or otherwise incurred whilst engaged on the business of the Company or on the discharge of their duties as directors.

90. The Directors may award special remuneration out of the funds of the Company (by way of salary, commission or otherwise as the Directors may determine) to any Director who performs services which in the opinion of the Directors are outside the scope of the ordinary duties of a Director.

POWERS OF DIRECTORS

91. The Directors may establish any local boards or agencies for managing any of the affairs of the Company, either in Hong Kong or elsewhere, and may appoint any persons to be members of such local boards, or any managers or agents for the Company, and may fix their remuneration, and may delegate (with or without power to sub-delegate as the Directors shall determine) to any local board, manager or agent any of the powers, authorities and discretions vested in the Directors, and may authorise the members of any local boards, or any of them, to fill any vacancies therein, and to act notwithstanding vacancies, and such appointment or delegation may be made upon such terms and subject to such conditions as the Directors may think fit, and the Directors may remove any person so appointed and may annul or vary any such delegation, but no person dealing in good faith and without notice of any such annulment or variation shall be affected thereby.

92. The Directors may from time to time and at any time by power of attorney or other instrument appoint any company, firm or person or any fluctuating body of persons, whether nominated directly or indirectly by the Board, to be the attorney or attorneys of the Company for such purposes and with such powers, authorities and discretions (not exceeding those vested in or exercisable by the Directors under these Articles) and for such period and subject to such conditions as they may think fit, and any such power of attorney or other instrument may contain such provisions for the protection and convenience of persons dealing with any such attorney as the Directors may think fit, and may also authorise any such attorney to sub-delegate all or any of the powers, authorities and discretions vested in him.  The Company may, by writing under its seal, empower any person, either generally or in respect of any specified matter, as its attorney to execute deeds and instruments on its behalf and to enter into contracts and sign the same on its behalf and every deed signed by such attorney on behalf of the Company and under his seal shall bind the Company and have the same effect as if it were under the seal of the Company.

93. Subject to and to the extent permitted by the Ordinance, the Company or the Directors on behalf of the Company, may cause to be kept in any territory a Branch Register of members resident in such territory, and the Directors may make and vary such regulations as they may think fit respecting the keeping of any such Branch Register.

94. All cheques, promissory notes, drafts, bills of exchange, and other negotiable or transferable instruments, and all receipts for moneys paid to the Company, shall be signed, drawn, accepted, endorsed, or otherwise executed, as the case may be, in such manner as the Directors shall from time to time by resolution determine.  The Company’s bank accounts shall be kept with such banker or bankers as the Board shall from time to time determine.

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95. (a) The Directors may exercise all the powers of the Company to borrow money and to mortgage or charge all or any part of the undertaking, property and assets (present and future) and uncalled capital of the Company and to issue debentures, debenture stocks, bonds and other securities, whether outright or as collateral security for any debt, liability or obligation of the Company or of any third party.  Debentures, debenture stocks, bonds and other securities of the Company may be made assignable free from any equities between the Company and the person to which the same may be issued, and may be issued at a discount, premium or otherwise and with any special privileges as to redemption, surrender, drawings, allotment of shares, attending and voting at general meetings of the Company, appointment of Directors and otherwise.

(b) The Directors shall cause a proper register to be kept, in accordance with the provisions of the Ordinance, of all mortgages and charges affecting the property of the Company and shall duly comply with the requirements of the Ordinance in regard to the registration of mortgages and charges therein specified and otherwise.  Where any uncalled capital of the Company is charged, all persons taking any subsequent charge thereon shall take the same subject to such prior charge, and shall not be entitled, by notice to the members or otherwise, to obtain priority over such prior charge.

96. The Board may establish and maintain or procure the establishment and maintenance of any contributory or non-contributory pension or superannuation funds for the benefit of, or give or procure the giving of donations, gratuities, pensions, allowances or emoluments to, any persons who are or were at any time in the employment or service of the Company, or of any company which is a subsidiary of the Company, or is allied or associated with the Company or with any such subsidiary company, or who are or were at any time directors or officers of the Company or of any such other company as aforesaid, and holding or who have held any salaried employment or office in the Company or such other company, and the wives, widows, families and dependants of any such persons.  The Board may also establish and subsidise or subscribe to any institutions, associations, clubs or funds calculated to be for the benefit of or to advance the interests and well being of the Company or of any such other company as aforesaid or of any such persons as aforesaid, and may make payments for or towards the insurance of any such persons as aforesaid, and subscribe or guarantee money for charitable or benevolent objects or for any exhibition or for any public, general or useful object.  The Board may do any of the matters aforesaid, either alone or in conjunction with any such other company as aforesaid.  Any Director holding any such employment or office shall be entitled to participate in and retain for his own benefit any such donation, gratuity, pension, allowance or emolument.

APPOINTMENT AND REMOVAL OF DIRECTORS

97. At each annual general meeting one-third of the Directors for the time being, or, if their number is not three or a multiple of three, then the number nearest one-third, shall retire from office by rotation save any Director holding office as Chairman or Chief Executive Officer.  The Directors to retire in every year shall be those who have been longest in office since their last election but as between persons who became Directors on the same day shall (unless they otherwise agree between themselves) be determined by lot.  The retiring Directors shall be eligible for re-election.  The Company at any general meeting at which any Directors retire may fill the vacated offices.   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 within the period referred to in the next succeeding sentence 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 on (and include) the day after the despatch of the notice of meeting appointed for such election and end on (and exclude) the date that is seven (7) days before the date appointed for the meeting.

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98. If at any general meeting at which an election of Directors ought to take place the places of the retiring Directors are not filled, the retiring Directors or such of them as have not had their places filled shall be deemed to have been re-elected and shall, if willing, continue in office until the next annual general meeting and so on from year to year until their places are filled, unless:

(a) it shall be determined at such meeting to reduce the number of Directors;

(b) it is expressly resolved at such meeting not to fill such vacated offices;

(c) in any such case the resolution for re-election of a Director is put to the meeting and lost; or

(d) such Director has given notice in writing to the Company that he is not willing to be re-elected.

99. The Company may, from time to time, by ordinary resolution elect any person to be a Director either to fill a casual vacancy or as an addition to the Board.

100. The Company may by ordinary resolution remove any Director notwithstanding anything in these Articles or in any agreement between him and the Company (but without prejudice to any right to damages for termination of such agreement not in accordance with the terms thereof), and may, if thought fit, by ordinary resolution appoint another person in his stead. Special notice is required of a resolution to remove a Director, or to appoint somebody in place of a Director so removed at the meeting at which he is removed, in accordance with the Ordinance. Any person so elected shall hold office for such time only as the Director in whose place he is elected would have held the office if he had not been removed.

101. The Directors shall have power, exercisable at any time and from time to time, to appoint any other person as a Director, either to fill a casual vacancy or as an addition to the Board but so that the number of Directors so appointed shall not exceed the maximum number determined from time to time (if any) by the shareholders in general meeting and any directors so appointed shall hold office only until the next following annual general meeting of the Company and shall then be eligible for re-election, but shall not be taken into account in determining the Directors or the number of Directors who are to retire by rotation at each annual general meeting.

102. The continuing Directors may act notwithstanding any vacancy in their body, but if and so long as the number of Directors is reduced below the number fixed by or pursuant to these Articles as the necessary quorum of Directors, the continuing Directors may act for the purpose of increasing the number of Directors to that number, or of summoning a general meeting of the Company, but for no other purpose.  If there shall be no Directors able or willing to act, then any two members may summon a general meeting for the purpose of appointing Directors.

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103. No person other than a retiring Director shall, unless recommended by the Board for re-election, be eligible for election to the office of Director at any annual general meeting unless notice in writing of the intention to propose that person for election as a Director and notice in writing by that person of his consent to be elected shall have been lodged at the Office or head office of the Company. The period for lodgement of such notices shall commence on (and include) the day after the despatch of the notice of meeting appointed for such election and end on (and exclude) the date that is seven (7) days before the date appointed for the meeting.

ALTERNATE DIRECTORS

104. Each Director may by written notification to the Company nominate any other person to act as alternate Director in his place for a specified period and at his discretion in similar manner remove such alternate Director.  If such person is not another Director, such appointment, unless previously approved by the Board, shall have effect only upon and subject to being so approved.  The alternate Director shall (except as regards the power to appoint an alternate) be subject in all respects to the terms and conditions existing with reference to the other Directors of the Company; and each alternate Director, whilst acting as such, shall exercise and discharge all the functions, powers and duties of the Director he represents, but shall look to such Director solely for his remuneration as alternate Director.  Every person acting as an alternate Director shall (except when absent from Hong Kong) be entitled to receive notices of meetings of the Board and shall have one vote for each Director for whom he acts as alternate at any such meeting at which the Director appointing him is not personally present (in addition to his own vote if he is also a Director).  The signature of an alternate Director to any resolution in writing of the Board or a committee of the Board shall, unless the notice of his appointment provides to the contrary, be as effective as the signature of his appointor.  Any person appointed as an alternate Director shall vacate his office as such alternate Director if and when the Director by whom he has been appointed removes him or vacates office as Director.  An alternate Director shall be responsible and liable for his own acts, omissions and defaults. An alternate Director shall not be deemed to be an agent of the Director who appoints him. The Director who appoints the alternate Director shall not be vicariously liable for any acts or omissions, including but not limited to any tort, committed by or of the alternate Director while acting in the capacity of alternate Director.  To such extent as the Board may from time to time determine in relation to any committee of the Board, the foregoing provisions of this paragraph shall also apply mutatis mutandis to any meeting of any committee of which his appointor is a member.  An alternate Director shall not, save as aforesaid, have power to act as a Director nor shall he be deemed to be a Director for the purposes of these Articles.

DISQUALIFICATION OF DIRECTORS

105. The office of a Director shall ipso facto be vacated:

(a) if he becomes prohibited by law or court order from being a Director;

(b) if a receiving order is made against him or he makes any arrangement or composition with his creditors;

(c) if he becomes of unsound mind;

(d) if he absents himself from the meetings of the Board during a continuous period of six months, without special leave of absence from the Board, and his alternate Director (if any) shall not during such period have attended in his stead, and the Board passes a resolution that he has by reason of such absence vacated his office;

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(e) if he shall be removed from office by notice in writing served upon him signed by all his co-directors;

(f) if he resigns his office;

(g) if he is removed by a special resolution of the Company; or

(h) if he is convicted of an indictable offence.

DIRECTORS’ INTERESTS

106. A Director who is in any way, whether directly or indirectly, interested in a contract or proposed contract with the Company shall declare the nature of his interest in accordance with the provisions of the Ordinance.  A general notice given to the Directors by a Director to the effect that he is a member or a director of a specified company or firm, and is to be regarded as interested in any contract, arrangement or dealing which may, after the date of the notice, be entered into or made with that company or firm, shall, for the purpose of this Article, be deemed to be a sufficient disclosure of interest in relation to any contract, arrangement or dealing so entered into or made.  Without prejudice to the generality of the foregoing, a Director shall give notice to the Company of such matters relating to himself as may be necessary for the purposes of sections 155B, 158, 161 and 161B of the Ordinance.

107. A Director may hold any other office or place of profit under the Company (other than the office of Auditor), and he or any firm of which he is a member may act in a professional capacity for the Company in conjunction with his office of Director, for such period and on such terms (as to remuneration and otherwise) as the Directors may determine and such extra remuneration shall be in addition to any remuneration provided for by or pursuant to any other Article.  No Director or intended Director shall be disqualified by his office from contracting with the Company, nor shall any contract or arrangement entered into by or on behalf of the Company with any Director or any firm or company in which any Director is in any way interested be liable to be avoided, nor shall any Director so contracting or being so interested be liable to account to the Company for any profit, remuneration or other benefits realised by any such contract or arrangement by reason only of such Director holding that office or of any fiduciary relationship thereby established, provided that such Director shall disclose the nature of his interest in any contract or arrangement in which he is interested at the meeting of the Board at which the question of entering into the contract or arrangement is first taken into consideration, if he knows his interest then exists, or in any other case at the first meeting of the Board after he knows that he is or has become so interested.

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 are 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 or indemnity 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;

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(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;

(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.

A company shall be deemed to be a company in which a Director and/or his associate(s) owns 5% or more if and so long as (but only if and so long as) he and/or his associate(s) (either directly or indirectly) is/are the holders of or beneficially interested in 5% or more of any class of the equity share capital of such company or of the voting rights available to members of such company (or any third company through which his/their interest or that of any of his associates is derived) or of the voting rights of any class of shares available to shareholders of the Company.  For the purpose of this paragraph there shall be disregarded  any shares held by a Director or his associate(s) as bare or custodian trustee and in which he or any of them has no beneficial interest, any shares comprised in a trust in which the interest of the Director or his associate(s) is/are in reversion or remainder if and so long as some other person is entitled to receive the income thereof, and any shares comprised in an authorised unit trust scheme in which the Director or his associate(s) is interested only as a unit holder and any shares which carry no voting right at general meetings and restrict dividend and return of capital rights.

Where a company in which a Director and/or his associate(s) holds 5% or more of any class of the equity share capital of such company or of the voting rights of any class of shares available to shareholders of the Company is/are materially interested in a transaction, then that Director shall also be deemed materially interested in such transaction.

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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.

109. A Director may continue to be or become a director, managing director, joint managing director, deputy managing director, executive director, chief executive officer or manager or other officer or member of any other company in which the Company is interested, and (unless otherwise agreed) shall not be liable to account to the Company for any remuneration or other benefits received by him as a director, managing director, joint managing director, deputy managing director, executive director, chief executive officer, manager or other officer or member of any such other company.  The Board may exercise the voting powers conferred by the shares in any other company held or owned by the Company or exercisable by it as directors of such other company in such manner as in all respects as the Board thinks fit (including the exercise thereof in favour of any resolution appointing themselves or any of them directors, chief executive officers, managing directors, joint managing directors, deputy managing directors, executive directors, managers or other officers of such company) and any director may vote in favour of the exercise of such voting rights in manner aforesaid notwithstanding that he may be, or be about to be, appointed a director, managing director, joint managing director, deputy managing director, executive director, chief executive officer, manager or other officer of such a company, and that as such he is or may become interested in the exercise of such voting rights in manner aforesaid.  A Director of the Company may be or become a director of any company promoted by the Company or in which it may be interested as a vendor, shareholder or otherwise and no such Director will be accountable for any benefits received as a director or member of such company.  A Director of the Company or his firm may not act as auditor of the Company.

CHIEF EXECUTIVE OFFICERS AND OTHER APPOINTMENTS

110. The Directors may, from time to time, appoint one or more of their number to be Chief Executive Officer or Chief Operating Officer of the Company, or to hold such office in the management, administration or conduct of the business of the Company as they may decide, and for such period and upon such terms and for such remuneration as the Directors shall think fit, and the Directors may also, from time to time (subject to the provisions of any agreement between him or them and the Company) remove him or them from office, and appoint another or others in his or their place or places.

111. A Chief Executive Officer or a Chief Operating Officer (subject to the provisions of any agreement between him and the Company) shall be subject to the same provisions as to resignation and removal as the other Directors of the Company, and shall ipso facto and immediately cease to be Chief Executive Officer or Chief Operating Officer if he shall cease to hold the office of Director.

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112. The Directors may, from time to time, entrust to and confer upon any Chief Executive Officer, Chief Operating Officer or Director, holding any other office in the management, administration or conduct of the business of the Company, such of the powers exercisable under these Articles by the Directors as they may think fit, and may confer such powers for such time, and to be exercised for such objects and purposes, and upon such terms and conditions and with such restrictions as they may consider expedient, and may from time to time revoke, withdraw, alter or vary all or any of such powers.

PROCEEDINGS OF DIRECTORS

113. The Directors may meet together for the despatch of business, adjourn and otherwise regulate their meetings as they think fit, and determine the quorum necessary for the transaction of business.  Until otherwise determined by the Board, two Directors shall constitute a quorum.  For the purpose of this Article an alternate Director shall be counted in a quorum but, notwithstanding that an alternate Director is also a Director or is an alternate for more than one Director, he shall for quorum purposes count as only one Director.  Matters arising at any meeting shall be decided by a majority of votes.  In case of an equality of votes the Chairman of the meeting shall have a second or casting vote.  A Director or the Secretary may, at any time, summon a meeting of the Directors.  A meeting of the Board or any committee of the Board may be held by means of such telephone, electronic or other communication facilities as permit all persons participating in the meeting to communicate with each other simultaneously and instantaneously, and participation in such a meeting shall constitute presence in person at such meeting.

114. Notice of a meeting of Directors shall be deemed to be duly given to a Director if it is given to him personally, in writing or by word of mouth, or sent to him at his last known address or any other address given by him to the Company for this purpose.  A Director may waive notice of any meeting and any such waiver may be retrospective.

115. The Directors may elect a Chairman of the Board and determine the period for which he is to hold office; but if no such Chairman be elected, or if at any meeting the Chairman be not present within five minutes after the time appointed for holding the same, the Directors present shall choose one of their number to be Chairman of such meeting.

116. A resolution in writing signed by all the Directors except such as are temporarily unable to act through ill health or disability (or their alternate Directors) shall (so long as they constitute a quorum) be as effective for all purposes as a resolution of the Directors passed at a meeting duly convened, held and constituted.  A written notification of confirmation of such resolution in writing signed by a Director shall be deemed to be his signature to such resolution in writing for the purposes of this Article.  Such resolution in writing may consist of several documents, each signed by one or more Directors or alternate Directors and for this purpose, a facsimile signature of a Director or an alternate Director shall be treated as valid.

117. A meeting of the Directors at which a quorum is present shall be competent to exercise all the powers, authorities and discretions for the time being vested in or exercisable by the Board generally.

118. The Directors may, from time to time, appoint committees consisting of such one or more persons as they think fit, and may delegate any of their powers to any such committee and, from time to time, revoke any such delegation and discharge any such committee wholly or in part.  Any committee so appointed shall, in the exercise of the powers so delegated, conform to any regulations that may, from time to time, be imposed upon it by the Directors.  All acts done by any such committee in conformity with such regulations and in fulfilment of the purposes for which it is appointed, but not otherwise, shall have the like force and effect as if done by the Board, and the Board shall have power, with the consent of the Company in general meeting, to remunerate the members of any special committee, and charge such remuneration to the current expenses of the Company.

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119. The meetings and proceedings of any such committee consisting of two or more members shall be governed mutatis mutandis by the provisions of these Articles regulating the meetings and proceedings of the Directors, insofar as the same are not superseded by any regulations made by the Directors under the last preceding Article.

120. All acts done bona fide by any meeting of the Directors or of a committee of Directors, or by any persons acting as Directors, shall, notwithstanding that there was some defect in the appointment of any such Directors or persons acting as aforesaid, or that they or any of them were disqualified, or had vacated office, be as valid as if every such person had been duly appointed and was qualified and continued to be a Director.

MINUTES

121. The Directors shall cause to be entered and kept in books provided for the purpose minutes of the following:

(a) all appointments of officers;

(b) all the names of the Directors and any alternate Director who is not also a Director present at each meeting of the Directors and of any committee; and

(c) all resolutions and proceedings of general meetings and of meetings of the Directors and committees.

Any such minutes of any meeting of the Directors, or of any committee, or of the Company, if purporting to be signed by the Chairman of such meeting, or by the Chairman of the next succeeding meeting, shall be receivable as evidence of the proceedings of such meeting.

THE SEAL

122. The Directors shall procure a common seal to be made for the Company, and shall provide for the safe custody thereof.  The Seal shall not be affixed to any instrument except by the authority of the Directors or a committee authorised by the Board in that behalf, and every instrument to which the Seal shall be affixed shall be signed by one Director or some other person nominated by the Directors for the purpose, provided that the Board may either generally or in any particular case or cases resolve (subject to such restrictions as to the manner in which the Seal may be affixed as the Board may determine) that such signature may be affixed to certificates for shares or debentures or representing any other form of security by some mechanical means other than autographic to be specified in such resolution or that such certificates need not be signed by any person.  Every instrument executed in the manner provided by this Article shall be deemed to be sealed and executed with the authority of the Directors previously given.

123. The Company may have an official seal for use for sealing certificates for shares or other securities, with the addition of the word ‘Securities’ on its face or in such other form as the Board may approve, issued by the Company as permitted by section 73A of the Ordinance (and no signature of any Director, officer or other person and no mechanical reproduction thereof shall be required on any such certificates or other document to which such official seal is affixed and such certificates or other document shall be valid and deemed to have been sealed and executed with the authority of the Board notwithstanding the absence of any such signature or mechanical reproduction as aforesaid) and an official seal for use abroad under the provisions of the Ordinance where and as the Board shall determine, and the Company may by writing under the Seal appoint any agents or agent, committees or committee abroad to be the duly authorised agents of the Company for the purpose of affixing and using such official seal and may impose such restrictions on the use thereof as may be thought fit.  Wherever in these Articles reference is made to the Seal, the reference shall, when and so far as may be applicable, be deemed to include any such official seal as aforesaid.

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124. The Company may exercise all the powers of having official seals conferred by the Ordinance and such powers shall be vested in the Directors.

SECRETARY

125. The Directors shall appoint such person, persons or entities to be Secretary or Joint Secretaries of the Company for such period, at such remuneration and upon such conditions as they may think fit, and any Secretary or Joint Secretaries so appointed may be removed by them.  Anything by the Ordinance or these Articles required or authorised to be done by or to the Secretary or Joint Secretaries, if the office is vacant or there is for any other reason no person capable of acting in the capacity as Secretary or Joint Secretaries, may be done by or to any assistant or deputy Secretary, or if there is no assistant or deputy Secretary capable of acting, by or to any officer of the Company authorised generally or specially in that behalf by the Board.

DIVIDENDS AND RESERVES

126. The Company may by ordinary resolution declare dividends but no such dividend shall exceed the amount recommended by the Directors.

127. Unless and to the extent that the rights attached to any shares or the terms of issue thereof otherwise provide, all dividends shall (as regards any shares not fully paid throughout the period in respect of which the dividend is paid) be apportioned and paid pro rata according to the amounts paid on the shares during any portion or portions of the period in respect of which the dividend is paid.  For the purposes of this Article no amount paid on a share in advance of calls shall be treated as paid on the share.

128. The Directors may retain any dividend or other monies payable on or in respect of a share on which the Company has a lien, and may apply the same in or towards satisfaction of the debts and liabilities in respect of which the lien exists.  The Board may deduct from any dividend or bonus payable to any member all sums of money (if any) presently payable by him to the Company on account of calls, instalments or otherwise.

129. Any resolution declaring a dividend on shares of any class, whether a resolution of the Company in general meeting or a resolution of the Directors, may specify that the same shall be payable to the persons registered as the holders of such shares at the close of business on a particular date, notwithstanding that it may be a date prior to that on which the resolution is passed, and thereupon the dividend shall be payable to them in accordance with their respective holdings so registered, but without prejudice to the rights inter se in respect of such dividend of transferors and transferees of any such shares.  The provisions of this Article shall mutatis mutandis apply to capitalisations to be effected in pursuance of these Articles.

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130. Any general meeting sanctioning a dividend may make a call on the members of such amount as the meeting fixes, but so that the call on each member shall not exceed the dividend payable to him, and so that the call shall be made payable at the same time as the dividend, and the dividend may, if so arranged between the Company and the member, be set off against the call.

131. (a) In respect of any dividend which the Board has resolved to pay or any dividend declared or sanctioned or proposed to be declared or sanctioned by the Board or by the Company in general meeting, the Board may determine and announce, prior to or contemporaneously with the announcement, declaration or sanction of the dividend in question:

either

(i) that members entitled thereto will receive in lieu of such dividend (or such part thereof as the Board may think fit) an allotment of shares credited as fully paid provided that the members are at the same time accorded the right to elect to receive such dividend (or part thereof as the case may be) in cash in lieu of such allotment.  In such case, the following provisions shall apply:

(A) the basis of any such allotment shall be determined by the Board;

(B) the Board, after determining the basis of allotment and notwithstanding that the number of shares to be allotted may not be calculated until after notice to the members has been given as required by the provisions of this sub-paragraph and subject to the provisions of sub-paragraph (D) below, shall give notice in writing to the members of the right of election accorded to them and shall send with such notice forms of election and specify the procedure to be followed and the place at which and the latest date and time by which duly completed forms of election must be lodged in order to be effective which shall be not less than two weeks from the date on which the notice above referred to was despatched to the members;

(C) the right of election accorded to members as aforesaid may be exercised in whole or in part;

(D) the Board may resolve:

(I) that the right of election accorded to members as aforesaid may be exercised so as to take effect on all future occasions (if any) when the Board makes a determination pursuant to sub-paragraph (i) of this paragraph (a); and/or

(II) that a member who does not exercise the right of election accorded to him as aforesaid either in whole or in part may notify the Company that he will not exercise the right of election accorded to him in respect of all future occasions (if any) when the Board makes a determination pursuant to sub-paragraph (i) of this paragraph (a) of this Article.

Provided that a member may exercise such election or give such notice in respect of all but not, some of the shares held by him and may at any time give seven days notice in writing to the Company of the revocation of such an election or such a notice which revocation shall take effect at the expiry of such seven days, and until such revocation has taken effect, the Board shall not be obligated to give to such member notice of the right of election accorded to him or send to him any form of election;

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(E) the dividend (or that part of the dividend in lieu of which an allotment of shares is to be made as aforesaid) shall not be payable in cash on shares in respect whereof the cash election has not been duly exercised (the “Non-Elected Shares”) and in lieu thereof shares shall be allotted credited as fully paid to the holders of the Non-Elected Shares on the basis of allotment determined as aforesaid and for such purpose the Board shall capitalise and apply out of the amount standing to the credit of share premium account or out of any part of the undivided profits of the Company (including profits carried and standing to the credit of any reserve or reserves or other special account) as the Board may determine, a sum equal to the aggregate nominal amount of shares to be allotted on such basis and apply the same in paying up in full the appropriate number of unissued shares for allotment and distribution to and amongst the holders of the Non-Elected Shares on such basis;

(F) the Board may resolve that the shares to be allotted shall be allotted at a premium provided that the premium is credited as fully paid up and in such case the Board shall in addition to the amount to be capitalised and applied pursuant to sub-paragraph (E) above, and for the purposes therein set out, capitalise and apply out of the amount standing to the credit of the share premium account or out of any part of the undivided profits of the Company (including profits carried and standing to the credit of any reserve or reserves or other special account) as the Directors may determine, a sum equal to the aggregate amount of the premium on the shares to be allotted and shall apply the same together with the sum to be applied pursuant to sub-paragraph (E) above and on the basis therein set out in paying up in full the appropriate number of unissued shares for allotment and distribution to and amongst the holders of the Non-Elected Shares;

or

(ii) that members entitled to such dividend be entitled to elect to receive an allotment of shares credited as fully paid in lieu of the whole or such part of the dividend as the Board may think fit.  In such case, the following provisions shall apply:

(A) the basis of any such allotment shall be determined by the Board;

(B) the Board, after determining the basis of allotment and notwithstanding that the number of shares to be allotted may not be calculated until after notice to the members has been given as required by the provisions of this sub-paragraph and subject to the provisions of sub-paragraph (D) below, shall give notice in writing to the members of the right of election accorded to them and shall send with such notice forms of election and specify the procedure to be followed and the place at which and the latest date and time by which duly completed forms of election must be lodged in order to be effective which shall be not less than two weeks from the date on which the notice above referred to was despatched to the members;

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(C) the right of election accorded to members as aforesaid may be exercised in whole or in part;

(D) the Board may resolve;

(I) that the right of election accorded to members as aforesaid may be exercised so as to take effect on all future occasions (if any) when the Board makes a determination pursuant to sub-paragraph (ii) of this paragraph (a); and/or

(II) that a member who does not exercise the right of election accorded to him as aforesaid either in whole or in part may notify the Company that he will not exercise the right of election accorded to him in respect of all future occasions (if any) when the Board makes determination pursuant to sub-paragraph (ii) of paragraph (a).

Provided that a member may exercise such election or give such notice in respect of all but not some of the shares held by him and may at any time give seven days’ notice in writing to the Company of the revocation of such an election or such a notice which revocation shall take effect at the expiry of such seven days, and until revocation has taken effect, the Board shall not be obliged to give to such member notice of the right of election accorded to him or send to him any form of election;

(E) the dividend (or that part of the dividend in respect of which a right of election has been accorded) shall not be payable on shares in respect whereof the share election has been duly exercised (the Elected Shares) and in lieu thereof shares shall be allotted credited as fully paid to the holders of the Elected Shares on the basis of allotment determined as aforesaid and for such purpose the Board shall capitalise and apply out of the amount standing to the credit of share premium account or out of any part of the undivided profits of the Company (including profits carried and standing to the credit of any reserve or reserves or other special account) as the Board may determine, a sum equal to the aggregate nominal amount of shares to be allotted on such basis and apply the same in paying up in full the appropriate number of unissued shares for allotment and distribution to and amongst the holders of the Elected Shares on such basis;

(F) the Board may resolve that the shares to be allotted shall be allotted at a premium provided that the premium is credited as fully paid up and in such case the Board shall in addition to the amount to be capitalised and applied pursuant to sub-paragraph (E) above, and for the purpose therein set out, capitalise and apply out of the amount standing to the credit of the share premium account or out of any part of the undivided profits of the Company (including profits carried and standing to the credit of any reserve or reserves or other special account) as the Board may determine, a sum equal to the aggregate amount of the premium on the shares to be allotted and shall apply the same together with the sum to be applied pursuant to sub-paragraph (E) above and on the basis therein set out in paying up in full the appropriate number of unissued shares for allotment and distribution to and amongst holders of the Elected Shares.

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(b) The shares allotted pursuant to the provisions of paragraph (a) of this Article shall rank pari passu in all respects with the fully paid shares then in issue save only as regards participation:

(i) in the relevant dividend (or the right to receive or to elect to receive an allotment of shares in lieu thereof as aforesaid); or

(ii) in any other distributions, bonuses or rights paid, made, declared or announced prior to or contemporaneously with the payment or declaration of the relevant dividend

unless, contemporaneously with the announcement by the Board of its proposal to apply the provisions of sub-paragraph (i) or (ii) of paragraph (a) of this Article in relation to the relevant dividend or contemporaneously with their announcement of the distribution, bonus or rights in question, the Board shall specify that the shares to be allotted pursuant to the provisions of paragraph (a) of this Article shall rank for participation in such distribution, bonus or rights.

(c) The Board may do all acts and things considered necessary or expedient to give effect to any capitalisation pursuant to the provisions of paragraph (a) of this Article with full power to the Board to make such provisions as they think fit in the case of shares becoming distributable in fractions (including provisions whereby, in whole or in part, fractional entitlements are aggregated and sold and the net proceeds distributed to those entitled, or are disregarded or rounded up or down or whereby the benefit of fractional entitlements accrues to the Company rather than to the members concerned).  The Board may authorise any person to enter into on behalf of all members interested, an agreement with the Company providing for such capitalisation and matters incidental thereto and any agreement made pursuant to such authority shall be effective and binding on all concerned.

(d) The Company may upon the recommendation of the Board by ordinary resolution resolve in respect of any one particular dividend of the Company that notwithstanding the provisions of paragraph (a) of this Article a dividend may be satisfied wholly in the form of an allotment of shares credited as fully paid up without offering any right to shares to elect such dividend in cash in lieu of such allotment.

(e) The Board may on any occasion when it makes a determination pursuant to paragraph (a) of this Article, resolve that no allotment of shares or rights of election for shares to be issued pursuant to such determination shall be made available or made to any members with registered addresses in any particular territory or territories or to a Depositary where the allotment of shares or the circulation of an offer of such rights of election would or might, in the opinion of the Board, be unlawful or would or might, in the opinion of the Board, be unlawful in the absence of a registration statement or other special formalities, and in such event the provision aforesaid shall be read and construed subject to such resolution and the only entitlement of members in any such territory or territories shall be to receive in cash the relevant dividend resolved to be paid or declared.  “Depositary” means a custodian or other person (or a nominee for such custodian or other person) appointed under contractual arrangements with the Company or other arrangements approved by the Board whereby such custodian or other person or nominee holds or is interested in shares of the Company or rights or interests in shares of the Company and issues securities or other documents of title or otherwise evidencing the entitlement of the holder thereof to or to receive such shares, rights or interests, provided and to the extent that such arrangements have been approved by the Board for the purpose of these Articles and shall include, where approved by the Board, the trustees (acting in their capacity as such) of any employees’ share scheme established by the Company or any other scheme or arrangements principally for the benefit of employees of the Company and/or its subsidiaries which have been approved by the Board.

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(f) The Board may at any time resolve to cancel all (but not some only) of the elections made and the notices given by the members pursuant to sub-paragraphs (i)(D) and (ii)(D) of paragraph (a) of this Article by giving seven days’ notice in writing to the relevant members.

(g) The Board may on any occasion determine that rights of election under paragraph (a) of this Article shall not be made available to members who are registered in the Register, or in respect of shares the transfer of which is registered, after a date fixed by the Board and in such event the provisions aforesaid shall be read and construed subject to such determination.

132. No dividend shall be payable except out of the profits or other distributable reserves of the Company, and no dividend shall bear interest as against the Company.

133. The Directors may, if they think fit, from time to time, resolve to pay to the members such interim dividends as appear to the Directors to be justified by the reserves of the Company.  If at any time the share capital of the Company is divided into different classes the Directors may resolve to pay such interim dividends in respect of those shares in the capital of the Company which confer on the holders thereof deferred or non-preferred rights as well as in respect of those shares which confer on the holders thereof preferential or special rights in regard to dividend, and provided that the Directors act bona fide they shall not incur any responsibility to the holders of shares conferring a preference for any damage that they may suffer by reason of the payment of an interim dividend on any shares having deferred or non-preferred rights.  The Directors may also resolve to pay at half-yearly or at other suitable intervals to be settled by them any dividend which may be payable at a fixed rate if they are of the opinion that the reserves of the Company justify the payment.

134. All dividends unclaimed for one year after having become payable may be invested or otherwise made use of by the Directors for the benefit of the Company until claimed, and all dividends unclaimed for six years after having become payable may be forfeited by the Directors and shall revert to the Company.  The payment into a separate account of any monies payable in respect of a dividend shall not constitute the Company a trustee in respect thereof for any person.

135. Unless otherwise directed any dividend or other monies payable in cash on or in respect of a share may be paid by cheque or warrant sent through the post to the registered address of the member or person entitled, or, in the case of joint holders, to the registered address of that one whose name stands first on the Register in respect of the joint holding, or addressed to such person at such address as the holder or joint holders shall direct.  The Company shall not be liable or responsible for any cheque or warrant lost in transmission nor for any dividend or other monies lost to the member or person entitled thereto by the forged endorsement of any cheque or warrant.  Payment of the cheque or warrant by the banker on whom it is drawn shall be a good discharge to the Company.

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136. The Directors may distribute in specie or in kind among the members in satisfaction in whole or in part of any dividend any of the assets of the Company, and in particular any shares or securities of other companies to which the Company is entitled and where any difficulty arises in regard to the distribution the Board may settle the same as it thinks expedient, and in particular may issue fractional certificates, disregard fractional entitlements or round the same up or down, and may fix the value for distribution of such specific assets, or any part thereof, and may determine that cash payments shall be made to any members upon the footing of the value so fixed in order to adjust the rights of all parties, and may vest any such specific assets in trustees as may seem expedient to the Board and may appoint any person to sign any requisite instruments of transfer and other documents on behalf of the persons entitled to the dividend and such appointment shall be effective.  Where required, a contract shall be filed in accordance with the provisions of the Ordinance and the Board may appoint any person to sign such contract on behalf of the persons entitled to the dividend and such appointment shall be effective.

137. Before recommending a dividend the Directors may set aside any part of the net profits of the Company to one or more reserves, and may apply the same either by employing it in the business of the Company or by investing it in such manner as they shall think fit and the income arising from such reserves shall be treated as part of the profits of the Company.  Such reserves may be applied for the purpose of maintaining the property of the Company, replacing wasting assets, meeting contingencies, forming an insurance fund, equalising dividends, paying special dividends, or for any other purpose for which the undivided profits of the Company may lawfully be used, and until the same shall be so applied it shall be deemed to remain undivided profit.  The Directors may also carry forward as undivided profit any profit or balance of profit which they shall not think fit to recommend as dividend or to place to reserve.

AUTHENTICATION OF DOCUMENTS

138. Any Director or the Secretary or other authorised officer of the Company shall have power to authenticate any documents affecting the constitution of the Company and any resolutions passed by the Company or the Directors or any committee, and any books, records, documents and accounts relating to the business of the Company, and to certify copies thereof or extracts therefrom as true copies of extracts; and where any books, records, documents or accounts are elsewhere than at the Office, the local manager or such other officer of the Company having the custody thereof shall be deemed to be the authorised officer of the Company as aforesaid.  A document purporting to be a copy of a resolution or an extract from the minutes of a meeting of the Company or of the Directors or any local board or committee which is certified as aforesaid shall be conclusive evidence in favour of all persons dealing with the Company upon the faith thereof that such resolution has been duly passed or, as the case may be, that any minute so extracted is a true and accurate record of proceedings at a duly constituted meeting.

CAPITALISATION OF RESERVES ETC.

139. The Company in general meeting may upon the recommendation of the Directors resolve to capitalise any part of the Company’s reserves or undivided profits not required for the payment or provision of the dividend on any shares with a preferential right to a dividend, and accordingly that such part be divided amongst the members who would have been entitled thereto if distributed by way of dividend and in the same proportions, on condition that the same be not paid in cash but be applied as a capitalisation issue either in or towards paying up any amounts for the time being unpaid on any shares held by such members respectively or paying up in full unissued shares or debentures or other securities of the Company to be allotted and distributed credited as fully paid to and amongst such members in the proportion aforesaid, or partly in one way and partly in the other:

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Provided that any amount standing to the credit of a share premium account or a capital redemption reserve fund may, for the purposes of this Article, only be applied in the paying up of unissued shares to be issued to members of the Company as fully paid-up shares.

140. Whenever such a resolution as aforesaid shall have been passed the Directors shall make all appropriations and applications of the reserves and undivided profits resolved to be capitalised thereby, and all allotments and issues of fully paid-up shares, debentures or other securities and generally shall do all acts and things required to give effect thereto.

141. For the purpose of giving effect to any resolution under Articles 136 and 139 hereof the Directors may settle any difficulty which may arise in regard to the distribution or capitalisation issue as they think expedient, and in particular may issue fractional certificates, and may fix the value for distribution of any specific assets, and may determine that cash payments shall be made to any members based upon the value so fixed or that fractions of such value as the Directors may determine may be disregarded in order to adjust the rights of all parties, and may vest any such cash or specific assets in trustees upon such trusts for the persons entitled to the distribution or capitalisation issue as may seem expedient to the Directors.  The provisions of the Ordinance in relation to the filing of contracts for allotment shall be observed, and the Directors may appoint any person to sign such contract on behalf of the persons entitled to share in the distribution or capitalisation issue, and such appointment shall be effective and binding upon all concerned, and the contract may provide for the acceptance by such persons of the shares, debentures or other securities to be allotted and distributed to them respectively in satisfaction of their claims in respect of the sum so capitalised.

ACCOUNTS AND AUDITORS

142. The Directors shall cause proper books of account to be kept with respect to:

(a) all sums of money received and expended by the Company and the matters in respect of which such receipt and expenditure take place; and

(b) the assets and liabilities of the Company.

Proper books shall not be deemed to be kept if there are not kept such books of accounts as are necessary to give a true and fair view of the transactions.

143. The Directors shall from time to time, in accordance with the provisions of the Ordinance, cause to be prepared and to be laid before the Company in general meeting such profit and loss accounts, balance sheets, group accounts (if any) and reports as are required by the Ordinance.

144. A copy of every balance sheet (including every document required by law to be annexed thereto) which is to be laid before the Company in general meeting, together with a copy of the Directors’ report and a copy of the Auditors’ report, shall not less than twenty-one days before the date of the meeting be sent to every member of, and every holder of debentures of, the Company and all persons other than members or holders of debentures of the Company, being persons entitled to receive notices of general meetings of the Company:

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Provided that this Article shall be subject to Article 144B and shall not require a copy of those documents to be sent to any person of whose address the Company is not aware, to more than one of the joint holders of any shares or debentures, nor to any person to whom the Company has duly sent a copy of a summary financial report (as defined in the Ordinance) in accordance with the provisions of the Ordinance and Article 144A.

144A Subject to Article 144B, a copy of a summary financial report in the form and containing the contents as required by the Ordinance shall be sent by the Company in accordance with the provisions of the Ordinance to a person who has been offered and agrees, in accordance with the provisions of the Ordinance, to be sent a copy of such summary financial report.

144B Where a person has, in accordance with the provisions of the Ordinance where applicable, consented to treat the publication or the making available of the relevant financial documents and/or the summary financial report (each as defined in the Ordinance) on a computer network or by such other means as discharging the Company’s obligation under the Ordinance to send a copy of the relevant financial documents and/or the summary financial report (each as defined in the Ordinance), then the publication or the making available by the Company, in accordance with the provisions of the Ordinance where applicable, on such computer network or by such other means of the relevant financial documents or the summary financial report (each as defined in the Ordinance) shall, in relation to each consenting person, be deemed to discharge the Company’s obligations under Article 144 and/or Article 144A.

145. Auditors shall be appointed and their duties regulated in the manner provided by the Ordinance.

146. Subject as otherwise provided by the Ordinance the remuneration of the Auditors shall be fixed by the Company in general meeting provided always that in respect of any particular year the Company in general meeting may delegate the fixing of such remuneration to the Board.

147. Every statement of accounts audited by the Company’s Auditors and presented by the Board at a general meeting shall after approval at such meeting be conclusive except as regards any error discovered therein within three months of the approval thereof.  Whenever any such error is discovered within that period, it shall forthwith be corrected, and the statement of accounts amended in respect of the error shall be conclusive.

NOTICES

148. Any notice, document or communication to be given or issued to the members shall be in writing in any one or more languages, may be served by the Company upon any member either personally or by sending it by mail, postage prepaid, addressed to such member at his registered address, and, in any case where the registered address of such member is outside Hong Kong, by prepaid airmail, or by delivering, sending or otherwise making available through electronic or other means to such member.

149. Any notice sent by mail shall be deemed to have been served in the case where the member’s registered address is in Hong Kong on the day following that on which the notice is mailed in Hong Kong and in any other case on the fifth day after the day of mailing.  In proving such service it shall be sufficient to prove that the notice was properly addressed and mailed, postage prepaid.

150. Any person who, by operation of law, transfer or other means whatsoever, shall become entitled to any share shall be bound by every notice in respect of such share which, previously to his name and address being entered in the Register, shall be duly given to the person from whom he derives his title to such share.

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151. Any notice, document or communication delivered or sent by mail to, or left at the registered address of, or made available through electronic or other means to, any member, in pursuance of these Articles, shall, notwithstanding such member be then deceased or bankrupt, and whether or not the Company have notice of his death or bankruptcy, be deemed to have been duly served in respect of any shares held by such member, whether held solely or jointly with other persons by such member, until some other person be registered in his stead as the holder or joint holder thereof, and such service shall for all purposes of these Articles be deemed a sufficient service of such notice, document or communication on his executors, administrators or assigns and all persons (if any) jointly interested with him in any such share.

152. Any summons, notice, order or other document required to be sent to or served upon the Company, or upon any officer of the Company, may be sent or served by leaving the same or sending it through the post in a prepaid letter, envelope or wrapper, addressed to the Company or to such officer at the Office.

153. The signature to any notice to be given by the Company may be written or printed.

154. Subject to any special provisions contained in these Articles or in the Ordinance, all notices required to be given by advertisement shall be advertised in at least one daily Chinese and one daily English newspaper circulating in Hong Kong.

155. In reckoning the period for any notice given under these Articles, the day on which notice is served, or deemed to be served, and the day for which such notice is given shall be excluded.

WINDING UP

156. If the Company shall be wound up, the surplus assets remaining after payment to all creditors shall be divided among the members in proportion to the capital paid up on the shares held by them respectively, and if such surplus assets shall be insufficient to repay the whole of the paid-up capital, they shall be distributed so that, as nearly as may be, the losses shall be borne by the members in proportion to the capital paid upon on the shares held by them respectively.  This Article is, however, subject to the rights of the holders of any shares which may be issued on special terms or conditions.

157. If the Company shall be wound up, the liquidator (whether voluntary or official) may, with the sanction of a special resolution, divide among the members in specie or kind the whole or any part of the assets of the Company or vest any part of the assets of the Company in trustees upon such trusts for the benefit of the members or any of them as the resolution shall provide.  Any such resolution may provide for and sanction a distribution of any specific assets amongst different classes of members otherwise than in accordance with their existing rights, but each member shall in that event have a right of dissent and other ancillary rights in the same manner as if such resolution were a special resolution passed pursuant to section 237 of the Ordinance.

158. In the event of a winding-up of the Company in Hong Kong, every member of the Company who is not for the time being in Hong Kong shall be bound, within fourteen days after the passing of an effective resolution to wind up the Company voluntarily, or within the like period after the making of an order for the winding up of the Company, to serve notice in writing on the Company appointing some person resident in Hong Kong upon whom all summonses, notices, processes, orders and judgements in relation to or under the winding up of the Company may be served and, in default of such nomination, the liquidator of the Company shall be at liberty on behalf of such member to appoint some such person, and service upon any such appointee shall be deemed to be a good personal service on such member for all purposes, and where the liquidator makes any such appointment he shall, with all convenient speed, give notice thereof to such member by advertising in such English language daily newspaper circulating in Hong Kong as he shall deem appropriate or by a registered letter sent through the post and addressed to such member at his address as appearing in the Register, and such notice shall be deemed to be served on the day on which the advertisement appears or the letter is posted.

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INDEMNITY

159. Subject to the provisions of the Ordinance, every Director or other officer of the Company shall be indemnified out of the assets of the Company against all costs, charges, expenses, losses and liabilities which he may sustain or incur in or about the execution of his office or otherwise in relation thereto and in particular and without prejudice to the generality of the foregoing every Director and other officer of the Company shall be indemnified by the Company against, and it shall be the duty of the Directors out of the funds of the Company to pay all costs, losses and expenses which any such Director and other officer may incur or become liable for by reason of any contract entered into, or act or thing done by him or them as such Director and other officer, or in any way in the discharge of their or his duties, including travelling expenses; and the amount for which such indemnity is provided shall immediately attach as a lien on the property of the Company, and have priority as between the members over all other claims.  Any person who is a Director or other officer of the Company shall not be liable (except in consequence of his own dishonesty) for the acts, receipts, neglects or defaults of any other Director or other officer of the Company or for any losses or expenses incurred by the Company through the insufficiency or deficiency of title to any property acquired by order of the Directors for or on behalf of the Company, or for the insufficiency or deficiency of any security in or upon which any of the moneys of the Company shall be invested, or for any loss or damage arising from the bankruptcy, insolvency or tortious act of any person with whom any moneys, securities or effects of the Company shall be deposited or for any loss occasioned by any error of judgement, omission, default or oversight on their or his part, or for any other loss, damage or misfortune whatever which shall happen in the execution of the duties of his office or in relation thereto.  Each member of the Company agrees to waive any claim or right of action he might have, whether individually or by or in the right of the Company, against any Director on account of any action taken by such Director, or the failure of such Director to take any action in the performance of his duties with or for the Company; provided that such waiver shall not extend to any matter in respect of any fraud or dishonesty which may attach to such Director.

159A. Subject to Article 159 and the provisions of and so far as may be permitted by the Ordinance, the Company may purchase and maintain for any officer of the Company:

(i) insurance against any liability to the Company, a related company or any other party in respect of any negligence, default, breach of duty or breach of trust (save for fraud) of which he may be guilty in relation to the Company or a related company; and

(ii) insurance against any liability incurred by him in defending any proceedings, whether civil or criminal, taken against him for any negligence, default, breach of duty or breach of trust (including fraud) of which he may be guilty in relation to the Company or a related company.

In this Article 159A, "related company" in relation to the Company means any company that is the Company's subsidiary or holding company or a subsidiary of the Company's holding company.

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DESTRUCTION OF DOCUMENTS

160 (a) Subject to the Ordinance, the Company may destroy:

(i) any share certificate which has been cancelled at any time after the expiry of one year from the date of such cancellation;

(ii) any dividend mandate or any variation or cancellation thereof or any notification of change of name or address at any time after the expiry of two years from the date on which such mandate, variation, cancellation or notification was recorded by the Company;

(iii) any instrument of transfer of shares which has been registered at any time after the expiry of six years from the date of registration; and

(iv) any other document, on the basis of which any entry in the register is made, at any time after the expiry of six years from the date on which an entry in the register was first made in respect of it;

and it shall conclusively be presumed in favour of the Company that every share certificate so destroyed was a valid certificate duly and properly cancelled and that every instrument of transfer so destroyed was a valid and effective instrument duly and properly registered and that every other document destroyed hereunder was a valid and effective document in accordance with the recorded particulars thereof in the books or records of the Company.  Provided always that:

(1) the foregoing provisions of this Article shall apply only to the destruction of a document in good faith and without express notice to the Company that the preservation of such document was relevant to a claim;

(2) nothing contained in this Article shall be construed as imposing upon the Company any liability in respect of the destruction of any such document earlier than as aforesaid or in any case where the conditions of proviso (1) above are not fulfilled; and

(3) references in this Article to the destruction of any document include reference to its disposal in any manner.

(b) Notwithstanding any provision contained in these Articles, the Directors may, if permitted by applicable law, authorise the destruction of documents set out in sub-paragraph (a)(i) to (iv) of this Article and any other documents in relation to share registration which have been microfilmed or electronically stored by the Company or by the share registrar on its behalf provided always that this Article shall apply only to the destruction of a document in good faith and without express notice to the Company and its share registrar that the preservation of such document was relevant to a claim.

UNTRACEABLE MEMBERS

161. Without prejudice to the rights of the Company, the Company may cease sending such cheques for dividend entitlements or dividend warrants by post if such cheques or warrants have been left uncashed on two consecutive occasions.  However, the Company may exercise the power to cease sending cheques for dividend entitlements or dividend warrants after the first occasion on which such a cheque or warrant is returned undelivered.

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162. The Company shall have the power to sell, in such manner as the Board thinks fit, any shares of a member who is untraceable, but no such sale shall be made unless:

(a) all cheques or warrants, being not less than three in total number, for any sum payable in cash to the holder of such shares in respect of them sent during the relevant period in the manner authorised by the Articles of Association of the Company have remained uncashed;

(b) so far as it is aware at the end of the relevant period, the Company has not at any time, during the relevant period received any indication of the existence of the member who is the holder of such shares or of a person entitled to such shares by death, bankruptcy or operation of law;

(c) the Company has caused an advertisement to be inserted in English in one English language daily newspaper and in Chinese in one Chinese language daily newspaper (provided that the aforesaid daily newspapers shall be included in the list of newspapers issued and published in the Hong Kong Government Gazette for the purpose of section 71A of the Ordinance) advertising its intention to sell such shares and a period of three months has elapsed since the date of such advertisement; and

(d) the Company has notified the stock exchange in the relevant territory of its intention to effect such sale.

For the purpose of the foregoing, “relevant period” means the period commencing twelve years before the date of publication of the advertisement referred to in paragraph (c) of this Article and ending at the expiry of the period referred to in that paragraph.

The manner, timing and terms of any sale of shares pursuant to this Article (including but not limited to the price or prices at which the same is made) shall be such as the Board determines, based upon advice from such bankers, brokers or other persons as the Board considers appropriate consulted by it for the purposes, to be reasonably practicable having regard to all the circumstances including the number of shares to be disposed of and the requirement that the disposal be made without delay and the Board shall not be liable to any person for any of the consequences of reliance on such advice.

163. To give effect to any such sale pursuant to Article 162 the Board may authorise any person to transfer the said shares and the instrument of transfer signed or otherwise executed by or on behalf of such person shall be as effective as if it had been executed by the registered holder or the person entitled by transmission to such shares, and the purchaser shall not be bound to see to the application of the purchase money nor shall his title to the shares be affected by any irregularity or invalidity in the proceedings relating to the sale.  The net proceeds of the sale will belong to the Company and, upon receipt by the Company of such proceeds, it shall become indebted to the former member by carrying all moneys in respect thereof to a separate account for an amount equal to such net proceeds. No trusts shall be created in respect of such debt and no interest shall be payable in respect of it and the Company shall not be required to account for any money earned from the net proceeds which may be employed in the business of the Company or as it thinks fit.  Any sale under this Article shall include any additional shares which during the relevant period or during any period ending on the date when all the requirements of sub-paragraphs (a) to (d) of Article 162 have been satisfied have been issued in respect of those held at the beginning of such relevant period and shall be valid and effective notwithstanding that the member holding the shares sold is dead, bankrupt or otherwise under any legal disability or incapacity.

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INFORMATION

164. No member of the Company shall be entitled to require discovery of or any information in respect of any detail of the Company’s trading and any matter which is or may be in the nature of a trade secret or secret process which may relate to the conduct of the business of the Company and which in the opinion of the Directors it will be inexpedient in the interests of the members of the Company to communicate to the public.

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EX-4.43

Exhibit 4.43

China National Offshore Oil Corporation

and

CNOOC Limited

Framework Agreement

in respect of

the Connected Transactions

(Summary Translation)

1

Table of Contents

1.           Scope of Products and Services

2.           Transaction Principles

3.           Pricing Principles

4.           Mode of Operations

5.           Rights and Obligations of the Parties

6.           Term and Termination of the specific Product and Service Contracts

7.           Representations and Warranties of the Parties

8.           Performance of this Agreement

9.           Force Majeure

10.           Announcement

11.           Miscellaneous provisions

12.           Notices

13.           Applicable Laws and Dispute Resolution

14.           Supplementary Provisions

2

Framework Agreement in respect of the Connected Transactions

(Summary Translation)

This Agreement was made on November 1, 2010 between the following parties in Beijing, the People's Republic of China ("PRC", excluding for the purpose of this Agreement, the Hong Kong Special Administrative Region, the Macau Special Administrative Region and Taiwan):

Party A: China National Offshore Oil Corporation (“CNOOC”, hereinafter referred to as "Party A"), a state-owned enterprise incorporated and legally subsisting under the laws of the PRC.

Party B: CNOOC Limited (hereinafter referred to as "Party B"), a company incorporated and legally subsisting under the laws of the Hong Kong Special Administrative Region with limited liability.

On the date of this Agreement, Party A owned approximately 64.41% of the equity interests of Party B.

Party A (including its associates (as defined under the Rules Governing the Listing of Securities on the Stock Exchange of Hong Kong Limited (the "Listing Rules")) principally engages in the productions and operations of the oil and gas and petrochemical such as ancillary production services, engineering construction services, information consulting services, supply services and financial services of financing companies. The above services are essential to the production operations of Party B and its affiliates. Party A and its associates possess the leading edge of talented personnel, technologies and geographical advantages, and have maintained a long-term working relationship with Party B and its affiliates. Therefore, Party B is agreeble to acquire the above products and services from Party A and its associates.

Party B possesses crude oil, condensate oil, liquefied oil, natural gas, by-products, semi-finished products, and is able to provide sales and services of other various types of petroleum-related products. Party B has maintained long-term working relationship with Party A. Therefore, Party A (including its associates) is agreeable to acquire the above products and services from Party B (including its affiliates).

As such, based on the principles of long-term cooperation, mutual benefits and joint development, after friendly consultations, the Parties agree to enter into this Agreement and to procure their respective affiliates (including the subsidiaries, branch companies and other units) to provide or accept the products and services as stipulated in this Agreement pursuant to the terms and spirits of this Agreement.

3

Article 1                        Scope of products and services

1.1 Party B (including its affiliates) shall provide to Party A (including its affiliates) the following products and services:

1.1.1 management, technical, facilities and ancillary services, including the supply of materials, technical consultancy, technology transfer, delegated administration, research services and other ancillary services;

1.1.2 sales of petroleum products,  natural gas  and by-products, semi-finished products and other various types of natural gas-related or petroleum-related products.

1.1.3 long-term sales of natural gas, liquefied natural gas products and by-products, semi-finished products and other various types of natural gas-related or petroleum-related products.

1.2 Party A (including its associates) shall provide to Party B (including its affiliates) the following products and services:

1.2.1 exploration and ancillary services: well site survey; geophysical exploration seismic data processing; seismic testing data processing; integrated exploratory research services; geophysical data acquisition; marine geological forecast and data processing; offshore drilling; well logging of oil and gas volume; well logging; well prospecting and other related technical services; tuw-boat; transportation; supply of materials; technical research of exploration and safety services as well as various types of technical services and ancillary services related to the above operations;

1.2.2 oil and gas fields development and ancillary services; engineering exploration, geological exploration; offshore drilling; well completion; well logging of oil and gas volume; well logging, well cementing and other related technical services; design, construction, installation, testing and tuning of production facilities; shipping; supply of materials; integrated exploration research services as well as various types of technical services and ancillary services related to the above operations;

1.2.3 production and ancillary services of oil and gas field: integrated research on production techniques; well workover; shipping; oil tanker transportation; supply of material; maintenances of platform; repair of equipment and pipeline;  production operations; oil exploitation operations; oil and gas production labour services; repair of oil and gas fields and facilities; warehousing and storage; lease of equipment and building; road transportation ; telecommunication and network services; wharf services; labour services; warehousing and storage; construction services, including roads, wharf, buildings, factories and water barriers; maintenance and repair of major facilities; medical, childcare and social services; provision of water, electricity and heat; security and fire-protection services; technical training; accommodation; maintenance and repair of buildings; catering services, as well as other technical and supporting services related to the above services;

4

1.2.4   management, marketing and other ancillary services: marketing services; delegated administration;  expatriates; publishing and printing; telecommunication networks; lease of properties; property management; provision of water, electricity and heat; car rental; integrated services; integrated research; sewage disposal and other ancillary services;

1.2.5 FPSO vessel leases.

Article 2          Transaction Principles

2.1 Specific agreements may be separately entered into between the respective Parties, that is Party A (and its associates) and Party B (and its affiliates), for specific products and services in accordance with the scope of this Agreement. Both Parties agree to implement the contracts under this Agreement pursuant to the following principles:

2.1.1 the products and services to be provided shall be of satisfactory quality to the recipient;

2.1.2 the pricing of the products and services to be provided shall be fair and reasonable;

2.1.3 the terms and conditions of the products and services provided by Party A to Party B shall be more favourable than those provided by the independent third parties; and

2.1.4 the terms and conditions of the products and services provided by Party B to Party A shall be no less favourable than those provided by Party B to the independent third parties.

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Article 3          Pricing Principles

3.1 Subject to the pricing principles as mentioned in Article 2.1, the pricing of the respective products and services involved under Article 1 of this Agreement shall be determined by arm's length negotiations and on normal commercial terms or on terms no less favourable than those available to Party B from independent third parties, under prevailing local market conditions (considering volume of sales, terms of contracts, package of services, overall customer relationship and other market factors).

3.2 Subject to the pricing principles as mentioned in Article 3.1, the pricing of the respective products and services under Articles 1.2.1 to 1.2.4 of this Agreement shall be determined on the following terms and sequential order:

(1) Government-fixed prices; or

(2) where there is no government-fixed  price, market prices (including the local, national or international market prices); or

(3)  when neither (1) or (2) is applicable, the cost to Party A for providing the relevant services and products plus a margin of not more than 10%, before any applicable taxes.

3.3 Subject to the pricing principles as mentioned in Article 3.1, the pricing of the respective products and services under Article 1.2.5 of this Agreement shall be determined at market prices and on normal commercial terms.

3.4 Subject to the pricing principles as mentioned in Article 3.1, the pricing of the respective products and services under Article 1.1.1 of this Agreement shall be determined on the following terms and sequential order and on normal commercial terms:

(1) Government-fixed prices; or

(2) where there is no government-fixed  price, market prices (including the local, national or international market prices); or

(3)  when neither (1) or (2) is applicable, the cost to Party A for providing the relevant services and products plus a margin of not more than 10%, before any applicable taxes.

3.5 Subject to the pricing principles as mentioned in Article 3.1, the pricing of the respective products and services under Articles 1.1.2 and 1.1.3 of this Agreement shall be determined on the following terms and sequential order:

(1) Government-fixed  prices; or

(2) where there is no government-fixed price, market prices (including the local, national or international market prices).

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Article 4          Mode of Operations

4.1 Party A shall ensure and procure its associates and Party B shall ensure and procure its affiliates to execute the specific products and service contracts in compliance with the principles and terms of this Agreement.

4.2 The respective product and service contracts executed between Party A (and its associates) and Party B (and its affiliates) prior to January 1, 2011 shall be valid after January 1, 2011 and shall be deemed as signed pursuant to the principles and terms of this Agreement. Corresponding amendments shall be made to such contracts if the principles and terms of such contracts are inconsistent with those set out in this Agreement.

4.3 The term of the respective product and service contracts executed pursuant to Articles 1.1.1, 1.1.2 and 1.2.1 to 1.2.4 shall not exceed three years. If the term of these contracts does not exceed three years but the expiry date thereof is later than December 31, 2013, then the following provision shall be incorporated into these contracts: "This contract shall terminate on December 31, 2013 if, as of December 31, 2013, CNOOC Limited fails to obtain the waiver for the relevant category of connected transaction  in respect of this contract for the 3 year period between 2014 and 2016 pursuant to the Rules Governing the Listing of Securities on the Stock Exchange of Hong Kong Limited ".

4.4 The terms of the liquefied natural gas contracts and the natural gas contract executed pursuant to Article 1.1.3 of this Agreement shall not exceed 25 years and 20 years respectively, and the following provision shall be incorporated into these contracts: "This contract shall terminate on December 31, 2013 if, as of December 31, 2013, CNOOC Limited fails to obtain the waiver for the relevant category of connected transaction in respect of this contract for the 3 year period between 2014 and 2016 pursuant tor the Rules Governing the Listing of Securities on the Stock Exchange of Hong Kong Limited ".

4.5 The term of the specific service contracts executed pursuant to Article 1.2.5 of this Agreement shall not exceed 20 years, and the following provision shall be incorporated into these contracts: "This contract shall terminate on December 31, 2013 if, as of December 31, 2013, CNOOC Limited fails to obtain the waiver for the relevant category of connected transaction in respect of this contract for the 3 year period between 2014 and 2016 pursuant to the Rules Governing the Listing of Securities on the Stock Exchange of Hong Kong Limited ".

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Article 5          Rights and Obligations of the Parties

5.1 The rights of the Parties include:

5.1.1 a Party may provide corresponding products and services to independent third parties, provided that the products and services shall be provided to the other Party in accordance with the terms of this Agreement;

5.1.2 the prices of the products and service fees shall be charged in accordance with the applicable law and the terms of this Agreement and the specific products and service agreements.

5.2 The obligations of the Parties include:

5.2.1 to procure and ensure that its affiliates   shall provide to the other Party  products and services based on the standards and pricing mechanism as prescribed in this Agreement and the specific products and service agreements;

5.2.2 to be entrusted by the Parties in the specific product and service agreements and to coordinate matters related to such specific product and service agreements;

5.2.3 to pay the relevant price and service fees as prescribed in this Agreement and the specific product and service agreements.

Article 6          Term and termination of the specific product and service agreements

6.1 This Agreement shall be effective from January 1, 2011 for a term of three years after being executed and sealed by the authorised representatives of the Parties.

6.2 If there is any default by one of the Parties to any provision of this Agreement ("Defaulting Party"), the other Party ("Non-defaulting Party") may notify the Defaulting Party by written notice that a default has been committed and request that the Defaulting Party remedy such default within a reasonable period. If the Defaulting Party fails to remedy  such default within the aforementioned period, the Non-defaulting Party may terminate this Agreement immediately. The Non-defaulting Party reserves the right to claim, request for indemnities and any other legally permitted remedies from the Defaulting Party.

6.3 The termination of this Agreement shall not affect the rights or obligations of any Party which have accrued under this Agreement.

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6.4 Either Party shall be entitled to terminate at any time the specific product and service agreements in respect of one or more types of products or services provided that  prior written notice is given to the other Party.

Article 7          Representations and Warranties

7.1 Party A represents and warrants that:

7.1.1 Party A is a state-owned enterprise incorporated under the laws of the PRC as an independent legal entity and is currently holding a valid business licences;

7.1.2 Party A has obtained all government approvals (if necessary) and internal authorisations as required for the purpose of execution of this Agreement and performance of all obligations under this Agreement. This Agreement shall be binding to Party A once it has been executed by the authorised representative of Party A;

7.1.3 The execution of this Agreement or performance of the obligations thereunder by Party A will not violate any other agreements executed by it or its articles of association, and will not create any legal conflicts with other agreements executed by it or its articles of association.

7.2 Party B represents and warrants that:

7.2.1       Party B is incorporated under the laws of the Hong Kong Special Administrative Region of the PRC with limited liability as an independent legal entity and is currently holding a valid business license;

7.2.2       Party B has obtained all internal authorisations necessary for the execution of this Agreement. This Agreement shall be binding to Party B once it has been executed by the authorised representative of Party B;

7.2.3       The execution of this Agreement or performance of the obligations thereunder by Party B will not violate any other agreements executed by it or its articles of association, and will not create any legal conflicts with other agreements executed by it or its articles of association.

Article 8          Performance of this Agreement

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8.1 If any of the transactions under this Agreement constitutes a connected transaction pursuant to the Listing Rules, these transactions shall only be implemented upon obtaining a waiver from The Stock Exchange of Hong Kong Limited ("Stock Exchange") or obtaining independent shareholders' approval in accordance with the Listing Rules. The independent shareholders' approval or the compliance with any other provisions related to connected transactions under the Listing Rules shall be a condition precedent to this Agreement and such transactions.

8.2 If a conditional waiver is granted by the Stock Exchange, this Agreement shall be implemented according to the conditions so stipulated.

8.3 If a waiver in respect of a certain connected transaction is withdrawn, revoked or lapsed, and  the transaction fails to comply with the requirements of the Listing Rules regarding connected transaction, then the performance under this Agreement regarding that transaction shall be terminated.

8.4 If the performance of all transactions under this Agreement are terminated pursuant to Article 8.3, this Agreement shall be terminated.

Article 9          Force Majeure

9.1 If an event of Force Majeure occurs to any Party of this Agreement (Force Majeure events shall mean any event which is beyond the reasonable control of the affected Party, unforeseen or unavoidable and insurmountable even if foreseeable, and which arises after the date of this Agreement and which makes the total or partial performance of this Agreement by that Party become impossible or impracticable (including but not limited to the failure to perform even when a reasonable amount of money has been spent). Such events shall include flood, fire, drought, typhoons, earthquakes and other natural disasters, traffic accidents, unrests, riots and war (whether declared or not) and acts or omissions of government agencies and the impact of which has resulted in the failure to perform all or part of its obligations under this Agreement, the performance of such obligations shall be suspended during the period caused by an event of Force Majeure.

9.2 The Party claiming Force Majeure shall make its best efforts to inform the other Party in writing within the shortest period of time and shall furnish within fifteen days thereafter proper proof of the occurrence and duration of such Force Majeure by hand or registered post. The Party claiming a Force Majeure event such that objectively the performance of this Agreement has become impossible or impracticable shall have the liability to use all reasonable endeavours to eliminate or mitigate the impact of Force Majeure.

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9.3 In the event of Force Majeure, both Parties shall promptly decide how to implement this Agreement through friendly consultations. After the termination or elimination of the Force Majeure events or its consequences, both Parties shall promptly resume the performance of their respective obligations under this Agreement.

Article 10          Announcement

10.1 Save for announcement made pursuant to the laws of the PRC or the requirements of China Securities Regulatory Commission, Stock Exchange of Hong Kong Limited, Securities and Futures Commission of Hong Kong, New York Stock Exchange, US Securities and Exchange Commission or any other governmental or regulatory authorities, neither party shall make any announcement regarding this Agreement without the prior written consent of the other party.

Article 11          Miscellaneous Provisions

11.1 Save as otherwise provided in this Agreement, neither Party shall transfer all or part of its rights or obligations under this Agreement without the prior written consent of the other Party.

11.2 This Agreement shall constitute the entire agreement between the Parties and shall supersede all prior verbal or written agreements, contracts, understanding and communication between them with respect to such matters.

11.3 If any provision in this Agreement becomes illegal, invalid or unenforceable, it shall not affect the validity and enforceability of the other provisions of this Agreement.

11.4 Both Parties agree to be liable for all fees and expenses arising from the execution of this Agreement pursuant to the relevant PRC laws. If the law does not prescribed for such payments, the  fees and expenses shall be borne equally by both Parties.

11.5 This Agreement shall only be amended in writing sign and sealed by the authorised representatives from both Parties. If such amendment constitutes a substantive or material amendment to this Agreement, then such amendment shall only be valid upon notification or obtaining the approval (subject to the requirements of the Stock Exchange then) from the Stock Exchange and Party B's shareholders at the shareholders' meeting (if applicable).

11.6 Unless otherwise provided, no failure or delay on the part of either Party to this Agreement in exercising any right, power or privilege hereunder shall operate as a waiver of any right, power or privilege of the other party hereto. The single or partial exercise of any right, power or privilege hereunder by any Party shall not preclude any other exercise of any other right, power or privilege hereunder.

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Article 12          Notices

12.1 A notice or other correspondences made by a Party pursuant to this Agreement must be in writing and in Chinese, and must be left at the designated address of the other Party by hand or registered post, or sent by facsimile to the designated facsimile number of the other Party. A notice is deemed to have validly made on a date subject to the following provisions:

12.1.1 in the case of a notice delivered by hand, the date of receipt by a designated person of the other Party;

12.1.2  in the case of a notice by registered post, on the seventh day after the posting (dated on postage stamp) (if the last day is Saturday, Sunday or statutory holiday, then the next following working day).

12.1.3 in the case of a notice by facsimile, upon the facsimile being sent.

Article 13          Applicable Law and Dispute Resolution

13.1 This Agreement shall be governed and construed in accordance with the laws of the People's Republic of China.

13.2 Any dispute arising out of or relating to this Agreement shall be settled by consultation between Party A and Party B. If consultation fails, Party A or Party B may submit such dispute to China International Economic and Trade Arbitration Commission for arbitration in accordance with the arbitration rules of the such arbitration commission in effective at the application of such arbitration. Any arbitral award shall be final and binding upon both Parties.

Article 14          Supplementary Rules

14.1 Unless otherwise provided, in this Agreement:

14.1.1  a Party shall include its successors;

14.1.2   the headings of the respective articles of this Agreement shall be solely for ease of reference and shall not have any legal force or prejudice the interpretation of this Agreement.

14.2 This Agreement shall be in Chinese.

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IN WITNESS whereof which the parties have executed this Agreement on the date and place first above written.

China National Offshore Oil Corporation

/s/         Fu  Chengyu                          

Authorised representative

Title: President

CNOOC Limited

/s/         Zhong Hua                             

Authorised Representative

Title: Chief Financial Officer

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EX-8.1

Exhibit 8.1

Subsidiaries

As of December 31, 2010, we owned, directly or indirectly, the following subsidiaries. All of these entities are private limited liability companies and they do business in their corporate names.

Name of entity	Our interest	Jurisdiction of incorporation
CNOOC China Limited	100%	Tianjin, PRC
CNOOC International Limited	100%	British Virgin Islands
China Offshore Oil (Singapore) International Pte Ltd	100%	Singapore
CNOOC Finance (2002) Limited	100%	British Virgin Islands
CNOOC Finance (2003) Limited	100%	British Virgin Islands
Malacca Petroleum Limited	100%	Bermuda
OOGC America, Inc.	100%	Delaware, USA
OOGC Malacca Limited	100%	Bermuda
CNOOC Southeast Asia Limited	100%	Bermuda
CNOOC Africa Holding Ltd.	100%	British Virgin Islands
CNOOC Africa Ltd.	100%	British Virgin Islands
CNOOC Africa (UK) Limited	100%	London, U.K.
CNOOC ONWJ Ltd.	100%	Labuan, F.T., Malaysia
CNOOC SES Ltd.	100%	Labuan, F.T., Malaysia
CNOOC Poleng Ltd.	100%	Labuan, F.T., Malaysia
CNOOC Madura Ltd.	100%	Labuan, F.T., Malaysia
CNOOC Blora Ltd.	100%	Labuan, F.T., Malaysia
CNOOC NWS Private Limited	100%	Singapore
CNOOC Australia E&P Pty Ltd	100%	Australia
CNOOC Wiriagar Holding Limited	100%	British Virgin Islands

CNOOC Muturi Holding Limited	100%	British Virgin Islands
CNOOC Muturi Limited	100%	The Isle of Man
CNOOC Canada Limited	100%	Canada
CNOOC Belgium BVBA	100%	Belgium
CNOOC Australia Limited	100%	British Virgin Islands
CNOOC Exploration & Production Nigeria Limited	100%	Nigeria
AERD Projects Nigeria Limited	92.11%	Nigeria
CNOOC Hong Kong Holding Limited	100%	Hong Kong
CNOOC Myanmar Holding Ltd.	100%	British Virgin Islands
CNOOC Myanmar Ltd.	100%	British Virgin Islands
CNOOC Middle East (Qatar) Limited	100%	British Virgin Islands
CNOOC Congo SA	100%	Republic of Congo
CNOOC Caspian (Kazakhstan) Ltd.	100%	Cayman Islands
CNOOC Singapore Private Limited	100%	Singapore
CNOOC Australia Energy Pty Ltd	100%	Australia
CNOOC Batanghari Ltd.	100%	Malaysia
CNOOC Palung Aru Ltd.	100%	Malaysia
CNOOC FPSO Holding Limited	100%	Liberia
CNOOC Liberia Limited	100%	Liberia
CNOOC Uganda (BVI) Ltd	100%	British Virgin Islands
De coöperatieve vereniging CNOOC Netherlands U.A.	100%	The Netherlands
CNOOC Netherlands B.V.	100%	The Netherlands
CNOOC Uganda Ltd	100%	Uganda
CNOOC Deepwater Development Limited	100%	Zhuhai, PRC

CNOOC Iraq Limited	100%	British Virgin Islands
CNOOC Finance (2011) Limited	100%	British Virgin Islands
Tainan-Chaoshan Petroleum Operating Company Limited*	50%	British Virgin Islands
Husky Oil (Madura) Ltd.*	50%	British Virgin Islands
Chaoyang Petroleum (BVI) Limited*	50%	British Virgin Islands
Chaoyang Petroleum (Trinidad) Block 3A Limited*	50%	Barbados
Chaoyang Petroleum (Trinidad) Block 2C Limited*	50%	Barbados
Sunrise Angola Petroleum Holding Limited*	50%	Cayman Islands
Bridas Corporation*	50%	British Virgin Islands

* We and our partners jointly control these entities.

EX-11.1

Exhibit 11.1

CNOOC Limited

(incorporated under laws of Hong Kong with limited liability)

Code of Ethics for Directors and Senior Officers

19 August 2010

I. INTRODUCTION

This "CNOOC Limited Code of Ethics for Directors and Senior Officers" (the "Code of Ethics") summarizes the major long-standing principles of conduct that our company, CNOOC Limited (the "Company" or "our company"), follows to ensure our business is conducted with integrity and in compliance with the law. Because our company is incorporated in Hong Kong with our shares listed on the Stock Exchange of Hong Kong Limited (the "Hong Kong Stock Exchange") and our ADRs listed on the New York Stock Exchange, and because most of our operations are conducted in the People’s Republic of China (the “PRC”), we are subject to laws and ethical rules of all these jurisdictions. We expect our directors and senior management to know and follow the policies outlined in this Code of Ethics. For the purpose of this Code, the scope of senior management includes the Chief Executive Officer, the President, the Chief Financial Officer, Executive Vice Presidents, Senior Vice Presidents, Vice Presidents, the general managers and vice general managers or other equal ranking personnel of the Company's headquarter, departments of the Company’s headquarter, wholly-owned subsidiaries and regional branch companies (collectively, “Senior Officers”). Any director or Senior Officer who violates the provisions or spirit of these policies is subject to disciplinary action, up to and including termination.

Each of the directors and Senior Officers has the responsibility to obey the law and act honestly and ethically. To that end, this Code of Ethics is a guide intended to assist each of the directors and Senior Officers to decide to perform proper commercial conduct and to report existing illegal or unethical conduct. It is not, however, a comprehensive document that addresses every legal or ethical issue that a director or Senior Officer may confront, nor is it a summary of all laws and policies that apply to our business. This Code of Ethics is supplemental to other policies, manuals and internal regulations of our company.

If any director or Senior Officer has any questions about this Code of Ethics or is concerned or unsure about conducts he or she believes may violate this Code of Ethics, other policies of our company or any applicable laws, rules or regulations, the director or Senior Officer should consult with our Compliance Officer, General Counsel, and/or a member of the Audit Committee of our Board of Directors. No one at our company has the authority to make exceptions to these policies, other than our Board of Directors or a committee of our Board of Directors.

II. COMPLIANCE WITH LAWS, RULES AND REGULATIONS

The directors and Senior Officers must comply fully with all applicable laws, rules and regulations that govern our business conduct in the PRC, Hong Kong Special Administrative Region of the PRC (“Hong Kong”), the United States of America (the “U.S.”), and any other region or country in which the Company conducts its business, including, but not limited to, securities laws, the Rules Governing the Listing of Securities on the Stock Exchange of Hong Kong Limited ("Hong Kong Stock Exchange Listing Rules"), the New York Stock Exchange rules, environmental laws, insider trading and other market misconduct laws (including, but not limited to, the Securities and Futures Ordinance (Cap.571)) and the U.S. Foreign Corrupt Practices Act.

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III. PROHIBITION AGAINST INSIDER TRADING/INSIDER DEALING

The directors and Senior Officers who have access to, or knowledge of, material non-public information from or about our company are prohibited from buying, selling or otherwise trading in our stock or other securities of our company. The prohibition contained in this section not only applies to the directors and Senior Officers but also to any “manager, secretary of, or any other person involved in the management of, a corporation” (collectively, the “Managers”).“Material non-public” information includes any information, positive or negative, that has not yet been made available or disclosed to the public and that might be of significance to an investor, as part of the total mix of information, in deciding whether to buy or sell stock or other securities.

Such insiders are also prohibited from giving “tips” on material non-public information, that is, directly or indirectly disclosing such information to any other person, including family members, other relatives and friends, so that they may trade in our stock or other securities of our company. Furthermore, if, during the course of service with our company, any director, Senior Officer or Manager acquires material non-public information about another company, such as one of our customers or suppliers or our affiliates, or learn that our company is planning to enter into a major transaction with another company (such as an acquisition), the director, Senior Officer or Manager is restricted from trading in the securities of the other company. In the U.S., such “insider trading” is both unethical and illegal, with criminal penalties of up to US$5 million and a jail term of up to 20 years and civil penalties in the U.S. of up to three times the illegal profit gained or loss avoided.

In Hong Kong, “insider dealing” within the meaning of the Securities and Futures Ordinance (Cap. 571, Laws of Hong Kong) is broadly similar to insider trading in the U.S. It also constitutes a criminal offence, subject to a maximum penalty of HK$10,000,000 and 10 years’ imprisonment.

IV. PROHIBITION AGAINST OTHER MARKET MISCONDUCT

The prohibition contained in this section is derived from Hong Kong laws and regulations. It not only applies to the directors and Senior Officers but also to the Managers. Each of the directors, Senior Officers and Managers is ethically and legally required to take all reasonable measures from time to time to ensure that proper safeguards exist to prevent our company from acting in a way which would result in our company perpetrating any “market misconduct” within the meaning of the Hong Kong Securities and Futures Ordinance. Under Hong Kong law, the directors, Senior Officers and Managers may be subject to criminal liability if they have actively participated in, consented to, or connived in the criminal misconduct of the corporation which they manage. Under the Hong Kong Securities and Futures Ordinance, “market misconduct” includes insider trading (see above) and the following:

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(a) False Trading

False trading in our securities takes place if a person, whether in Hong Kong or overseas, does or causes anything to be done with the intention that, or being reckless as to whether, it has or is likely to have the effect of creating a false market in our securities. Creation of a false market includes activities undertaken by any person creating or maintaining an artificial price for our securities. The directors, Senior Officers and Managers are therefore obliged not to undertake any such activities and to have due regard to the prohibition against false trading in carrying out or authorizing transactions which may impact the price of our securities.

(b) Price Rigging

Price rigging occurs where a person, in Hong Kong or elsewhere, engages in a sale or purchase of securities, not involving change in the beneficial ownership of those securities and which has the effect of maintaining, increasing, reducing, stabilizing or causing fluctuations in the price of securities traded on a recognized stock exchange in Hong Kong or overseas. The directors, Senior Officers and Managers must not engage in any such transaction if price rigging, as described above, forms a purpose, even if not the dominant purpose, of the transaction. The onus will be on the relevant director, Senior Officers or Manager to establish that the purpose of any transaction which has the effect of price rigging did not include the purpose of creating a false or misleading appearance with respect to the price of our securities.

(c) Disclosure of False or Misleading Information Inducing Transactions

In broad terms, the Hong Kong Securities and Futures Ordinance prohibits the disclosure of false or misleading information that is likely to induce another person to subscribe for, sell or buy securities or deal in futures contracts in Hong Kong. Accordingly, with respect to information disclosed to third parties or to the public generally and which may be expected to induce transactions in our securities (which could include, without limitation, information disclosed through or in the form of a prospectus or other offer memorandum, annual reports, periodic reports, press releases and announcements or through the release of financial information), the directors, Senior Officers and Managers are required to pay proper regard to the veracity of any such information and to consider whether such information is misleading through the inclusion or omission of any material fact.

(d)  Disclosure of Information About Prohibited Transactions

Disclosure of information concerning the effect on the price of our securities or futures contracts dealt in by our company, by a transaction carried out in breach of the market misconduct provisions relating to our securities or one of our related corporations or to the futures contracts is itself prohibited in circumstances where the person making the disclosure has been involved directly or indirectly in the transaction or has, or expects to receive, directly or indirectly a benefit as a result of the disclosure. Accordingly, the directors, Senior Officers and Managers should exercise caution and have regard to the relevant provisions of the Hong Kong Securities and Futures Ordinance.

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(e) Stock Market Manipulation

“Stock market manipulation” refers to two or more transactions in securities of a corporation that, by themselves or in conjunction with any other transactions, affects or likely to affect (by way of increasing, reducing, or stabilizing) the price of any securities traded on a recognized stock exchange in Hong Kong or overseas and with the intention of inducing another person to purchase or subscribe for, or to refrain from selling such securities or the securities of a related corporation. The directors, Senior Officers and Managers must ensure that no transactions in our securities or securities of our affiliates constitute stock market manipulation.

Each form of market misconduct identified above is unethical and illegal. All such market misconduct constitutes criminal offences in Hong Kong, with penalties of up to HK$10,000,000 and 10 years’ imprisonment. An offender may also be liable to civil penalties and may be disqualified from acting as a director of, or participating in the management of, a listed or other specified corporation for a period of up to five years. In addition, as a part of this Code of Ethics, we have attached the Model Code for Securities Transactions by Directors of Listed Issuers (the "Model Code") issued by the Hong Kong Stock Exchange. All of our directors should comply with the Model Code; and all Senior Officers should follow the spirit of the Model Code in conducting their securities transactions. In most instances, Senior Officers who are not our directors are subject to the same ethical and legal requirements in securities transactions as our directors.

V. CONFLICTS OF INTEREST

Business decisions must be made in the best interest of our company, not motivated by personal interest or gain. Therefore, as a matter of our company policy, all directors and Senior Officers must avoid any actual or perceived conflict of interest. A “conflict of interest” occurs when an individual’s personal interests interfere or conflict in any way (or even appear to interfere or conflict) with the interests of our company. A conflict of interest situation can arise when an employee takes actions or has interests (financial or other) that may make it difficult to perform his or her company work objectively and effectively. Conflicts of interest also may arise when an employee or a member of his or her family receives improper personal benefits as a result of his or her position in our company, regardless of whether such benefits are received from our company or a third party. In relation to loans to, or guarantees of obligations of, employees and their family members, please refer to our company's "Regulations on Prohibition of Provision of Loans to Directors and Senior Officers of CNOOC Limited".  Senior Officers should also read carefully and comply with our company's "Regulations on the Management of Conflict of Interests of CNOOC Limited".

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It is difficult to identify exhaustively what constitutes a conflict of interest. For this reason, the directors and Senior Officers must avoid any situation in which their independent business judgment might appear to be compromised. Questions about potential conflicts of interest situations, and disclosure of these situations as they arise, should be addressed and reported to our Compliance Officer, General Counsel and/or a member of the Audit Committee of our Board of Directors.

VI. CORPORATE OPPORTUNITIES

All directors and Senior Officers are prohibited from: (a) taking themselves personally opportunities that properly belong to our company or are discovered through the use of corporate property, information or position; (b) using corporate property, information or position for personal gain; and (c) competing with our company. All directors and Senior Officers owe a duty to our company to advance its legitimate interests when the opportunity to do so arises.

VII. PROTECTION AND PROPER USE OF COMPANY ASSETS

All directors and Senior Officers must protect our assets and ensure their efficient use. Such assets include, without limitation, intellectual property such as our corporate name, logos, trademarks, patents, copyrights, confidential information, ideas, plans and strategies. Theft, carelessness and waste have a direct impact on our profitability. Any misuse or infringement of our company assets should be reported to our Compliance Officer, General Counsel and/or a member of the Audit Committee of our Board of Directors.

VIII. PUBLIC COMPANY REPORTING

As a result of our status as a public company in Hong Kong and the U.S., we are required to file periodic and other reports with the U.S. Securities and Exchange Commission and with the Hong Kong Securities and Futures Commission and the Hong Kong Stock Exchange. Our company views its public disclosure responsibility seriously. To that end in respect of the various disclosure and reporting obligations to which our company is from time to time subject both in the U.S. and in Hong Kong:

A. each of the directors and Senior Officers must take all reasonable steps to ensure that these reports and other public communications furnish the marketplace with full, fair, accurate, timely and understandable disclosure regarding the financial and business condition of our company;

B. each of the directors and Senior Officers must promptly bring to the attention of the Audit Committee of our Board of Directors any material information of which such director or Senior Officer may become aware that affects the disclosures made by our company in its public filings or otherwise would assist the Audit Committee of our Board of Directors in fulfilling its responsibilities as specified in applicable securities laws and regulations; and

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C. each of the directors and Senior Officers must promptly bring to the attention of our Compliance Officer, General Counsel and/or the Audit Committee of our Board of Directors any information he or she may have concerning (i) significant deficiencies in the design or operation of internal controls that could adversely affect our company’s ability to record, process, summarize and report financial data, or (ii) any fraud, whether or not material, involving management or other employees who have a significant role in our company’s financial reporting, disclosures or internal controls.

IX. REPORTING ILLEGAL OR UNETHICAL BEHAVIOR

Each of the directors and Senior Officers has a duty to adhere to this Code of Ethics. Each of the directors and Senior Officers must also promptly bring to the attention of our Compliance Officer, General Counsel and/or the Audit Committee of our Board of Directors any information he or she may have concerning evidence of a material violation of the securities or other laws, rules or regulations applicable to our company and the operation of its business, by our company or any agent thereof, or of a violation of this Code of Ethics, including any actual or apparent conflicts of interest between personal and professional relationships, involving any management or other employees who have a significant role in our company’s financial reporting, disclosures or internal controls. Confidentiality will be maintained to the fullest extent possible.

A director or Senior Officer will not be penalized for making a good-faith report of violations of this Code of Ethics or other illegal or unethical conduct, nor will we permit retaliation of any kind against anyone who makes a good-faith report. A director or Senior Officer who deliberately submits a false report of a violation, however, will be subject to disciplinary action. If a director or Senior Officer reports a violation and in some way also are involved in the violation, the fact that you stepped forward will be considered. If the result of an investigation indicates that corrective action is required, our Board of Directors will decide, or designate appropriate persons to decide, what actions to take, including, when appropriate, legal proceedings and disciplinary action up to and including termination, to rectify the problem and avoid the likelihood of its recurrence.

X. RELATIONSHIP WITH COMPANY MANUAL

This Code of Ethics supplements the existing policies and procedures already in place as stated in other company manuals and communicated to all employees. Certain policies referred to in this Code of Ethics are contained in their entirety in the other company manuals. The company manuals contain information that is proprietary and confidential, and our company hereby expressly denies waiving any right to assert claims that the contents of such company manuals are proprietary and/or confidential. This Code of Ethics and other company manuals are statements of goals and expectations for individual and business conduct. They are not intended to, and do not in any way constitute, an employment contract or an assurance of continued employment. Our company does not create any contractual rights by issuing this Code of Ethics or any company manual.

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XI. AMENDMENT, MODIFICATION AND WAIVER

This Code of Ethics may be amended, modified or waived by our Board of Directors. Any change to, or waiver (whether explicit or implicit) of, this Code of Ethics must be disclosed to our stockholders either by including a statement in our annual report on Form 20-F filed with the U.S. Securities and Exchange Commission or by publishing a statement on our internet website, www.cnoocltd.com.

XII. ACKNOWLEDGMENT

Each of the directors and Senior Officers is accountable for knowing and abiding by the policies contained in this Code of Ethics. Our company may require that the directors and Senior Officers sign an acknowledgment every year confirming that they have received and read this Code of Ethics, understand them and are complying with them.

Appendix 1:

Contact Information

(August 2010)

Compliance Officer: Mr. Wu Guangqi

Address: Room 1828, CNOOC Plaza, 25 Chaoyangmenbei Dajie, Beijing, People’s Republic of China

Postcode: 100010

Tel: （86-10）84522602

Email: wugq@cnooc.com.cn

The above contact information shall be released as appendix according to changes of circumstances.

Appendix 2: Model Code for Securities Transactions by Directors of Listed Issuers by the Hong Kong Stock Exchange

1.           This code (both the basic principles and the rules) sets a required standard against which directors must measure their conduct regarding transactions in securities of their listed issuers. Any breach of such required standard will be regarded as a breach of the Exchange Listing Rules. A director must seek to secure that all dealings in which he is or is deemed to be interested be conducted in accordance with this code.

2.           A listed issuer may adopt its own code on terms no less exacting than those set out in this code if it so wishes. Any breach of such code will not be a breach of the Exchange Listing Rules unless it is also a breach of the required standard contained in this code.

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3.           The Exchange regards it as highly desirable that directors of a listed issuer should hold securities in the listed issuer.

4.           Directors wishing to deal in any securities in a listed issuer must first have regard to the provisions of Parts XIII and XIV of the Securities and Futures Ordinance with respect to insider dealing and market misconduct. However, there are occasions where directors should not be free to deal in the listed issuer’s securities even though the statutory requirements will not be contravened.

5.           The single most important thrust of this code is that directors who are aware of or privy to any negotiations or agreements related to intended acquisitions or disposals which are notifiable transactions under Chapter 14 of the Exchange Listing Rules or connected transactions under Chapter 14A of the Exchange Listing Rules or any price-sensitive information must refrain from dealing in the listed issuer’s securities as soon as they become aware of them or privy to them until proper disclosure of the information in accordance with the Exchange Listing Rules. Directors who are privy to relevant negotiations or agreements or any price-sensitive information should caution those directors who are not so privy that there may be unpublished price-sensitive information and that they must not deal in the listed issuer’s securities for a similar period.

6.           In addition, a director must not make any unauthorised disclosure of confidential information, whether to co-trustees or to any other person (even those to whom he owes a fiduciary duty) or make any use of such information for the advantage of himself or others.

7.           For the purpose of this code:

(a)   “dealing” includes, subject to paragraph (d) below, any acquisition, disposal or transfer of, or offer to acquire, dispose of or transfer, or creation of pledge, charge or any other security interest in, any securities of the listed issuer or any entity whose assets solely or substantially comprise securities of the listed issuer, and the grant, acceptance, acquisition, disposal, transfer, exercise or discharge of any option (whether call, put or both) or other right or obligation, present or future, conditional or unconditional, to acquire, dispose of or transfer securities, or any interest in securities, of the listed issuer or any such entity, in each case whether or not for consideration and any agreements to do any of the foregoing, and “deal” shall be construed accordingly;

(b)  “beneficiary” includes any discretionary object of a discretionary trust (where the director is aware of the arrangement) and any beneficiary of a non-discretionary trust;

(c)  “securities” means listed securities and any unlisted securities that are convertible or exchangeable into listed securities and structured products (including derivative warrants), such as those described in Chapter 15A of the Exchange Listing Rules, issued in respect of the listed securities of a listed issuer;

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(d)  notwithstanding the definition of “dealing” in paragraph (a) above, the following dealings are not subject to the provisions of this code:

(i) taking up of entitlements under a rights issue, bonus issue, capitalisation issue or other offer made by the listed issuer to holders of its securities (including an offer of shares in lieu of a cash dividend) but, for the avoidance of doubt, applying for excess shares in a rights issue or applying for shares in excess of an assured allotment in an open offer is a “dealing”;

(ii) allowing entitlements to lapse under a rights issue or other offer made by the listed issuer to holders of its securities (including an offer of shares in lieu of a cash dividend);

(iii) undertakings to accept, or the acceptance of, a general offer for shares in the listed issuer made to shareholders other than those that are concert parties (as defined under the Takeovers Code) of the offeror;

(iv) exercise of share options or warrants or acceptance of an offer for shares pursuant to an agreement entered into with a listed issuer before a period during which dealing is prohibited under this code at the pre-determined exercise price, being a fixed monetary amount determined at the time of grant of the share option or warrant or acceptance of an offer for shares;

(v) an acquisition of qualification shares where, under the listed issuer’s constitutional documents, the final date for acquiring such shares falls within a period when dealing is prohibited under this code and such shares cannot be acquired at another time;

(vi) dealing where the beneficial interest or interests in the relevant security of the listed issuer do not change;

(vii) dealing where a shareholder places out his existing shares in a “top-up” placing where the number of new shares subscribed by him pursuant to an irrevocable, binding obligation equals the number of existing shares placed out and the subscription price (after expenses) is the same as the price at which the existing shares were placed out; and

(viii) dealing where the beneficial ownership is transferred from another party by operation of law.

8.           For the purpose of this code, the grant to a director of an option to subscribe or purchase his company’s securities shall be regarded as a dealing by him, if the price at which such option may be exercised is fixed at the time of such grant. If, however, an option is granted to a director on terms whereby the price at which such option may be exercised is to be fixed at the time of exercise, the dealing is to be regarded as taking place at the time of exercise.

9

RULES

A. Absolute Prohibitions:

1. A director must not deal in any of the securities of the listed issuer at any time when he is in possession of unpublished price-sensitive information in relation to those securities, or where clearance to deal is not otherwise conferred upon him under rule B.8 of this code.

Note: “Price sensitive information” means information described in rule 13.09(1) and the notes thereunder. In the context of this code, rule 13.09(1)(c) and its notes 9, 10 and 11 are of particular relevance.

2. A director must not deal in the securities of a listed issuer when by virtue of his position as a director of another listed issuer, he is in possession of unpublished price-sensitive information in relation to those securities.

3. (a) A director must not deal in any securities of the listed issuer on any day on which its financial results are published and:

(i) during the period of 60 days immediately preceding the publication date of the annual results or, if shorter, the period from the end of the relevant financial year up to the publication date of the results; and

(ii) during the period of 30 days immediately preceding the publication date of the quarterly results (if any) and half-year results or, if shorter, the period from the end of the relevant quarterly or half-year period up to the publication date of the results,

unless the circumstances are exceptional, for example, where a pressing financial commitment has to be met as described in section C below. In any event, the director must comply with the procedure in rules B.8 and B.9 of this code.

(b) The listed issuer must notify the Exchange in advance of the commencement of each period during which directors are not allowed to deal under rule A.3(a).

Note: Directors should note that the period during which they are not allowed to deal under rule A.3 will cover any period of delay in the publication of a results announcement.

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4. Where a director is a sole trustee, the provisions of this code will apply to all dealings of the trust as if he were dealing on his own account (unless the director is a bare trustee and neither he nor any of his associates is a beneficiary of the trust, in which case the provisions of this code will not apply).

5. Where a director deals in the securities of a listed issuer in his capacity as a co-trustee and he has not participated in or influenced the decision to deal in the securities and is not, and none of his associates is, a beneficiary of the trust, dealings by the trust will not be regarded as his dealings.

6. The restrictions on dealings by a director contained in this code will be regarded as equally applicable to any dealings by the director’s spouse or by or on behalf of any minor child (natural or adopted) and any other dealings in which for the purposes of Part XV of the Securities and Futures Ordinance he is or is to be treated as interested. It is the duty of the director, therefore, to seek to avoid any such dealing at a time when he himself is not free to deal.

7. When a director places investment funds comprising securities of the listed issuer under professional management, discretionary or otherwise, the managers must nonetheless be made subject to the same restrictions and procedures as the director himself in respect of any proposed dealings in the listed issuer’s securities.

B. Notification

8. A director must not deal in any securities of the listed issuer without first notifying in writing the chairman or a director (otherwise than himself) designated by the board for the specific purpose and receiving a dated written acknowledgement. In his own case, the chairman must first notify the board at a board meeting, or alternatively notify a director (otherwise than himself) designated by the board for the purpose and receive a dated written acknowledgement before any dealing. The designated director must not deal in any securities of the listed issuer without first notifying the chairman and receiving a dated written acknowledgement. In each case,

(a) a response to a request for clearance to deal must be given to the relevant director within five business days of the request being made; and

(b) the clearance to deal in accordance with (a) above must be valid for no longer than five business days of clearance being received.

Note: For the avoidance of doubt, the restriction under A.1 of this code applies in the event that price sensitive information develops following the grant of clearance.

9. The procedure established within the listed issuer must, as a minimum, provide for there to be a written record maintained by the listed issuer that the appropriate notification was given and acknowledged pursuant to rule B.8 of this code, and for the director concerned to have received written confirmation to that effect.

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10. Any director of the listed issuer who acts as trustee of a trust must ensure that his cotrustees are aware of the identity of any company of which he is a director so as to enable them to anticipate possible difficulties. A director having funds under management must likewise advise the investment manager.

11. Any director who is a beneficiary, but not a trustee, of a trust which deals in securities of the listed issuer must endeavour to ensure that the trustees notify him after they have dealt in such securities on behalf of the trust, in order that he in turn may notify the listed issuer. For this purpose, he must ensure that the trustees are aware of the listed issuers of which he is a director.

12. The register maintained in accordance with Section 352 of the Securities and Futures Ordinance should be made available for inspection at every meeting of the board.

13. The directors of a company must as a board and individually endeavour to ensure that any employee of the company or director or employee of a subsidiary company who, because of his office or employment in the company or a subsidiary, is likely to be in possession of unpublished price-sensitive information in relation to the securities of any listed issuer does not deal in those securities at a time when he would be prohibited from dealing by this code if he were a director.

C. Exceptional circumstances

14. If a director proposes to sell or otherwise dispose of securities of the listed issuer under exceptional circumstances where the sale or disposal is otherwise prohibited under this code, the director must, in addition to complying with the other provisions of this code, comply with the provisions of rule B.8 of this code regarding prior written notice and acknowledgement. The director must satisfy the chairman or the designated director that the circumstances are exceptional and the proposed sale or disposal is the only reasonable course of action available to the director before the director can sell or dispose of the securities. The listed issuer shall give written notice of such sale or disposal to the Exchange as soon as practicable stating why it considered the circumstances to be exceptional. The listed issuer shall publish an announcement in accordance with rule 2.07C immediately after any such sale or disposal and state that the chairman or the designated director is satisfied that there were exceptional circumstances for such sale or disposal of securities by the director. An example of the type of circumstances which may be considered exceptional for such purposes would be a pressing financial commitment on the part of the director that cannot otherwise be satisfied.

D. Disclosure

15. In relation to securities transactions by directors, a listed issuer shall disclose in its interim reports (and summary interim reports, if any) and the Corporate Governance Report contained in its annual reports (and summary financial reports, if any):

(a) whether the listed issuer has adopted a code of conduct regarding securities transactions by directors on terms no less exacting than the required standard set out in this code;

(b) having made specific enquiry of all directors, whether its directors have complied with, or whether there has been any non-compliance with, the required standard set out in this code and its code of conduct regarding securities transactions by directors; and

(c) in the event of any non-compliance with the required standard set out in this code, details of such non-compliance and an explanation of the remedial steps taken by the listed issuer to address such non-compliance.

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EX-12.1

Exhibit 12.1

CERTIFICATIONS

I, Hua Yang, certify that:

1.	I have reviewed this annual report on Form 20-F of CNOOC Limited;
2.	Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
3.	Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the company as of, and for, the periods presented in this report;
4.	The company’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the company and have:

(a)	Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the company, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
(b)	Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
(c)	Evaluated the effectiveness of the company’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

(d)     Disclosed in this report any change in the company’s internal control over financial reporting that occurred during the period covered by the annual report that has materially affected, or is reasonably likely to materially affect, the company’s internal control over financial reporting; and

5. The company’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the company’s auditors and the audit committee of the company’s board of directors (or persons performing the equivalent functions):

(a)	All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the company’s ability to record, process, summarize and report financial information; and
(b)	Any fraud, whether or not material, that involves management or other employees who have a significant role in the company’s internal control over financial reporting.

Date: April 29, 2011

By:	/s/ Hua Yang
	Name:	Hua Yang
	Title:	Vice Chairman and Chief Executive Officer

EX-12.2

Exhibit 12.2

CERTIFICATIONS

I, Hua Zhong, certify that:

1.	I have reviewed this annual report on Form 20-F of CNOOC Limited;
2.	Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
3.	Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the company as of, and for, the periods presented in this report;
4.	The company’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the company and have:

(a)	Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the company, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
(b)	Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
(c)	Evaluated the effectiveness of the company’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

(d)     Disclosed in this report any change in the company’s internal control over financial reporting that occurred during the period covered by the annual report that has materially affected, or is reasonably likely to materially affect, the company’s internal control over financial reporting; and

5. The company’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the company’s auditors and the audit committee of the company’s board of directors (or persons performing the equivalent functions):

(a)	All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the company’s ability to record, process, summarize and report financial information; and
(b)	Any fraud, whether or not material, that involves management or other employees who have a significant role in the company’s internal control over financial reporting.

Date: April 29, 2011

By:	/s/ Hua Zhong
	Name:	Hua Zhong
	Title:	Chief Financial Officer

EX-13.1

Exhibit 13.1

CERTIFICATIONS

The certifications set forth below are being submitted in connection with the Annual Report on Form 20-F for the year ended December 31, 2010 (the “Report”) for the purpose of complying with Rule 13a-14(b) or Rule 15d-14(b) of the Securities Exchange Act of 1934 (the “Exchange Act”) and Section 1350 of Chapter 63 of Title 18 of the United States Code.

Hua Yang, the Chief Executive Officer and Hua Zhong, the Chief Financial Officer of CNOOC Limited, each certifies that, to the best of his knowledge:

1.	the Report fully complies with the requirements of Section 13(a) or 15(d) of the Exchange Act; and
2.	the information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of CNOOC Limited.

Date: April 29, 2011

By:	/s/ Hua Yang
	Name:	Hua Yang
	Title:	Vice Chairman and Chief Executive Officer

By:	/s/ Hua Zhong
	Name:	Hua Zhong
	Title:	Chief Financial Officer

EX-15.1

Exhibit 15.1

CNOOC LIMITED

Estimated

Future Reserves and Income

Attributable to Certain Leasehold Interests

And

Derived Through Certain Production Sharing Contracts

SEC Parameters

As of

December 31, 2010

RYDER SCOTT COMPANY  PETROLEUM CONSULTANTS

TBPE REGISTERED ENGINEERING FIRM F-1580  1100 LOUISIANA    SUITE 3800	HOUSTON, TEXAS 77002-5235	FAX (713) 651-0849 TELEPHONE (713) 651-9191

March 18, 2011

CNOOC Limited

No. 25, ChaoYangMenNei Dajie

DongCheng District

Beijing 100010

China

Gentlemen:

At your request, Ryder Scott Company (Ryder Scott) has prepared an estimate of the proved reserves, future production and income attributable to certain leasehold interests and derived through certain production sharing contracts of CNOOC Limited (CNOOC) as of December 31, 2010. The subject properties are located in the countries of Australia, China and Indonesia. The reserves and income data were estimated based on the definitions and disclosure guidelines of the United States Securities and Exchange Commission (SEC) contained in Title 17, Code of Federal Regulations, Modernization of Oil and Gas Reporting, Final Rule released January 14, 2009 in the Federal Register (SEC regulations). Our third party study, completed on March 8, 2011 and presented herein, was prepared for public disclosure by CNOOC in filings made with the SEC in accordance with the disclosure requirements set forth in the SEC regulations.

The properties evaluated by Ryder Scott account for a portion of CNOOC’s total net proved, probable and possible reserves as of December 31, 2010. Based on information provided by CNOOC, the third party estimate conducted by Ryder Scott addresses 82.9 percent of the total proved developed net liquid hydrocarbon reserves, 72.8 percent of the total proved developed net gas reserves, 79.1 percent of the total proved undeveloped net liquid hydrocarbon reserves and 79.5 percent of the total proved undeveloped net gas reserves of CNOOC.

The estimated reserves and future net income amounts presented in this report, as of December 31, 2010, are related to hydrocarbon prices. The hydrocarbon prices used in the preparation of this report are based on the average prices during the 12-month period prior to the ending date of the period covered in this report, determined as the unweighted arithmetic averages of the prices in effect on the first-day-of-the-month for each month within such period, unless prices were defined by contractual arrangements, as required by the SEC regulations. Actual future prices may vary significantly from the prices required by SEC regulations; therefore, volumes of reserves actually recovered and the amounts of income actually received may differ significantly from the estimated quantities presented in this report. The results of this study are summarized in the following table.

600, 1015  4TH STREET, S.W.	CALGARY, ALBERTA T2R 1J4	TEL (403) 262-2799	FAX (403) 262-2790
621 17TH STREET, SUITE 1550	DENVER, COLORADO 80293-1501	TEL (303) 623-9147	FAX (303) 623-4258

CNOOC Limited

March 18, 2011

Page 2

SEC PARAMETERS

Estimated Net Reserves and Income Data

Attributable to Certain Leasehold Interests and

Derived Through Certain Production Sharing Contracts of

CNOOC Limited

As of December 31, 2010

	Proved
	Developed						Total
	Producing		Non-Producing		Undeveloped		Proved
Net Remaining Reserves
Oil/Condensate – Barrels		804,459,522		61,655,340		662,844,501		1,528,959,363
Plant Products – Barrels		17,320,563		1,891,565		7,232,467		26,444,595
Gas – MMCF		1,693,418		294,445		2,962,641		4,950,504
Income Data (M$)
Future Gross Revenue		$66,454,838		$6,019,830		$67,527,251		$140,001,919
Deductions		26,978,537		2,544,982		38,156,387		67,679,906
Future Net Income (FNI)		$39,476,301		$3,474,848		$29,370,864		$  72,322,013
Discounted FNI @ 10%		$31,608,494		$2,330,434		$12,717,285		$  46,656,213

Liquid hydrocarbons are expressed in standard 42 gallon barrels. All gas volumes are reported on an “as sold basis” expressed in millions of cubic feet (MMCF) at the official temperature and pressure bases of the areas in which the gas reserves are located. In this report, the revenues, deductions, and income data are expressed as thousands of U.S. dollars (M$).

The future gross revenue is after the deduction of production taxes and/or value added taxes. The deductions incorporate the normal direct costs of operating the wells, ad valorem taxes, China windfall profit tax, recompletion costs, development costs and certain abandonment costs net of salvage. The future net income is before the deduction of foreign government income taxes and general administrative overhead, and has not been adjusted for outstanding loans that may exist, nor does it include any adjustment for cash on hand or undistributed income. Liquid hydrocarbon reserves account for approximately 79 percent and gas reserves account for the remaining 21 percent of total future gross revenue from proved reserves.

The discounted future net income shown above was calculated using a discount rate of 10 percent per annum compounded monthly. Future net income was discounted at four other discount rates which were also compounded monthly. These results are shown in summary form as follows.

	Discounted Future Net Income As of December 31, 2010
Discount Rate Percent	Total Proved (M$)
7	$52,753,040
8	$50,596,495
9	$48,567,176
11	$44,855,404

The results shown above are presented for your information and should not be construed as our estimate of fair market value.

RYDER SCOTT COMPANY  PETROLEUM CONSULTANTS

CNOOC Limited

March 18, 2011

Page 3

Reserves Included in This Report

The proved reserves included herein conform to the definition as set forth in the Securities and Exchange Commission’s Regulations Part 210.4-10(a). An abridged version of the SEC reserves definitions from 210.4-10(a) entitled “Petroleum Reserves Definitions” is included as an attachment to this report.

The various proved reserve status categories are defined under the attachment entitled “Petroleum Reserves Definitions” in this report. The proved developed non-producing reserves included herein consist of the shut-in and behind pipe categories.

No attempt was made to quantify or otherwise account for any accumulated gas production imbalances that may exist. The proved gas volumes included herein do not attribute gas consumed in operations as reserves.

Reserves are “estimated remaining quantities of oil and gas and related substances anticipated to be economically producible, as of a given date, by application of development projects to known accumulations.” All reserve estimates involve an assessment of the uncertainty relating the likelihood that the actual remaining quantities recovered will be greater or less than the estimated quantities determined as of the date the estimate is made. The uncertainty depends chiefly on the amount of reliable geologic and engineering data available at the time of the estimate and the interpretation of these data. The relative degree of uncertainty may be conveyed by placing reserves into one of two principal classifications, either proved or unproved. Unproved reserves are less certain to be recovered than proved reserves, and may be further sub-classified as probable and possible reserves to denote progressively increasing uncertainty in their recoverability. At CNOOC’s request, this report addresses only the proved reserves attributable to the properties evaluated herein.

Proved oil and gas reserves are those quantities of oil and gas which, by analysis of geoscience and engineering data, can be estimated with reasonable certainty to be economically producible from a given date forward. The proved reserves included herein were estimated using deterministic methods. If deterministic methods are used, the SEC has defined reasonable certainty for proved reserves as a “high degree of confidence that the quantities will be recovered.”

Proved reserve estimates will generally be revised only as additional geologic or engineering data become available or as economic conditions change. For proved reserves, the SEC states that “as changes due to increased availability of geoscience (geological, geophysical, and geochemical), engineering, and economic data are made to the estimated ultimate recovery (EUR) with time, reasonably certain EUR is much more likely to increase or remain constant than to decrease.” Moreover, estimates of proved reserves may be revised as a result of future operations, effects of regulation by governmental agencies or geopolitical or economic risks. Therefore, the proved reserves included in this report are estimates only and should not be construed as being exact quantities, and if recovered, the revenues therefrom, and the actual costs related thereto, could be more or less than the estimated amounts.

The proved reserves reported herein are limited to the period prior to expiration of current contracts providing the legal rights to produce, or a revenue interest in such production, unless evidence indicates that contract renewal is reasonably certain. Furthermore, properties in the different countries may be subjected to significantly varying contractual fiscal terms that affect the net revenue to CNOOC for the production of these volumes. The prices and economic return received for these net volumes can vary significantly based on the terms of these contracts. Therefore, when applicable, Ryder Scott reviewed the fiscal terms of such contracts and discussed with CNOOC the net economic benefit attributed to such operations for the determination of the net hydrocarbon volumes and income thereof. Ryder Scott has not conducted an exhaustive audit or verification of such contractual information. Neither our review of such contractual information nor our acceptance of CNOOC’s representations regarding such contractual information should be construed as a legal opinion on this matter.

RYDER SCOTT COMPANY  PETROLEUM CONSULTANTS

CNOOC Limited

March 18, 2011

Page 4

This report includes certain volumes of proved, probable and possible reserves attributable to royalties owed to the host government that are treated as taxes to be paid in cash. In Australia, the government has received the royalty payments in cash, and CNOOC is reasonably certain the government will continue to receive its royalty in cash. These future royalty payments, if converted to reserves, are equivalent to 0.3% of the total CNOOC’s reserves that Ryder Scott reviewed on a barrel equivalent basis.

Ryder Scott did not evaluate the country and geopolitical risks in the countries where CNOOC operates or has interests. CNOOC’s operations may be subject to various levels of governmental controls and regulations. These controls and regulations may include, but may not be limited to, matters relating to land tenure and leasing, the legal rights to produce hydrocarbons including the granting, extension or termination of production sharing contracts, the fiscal terms of various production sharing contracts, drilling and production practices, environmental protection, marketing and pricing policies, royalties, various taxes and levies including income tax and are subject to change from time to time. Such changes in governmental regulations and policies may cause volumes of proved reserves actually recovered and amounts of proved income actually received to differ significantly from the estimated quantities.

The estimates of proved reserves presented herein were based upon a detailed study of the properties in which CNOOC owns and derives an interest; however, we have not made any field examination of the properties. No consideration was given in this report to potential environmental liabilities that may exist nor were any costs included for potential liabilities to restore and clean up damages, if any, caused by past operating practices.

Estimates of Reserves

The estimation of reserves involves two distinct determinations. The first determination results in the estimation of the quantities of recoverable oil and gas and the second determination results in the estimation of the uncertainty associated with those estimated quantities in accordance with the definitions set forth by the Securities and Exchange Commission’s Regulations Part 210.4-10(a). The process of estimating the quantities of recoverable oil and gas reserves relies on the use of certain generally accepted analytical procedures. These analytical procedures fall into three broad categories or methods: (1) performance-based methods; (2) volumetric-based methods; and (3) analogy. These methods may be used singularly or in combination by the reserve evaluator in the process of estimating the quantities of reserves. Reserve evaluators must select the method or combination of methods which in their professional judgment is most appropriate given the nature and amount of reliable geoscience and engineering data available at the time of the estimate, the established or anticipated performance characteristics of the reservoir being evaluated and the stage of development or producing maturity of the property.

In many cases, the analysis of the available geoscience and engineering data and the subsequent interpretation of this data may indicate a range of possible outcomes in an estimate, irrespective of the method selected by the evaluator. When a range in the quantity of reserves is identified, the evaluator must determine the uncertainty associated with the incremental quantities of the reserves. If the reserve quantities are estimated using the deterministic incremental approach, the uncertainty for each discrete incremental quantity of the reserves is addressed by the reserve category assigned by the evaluator. Therefore, it is the categorization of reserve quantities as proved, probable and/or possible that addresses the inherent uncertainty in the estimated quantities reported. For proved reserves, uncertainty is defined by the SEC as reasonable certainty wherein the “quantities actually recovered are much more likely than not to be achieved.” The SEC states that “probable reserves are those additional reserves that are less certain to be recovered than proved reserves but which, together with proved reserves, are as likely as not to be recovered.” The SEC states that “possible reserves are those additional reserves that are less certain to be recovered than probable reserves and the total quantities ultimately recovered from a project have a low probability of exceeding proved plus probable plus possible reserves.” All quantities of reserves within the same reserve category must meet the SEC definitions as noted above.

RYDER SCOTT COMPANY  PETROLEUM CONSULTANTS

CNOOC Limited

March 18, 2011

Page 5

Estimates of reserves quantities and their associated reserve categories may be revised in the future as additional geoscience or engineering data become available. Furthermore, estimates of reserves quantities and their associated reserve categories may also be revised due to other factors such as changes in economic conditions, results of future operations, effects of regulation by governmental agencies or geopolitical or economic risks as previously noted herein.

The proved reserves for the properties included herein were estimated by performance methods, the volumetric method, analogy or a combination of methods. The following table summarizes the approximate percent of reserves estimated by each of these methods.

	Approximate Percent Proved Reserves Estimated by the Various Methods
	Liquid Hydrocarbons		Gas
Method	Developed	Undeveloped	Developed	Undeveloped
Performance	52%	1%	27%	0%
Volumetric	19%	92%	59%	100%
Analogy	2%	2%	0%	0%
Combination	27%	6%	14%	0%

These performance methods include, but may not be limited to, decline curve analysis and material balance which utilized extrapolations of historical production and pressure data available through November 30, 2010 in those cases where such data were considered to be definitive. The data utilized in this analysis were supplied to Ryder Scott by CNOOC and were considered sufficient for the purpose thereof. The volumetric method was used where there were inadequate historical performance data to establish a definitive trend and where the use of production performance data as a basis for the reserve estimates was considered to be inappropriate. The volumetric analysis utilized pertinent well and seismic data supplied to Ryder Scott by CNOOC that were available through November 30, 2010. The data utilized from the well and seismic data incorporated into our volumetric analysis were considered sufficient for the purpose thereof.

To estimate economically recoverable proved oil and gas reserves and related future net cash flows, we consider many factors and assumptions including, but not limited to, the use of reservoir parameters derived from geological, geophysical and engineering data that cannot be measured directly, economic criteria based on current costs and SEC pricing requirements, and forecasts of future production rates. Under the SEC regulations 210.4-10(a)(22)(v) and (26), proved reserves must be anticipated to be economically producible from a given date forward based on existing economic conditions including the prices and costs at which economic producibility from a reservoir is to be determined. While it may reasonably be anticipated that the future prices received for the sale of production and the operating costs and other costs relating to such production may increase or decrease from those under existing economic conditions, such changes were, in accordance with rules adopted by the SEC, omitted from consideration in making this evaluation.

CNOOC has informed us that they have furnished us all of the material accounts, records, geological and engineering data, and reports and other data required for this investigation. In preparing our forecast of future proved production and income, we have relied upon data furnished by CNOOC with respect to property interests owned or derived, production and well tests from examined wells, normal direct costs of operating the wells or leases, other costs such as transportation and/or processing fees, ad valorem and production taxes, value added taxes, China windfall profit tax, recompletion and development costs, abandonment costs after salvage, product prices based on the SEC regulations, adjustments or differentials to product prices, geological structural and isochore maps, well logs, core analyses and pressure measurements. Ryder Scott reviewed such factual data for its reasonableness; however, we have not conducted an independent verification of the data furnished by CNOOC. We consider the factual data used in this report appropriate and sufficient for the purpose of preparing the estimates of reserves and future net revenues herein.

RYDER SCOTT COMPANY  PETROLEUM CONSULTANTS

CNOOC Limited

March 18, 2011

Page 6

In summary, we consider the assumptions, data, methods and analytical procedures used in this report appropriate for the purpose hereof, and we have used all such methods and procedures that we consider necessary and appropriate to prepare the estimates of reserves herein. The proved reserves included herein were determined in conformance with the United States Securities and Exchange Commission (SEC) Modernization of Oil and Gas Reporting; Final Rule, including all references to Regulation S-X and Regulation S-K, referred to herein collectively as the “SEC Regulations.” In our opinion, the proved reserves presented in this report comply with the definitions, guidelines and disclosure requirements as required by the SEC regulations.

Future Production Rates

For wells currently on production, our forecasts of future production rates are based on historical performance data. If no production decline trend has been established, future production rates were held constant, or adjusted for the effects of curtailment where appropriate, until a decline in ability to produce was anticipated. An estimated rate of decline was then applied to depletion of the reserves. If a decline trend has been established, this trend was used as the basis for estimating future production rates.

Test data and other related information were used to estimate the anticipated initial production rates for those wells or locations that are not currently producing. For reserves not yet on production, sales were estimated to commence at an anticipated date furnished by CNOOC. Wells or locations that are not currently producing may start producing earlier or later than anticipated in our estimates due to unforeseen factors causing a change in the timing to initiate production. Such factors may include delays due to weather, the availability of rigs, the sequence of drilling, completing and/or recompleting wells and/or constraints set by regulatory bodies.

The future production rates from wells currently on production or wells or locations that are not currently producing may be more or less than estimated because of changes including, but not limited to, reservoir performance, operating conditions related to surface facilities, compression and artificial lift, pipeline capacity and/or operating conditions, producing market demand and/or allowables or other constraints set by regulatory bodies.

Hydrocarbon Prices

The hydrocarbon prices used herein are based on SEC price parameters using the average prices during the 12-month period prior to the ending date of the period covered in this report, determined as the unweighted arithmetic averages of the prices in effect on the first-day-of-the-month for each month within such period, unless prices were defined by contractual arrangements. For hydrocarbon products sold under contract, the contract prices, including fixed and determinable escalations, exclusive of inflation adjustments, were used until expiration of the contract. Upon contract expiration, the prices were adjusted to the 12-month unweighted arithmetic average as previously described.

RYDER SCOTT COMPANY  PETROLEUM CONSULTANTS

CNOOC Limited

March 18, 2011

Page 7

CNOOC furnished us with the above mentioned average prices in effect on December 31, 2010. These initial SEC hydrocarbon prices were determined using the 12-month average first-day-of-the-month benchmark prices appropriate to the geographic area where the hydrocarbons are sold. These benchmark prices are prior to the adjustments for differentials as described herein. The table below summarizes the “benchmark prices” and “price reference” used for the geographic areas included in the report. In certain geographic areas, the price reference and benchmark prices may be defined by contractual arrangements.

The product prices that were actually used to determine the future gross revenue for each property reflect adjustments to the benchmark prices for gravity, quality, local conditions, gathering and transportation fees and/or distance from market, referred to herein as “differentials.” The differentials used in the preparation of this report were furnished to us by CNOOC. The differentials furnished by CNOOC were reviewed by us for their reasonableness using information furnished by CNOOC for this purpose.

In addition, the table below summarizes the net volume weighted benchmark prices adjusted for differentials and referred to herein as the “average realized prices.” The average realized prices shown in the table below were determined from the total future gross revenue before production taxes and the total net reserves for the geographic area and presented in accordance with SEC disclosure requirements for each of the geographic areas included in the report.

Geographic Area	Product	Price Reference	Average Benchmark Prices	Average Realized Prices
China	Oil/Condensate	Daqing	$77.64/Bbl	$74.64/Bbl
		Duri	$74.11/Bbl
		Tapis	$74.75/Bbl
		WTI Cushing	$79.43/Bbl
	NGLs	Jinzhou	$750.90/MT	$68.60/Bbl
		Maoming	$880.60/MT
	Gas	Gas Sales Agreements		$7.33/MCF
Asia	Oil/Condensate	Ardjuna	$78.91/Bbl	$77.76/Bbl
		Cinta	$77.02/Bbl
		Bontang Return Condensate	$77.23/Bbl
		Lalang	$81.49/Bbl
		Widuri	$77.12/Bbl
	NGLs	Bontang Return Condensate	$77.23/Bbl	$69.72/Bbl
	Gas	Gas Sales Agreements		$3.83/MCF
		JCC	$79.21/Bbl
		SoCal Border (ICE)	$4.47/MMBTU
Oceania	Oil/Condensate	NWS Condensate	$74.59/Bbl	$76.13/Bbl
	NGLs	Saudi CP	$713.23/MT	$87.04/Bbl
	Gas	JCC	$79.21/Bbl	$3.24/MCF

RYDER SCOTT COMPANY  PETROLEUM CONSULTANTS

CNOOC Limited

March 18, 2011

Page 8

The effects of derivative instruments designated as price hedges of oil and gas quantities are not reflected in our individual property evaluations.

Costs

Operating costs for the leases and wells in this report are based on the operating expense reports of CNOOC and include only those costs directly applicable to the leases or wells. The operating costs include a portion of general and administrative costs allocated directly to the leases and wells. The operating costs furnished to us were accepted as factual data and reviewed by us for their reasonableness; however, we have not conducted an independent verification of the operating cost data used by CNOOC. No deduction was made for loan repayments, interest expenses or exploration and development prepayments that were not charged directly to the leases or wells.

Development costs were furnished to us by CNOOC and are based on authorizations for expenditure for the proposed work or actual costs for similar projects. The development costs furnished to us were accepted as factual data and reviewed by us for their reasonableness; however, we have not conducted an independent verification of these costs. The estimated net cost of abandonment after salvage was included for properties where abandonment costs net of salvage were significant. The estimates of the net abandonment costs furnished by CNOOC were accepted without independent verification.

The proved developed non-producing and undeveloped reserves in this report have been incorporated herein in accordance with CNOOC’s plans to develop these reserves as of December 31, 2010. The implementation of CNOOC’s development plans as presented to us and incorporated herein is subject to the approval process adopted by CNOOC’s management. As the result of our inquiries during the course of preparing this report, CNOOC has informed us that the development activities included herein have been subjected to and received the internal approvals required by CNOOC’s management at the appropriate local, regional and/or corporate level. In addition to the internal approvals as noted, certain development activities may still be subject to specific partner AFE processes, Joint Operating Agreement (JOA) requirements or other administrative approvals external to CNOOC. Additionally, CNOOC has informed us that they are not aware of any legal, regulatory, political or economic obstacles that would significantly alter their plans.

The initial production date of certain proved undeveloped gas fields/reservoirs in Australia, China and Indonesia were scheduled beyond the SEC nominal 5 year development period because these fields/reservoirs are associated with long term gas contracts or LNG sales, and their gas deliverability are not needed within the 5 year period. The reserves from these fields/reservoirs represent 1.9% of the total BOE reserves reviewed by Ryder Scott. CNOOC and its partners anticipated for these fields/reservoirs to be developed prior to the expiration of the long term gas sales and LNG sales and purchase agreement period.

Current costs used by CNOOC were held constant throughout the life of the properties.

Standards of Independence and Professional Qualification

Ryder Scott is an independent petroleum engineering consulting firm that has been providing petroleum consulting services throughout the world for over seventy years. Ryder Scott is employee-owned and maintains offices in Houston, Texas; Denver, Colorado; and Calgary, Alberta, Canada. We have over eighty engineers and geoscientists on our permanent staff. By virtue of the size of our firm and the large number of clients for which we provide services, no single client or job represents a material portion of our annual revenue. We do not serve as officers or directors of any publicly-traded oil and gas company and are separate and independent from the operating and investment decision-making process of our clients. This allows us to bring the highest level of independence and objectivity to each engagement for our services.

RYDER SCOTT COMPANY  PETROLEUM CONSULTANTS

CNOOC Limited

March 18, 2011

Page 9

Ryder Scott actively participates in industry-related professional societies and organizes an annual public forum focused on the subject of reserves evaluations and SEC regulations. Many of our staff have authored or co-authored technical papers on the subject of reserves related topics. We encourage our staff to maintain and enhance their professional skills by actively participating in ongoing continuing education.

Prior to becoming an officer of the Company, Ryder Scott requires that staff engineers and geoscientists have received professional accreditation in the form of a registered or certified professional engineer’s license or a registered or certified professional geoscientist’s license, or the equivalent thereof, from an appropriate governmental authority or a recognized self-regulating professional organization.

We are independent petroleum engineers with respect to CNOOC Limited. Neither we nor any of our employees have any interest in the subject properties and neither the employment to do this work nor the compensation is contingent on our estimates of reserves for the properties which were reviewed.

The results of this study, presented herein, are based on technical analysis conducted by teams of geoscientists and engineers from Ryder Scott. The professional qualifications of the undersigned, the technical person primarily responsible for overseeing the evaluation of the reserves information discussed in this report, are included as an attachment to this letter.

Terms of Usage

The results of our third party study, presented in report form herein, were prepared in accordance with the disclosure requirements set forth in the SEC regulations and intended for public disclosure as an exhibit in filings made with the SEC by CNOOC Limited.

CNOOC Limited makes periodic filings on Form 20-F with the SEC under the 1934 Exchange Act. Furthermore, CNOOC Limited has certain registration statements filed with the SEC under the 1933 Securities Act into which any subsequently filed Form 20-F is incorporated by reference. We have consented to the incorporation by reference in the registration statements of CNOOC Limited of the references to our name as well as to the references to our third party report for CNOOC Limited, which appears in the December 31, 2010 annual report on Form 20-F of CNOOC Limited. Our written consent for such use is included as a separate exhibit to the filings made with the SEC by CNOOC Limited.

We have provided CNOOC Limited with a digital version of the original signed copy of this report letter. In the event there are any differences between the digital version included in filings made by CNOOC Limited and the original signed report letter, the original signed report letter shall control and supersede the digital version.

RYDER SCOTT COMPANY  PETROLEUM CONSULTANTS

CNOOC Limited

March 18, 2011

Page 10

The data and work papers used in the preparation of this report are available for examination by authorized parties in our offices. Please contact us if we can be of further service.

HG/sm

RYDER SCOTT COMPANY  PETROLEUM CONSULTANTS

Professional Qualifications of Primary Technical Engineer

The conclusions presented in this independent reserves report for CNOOC Limited dated March 18, 2011 are the result of technical analysis conducted by teams of geoscientists and engineers from Ryder Scott Company, L.P. Harris Ghozali was the primary technical person responsible for overseeing the estimate of the reserves, future production and income prepared by Ryder Scott presented herein.

Mr. Ghozali, an employee of Ryder Scott Company L.P. (Ryder Scott) since 1997, is a Senior Vice President and an Engineering Group Coordinator responsible for coordinating and supervising staff and consulting engineers of the company in ongoing reservoir evaluation studies worldwide. Before joining Ryder Scott, Mr. Ghozali served in a number of engineering positions with ExxonMobil. For more information regarding Mr. Ghozali’s geographic and job specific experience, please refer to the Ryder Scott Company website at www.ryderscott.com/Experience/Employees.

Mr. Ghozali earned a Bachelor of Science degree in Petroleum Engineering with High Scholastic Honors from the Colorado School of Mines in 1990 and a Master of Science degree in Petroleum Engineering from the University of Houston in 1997. He is a registered Professional Engineer in the State of Texas and also a member of the Society of Petroleum Engineers.

In addition to gaining experience and competency through prior work experience, the Texas Board of Professional Engineers requires a minimum of fifteen hours of continuing education annually, including at least one hour in the area of professional ethics, which Mr. Ghozali fulfills. As part of his 2010 continuing education hours, Mr. Ghozali attended 8 hours of formalized training including the 2010 RSC Reserves Conference and/or various professional society presentations specifically relating to the definitions and disclosure guidelines contained in the United States Securities and Exchange Commission Title 17, Code of Federal Regulations, Modernization of Oil and Gas Reporting, Final Rule released January 14, 2009 in the Federal Register. Mr. Ghozali attended an additional 6 hours of formalized in-house training during 2010 covering such topics as the SPE/WPC/AAPG/SPEE Petroleum Resources Management System, reservoir engineering, geoscience and petroleum economics evaluation methods, procedures and software and ethics for consultants. Mr. Ghozali is also an instructor and has taught several one day and three day seminars on Hydrocarbon Reserves and Resources Evaluation Methods.

Based on his educational background, professional training and more than 21 years of practical experience in the estimation and evaluation of petroleum reserves, Mr. Ghozali has attained the professional qualifications as a Reserves Estimator and Reserves Auditor set forth in Article III of the “Standards Pertaining to the Estimating and Auditing of Oil and Gas Reserves Information” promulgated by the Society of Petroleum Engineers as of February 19, 2007.

RYDER SCOTT COMPANY  PETROLEUM CONSULTANTS

PETROLEUM RESERVES DEFINITIONS

As Adapted From:

RULE 4-10(a) of REGULATION S-X PART 210

UNITED STATES SECURITIES AND EXCHANGE COMMISSION (SEC)

PREAMBLE

On January 14, 2009, the United States Securities and Exchange Commission (SEC) published the “Modernization of Oil and Gas Reporting; Final Rule” in the Federal Register of National Archives and Records Administration (NARA). The “Modernization of Oil and Gas Reporting; Final Rule” includes revisions and additions to the definition section in Rule 4-10 of Regulation S-X, revisions and additions to the oil and gas reporting requirements in Regulation S-K, and amends and codifies Industry Guide 2 in Regulation S-K. The “Modernization of Oil and Gas Reporting; Final Rule”, including all references to Regulation S-X and Regulation S-K, shall be referred to herein collectively as the “SEC regulations”. The SEC regulations take effect for all filings made with the United States Securities and Exchange Commission as of December 31, 2009, or after January 1, 2010. Reference should be made to the full text under Title 17, Code of Federal Regulations, Regulation S-X Part 210, Rule 4-10(a) for the complete definitions (direct passages excerpted in part or wholly from the aforementioned SEC document are denoted in italics herein).

Reserves are estimated remaining quantities of oil and gas and related substances anticipated to be economically producible, as of a given date, by application of development projects to known accumulations. All reserve estimates involve an assessment of the uncertainty relating the likelihood that the actual remaining quantities recovered will be greater or less than the estimated quantities determined as of the date the estimate is made. The uncertainty depends chiefly on the amount of reliable geologic and engineering data available at the time of the estimate and the interpretation of these data. The relative degree of uncertainty may be conveyed by placing reserves into one of two principal classifications, either proved or unproved. Unproved reserves are less certain to be recovered than proved reserves and may be further sub-classified as probable and possible reserves to denote progressively increasing uncertainty in their recoverability. Under the SEC regulations as of December 31, 2009, or after January 1, 2010, a company may optionally disclose estimated quantities of probable or possible oil and gas reserves in documents publicly filed with the SEC. The SEC regulations continue to prohibit disclosure of estimates of oil and gas resources other than reserves and any estimated values of such resources in any document publicly filed with the SEC unless such information is required to be disclosed in the document by foreign or state law as noted in §229.1202 Instruction to Item 1202.

Reserves estimates will generally be revised only as additional geologic or engineering data become available or as economic conditions change.

Reserves may be attributed to either natural energy or improved recovery methods. Improved recovery methods include all methods for supplementing natural energy or altering natural forces in the reservoir to increase ultimate recovery. Examples of such methods are pressure maintenance, natural gas cycling, waterflooding, thermal methods, chemical flooding, and the use of miscible and immiscible displacement fluids. Other improved recovery methods may be developed in the future as petroleum technology continues to evolve.

Reserves may be attributed to either conventional or unconventional petroleum accumulations. Petroleum accumulations are considered as either conventional or unconventional based on the nature of their in-place characteristics, extraction method applied, or degree of processing prior to sale. Examples of unconventional petroleum accumulations include coalbed or coalseam methane (CBM/CSM), basin-centered gas, shale gas, gas hydrates, natural bitumen and oil shale deposits. These unconventional accumulations may require specialized extraction technology and/or significant processing prior to sale.

RYDER SCOTT COMPANY  PETROLEUM CONSULTANTS

PETROLEUM RESERVES DEFINITIONS

Page 2

Reserves do not include quantities of petroleum being held in inventory.

Because of the differences in uncertainty, caution should be exercised when aggregating quantities of petroleum from different reserves categories.

RESERVES (SEC DEFINITIONS)

Securities and Exchange Commission Regulation S-X §210.4-10(a)(26) defines reserves as follows:

Reserves. Reserves are estimated remaining quantities of oil and gas and related substancesanticipated to be economically producible, as of a given date, by application of development projects to known accumulations. In addition, there must exist, or there must be a reasonable expectation that there will exist, the legal right to produce or a revenue interest in the production, installed means of delivering oil and gas or related substances to market, and all permits and financing required to implement the project.

Note to paragraph (a)(26): Reserves should not be assigned to adjacent reservoirs isolated by major,potentially sealing, faults until those reservoirs are penetrated and evaluated as economically producible. Reserves should not be assigned to areas that are clearly separated from a known accumulation by a non-productive reservoir (i.e., absence of reservoir, structurally low reservoir, or negative test results). Such areas may contain prospective resources (i.e., potentially recoverable resources from undiscovered accumulations).

PROVED RESERVES (SEC DEFINITIONS)

Securities and Exchange Commission Regulation S-X §210.4-10(a)(22) defines proved oil and gas reserves as follows:

Proved oil and gas reserves. Proved oil and gas reserves are those quantities of oil and gas, which,by analysis of geoscience and engineering data, can be estimated with reasonable certainty to be economically producible—from a given date forward, from known reservoirs, and under existing economic conditions, operating methods, and government regulations—prior to the time at which contracts providing the right to operate expire, unless evidence indicates that renewal is reasonably certain, regardless of whether deterministic or probabilistic methods are used for the estimation. The project to extract the hydrocarbons must have commenced or the operator must be reasonably certain that it will commence the project within a reasonable time.

(i) The area of the reservoir considered as proved includes:

(A)   The area identified by drilling and limited by fluid contacts, if any, and

(B)Adjacent undrilled portions of the reservoir that can, with reasonable certainty, be judged to be continuous with it and to contain economically producible oil or gas on the basis of available geoscience and engineering data.

(ii)In the absence of data on fluid contacts, proved quantities in a reservoir are limited by the lowest known hydrocarbons (LKH) as seen in a well penetration unless geoscience, engineering, or performance data and reliable technology establishes a lower contact with reasonable certainty.

RYDER SCOTT COMPANY  PETROLEUM CONSULTANTS

PETROLEUM RESERVES DEFINITIONS

Page 3

PROVED RESERVES (SEC DEFINITIONS) CONTINUED

(iii)Where direct observation from well penetrations has defined a highest known oil (HKO) elevation and the potential exists for an associated gas cap, proved oil reserves may be assigned in the structurally higher portions of the reservoir only if geoscience, engineering, or performance data and reliable technology establish the higher contact with reasonable certainty.

(iv)Reserves which can be produced economically through application of improved recovery techniques (including, but not limited to, fluid injection) are included in the proved classification when:

(A)Successful testing by a pilot project in an area of the reservoir with properties no more favorable than in the reservoir as a whole, the operation of an installed program in the reservoir or an analogous reservoir, or other evidence using reliable technology establishes the reasonable certainty of the engineering analysis on which the project or program was based; and

(B)The project has been approved for development by all necessary parties and entities, including governmental entities.

(v)Existing economic conditions include prices and costs at which economic producibility from a reservoir is to be determined. The price shall be the average price during the 12-month period prior to the ending date of the period covered by the report, determined as an unweighted arithmetic average of the first-day-of-the-month price for each month within such period, unless prices are defined by contractual arrangements, excluding escalations based upon future conditions.

RYDER SCOTT COMPANY  PETROLEUM CONSULTANTS

RESERVES STATUS DEFINITIONS AND GUIDELINES

As Adapted From:

RULE 4-10(a) of REGULATION S-X PART 210

UNITED STATES SECURITIES AND EXCHANGE COMMISSION (SEC)

and

PETROLEUM RESOURCES MANAGEMENT SYSTEM (SPE-PRMS)

Sponsored and Approved by:

SOCIETY OF PETROLEUM ENGINEERS (SPE)

WORLD PETROLEUM COUNCIL (WPC)

AMERICAN ASSOCIATION OF PETROLEUM GEOLOGISTS (AAPG)

SOCIETY OF PETROLEUM EVALUATION ENGINEERS (SPEE)

Reserves status categories define the development and producing status of wells and reservoirs. Reference should be made to Title 17, Code of Federal Regulations, Regulation S-X Part 210, Rule 4-10(a) and the SPE-PRMS as the following reserves status definitions are based on excerpts from the original documents (direct passages excerpted from the aforementioned SEC and SPE-PRMS documents are denoted in italics herein).

DEVELOPED RESERVES (SEC DEFINITIONS)

Securities and Exchange Commission Regulation S-X §210.4-10(a)(6) defines developed oil and gas reserves as follows:

Developed oil and gas reserves are reserves of any category that can be expected to be recovered:

(i)Through existing wells with existing equipment and operating methods or in which the cost of the required equipment is relatively minor compared to the cost of a new well; and

(ii)Through installed extraction equipment and infrastructure operational at the time of the reserves estimate if the extraction is by means not involving a well.

Developed Producing (SPE-PRMS Definitions)

While not a requirement for disclosure under the SEC regulations, developed oil and gas reserves may be further sub-classified according to the guidance contained in the SPE-PRMS as Producing or Non-Producing.

Developed Producing Reserves

Developed Producing Reserves are expected to be recovered from completion intervals that are open and producing at the time of the estimate.

Improved recovery reserves are considered producing only after the improved recovery project is in operation.

Developed Non-Producing

Developed Non-Producing Reserves include shut-in and behind-pipe reserves.

RYDER SCOTT COMPANY  PETROLEUM CONSULTANTS

RESERVES STATUS DEFINITIONS AND GUIDELINES

Page 2

Shut-In

Shut-in Reserves are expected to be recovered from:

(1)   completion intervals which are open at the time of the estimate, but which have not started producing;

(2)   wells which were shut-in for market conditions or pipeline connections; or

(3)   wells not capable of production for mechanical reasons.

Behind-Pipe

Behind-pipe Reserves are expected to be recovered from zones in existing wells which will require additional completion work or future re-completion prior to start of production.

In all cases, production can be initiated or restored with relatively low expenditure compared to the cost of drilling a new well.

UNDEVELOPED RESERVES (SEC DEFINITIONS)

Securities and Exchange Commission Regulation S-X §210.4-10(a)(31) defines undeveloped oil and gas reserves as follows:

Undeveloped oil and gas reserves are reserves of any category that are expected to be recovered from new wells on undrilled acreage, or from existing wells where a relatively major expenditure is required for recompletion.

(i) Reserves on undrilled acreage shall be limited to those directly offsetting development spacing areas that are reasonably certain of production when drilled, unless evidence using reliable technology exists that establishes reasonable certainty of economic producibility at greater distances.

(ii) Undrilled locations can be classified as having undeveloped reserves only if a development plan has been adopted indicating that they are scheduled to be drilled within five years, unless the specific circumstances, justify a longer time.

(iii) Under no circumstances shall estimates for undeveloped reserves be attributable to any acreage for which an application of fluid injection or other improved recovery technique is contemplated, unless such techniques have been proved effective by actual projects in the same reservoir or an analogous reservoir, as defined in paragraph (a)(2) of this section, or by other evidence using reliable technology establishing reasonable certainty.

RYDER SCOTT COMPANY  PETROLEUM CONSULTANTS

Pan American Energy LLC

Estimated

Future Reserves and Income

Attributable to Certain

Interests

SEC Parameters

As of

December 31, 2010

RYDER SCOTT COMPANY, L.P. TBPE Firm Registration No. F-1580

RYDER SCOTT COMPANY    PETROLEUM CONSULTANTS

	TBPE REGISTERED ENGINEERING FIRM F-1580FAX (713) 651-0849
	1100 LOUISIANA	SUITE 3800	HOUSTON, TEXAS 77002-5235	TELEPHONE (713) 651-9191

April 13, 2011

Pan American Energy LLC

Mr. Carlos Bulgheroni, CEO and

Mr. Alejandro P. Bulgheroni, Chairman

Leandro N. Alem 1180

1001 Buenos Aires, Argentina

Gentlemen:

At your request, we have prepared an estimate of the proved reserves, future production, and income attributable to certain interests of Pan American Energy LLC (Pan American) as of December 31, 2010. The subject properties are located in the provinces of Chubut, Neuquen and Tierra del Fuego (onshore and offshore) Argentina. The reserves and income data were estimated based on the definitions and disclosure guidelines contained in the United States Securities and Exchange Commission Title 17, Code of Federal Regulations, Modernization of Oil and Gas Reporting, Final Rule released January 14, 2009, in the Federal Register (SEC regulations). The income data were estimated using the Securities and Exchange Commission (SEC) requirements for future price and cost parameters. The results of our third party study, completed on January 20, 2011, are presented herein

Based on information provided by Pan American, the proved reserves summarized in our report represent approximately 13.7 percent of the total net proved reserves on a barrel equivalent, BOE basis of Pan American.

The estimated reserves and future income amounts presented in this report, as of December 31, 2010, are related to hydrocarbon prices. The hydrocarbon prices used in the preparation of this report are based on SEC parameters using the average prices during the 12-month period prior to the ending date of the period covered in this report, determined as unweighted arithmetic averages of the prices in effect on the first-day-of-the-month for each month within such period, unless prices were defined by contractual arrangements as required by the SEC regulations. Actual future prices may vary significantly from the prices required by SEC regulations; therefore, volumes of reserves actually recovered and the amounts of income actually received may differ significantly from the estimated quantities presented in this report. The results of this study are summarized on the following pages.

600, 1015  4TH STREET, S.W.	CALGARY, ALBERTA T2R 1J4	TEL (403) 262-2799	FAX (403) 262-2790
621 17TH STREET, SUITE 1550	DENVER, COLORADO 80293-1501	TEL (303) 623-9147	FAX (303) 623-4258

Pan American Energy LLC

April 13, 2011

Page 2

PROVED RESERVES - SEC PARAMETERS

Estimated Net Reserves and Income Data

Certain Interests of

Pan American Energy LLC

As of December 31, 2010

	Proved
	Developed
	Producing		Non-Producing		Undeveloped		Total Proved
Net Remaining Reserves
Gasoline/Condensate–Barrels		9,847,694		246,703		7,161,568		17,255,965
Plant Products–Bbls		5,914,901		0		4,584,568		10,499,469
Gas–MMCF		488,822		7,301		381,012		877,135
Income Data
Future Gross Revenue	$	1,623,405,732	$	42,683,977	$	1,171,649,400	$	2,837,739,109
Deductions		690,184,458		17,775,389		732,474,046		1,440,433,893
Future Net Income (FNI)	$	933,221,274	$	24,908,588	$	439,175,354	$	1,397,305,216
Discounted FNI @ 10%	$	712,809,041	$	20,430,409	$	108,663,041	$	841,902,491

Liquid hydrocarbons are expressed in standard 42 gallon barrels. All gas volumes are reported on an “as sold” basis expressed in millions of cubic feet (MMCF) at the official temperature and pressure bases of the areas in which the gas reserves are located.

Pan American has indicated that according to their concession agreements in Argentina, there are no deductions made for statutory provincial royalties, but instead these are treated as costs. As a result, the hydrocarbon reserves included in this report are reported as working interest volumes.

The future gross revenue is not subject to direct production taxes. The deductions incorporate the normal direct costs of operating the wells, royalty payments, recompletion costs, development costs, and certain abandonment costs net of salvage. The future net income is before the deduction of Argentine federal income taxes and general administrative overhead, and has not been adjusted for outstanding loans that may exist nor does it include any adjustment for cash on hand or undistributed income.

Gas reserves account for approximately 55 percent of the total future gross revenue from proved reserves and liquid hydrocarbon reserves account for the remaining 45 percent of the total future gross revenue from proved reserves.

The discounted future net income shown above was calculated using a discount rate of 10 percent per annum compounded monthly. Future net income was discounted at four other discount rates which were also compounded monthly. These results are shown in summary form as follows.

RYDER SCOTT COMPANY    PETROLEUM CONSULTANTS

Pan American Energy LLC

April 13, 2011

Page 3

		Discounted Future Net Income As of December 31, 2010
Discount Rate Percent		Total Proved
	8		$921,843,658
	15		$685,981,128
	20		$574,957,688
	25		$493,566,719

The results shown above are presented for your information and should not be construed as our estimate of fair market value.

Reserves Included in This Report

The proved reserves included herein conform to the definition as set forth in the Securities and Exchange Commission’s Regulations Part 210.4- 10 (a). An abridged version of the SEC proved reserves definitions from 210.4-10(a) is included as an attachment to this report.

The various reserve status categories are defined in the attachment to this report entitled “Petroleum Reserves Definitions.” The developed proved non-producing reserves included herein consist of the shut-in category.

No attempt was made to quantify or otherwise account for any accumulated gas production imbalances that may exist. The gas volumes included herein do not attribute gas consumed in operations as reserves.

While it may reasonably be anticipated that the future prices received for the sale of production and the operating costs and other costs relating to such production may also increase or decrease from existing levels, such changes were omitted from consideration in making this evaluation.

Proved oil and gas reserves are those quantities of oil and gas, which, by analysis of geoscience and engineering data, can be estimated with reasonable certainty to be economically producible from a given date forward.

The proved reserves and income quantities presented herein may increase or decrease as a result of future operations, effects of regulation by governmental agencies or geopolitical risks. As a result, the estimates of oil and gas reserves have an intrinsic uncertainty. The reserves included in this report are therefore estimates only and should not be construed as being exact quantities. They may or may not be actually recovered, and if recovered, the revenues therefrom and the actual costs related thereto could be more or less than the estimated amounts.

The reserves reported herein are limited to the period prior to expiration of current contracts providing the legal right to produce or a revenue interest in such production unless evidence indicates that contract renewal is reasonably certain. Furthermore, the subject properties in the country of Argentina may be subject to significantly varying contractual fiscal terms that affect the net revenue to Pan American for the production of these volumes. The prices and economic return received for these net volumes can vary significantly based on the terms of these contracts. Ryder Scott has not conducted an exhaustive audit or verification of such contractual information. Our acceptance of Pan American’s representations regarding such contractual information should not be construed as a legal opinion on this matter.

RYDER SCOTT COMPANY    PETROLEUM CONSULTANTS

Pan American Energy LLC

April 13, 2011

Page 4

Ryder Scott did not evaluate country and geopolitical risks in the country of Argentina, where the subject properties are located. Pan American’s operations may be subject to various levels of governmental controls and regulations. These controls and regulations may include matters relating to land tenure, drilling, production practices, environmental protection, marketing and pricing policies, royalties, various taxes and levies including income tax, and foreign trade and investment and are subject to change from time to time. Such changes in governmental regulations and policies may cause volumes of reserves actually recovered and amounts of income actually received to differ significantly from the estimated quantities.

The estimates of reserves presented herein were based upon a detailed study of the properties in which Pan American owns an interest; however, we have not made any field examination of the properties. No consideration was given in this report to potential environmental liabilities that may exist nor were any costs included for potential liability to restore and clean up damages, if any, caused by past operating practices.

Estimates of Reserves

The reserves for the properties included herein were estimated by performance methods or the volumetric method. In general, reserves attributable to producing wells and/or reservoirs were estimated by performance methods such as decline curve analysis, material balance and/or reservoir simulation which utilized extrapolations of historical production and pressure data available through December 2010 in those cases where such data were considered to be definitive. In certain cases, producing reserves were estimated by the volumetric method where there were inadequate historical performance data to establish a definitive trend and where the use of production performance data as a basis for the reserve estimates was considered to be inappropriate. Reserves attributable to proved undeveloped reserves included herein were estimated by the analogy method or the volumetric method.

Major fields which were evaluated based primarily on performance methods include the Cañadon Alfa field in the Austral Basin, and Aguada Pichana, Aguada San Roque, Loma Las Yeguas, and Lindero Atravesado fields in the Neuquen Basin. Major fields, which were evaluated by the volumetric method, include the Fenix Carina and Vega Pleyade fields in the Austral Basin. Proved reserves for the remaining fields, with the exception of the Aries and Kaus fields, were evaluated using performance methods. Material balance methods were also used to support our results for Aguada San Roque, Aries and Loma Las Yeguas fields.

To estimate economically recoverable oil and gas reserves and related future net cash flows, we consider many factors and assumptions including, but not limited to, the use of reservoir parameters derived from geological, geophysical and engineering data which cannot be measured directly, economic criteria based on current costs and SEC pricing requirements, and forecasts of future production rates. Under the SEC regulations 210.4-10(a)(22)(v) and (26), proved reserves must be demonstrated to be economically producible based on existing economic conditions including the prices and costs at which economic producibility from a reservoir is to be determined as of the effective date of the report. Pan American has informed us that they have furnished us all of the accounts, records, geological and engineering data, and reports and other data required for this investigation. In preparing our forecast of future production and income, we have relied upon data furnished by Pan American with respect to property interests owned, production and well tests from examined wells, normal direct costs of operating the wells or properties, other costs such as transportation and/or processing fees, and royalty payments, recompletion and development costs, abandonment costs after salvage, product prices based on the SEC regulations, well logs, core analyses, and pressure measurements. Ryder Scott reviewed such factual data for its reasonableness; however, we have not conducted an independent verification of the data supplied by Pan American.

RYDER SCOTT COMPANY    PETROLEUM CONSULTANTS

Pan American Energy LLC

April 13, 2011

Page 5

Table A presents a one line summary of proved reserve and income data for each of the subject properties which are ranked according to their future net income discounted at 10 percent per year. Table B presents a one-line summary of gross and net reserves and income data for each of the subject properties. Tables 1 through 72 present our estimated projection of production and income by years beginning January 1, 2011, as summarized for the total Pan American Energy LLC and by basin, area, and field.

Future Production Rates

Our forecasts of future production rates are based on historical performance from wells now on production. Test data and other related information were used to estimate the anticipated initial production rates for those wells or locations that are not currently producing. If no production decline trend has been established, future production rates were held constant, or adjusted for the effects of curtailment where appropriate, until a decline in ability to produce was anticipated. An estimated rate of decline was then applied to depletion of the reserves. If a decline trend has been established, this trend was used as the basis for estimating future production rates. For reserves not yet on production, sales were estimated to commence at an anticipated date furnished by Pan American.

The future production rates from wells now on production may be more or less than estimated because of changes in market demand or allowables set by regulatory bodies. Wells or locations that are not currently producing may start producing earlier or later than anticipated in our estimates.

Hydrocarbon Prices

Pan American provided us with hydrocarbon prices. Pan American has informed us that the hydrocarbon prices used herein are based on SEC price parameters using the average prices during the 12-month period prior to the ending date of the period covered in this report, determined as the unweighted arithmetic averages of the prices in effect on the first-day-of-the-month for each month within such period, unless prices were defined by contractual arrangements. For hydrocarbon products sold under contract, the contract prices including fixed and determinable escalations, exclusive of inflation adjustments, were used until expiration of the contract. Upon contract expiration, the prices were adjusted to the 12-month unweighted arithmetic average as previously described. Certain gas prices for low permeability reservoirs were determined by Pan American based on governmental price allowances for such gas. Such higher gas price allowances under a program designated as “Gas Plus” by the Argentine government were paid in year 2010 for certain volumes of gas delivered by Pan American from its Neuquen based properties. A greater volume of gas has been granted Gas Plus status and according to Pan American will receive such a price starting in 2011. Product prices which were actually used for each property reflect adjustment for gravity, quality, local conditions, and/or distance from market.

The effects of derivative instruments designated as price hedges of oil and gas quantities are not reflected in our individual property evaluations.

RYDER SCOTT COMPANY    PETROLEUM CONSULTANTS

Pan American Energy LLC

April 13, 2011

Page 6

Costs

Operating costs for the properties and wells in this report are based on the operating expense reports of Pan American and include only those costs directly applicable to the properties or wells. The operating costs include a portion of general and administrative costs allocated directly to the properties and wells. When applicable for operated properties, the operating costs include an appropriate level of corporate general administrative and overhead costs. The operating costs for non-operated properties include the overhead costs that are allocated directly to the properties and wells under terms of operating agreements. No deduction was made for loan repayments, interest expenses, or exploration and development prepayments that were not charged directly to the properties or wells.

Development costs were furnished to us by Pan American and are based on authorizations for expenditure for the proposed work or actual costs for similar projects. The estimated net cost of abandonment after salvage was included for properties where abandonment costs net of salvage were significant. The estimates of the net abandonment costs furnished by Pan American were accepted without independent verification. Ryder Scott has not performed a detailed study of the abandonment costs or the salvage value and makes no warranty for Pan American’s estimates.

Because of the direct relationship between volumes of proved undeveloped reserves and development plans, we include in the proved undeveloped categories only reserves assigned to undeveloped locations that we have been assured will definitely be drilled. Pan American has informed us of their intent and ability to proceed with the development activities included in this report, and that they are not aware of any legal, regulatory or political obstacles that would significantly alter their plans. The plan of development for the gas reserves to be produced from the offshore fields in the Austral Basin calls for two future wells in the Carina field which are scheduled to be drilled beyond five years from the as of date of this report. Pan American has provided us with a letter explaining the reasons for such a delay. In our opinion Pan American has a coherent and reasonable explanation for deferring the drilling of these wells as scheduled and we have assigned the reserves corresponding to this development as proven.

Current costs were held constant throughout the life of the properties.

Standards of Independence and Professional Qualification

Ryder Scott is an independent petroleum engineering consulting firm that has been providing petroleum consulting services throughout the world for over seventy years. Ryder Scott is employee owned and maintains offices in Houston, Texas; Denver, Colorado; and Calgary, Alberta, Canada. We have over eighty engineers and geoscientists on our permanent staff. By virtue of the size of our firm and the large number of clients for which we provide services, no single client or job represents a material portion of our annual revenue. We do not serve as officers or directors of any publicly traded oil and gas company and are separate and independent from the operating and investment decision-making process of our clients. This allows us to bring the highest level of independence and objectivity to each engagement for our services.

Ryder Scott actively participates in industry related professional societies and organizes an annual public forum focused on the subject of reserves evaluations and SEC regulations. Many of our staff have authored or co-authored technical papers on the subject of reserves related topics. We encourage our staff to maintain and enhance their professional skills by actively participating in ongoing continuing education.

RYDER SCOTT COMPANY    PETROLEUM CONSULTANTS

Pan American Energy LLC

April 13, 2011

Page 7

Prior to becoming an officer of the Company, Ryder Scott requires that staff engineers and geoscientists have received professional accreditation in the form of a registered or certified professional engineer’s license or a registered or certified professional geoscientist’s license, or the equivalent thereof, from an appropriate governmental authority or a recognized self-regulating professional organization.

We are independent petroleum engineers with respect to Pan American. Neither we nor any of our employees have any interest in the subject properties, and neither the employment to do this work nor the compensation is contingent on our estimates of reserves for the properties which were reviewed.

Terms of Usage

The data and work papers used in the preparation of this report are available for examination by authorized parties in our offices. Please contact us if we can be of further service.

	Very truly yours, RYDER SCOTT COMPANY, L.P. TBPE Firm Registration No. F-1580  Managing Senior Vice President - International
GR/sm

RYDER SCOTT COMPANY    PETROLEUM CONSULTANTS

Professional Qualifications of Primary Technical Person

The conclusions presented in this report are the result of technical analysis conducted by teams of geoscientists and engineers from Ryder Scott Company, L.P. Guadalupe Ramirez was the primary technical person responsible for overseeing the estimate of the reserves, future production and income.

Mr. Ramirez, an employee of Ryder Scott Company L.P. (Ryder Scott) since 1981, is a Managing Senior Vice President and also serves as a member of the Board of Directors. He is responsible for coordinating and supervising staff and consulting engineers of the company in ongoing reservoir evaluation studies worldwide. Before joining Ryder Scott, Mr. Ramirez served in a number of engineering positions with Sun Oil Company and Natomas North America. For more information regarding Mr. Ramirez’s geographic and job specific experience, please refer to the Ryder Scott Company website at www.ryderscott.com/Experience/Employees.

Ramirez earned a Bachelor of Science Degree in Mechanical Engineering with honors from Texas A&M University in 1976 and is a licensed Professional Engineer in the State of Texas. He is also a member of the Society of Petroleum Engineers.

In addition to gaining experience and competency through prior work experience, the Texas Board of Professional Engineers requires a minimum of fifteen hours of continuing education annually, including at least one hour in the area of professional ethics, which Mr. Ramirez fulfills. As part of his 2009 continuing education hours, Mr. Ramirez attended an internally presented 19 hours of formalized training as well as a day long public forum, the, 2009 RSC Reserves Conference relating to the definitions and disclosure guidelines contained in the United States Securities and Exchange Commission Title 17, Code of Federal Regulations, Modernization of Oil and Gas Reporting, Final Rule released January 14, 2009 in the Federal Register. Mr. Ramirez has also presented courses on the new SEC Reserves definitions on various occasions during the year 2009 as well as 2 hours of formalized external training during 2009 covering such topics as the SPE/WPC/AAPG/SPEE Petroleum Resources Management System, reservoir engineering, geoscience and petroleum economics evaluation methods, procedures and software and ethics for consultants.

Based on his educational background, professional training and more than 34 years of practical experience in the estimation and evaluation of petroleum reserves, Mr. Ramirez has attained the professional qualifications as a Reserves Estimator and Reserves Auditor set forth in Article III of the “Standards Pertaining to the Estimating and Auditing of Oil and Gas Reserves Information” promulgated by the Society of Petroleum Engineers as of February 19, 2007.

RYDER SCOTT COMPANY    PETROLEUM CONSULTANTS

PETROLEUM RESERVES DEFINITIONS

As Adapted From:

RULE 4-10(a) of REGULATION S-X PART 210

UNITED STATES SECURITIES AND EXCHANGE COMMISSION (SEC)

PREAMBLE

On January 14, 2009, the United States Securities and Exchange Commission (SEC) published the “Modernization of Oil and Gas Reporting; Final Rule” in the Federal Register of National Archives and Records Administration (NARA). The “Modernization of Oil and Gas Reporting; Final Rule” includes revisions and additions to the definition section in Rule 4-10 of Regulation S- X, revisions and additions to the oil and gas reporting requirements in Regulation S -K, and amends and codifies Industry Guide 2 in Regulation S -K. The “Modernization of Oil and Gas Reporting; Final Rule”, including all references to Regulation S-X and Regulation S-K, shall be referred to herein collectively as the “SEC regulations”. The SEC regulations take effect for all filings made with the United States Securities and Exchange Commission as of December 31, 2009, or after January 1, 2010. Reference should be made to the full text under Title 17, Code of Federal Regulations, Regulation S-X Part 210, Rule 4-10(a) for the complete definitions (direct passages excerpted in part or wholly from the aforementioned SEC document are denoted in italics herein).

Reserves are estimated remaining quantities of oil and gas and related substances anticipated to be economically producible, as of a given date, by application of development projects to known accumulations. All reserve estimates involve an assessment of the uncertainty relating the likelihoodthat the actual remaining quantities recovered will be greater or less than the estimated quantities determined as of the date the estimate is made. The uncertainty depends chiefly on the amount of reliable geologic and engineering data available at the time of the estimate and the interpretation of these data. The relative degree of uncertainty may be conveyed by placing reserves into one of two principal classifications, either proved or unproved. Unproved reserves are less certain to be recovered than proved reserves and may be further sub- classified as probable and possible reserves to denote progressively increasing uncertainty in their recoverability. Under the SEC regulations as of December 31, 2009, or after January 1, 2010, a company may optionally disclose estimated quantities of probable or possible oil and gas reserves in documents publicly filed with the SEC. The SEC regulations continue to prohibit disclosure of estimates of oil and gas resources other than reserves and any estimated values of such resources in any document publicly filed with the SEC unless such information is required to be disclosed in the document by foreign or state law as noted in §229.1202 Instruction to Item 1202.

Reserves estimates will generally be revised only as additional geologic or engineering data become available or as economic conditions change.

Reserves may be attributed to either natural energy or improved recovery methods. Improved recovery methods include all methods for supplementing natural energy or altering natural forces in the reservoir to increase ultimate recovery. Examples of such methods are pressure maintenance, natural gas cycling, waterflooding, thermal methods, chemical flooding, and the use of miscible and immiscible displacement fluids. Other improved recovery methods may be developed in the future as petroleum technology continues to evolve.

Reserves may be attributed to either conventional or unconventional petroleum accumulations. Petroleum accumulations are considered as either conventional or unconventional based on the nature of their in -place characteristics, extraction method applied, or degree of processing prior to sale. Examples of unconventional petroleum accumulations include coalbed or coalseam methane (CBM/CSM), basin-centered gas, shale gas, gas hydrates, natural bitumen and oil shale deposits. These unconventional accumulations may require specialized extraction technology and/or significant processing prior to sale.

RYDER SCOTT COMPANY    PETROLEUM CONSULTANTS

PETROLEUM RESERVES DEFINITIONS

Page 2

Reserves do not include quantities of petroleum being held in inventory.

Because of the differences in uncertainty, caution should be exercised when aggregating quantities of petroleum from different reserves categories.

RESERVES (SEC DEFINITIONS)

Securities and Exchange Commission Regulation S-X §210.4-10(a)(26) defines reserves as follows:

Reserves. Reserves are estimated remaining quantities of oil and gas and related substancesanticipated to be economically producible, as of a given date, by application of development projects to known accumulations. In addition, there must exist, or there must be a reasonable expectation that there will exist, the legal right to produce or a revenue interest in the production, installed means of delivering oil and gas or related substances to market, and all permits and financing required to implement the project.

Note to paragraph (a)(26): Reserves should not be assigned to adjacent reservoirs isolated by major,potentially sealing, faults until those reservoirs are penetrated and evaluated as economically producible. Reserves should not be assigned to areas that are clearly separated from a known accumulation by a non-productive reservoir (i.e., absence of reservoir, structurally low reservoir, or negative test results). Such areas may contain prospective resources (i.e., potentially recoverable resources from undiscovered accumulations).

PROVED RESERVES (SEC DEFINITIONS)

Securities and Exchange Commission Regulation S-X §210.4-10(a)(22) defines proved oil and gas reserves as follows:

Proved oil and gas reserves. Proved oil and gas reserves are those quantities of oil and gas, which,by analysis of geoscience and engineering data, can be estimated with reasonable certainty to be economically producible—from a given date forward, from known reservoirs, and under existing economic conditions, operating methods, and government regulations—prior to the time at which contracts providing the right to operate expire, unless evidence indicates that renewal is reasonably certain, regardless of whether deterministic or probabilistic methods are used for the estimation. The project to extract the hydrocarbons must have commenced or the operator must be reasonably certain that it will commence the project within a reasonable time.

(i)  The area of the reservoir considered as proved includes:

(A)  The area identified by drilling and limited by fluid contacts, if any, and

(B)Adjacent undrilled portions of the reservoir that can, with reasonable certainty, be judged to be continuous with it and to contain economically producible oil or gas on the basis of available geoscience and engineering data.

RYDER SCOTT COMPANY    PETROLEUM CONSULTANTS

PETROLEUM RESERVES DEFINITIONS

Page 3

PROVED RESERVES (SEC DEFINITIONS) CONTINUED

(ii)  In the absence of data on fluid contacts, proved quantities in a reservoir are limited by the lowest known hydrocarbons (LKH) as seen in a well penetration unless geoscience, engineering, or performance data and reliable technology establishes a lower contact with reasonable certainty.

(iii)  Where direct observation from well penetrations has defined a highest known oil (HKO) elevation and the potential exists for an associated gas cap, proved oil reserves may be assigned in the structurally higher portions of the reservoir only if geoscience, engineering, or performance data and reliable technology establish the higher contact with reasonable certainty.

(iv)  Reserves which can be produced economically through application of improved recovery techniques (including, but not limited to, fluid injection) are included in the proved classification when:

(A)  Successful testing by a pilot project in an area of the reservoir with properties no more favorable than in the reservoir as a whole, the operation of an installed program in the reservoir or an analogous reservoir, or other evidence using reliable technology establishes the reasonable certainty of the engineering analysis on which the project or program was based; and

(B)  The project has been approved for development by all necessary parties and entities, including governmental entities.

(v)  Existing economic conditions include prices and costs at which economic producibility from a reservoir is to be determined. The price shall be the average price during the 12-month period prior to the ending date of the period covered by the report, determined as an unweighted arithmetic average of the first-day-of-the-month price for each month within such period, unless prices are defined by contractual arrangements, excluding escalations based upon future conditions.

RYDER SCOTT COMPANY    PETROLEUM CONSULTANTS

RESERVES STATUS DEFINITIONS AND GUIDELINES

As Adapted From:

RULE 4-10(a) of REGULATION S-X PART 210

UNITED STATES SECURITIES AND EXCHANGE COMMISSION (SEC)

and

PETROLEUM RESOURCES MANAGEMENT SYSTEM (SPE-PRMS)

Sponsored and Approved by:

SOCIETY OF PETROLEUM ENGINEERS (SPE)

WORLD PETROLEUM COUNCIL (WPC)

AMERICAN ASSOCIATION OF PETROLEUM GEOLOGISTS (AAPG)

SOCIETY OF PETROLEUM EVALUATION ENGINEERS (SPEE)

Reserves status categories define the development and producing status of wells and reservoirs. Reference should be made to Title 17, Code of Federal Regulations, Regulation S-X Part 210, Rule 4-10(a) and the SPE-PRMS as the following reserves status definitions are based on excerpts from the original documents (direct passages excerpted from the aforementioned SEC and SPE-PRMS documents are denoted in italics herein).

DEVELOPED RESERVES (SEC DEFINITIONS)

Securities and Exchange Commission Regulation S-X §210.4-10(a)(6) defines developed oil and gas reserves as follows:

Developed oil and gas reserves are reserves of any category that can be expected to be recovered:

(i)  Through existing wells with existing equipment and operating methods or in which the cost of the required equipment is relatively minor compared to the cost of a new well; and

(ii)  Through installed extraction equipment and infrastructure operational at the time of the reserves estimate if the extraction is by means not involving a well.

Developed Producing (SPE-PRMS Definitions)

While not a requirement for disclosure under the SEC regulations, developed oil and gas reserves may be further sub-classified according to the guidance contained in the SPE-PRMS as Producing or Non-Producing.

Developed Producing Reserves

Developed Producing Reserves are expected to be recovered from completion intervals that are open and producing at the time of the estimate.

Improved recovery reserves are considered producing only after the improved recovery project is in operation.

RYDER SCOTT COMPANY    PETROLEUM CONSULTANTS

RESERVES STATUS DEFINITIONS AND GUIDELINES

Page 2

Developed Non-Producing

Developed Non-Producing Reserves include shut-in and behind-pipe reserves.

Shut-In

Shut-in Reserves are expected to be recovered from:

(1)   completion intervals which are open at the time of the estimate, but which have not started producing;

(2)   wells which were shut-in for market conditions or pipeline connections; or

(3)   wells not capable of production for mechanical reasons.

Behind-Pipe

Behind-pipe Reserves are expected to be recovered from zones in existing wells, which will require additional completion work or future re-completion prior to start of production.

In all cases, production can be initiated or restored with relatively low expenditure compared to the cost of drilling a new well.

UNDEVELOPED RESERVES (SEC DEFINITIONS)

Securities and Exchange Commission Regulation S-X §210.4-10(a)(31) defines undeveloped oil and gas reserves as follows:

Undeveloped oil and gas reserves are reserves of any category that are expected to be recovered from new wells on undrilled acreage, or from existing wells where a relatively major expenditure is required for recompletion.

(i) Reserves on undrilled acreage shall be limited to those directly offsetting development spacing areas that are reasonably certain of production when drilled, unless evidence using reliable technology exists that establishes reasonable certainty of economic producibility at greater distances.

(ii) Undrilled locations can be classified as having undeveloped reserves only if a development plan has been adopted indicating that they are scheduled to be drilled within five years, unless the specific circumstances, justify a longer time.

(iii) Under no circumstances shall estimates for undeveloped reserves be attributable to any acreage for which an application of fluid injection or other improved recovery technique is contemplated, unless such techniques have been proved effective by actual projects in the same reservoir or an analogous reservoir, as defined in paragraph (a)(2) of this section, or by other evidence using reliable technology establishing reasonable certainty.

RYDER SCOTT COMPANY    PETROLEUM CONSULTANTS

EX-15.2

Exhibit 15.2

EXECUTIVE REPORT FOR PROVED RESERVES CERTIFICATION

OF THE GREATER ANGOSTURA FIELDS

IN BLOCK 2C, TRINIDAD & TOBAGO

Prepared for

CNOOC LIMITED

MARCH, 2011

The Americas	Europe, Africa, FSU	Asia Pacific
	and the Middle East
1300 Post Oak Blvd.,	Bentley Hall, Blacknest	80 Anson Road
Suite 1000	Alton, Hampshire	31-01C Fuji Xerox Towers
Houston, Texas 77056	United Kingdom GU34 4PU	Singapore 079907
Tel: +1 713 850 9955	Tel: +44 1420 525366	Tel: +65 6225 6951
Fax: +1 713 850-9966	Fax: +44 1420 525367	Fax: +65 6224 0842
email: gcah@gaffney-cline.com	email: gcauk@gaffney-cline.com	email: gcas@gaffney-cline.com

and at Argentina   -  Brazil  -  Kazakhstan  -  Russia   -   UAE   -   Australia

www.gaffney-cline.com

CNOOC Copy No. KK1658.00

YDH/jbi/L0008/2011/KK1658 8th March, 2011

Mr. Wang Qingru

Director of Reserve Management Office

CHINA NATIONAL OFFSHORE

OIL CORPORATION LIMITED

No 25 Chaoyangmenbei Dajie

Beijing 100010, P.R. China

Dear Mr. Wang,

EXECUTIVE REPORT FOR PROVED RESERVES CERTIFICATION

OF THE GREATER ANGOSTURA FIELDS

IN BLOCK 2C, TRINIDAD & TOBAGO

INTRODUCTION

In accordance with the Signed Instruction of CNOOCLimited (CNOOC) dated 17th December, 2010, Gaffney, Cline & Associates (GCA) has conducted an update of independent reserves certification for CNOOC’s annual financial report to the New York Stock Exchange (NYSE) and the Hong Kong Stock Exchange (HKEx) for the Greater Angostura Fields in Block 2C located 24 miles offshore, east coast of Trinidad & Tobago (Figure 0.1). GCA had previously undertaken the reserves certification for the year 2009.

GCA visited CNOOC’s office in Beijing on 29th October, 2010 and collected the new data and discussed the potential changes regarding well status, production adjustment, new well plan, gas facility installation and contract terms etc.

The Great Angostura Fields in the Block 2C are located in relatively shallow water depths of approximately 120 to 200 ft. Block 2C currently contains five identified gas cap oil fields or gas fields with oil rims: Kairi, the East Kairi Horst, Canteen, Aripo and Angostura (Figure 0.2), based on separate fluid contacts and initial pressures in the Angostura Oligocene reservoir. The development of the fields consists of two phases: Phase I - focusing on oil production mainly from Canteen and Kairi since 2005 with produced gas being recycled, according to the Greater Angostura Field Development Plan that was approved in 2002; Phase II – production and sale of gas from the Aripo and the Kairi Horst fields initially and from the free and associated gas from the Kari and Canteen fields late in the development when Aripo gas rates begin to decline. The gas sales are expected to commence in 2011 following the fabrication and installation of additional facilities in the fields as part of the Angostura Gas Project.

Since there is no development plan or project covering the Angostura Field, Angostura-1 and Angostura-2 (Figure 1.2), on the southern part of the Block, GCA did not estimate reserves for this area in the previous certification and will not include it in this update report.

UNITED KINGDOM                               UNITED STATES                               SINGAPORE                               AUSTRALIA                               ARGENTINA                               BRAZIL                              KAZAKHSTAN                              RUSSIA

FIGURE 0.1

BLOCK 2C LOCATION IN TRINIDAD & TOBAGO

FIGURE 0.2

BLOCK 2C BOUNDARIES AND FIVE FIELDS LOCATIONS

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GCA has adopted a deterministic methodology in conducting its reserves evaluation. The reported Oil Reserves are estimates based on professional judgment and are subject to future revisions, upward or downward, as a result of future operations or as additional information become available.

In carrying out the review and update, GCA has relied upon information and data provided by CNOOC, which comprised: general FDP & reserves reports; Best Case geological model and G&G interpretation presentations in PDF format; well data, etc. GCA has reviewed, to the extent possible in the time period allowed, the available data and interpretations for reasonableness and the latter adjusted where appropriate. GCA has made no changes to the previously re-interpreted four key wells (Kairi-1, Canteen-1, Aripo-1 and Angostura-1) and checked and verified the previous volumetric analysis. Well and reservoir performance were reviewed and updated employing decline curve analysis and material balance techniques.

The results presented in this report are based upon information and data made available to GCA on or before 30th October, 2010. The reserve estimates, forward production estimates and Net Present Value (“NPV”) computations as presented herein are based upon these data and represent GCA’s opinion as of 31st December, 2010.

It is GCA’s considered opinion that the estimates of oil and gas reserve volumes as of 31st December, 2010, presented in this document are, in aggregate, reasonable and were prepared in accordance with the Final Rule of Modernization of Oil and Gas Reporting (17 CFR Parts 210, 211, 229 and 249) of the United States Securities and Exchange Commission (SEC) using generally accepted petroleum engineering principles. The definitions applicable to the Proved, Probable and Possible reserve categories and sub-classifications recognized in the conduct of these examinations correspond to the above Final Rule, which was published by the SEC on 14th January, 2009 on Federal Register/Vol. 74,No. 9 and can be found on web:http://www.sec.gov/rules/final/2009/33-8995fr.pdf).

Economic models were constructed based on terms of the applicable petroleum contracts as provided by CNOOC, in order to calculate CNOOC’s net revenue interest Proved (1P), Proved plus Probable (2P) and Proved plus Probable plus Possible (3P) Reserves. As of 31st December, 2010, the PD and 1P SEC Reserves Estimates were allocated till 2018 while the 2P and 3P SEC Reserves Estimates were allocated up to the end of the license contract period.

The economic tests for the 31st December, 2010 reserve volumes incorporated oil sales pricing levels based on the average actual sales price of Calypso crude oil available of each month through to September, 2010 and this data is provided by CNOOC. The gas prices used were based on the gas pricing formulae agreed upon in the Gas Sales Agreement. Oil and gas prices were not escalated throughout the evaluation period.

Based on the Gas Project Depletion Plan prepared by the operator and provided by CNOOC, GCA assumed that there would be no more major future capital costs from the as-of-date forward.

In the previous certification, CNOOC had provided historical cost data and 2009 Budget summary. For this update, CNOOC provided its cost share through 2010 from the transaction on 27th May, 2009. GCA estimated the Fixed OPEX and Variable OPEX for the operation based on these and actual production. These costs were not escalated and kept constant throughout the evaluation period.

CNOOC’s net reserve volumes are derived by converting calculated net revenues accruing to CNOOC under the terms of the relevant petroleum contract into equivalent barrels of oil or thousands of cubic feet of natural gas utilising the average of actual 2010 sales price in the case of oil and anticipated gas contract prices in the case of gas. The CNOOC net revenue interest volumes reported in this document represent those amounts that are determined to be attributable to CNOOC’s net economic interest after the deduction of amounts attributable to third parties (government and other working interest partners).

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Net Present Value (“NPV”) computations were also undertaken and derived using cost and production profiles input to the economic model established. These NPVs represent future net revenue, after taxes, attributable to the interests of CNOOC, discounted over the economic life of the project at a specified discount rate to a present value as of 31st December, 2010.

This assessment was conducted within the context of GCA’s understanding of the effects of petroleum legislation, taxation and other regulations that currently pertain to the property. GCA is not aware of any potential regulation amendments which could affect the ability to recover the estimated reserves. GCA is not in a position to attest to the property title, financial interest relationships or encumbrances thereon for any part of the property reviewed.

It should be understood that any evaluation, particularly one involving future petroleum developments, may be subject to significant variations over short periods of time, as new information becomes available and perceptions change.

A glossary of abbreviations and key industry standard terms, some or all which may be used in this report, is attached as Appendix I.

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1.         RESULTS SUMMARY

1.1       In-Place Volumes

Table 1.1 presents the Gross STOIIP and GIIP (including solution gas) of the Low Casevolumetric estimates in the Depletion Plan covered areas within Block 2C and which were estimated as volumetric checks.

TABLE 1.1

BLOCK 2C – TRINIDAD & TOBAGO

LOW CASE STOIIP & GIIP VOLUMETRIC ESTIMATION

(GROSS 100% VOLUMES)

Field	Oil (MMbbl)	Gas (Bscf)
Aripo	11	301
Canteen	62	58
Kairi	146	392
E Kairi Horst	8	65
Total	227	816

1.2        Estimated Ultimate Recovery

Table 1.2 presents the Estimated Ultimate Recoveries (EURs) of the Low Case volumetricestimates within the Block 2C.

TABLE 1.2

BLOCK 2C – TRINIDAD & TOBAGO

LOW CASE ESTIMATED ULTIMATE RECOVERY ESTIMATION

(GROSS 100% VOLUMES)

Field	Oil (MMbbl)	Gas (Bscf)
Aripo	-	243
Canteen	21.3	40
Kairi	48.4	288
E Kairi Horst	-	38
Total	69.7	610
Note: Totals may not add exactly due to rounding errors.

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1.3        Net Proved Reserves

Table 1.3 presents the net entitlement to PDP and 1P oil and gas reserves attributable toCNOOC’s working interests (WI) as of 31st December, 2010 and which were estimated in accordance with SEC new Final Rules. The economic cut offs were applied following Economic Limit Tests (ELTs) using costs and prices which are unescalated throughout the period of calculation. According to CNOOC, the net reserves of the Block 2C are only about 0.3% of CNOOC’s total reserves.

TABLE 1.3

BLOCK 2C – TRINIDAD & TOBAGO

CNOOC NET ENTITLEMENT PROVED RESERVES AS OF 31st DECEMBER, 2010

Field	PDP		1P
	Oil (MMbbl)	Gas (Bscf)	Oil (MMbbl)	Gas (Bscf)
Aripo	-	0.0	-	17.2
Canteen	0.32	0.0	0.37	2.9
Kairi	0.67	0.0	0.78	20.1
E Kairi Horst	-	0.0	-	2.7
Total	0.99	0.0	1.15	42.9

Notes:

1.   All 1P gas reserves are PDNP (Produced Developed Non-producing). No PUD (Proved Undeveloped) reserves.

2.   Totals may not add exactly due to rounding errors.

1.4   Gross Proved Reserves

Gross Proved reserves, corresponding to the above Net Proved Reserves, are presented in Table 1.4 for reference information only. They represent a 100% interest in commercially recoverablevolumes as of 31st December, 2010, i.e. after economic cutoffs have been applied. Gross Proved reserves include volumes attributable to third parties (government and other working interest partners).

TABLE 1.4

BLOCK 2C – TRINIDAD & TOBAGO

GROSS PROVED RESERVES AS OF 31st DECEMBER, 2010

Field	PDP		1P
	Oil (MMbbl)	Gas (Bscf)	Oil (MMbbl)	Gas (Bscf)
Aripo	-	0	-	238.6
Canteen	5.43	0	5.51	40.0
Kairi	11.45	0	11.45	278.8
E Kairi Horst	-	0	-	38.1
Total	16.88	0	16.96	595.5

Notes:

1.   All 1P gas reserves are PDNP (Produced Developed Non-producing). No PUD (Proved Undeveloped) reserves.

2.   Totals may not add exactly due to rounding errors.

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1.5       Net Present Values

The NPVs as of 31st December, 2010 of estimated cash flows discounted at 10%, before and after taxes, attributable to CNOOC’s working interest in the projects identified above (excluding any balance sheet adjustments or financing costs), are estimated for the whole Block 2C on the basis of the FDP and the Depletion Plan in accordance with SEC Final Rule of Modernization of Oil and Gas Reporting using generally accepted petroleum engineering principles. Table 1.5 summaries the NPVs.

TABLE 1.5

BLOCK 2C – TRINIDAD & TOBAGO

CNOOC NET PRESENT VALUES AS OF 31st DECEMBER, 2010

Case	Pre-Tax NPV10 U.S.$ MM	Post-Tax NPV10 U.S.$ MM
PDP	44.7	44.7
1P	76.7	76.7

Note: Tax liability paid from government share of Profit, so the Post-Tax NPVs are the same as Pre-Tax NPVs.

The NPVs were calculated on the basis of SEC guidelines under which the economic cut-offs were applied using constant costs and prices. The oil prices used for these computations were the un-weighted 12-month arithmetic average of the first-day-of-the month price for each month within the 12-month period (January to December, 2010) except in instances where alternate prices are prescribed by contract. The gas prices used were based on the gas pricing formulae agreed upon in the Gas Sales Agreement.

1.6        Reserves Reconciliation

Tables 1.6 and 1.7 summarize the Net Entitlement PDP and 1P Reserves and the reconciliationof changes to the Net Entitlement reserves for the years ending 31st December, 2008, 2009 and 2010.

Tables 1.8 and 1.9 summarize the Gross reserves of PDP and 1P, corresponding to the aboveNet Reserves, and the reconciliation of changes to the Gross recoverable volumes for the years ending 31st December, 2008, 2009 and 2010.

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TABLE 1.6

BLOCK 2C – TRINIDAD & TOBAGO

CNOOC NET ENTITLEMENT PROVED RESERVES SUMMARY

	31st Dec, 2008		31st Dec, 2009		31st Dec, 2010
Reserves	Oil	Gas	Oil	Gas	Oil	Gas
Classification	(MMbbl)	(Bscf)	(MMbbl)	(Bscf)	(MMbbl)	(Bscf)
PDP	N/A	N/A	1.97	0.0	0.99	0.0
1P	N/A	N/A	1.97	46.0	1.15	42.9

TABLE 1.7

BLOCK 2C – TRINIDAD & TOBAGO

CNOOC NET ENTITLEMENT PROVED RESERVES RECONCILIATION

	PDP		1P
Reserves Reconciliation	Oil	Gas	Oil	Gas
	(MMbbl)	(Bscf)	(MMbbl)	(Bscf)
Reserves as of 31st Dec, 2008	N/A	N/A	N/A	N/A
Annual Production	N/A	N/A	N/A	N/A
Revisions	N/A	N/A	N/A	N/A
Extensions and Discoveries	N/A	N/A	N/A	N/A
Improved Recovery	N/A	N/A	N/A	N/A
Acquisition and Sales	N/A	N/A	N/A	N/A
Reserves as of 31st Dec, 2009	1.97	0.0	1.97	46.0
Annual Production	-0.26	0.0	-0.26	0.0
Revisions	-0.72	0.0	-0.56	-3.1
Extensions and Discoveries	-	-	-	-
Improved Recovery	-	-	-	-
Acquisition and Sales	-	-	-	-
Reserves as of 31st Dec, 2010	0.99	0.0	1.15	42.9
Note:  Totals may not add exactly due to rounding errors.

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TABLE 1.8

BLOCK 2C – TRINIDAD & TOBAGO

GROSS PROVED RESERVES SUMMARY

	31st Dec, 2008		31st Dec, 2009		31st Dec, 2010
Reserves	Oil	Gas	Oil	Gas	Oil	Gas
Classification	(MMbbl)	(Bscf)	(MMbbl)	(Bscf)	(MMbbl)	(Bscf)
PDP	N/A	N/A	17.99	0.0	16.88	0.0
1P	N/A	N/A	17.99	574.2	16.96	595.5

TABLE 1.9

BLOCK 2C – TRINIDAD & TOBAGO

GROSS PROVED RESERVES RECONCILIATION

	PDP		1P		2P		3P
Reserves Reconciliation	Oil	Gas	Oil	Gas	Oil	Gas	Oil	Gas
	(MMbbl)	(Bscf)	(MMbbl)	(Bscf)	(MMbbl)	(Bscf)	(MMbbl)	(Bscf)
Reserves as of 31st Dec., 2008	N/A	N/A	N/A	N/A	N/A	N/A	N/A	N/A
Annual Production	N/A	N/A	N/A	N/A	N/A	N/A	N/A	N/A
Revisions	N/A	N/A	N/A	N/A	N/A	N/A	N/A	N/A
Extensions and Discoveries	N/A	N/A	N/A	N/A	N/A	N/A	N/A	N/A
Improved Recovery	N/A	N/A	N/A	N/A	N/A	N/A	N/A	N/A
Acquisition and Sales	N/A	N/A	N/A	N/A	N/A	N/A	N/A	N/A
Reserves as of 31st Dec., 2009	17.99	0.0	17.99	574.2	22.64	725.1	26.54	862.0
Annual Production	-3.45	0.0	-3.45	0.0	-3.45	0.0	-3.45	0.0
Revisions	2.34	0.0	2.34	21.3	0.8	-8.5	-0.27	-27.9
Extensions and Discoveries	-	-	-	-	-	-	-	-
Improved Recovery	-	-	-	-	-	-	-	-
Acquisition and Sales	-	-	-	-	-	-	-	-
Reserves as of 31st Dec., 2010	16.88	0.0	16.96	595.5	19.99	716.6	22.82	834.9
Note:  Totals may not add exactly due to rounding errors.

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2.         PROJECTS SUMMARY

2.1       Exploration and Appraisal History

During the six-year Exploration Phase of the PSC, four exploration and three appraisal wells had been drilled, discovering significant oil and gas resources within a large faulted structure named the Greater Angostura Structure.

Angostura-1, drilled in 1999, was the discovery well for the field intersecting some 950 ft of gas within Early Oligocene sands (informally named the Angostura Sands) . The hydrocarbon potential of the structure was confirmed by the drilling of Aripo-1 (2000), Kairi-1 (2001), Canteen-1 (2001), Kairi-2 (2001/2), Angostura-2 (2002) and Canteen-2 (2002). Each of these exploration/appraisal wells intersected oil and gas in Oligocene sands.

The presence of a significant accumulation of crude oil was first indicated in July, 2001 when Kairi-1, the third exploration well on Block 2C, discovered a 350 ft column of black oil underneath a 580 ft gas cap. In November, 2001, the Canteen-1 well, north of Kairi- 1, confirmed the presence of thick oil columns in the region with the discovery of a 420-foot oil column with 300 ft of gas cap.

The Kairi and Canteen fault blocks contain the great majority of oil, with Kairi being the larger of the two. Aripo has a very thin oil rim overlain by a significant gas cap. Angostura-1 confirmed a gas on rock result with Angostura-2 confirming a result similar to Aripo.

2.2        Development Projects

As mentioned in the Introduction, the development of the fields consists of two phases: Phase I - focusing on oil production mainly from Canteen and Kairi since 2005 with produced gas being recycled, according to the Greater Angostura Field Development Plan that was approved in 2002; Phase II – production and sale of gas from the Aripo and the Kairi Horst fields initially and from the free and associated gas from the Kairi and Canteen fields late in the development when Aripo gas rates begin to decline. The gas sales are expected to commence in 2011 following the fabrication and installation of additional facilities in the fields as part of the Angostura Gas Project.

2.2.1     Phase I - Angostura Field Development Project

Development of the oil reserves (Phase I) in the Kairi and Canteen fields was sanctioned by the operator and the Joint Venture partnership in February, 2003. The initial project consisted of the design and fabrication of facilities including 3 WPPs, a CPP with living quarters and production and gas compression equipment, an onshore receiving and storage terminal, an export pipeline connecting the two, and a tanker buoy for crude oil loading (Figure 2.1). The offshore facilities that currently make up the Greater Angostura Development (Phase I) are listed as following:

CPP	Equipped with production, gas compression, gas dehydration, MCC/switch gear, power generation, utilities, and Living Quarters building, bridge connected to the K2 WPP.
Kairi-1 WPP	Connected to CPP via flowline and umbilical
Kairi-2 WPP	Bridge connected to CPP
Canteen WPP	Connected to CPP via flowline and umbilical
Aripo WPP	Monitoring wells only, no connections to CPP installed
Terminal	Onshore tank farm for receiving, handling and offloading of produced oil
CALM Buoy	Offshore Tie In Point for tanker offloading operations

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FIGURE 2.1

PRODUCTION FACILITIES LAYOUT OF

THE GREATER ANGOSTURA DEVELOPMENT PLAN (PHASE I)

(from BHP Billiton: Greater Angostura Development 2002)

The initial development project also provided for the future development of gas for sales with the fabrication and installation of the Aripo WPP, an initial pressure observation well and space for five additional wells. The original project also included funds for the drilling and completion of 31 well bores, 20 for oil production, 10 for gas injection and one for pressure monitoring and mentioned future gas development wells.

Development drilling began in October, 2003 with a jack-up rig positioned over the Kairi B platform. A second rig began work in the field in April, 2004 over the Canteen Platform. First oil production was achieved 9th January, 2005, from the Kairi B Platform. Production from the Kairi A Platform commenced on 29th January and from the Canteen Platform on 30th April the same year.

As of 31st December, 2010, a total of 36 wells, including exploration and appraisal wells, have been drilled in the Greater Angostura area (Table 2.1). The Angostura complex currently contains 15 oil wells capable of production, six gas injection wells and 2 converted gas injection wells (from oil producers in 2009), and three shut-in future gas producers. The oil producers are a mix of long horizontal wells and deviated wells. Gas is injected into the gas caps of both the Kairi and Canteen reservoirs for pressure maintenance.

At the present time, production from the Kairi, Kairi Horst and Canteen fields is coming from 15 wells drilled from three WPPs, with processing and separation facilities on a single CPP. About 52 MMbbl of oil have been produced through to the end of September, 2010. Oil is sent to an onshore storage facility on the southeast coast of Trinidad via pipeline and then exported from a Catenary Aanchor Leg Mooring (CALM) buoy with international tanker loadings. All natural gas that is not used for fuel or flared is re-injected into six wells completed in the gas caps of the reservoirs for pressure maintenance.

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TABLE 2.1

WELLS DRILLED AND CURRENT STATUS

Well Type	Angostura	Aripo	Kairi	Canteen	E Kairi Horst	Total
Exploration	1	1	1	1	0	4
Appraisal	2	0	1	1	0	4
Oil Producer	0	0	10	5	0	15
Gas Injector	0	0	4	2	0	6
Converted Gas Injector	0	0	1	0	1	2
Shut-in Gas Producer	0	3	0	0	0	3
Dry Hole	0	0	0	1	1	2
Total	3	4	17	10	2	36

2.2.2   Phase II - Angostura Gas Project

The field production has been shut in for the Gas Project facilities installation from mid-September, 2010 and is expected to be resumed in mid-December, 2010.

The Angostura Gas Project (Phase II) will include the necessary offshore gas facilities to achieve a total design capacity of 280 MMscfd through the compression system. Downstream of compression at the discharge scrubber, the facilities capacity is 340 MMscfd to accommodate future high pressure gas volume of 60 MMscfd. While gas is being developed from the Aripo field, oil production and associated gas re-injection at the Kairi and Canteen fields will continue to maximize oil recovery.

A new Gas Export Platform (GEP) will be installed for production and compression of the sales gas. The GEP equipment includes inlet separation, export compression and sales metering. From the data provided from CNOOC, the topsides facilities have been completed and added to the existing Aripo platform to facilitate gas production and measurement and a new 12” OD flowline and umbilical from the Aripo WPP to the GEP have also been added. In addition, facility modifications and tie-ins will be required on the Central Production Platform (CPP) and the existing wellhead platforms, C1, K1 and K2, to route gas production to the GEP.

The GEP has been bridge connected to the northwest corner of CPP platform. The flare system for CPP has been relocated and incorporated into the design of the GEP flare system.

Two new export pipelines will be installed from the GEP (36” to Trinidad and 12” to Tobago).

These export pipelines will be owned and installed by NGC (the National Gas Company of Trinidad & Tobago). Additional facilities will be installed on GEP on behalf of NGC and includes all required equipment, piping, instruments, and controls from the outlet flange of the custody transfer meter down to the flange located at the bottom of the riser. The operator, BHP Billiton, designed, procured and is installing those components on behalf of NGC with ownership being transferred to them at first gas per the Gas Sales Contract (GSC).

Up to the end of October, 2010, the Gas Project facilities installation has been about 90% completed, and the first gas sale is expected to start in March, 2011.

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2.3        Well Status and Plans

There are 4 existing wells, drilled and completed, that will provide gas production in the initial phase of the Angostura gas development. These wells are located in the Aripo and Kairi Horst reservoirs. Their gas production will not adversely impact oil recovery. When production from these wells can no longer fill the gas contract daily rate requirement, additional gas production will be accessed from the oil wells presently producing in the Kairi and Canteen fields.

The four existing gas wells, presently shut-in which have never produced commercially on the Aripo WPP are ARI-A01 ST, ARIA02 ST1, ARI-A03 (in the Aripo field) and the KAI-B12 (in the Kairi Horst field). They are available for gas production at project start -up. The KAI-B12 used to produce oil in late 2007 and 2008 but was frequently shut-in due to high GOR production.

In the Kairi Field currently there are 10 oil producers, 4 gas injection wells and 1 converted gas injection well from oil producer (converted in September, 2009).

In Canteen, there are 5 oil wells and 2 gas injection wells.

From January to September, 2010, average 197 MMscfd of associated gas and gas coning into the oil production have been produced and mostly re -injected. It is expected that the gas production capacity from the current oil production operations can reach or exceed 220 MMscfd. This gas stream (or a portion of it) will be re-directed to sales in the initial phase of the Kairi/Canteen gas cap blowdown without any modification of the wells to make up the rate shortfall.

All 7 gas injectors are available for gas production when gas injection is stopped.

Some high GOR oil wells may be converted to gas production if needed.

According to the Gas Project, no major well workovers or drilling are required to produce the gas associated with this development. Three to four wireline operations from the Kairi 1 and 2 platforms will be required to perforate the K2 B12 (Horst) well during the construction phase prior to first gas shifting of existing sliding sleeves for gas zones in wells K2 B9 and B10 in 2016 to 2017, and possibly including the wireline perforation of the K2 B11 well at that time if additional gas PI is needed for rate. All work can be done from wireline units on the deck of the K1 and K2 platforms.

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3.         ECONOMIC EVALUATION

3.1        Capital Expenditure

The Capital expenditure in the gas development project is mainly the Gas Export Platform (GEP) with process equipment connected to Aripo WHP with flow lines and umbilicals. The GEP is linked to CPP by a bridge and they will have a common upgraded flare. The PSC implies a field abandonment cost at the end of the license term. The GEP is in the process of offshore hook up and commissioning. The estimated remaining cost for the GEP project is U.S.$67 MM followed by an abandonment obligation of U.S.$32 MM at the end of the contract. The costs are common to all the three cases.

3.2        Operating Expenditure

The offshore field operating cost has three components, consisting of, fixed operating cost, variable operating cost for producing oil and variable operating cost for gas. The variable operating unit cost is same for all the three cases but the bulk of the cost is fixed cost based on the size of the operation and it is different in the three cases.

The fixed cost will include all overhead cost, fuel cost, staff pay, offshore supply vessel day rate including fuel, crew change cost, shore base, onshore overhead, administration cost and logistics cost. The fixed operating cost has been estimated as U.S.$22 Million for the 1P Case. As the production declines it has been assumed that the project will be phased down to operate within the constraints by reducing manpower or shutting down uneconomical wells or fault blocks. This will lead to a reduction in fixed operating cost by 5% annually from 2016 in every case.

The variable operating expenditure includes processing cost and chemical consumption for the producing oil and gas. The cost of processing a barrel of oil has been estimated as $2.5/bopd and the corresponding cost for producing and transporting gas has been estimated as U.S.$ 0.2/Mscfd. The cost profiles are given in the Table 3.1.

TABLE 3.1

OPERATING EXPENSES FORECASTS FOR ECONOMIC ANALYSIS

Year	PDP Case CAPEXx (U.S.$MM)	PDP Case OPEX (U.S.$MM)	1P Case CAPEX (U.S.$MM)	1P Case OPEX (U.S.$MM)
2011		33.4	67.00	55.0
2012		28.3		54.1
2013		28.8		52.3
2014		25.1		50.8
2015		25.3		49.5
2016		20.3		47.9
2017		19.8		40.2
2018		15.1		30.5
2019		15.0		24.8
2020	13.30	10.8	16.00	20.3
2021	13.30	3.2	16.00	5.41

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3.3   Economic Analysis

The effective date of the evaluation is 31st December, 2010.

Based on the sales price data provided to GCA, it was noted that the discount off WTI crude amounted to some U.S.$0.30/bbl, as provided by CNOOC. GCA has assumed that this discount remains constant for the life of the fields considered in this report.

The WTI price for the Reserves evaluation to SEC guidelines, as of 31st December, 2010, was U.S.$79.43/bbl. The gas price forecast, based on the GSC provided by CNOOC for the year-end 2009 Reserves Report, is shown in Table 3.2.

TABLE 3.2

CONTRACTED GAS PRICE

	U.S.$/MCF
2011	1.51
2012	1.54
2013	1.58
2014	1.61
2015	1.65
2016	1.69
2017	1.73
2018	1.77
2019	1.81
2020	1.85
2021	1.90

The cashflow outputs associated with the ELT are attached in Appendix II.

3.4 Reserves

Tables 3.3 and 3.4 summarise the Gross (100%) Reserves and Net Entitlement ProvedReserves for CNOOC’s 12.5% Net Working Interest under the PSC, as of 31st December, 2010. The Gross Oil Reserves represent the Reserves associated with total production from Block C attributable to both the Contractor and the State. Net Entitlement Reserves indicate the volumes attributable to CNOOC under the terms of the PSC, and are the volumetric equivalent of Cost Hydrocarbons plus Profit Share.

TABLE 3.3

BLOCK C GROSS (100%) PROVED RESERVES

AS OF 31st DECEMBER, 2010

Field	PDP		1P
	Oil (MMbbl)	Gas (Bscf)	Oil (MMbbl)	Gas (Bscf)
Aripo	-	0	-	238.6
Canteen	5.43	0	5.51	40.0
Kairi	11.45	0	11.45	278.8
E Kairi Horst	-	0	-	38.1
Total	16.88	0	16.96	595.5

CNOOC 15 KK1658.00

TABLE 3.4

CNOOC’S NET ENTITLEMENT PROVED RESERVES

IN BLOCK C

AS OF 31st DECEMBER, 2010

Field	PDP		1P
	Oil (MMbbl)	Gas (Bscf)	Oil (MMbbl)	Gas (Bscf)
Aripo	-	0.0	-	17.2
Canteen	0.32	0.0	0.37	2.9
Kairi	0.67	0.0	0.78	20.1
E Kairi Horst	-	0.0	-	2.7
Total	0.99	0.0	1.15	42.9

Notes:

1.   PDNP (Proved Developed Non-producing) oil reserves, 0.16 MMbbl, are in the Canteen field. All 1P gas reserves are PDNP (Produced Developed Non-producing). No PUD (Proved Undeveloped) reserves.

2.   Because of the way that the PSC works in terms of allocating costs for recovery purposes and how the cross gas:oil cost recovery mechanism works, the 1P (or PD) net entitlement oil reserves here are estimated to be slightly lower than the oil PDP reserves.

3.   Totals may not add exactly due to rounding errors.

3.5 Economic Test Results

The results of discounted pre- and post-tax NPVs, at a 10% Nominal discount rate, for CNOOC’s entitlement share in Block C, utilizing the price and cost assumptions provided previously, are summarized in Table 3.5.

TABLE 3.5

CNOOC’S PRE- AND POST-TAX NPV AT 10% DISCOUNT RATE

FOR ITS 12.5% NET WORKING INTEREST IN BLOCK C

AS OF 31st DECEMBER, 2010

Case	Pre-Tax NPV10	Post-Tax NPV10
	U.S.$ MM	U.S.$ MM
PDP	44.7	44.7
1P	76.7	76.7

Note: Tax liability paid from government share of Profit, so the Post-Tax NPVs are the same as Pre-Tax NPVs.

3.6        Summary Report for CNOOC’s Filling to the SEC

On CNOOC’s request, GCA extracted, from its economic analysis, a series of report forms, including profiles of company net production, company gross revenue, CAPEX, OPEX, and net cash flow, etc. to meet the requirements of annual report filing to the SEC.

Tables AII.1 and AII.2 representCNOOC’s PDP and 1P(PD) Net Reserves and associatedNPVs in Block 2C, respectively.

Tables AIII.1 and AIII.2 represent block level and field level production profiles for PDP, and1P(PD) respectively.

CNOOC 16 KK1658.00

4. QUALIFICATIONS

GCA is an independent international energy advisory group of 48 years’ standing, whose expertise includes petroleum reservoir evaluation and economic analysis.

The report is based on information compiled by professional staff members who are full time employees of GCA.

Staff who participated in the compilation of this report include Mr. David S. Ahye, Dr. Hu Yundong, Mr. Chew Hai Hong, Mr. Suresh Kumar, Mr. Paul McGhee and Dr. Azlan Abdul Majid. All hold degrees in geoscience, petroleum engineering or related discipline.

Mr. Ahye, in charge of the whole project, holds a B.Sc (Hons) in Chemical Engineering, is a member of the Society of Petroleum Engineers and the South East Asia Petroleum Exploration Society, and has more than 30 years industry experience worldwide. Dr. Hu holds a PhD in Petroleum Geology, is a member of the Society of Petroleum Engineers and a Registered Mineral Reserve Evaluator of the P.R. China, and has more than 25 years industry experience in China. Mr. Chew holds a BE (Hons) in Civil Engineering and an MBA, is a member of the Society of Petroleum Engineers, a fellow of Institution of Engineers Malaysia, and a professional engineer registered with the Board of Engineers Malaysia, and has more than 30 years petroleum industry experience. Mr. Kumar holds a B. Tech. in Mechanical Engineering and an MBA in International Business, is a member of the Society of Petroleum Engineers, the Institution of Engineers, India and the Operational Research Society of India, and has more than 25 years industry experience. Mr. McGhee holds a B.Sc in Chemical Engineering, is a member of the Society of Petroleum Engineers and the Association of International Petroleum Negotiators, and has more than 24 years industry experience. Dr. Majid holds a PhD and a M. Eng. in Chemical Engineering, is a member of the Society of Petroleum Engineers and the Society of Professional Well Log Analysts.

5.           BASIS OF OPINION

GCA has no reason to believe that any material facts have been withheld from it, but does not warrant that its inquiries have revealed all of the matters that a more extensive examination might otherwise disclose. The opinions and statements contained in this report are made in good faith and in the belief that such opinions and statements are representative of prevailing physical and economic circumstances.

This assessment has been conducted within the context of GCA’s understanding of the effects of petroleum legislation and other regulations that currently apply to these properties. However, GCA is not in a position to attest to the property title, financial interest relationships or encumbrances thereon for any part of the appraised properties.

It should be understood that the evaluation of petroleum properties involves judgments in respect of a series of issues and parameters that cannot be measured precisely.

It should also be understood that any determination of resource volumes may be subject to significant variations over short periods of time, as new information becomes available and perceptions change.

The opinions expressed herein represent GCA’s judgment based upon its evaluation of these issues, the data that has been made available and the company’s professional experience in the consideration of these matters. Any evaluation may be subject to significant variation over time as new information becomes available or perceptions of market conditions change.

CNOOC 17 KK1658.00

So far, as GCA is aware, between the dates that GCA carried out its work and the date of this Certification Report, there has not been any change affecting CNOOC or the Greater Angostura Fields which would have a material effect on the contents of this report.

In preparing this report, GCA acted as independent reserve auditors, however, the GCA audit was in fact very comprehensive with independent checks on key parameters. This included a rigorous audit of the seismic interpretation, re-interpretation of four key wells, and independent estimation of the in-place volumes and reserves on the basis of geoscience, engineering and economic analysis.

GCA served as an independent energy consultancy specialising in petroleum reservoir evaluation and economic analysis. The firm’s management and employees have no direct or indirect interest holding in CNOOC. GCA’s remuneration was not in any way contingent on the contents of this report. In the preparation of this report, GCA has maintained, and continues to maintain, a strict consultant-client relationship with CNOOC. The management and employees of GCA have been, and continue to be, independent of CNOOC in the services they provide to the company including the provision of the opinions expressed in this report. Furthermore, the management and employees of GCA have no interest in any assets or share capital of CNOOC or in the promotion of this company.

Yours sincerely,

GAFFNEY, CLINE & ASSOCIATES (CONSULTANTS) PTE LTD

David S. Ahye

Regional Director, Asia Pacific

CNOOC 18 KK1658.00

 

APPENDIX I

GLOSSARY

CNOOC KK1658.00

 

List of Standard Oil Industry Terms and Abbreviations

ABEX	Abandonment Expenditure	EUR	Estimated Ultimate Recovery
ACQ	Annual Contract Quantity	FDP	Field Development Plan
oAPI	Degrees API (American	FEED	Front End Engineering and Design
	Petroleum Institute)	FPSO	Floating Production, Storage and
AAPG	American Association of		Offloading
	Petroleum Geologists	FSO	Floating Storage and Offloading
AVO	Amplitude versus Offset	ft	Foot/feet
A$	Australian Dollars	Fx	Foreign Exchange Rate
B	Billion (109)	g	gram
Bbl	Barrels	g/cc	grams per cubic centimetre
/Bbl	per barrel	gal	gallon
Bbbl	Billion Barrels	gal/d	gallons per day
BHA	Bottom Hole Assembly	G&A	General and Administrative costs
BHC	Bottom Hole Compensated	GBP	Pounds Sterling
Bscf or Bcf	Billion standard cubic feet	GDT	Gas Down to
Bscf/d or Bcf/d	Billion standard cubic feet per day	GIIP	Gas initially in place
Bm3	Billion cubic metres	Gj	Gigajoules (one billion Joules)
bcpd	Barrels of condensate per day	GOR	Gas Oil Ratio
BHP	Bottom Hole Pressure	GRV	Gross Rock Volume
blpd	Barrels of liquid per day	GTL	Gas to Liquids
bpd	Barrels per day	GWC	Gas water contact
boe	Barrels of oil equivalent @xxx mcf/bbl	HDT	Hydrocarbons Down to
boepd	Barrels of oil equivalent per day@	HSE	Health, Safety and Environment
	xxx mcf/bbl	HSFO	High Sulphur Fuel Oil
BOP	Blow Out Preventer	HUT	Hydrocarbons up to
bopd	Barrels oil per day	H2S	Hydrogen Sulphide
bwpd	Barrels of water per day	IOR	Improved Oil Recovery
BS&W	Bottom sediment and water	IPP	Independent Power Producer
BTU	British Thermal Units	IRR	Internal Rate of Return
bwpd	Barrels water per day	J	Joule (Metric measurement of
CBM	Coal Bed Methane		energy. I kilojoule = 0.9478 BTU)
CO2	Carbon Dioxide	k	Permeability
CAPEX	Capital Expenditure	KB	Kelly Bushing
CCGT	Combined Cycle Gas Turbine	KJ	Kilojoules (one Thousand Joules)
cm	centimetres	kl	Kilolitres
CMM	Coal Mine Methane	km	Kilometres
CNG	Compressed Natural Gas	km2	Square kilometres
Cp	Centipoise (a measure of viscosity)	kPa	Thousands of Pascals
CSG	Coal Seam Gas		measurement of pressure)
CT	Corporation Tax	KW	Kilowatt
DCQ	Daily Contract Quantity	KWh	Kilowatt hour
Deg C	Degrees Celsius	LKG	Lowest Known Gas
Deg F	Degrees Fahrenheit	LKH	Lowest Known Hydrocarbons
DHI	Direct Hydrocarbon Indicator	LKO	Lowest Known Oil
DST	Drill Stem Test	LNG	Liquefied Natural Gas
DWT	Dead-weight ton	LoF	Life of Field
E&A	Exploration & Appraisal	LPG	Liquefied Petroleum Gas
E&P	Exploration and Production	LTI	Lost Time Injury
EBIT	Earnings before Interest and Tax	LWD	Logging while drilling
EBITDA	Earnings before interest, tax,	m	Metres
	depreciation and amortisation	M	Thousand
EI	Entitlement Interest	m3	Cubic metres
EIA	Environmental Impact Assessment	Mcf or Mscf	Thousand standard cubic feet
EMV	Expected Monetary Value	MCM	Management Committee Meeting
EOR	Enhanced Oil Recovery	m3d	Cubic metres per day

CNOOC AI.I KK1658.00

MDT	Modular Dynamic Tester	scf or cf	Standard Cubic Feet
mD	Measure of Permeability in	scf/d or cf/d	Standard Cubic Feet per day scf/ton
	millidarcies		Standard cubic foot per ton
MD	Measured Depth	SL	Straight line (for depreciation)
Mean	Arithmetic average of a set of	so	Oil Saturation
	numbers	SPE	Society of Petroleum Engineers
Median	Middle value in a set of values	SPEE	Society of Petroleum Evaluation
MFT	Multi Formation Tester		Engineers
mg/l	milligrames per litre	ss	Subsea
MJ	Megajoules (One Million Joules)	stb	Stock tank barrel
Mm3	Thousand Cubic metres	STOIIP	Stock tank oil initially in place
Mm3d	Thousand Cubic metres per day	sw	Water Saturation
MM	Million	T	Tonnes
MMbbl	Millions of barrels	TD	Total Depth
MMBTU	Millions of British Thermal Units	Te	Tonnes equivalent
MMcf or MMscf	Million standard cubic feet	THP	Tubing Head Pressure
Mode	Value that exists most frequently in	TJ	Terajoules (1012 Joules)
	a set of values = most likely	Tscf or Tcf	Trillion standard cubic feet
Mscf/d	Thousand standard cubic feet per day	TCM	Technical Committee Meeting
MMscf/d	Million standard cubic feet per day	TOC	Total Organic Carbon
MW	Megawatt	TOP	Take or Pay
MWD	Measuring While Drilling	Tpd	Tonnes per day
MWh	Megawatt hour	TVD	True Vertical Depth
mya	Million years ago	TVDss	True Vertical Depth Subsea
NGL	Natural Gas Liquids	USGS	United States Geological Survey
N2	Nitrogen	U.S.$	United States Dollar
NPV	Net Present Value	VSP	Vertical Seismic Profiling
OBM	Oil Based Mud	WC	Water Cut
OCM	Operating Committee Meeting	WI	Working Interest
ODT	Oil down to	WPC	World Petroleum Council
OPEX	Operating Expenditure	WTI	West Texas Intermediate
OWC	Oil Water Contact	wt%	Weight percent
p.a.	Per annum	1H05	First half (6 months) of 2005
Pa	Pascals (metric measurement of		(example of date)
	pressure)	2Q06	Second quarter (3 months) of 2006
P&A	Plugged and Abandoned		(example of date)
PD	Proved Developed	2D	Two dimensional
PDP	Proved Developed Producing	3D	Three dimensional
PDNP	Proved Developed Non-producing	4D	Four dimensional
PI	Productivity Index	1P	Proved Reserves
PJ	Petajoules (1015 Joules)	2P	Proved plus Probable Reserves
PSDM	Post Stack Depth Migration	3P	Proved plus Probable plus Possible
psi	Pounds per square inch		Reserves
psia	Pounds per square inch absolute	%	Percentage
psig	Pounds per square inch gauge
PUD	Proved Undeveloped
PVT	Pressure volume temperature
P10	10% Probability
P50	50% Probability
P90	90% Probability
RF	Recovery factor
RFT	Repeat Formation Tester
RT	Rotary Table
Rw	Resistivity of water
SCAL	Special core analysis

CNOOC AI.II KK1658.00

 

APPENDIX II

CASHFLOW ANALYSIS

CNOOC KK1658.00

TABLE AII.1

BLOCK 2C – TRINIDAD & TOBAGO

CNOOC PDP NET RESERVES & NPVs AS OF 31st DECEMBER, 2010

Case: PDP

CNOOC 12.5% WI

	NPV7, US$MM =	46.7
	NPV8, US$MM =	46.0
	NPV9, US$MM =	45.3
	NPV10, US$MM =	44.7
	NPV11, US$MM =	44.1
CNOOC Net Oil Reserves, MMstb =		0.987
CNOOC Net Gas Reserves, Bscf =		0.0

									CNOOC	Pre-Tax
	WI Oil	WI Gas	Crude		Opex			Cost	Profit	Cash	Net Cash	Net Oil	Net Gas
Year	Prod'n	Prod'n	Price	Gas Price			Capex	Recovered	Share	Flow	Flow	Reserves	Reserves
					Recoverable	Unrecoverable
	MMstb	Bscf	US$/bbl	US$/Mscf	US$M	US$M	US$M	US$M	US$M	US$M	US$M	MMstb	Bscf
2011	0.563	0.000	79.13	1.51	4,179	126	0	4,179	15,777	15,651	15,651	0.252	0.000
2012	0.418	0.000	79.13	1.54	3,543	134	0	3,543	11,824	11,690	11,690	0.194	0.000
2013	0.334	0.000	79.13	1.58	3,604	142	0	3,604	9,116	8,974	8,974	0.161	0.000
2014	0.258	0.000	79.13	1.61	3,143	150	0	3,143	6,917	6,767	6,767	0.127	0.000
2015	0.194	0.000	79.13	1.65	3,164	159	0	3,164	4,888	4,728	4,728	0.102	0.000
2016	0.123	0.000	79.13	1.69	2,540	169	0	2,540	2,876	2,707	2,707	0.068	0.000
2017	0.079	0.000	79.13	1.73	2,477	179	0	2,196	1,631	1,171	1,171	0.048	0.000
2018	0.056	0.000	79.13	1.77	1,893	190	0	1,561	1,159	638	638	0.034	0.000
2019	0.042	0.000	79.13	1.81	1,879	201	0	1,163	864	-54	-54	0.000	0.000
2020	0.032	0.000	79.13	1.85	1,353	213	0	888	660	-18	-18	0.000	0.000
2021	0.009	0.000	79.13	1.90	400	75	3,325	244	181	-3,375	-3,375	0.000	0.000
TOTAL	2.11	0.00			28,173	1,739	3,325	26,223	55,893	48,878	48,878	0.99	0.0

Notes:

1.   WI oil and gas production refer to gross production x CNOOC WI.

2.   CNOOC Net Oil and Gas Reserves are CNOOC's economic entitlement (Cost Recovery + Profit Share).

3.   Tax liability paid from government share of Profit.

4.   Mid-year discounting assumed.

5.   Gas price assumed as for YE2009 audit.

6.   Unrecoverable costs assumed as for YE2009 audit.

7.   U.S.$0.30/bbl discount off WTI based on information provided by CNOOC.

8.   PD gas profile assumed same as 1P case.

9.   Totals may not add exactly due to rounding errors.

CNOOC AII.I KK1658.00

TABLE AII.2

BLOCK 2C – TRINIDAD & TOBAGO

CNOOC 1P (PD) NET RESERVES & NPVs AS OF 31st DECEMBER, 2010

Case:1P (PD)

CNOOC 12.5% WI

	NPV7, US$MM =	82.0
	NPV8, US$MM =	80.2
	NPV9, US$MM =	78.4
	NPV10, US$MM =	76.7
	NPV11, US$MM =	75.0
CNOOC Net Oil Reserves, MMstb =		1.152
CNOOC Net Gas Reserves, Bscf =		42.9

									CNOOC	Pre-Tax
	WI Oil	WI Gas	Crude		Opex			Cost	Profit	Cash	Net Cash	Net Oil	Net Gas
Year	Prod'n	Prod'n	Price	Gas Price			Capex	Recovered	Share	Flow	Flow	Reserves	Reserves
					Recoverable	Unrecoverable
	MMstb	Bscf	US$/bbl	US$/Mscf	US$M	US$M	US$M	US$M	US$M	US$M	US$M	MMstb	Bscf
2011	0.570	8.789	79.13	1.51	6,880	126	8,410	10,244	19,728	14,556	14,556	0.275	5.438
2012	0.421	10.044	79.13	1.54	6,759	134	0	8,441	17,299	18,847	18,847	0.220	5.425
2013	0.335	10.044	79.13	1.58	6,544	142	0	8,226	14,827	16,367	16,367	0.183	5.412
2014	0.259	10.044	79.13	1.61	6,354	150	0	8,036	12,678	14,210	14,210	0.152	5.400
2015	0.195	10.044	79.13	1.65	6,194	159	0	6,194	11,642	11,482	11,482	0.119	5.114
2016	0.123	10.615	79.13	1.69	5,990	169	0	5,990	9,934	9,765	9,765	0.075	5.910
2017	0.079	7.652	79.13	1.73	5,030	179	0	6,630	5,984	7,405	7,405	0.048	5.081
2018	0.056	3.582	79.13	1.77	3,818	190	0	4,618	2,800	3,411	3,411	0.034	2.655
2019	0.042	2.059	79.13	1.81	3,098	201	0	3,027	1,796	1,523	1,523	0.026	1.544
2020	0.032	1.258	79.13	1.85	2,536	213	0	2,054	1,243	548	548	0.020	0.944
2021	0.009	0.302	79.13	1.90	669	75	4,000	531	325	-3,889	-3,889	0.000	0.000
TOTAL	2.12	74.4			53,871	1,739	12,410	63,990	98,255	94,224	94,224	1.15	42.9

Notes:

1.   WI oil and gas production refer to gross production x CNOOC WI.

2.   CNOOC Net Oil and Gas Reserves are CNOOC's economic entitlement (Cost Recovery + Profit Share).

3.   Tax liability paid from government share of Profit.

4.   Mid-year discounting assumed.

5.   Gas price assumed as for YE2009 audit.

6.   Unrecoverable costs assumed as for YE2009 audit.

7.   U.S.$0.30/bbl discount off WTI based on information provided by CNOOC.

8.   There is no PUD (proved Undeveloped) reserves, PD (Proved Developed) reserves are the same as 1P reserves.

9.   Totals may not add exactly due to rounding errors.

CNOOC AII.II KK1658.00

 

APPENDIX III

PRODUCTION PROFILES

CNOOC KK1658.00

 

TABLE AIII.1

BLOCK 2C – TRINIDAD & TOBAGO

PDP PRODUCTION PROFILES

	Aripo				Canteen				Kairi				E Kairi Horst				Total
	Gross		WI		Gross		WI		Gross		WI		Gross		WI		Gross		WI
Year	Oil	Gas	Oil	Gas	Oil	Gas	Oil	Gas	Oil	Gas	Oil	Gas	Oil	Gas	Oil	Gas	Oil	Gas	Oil	Gas
	Prod	Prod'n	Prod'n	Prod'n	Prod'n	Prod'n	Prod'n	Prod'n	Prod'n	Prod'n	Prod'n	Prod'n	Prod'n	Prod'n	Prod'n	Prod'n	Prod'n	Prod'n	Prod'n	Prod'n
	Mstb	Bscf	MMstb	Bscf	Mstb	Bscf	Mstb	Bscf	Mstb	Bscf	Mstb	Bscf	Mstb	Bscf	MMstb	Bscf	Mstb	Bscf	Mstb	Bscf
2011	-	-	-	-	1306	0.0	163.3	0.0	3201	0.0	400.1	0.0	-	-	-	-	4507	0.0	563.4	0.0
2012	-	-	-	-	1014	0.0	126.8	0.0	2332	0.0	291.5	0.0	-	-	-	-	3347	0.0	418.3	0.0
2013	-	-	-	-	785	0.0	98.1	0.0	1884	0.0	235.5	0.0	-	-	-	-	2668	0.0	333.5	0.0
2014	-	-	-	-	610	0.0	76.2	0.0	1456	0.0	182.0	0.0	-	-	-	-	2066	0.0	258.3	0.0
2015	-	-	-	-	475	0.0	59.3	0.0	1081	0.0	135.1	0.0	-	-	-	-	1555	0.0	194.4	0.0
2016	-	-	-	-	371	0.0	46.4	0.0	612	0.0	76.5	0.0	-	-	-	-	984	0.0	122.9	0.0
2017	-	-	-	-	289	0.0	36.1	0.0	345	0.0	43.2	0.0	-	-	-	-	634	0.0	79.3	0.0
2018	-	-	-	-	226	0.0	28.2	0.0	225	0.0	28.1	0.0	-	-	-	-	451	0.0	56.4	0.0
2019	-	-	-	-	177	0.0	22.1	0.0	159	0.0	19.9	0.0	-	-	-	-	336	0.0	42.0	0.0
2020	-	-	-	-	139	0.0	17.3	0.0	118	0.0	14.7	0.0	-	-	-	-	257	0.0	32.1	0.0
2021	-	-	-	-	39	0.0	4.8	0.0	32	0.0	4.0	0.0	-	-	-	-	70	0.0	8.8	0.0
Total	-	-	-	-	5429	0	678.7	0.0	11446	0	1430.7	0	-	-	-	-	16875	0	2109.4	0

Notes:

1. Gross production volumes represent a 100% interest in commercially recoverable volumes as of 31st December, 2010, i.e. after economic cutoffs have been applied. Gross volumes include volumes attributable to third parties (government and other working interest partners).

2. WI production volumes represent CNOOC’s 12.5% working interests in commercially recoverable volumes as of 31st December, 2010, i.e. after economic cutoffs have been applied.This volumes still includes volumes attributable to government.

3.   Totals may not add exactly due to rounding errors.

CNOOC AIII.I KK1658.00

 

TABLE AIII.2

BLOCK 2C – TRINIDAD & TOBAGO

1P(PD) PRODUCTION PROFILES

	Aripo				Canteen				Kairi				E Kairi Horst				Total
	Gross		WI		Gross		WI		Gross		WI		Gross		WI		Gross		WI
Year	Oil	Gas	Oil	Gas	Oil	Gas	Oil	Gas	Oil	Gas	Oil	Gas	Oil	Gas	Oil	Gas	Oil	Gas	Oil	Gas
	Prod'n	Prod'n	Prod'n	Prod'n	Prod'n	Prod'n	Prod'n	Prod'n	Prod'n	Prod'n	Prod'n	Prod'n	Prod'n	Prod'n	Prod'n	Prod'n	Prod'n	Prod'n	Prod'n	Prod'n
	Mstb	Bscf	MMstb	Bscf	Mstb	Bscf	Mstb	Bscf	Mstb	Bscf	Mstb	Bscf	Mstb	Bscf	Mstb	Bscf	Mstb	Bscf	Mstb	Bscf
2011	-	54.3	-	6.8	1356	0.0	169.5	0.0	3201	0.0	400.1	0.0	-	16.0	-	2.0	4557	70.3	569.7	8.8
2012	-	59.7	-	7.5	1035	0.0	129.4	0.0	2332	4.7	291.5	0.6	-	16.0	-	2.0	3367	80.4	420.9	10.0
2013	-	42.6	-	5.3	793	0.0	99.1	0.0	1884	33.0	235.5	4.1	-	4.8	-	0.6	2677	80.4	334.6	10.0
2014	-	28.6	-	3.6	613	0.0	76.7	0.0	1456	50.7	182.0	6.3	-	1.1	-	0.1	2069	80.4	258.7	10.0
2015	-	19.1	-	2.4	476	0.0	59.5	0.0	1081	61.0	135.1	7.6	-	0.2	-	0.0	1557	80.4	194.6	10.0
2016	-	12.8	-	1.6	372	17.5	46.5	2.2	612	54.6	76.5	6.8	-	0.1	-	0.0	984	84.9	123.0	10.6
2017	-	8.6	-	1.1	289	19.3	36.1	2.4	345	33.3	43.2	4.2	-	0.0	-	0.0	635	61.2	79.3	7.7
2018	-	5.8	-	0.7	226	2.7	28.2	0.3	225	20.2	28.1	2.5	-	0.0	-	0.0	451	28.7	56.4	3.6
2019	-	3.9	-	0.5	177	0.4	22.1	0.0	159	12.2	19.9	1.5	-	0.0	-	0.0	336	16.5	42.0	2.1
2020	-	2.6	-	0.3	139	0.0	17.3	0.0	118	7.4	14.7	0.9	-	0.0	-	0.0	257	10.1	32.1	1.3
2021	-	0.7	-	0.1	39	0.0	4.8	0.0	32	1.8	4.0	0.2	-	0.0	-	0.0	70	2.4	8.8	0.3
Total	0	238.6	0	29.8	5514	40.0	689.3	5.0	11446	278.8	1430.7	34.9	0	38.1	0	4.8	16960	595.5	2120.0	74.4

Notes:

1. Gross production volumes represent a 100% interest in commercially recoverable volumes as of 31st December, 2010, i.e. after economic cutoffs have been applied. Gross volumes include volumes attributable to third parties (government and other working interest partners).

2. WI production volumes represent CNOOC’s 12.5% working interests in commercially recoverable volumes as of 31st December, 2010, i.e. after economic cutoffs have been applied. This volumes still includes volumes attributable to government.

3.   There is no PUD (proved Undeveloped) reserves, PD (Proved Developed) reserves are the same as 1P reserves.

4.   Totals may not add exactly due to rounding errors.

CNOOC AIII.II KK1658.00

EX-15.3

Exhibit 15.3

2010 Proved Oil and Gas Reserves Audit Report

For Certain Leasehold Interests

In Argentina - As of December 31, 2010

Prepared For:

Pan American Energy, LLC

   Alberta P. Eng. License 23579

           Senior Vice President

411 North Sam Houston Parkway E., Suite 400, Houston, Texas 77060-3545

T +1 281 448 6188 F +1 281 448 6189

E rpsenergy@rpsgroup.com

W www.rpsgroup.com

April 13, 2011

Pan American Energy, LLC

Leandro N. Allem 1180

1001 Buenos Aires, Argentina

RE: Reserves Audit of Cerro Dragon, Anticlinal Funes, Koluel Kaike, Piedra Clavada and Acambuco areas in Argentina as of December 31, 2010

Gentlemen:

RPS has conducted the proved reserves audit of the referenced lease holding interests operated by Pan American Energy LLC (PAE) in the Republic of Argentina. The scope of the undertaking also includes the estimation of future production profiles and the corresponding income expected by each of the evaluated properties. The effective date of the audit is December 31, 2010. PAE working interest participation is these concession areas is as follows: Cerro Dragón 100%, Anticlinal Funes 80%, Koluel Kaike 100%, Piedra Clavada 100% and Acambuco 52%. This third party proved reserve report is presented to Pan American as per their request.

The reserve audit was based on the definitions and disclosure guidelines of the United States Securities and Exchange Commission (SEC) contained in Title 17, Code of Federal Regulations, Modernization of Oil and Gas Reporting, Final Rule released January 14, 2009 in the Federal Register (SEC regulations) - Definition Section in Rule 4-10 of Regulations S-X.

RPS has conducted a detail evaluation of the reserve certification data provided by PAE for each field through January 15, 2011, estimating the Proved, Probable, and Possible hydrocarbon liquids and natural gas reserves. In the preparation of this proved reserves audit, RPS has relied upon the information furnished by PAE, including reservoir data, production, development and operating costs, product prices, agreements relating to current and future operations, product sales, and other information/data that was assessed and confirmed by the consultant for estimation of the reserve numbers. Following data review, RPS proceeded with tests, attesting assessment procedures utilized by PAE in their reserves certification procedure making the necessary adjustments and changes necessary for complying with proved reserves definition criteria outlined by SEC. All questions and clarifications that arose during the course of the audit process were responded by PAE at the auditor’s satisfaction.

RPS conducted the review of 100% of the reserve base presented by PAE. The reported hydrocarbon reserves is an estimate based on professional engineering judgment and its subject to future revision, upwards and downwards as a result of future operations or as additional information may become available.

The estimated reserves and future net income amounts presented in this report, as of December 31, 2010, are related to hydrocarbon prices. The hydrocarbon prices used in the preparation of this audit were based on the average prices during the 12-month period prior to the ending date of the period covered in this report, determined as the weighted arithmetic averages of the prices in effect on the first-day-of-the-month for each month within such period, unless prices were defined by contractual arrangements, as required by the SEC regulations. Economic runs were completed using prevailing gas contract prices and governmental regulatory approvals for Gas Plus, when applicable.

R01116 1 April 2011

Future prices may vary significantly from the prices required by SEC regulations; therefore, volumes of reserves actually recovered and the amounts of income actually received may differ significantly from the estimated quantities presented in this report. The results of the reserve audit in terms of the Proved reserves are summarized in the following table:

SEC PARAMETERS

Estimated Net Reserves and Income Data

Attributable to Leasehold Interest and

Contracts of Pan American Energy, LLC

As of December 31, 2010

	Proved		Total Proved
	Developed Producing	Undeveloped
Net Remaining Reserves
Oil/Condensate - Mbbls	520,869	412,404	933,273
Gas – MMCF	892,937	653,174	1,546,111
Income Data (MUS$)
Future Gross Revenue	$21,210,248	$16,746,768	$37,957,016
Deductions	$ 8,761,041	$ 8,593,680	$17,354,721
Future Net Income (FNI)	$12,449,206	$ 8,153,089	$20,602,296
Discounted FNI @ 10%	$ 6,170,028	$ 2,166,590	$ 8,336,619

Hydrocarbon liquids are crude oil, condensate and gasoline. The Condensate and Gasoline estimates, which are reported in stock tank barrels, are volumes captured during field separation and gas plants treating in the field. The natural gas reserves reported in the table above include gas sales and fuel gas. These volumes are reported in million cubic feet (MMCF) at standard conditions of 14.7 psia and 600 Fahrenheit.

The Income values are in United States dollars (US$). The income values reflect gas sales only (excluding fuel gas). Proved natural gas sales volumes estimates are based on firm and existing gas contracts, and on the reasonable expectation that such gas sales contracts will be renewed on similar terms in the future.

The future gross revenue is net of royalty charges and turnover taxes, which are included in the price adjustment of the products. The Net Income is calculated after deduction of operating cost, well abandonment cost, and capital investment for future development program. Value is before income taxes. No deduction has been accounted neither for general administrative overhead, nor for any outstanding loans that may exist, adjustment for cash on hand or undistributed income.

Estimates of economically recoverable oil and natural gas reserves (including natural gas liquids) and the future net cash flows there from are based upon a number of variable factors and assumptions, such as availability of capital to fund required infrastructure, commodity prices, production performance of re-completed wells and well re-completion success rates, successful drilling of infill and development wells, the assumed effects of regulation by government agencies and future operating costs. All of these estimates may vary from actual results.

R01116 2 April 2011

Estimates of the recoverable oil and natural gas reserves attributable to any particular group of properties, classifications of such reserves based on risk of recovery and estimates of future net revenues expected there from, may vary. The Company's actual production, revenues, taxes, development and operating expenditures with respect to its reserves may vary from such estimates, and such variances could be material.

Reserves Included in This Report

The proved reserves included in this report conform to the Securities and Exchange Commission’s regulations Part 210.4-10(a). A condensate version of the SEC reserve definitions is included in Appendix 1.

According to SEC final rules definition, the term “proved oil and gas reserves” refers to “those quantities of oil and gas, which, by analysis of geoscience and engineering data, can be estimated with reasonable certainty to be economically producible—from a given date forward, from known reservoirs, and under existing economic conditions, operating methods, and government regulations—prior to the time at which contracts providing the right to operate expire, unless evidence indicates that renewal is reasonably certain, regardless of whether deterministic or probabilistic methods are used for the estimation.”

The proved reserves in all five field evaluated included in this report were estimated using deterministic method. If deterministic methods are used, the SEC has defined reasonable certainty for proved reserves as a “high degree of confidence that the quantities will be recovered”. SEC also clarify that having a “high degree of confidence” means that a quantity is “much more likely to be achieved than not, and, as changes due to increased availability of geoscience (geological, geophysical, and geochemical), engineering, and economic data are made to estimated ultimate recovery (EUR) with time, reasonably certain EUR is much more likely to increase or remain constant than to decrease” to provide elaboration to the definition of reasonable certainty.

The reserve volumes included in this report have been estimated to either the end of the license contract life or their economic limit, whichever occurred first.

Estimates of Reserves

The reserve estimation is the quantification and classification of the recoverable oil and gas that exist in an accumulation. There are three analytical methods that are accepted for the process of reserve quantification: 1) the volumetric method; 2) evaluation of the performance history; and 3) analogy to other reservoirs. In addition, the evaluation also includes reservoir simulation models in a couple of fields in the Acambuco area. Reserve evaluators must select the method or combination of methods which based on the available data and technical judgment is most appropriate to estimate the reserves.

R01116 3 April 2011

In the evaluation process of reserves it may be found that a range of possible outcomes may be applicable for ascertaining the interpretation value of the data. In case when there is range of quantities applicable to the outcome, the evaluator must determine the uncertainty level related to the value of reserves. In the case when reserves value are estimated using the deterministic approach, the uncertainty related to each discrete incremental quantity is allocated to the reserves category assigned by the evaluator. Therefore, it is the categorization of reserves quantities as proved, probable and/or possible that addresses the inherent uncertainty in the estimated quantities reported. For proved reserves, uncertainty is defined by the SEC as reasonable certainty wherein the “quantities actually recovered are much more likely than not to be achieved”. The SEC states that “probable reserves are those additional reserves that are less certain to be recovered than proved reserves but which, together with proved reserves, are as likely as not to be recovered”. The SEC states that “possible reserves are those additional reserves that are less certain to be recovered than probable reserves and the total quantities ultimately recovered from a project have a low probability of exceeding proved plus probable plus possible reserves”. All quantities of reserves within the same reserves category must meet the SEC definitions as noted above.

RPS audited the methodology that PAE used to estimate the reserve on each of the five fields: Cerro Dragon, Anticlinal Funes, Piedra Clavada, Koluel Kaike, and Acambuco. Most of the reserves estimates by PAE were made using deterministic methods. Given the number of existing wells with long production history, the main methodology used to assess proved developed reserves was the decline curve analysis. Well production data was available up to December 31, 2010. For this analysis the wells had to be clustered in 90 groups. Similarly the water injection areas were also grouped in 102 clusters. Most of thee well development program was assessed on the basis of the “Well Type model” developed by PAE which is based on well history performance analysis developed over the last several years. Several new water injection projects planned for these fields were assessed using analogy to well known developed water injection projects. For areas located in more isolated regions of the fields, PAE presented water injection projects studies that assessed the reserves volume.

Future Production Rates

The forecast of future production rates were based on historical performance data for wells on production as of December 31, 2010. Well historical data was audited to verify oil production decline rate, water cut performance and well cut off criteria. The methodology that PAE used for establishing production forecast for infill and step-out development wells was based on “well type curve” analysis, which was developed for 87 groups within the fields. RPS reviewed each type curve to confirm the accuracy for representing future behavior of new well locations planned for primary production.

Forecast production profiles for group of well producing under secondary recovery (water injection) were also reviewed, as well as studies completed for future water injection implementation within the field. A number of water injection development projects considered by PAE were based on analogies of existing schemes. RPS reviewed and validated each of the proposed groups confirming the production forecast associated with these projects.

Similarly, RPS undertook a detail review of all the production forecasts related to High GOR well, deep gas, well replacement and workovers for new reserves additions.

All five fields evaluated have been on production for a number of years and have significant reserves base remaining. An aggressive development drilling program have been historically maintained by PAE for several years, and it is predicted to be continued for developing Proved Undeveloped (PUD) locations for at least the next five (5) years. Given the reservoir performance to date it is expected that drilling will be successful, and oil production will increase considerably as the program evolves.

R01116 4 April 2011

As indicated in the table below, PAE’s plan call for the drilling of 1245 PUD (P1) wells in Cerro Dragón, 3 in Anticlinal Funes, 55 in Koluel Kaike, 58 in Piedra Clavada and 2 in Acambuco within the next 5 years.

Pan American Energy - PUD Development plan

Activity	Cerro Dragón	Anriclinal Funes	Koluel Kaike	Piedra Clavada	Acambuco
Prod Prim	845	3	41	29
Prod HGOR	97
Prod WF	144		12	28
Iny WF	82		2	1
Prod Repl WF	52
Iny Repl WF	15
Gas	10				2
Total	1245	3	55	58	2

Hydrocarbon Prices

The hydrocarbon prices used in the preparation of this audit were based on the average prices during the 12-month period prior to the ending date of the period covered in this report, determined as the unweighted arithmetic averages of the prices in effect on the first-day-of-the-month for each month within such period, unless prices were defined by contractual arrangements, as required by the SEC regulations.

The economic test for the December 31, 2010 proved oil reserve volumes performed for each field was based on West Texas Intermediate (WTI) crude reference price of 79.81 $/bbl, which is the average value for 2010. This price, after the corresponding adjustment for oil quality, royalty and turnover tax was used in the economic runs. This reference value was used for both export and internal consumption volumes. PAE’s oil export volume equates to 42% of the Cerro Dragon production only.

The economic runs for natural gas were completed using prevailing gas contract prices and governmental regulatory approvals for Gas-Plus, when applicable. The price used on the economic validation was based on internal price sales contract regulated by the country and adjusted for royalty and turnover taxes.

Costs

Operating costs for all five fields are based on historical operating expenses reported by PAE. The operating costs furnished by PAE were accepted as factual data and reviewed by RPS for their reasonableness; however, RPS has not conducted an independent verification of the operating costs data used by PAE. A detailed review of historical operating costs and estimated procedure used by PAE indicates that all categories of costs were allocated as fixed and variable costs, including labor, maintenance, service, material, equipment, environmental related costs and support costs, among others.

R01116 5 April 2011

Development costs were prepared and supplied by PAE. These costs were based on historical data and concur with the well drilling development and abandonment plan for the next five years, facilities and other costs planned for the future. The development costs provided by PAE were accepted as factual data and reviewed by RPS for their reasonableness; however, RPS has not conducted an independent verification of the development costs data used by PAE. PAE has scheduled a well abandonment program on an annual basis. The estimates of these costs were included in the economic runs. RPS has not made a third party verification of the abandonment costs but has reviewed historical data for reliability. Other development costs such as power generation development, facilities and gathering lines were also included in the economic runs as planned for the next five years.

Standards of Independence and Professional Qualification

RPS is a multi-disciplinary consultancy, providing technical, commercial and project management support services in the fields of operations, geoscience, engineering and health, safety and environment to the energy sector worldwide.

RPS’s clients around the world include governments, national oil companies, integrated majors, independents, and start-ups, legal and financial institutions.

RPS USA is part of the larger UK based RPS Group plc that employs nearly 5,000 staff based in offices located in the UK, Ireland, the Netherlands, USA, Canada, Australia and Brazil. It also has permanent representatives in Bogota, Colombia and Buenos Aires, Argentina.

As an independent and experienced consultancy company with a global capability, RPS is well qualified to provide both technical and economic assessments of reserves/resources, prospect evaluation, field discoveries and producing fields. In the Oil and Gas Sector, RPS personnel has provided SEC and Competent Persons reports for inclusion in both public and private circulars for funding purposes. We have provided investors with confidential valuations and assessments during mergers and acquisitions. Asset appraisal and valuation have always been a core element of RPS consulting business.

As indicated above, this study was based on data supplied by PAE. The supplied information was reviewed for reasonableness from a technical perspective. As is common in oil field situations, basic physical measurements taken over time cannot be verified independently in retrospect. As such, beyond the application of normal professional judgment, such data must be accepted as representative. While we are not aware of any falsification of records or data pertinent to the results of this study, RPS does not warrant the accuracy of the data and accepts no liability for any losses from actions based upon reliance on data, which is subsequently shown to be falsified or erroneous.

RPS personnel who prepared this report are degreed professionals with the appropriate qualifications and experience to complete the audit work. RPS and its staff do not claim expertise in accounting, legal and environmental matters, and opinions on such matters do not form part of this report.

The results and conclusions represent informed professional judgments based on the data available and time frame allowed to perform this work. No warranty is implied or expressed that actual results will conform to these estimates. RPS accepts no liability for actions or losses derived from reliance on this report or the data on which it was based.

R01116 6 April 2011

Terms of Usage

The results of RPS evaluation were prepared in accordance with the disclosure requirements set forth in the SEC regulations.

The data and work papers used in the preparation of this report are available for examination by authorized parties in our offices. Please contact us if we can be of further service.

7 April 2011

Professional Qualifications of Primary Technical Engineer

The independent 2010 Reserves Audit of Pan American Energy LLC operated fields in Argentina, was completed on January 19, 2011. The analysis of reserves certification work completed by the company’s technical team was evaluated and revised as required by RPS’s professional team comprised of geologists, geophysicists, and reservoir and simulation engineers. The reserves evaluation team was led by Luis V. Bacigalupo, who was the main technical person responsible for overseeing the reserves estimation evaluation, production forecasting, capital development program and economic runs attesting proved reserves.

Luis V. Bacigalupo is Senior Vice President with RPS and has over 36 years of North America and international experience. He has been with the company since April 2008. He is responsible for RPS’s project management consulting including geosciences, engineering and integrated development projects. He also assists in the development of RPS’ worldwide new business activity with emphasis on Latin America and the U.S. He has been directly involved in the management and project evaluation in a number of Reserves certification, reserves audit and asset valuation projects in US and Latin America.

His industry experience extends from executive management and company building to practically all sectors of the industry, including engineering, production operations, strategic planning, and business development. He has well recognized experience in fully integrated studies, and re-activation and development of mature oil fields, with in-depth knowledge of the petroleum industry in North America and Latin America.

Prior to joining RPS, he was a Senior Advisor to YPF S.A. in Argentina, developing the company’s Integrated Asset Development Process for managing their investment development plan. Prior to that, he was Executive Vice President for Ziff Energy and led the effort in a significant expansion of the company’s Cost Benchmarking and Field Operations Efficiency Services in five continents. Before that, he was the founder and CEO/President of Mercantile International Petroleum, an E&P company with operating properties in Peru, Colombia and Southeast Asia. He was also Vice President Latin America for Gaffney, Cline & Associates (GCA), and an international engineering consulting firm in Houston. One of his main responsibilities in this company was reserves evaluation and asset valuation in Latino America. Luis has held managerial positions with Maxus Indonesia and Canada, Kerr McGee Canada, ERCB, PanCanadian Petroleum, and Amoco Canada.

Luis has a Bachelor of Science degree in Petroleum Engineering from the University of Belgrade, Yugoslavia, Reservoir Specialist Course in Novi Sad, Yugoslavia; and numerous graduated courses in the University of Calgary, Canada. He is a registered Professional Engineer and member of APPEGA, and SPE. He is fluent in English, Spanish, Serbo-Croatian, and proficient in Italian, Russian, Portuguese and Swedish languages.

RPS

APPENDIX 1

Petroleum Reserves Definition

As Adapted From:

Rule 4-10(a) of Regulation S-X Part 210

United States Securities and Exchange Commission (SEC)

RESERVES (SEC DEFINITIONS)

Securities and Exchange Commission Regulation S-X §229.4-10(a) (26) defines reserves as follows:

Reserves. Reserves are estimated remaining quantities of oil and gas and related substances anticipated to be economically producible, as of a given date, by application of development projects to known accumulations. In addition, there must exist, or there must be a reasonable expectation that there will exist, the legal right to produce or a revenue interest in the production, installed means of delivering oil and gas or related substances to market, and all permits and financing required to implement the project.

Note to paragraph (a)(26): Reserves should not be assigned to adjacent reservoirs isolated by major, potentially sealing, faults until those reservoirs are penetrated and evaluated as economically producible. Reserves should not be assigned to areas that are clearly separated from a known accumulation by a non-productive reservoir (f.e., absence of reservoir, structurally low reservoir, or negative test results). Such areas may contain prospective resources (f.e., potentially recoverable resources from undiscovered accumulations).

PROVED RESERVES (SEC DEFINITIONS)

Securities and Exchange Commission Regulation S-X §229.4-10(a) (22) defines proved oil and gas reserves as follows:

Proved oil and gas reserves. Proved oil and gas reserves are those quantities of oil and gas, which, by analysis of geoscience and engineering data, can be estimated with reasonable certainty to be economically producible-from a given date forward, from known reservoirs, and under existing economic conditions, operating methods, and government regulations-prior to the time at which contracts providing the right to operate expire, unless evidence indicates that renewal is reasonably certain, regardless of whether deterministic or probabilistic methods are used for the estimation. The project to extract the hydrocarbons must have commenced or the operator must be reasonably certain that it will commence the project within a reasonable time.

(i)	The area of the reservoir considered as proved includes:
	(A)	The area identified by drilling and limited by fluid contacts, if any, and
	(B)	Adjacent undrilled portions of the reservoir that can, with reasonable certainty, be judged to be continuous with it and to contain economically producible oil or gas on the basis of available geoscience and engineering data.

(ii) In the absence of data on fluid contacts, proved quantities in a reservoir are limited by the lowest known hydrocarbons (LKH) as seen in a well penetration unless geoscience,

RPS 1 April 2011

APPENDIX 1

	engineering, or performance data and reliable technology establishes a lower contact with reasonable certainty.
(iii) Where direct observation from well penetrations has defined a highest known oil (HKO) elevation and the potential exists for an associated gas cap, proved oil reserves may be assigned in the structurally higher portions of the reservoir only if geoscience, engineering, or performance data and reliable technology establish the higher contact with reasonable certainty.
(iv) Reserves which can be produced economically through application of improved recovery techniques (including, but not limited to, fluid injection) are included in the proved classification when:

(A)	Successful testing by a pilot project in an area of the reservoir with properties no more favorable than in the reservoir as a whole, the operation of an installed program in the reservoir or an· analogous reservoir, or other evidence using reliable technology establishes the reasonable certainty of the engineering analysis on which the project or program was based; and
(B)	The project has been approved for development by all necessary parties and entities, including governmental entities.

(v) Existing economic conditions include prices and costs at which economic producibility from a reservoir is to be determined. The price shall be the average price during the 12-month period prior to the ending date of the period covered by the report, determined as an un weighted arithmetic average of the first-day-of-the-month price for each month within such period, unless prices are defined by contractual arrangements, excluding escalations based upon future conditions.

PROBABLE RESERVES (SEC DEFINITIONS)

Securities and Exchange Commission Regulation S-X §229.4-10(a) (18) defines probable oil and gas reserves as follows:

Probable reserves. Probable reserves are those additional reserves that are less certain to be recovered than proved reserves but which, together with proved reserves, are as likely as not to be recovered.

(i) When deterministic methods are used, it is as likely as not that actual remaining quantities recovered will exceed the sum of estimated proved plus probable reserves. When probabilistic methods are used, there should be at least a 50% probability that the actual quantities recovered will equal or exceed the proved plus probable reserves estimates.

(ii) Probable reserves may be assigned to areas of a reservoir adjacent to proved reserves where data control or interpretations of available data are less certain, even if the interpreted reservoir continuity of structure or productivity does not meet the reasonable certainty criterion. Probable reserves may be assigned to areas that are structurally higher than the proved area if these areas are in communication with the proved reservoir.

(iii) Probable reserves estimates also include potential incremental quantities associated with a greater percentage recovery of the hydrocarbons in place than assumed for proved reserves.

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APPENDIX 1

(iv) See also guidelines in paragraphs (a)(17)(iv) and (a)(17)(vi) of this section.

POSSIBLE RESERVES (SEC DEFINITIONS)

Securities and Exchange Commission Regulation S-X §229.4-10(a) (18) defines possible oil and gas reserves as follows:

Possible reserves. Possible reserves are those additional reserves that are less certain to be recovered than probable reserves

(i) When deterministic methods are used, the total quantities ultimately recovered from a project have a low probability of exceeding proved plus probable plus possible reserves. When probabilistic methods are used, there should be at least a 10% probability that the total quantities ultimately recovered will equal or exceed the proved plus probable plus possible reserves estimates.

(ii) Possible reserves may be assigned to areas of a reservoir adjacent to probable reserves where data control and interpretations of available data are progressively less certain. Frequently, this will be in areas where geosciences and engineering data are unable to define clearly the area and vertical limits of commercial production from the reservoir by a defined project.

(iii) Possible reserves also include incremental quantities associated with a greater percentage recovery of the hydrocarbons in place than the recovery quantities assumed for probable reserves.

(iv) The proved plus probable and proved plus probable plus possible reserves estimates must be based on reasonable alternative technical and commercial interpretations within the reservoir or subject project that are clearly documented, including comparisons to results in successful similar projects.

(v) Possible reserves may be assigned where geosciences and engineering data identify directly adjacent portions of reservoir within the same accumulation that may be separated from proved areas by faults with displacement less than formation thickness or other geological discontinuities and that have not been penetrated by a wellbore, and the registrant believes that such adjacent portions are in communication with the known (proved) reservoir..Possible reserves may be assigned to areas that are structurally higher or lower than the proved area if these areas are in communication with the proved reservoir.

(vi) Pursuant to paragraph (a)(22)(iii) of this section, where direct observation has defined a highest known oil (HKO) elevation and the potential exists for an associated gas cap, proved oil reserves should be assigned in the structurally higher portions of the reservoir above the HKO only if the higher contact can be established with reasonable certainty through reliable technology. Portions of the reservoir that do not meet this reasonable certainty criterion may be assigned as probable and possible oil or gas based on reservoir fluid properties and pressure gradient interpretations.

RPS 3

APPENDIX 1

Reserves Status Definitions And Guidelines

As Adapted From:

Rule 4-10(A) Of Regulation S-X Part 210

United States Securities And Exchange Commission (SEC)

And

Petroleum Resources Management System (SPE-PMRS)

Sponsored And Approved By:

Society Of Petroleum Engineers (SPE),

World Petroleum Council (WPC)

American Association Of Petroleum Geologists (AAPG)

Society Of Petroleum Evaluation Engineers (SPEE)

Reserves status categories define the development and producing status of wells and reservoirs.

DEVELOPED RESERVES (SEC DEFINITIONS)

Securities and Exchange Commission Regulation S-X §229.4-10(a) (6) defines developed oil and gas reserves as follows:

Developed oil and gas reserves are reserves of any category that can be expected to be recovered:

(i) Through existing wells with existing equipment and operating methods or in which the cost of the required equipment is relatively minor compared to the cost of a new well; and

(ii) Through installed extraction equipment and infrastructure operational at the time of the reserves estimate if the extraction is by means not involving a well.

Developed Producing (SPE-PRMS Definitions)

While not a requirement for disclosure under the SEC regulations, developed oil and gas reserves may be further sub-classified according to the guidance contained in the SPE-PRMS as Producing or Non-Producing.

Developed Producing Reserves

Developed Producing Reserves are expected to be recovered from completion intervals that are open and producing at the time of the estimate.

Improved recovery reserves are considered producing only after the improved recovery project is in operation.

Developed Non-Producing

Developed Non-Producing Reserves include shut-in and behind-pipe reserves.

Shut-In

Shut-in Reserves are expected to be recovered from:

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APPENDIX 1

(1) completion intervals which are open at the time of the estimate but which have not yet started producing;

(2) wells which were shut-in for market conditions or pipeline connections; or

(3) wells not capable of production for mechanical reasons.

Behind-Pipe

Behind-pipe Reserves are expected to be recovered from zones in existing wells which will require additional completion work or future re-completion prior to start of production.

In all cases, production can be initiated or restored with relatively low expenditure compared to the cost of drilling a new well.

UNDEVELOPED RESERVES (SEC DEFINITIONS)

Securities and Exchange Commission Regulation S-X §229.4-10(a) (31) defines undeveloped oil and gas reserves as follows:

Undeveloped oil and gas reserves are reserves of any category that are expected to be recovered from new wells on undrilled acreage, or from existing wells where a relatively major expenditure is required for recompletion.

(i) Reserves on undrilled acreage shall be limited to those directly offsetting development spacing areas that are reasonably certain of production when drilled, unless evidence using reliable technology exists that establishes reasonable certainty of economic producibility at greater distances.

(ii) Undrilled locations can be classified as having undeveloped reserves only if a development plan has been adopted indicating that they are scheduled to be drilled within five years, unless the specific circumstances, justify a longer time.

(iii) Under no circumstances shall estimates for undeveloped reserves be attributable to any acreage for which an application of fluid injection or other improved recovery technique is contemplated, unless such techniques have been proved effective by actual projects in the same reservoir or an analogous reservoir, as defined in paragraph (a)(2) of this section, or by other evidence using reliable technology establishing reasonable certainty.

RPS 5