20-F 1 dp149282_20f.htm FORM 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

 

☒ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 2020

 

OR

 

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

 

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                                  

 

For the transition period from                           to                          .

 

Commission file number: 001-14966

 

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)

 

Xiaonan Wu
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

Trading Symbol(s)

Name of each exchange on which registered

American depositary shares, each representing 100 shares CEO New York Stock Exchange, Inc.
Shares with no par value* N/A New York Stock Exchange, Inc.

 

 
*Not for trading, but only in connection with the listing of the American depositary shares on the New York Stock Exchange.

 

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.

 

The number of outstanding shares as of December 31, 2020 was 44,647,455,984 shares.

 

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

 

  ☒ Yes ☐ 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

 

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 was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.

 

  ☒ Yes ☐ No

 

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted 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 such files).

 

  ☒ Yes ☐ No

 

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

 

Large accelerated filer  ☒ Accelerated filer  ☐ Non-accelerated filer  ☐
    Emerging growth company  ☐

 

If an emerging growth company that prepares its financial statements in accordance with U.S. GAAP, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards† provided pursuant to Section 13(a) of the Exchange Act. ☐

 

† The term “new or revised financial accounting standard” refers to any update issued by the Financial Accounting Standards Board to its Accounting Standards Codification after April 5, 2012.

 

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 ☒

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

2

 

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

 

(APPLICABLE ONLY TO ISSUERS INVOLVED IN BANKRUPTCY PROCEEDINGS DURING THE PAST FIVE YEARS)

 

Indicate by check mark whether the registrant has filed all documents and reports required to be filed by Sections 12, 13 or 15(d) of the Securities Exchange Act of 1934 subsequent to the distribution of securities under a plan confirmed by a court.

 

  ☐ Yes ☐ No

  

 

3

 

 

Table of Contents

 

 

Page

 

TERMS AND CONVENTIONS 7
FORWARD-LOOKING STATEMENTS 12
SPECIAL NOTE ON THE FINANCIAL INFORMATION AND CERTAIN STATISTICAL INFORMATION PRESENTED IN THIS ANNUAL REPORT 13
POTENTIAL DELISTING OF OUR ADSS 13
PART I 14
ITEM 1. IDENTITY OF DIRECTORS, SENIOR MANAGEMENT AND ADVISERS 14
ITEM 2. OFFER STATISTICS AND EXPECTED TIMETABLE 14
ITEM 3. KEY INFORMATION 14
A.   Selected Financial Data 14
B.   Capitalization and Indebtedness 17
C.   Reasons for the Offer and Use of Proceeds 17
D.   Risk Factors 17
ITEM 4. INFORMATION ON THE COMPANY 24
A.   History and Development 24
B.   Business Overview 25
C.   Organizational Structure 68
D.   Property, Plants and Equipment 69
ITEM 4A. unresolved staff comments 69
ITEM 5. OPERATING AND FINANCIAL REVIEW AND PROSPECTS 69
A.   Operating Results 69
B.   Liquidity and Capital Resources 85
C.   Research and Development, Patents and Licenses, etc. 88
D.   Trend Information 88
E.   Off-Balance Sheet Arrangements 89
F.   Tabular Disclosure of Contractual Obligations 89
G.   Safe Harbor 90
ITEM 6. DIRECTORS, SENIOR MANAGEMENT AND EMPLOYEES 90
A.   Directors and Senior Management 90
B.   Compensation 98
C.   Board Practice 98
D.   Employees 101
E.   Share Ownership 101

 

4

 

ITEM 7. MAJOR SHAREHOLDERS AND RELATED PARTY TRANSACTIONS 102
A.   Major Shareholders 102
B.   Related Party Transactions 103
C.   Interests of Experts and Counsel 107
ITEM 8. FINANCIAL INFORMATION 107
A.   Consolidated Statements and Other Financial Information 107
B.   Significant Changes 109
ITEM 9. THE OFFER AND LISTING 109
ITEM 10. ADDITIONAL INFORMATION 110
A.   Share Capital 110
B.   Memorandum and Articles of Association 110
C.   Material Contracts 113
D.   Exchange Controls 113
E.   Taxation 114
F.   Dividends and Paying Agents 118
G.   Statement by Experts 118
H.   Documents on Display 118
I.   Subsidiary Information 118
ITEM 11. QUALITATIVE AND QUANTITATIVE DISCLOSURES ABOUT MARKET RISK 119
Item 12 Description of Securities other than equity securities 121
A.   Debt Securities 121
B.   Warrants and Rights 121
C.   Other Securities 121
D.   American Depositary Shares 122
PART II 124
ITEM 13. DEFAULTS, DIVIDEND ARREARAGES AND DELINQUENCIES 124
ITEM 14. MATERIAL MODIFICATIONS TO THE RIGHTS OF SECURITY HOLDERS AND USE OF PROCEEDS 124
A.   Material Modifications to the Instruments Defining the Rights of Security Holders 124
B.   Material Modifications to the Rights of Registered Securities by Issuing or Modifying any Other Class of Securities 124
C.   Withdrawal or Substitution of a Material Amount of the Assets Securing any Registered Securities 124
D.   Change of Trustees or Paying Agents for any Registered Securities 124
E.   Use of Proceeds 124
ITEM 15. CONTROLS AND PROCEDURES 124

 

5

 

ITEM 16A. AUDIT COMMITTEE FINANCIAL EXPERT 125
ITEM 16B. CODE OF ETHICS 125
ITEM 16C. PRINCIPAL ACCOUNTANT FEES AND SERVICES 126
ITEM 16D. EXEMPTIONS FROM THE LISTING STANDARDS FOR AUDIT COMMITTEES 127
ITEM 16E. PURCHASES OF EQUITY SECURITIES BY THE ISSUER AND AFFILIATED PURCHASERS 127
ITEM 16f. Change in Registrant’s Certifying Accountant 127
ITEM 16g. Corporate Governance 128
Item 16H. MINE SAFETY DISCLOSURE 128
PART III 129
ITEM 17. FINANCIAL STATEMENTS 129
ITEM 18. FINANCIAL STATEMENTS 129
ITEM 19. EXHIBITS 129

6

TERMS AND CONVENTIONS

 

Definitions

 

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

 

·“CNOOC” are to our controlling shareholder, China National Offshore Oil Corporation, a PRC state-owned enterprise, or China National Offshore Oil Corporation and its subsidiaries (excluding us and our subsidiaries), as the case may be;

 

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

 

·“Company”, “Group”, “we”, “our” or “us” are to CNOOC Limited and its subsidiaries;

 

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

 

·“ADSs” are to our American depositary shares, each of which represents 100 shares;

 

·“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;

 

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

 

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

 

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

 

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

 

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

 

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

 

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

 

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

 

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

 

·“U.K.” are to the United Kingdom of Great Britain and Northern Ireland;

 

·“U.S.” are to the United States of America; and

 

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

 

7

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 31, 2020 of US$1.00=Rmb 6.5250. We have 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 31, 2020 of US$1.00=HK$ 7.7534. 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 31, 2020, or at all. For further information on exchange rates, see “Item 3—Key Information—Selected Financial Data.”

 

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

 

For the years 2018, 2019 and 2020, approximately 69%, 66% and 62% respectively, of our reserves were evaluated by our internal reserve evaluation staff, and the remaining were based upon estimates prepared by independent petroleum engineering consulting companies and reviewed by us. Our reserve data for 2018, 2019 and 2020 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. Except as otherwise stated, all amounts of reserve and production in this report include our interests in equity method investees.

 

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, Oceania, Madura and Tangguh projects in Indonesia in Asia, and Dongfang 13-2, Wenchang 9-2/9-3/10-3 and Yacheng 13-1 gas fields in China, which we have used actual thermal unit for such conversion purpose.

 

Glossary of Technical Terms

 

Unless otherwise indicated in the context, references to:

 

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

 

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

 

·“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;

 

·“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;  

 

8

·“LNG” means liquefied natural gas;

 

·“net wells” means a party’s working interests in wells;

 

·“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. In addition,

 

(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;

 

·“PSC” means production sharing contract. For more information about PSC, see “Item 4—Information on the Company—Business Overview—Regulatory Framework in the PRC”;

 

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

 

9

·“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. In addition,

 

(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; and

 

(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:

 

·“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 F-83 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 our acquisition, exploration and development plans.

 

·“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;  

 

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

 

·“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 economic recovery;

 

·“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;

 

10

References to:

 

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

 

·“mmbbls” means million barrels;

 

·“BOE” means barrels-of-oil equivalent;

 

·“mcf” means thousand cubic feet;

 

·“mmcf” means million cubic feet; and

 

·“bcf” means billion cubic feet, which is equivalent to approximately 28.32 million cubic meters.

 

11

FORWARD-LOOKING STATEMENTS

 

This annual report includes “forward-looking statements” within the meaning of the United States Private Securities Litigation Reform Act of 1995, including statements regarding expected future events, business prospects or financial results. The words “expect”, “anticipate”, “continue”, “estimate”, “objective”, “ongoing”, “may”, “will”, “project”, “should”, “believe”, “plans”, “intends” and similar expressions are 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,

 

·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 analysis 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 depends on a number of risks and uncertainties which could cause our actual results, performance and financial condition to differ materially from our expectations, including but not limited to the Company and its controlling shareholders have been added to the list of Chinese companies with alleged ties to the Chinese military, fluctuations in crude oil and natural gas prices, macro-political and economic factors, changes in the tax and fiscal regimes of the host countries in which we operate, the highly competitive nature of the oil and natural gas industry, environmental responsibility and compliance requirements, the Company’s price forecast, the exploration and development activities, mergers, acquisitions and divestments activities, HSSE and insurance policies and changes in anti-corruption, anti-fraud, anti-money laundering and corporate governance laws. 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.

 

12

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, 2018, 2019 and 2020 included in this annual report on Form 20-F have been prepared in accordance with International Financial Reporting Standards, or IFRSs, as issued by the International Accounting Standards Board. 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.

 

POTENTIAL DELISTING OF OUR ADSS

 

On February 26, 2021, the NYSE posted on its website a news release stating that the NYSE Regulation has determined to commence proceedings to delist our ADSs, on the basis that we are no longer suitable for listing pursuant to NYSE Listed Company Manual Section 802.01D in light of the Executive Order 13959 – “Addressing the Threat from Securities Investments that Finance Communist Chinese Military Companies” signed by the President of the United States of America on November 12, 2020 (as amended on January 13, 2021) and updated guidance provided by the Office of Foreign Assets Control of the U.S. Department of the Treasury in General License 1A and frequently asked questions 879 issued on January 27, 2021. The NYSE suspended trading in our ADSs at 4:00 a.m. (Eastern Standard Time) on March 9, 2021. On March 10, 2021 (Eastern Standard Time), we filed with the NYSE a written request for a review of the determination by a Committee of the Board of Directors of the NYSE (the “Committee”). If the Committee decides that our ADSs should be removed from listing, the NYSE will apply to the SEC to delist the ADSs upon completion of all applicable procedures.

 

13

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, 2016, 2017, 2018, 2019 and 2020. Except for amounts presented in U.S. dollars, the selected historical consolidated statement of financial position data as of December 31, 2019 and 2020 and consolidated statement of profit or loss and other comprehensive income data for the years ended December 31, 2018, 2019 and 2020 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. The selected historical consolidated statement of financial position data as of December 31, 2016, 2017 and 2018 and consolidated statement of profit or loss and other comprehensive income data for the years ended December 31, 2016 and 2017 set forth below are derived from our audited consolidated financial statements not included 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 have been prepared and presented in accordance with IFRSs.  

 

  

Year ended December 31,

  

2016

  2017  2018  2019  2020  2020
                 
   Rmb  Rmb  Rmb  Rmb  Rmb  US$
   (in millions, except per share and per ADS data)
Statement of profit or loss and other comprehensive income data:                  
Operating revenues:                  
Oil and gas sales    121,325    152,412    186,557    197,173    139,601    21,395 
Marketing revenues    20,310    28,907    35,830    30,867    12,131    1,859 
Other revenues    4,855    5,652    5,324    5,159    3,640    558 
Total operating revenues    146,490    186,971    227,711    233,199    155,372    23,812 
                               
Expenses:                              
Operating expenses    (23,211)   (24,410)   (24,388)   (24,735)   (24,240)   (3,715)
Taxes other than income tax    (6,941)   (7,221)   (9,141)   (9,156)   (7,200)   (1,103)
Exploration expenses    (7,359)   (6,966)   (13,135)   (12,342)   (5,601)   (858)

14

      
  

Year ended December 31,

  

2016

  2017  2018  2019  2020  2020
                 
   Rmb  Rmb  Rmb  Rmb  Rmb  US$
   (in millions, except per share and per ADS data)
Depreciation, depletion and amortization    (68,907)   (61,442)   (50,838)   (57,699)   (52,306)   (8,016)
Special oil gain levy    —    (55)   (2,599)   (894)   (79)   (12)
Impairment and provision    (12,171)   (9,185)   (666)   (2,094)   (5,199)   (797)
Crude oil and product purchases    (19,018)   (27,643)   (33,558)   (29,040)   (11,671)   (1,789)
Selling and administrative expenses    (6,493)   (7,010)   (7,429)   (8,062)   (8,821)   (1,352)
Others    (4,802)   (6,042)   (5,790)   (4,982)   (3,866)   (592)
Total expenses    (148,902)   (149,974)   (147,544)   (149,004)   (118,983)   (18,234)
                               
(Loss)/profit from operating activities   (2,412)   36,997    80,167    84,195    36,389    5,578 
    Interest income    901    655    798    1,067    1,473    226 
    Finance costs    (6,246)   (5,121)   (5,162)   (5,865)   (6,190)   (949)
    Exchange (losses) /gains, net    (790)   356    (141)   (213)   445    68 
    Investment income    2,774    2,409    3,685    4,632    2,978    456 
    Share of (losses)/profits of associates    (609)   302    406    459    171    26 
    Profit/(loss) attributable to a joint venture    533    553    (5,593)   543    (803)   (123)
    Other income, net    574    236    997    831    444    68 
                               
(Loss)/profit before tax    (5,275)   36,387    75,157    85,649    34,907    5,350 
Income tax credit/(expense)    5,912    (11,668)   (22,482)   (24,604)   (9,951)   (1,525)
Profit for the year    637    24,719    52,675    61,045    24,956    3,825 
                               
Earnings per share (basic)(1)    0.01    0.55    1.18    1.37    0.56    0.09 
Earnings per share (diluted)(2)    0.01    0.55    1.18    1.37    0.56    0.09 
Earnings per ADS (basic)(1)    1.43    55.37    117.98    136.73    55.89    8.57 
Earnings per ADS (diluted)(2)    1.43    55.36    117.96    136.72    55.89    8.57 
                               
Dividend per share                              
Interim    0.105    0.170    0.266    0.297    0.173    0.027 
Proposed final    0.204    0.243    0.341    0.404    0.209    0.032 

15

   As of December 31,
  

2016

  2017  2018  2019  2020  2020
   Rmb  Rmb  Rmb  Rmb  Rmb  US$
   (in millions)
Statement of Financial Position Data:                  
Cash and cash equivalents    13,735    12,949    14,995    33,679    24,019    3,681 
Other financial assets    52,889    74,344    125,283    114,513    61,662    9,450 
Current assets    122,045    139,564    191,151    205,935    163,391    25,041 
Property, plant and equipment, net    432,465    401,544    413,383    440,554    446,668    68,455 
Investments in associates    3,695    4,067    4,433    24,513    23,544    3,608 
Investments in a joint venture    26,300    25,079    20,268    20,977    18,822    2,885 
Intangible assets    16,644    15,430    16,073    16,306    15,129    2,319 
Right-of-use assets    —    —    —    9,179    9,161    1,404 
Equity investments    4,266    3,558    4,066    2,936    1,829    280 
Total assets    637,681    624,089    686,381    757,731    721,275    110,541 
Current loans and borrowings    19,678    14,092    10,272    13,908    11,217    1,719 
Current liabilities    67,090    63,223    74,157    91,249    74,852    11,472 
Non-current loans and borrowings    130,798    120,777    133,479    136,152    125,013    19,159 
Total non-current liabilities    188,220    178,295    192,314    218,256    212,493    32,567 
Total liabilities    255,310    241,518    266,471    309,505    287,345    44,039 
Capital stock    43,081    43,081    43,081    43,081    43,081    6,602 
Shareholders’ equity    382,371    382,571    419,910    448,226    433,930    66,502 

 

 

(1)Earnings per share (basic) and earnings per ADS (basic) for each year from 2016 to 2020 have been computed, without considering the dilutive effect of the shares underlying our share option schemes by dividing profit by the weighted average number of shares and the weighted average number of ADSs of 44,647,455,984 and 446,474,560, respectively, for each year from 2016 to 2020, 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 2016 to 2020 have been computed, after considering the dilutive effect of the shares underlying our share option schemes by using 44,659,140,488 shares and 446,591,405 ADSs for 2016, 44,651,557,953 shares and 446,515,580 ADSs for 2017, 44,656,022,966 shares and 446,560,230 ADSs for 2018, 44,651,110,742 shares and 446,511,107 ADSs for 2019 and 44,647,455,984 shares and 446,474,560 ADSs for 2020.

  

16

   Year ended December 31,
  

2016

  2017  2018  2019  2020  2020
   Rmb  Rmb  Rmb  Rmb  Rmb  US$
   (in millions, except percentages and ratios)
Other Financial Data:                              
Capital expenditures paid(1)    51,347    48,068    51,002    66,395    71,000    10,881 
Cash provided by/(used for):                              
Operating activities    72,863    95,051    124,398    123,521    82,338    12,619 
Investing activities    (27,953)   (64,745)   (95,452)   (67,457)   (50,850)   (7,793)
Financing activities    (43,240)   (31,276)   (27,108)   (37,691)   (38,698)   (5,931)
Gearing ratio(2)    28.2%   26.1%   25.5%   26.1%   24.9%   24.9%

 

 

(1)Capital expenditures paid exclude those relating to acquisition of oil and gas properties.

 

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

  

B.Capitalization and Indebtedness

 

Not applicable.

 

C.Reasons for the Offer and Use of Proceeds

 

Not applicable.

 

D.Risk Factors

 

Although we have established the risk management system to identify, analyze, evaluate and respond to risks, our business activities may subject to the following risks, which could have material effects on our strategies, operations, compliance and financial condition. We urge you to carefully consider the risks described below.

 

The Company and its controlling shareholder, CNOOC, have been added to the list of Chinese companies with alleged ties to the Chinese military issued by the U.S. government agencies and trading in the securities of the Company may be affected.

 

On November 12, 2020, the U.S. President signed Executive Order 13959 – “Addressing the Threat from Securities Investments that Finance Communist Chinese Military Companies” (as amended on January 13, 2021, “E.O. 13959”). On December 3, 2020, the U.S. Department of Defense added four Chinese companies (including CNOOC) to the list of Chinese companies with alleged ties to the Chinese military. On January 8, 2021, the Office of Foreign Assets Control (“OFAC”) of the U.S. Department of the Treasury added the Company to its “Non-SDN Communist Chinese Military Companies List”.

  

17

 

Pursuant to E.O. 13959, transactions, including purchases and sales, of publicly traded securities, or any securities that are derivative of, or are designed to provide investment exposure to such securities (“Covered Securities”), of the Company by any United States citizen, permanent resident alien, entity organised under the laws of the United States or any jurisdiction within the United States (including foreign branches), or any person in the United States (“U.S. person”) will be prohibited. For the Company, such prohibition became effective beginning 9:30 a.m. (Eastern Standard Time) on March 9, 2021, subject to certain divestiture and other exemptions. However, any transaction made on or before 365 days from the date on which the Company was added to the “Non-SDN Communist Chinese Military Companies List” solely to divest, in whole or in part, from Covered Securities that any U.S. person held in the Company as of March 9, 2021 (Eastern Standard Time) is permitted. Afterwards, possession of any Covered Securities of the Company by a U.S. person is prohibited. On February 26, 2021 (Eastern Standard Time), the New York Stock Exchange (“NYSE”) Regulation determined to commence proceedings to delist the ADSs of the Company on the basis that the Company is no longer suitable for listing pursuant to NYSE Listed Company Manual Section 802.01D in light of E.O. 13959 and updated guidance provided by OFAC in General License 1A and frequently asked questions 879 issued on January 27, 2021. The NYSE suspended trading in the ADSs of the Company at 4:00 a.m. (Eastern Standard Time) on March 9, 2021. On March 10, 2021 (Eastern Standard Time), the Company filed with the NYSE a written request for a review of the delisting determination. There is no assurance that the Company’s review request will be successful.

 

The fact that the Company was added to such lists and trading in the Covered Securities are subject to the prohibition provided for by E.O. 13959 may cause U.S. persons to sell the Covered Securities, which may cause fluctuations in the market prices of our ADSs listed on the New York Stock Exchange and the Toronto Stock Exchange, our ordinary shares and debt securities listed on the Hong Kong Stock Exchange and any other securities and derivatives publicly traded. In such a situation, our business partners may re-evaluate the risk of transacting with us.

 

Our business, cash flows and profits fluctuate with volatility in oil and gas prices.

 

Prices for crude oil, natural gas and oil products may fluctuate widely in response to relative changes in the supply and demand for crude oil and natural gas, market uncertainty and various other factors beyond our control, including but not limited to overall economic conditions, political instability, armed conflict and acts of terrorism, economic conditions and actions of major oil-producing countries, the prices and accessibility of other energy sources, domestic and foreign government regulations, natural disasters, weather conditions and major public health emergencies (e.g. the novel coronavirus (COVID-19) outbreak in 2020). Changes in oil and gas prices could have a material effect on our business, cash flows and earnings.

 

Oil and gas prices are volatile. A downward trend in oil and gas prices which lasts for a long period may adversely affect our business, revenue and profits, and may also result in write-off of higher cost reserves and other assets, reduction in the amount of oil and natural gas we can produce economically and termination of existing contracts that have become uneconomic. The prolonged slump in oil and gas prices may also impact our long-term investment strategies and operation capability for our projects.

 

Our business and strategies may be substantially affected by complex macro economy, political instability, war and terrorism and changes in policies, laws and fiscal and tax regimes.

 

The international political and economic situation is complex and changeable. Some of the countries in which we operate may be considered politically and economically unstable. As a result, our financial condition and operating results could be adversely affected by associated international actions, domestic civil unrest and general strikes, political instability, war and acts of terrorism. Any changes in regime or social instability, or other political, economic or diplomatic developments, or changes in policies, laws, fiscal and tax regimes are not within our control. Our operations, existing assets or future investments may be materially and adversely affected by these changes as well as trade and economic sanctions due to deteriorated relations among different countries.

 

18

For example, with regard to the UK’s exit from the European Union on January 31, 2020 (“Brexit”), the EU and the UK have reached an agreement on a new trade arrangement, which has been applied provisionally since January 1, 2021. However, there are still uncertainties about the actual consequences of Brexit, including the possibility that Brexit will lead to instability in the financial, stock and currency exchange markets, and the possibility that the supply and availability of goods and services between the UK and the EU will be further restricted. The ongoing oil and gas system reform in China may have certain impacts on the Company's business in China. At present, China’s foreign investment access policies no longer restrict foreign investment to enter the oil and gas exploration and production industry in China through joint venture and cooperation only. At the end of 2019, China’s ministry of natural resources management published the Opinions on Several Matters Concerning Promoting Reform of Mineral Resources Administration (for Trial Implementation), which imposed challenges for the Company to obtain and retain business in the oil and gas fields in the future. The above law and regulations and the ongoing oil and gas system reform in China may have certain impacts on the Company’s existing business model.

 

Our financial performance is affected by the tax and fiscal regimes of host countries in which we operate. Any changes in these regimes may result in increased costs, including an increase in applicable tax rates for the Company in some circumstances. Furthermore, the Organization for Economic Co-operation and Development (OECD) initiated the “Base Erosion and Profit Shifting Project” (BEPS Project) to enhance multilateral cooperation and strengthen supervision on global corporate taxation and transfer pricing activities. Numerous countries have responded to the BEPS Project by implementing tax law changes and amending tax treaties at a rapid pace.

 

Oil and gas industry is highly competitive.

 

We compete in the PRC and other countries in which we operate with national oil companies, major integrated oil and gas companies and various other independent oil and gas companies for access to oil and gas resources, products, alternative energy, customers, capital financing, technology and equipment, talents and business opportunities. Competition may result in shortage of these resources or over-supply of oil and gas, which could increase our cost or reduce our earnings, and adversely impact our business, financial condition and results of operations.

 

In addition to competition, as we need to obtain various approvals from governmental and other regulatory authorities in order to maintain our operations, we may face unfavorable results such as project delays and cost overruns, which may further impact the realization of our strategies and adversely impact our financial condition.

 

At the same time, environmental protection supervision in the energy sector is becoming increasingly strict. Many countries have accelerated the global transition to low-carbon clean energy by setting emission reduction standards, strictly implementing the renewable energy proportion plan, levying high carbon taxes, and enacting strict regulatory bills. Green and low-carbon transformation may lead to intensified competition in the energy supply market, resulting in a substantial increase in our costs.

 

Rising climate change concerns could lead to additional regulatory measures that may result in higher costs.

 

It is expected that the CO2 emissions will increase as our production grows. CO2 emissions from combustion will continue to increase without a mature and reliable gas collection system in place. With the coming into force of the Paris Agreement and the continuing growth of the public’s awareness of climate change problems, the carbon emission policies of different countries have been enacted one after another. The Company expects to be supervised by relevant agencies and organizations in the future. If we are unable to find economically viable and publicly acceptable solutions that could reduce our CO2 emissions from our new and existing projects, we may experience additional costs, and our reputation may be adversely affected.

 

19

Our ability to deliver competitive returns and pursue commercial opportunities depends in part on the robustness and the long-lasting accuracy of our price predictions.

 

We review the oil and natural gas price predictions on a periodic basis when evaluating project decisions and business opportunities. We generally assess projects and other business opportunities based on a long-term price range. While we believe our current long-term price predictions are prudent, if such predictions proved to be incorrect, it could have a material adverse effect on us. For short-term planning purposes, we assess the project feasibility by using a wider price range.

 

Mergers, acquisitions and disposals may expose us to additional risks and uncertainties, and we may not be able to realize the anticipated benefits from acquisitions and disposals.

 

Mergers and acquisitions may not succeed due to various reasons, such as difficulties in integrating activities and realizing synergies, outcomes differing from key assumptions, host countries’ governments reacting or responding in a different manner from that envisaged, or liabilities and costs being underestimated. Any of these reasons would reduce our ability to realize the anticipated benefits. We may not be able to successfully dispose of non-core assets at acceptable prices, resulting in increased pressure on our cash position. In the case of asset disposals, we may be held liable for past acts, or failures to act or perform obligations, we may also be subject to liabilities if a purchaser fails to fulfill its commitments. These risks may result in an increase in our costs and inability to achieve our business goals.

 

The nature of our operations exposes us and the communities in which we operate to a wide range of health, safety, security and environment risks.

 

Every aspect of our daily operations exposes us to health, safety, security and environment (HSSE) risks given the geographical area, operational diversity and technical complexity of our operations. Part of our oil and gas operations are located in environmentally sensitive regions or politically unstable regions, such as Iraq, Nigeria, etc.; or operating in offshore environment, especially in new deep water area such as Mexico, etc. Our operations expose us and the communities in which we operate to a number of risks, including major process safety incidents, natural disasters, social unrest, personal health and safety mistakes and potential consequences from unforeseeable external destruction, for instance, typhoons, sea ice, etc. may damage platform structure, and submarine pipelines may lead to oil spills and gas leaks due to damage from external force. If a major HSSE risk materialises, such as an explosion or hydrocarbon spill, it could result in casualties, environmental damage, disruption to business activities and material impact on our reputation, exclusion from bidding or eventually loss of our licence to operate. In certain circumstances, liabilities imposed may be disproportionate to our fault in the matter. Regulatory regimes for HSSE in host countries in which we operate change constantly and may become more stringent over time. In the future, we may incur significant additional costs in complying with such requirements or bear liabilities such as fines, penalties, clean-up costs and third-party claims, as a result of breach of laws and regulations relating to HSSE matter.

 

We maintain various insurance policies for our operations against potential losses. However, our ability to insure against our risks is subject to the availability of relevant insurance products in the market. In addition, we cannot assure you that our insurance coverage is sufficient enough to cover all losses that we may incur, or that we will be able to successfully claim our losses under our existing insurance policies on a timely basis, or at all. If any of our losses are not covered by our insurance coverage, or if the insurance compensation is less than our losses or the claim is not paid on a timely basis, our business, financial condition and results of operations could be materially and adversely affected.

 

 

20

Violations of anti-corruption, anti-fraud, anti-money laundering and corporate governance laws may expose us to various risks.

 

Laws and regulations of the host countries or regions in which we operate, such as laws on anti-corruption, anti-fraud, anti-money laundering and corporate governance, are constantly changing and becoming more comprehensive, especially in the U.S., the U.K., the EU, Canada, Australia, Guyana and China. The compliance with these laws and regulations may increase our cost. If the Company, our directors, executives or employees fail to comply with any of such laws and regulations, it may expose us to prosecution or punishment, damage to our reputation and image, and our ability to obtain new resources and/or access to the capital markets, and it may even expose us to civil or criminal liabilities.

 

Data security, data privacy and data protection laws and other technology regulations increase our costs and violations of such laws and regulations will expose us or our employees to fines and liabilities.

 

Laws and regulations related to privacy and data protection are generally becoming more stringent. Some countries and jurisdictions where we operate in or have access to data have data security, data privacy or data protection laws and regulations, such as the European Union General Data Protection Regulation (GDPR) and the Personal Data (Privacy) Ordinance (Chapter 486 of the Laws of Hong Kong). As a company with operations in various countries and regions, we are subject to data privacy and security laws in numerous jurisdictions as a result of having access to and processing confidential, personal or sensitive data in the course of our business. Therefore, compliance with the various data privacy regulations around the world may require significant expenditures. In addition, failure to comply with current and future laws and regulations could result in government enforcement actions (including the imposition of significant penalties), criminal and civil liability for us and our officers and directors, private litigation and/ or adverse publicity that negatively affects our business.

 

Potential changes in the U.S. sanctions regime could result in negative media and investor attention and possible sanctions imposed on the Company due to the Company’s or its affiliate’s activities in certain countries or regions, which could materially and adversely affect our shareholders.

 

Different levels of the U.S. government-federal, state or local-impose economic sanctions of varying severity against certain geographical areas and their populations or against designated governments, organizations, individuals and entities wherever located. Our controlling shareholder, CNOOC, non-controlling affiliates and the Group did not carry out any sanctionable activities in the countries that are the subject of comprehensive U.S. sanctions (Iran, Cuba, North Korea, Syria and the Crimea region) in 2020. However, it is impossible to predict whether the Company or its affiliated companies will be restricted from operating or carrying out certain businesses in the future due to changes in the U.S. sanctions regime. If this happens, the impact may include that our Company is unable to continue to carry out the business with U.S. persons, the Company is prohibited from engaging in relevant activities in the U.S., the U.S.-related transactions in our securities and distributions to U.S. individuals and entities with respect to our securities are prohibited, pension or endowment funds of certain U.S. states and local governments or universities sell our securities, and we are subject to negative media or investor attention which may distract management, consume internal resources and affect investors’ perception of our Company and investment in our Company.

 

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

 

Our exploration and development activities involve inherent risks, including the risks of failing to discover commercially productive oil or gas reservoirs or that the wells we drill may not be able to commence production or may not be sufficiently productive to generate a return of our partial or full investments. In addition, approximately 53.2% of our proved reserves were undeveloped as of December 31, 2020. Our future success depends on our ability to develop these reserves in a timely and cost-effective manner. There are various risks in developing reserves, mainly including construction, operational, geophysical, geological and regulatory risks.

 

21

 

The reliability of reserve estimates depends on a number of factors, including the quality and quantity of technical and economic data, the market prices of our oil and gas products, the production dynamics of oil reservoirs, extensive engineering judgments, comprehensive judgement of engineers and the fiscal and tax regimes in the countries where we have operations or assets.

 

Many of the factors, assumptions and variables involved in estimating reserves are beyond our control and may be proved to be incorrect over time. Consequently, the results of drilling, testing, production and changes in oil and gas prices may require substantial upward or downward revisions to our initial reserve data.

 

If we fail to develop or gain access to appropriate technologies, or to deploy them effectively, the realization of our strategies as well as our competitiveness and ability to operate may be adversely affected.

 

Technology and innovation are vital for us to enhance the Company’s competitiveness in a competitive environment and exploration and development challenges. For example, we strive to rely on technologies and innovations to realize our strategy and enhance our competitiveness and operation capacity in the development of unconventional oil and gas resources, including heavy oil, oil sands, shale oil and gas and coalbed methane, deep water exploration and development, and offshore enhanced oil recovery. If our core technology reserves are insufficient, it may have a negative impact on the Company’s reserves and production targets and cost control targets.

 

Breach of our cyber security or break down of our IT infrastructure could damage our operations and our reputation.

 

Malicious attacks on our cyber system, negligence in the management of our cyber security and IT system and other factors may cause damage or breakdown to our IT infrastructure, which may disrupt our operations, result in loss or misuse of data or sensitive information, cause injuries, environmental harm or damages in assets, violate laws or regulations and result in potential legal liability. These actions could result in significant increase in costs or damage to our reputation.

 

CNOOC, the controlling shareholder of the Company, will have an impact on the Company to a certain extent, and we regularly enter into connected transactions with CNOOC and its affiliates.

 

Currently, CNOOC directly and indirectly owns or controls approximately 65.01% of our shares. As a result, CNOOC can have an impact on the election of our Board members, our dividend payments and other decisions. Under current PRC laws, CNOOC has the exclusive right to enter into PSCs with foreign enterprises for petroleum resources exploitation in offshore China. Although CNOOC has undertaken to transfer all of its rights and obligations (except for those relating to administrative functions as a state-owned company) under any new PSCs that it enters into to us (save for certain exceptions), our strategies, results of operations and financial position may be adversely affected in the event CNOOC takes actions that favor its own interests over ours.

 

In addition, we regularly enter into connected transactions with CNOOC and its affiliates. Certain connected transactions require a review by the Hong Kong Stock Exchange and are subject to prior approvals by our independent shareholders. If these transactions are not approved, the Company may not be able to proceed with these transactions as planned and it may adversely affect our business and financial condition.

 

22

 

Oil and natural gas transportation may expose us to financial loss and reputational harm.

 

Our oil and gas transportation involves marine, land and pipeline transportation, which are subject to hazards such as capsizing, collision, acts of piracy and damage or loss from severe weather conditions, explosions and oil and gas spills and leakages. These hazards could result in serious personal injury or loss of human life, significant damage to property and equipment, environmental pollution, operating loss, risk of financial loss and reputational harm. We may not be able to arrange insurance coverage for all of these risks and uninsured losses and liabilities arising from these hazards could reduce the funds available to us for financing, exploration and investment, which may have a material adverse effect on our business, financial condition and results of operations.

 

We face various risks with regard to our business and operations in Canada.

 

Transportation and export infrastructure in Canada is limited, and without the construction of new transportation and export infrastructure, realization of our full oil and natural gas production capability may be affected. In addition, we may be required to sell our products into the North American markets at lower prices than in other (international) markets, which could materially and adversely affect our financial performance.

 

Furthermore, First Nations in Canada have aboriginal land claims, including claims to certain mineral resources, in a substantial portion of western Canada. As a result, negotiations with First Nations prior to commencing future projects (including surface activities necessary to conduct mineral extraction) are prudent. Failure to successfully negotiate with affected First Nations may result in timing uncertainties or delays of future development activities.

 

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

 

A portion of our operations are conducted in the form of partnerships or in joint ventures in which we may have limited capability to influence and control their operation or future development. Our limited ability to influence and control the operation or future development of such joint ventures could materially and adversely affect the realization of our target returns on capital investment and lead to unexpected future costs.

 

If we depend heavily on key customers or suppliers, our business, results of operations and financial condition could be adversely affected.

 

Key sales customers - if any of our key customers reduces its crude oil or natural gas purchases from us significantly, our results of operation could be adversely affected. In crude oil sales, we adopt measures including confirming the annual sales plan and participating in market competition so as to maintain a stable cooperation with customers and to reduce reliance on a single customer. In natural gas sales, we adopt measures including signing long-term gas supply agreements with take-or-pay clause so as to minimize the risk of impact on our financial condition.

 

Key suppliers - we have strengthened our communication in business with our key suppliers in order to maintain a good working relationship. We have also established strategic partnerships through communications and reached a consensus in corporate cultures and mutually beneficial cooperation. Furthermore, we actively explore new suppliers to ensure supply adequacy and foster competition.

 

We face currency risks and liquidity risks.

 

Currency risks - The Company’s oil and gas sales are substantially denominated in Renminbi and U.S. dollars. The appreciation of Renminbi against U.S. dollar may have double effects. The depreciation of U.S. dollar against Renminbi may reduce the Company’s revenue from the sales of oil and gas, but may reduce our import costs of equipment and raw materials in the meantime.

 

Liquidity risks - Certain restrictions on dividend distribution imposed by the laws of the host countries in which we operate may adversely and materially affect our cash flows. For instance, the dividend of our wholly-owned subsidiaries in the PRC shall be distributed pursuant to the laws of the PRC and the articles and association of such subsidiaries, and we may face risks of not obtaining adequate cash flows from such subsidiaries.

 

23

The audit reports filed with the SEC have been prepared by our auditor, an independent registered public accounting firm, whose work is not inspected by the U.S. Public Company Accounting Oversight Board (the “PCAOB”) and, as such, it is unlikely for the PCAOB to evaluate the effectiveness of our auditor’s audit procedures and quality control procedures.

 

Our auditor issues the audit reports which are included in our annual report filed with the SEC. As a firm registered with the PCAOB, our auditor is required by the laws of the United States to undergo regular inspections by the PCAOB to assess its compliance with the laws of the United States and professional standards.

 

Because we have substantial operations within China and, without the approval of PRC authorities, the PCAOB is currently unable to conduct inspections of the work of our auditor as it relates to those operations, our auditor is not currently inspected by the PCAOB. Therefore, it is unlikely for the PCAOB to evaluate the effectiveness of our auditor’s audit procedures and quality control procedures as compared to auditors outside of China that are subject to the PCAOB inspections.

 

On December 18, 2020, the U.S. Holding Foreign Companies Accountable Act (the “HFCA Act”) was signed into law by the U.S. President and became effective. Pursuant to the U.S. HFCA Act, securities of any issuer will be prohibited from being traded on any of the U.S. securities exchanges or traded “over-the-counter” if the SEC determines that the PCAOB has been unable to inspect or investigate such issuer’s accounting firm for three consecutive years. Issuers with the above mentioned circumstances are also required to make certain disclosures including, among others, the percentage of shares owned by relevant governmental entities, whether the relevant governmental entities have a controlling financial interest, information related to any board members who are officials of the Chinese Communist Party and whether the articles of association of the company contain any content of the charter of the Chinese Communist Party.

 

The enactment of the HFCA Act or other efforts to increase U.S. regulatory access to audit information could cause uncertainty for affected issuers, including us.

 

Risks Related to SEC Litigation Against the “Big Four” PRC-based Accounting Firms

 

In December 2012, the SEC brought administrative proceedings against the PRC affiliates of the “big four” accounting firms, including our independent registered public accounting firm, alleging that these firms had refused to produce audit work papers and other documents related to certain China-based companies whose securities are publicly traded in the United States. In February 2015, each of the “big four” PRC-based accounting firms reached a settlement with the SEC, which required the firms to provide the SEC with access to Chinese firms’ audit documents via the China Securities Regulatory Commission (CSRC) in response to future document requests by the SEC made through the CSRC. Under the terms of the settlement, the underlying proceeding against the four PRC-based accounting firms was deemed dismissed with prejudice after four years from entry of the settlement. Therefore, the case was deemed dismissed on February 6, 2019.

 

We cannot predict if the SEC will further challenge the “big four” PRC-based accounting firms’ compliance with U.S. law in connection with U.S. regulatory requests for audit work papers or if the results of such a challenge would result in the SEC imposing penalties such as suspensions. If our independent registered public accounting firm was denied, even temporarily, the ability to practice before the SEC and we were unable to timely find another registered public accounting firm to audit and issue an opinion on our financial statements, our financial statements could be determined not to be in compliance with the requirements of the Securities Exchange Act of 1934. Such a determination could ultimately lead to delisting of our ADSs from the NYSE or deregistration from the SEC, or both, which would substantially reduce or effectively terminate the trading of our ADSs in the United States.

 

24

ITEM 4. INFORMATION ON THE COMPANY

 

A.History and Development

 

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, the predecessor to Chapter 622 of the Laws of Hong Kong, or the Hong Kong Companies Ordinance, which came into effect on March 3, 2014). Our Company registration number in Hong Kong is 685974. Under the Hong Kong Companies Ordinance, we have the capacity, rights, powers and privileges of a natural person of full age and may do anything which we are permitted or required to do by our articles of association or 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.

 

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 subsidiaries 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 and subject to the undertakings below, 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:

 

·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, and CNOOC will not engage or be interested, directly or indirectly, in oil and natural gas exploration, development, production and sales in or outside the PRC, unless we waive CNOOC from the above-mentioned undertakings for certain business if participating in or engaging in such business may expose the Group to significant risks due to applicable laws and regulations;

 

·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;

 

·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;

 

·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;

 

·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

 

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·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:

 

·if we become a wholly owned subsidiary of CNOOC;

 

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

 

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

 

For information on our capital expenditures, see “Item 5—Operating and Financial Review and Prospects—Liquidity and Capital Resources—Cash Used in Investing Activities.”

 

B.Business Overview

 

Overview

 

We are an upstream company specializing in oil and natural gas exploration, development and production. We are the dominant oil and natural gas producer in offshore China and in terms of reserves and production, one of the largest independent oil and natural gas exploration and production companies in the world. As of the end of 2020, we had net proved reserves of approximately 5.4 billion BOE (including approximately 0.4 billion BOE in our equity method investees). In 2020, we achieved a net production of 1,443,201 BOE/day (including net production of approximately 53,658 BOE/day in its equity method investees).

 

Competitive Strengths

 

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

 

·large and diversified asset base with significant exploitation opportunities;

 

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

 

·successful independent exploration and development track record;

 

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

 

·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 China and globally. As of December 31, 2020, we had approximately 5.4 billion BOE of net proved reserves. Our core operating area, offshore and onshore China, contributed to approximately 57.9% of our net proved reserves, while overseas contributed to the balance of 42.1%.

 

In addition to 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 Indonesia, Australia, Nigeria, Iraq, Uganda, Argentina, U.S., Canada, U.K., Brazil, Guyana, Russia, the United Arab Emirates and various other countries.

 

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As of December 31, 2020, approximately 53.2% 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, 2020, our total major exploration areas acreage in offshore China was approximately 244 thousand square kilometers. 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 2020, we and our foreign partners have together drilled a total of 186 exploratory wells in offshore China, of which 61 were wildcat wells. During the same year, we and our foreign partners made 13 new discoveries in offshore China.

 

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 partners through PSCs. In recent years, we have been adding reserves and production mainly through independent exploration and development. As of the end of 2020, in offshore and onshore China, approximately 87.8% of our net proved reserves were independent and approximately 81.0% of our production generated from independent projects.

 

In 2020, in offshore China, our independent exploration resulted in 13 new discoveries, we also successfully appraised 41 oil and gas bearing structures. On the development front, our major new development projects progressed smoothly, with nine new projects in offshore China planned to come on stream and Penglai 25-6 oilfield area 3 project was also put into production during the year.

 

Access to capital and technology and reduced risks through PSCs in offshore China

 

CNOOC holds exclusive right from the PRC government to enter into PSCs with foreign enterprises relating to the petroleum resources exploitation in offshore China which are open to foreign operation. 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—Regulatory Framework in the PRC.”

 

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 extensive experience in the oil and gas industry. Many of our management team and staff members have worked closely with international partners both within and outside China through numerous joint operations.

  

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We have always upheld and attained high standard of business ethics, for which our transparency and standard of governance have been recognized by the public and our shareholders. In 2020, the Company was honoured, among others, as the “Most Honored Company”, “Best ESG (Oil & Gas)”, “Best IR Programs” and “Best CFO” in Institutional Investor’s 2020 All-Asia Executive Team Awards, “Gold Award” in the 2020 ESG Corporate Awards by The Asset, “2020 China Securities Golden Bauhinia Awards – Best Listed Company”, “Best CEO for Listed Companies” and “Best CFO for Listed Companies” hosted by Ta Kung Wen Wei Media Group, “Best Investor Relations Company”, “Asia’s Best CEO (Investor Relations)” and “Asia’s Best CFO (Investor Relations)” in the “Asian Excellence Award” hosted by Corporate Governance Asia. High and strict standard of corporate governance enables us to operate steadily and efficiently and is in the long-term interests of us and our shareholders.

 

Business Strategy

 

As one of the largest independent oil and gas exploration and production companies, we mainly engage in the exploration, development, production and sales of oil and natural gas. The principal components of our strategy are as follows:

 

·focus on reserve and production growth;

 

·develop natural gas business; and

 

·maintain a 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 strive to increase our reserves and production through exploration and development and value-driven acquisitions. In China, we will continue to concentrate on our independent exploration efforts in major operating areas, while continuing to cooperate with our partners through production sharing contracts to lower capital expenditures and exploration risks. Overseas, we will strive to acquire more high-quality exploration blocks and improve exploration efficiency.

 

We increase our production primarily through the development of proved undeveloped reserves. As of December 31, 2020, approximately 53.2% of our proved reserves were classified as proved undeveloped reserves, which provide a solid resource base for the Company’s continued production growth in the future.

 

Develop natural gas business

 

We adopt the low-carbon development concept and actively expands the natural gas business. We will continue to develop the natural gas market, strengthen exploration and development activities in natural gas fields, and enhance natural gas supply capability. We will advance key natural gas projects such as Lingshui 17-2 and Bozhong 19-6, and strengthen the development of onshore unconventional gas. We expect to increase the proportion of natural gas production to 30% in 2025.

 

Maintain a prudent financial policy

 

We will continue to maintain our prudent financial policy. As an essential part of our corporate culture, we will continue to raise cost awareness among all of our employees. At the same time, in our performance evaluation system, cost control has been one of the most important key performance indicators. In 2020, we continued to tap the potential of technological innovation and management innovation to lower costs and enhance efficiency. All-in cost per BOE was at its lowest in nearly a decade and our cost competitiveness was maintained.

 

We also attached great importance to cash flow management and maintained a healthy financial position.  

 

Selected Operating and Reserves Data

 

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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 were prepared in accordance with the SEC’s final rules on Modernization of Oil and Gas Reporting.  

 

   Year ended December 31,
   2018  2019  2020
Net Production(2):         
Oil (daily average bbls/day)    1,050,749    1,124,790    1,145,056 
Gas (daily average mmcf/day)    1,462.5    1,537.9    1,727.4 
Oil equivalent (BOE/day)    1,301,438    1,387,564    1,443,201 
                
Net Proved Reserves (as of the end of period):               
Oil (mmbbls)    2,413.9    2,550.3    2,758.3 
Gas (bcf)    7,626.8    7,827.1    7,956.4
Synthetic Oil (mmbbls)    796.3    779.6    796.7 
Bitumen (mmbbls)    88.1    153.6    94.0 
Total (million BOE)    4,590.0    4,807.9    5,001.2 
Total with equity method investees (million BOE)(2)    4,962.1    5,184.6    5,372.7 
Annual reserve replacement ratio(1)    126%   145%   138%
Annual reserve replacement ratio(2)    126%   144%   136%
Estimated reserve life (years)    10.1    9.9    9.8 
Estimated reserve life (years)(2)    10.5    10.2    10.2 
Standardized measure of discounted future net cash flow (million Rmb)    416,075    442,529    274,980 

 

 

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

 

(2)Including our interest in equity method investees.

 

(3)Including 276.0 bcf of coalbed methane.

 

For further information regarding our reserves, see “Item 3—Key Information—Risk Factors—Any failure to replace reserves and develop our proved undeveloped reserves could adversely affect our business and our financial position” and “Item 4—Information on the Company—Business Overview—Exploration, Development and Production.”

 

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.

 

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Net proved reserves

as of December 31,

 

Net proved reserves 

as of December 31, 2020 

   2018  2019  Crude Oil  Natural Gas  Synthetic Oil  Bitumen  Total
   (mmboe)  (mmboe)  (mmbbls)  (bcf)  (mmbbls)  (mmbbls)  (mmboe)
Developed                     
China                     
Bohai    650.4    655.5    730.0    312.4    —    —    782.0 
Western South China Sea    195.3    229.6    98.3    1,068.4    —    —    285.6 
Eastern South China Sea    295.7    288.5    210.0    659.5    —    —    319.9 
East China Sea    19.5    19.4    8.4    124.9    —    —    29.2 
Onshore    —    8.5    —    348.8(1)   —    —    58.1 
Subtotal    1,160.9    1,201.6    1,046.5    2,514.0    —    —    1,474.9 
Overseas                                   
Asia (excluding China)    118.9    113.8    123.6    418.8    —    —    198.5 
Oceania    59.2    55.3    5.3    169.2    —    —    38.4 
Africa    102.3    79.8    73.5    —    —    —    73.5 
North America (excluding Canada)    188.9    212.0    143.5    179.7    —    —    173.4 
Canada    136.2    217.5    —    —    119.6    90.8    210.4 
South America    1.1    25.9    73.1    —    —    —    73.1 
Europe    98.6    97.0    65.2    —    —    —    65.2 
Subtotal    705.3    801.4    484.2    767.7    119.6    90.8    832.6 
Total Developed    1,866.2    2,003.0    1,530.7    3,281.7    119.6    90.8    2,307.4 
                                    
Undeveloped                                   
China                                   
Bohai    579.2    691.6    506.9    929.5    —    —    661.8 
Western South China Sea    650.5    599.1    132.1    2,535.4    —    —    557.4 
Eastern South China Sea    303.5    345.3    260.8    73.5    —    —    273.0 
East China Sea    110.5    123.8    6.3    695.3    —    —    122.2 
Onshore    —    2.8    —    115.5(2)   —    —    19.2 
Subtotal    1,643.7    1,762.7    906.1    4,349.3    —    —    1,633.6 
Overseas                                   
Asia (excluding China)    84.4    82.8    75.5    295.8    —    —    128.4 
Oceania    4.3    4.3    0.4    16.3    —    —    3.6 
Africa    11.4    3.8    3.9    —    —    —    3.9 
North America (excluding Canada)    139.7    105.3    21.7    11.2    —    —    23.6 
Canada    748.2    715.7    —    —    677.1    3.2    680.3 
South America    78.4    119.0    213.5    —    —    —    213.5 
Europe    13.7    11.2    6.4    2.1    —    —    6.8 
Subtotal    1,080.1    1,042.2    321.6    325.4    677.1    3.2    1,060.1 
Total Undeveloped    2,723.7    2,804.9    1,227.6    4,674.7    677.1    3.2    2,693.8 
TOTAL PROVED    4,590.0    4,807.9    2,758.3    7,956.4    796.7    94.0    5,001.2 
Equity method investees    372.2    376.7    271.0    583.6    —    —    371.6 
Total with equity method investees    4,962.1    5,184.6    3,029.3    8,539.9    796.7    94.0    5,372.7 

 

 

(1)Including 204.9 bcf of coalbed methane.

 

(2)Including 71.1 bcf of coalbed methane.

 

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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 and Liquids Reserves
(mmbbls)

 

  

As of December 31,

 

As of December 31, 2020 

  

2018

 

2019

 

Developed

 

Undeveloped 

 

Total 

China               
Bohai    1,104.1    1,161.7    730.0    506.9    1,236.9 
Western South China Sea    223.0    223.4    98.3    132.1    230.4 
Eastern South China Sea    448.6    500.5    210.0    260.8    470.7 
East China Sea    7.5    14.1    8.4    6.3    14.6 
Onshore    —    —    —    —    — 
Subtotal    1,783.2    1,899.7    1,046.5    906.1    1,952.6 
Overseas                         
Asia (excluding China)    54.1    56.1    123.6    75.5    199.1 
Oceania    8.8    8.6    5.3    0.4    5.7 
Africa    113.7    83.6    73.5    3.9    77.5 
North America (excluding Canada)    263.4    249.8    143.5    21.7    165.2 
Canada    884.4    933.2    210.4 (1)    680.3 (2)    890.7 
South America    79.5    145.0    73.1    213.5    286.6 
Europe    111.2    107.5    65.2    6.4    71.6 
Subtotal    1,515.1    1,583.8    694.6    1,001.8    1,696.4 
Total    3,298.3    3,483.5    1,741.1    1,907.9    3,649.0 
Equity method entities    258.1    269.8    141.9    129.1    271.0 
Total with equity method investees    3,556.4    3,753.2    1,883.0    2,037.0    3,920.0 

 

(1)Including 119.6 mmbbls of synthetic oil and 90.8 mmbbls of bitumen.

 

(2)Including 677.1 mmbbls of synthetic oil and 3.2 mmbbls of bitumen.

 

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Total Net Proved Natural Gas Reserves
(bcf)

 

   As of December 31,  As of December 31, 2020
   2018  2019  Developed  Undeveloped  Total
China               
Bohai    753.4    1,112.3    312.4    929.5    1,242.0 
Western South China Sea    3,715.6    3,602.8    1,068.4    2,535.4    3,603.9 
Eastern South China Sea    903.7    800.1    659.5    73.5    732.9 
East China Sea    735.1    774.9    124.9    695.3    820.2 
Onshore    —    68.3    348.8    115.5    464.3(1)
Subtotal    6,107.8    6,358.4    2,514.0    4,349.3    6,863.3 
Overseas                         
Asia (excluding China)    841.6    798.7    418.8    295.8    714.6 
Oceania    279.5    260.5    169.2    16.3    185.5 
Africa    —    —    —    —    — 
North America (excluding Canada)    390.9    405.3    179.7    11.2    190.9 
Canada    0.2    —    —    —    — 
South America    —    —    —    —    — 
Europe    6.7    4.4    —    2.1    2.1 
Subtotal    1,519.0    1,468.8    767.7    325.4    1,093.1 
Total    7,626.8    7,827.1    3,281.7    4,674.7    7,956.4 
Equity method investees    661.5    620.3    390.5    193.1    583.6 
Total with equity method investees    8,288.2    8,447.5    3,672.1    4,867.8    8,539.9 

 

 

(1)Including 276.0 bcf of coalbed methane.

 

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Total Net Proved Reserves
(million BOE)

 

   As of December 31,  As of December 31, 2020
   2018  2019  Developed  Undeveloped  Total
China               
Bohai    1,229.7    1,347.1    782.0    661.8    1,443.9 
Western South China Sea    845.8    828.7    285.6    557.4    843.0 
Eastern South China Sea    599.2    633.9    319.9    273.0    592.9 
East China Sea    130.0    143.2    29.2    122.2    151.3 
Onshore    —    11.4    58.1    19.2    77.4(1)
Subtotal    2,804.6    2,964.3    1,474.9    1,633.6    3,108.5 
Overseas                         
Asia (excluding China)    203.3    196.6    198.5    128.4    326.9 
Oceania    63.6    59.6    38.4    3.6    42.0 
Africa    113.7    83.6    73.5    3.9    77.5 
North America (excluding Canada)    328.6    317.3    173.4    23.6    197.0 
Canada    884.4    933.2    210.4    680.3    890.7 
South America    79.5    145.0    73.1    213.5    286.6 
Europe    112.3    108.3    65.2    6.8    72.0 
Subtotal    1,785.4    1,843.6    832.6    1,060.1    1,892.7 
Total    4,590.0    4,807.9    2,307.4    2,693.8    5,001.2 
Equity method investees    372.2    376.7    209.2    162.4    371.6 
Total with equity method investees    4,962.1    5,184.6    2,516.6    2,856.2    5,372.7 

 

(1)Including 276.0 bcf of coalbed methane.

 

Proved Reserves

 

As of December 31, 2020, we had proved reserves of 5,372.7 million BOE, including 3,029.3 million barrels of crude oil, 796.7 million barrels of synthetic oil, 94.0 million barrels of Bitumen and 8,539.9 bcf of natural gas, representing an increase of 188.1 million BOE as compared to proved reserves of 5,184.6 million BOE as of December 31, 2019.

 

The changes in our proved reserves mainly include:

 

·An increase of 407.8 million BOE due to new discoveries and extensions, details of which are described below:

 

ØChina: the discoveries and extensions of oil and gas reserves in the amount of 323.3 million BOE, which were primarily attributable to fields such as Bozhong 19-6, Kenli 6-1, Lingshui 17-2, Panhe and Linxing West, etc.;

 

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ØOverseas: the discoveries and extensions of oil and gas reserves in the amount of 84.6 million BOE, which were primarily attributable to fields such as Mero 3 in Brazil, BC Energy in Argentina and Long Lake in Canada, etc.;

 

·An increase of 87.1 million BOE due to revision of previous estimates, details of which are described below:

 

ØChina: an increase of 170.2 million BOE caused either by technical factors, which were mainly due to better than expected production performance and increased reservoir recoveries from infill drilling or by changes in economic factors, primarily related to the decrease in oil price;

 

ØOverseas: a decrease of 83.0 million BOE mainly caused by changes in economic factors or primarily related to decrease in oil price, which led to downside adjustment of undeveloped reserves in US shale and Canadian oil sands etc.;

 

·An increase of 126.2 million BOE due to the acquisition of interests in three fields located in the United Arab Emirates.

 

·An increase of 95.3 million BOE due to enhanced recovery, which was mainly attributed to waterfloods in Guyana.

 

·The production of 528.2 million BOE in 2020.

 

As a result of above-mentioned changes in our proved reserves, annual reserve replacement ratio and estimated reserve life as of December 31, 2020 were 136% and 10.2 years, respectively.

 

Proved Undeveloped Reserves (PUD)

 

As of December 31, 2020, we had PUD of 2,856.2 million BOE, including 1,356.8 million barrels of crude oil, 677.1 million barrels of synthetic oil, 3.2 million barrels of Bitumen and 4,867.8 bcf of natural gas, representing a decrease of 107.9 million BOE as compared to PUD of 2,964.1 million BOE as of December 31, 2019.

 

The changes in our PUD mainly include:

 

·An increase of 320.3 million BOE due to new discoveries and extensions, details of which are described below:

 

ØChina: the discoveries and extensions of oil and gas reserves in the amount of 244.2 million BOE, which were primarily attributable to fields such as Bozhong 19-6, Kenli 6-1and Lingshui 17-2, etc.;

 

ØOverseas: the discoveries and extensions of oil and gas reserves in the amount of 76.1 million BOE which are primarily attributable to Mero 3 in Brazil, BC Energy in Argentina and Long Lake in Canada, etc.;

 

·A decrease of 396.7 million BOE due to PUD converted to Proved Developed Reserves (“PD”);

 

·A decrease of 119.8 million BOE due to revision of previous estimates, details of which are described below:

 

ØChina: a decrease of 46.7 million BOE mainly caused by economic factors, which were mainly due to decrease in oil price;

 

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ØOverseas: a decrease of 73.1 million BOE mainly caused by economic factors, which were mainly due to decrease in oil price which led to downside adjustment of undeveloped reserves in US Shale and Canadian oil sands etc.

 

·An increase of 88.3 million BOE due to enhanced recovery, which was mainly attributed to waterfloods in Guyana.

 

In 2020, we had in total 396.7 million BOE PUD converted to PD and we spent approximately Rmb 30.6 billion on developing PUD into PD. Rmb 24.3 billion, or 79%, was spent on major development projects in Bohai, Eastern South China Sea, Western South China Sea in offshore China and Iraq, U.S., Argentina, Indonesia as well as Guyana, etc. The remaining 21%, or Rmb 6.3 billion, was spent mainly on the infill drilling programs in offshore China and Argentina, Iraq, Indonesia as well as U.K. etc.

 

As of December 31, 2020, 699.1 million BOE of our PUD were first booked before 2015. These PUD were mainly located in offshore China, Canada, Indonesia, and Australia, including 513.1 million BOE from fields located in offshore China, of which 365.2 million BOE were scheduled to come on stream in 2021 and the remaining were either under construction or under development plan optimization; 132.0 million BOE from undeveloped open pit mines which are required as future sustaining areas to replace bitumen feedstock for Canadian oil sand upgrader as the existing mines deplete; 50.0 million BOE from gas contract related fields in Indonesia and Australia mainly due to supply contract. The development of PUD relating to the above projects was not completed within five years from initial booking due to the specific circumstances associated with the relevant development activities and delivery obligations. The Company books proved reserves for which development is scheduled to commence after more than five years only if these proved reserves satisfy the SEC’s standards for attribution of proved status and our management has reasonable certainty that these proved reserves will be produced.

 

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

 

Reserve data contained in this annual report is 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), released on January 14, 2009 and related accounting standards. Our proved reserves estimates were prepared using standard geological and engineering methods generally accepted by the petroleum industry, and the definitions and standards of reserves required by the SEC. Generally accepted methods for estimating reserves include volumetric calculations, material balance techniques, production decline curves, pressure transient analysis, analogy with similar reservoirs, and reservoir simulation. The method or combination of methods used is based on professional judgment and experience.

 

For 2018, 2019 and 2020 approximately 69%, 66% and 62%, respectively, of our reserves were evaluated by our internal reserves evaluation staff, and the remaining were based upon estimates prepared by independent petroleum engineering consulting companies and reviewed by us. Except as otherwise stated, all amounts of reserves in this report include our interests in equity method investees.

 

In 2020, we engaged Ryder Scott Company, L.P. and RPS as independent third party consulting firms to perform annual estimates for our net proved oil and gas reserves. For each independent third party consulting firm, a report of third party letter has been prepared which summarizes the work undertaken, the assumptions, data, methods and procedures they used and provides their reserves estimate. These reports have been included as exhibits to this report on Form 20-F.

 

For China assets, approximately 52% of the total net proved oil and gas reserves were evaluated by our internal reserve evaluation staff, which accounted for 30% of our total net proved oil and gas reserves. The remaining 48% which accounted for 28% of our total net proved oil and gas reserves were evaluated by Ryder Scott Company, L.P.

 

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For overseas assets, approximately 76% of the total net proved oil and gas reserves were evaluated by our internal reserve evaluation staff, which accounted for 32% of our total net proved oil and gas reserves. And we also engaged independent third party consulting firms Ryder Scott Company, L.P., McDaniel & Associates Consultants Ltd. and DeGolyer and MacNaughton to conduct audits for internally evaluated reserves to provide validation of our processes and estimates, which accounted for approximately 67% of overseas total internally evaluated net proved oil and gas reserves. For each independent third party consulting firm, a report of third party letter has been prepared which summarizes the work undertaken, the assumptions, data, methods and procedures they used and concludes with their opinion concerning the reasonableness of the estimated reserves quantities or reserves processes. These reports have been included as appendices to this annual report. The remaining 24% which accounted for 10% of our total net proved oil and gas reserves were evaluated by Ryder Scott Company, L.P. and RPS.

 

Based on the extent and expertise of our internal reserves evaluation resources, our staff’s familiarity with our properties and the controls applied to the evaluation process, we believe that the reliability of our internally generated estimates of reserves and future net revenue is not materially less than that of reserves estimates conducted by an independent qualified reserves evaluator.

 

Besides engaging third parties to provide annual estimates and audits of our reserves, we also implement rigorous internal control system that monitors the entire reserves estimation process 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 Committee, or RMC, which is led by one of our Executive Vice Presidents and comprises the general managers of the relevant departments.

 

The RMC’s main responsibilities are to:

 

·review our reserve policies;

 

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

 

·select our reserve estimators and auditors.

 

The RMC 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 a professional society such as China Petroleum Society (CPS), and are required to take the professional training and examinations as required by the professional society and us.

 

The RMC 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 RMC periodically and is independent from operating divisions such as the exploration, development and production departments. Our Chief Reserve Supervisor has more than 25 years’ experience in the oil and gas industry.

 

Exploration, Development and Production

 

Summary

 

In China, we engage in oil and natural gas exploration, development and production in Bohai, Western South China Sea, Eastern South China Sea and East China Sea, as well as onshore unconventional oil and natural gas exploration, development and production, either independently or through cooperation with foreign partners under production sharing contracts (“PSCs”). As of the end of 2020, approximately 57.9% of the Company’s net proved reserves and approximately 67.4% of its net production were derived from China.

 

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For independent operations, we have been increasing our reserves and production mainly through independent exploration and development. As of the end of 2020, approximately 87.8% of our net proved reserves and approximately 81.0% of our net production in China were derived from independent oil and gas fields.

 

For PSC operations, China National Offshore Oil Corporation (“CNOOC”), our controlling shareholder, has the exclusive right to enter into PSCs with foreign oil companies to cooperate in the exploration, development and production of petroleum resources (including crude oil and natural gas) in offshore China which are open to foreign cooperation. CNOOC has transferred to the Company all its rights and obligations under the PSCs (except those relating to its management and regulatory functions as a state-owned company), including new PSCs that will be signed in the future.

 

In overseas, with our diversified portfolio of high-quality assets, we hold interests in a numbers of world-class oil and gas projects and have become a leading industry player. At present, our assets are scattered in more than 20 countries and regions in the world, including Indonesia, Australia, Nigeria, Iraq, Uganda, Argentina, the U.S., Canada, the U.K., Brazil, Guyana, Russia and the United Arab Emirates. As of the end of 2020, overseas oil and gas assets accounted for approximately 50% of the total oil and gas assets of the Company, and overseas net proven reserves and overseas net production accounted for approximately 42.1% and approximately 32.6%, respectively.

 

We experienced an extraordinary series of events in 2020, as the world went through the worst public health crisis in a century and the most severe economic recession since the Great Depression. The World Bank estimated that the global economy would shrink by 4.3% year-on-year in 2020. China achieved remarkable results in pandemic prevention and control and took the lead in recovering from the recession. In 2020, China’s GDP increased by 2.3% year-on-year, making it the only major economy to post positive growth. The “cliff-like” drop in international oil prices plunged the global oil and gas industry into a downturn, and the average price of Brent in 2020 dropped significantly by 33% year-on-year. Low oil prices coupled with the COVID-19 pandemic had a great impact on the production and operation of the Company.

 

We strengthened our confidence and proactively responded to the severe challenges. In the first quarter of the year, we adjusted our business strategy for the whole year in a timely manner, namely: focusing on high-quality development, pursuing profitable reserves and production, controlling the pace of investment, adhering to more stringent cost controls, and maintaining healthy cash flow of the Company.

 

In 2020, we made efforts to strictly implement epidemic prevention and control measures, vigorously increase the reserves and production levels, further advance cost reduction and efficiency enhancement, firmly facilitate technological innovation and ensure safe production with all our strength, which enabled us to accomplish various production and operation tasks. We strengthened the philosophy of value-driven exploration and enhanced exploration effectiveness. In China, we focused on the exploration of mid-to-large sized oil and gas fields, and enhanced exploration efforts in new areas, new frontiers, and new types. Overseas, we insisted on exploration management. A total of 16 new discoveries were made throughout the year, and 42 oil and gas bearing structures were successfully appraised. Meanwhile, steady progress was made in the construction of new projects. Nine new projects in offshore China planned to come on stream during the year and Liza oilfield phase I in Guyana were successfully put into production. Penglai 25-6 oilfield area 3 project was also put into production during the year. More than 20 projects were under construction throughout the year to support future sustainable development. Thanks to the effective prevention and control of the pandemic and effective management of production and operation, the Company exceeded the adjusted annual oil and gas production target, with a net production of 528.2 million BOE. Our all-in cost per BOE hit a record low in ten years, reaching US$26.34. The Company achieved a net profit of RMB24.96 billion and maintained a sound financial position. Meanwhile, its performance in the areas of health, safety and environmental protection remained stable.

 

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At present, many countries have begun to vaccinate against the COVID-19, which brings more hope for the prevention and control of the pandemic and the recovery of the world economy. As forecasted by the World Bank, global economic growth will reach 4% in 2021. International oil prices have steadily recovered, and the Brent oil price has rallied above US$60 per barrel. However, there are still uncertainties in the future trend of international oil prices, and trade frictions will also put pressure on the Company. In view of this, we will pay more attention to efficiency and risk control. In 2021, the capital expenditure plan is set at RMB90.0-100.0 billion, and the production target is set at 545-555 million BOE. We plan to put 19 new projects into production during the year, and strive for a reserve replacement rate of 120%, while maintaining a high standard of health, safety and environmental protection.

 

Looking forward to the future, we will continue to enhance our capability to create value. While pursuing production growth, we will actively respond to climate change and build a green and low-carbon enterprise. To this end, the Company further strengthened its business strategy, mainly including: strengthening the efforts in nature gas exploration, promoting further production growth, focusing on investment returns, maintaining cost competitiveness, keeping a healthy financial position, optimizing the layout of overseas assets, and adhering to the low-carbon development principle.

 

Exploration

 

In 2020, in the face of low oil prices, we adhered to the value-driven exploration philosophy, balanced the scale of discovery and profitability of reserves, and optimized exploration deployment. In China, we placed emphasis on rolling exploration in mature areas, and efficiently appraised existing discoveries. Overseas, we reduced expenditures on risk exploration to focus on hot areas of oil and gas exploration. The exploration workload of the Company was maintained at a high level throughout the year. We maintained our focus on core values, and continued to consolidate the resource base for increasing reserves and production. In 2020, the Company’s reserve replacement ratio reached 136%, with a reserve life of 10.2 years, which remained stable at a level above 10 years for 4 consecutive years.

 

In offshore China, we adhered to the value-driven exploration philosophy, focused on exploration of mid-to-large sized oil and gas fields, and achieved remarkable results. A number of breakthroughs were achieved with enhanced effort, in exploration in new areas, new frontiers and new types. Risk exploration and rolling exploration achieved remarkable results as well. The activities in independent exploration wells and the acquisition of 3D seismic data remained at a high level. Throughout the year, a total of 186 exploration wells were drilled, including one PSC well. A total of 4,793 kilometres of 2D seismic data and 18,276 square kilometres of 3D seismic data were acquired under independent and PSCs. The Company made 13 new discoveries and successfully appraised 41 oil and gas bearing structures in offshore China. The success rate for independent exploration wells in offshore China was 49%-68%.

 

In 2020, the exploration results achieved in offshore China mainly include:

 

Firstly, two large oil and gas fields with proven in-place volume exceeding 100 million tons of oil equivalent, namely Kenli 6-1 and Bozhong 13-2, were successfully discovered, which further laid a solid foundation for the future production growth.

 

Secondly, a major breakthrough was made in risk exploration as Huizhou 26-6, a mid-sized oil and gas field, was discovered and appraised successfully, which was expected to become the biggest oil and gas field discovered by independent exploration in the Pearl River Mouth Basin.

 

Thirdly, continued to explore in new areas, new frontiers, and new types and breakthroughs were made in Qinhuangdao 22-3, Wenchang 9-7 and Lingshui 25-1 West, which expanded our base of reserve replacement.

 

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Fourthly, the integration of exploration and development was promoted. The scale and efficiency of rolling exploration continuously increased to hit a new record; and the newly-added proven in place volume exceeded 100 million tons of oil equivalent, which strongly supported the rapid conversion from reserve to production.

 

In onshore China, we stepped up unconventional gas exploration, drilled 97 unconventional exploration wells, and confirmed the resource base for the first 100 billion cubic meters of unconventional gas field, which will strongly support the growth of the Company’s future natural gas production.

 

Overseas, we continued our exploration management and drilled 4 exploration wells. We made 3 new discoveries, and successfully appraised 1 oil and gas bearing structure. Three new discoveries were made in the Stabroek block of Guyana, including Uaru, Yellowtail-2, and Redtail. Yellowtail oil and gas bearing structure was successfully appraised, and breakthroughs were made in the new formation. As of the end of 2020, a total of 18 new discoveries were made in the Stabroek block. As disclosed by the operator, the current recoverable resources have been further expanded to about 9 billion BOE, and there is still huge exploration potential in the future.

 

Our major exploration activities in 2020 are set out in the table below:

 

 

Exploration Wells

New Discoveries

Successful Appraisal Wells

Seismic Data

 

Independent

PSC

        

2D (km)

3D (km2)

 

Wildcat

Appraisal

Wildcat

Appraisal

Indepen-dent

PSC

Indepen-dent

PSC

Indepen-dent

PSC

Indepen-dent

PSC

Offshore China                        
Bohai 27 64 0 0 5 0 45 0 773 0 1,188 0
Eastern South China Sea 19 24 0 0 4 0 11 0 0 3,735 6,646 1,359
Western South China Sea 11 35 1 0 4 0 19 0 4,020 0 6,992 228
East China Sea 3 2 0 0 0 0 2 0 0 0 1,863 0
Subtotal 60 125 1 0 13 0 77 0 4,793 3,735 16,689 1,587
Overseas 0 0 3 1 0 3 0 1 0 0 3,512 0
Total 60 125 4 1 13 3 77 1 4,793 3,735 20,201 1,587

 

In 2021, we will adhere to the value-driven exploration philosophy and maintain our exploration investment so as to lay a solid reserve foundation for the Company’s sustainable development. In offshore China, we will continue to strengthen exploration on three levels in new areas, new types and new layers. Targeting mid-to-large size discoveries, we will make efforts on both oil and gas exploration and strengthen gas exploration activities. We will maintain exploration in middle-shallow layers, strengthen exploration in middle-deep layers and actively prepare for deep layers exploration. In addition, we will increase efforts in risk exploration to achieve multiple breakthroughs in frontiers and new areas. Overseas, we will focus on strategic core areas, and pay attention to operating and non-operating projects.

 

Engineering Construction, Development and Production

 

In 2020, we actively responded to the challenge of low oil prices. In the first quarter of the year, we timely adjusted our annual production target from 520-530 million BOE to 505-515 million BOE. At the same time, we optimized the production structure by increasing domestic profitable production and reducing overseas inefficient and loss-making crude oil production. Throughout the year, we accomplished various development and production tasks. Our net oil and gas production reached a record high, and key projects progressed steadily.

 

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In 2020, we achieved a net oil and gas production of approximately 528.2 million BOE, exceeding the adjusted production target and reaching a record high. Nine of the new projects planned to be put into production during the year came on stream, including: Penglai 19-3 oilfield block 4 adjustment/Penglai 19-9 oilfield phase II, Qinhuangdao 33-1 South oilfield phase I, Luda 16-3/21-2 joint development project, Bozhong 19-6 condensate gas field pilot development project, Nanbao 35-2 oilfield S1 area, Jinzhou 25-1 oilfield 6/11 area, Liuhua 29-1 gas field development project and Liuhua 16-2 oilfield/Liuhua 20-2 oilfield joint development project, and Liza oilfield phase I in Guyana. In addition, Penglai 25-6 oilfield block 3 development project was also put into production during the year. Over 20 projects were under construction throughout the year, and the development and construction of key projects progressed smoothly. Among them, we completed the drilling of all development wells and onshore construction for Lingshui 17-2 gas fields project, and the construction of the Lufeng oilfields regional development project was carried out on track.

 

In 2020, we unswervingly adhered to the goal of increasing reserves and production, strengthened the leading role of technological innovation, reduced cost and enhanced quality and efficiency as a way to promote sustainable development. The main measures included:

 

Firstly, we organized operations efficiently and took multiple measures to promote the production potential of producing oil fields. Both the workload and production contribution of infill drillings reached record highs. We improved the recovery rate and reduced the decline rate of single well production as a way to continuously promote the “Year of Water Injection” programme. We also improved the level of refined management and operated at a high production efficiency.

 

Secondly, we promoted construction acceleration and efficiency enhancement, and strengthened our efforts in facilitating the development and construction of production capacity. We implemented an integrated and innovative management model for exploration and development, promoted the rapid and high-quality production of pilot projects, and realized efficient conversion from reserve to production.

 

Thirdly, we paid more attention to quality and efficiency, and the cost per BOE reached a new low. We established a long-term mechanism to further improve quality and reduce costs. We shifted the focus to high-yield and low-cost projects through structural optimization in order to maximize production efficiency and deeply explore the potential to reduce the cost per BOE.

 

Fourthly, we took innovation as the driving force to facilitate the high-quality development of oil and gas fields. The application of new processes and technologies was promoted to accelerate the progress and enhance the efficiency of thermal recovery of heavy oil; the power transformation of offshore oilfields was advanced to accelerate the onshore power projects in Bohai oilfields; and the construction of smart oil and gas fields, unmanned platforms, and oilfield typhoon models was carried out in an orderly manner.

 

In 2021, we will continue to promote construction acceleration and efficiency enhancement so as to speed up project construction, and ensure that key projects are put into production on schedule. We will optimize the planning for infill drilling wells to enhance recovery rate of oilfields and increase the contribution of new production. We will continue to carry out the work of “controlling water and stabilizing oil” for producing oilfields to control natural decline and ensure basic production. Meanwhile, we will make every effort to facilitate the development of heavy oil with low permeability and promote the effective utilization of heavy oil reserves.

 

In 2021, a total of 19 new projects are planned to come on stream, mainly including Lingshui 17-2 gas fields development, Lufeng oilfields regional development and Caofeidian 6-4 oilfields in offshore China, as well as Buzzard oilfield phase II in the U.K. and Mero oilfield phase I in Brazil. In addition, the Company will actively advance the appraisal and construction of new projects. It is expected that more than 20 new projects will be under construction throughout the year, which will lay a solid foundation for mid- and long-term growth in production.

 

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Overview by Region

 

Offshore China

 

Bohai

 

Bohai is the most important crude oil producing area for the Company. The crude oil produced in this region is mainly heavy oil. The operational area in Bohai is mainly shallow water with a depth of approximately 10 to 30 metres. As of the end of 2020, the reserve and production in Bohai reached 1,443.9 million BOE and 477,374 BOE/day, respectively, representing approximately 26.9% of the Company’s total reserves and approximately 33.1% of its production.

 

With rich oil and gas resources, Bohai has been one of the Company’s core areas for exploration and development. In 2020, the Company made five successful discoveries in Bohai, namely Bozhong 8-4 South, Bozhong 13-2 deep formation, Bozhong 19-6 North, Caofeidian 28-1 and Kenli 9-2. In addition, the Company also successfully appraised 20 oil and gas bearing structures, including Bozhong 13-2, Bozhong 21-2, Bozhong 26-3, Bozhong 26-3 North, Bozhong 29-4, Bozhong 29-4 West, Bozhong 34-9, Bozhong 36-1, Bozhong 8-4 South, Caofeidian 2-2, Caofeidian 6-2, Kenli 10-1 North, Kenli 6-1, Luda 10-5/6, Luda 19-2, Luda 27-1, Luda 5-2, Qikou 17-2, Suizhong 36-1 North and Suizhong 36-2.

 

In 2020, we continued to appraise Bozhong 19-6 condensate gas fields, and expanded the exploration of Bozhong 13-2, which was another buried hill breakthrough after Bozhong 19-6, with proved in-place volume reaching 100 million tons. Kenli 6-1 was efficiently appraised, with proven in-place volume exceeding 100 million tons of oil equivalent, and is expected to become the first large-sized shallow lithology oilfield in the Laibei low uplift in Bohai. Meanwhile, exploration in new frontiers made the discovery of Qinhuangdao 22-3 structure in Bohai, which proved the exploration potential of the Qinnan Sag.

 

For development and production, in 2020, Penglai 19-3 oilfield block 4 adjustment/Penglai 19-9 oilfield phase II, Qinhuangdao 33-1 South oilfield phase I, Bozhong 19-6 condensate gas field pilot development project, Luda 16-3/21-2 joint development project, Nanbao 35-2 oilfield S1 area, Jinzhou 25-1 oilfield 6/11 area and Penglai 25-6 oilfield area 3 development project came on stream. Upon commencement of production, Bozhong 19-6 condensate gas field will provide low-carbon and safe energy supply for Bohai Rim Region and contribute to the growth in natural gas production of the Company in the future. At the same time, we steadily promoted the implementation of major scientific and technological projects such as the key technology research of “stabilizing production at 30 million tons with an aim of increasing to 40 million tons for Bohai oilfields”, and achieved remarkable results, which supported the Company in achieving the goal of mid- and long-term production growth.

 

In 2021, it is expected that Bozhong 19-4 oilfield adjustment, Bozhong 26-3 oilfield expansion, Caofeidian 11-6 oilfield expansion, Caofeidian 6-4 oilfield, Jinzhou 31-1 gas field, Kenli 16-1 oilfield, Kenli 6-1 oilfield block 4-1 development project, Luda 29-1 oilfield, Luda 4-2 oilfield block 4-3, Luda 5-2 oilfield North, Luda 6-2 oilfield and Qinhuangdao/Caofeidian onshore power project will commence operation successively during the year. Among them, the Qinhuangdao/Caofeidian onshore power project will reduce carbon dioxide emissions by an average of 170,000 tons per year, which will effectively help achieve energy conservation, emission reduction and cost control.

 

Western South China Sea

 

Western South China Sea is one of the Company’s important crude oil and natural gas production areas. The typical operating water depth in the region ranges from 40 to 1,500 metres. The crude oil produced here is mostly of light to medium gravity. As of the end of 2020, the reserves and production in Western South China Sea reached 843.0 million BOE and 187,311 BOE/day, respectively, representing approximately 15.7% of the Company’s total reserves and approximately 13.0% of its production.

 

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In 2020, we made four successful discoveries in Western South China Sea, namely Lingshui 25-1 West, Weizhou 12-1, Wenchang 9-7 and Weizhou 11-6. The Company also achieved a total of 12 successful appraisals, namely Weizhou 11-2, Weizhou 11-6, Weizhou 12-2, Weizhou 6-9, Wushi 1-6, Wushi 16-1, Wushi 23-5, Dongfang 13-1, Lingshui 17-2, Wenchang 19-1, Wenchang 8-3 East, and Wenchang 9-7. Among them, the discovery of natural gas from Lingshui 25-1 West-2 well in the Meishan Formation opened up the exploration in new frontiers for the new layer of Meishan Formation in the deepwater area of the Qiongdongnan Basin. In the drilling of Wenchang 9-7-1 well, thick oil layer was found and tested with high productivity, which opened up new frontiers of oil and gas exploration in the western Pearl River Mouth Basin.

 

During the year, the onshore construction and the drilling of development wells of Lingshui 17-2, the first large-sized deepwater independent gas field in offshore China, were completed. It is expected to be put into production in 2021. Upon commencement of production, Lingshui 17-2 will provide stable gas supply of more than 3 billion cubic metres to Guangdong, Hong Kong and Hainan area every year, which will greatly enhance the Company’s natural gas supply capacity and promote the development of green and low-carbon transformation. In addition, Weizhou 11-2 oilfield phase II is expected to come on stream in 2021.

 

Eastern South China Sea

 

Eastern South China Sea is another important crude oil and natural gas producing area of the Company. The typical operating water depth in the region ranges from 100 to 1,500 metres. The crude oil produced here is mostly of light to medium gravity. As of the end of 2020, the reserves and production in Eastern South China Sea reached 592.9 million BOE and 273,719 BOE/day, respectively, representing approximately 11.0% of the Company’s total reserves and approximately 19.0% of its production.

 

In 2020, we made four new discoveries in Eastern South China Sea, namely Enping 21-4, Huizhou 19-14, Huizhou 25-2 and Huizhou 26-6. Furthermore, seven oil and gas bearing structures were successfully appraised, namely Enping 18-6, Panyu 34-1, Huizhou 25-2, Huizhou 25-9, Huizhou 26-6, Liuhua 27-1 and Lufeng 9-2. Risk exploration of Huizhou 26-6 structure achieved a medium-sized commercial breakthrough, making it the biggest oil and gas field discovered by independent exploration in the Pearl River Mouth Basin. It will also drive oil and gas exploration in surrounding areas. The rolling exploration of Huizhou 25-2 was successful, and the proved reserves can be developed and produced through the surrounding platforms, which will accelerate the development of reserves and its conversion to production, and deliver good economic benefits.

 

As for development and production, Liuhua 16-2/Liuhua 20-2 oilfield joint development project and Liuhua 29-1 gas field development project started production in 2020. Liuhua 21-2 oilfield, Liuhua 29-2 gas field and Lufeng oilfields regional development are expected to come on stream in 2021.

 

East China Sea

 

The typical operating water depth in the East China Sea region is approximately 90 metres. As of the end of 2020, reserves and production in the region represented approximately 2.8% and approximately 1.1% of the Company’s total reserves and production, respectively.

 

In 2020, the Company continued to promote pioneering innovation and exploratory experiments in the East China Sea. The technological experiments to enhance oil recovery rate, such as gas reservoir depressurization extraction, achieved initial results. The unmanned transformation of producing oil and gas fields was completed. We achieved safe and efficient operation of unmanned offshore platforms and significantly reduced production costs.

 

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Onshore

 

At present, taking CUCBM as a platform, we mainly engaged in the exploration, development, production and foreign cooperation of unconventional gas resources in onshore China. We have established two major production bases in the Qinshui Basin and the eastern edge of the Erdos Basin. As of the end of 2020, reserves and production in onshore China represented approximately 1.4% and approximately 1.2% of the Company’s total reserves and production, respectively.

 

In 2020, proven in-place volume of onshore unconventional gas increased steadily and reached 100 billion cubic meters. In the future, we will continue to increase our efforts in development of onshore unconventional gas to strongly support the Company’s green and low-carbon transformation and the growth in natural gas production.

 

New Energy Business

 

In line with the general trend of low-carbon development in the global energy industry, we actively explored the development of new energy businesses such as offshore wind power and carried out research on cutting-edge technologies by leveraging its extensive experience in offshore production, operation and management.

 

In 2020, the Company’s first offshore wind power project located in the waters near Jiangsu was connected to the grid to generate electricity. The project has a planned installed capacity of 300 MW and plans to build 67 wind turbines offshore, which can save 280,000 tons of standard coal each year and reduce carbon dioxide emissions of 570,000 tons, equivalent to the total amount of carbon dioxide that 430,000 mu of trees can absorb each year. This signifies our solid steps to actively promote energy transition and implement the green and low-carbon strategy and will supply clean and reliable energy to facilitate the green development of the Yangtze River Delta region.

 

In addition, the second offshore wind power project, which is located near Shantou, Guangdong Province, is progressing smoothly.

 

Overseas

 

Asia (excluding China)

 

Asia (excluding China) is the first overseas region entered into by the Company, and has become one of the major overseas oil and gas producing areas of the Company. Currently, the Company owns oil and gas assets mainly in Indonesia, Iraq and the United Arab Emirates. As of the end of 2020, reserves and production derived from Asia (excluding China) reached 326.9 million BOE and 77,017 BOE/day, respectively, representing approximately 6.1% of the Company’s total reserves and approximately 5.3% of its production.

 

Indonesia

 

As of the end of 2020, the Company’s asset portfolio in Indonesia comprised mainly two development and production blocks, namely the Madura Strait and Tangguh.

 

Among them, the Madura Strait block is a joint operation block, and the production of BD gas field remained stable. Affected by the pandemic, downstream demand for gas decreased in 2020, and its daily net production slightly decreased. Other gas fields are under appraisal and construction.

 

The Company owns approximately 13.9% interest in the Tangguh LNG project in Indonesia. In 2020, production of the first phase of the project remained stable with a daily net production of approximately 22,000 BOE. The construction of the third LNG train in the phase II of the project is in progress as planned.

 

43

Iraq

 

The Company owns a 63.75% participating interest in the technical service contract of Missan oilfields in Iraq and acts as the lead contractor for the technical service of the oilfields.

 

In 2020, the Company continued to drill development wells in Missan oilfields, and the production of the project has steadily increased. However, due to the production curtailment of the OPEC, the daily net production decreased to approximately 35,000 BOE.

 

United Arab Emirates

 

In 2020, the Company has acquired 40% equity interest in the project companies of two former oilfield contract areas of CNPC, namely the Lower Zakum Shallow Water Oilfield and Umm Shaif & Nasr Oilfield in Abu Dhabi, and indirectly hold 4% interest in each of such two oilfield contract areas. In 2020, the projects maintained stable production with an average daily net production of approximately 12,000 BOE.

 

Oceania

 

Currently, the Company’s oil and gas assets in Oceania are mainly located in Australia and Papua New Guinea. As of the end of 2020, reserves and production derived from Oceania reached 42.0 million BOE and 32,673 BOE/day, respectively, representing approximately 0.8% of the Company’s total reserves and approximately 2.3% of its production.

 

Australia

 

The Company owns a 5.3% interest in the North West Shelf LNG Project (“NWS Project”) in Australia. The project has commenced production and is currently supplying gas to end-users including the Dapeng LNG Terminal in Guangdong, China.

 

In 2020, the NWS Project achieved additional incremental gas production with favorable economic returns.

 

Other Regions in Oceania

 

The Company owns interests in three blocks which are still under exploration in Papua New Guinea.

 

Africa

 

Africa is one of the regions where the Company has a relatively large overseas oil and gas reserves and production. The Company’s assets in Africa are primarily located in Nigeria and Uganda. As of the end of 2020, reserves and production in Africa reached 77.5 million BOE and 90,750 BOE/day, respectively, representing approximately 1.4% of the Company’s total reserves and approximately 6.3% of its production.

 

Nigeria

 

The Company owns a 45% interest in the OML130 block in Nigeria. The OML130 block is a deepwater block comprising four oilfields, namely Akpo, Egina, Egina South and Preowei.

 

In 2020, Akpo oilfield maintained stable production, with a daily net production reaching approximately 41,000 BOE. Egina oilfield began to implement the production curtailment of the OPEC in May 2020, with a daily net production reaching approximately 44,000 BOE.

 

44

In addition, the Company holds a 20% non-operator interest in Usan oilfield in the OML138 block in offshore Nigeria, and an 18% non-operator interest in the OPL223 and OML139 PSC, respectively.

 

We will continue to carry out further integration to establish an oil and gas production base in West Africa centred in Nigeria.

 

Uganda

 

The Company owns a one-third interest in each of EA 1, EA 2 and EA 3A blocks in Uganda. EA 1, EA 2 and EA 3A blocks are located at the Lake Albert Basin in Uganda, which is one of the most promising basins in terms of oil and gas resources in onshore Africa.

 

In 2020, the Company fully facilitated the negotiation of the framework agreement for the long-distance transmission pipeline project in Uganda. In the future, the Company will adhere to the philosophy of mutually beneficial cooperation and continue to actively cooperate with project partners and the Ugandan government.

 

Other Regions in Africa

 

Apart from Nigeria and Uganda, the Company also owns interests in several blocks in Senegal, the Republic of the Congo and the Gabonese Republic.

 

North America

 

North America has become the Company’s largest overseas oil and gas reserves and production region. The Company holds interests in oil and gas blocks in the U.S., Canada, Mexico and Trinidad and Tobago in North America. As of the end of 2020, the Company’s reserves and production in North America reached 1,087.7 million BOE and 143,949 BOE/day, respectively, representing approximately 20.2% of the Company’s total reserves and approximately 10.0% of its production.

 

The U.S.

 

The Company owns interests in two onshore shale oil and gas projects in the U.S. and two offshore deepwater projects in the Gulf of Mexico.

 

CNOOC Limited holds 27% and 12% interests in Eagle Ford and Rockies, respectively, which are two onshore shale oil and gas projects in the U.S. In 2020, the daily net production of Eagle Ford project and Rockies project reached 48,000 BOE and 9,000 BOE, respectively.

 

CNOOC Limited owns interests in two important deepwater projects, namely Stampede and Appomattox in the U.S. Gulf of Mexico. In 2020, with the improvement of surface facilities and oilfield water injection, the production of Stampede project remained stable. Affected by the low oil prices, we and our partners reduced the number of production wells in the Appomattox project with a daily net production of approximately 14,000 BOE. In addition, CNOOC Limited also owns interests in several other exploration blocks in the U.S. Gulf of Mexico.

 

Canada

 

Canada is one of the world’s major enrichment areas for oil sands. The Company owns 100% working interest in Long Lake and three other oil sands projects in the Athabasca region of northeastern Alberta in Canada.

 

45

In 2020, facing with low oil prices, we effectively used the time gap to conduct Long Lake project overhaul in advance. After the recovery of the oil prices, the production has gradually increased. Its daily net production was approximately 31,000 BOE in 2020.

 

The Company holds a 7.23% interest in the Syncrude project and its daily net production in 2020 was approximately 20,000 BOE. The Company also holds a 25% interest in the Hangingstone oil sands project and non-operator interests under several other exploration and development licences.

 

The Company also holds 100% exploration interest in two exploration blocks in offshore East Canada. The drilling of one wildcat is expected to be completed in 2021.

 

In addition, the Company holds approximately 9.47% of shares in MEG Energy Corporation, a listed company in Canada.

 

Other Regions in North America

 

The Company owns a 12.5% interest in the 2C block and a 17.12% interest in the 3A block in Trinidad and Tobago, respectively, of which the 2C block is in production with stable production and favourable economic returns.

 

The Company also owns 100% exploration operator interest in block 1 and a 70% exploration operator interest in block 4 of the Cinturon Plegado Perdido deepwater exploration blocks in Mexico, respectively. In 2020, the drilling of one wildcat in block 1 was completed and the drilling of one wildcat in block 4 is scheduled to be completed in 2021.

 

South America

 

South America is one of the Company’s important sources of future reserve and production growth. The Company holds interests in oil and gas blocks in Brazil, Guyana and Colombia in South America, as well as a 50% interest in BC ENERGY INVESTMENTS CORP. (“BC”) in Argentina. As of the end of 2020, the Company’s reserves and production derived from South America reached 286.6 million BOE and 72,018 BOE/day, respectively, representing approximately 5.3% of the Company’s total reserves and approximately 5.0% of its production.

 

Brazil

 

Brazil is one of the world’s most important deepwater oil and gas development regions. CNOOC Limited holds a 10% interest in Libra PSC, a deepwater pre-salt project in Brazil. The oilfield is located in the Santos Basin. In addition, CNOOC Limited holds a 5% interest in Búzios Surplus project in Brazil, which is a deepwater pre-salt project. Currently, negotiations on relevant agreements for the project are in progress.

 

The Mero oilfield in the northwest area of the Libra block includes four production units, namely Mero 1, Mero 2, Mero 3 and Mero 4. The production of the extended well trial project remained stable in 2020. The final investment decisions for Mero 1, Mero 2 and Mero 3 oilfields have been made and the projects are expected to commence production in 2021, 2023 and 2024, respectively. The development plan of Mero 4 has been completed.

 

In the future, we will fully leverage on the development opportunities of the Libra project and Búzios Surplus project to seek new drivers for production growth.

 

CNOOC Limited also holds 100% interest in the 592 block in offshore Brazil, a 20% interest in the ACF Oeste block and a 30% interest in the Pau Brasil block.

 

46

Guyana

 

CNOOC Limited holds a 25% interest in the Stabroek block in offshore Guyana.

 

The Phase I of Liza oilfield in the block commenced production ahead of schedule in December 2019. Its daily net production reached approximately 17,000 BOE in the end of 2020.

 

The final investment decision for Liza oilfield Phase II has been made and the oilfield is expected to commence production in 2022. For the Payara oilfield, the final investment decision has been made and the government’s approval has been obtained.

 

In 2020, 3 new discoveries including Uaru, Yellowtail-2 and Redtail have been made in the Stabroek block, and Yellowtail oil and gas bearing structure was successfully appraised. Currently, a total of 18 new discoveries have been made in the block and the recoverable resources have been further expanded to approximately 9.0 billion BOE.

 

Argentina

 

CNOOC Limited holds a 50% interest in BC and makes joint decisions on its management. BC holds a 50% interest in Pan American Energy Group in Argentina.

 

In 2020, the daily net production of BC reached approximately 52,000 BOE.

 

Other Regions in South America

 

The Company also holds interests in several exploration and production blocks in Colombia.

 

Europe

 

In Europe, CNOOC Limited holds interests in oil and gas fields such as Buzzard and Golden Eagle in the U.K. North Sea, and holds a 10% equity interest in Arctic LNG 2 LLC in Russia. As of the end of 2020, the Company’s reserves and production derived from Europe reached 72.0 million BOE and 54,518 BOE/day, respectively, representing approximately 1.3% of the Company’s total reserves and approximately 3.8% of its production.

 

The U.K.

 

The U.K. is one of the Company’s key overseas development areas. The Company’s asset portfolio in the U.K. North Sea includes projects under production, development and exploration, which mainly include: holding a 43.21% interest in the Buzzard oilfield, one of the largest oilfields in the North Sea, and a 36.5% interest in the Golden Eagle oilfield.

 

Buzzard and Golden Eagle oilfields are making considerable contributions to the Company’s production. In 2020, the Buzzard oilfield’s daily net production reached approximately 38,000 BOE. In addition, Buzzard oilfield Phase II is expected to commence production in 2021.

 

The Company also holds 50% exploration interest of P2215 block and 100% exploration interest of P2279 block in the U.K. North Sea, and plans to complete the drilling of two appraisal wells in Glengorm before 2022.

 

In addition, the Company holds 30% interest in P2415 block in the U.K. West Shetland Basin.

 

Russia

 

The Company owns a 10% interest in Arctic LNG 2 LLC, which is located in the Gydan Peninsula in the Arctic region of Russia. The project is the second oil and gas cooperation project between China and Russia in the Arctic Circle which covers the whole industry chain. Three LNG production trains will be established as planned in the project and put into production in 2023, 2024 and 2026, respectively. It is expected to produce 19.80 million tons of LNG annually after full operation.

 

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 2018, 2019 and 2020.

 

47

  

Net Production

 

Average Sales Price

  Average Production Cost
   Total  Crude and Liquids  Gas  Crude and Liquids  Gas   
   (BOE/day)  (Bbls/day)  (Mmcf/day)  (US$/bbl)  (US$/ Mmcf)  (US$/BOE)
2020                  
China                  
Bohai    477,374    452,625    148.5    —    —    — 
Western South China Sea    187,311    110,247    441.7    —    —    — 
Eastern South China Sea    273,719    206,911    400.9    —    —    — 
East China Sea    14,948    5,377    57.4    —    —    — 
Onshore    17,442    —    104.7    —    —    — 
Subtotal    970,793    775,161    1,153.1    43.28    7,002    6.81 
Overseas                              
Asia (excluding China)    77,017    49,822    152.1    36.73    5,675    6.04 
Oceania    32,673    5,131    140.5    37.26    3,679    8.14 
Africa    90,750    90,750    —    41.38    —    7.47 
North America (excluding Canada)   88,458    67,244    127.3    34.74    2,122    4.91 
Canada    55,492    55,471    0.1    23.50    2,258    17.97 
South America    19,842    19,842    —    32.46    —    15.35 
Europe    54,518    53,300    7.3    39.73    2,636    7.13 
Subtotal    418,750    341,560    427.3    35.68    3,911    8.44 
Total    1,389,543    1,116,721    1,580.4    40.96    6,171    7.30 
Equity method investees    53,658    28,335    147.0    —    —    — 
                               
2019                              
China                              
Bohai    462,564    436,173    158.3    —    —    — 
Western South China Sea    164,352    109,906    318.2    —    —    — 
Eastern South China Sea    242,026    176,884    390.9    —    —    — 
East China Sea    11,389    3,902    44.9    —    —    — 
Onshore    12,596    —    75.6    —    —    — 
Subtotal    892,928    726,866    987.9    66.15    6,922    6.88 
Overseas                              
Asia (excluding China)    70,715    45,020    145.7    61.71    7,467    5.81 

48

  

Net Production

 

Average Sales Price

  Average Production Cost
   Total  Crude and Liquids  Gas  Crude and Liquids  Gas   
   (BOE/day)  (Bbls/day)  (Mmcf/day)  (US$/bbl)  (US$/ Mmcf)  (US$/BOE)
                   
Oceania    21,987    3,764    93.0    60.53    3,227    9.18 
Africa    120,925    120,925    —    66.08    —    5.56 
North America (excluding Canada)   85,595    62,749    137.1    51.86    2,618    6.55 
Canada    70,627    69,947    4.1    40.50    2,089    17.06 
South America    3,937    3,937    —    57.95    —    17.98 
Europe    64,027    62,544    8.9    63.67    3,545    7.40 
Subtotal    437,812    368,886    388.7    57.71    4,603    8.21 
Total    1,330,740    1,095,751    1,376.6    63.34    6,269    7.32 
Equity method investees    56,824    29,039    161.3    —    —    — 

 

                              
2018                              
China                              
Bohai    460,822    433,325    165.0    —    —    — 
Western South China Sea    154,248    109,381    265.2    —    —    — 
Eastern South China Sea    216,877    159,312    345.4    —    —    — 
East China Sea    11,580    3,347    49.4    —    —    — 
Onshore    1,644    —    9.9    —    —    — 
Subtotal    

845,171

(1)   705,366    834.8    70.79    7,176    7.02 
Overseas                              
Asia (excluding China)    88,662    59,240    164.2    65.60    8,067    9.37 
Oceania    26,034    4,251    111.1    73.31    3,245    6.74 
Africa    59,844    59,844    —    69.44    —    6.22 
North America (excluding Canada)   74,184    53,120    126.4    59.39    3,080    6.55 
Canada    69,783    64,026    34.5    29.98    1,222    18.20 
South America    3,066    3,066    —    62.22    —    24.81 
Europe    76,615    73,678    17.6    70.37    6,700    6.89 
Subtotal    398,187    317,224    453.9    59.30    4,934    9.39 
Total    1,243,357    1,022,589    1,288.8    67.22    6,414    7.77 
Equity method investees    58,080    28,159    173.7    —    —    — 

49

Drilling and Other Exploratory and Development Activities

 

The following table sets forth our net exploratory wells and development wells drilled in the years of 2018, 2019 and 2020.

 

   Net Exploratory Wells Drilled  Net Development Wells Drilled
   Total  Productive  Dry  Total  Productive  Dry
2020                  
Offshore China                  
Independent                  
Bohai    91    50    41    86    86    — 
Western South China Sea    46    23    23    37    37    — 
Eastern South China Sea    43    15    28    22    22    — 
East China Sea    5    3    2    —    —    — 
Subtotal    185    91    94    145    145    — 
PSCs                              
Bohai    —    —    —    59.2    59.2    — 
Western South China Sea    1    —    1    —    —    — 
Eastern South China Sea    —    —    —    —    —    — 
East China Sea    —    —    —    —    —    — 
Subtotal    1    —    1    59.2    59.2    — 
Overseas                              
Asia (excluding China)    —    —    —    8.4    8.4    — 
Oceania    —    —    —    —    —    — 
Africa    —    —    —    —    —    — 
North America    —    —    —    24.5    24.5    — 
South America    1.2    0.8    0.4    2.9    2.9    — 
Europe    —    —    —    4.3    4.3    — 
Subtotal    1.2    0.8    0.4    40.0    40.0    — 
                               
2019                              
Offshore China                              
Independent                              
Bohai    102    63    39    81    81    — 
Western South China Sea    65    16    49    21    21    — 
Eastern South China Sea    44    10    34    18    18    — 
East China Sea    8    5    3    —    —    — 
Subtotal    219    94    125    120    120    — 

50

 

   Net Exploratory Wells Drilled  Net Development Wells Drilled
   Total  Productive  Dry  Total  Productive  Dry
PSCs                  
Bohai    1    1    —    42.8    42.8    — 
Western South China Sea    —    —    —    —    —    — 
Eastern South China Sea    5    —    5    0.8    0.8    — 
East China Sea    —    —    —    —    —    — 
Subtotal    6    1    5    43.5    43.5    — 
Overseas                              
Asia (excluding China)    0.1    —    0.1    29.0    29.0    — 
Oceania    —    —    —    —    —    — 
Africa    0.4    —    0.4    1.4    1.4    — 
North America    —    —    —    133.3    133.3    — 
South America    2.0    1.8    0.2    0.9    0.9    — 
Europe    2.7    0.5    2.2    0.4    0.4    — 
Subtotal    5.2    2.3    2.9    164.9    164.9    — 
                               
2018                              
China                              
Independent                              
Bohai    80    54    26    36    36    — 
Western South China Sea    40    22    18    36    36    — 
Eastern South China Sea    30    7    23    9    9    — 
East China Sea    6    —    6    —    —    — 
Subtotal    156    83    73    81    81    — 
PSCs                              
Bohai    1    —    1    13.8    13.8    — 
Western South China Sea    1    —    1    —    —    — 
Eastern South China Sea    8    3    5    —    —    — 
East China Sea    —    —    —    —    —    — 
Subtotal    10    3    7    13.8    13.8    — 
Overseas                              
Asia (excluding China)    —    —    —    23.8    23.8    — 
Oceania    —    —    —    —    —    — 
Africa    —    —    —    1.4    1.4    — 
North America    —    —    —    63.0    63.0    — 
South America    1.9    1.6    0.3    2.3    2.3    — 
Europe    —    —    —    —    —    — 
Subtotal    1.9    1.6    0.3    90.5    90.5    — 

51

Present Activities

 

The following tables set forth our present activities as of December 31, 2020.

 

   Wells Being Drilled  Waterfloods Being Installed
   Gross  Net  Gross  Net
Offshore China            
Bohai    11    9    851    750 
Western South China Sea    14    —    54    54 
Eastern South China Sea    3    —    4    4 
East China Sea    —    —    —    — 
Subtotal    28    9    909    808 
Overseas                    
Asia (excluding China)    6    5.1    3    3 
Oceania    —    —    —    — 
Africa    —    —    1    0.5 
North America    1    0.2    1    — 
South America    2    0.4    37    10 
Europe    —    —    —    — 
Subtotal    9    5.7    42    13 

52

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, 2020.

 

   Productive Wells 

Developed Acreage
(km2)

 

Undeveloped Acreage
(km2)

   Crude and Liquids  Natural Gas            
   Gross  Net  Gross  Net  Gross  Net  Gross  Net
Offshore China                        
Bohai    2,488    2,083    41    35    2,758    2,758    40,160    40,160 
Western South China Sea    392    359    130    105    2,075    2,075    71,362    71,362 
Eastern South China Sea    486    461    49    38    2,651    2,651    48,135    48,135 
East China Sea    26    9    82    38    84    84    84,577    84,577 
Subtotal    3,392    2,911    302    216    7,568    7,568    244,234    244,234 
Overseas                                        
Asia (excluding China)    153    153    19    3    869    619    —    — 
Africa    —    —    66    3    888    398    23,156    8,453 
Oceania    63    23    —    —    3,240    172    12,823    1,938 
North America    3,422    986    364    108    728    203    6,883    5,757 
South America    5,068    1,247    599    150    3,226    723    31,184    8,333 
Europe    61    26    2    1    89    38    1,161    416 
Subtotal    8,767    2,434    1,050    266    9,039    2,153    75,206    24,897 
Total    12,159    5,345    1,352    482    16,607    9,721    319,440    269,131 

 

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 2020, the annual sales from our largest gas contract contributed to only approximately 3.6% of our total oil and gas sales, and the total revenues from gas sales accounted for approximately 15.8% of our total revenues in 2020. Moreover, the total gas quantities that are subject to delivery commitments under the existing contracts or agreements are not significant to us. Therefore, we believe that we did not have any material delivery commitment as of the end of 2020.

 

Sales and Marketing

 

Sales of Crude Oil

 

We sell crude oil produced in offshore China in domestic market mainly through CNOOC China Limited, our wholly-owned subsidiary. We sell crude oil produced overseas in international and domestic markets mainly through China Offshore Oil (Singapore) International Pte Ltd, its wholly-owned subsidiary, and CNOOC Marketing Canada and CNOOC Marketing U.S.A. Inc under CNOOC International Limited, another wholly-owned subsidiary.

 

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Our crude oil sales prices are mainly determined by reference to the prices of international benchmark crude oil of similar quality, with certain premiums or discounts subject to the prevailing market conditions. Although the prices are denominated in U.S. dollar, customers in China settle in Renminbi. We currently sell three types of crude oil in China, i.e., heavy crude oil, medium crude oil and light crude oil. The benchmark oil price is Brent. Our major customers in China are CNOOC, CNPC, Sinopec Group and some local private refineries. Crude oil produced overseas is benchmarked at the Brent, Dubai, Oman and WTI prices and regularly updated official oil prices of national oil companies in oil producing countries and sold in international markets.

 

In 2020, as a result of the decrease in international oil prices, our average realized oil price was US$40.96 per barrel, representing a year-on-year decrease of approximately 35.3%, basically in line with that of international oil prices.

 

The table below sets forth the sales and marketing volumes in offshore China for each of these types of crude oil for the periods indicated.

 

  

Year ended December 31,

  

2018

 

2019

 

2020 

Sales and Marketing Volumes (mmbbls)(1)               
Light Crude    23.6    22.6    26.6 
Medium Crude    148.4    155.2    157.6 
Heavy Crude    106.8    111.1    118.6 

 

 

 

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

 

 

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Sales of Natural Gas

 

Our natural gas sales prices are mainly determined through negotiation with customers. Generally, natural gas sales agreements are long-term contracts, and the contract terms normally include a price review mechanism. Our natural gas customers are primarily located in the southeast coastal areas of China, and the major customers include CNOOC Gas and Power Group, China BlueChemical Ltd, Hong Kong Castle Peak Power Company Limited, etc.

 

Sales of LNG from the NWS Project in Australia and the Tangguh LNG Project in Indonesia are mainly based on long-term supply contracts to various customers in the Asia-Pacific region, including the Dapeng LNG Terminal in Guangdong Province and the LNG terminal in Putian, Fujian Province in China.

 

In 2020, our average realized natural gas price was US$6.17/mcf, representing a year-on-year decrease of approximately 1.6%, which was mainly affected by the decrease of the gas price in North America.

 

In China, thanks to policy support, the consumption of natural gas based on meter reading has maintained growth. However, due to the increased domestic exploration and development efforts, coupled with the rapid growth of imported LNG, the overall supply of the natural gas market was relatively abundant and the supply and demand were generally balanced. Based on market conditions, we raised certain contract prices during peak demand season through negotiations.

 

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

 

   Year ended December 31,
   2018  2019  2020
Average Realized Prices         
Crude and Liquids (US$/bbl)    67.22    63.34    40.96 
Natural Gas (US$/mcf)    6.41    6.27    6.17 
Brent (US$/bbl)    71.69    64.16    43.21 

 

The Brent crude oil price was US$51.80 per barrel as of December 31, 2020 and US$63.54 per barrel as of March 31, 2021.  

 

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

 

   Year ended December 31,
   2018  2019  2020
   (Rmb in millions, except percentages)
Revenues sourced in the PRC    154,929    153,884    110,415 
Revenues sourced outside the PRC    72,782    79,315    44,957 
Total revenues    227,711    233,199    155,372 
% of revenues sourced outside the PRC    32.0%   34.0%   28.9%

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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 CNOOC affiliates 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, staff health and safety, and environment protection measures.

 

Research and Scientific Development

 

In 2020, the Company continued to implement the innovation-driven strategy, deepened the reform of the scientific and technological system, and further increased investment in scientific and technological research and development. The Company insisted on facilitating exploration and development with scientific and technological innovation, and strengthened the transformation and utilization of technological achievements so as to increase the reserves and production level, as well as reduce cost and enhance quality and efficiency. It made a solid foundation for the research and implementation of key technologies such as “Stabilizing production at 30 million tons with an aim of increasing to 40 million tons for Bohai oilfields”. The Company also accelerated the research on critical core technological projects, which helped make breakthroughs in the localization of a number of key equipment. Researches on offshore wind power, geothermal energy and other new energy fields were carried out to facilitate the Company’s energy transition.

 

Major Scientific and Technological Project Developments

 

In 2020, the Company deepened the development of its core oil and gas business, and continued to carry out technological researches with a focus on key areas such as deepwater, high temperature and pressure, heavy oil, and low permeability. The technological research of the “Lingshui Semi-submersible Production Platform Research Project” was carried out, which facilitated the high-quality development of the Company. New progress has been made in key scientific and technological developments such as technologies for strengthening water flooding, increasing production and exploiting potential, effective development technology for large-sized thermal recovery of heavy oil, and improving the recovery rate of producing oil and gas fields. New breakthroughs have been made in the localization of key technologies and equipment for deepwater oil and gas development, which will provide scientific and technological support for increasing oil and gas reserves and production.

 

Progress of Major Technological Innovations

 

In 2020, new progress was made in the construction of scientific research platforms. The construction of national key laboratory for natural gas hydrates was steadily advanced, and the experimental capabilities of multiple scientific research platforms such as unconventional oil and gas exploration and development, chemical flooding, and thermal recovery of heavy oil have been steadily improved. Significant progress has been made in projects such as “Natural gas hydrate accumulation mechanism and safe and efficient exploitation mechanism”.

 

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Health, Safety and Environmental Protection (“HSE”)

 

As always, we adheres to the core HSE values of “Safety First, Environment Paramount, People-oriented and Equipment Integrated”. Under the general keynote of the “Three-year Special Action for improving safe operation and deepening the responsibility system for production safety among all employees”, the Company continuously improves the management of the HSE system, and strives to provide a safe working environment for its employees and contractors so as to maintain a relatively stable performance of production safety and build a first- class safety risk management and control system.

 

In 2020, we focused on further implementation of the “Three-year Special Action” for improving safety production, with special supervision and superior review as the starting points, to further strengthen the implementation of the “Six Responsibilities” of safety production, improve the dual prevention mechanisms, further promote the construction of safety culture, continue to consolidate the foundation for safe production, and ensure the smooth progress of the Seven-year Action to increase reserves and production with high-quality work on safety and environmental protection.

 

During the year, we continued to strengthen the review and inspection of key operations, and enhanced safety control measures for major projects under construction, subsurface well operation safety, high-risk wells and production facilities, and typhoon prevention projects. In particular, we intensified well control safety management, and improved the well control management mechanism of the Company and its subsidiaries. We facilitated the implementation of the Company’s system framework related to equipment and facilities integrity, supervised all units to formulate goals and plans for the integrity management related to equipment and facilities of the year, and strengthened the risk control and management of key equipment and facilities.

 

We continued to shape a robust of a safety culture featuring “People-oriented, Implementation and Intervention”. Focusing on the Three-year Special Action for improving safety production, it organized and carried out discussion on the identification of safety hazards, and held online knowledge contests on safety and environmental protection, such as “Hazards Identification under Microscope” essay competition and “Be Healthy and Safe Everyday” photo contest, as a way to organize and mobilize employees to actively participate in safety culture activities. It continued to carry out “Safety Classes” taught by leaders to guide employees to focus on safety, continuously improve safety awareness, and improve safety skills.

 

We paid great attention to the HSE risk of overseas operations, and shared global security information in a timely manner. We strengthened the safety supervision and management of overseas projects, and enhanced the key responsibilities of overseas operation safety to ensure the compliant, safe and stable operation of overseas projects. Since the outbreak of COVID-19 pandemic, we insisted on “prioritizing the employees’ lives and health” and swiftly established a leading group and a joint prevention and control mechanism consisting of a “leadership commanding system”, “prevention and control system” and “supervision and management system” to closely track the development of the pandemic, coordinate the efforts in pandemic prevention and control, resumption of operation and production and normalized pandemic prevention and control, and adjust the prevention and control measures based on actual situation so as to cover every aspect of its business in pandemic prevention and control with no omission or negligence, thereby effectively protecting the lives and health of employees. In China, in strict compliance with the national requirements for pandemic prevention and control, we strengthened symptom screening and body temperature check, refined the shift plan and quarantine of personnel to and from offshore platforms, and formulated emergency plans. In this way, we achieved “zero infection” in domestic workplaces and among overseas Chinese employees. Overseas, we closely followed the development of the pandemic in the countries of operation. According to the risk levels of different countries and regions, we adopted different pandemic prevention and control methods such as home office and regional quarantine and fully implemented various on-going prevention and control measures to protect the lives, health and safety of overseas units and project employees with our best efforts.

 

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We actively implemented the Green Development Action by promoting environmental protection management in key areas. Guided by the Green Development Action, we actively cultivated and established green factories and green manufacturing integration projects. In 2020, Hainan Branch actively integrated its development into the green industrial chain of Hainan Free Trade Port and was recognized as a national “Green Factory”; Enping oilfield operation area of Shenzhen Branch and Lishui 36-1 gas field terminal treatment plant of Shanghai Branch were named as “Green Factory” in petroleum and petrochemical industry.

 

In 2020, we once again maintained a good performance in safety management and adhered to consistently high HSE standards. OSHA (Occupational Safety and Health Administration) statistics for the year are set out below.

 

Scope

Total Man-hours (million)

Number of Recordable Cases

Rate of Recordable Cases

Number of Lost Workday Cases

Rate of Lost Workday Cases

Fatalities

Staff of the Company 62 1 0.02 0 0.00 0
Staff of the Company and direct contractors 158 25 0.16 16 0.01 1

 

Operating Hazards and Uninsured Risks

 

Our operations are subject to hazards and risks inherent in the exploration, 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.

 

We continue to implement and develop our CNOOC HSE management system framework, in order to demonstrate CNOOC HSE strategic policy and management concept, clarify CNOOC HSE management orientation and core requirements. We further strengthened safety in our operations, such as intensifying our efforts to identify and eliminate potential risks, and giving special attention to preventing accidents in key and high-risk operations. We also improved the implementation of safety standards and deepened safety awareness across all levels of the organization. In 2020, we completed full system safety inspections, including the special safety supervision, a special safety check on storage tank fields and a year-end major safety inspection. For HSE risks in particular operating units, we organized safety audits. Through audits and inspections, we effectively met our management requirements, urged affiliated units to act in accordance with the regulations, and promoted the continuous improvement of HSE management.

 

Based on an in-depth analysis of the causes for major accidents and the key links in offshore operation, we implemented risk-level-based management of offshore production facilities in accordance with relevant laws and regulations. We also promoted the construction of risk-level-based management information systems in downstream enterprises and established and improved risk monitoring indicators, including, among others, well-control event monitoring, major operation risk monitoring in engineering constructions. Moreover, we established a list of post responsibilities, improved the site tour inspection system, and improved onsite safety management capabilities.

  

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To better handle the major risks involved in our daily operations, we continued to improve our crisis management mechanisms according to the updated requirements from reorganized authorities. In 2020, we have successfully combined the international incident management system into our incident management plan, which could keep the same pace with international companies while fulfill all the requirements of the local authorities.

 

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 also 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, 2020, we have purchased a number of insurance policies with varying policy coverage and limits to meet our risk management requirements and cover our potential liabilities arising from accidents at any of our offshore and onshore locations. We maintain insurance for costs relating to property damage to our facilities, control of well including drilling relief wells, removal of wreck, pollution clean-up, liability for bodily injury and property damage to third parties. 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. 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—Oil and natural gas transportation may expose us to financial loss and reputational harm” and See “Item 3—Key Information—Risk Factors—The nature of our operations exposes us and the communities in which we operate to a wide range of health, safety, security and environment risks.”

 

We have maintained insurance policies for our domestic assets and operational insurance policies and construction insurance policies, with various policy limits and deductibles. We also purchase operator’s extra expense insurance up to US$100 million and third-party liabilities insurance up to US$200 million. As for deep-water wells, we are insured up to US$250 million for costs related to control of the well. The deductible for each insurance policy mainly ranges from US$2 million to US$5 million for different types of insurance policies. For overseas operations and assets, we are insured for amounts mainly up to the replacement cost value of our assets for property damage and up to US$600 million in 2020 for operators extra expense. Additionally, we purchase insurance covering liability for bodily injury and property damage to third parties with limits of up to US$1,032 million in 2020. This cover protects against liability that arises from sudden and accidental pollution or from other causes.  

 

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.

  

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In addition, we currently have six oil spill emergency response bases, to which we have contributed land and funds for construction, separately located in six cities in the PRC, namely Suizhong, Tanggu, Longkou, Huizhou, Zhuhai and Weizhou Island. All the oil spill emergency response bases are close to our workplaces of operations, and in the event of any oil spill, explosion or other similar events, they can react promptly and assist us in coping with such accidents effectively. We have developed and established a “four-in-one” emergency management framework to support our worldwide business, which covers crisis management plans, emergency commanding systems, emergency information systems and an emergency rescue teams. Through constant trainings and exercises, we have comprehensively enhanced our ability to defend risks, minimize the impact of emergency events and maintain our sustainable development.

 

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, PetroChina and Sinopec 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 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 principal competitors in the PRC natural gas market are PetroChina and Sinopec.

 

Foreign Competition

 

Imports of crude oil are subject to import licenses and handling fees. 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.

 

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.

 

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:

 

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   Year ended December 31,
   2018  2019  2020
   Rmb in millions  %  Rmb in
millions		  %  Rmb in millions  %
Exploration and production    191,476    84.1    201,910    86.6    143,104    92.1 
Trading businesses    35,805    15.7    30,837    13.2    12,105    7.8 
Corporate and elimination    430    0.2    452    0.2    163    0.1 
Total operating revenues    227,711    100.0    233,199    100.0    155,372    100.0 

 

We mainly engage in the exploration, development, production and sale of crude oil and natural gas in China and overseas including Canada, the United States of America, the United Kingdom, Nigeria, Argentina, Indonesia, Uganda, Iraq, Brazil, Guyana, Russia, United Arab Emirates, and Australia etc. For the year ended December 31, 2020, approximately 71.1% of our total revenue was sourced in the PRC.

 

Regulatory Framework in the PRC

 

Government Control

 

All of China’s petroleum resources are owned by the PRC government which exercises regulatory control over oil exploration and production activities in China. We are required to obtain various governmental approvals, including (but not limited to) those from the Ministry of Natural Resources, the Ministry of Ecology and Environment, the National Development and Reform Commission, the Ministry of Transport and the Ministry of Emergency Management 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 permits for exploration blocks, approval of a reserve report, environmental impact reports submitted through CNOOC, extraction permits and work safety permits. Moreover, for joint exploration and production, we are required, through CNOOC, to file overall development plan with the National Development and Reform Commission, and to report the circumstances and situation of the PSCs or other cooperation contracts between CNOOC and the foreign enterprises to the Ministry of Commerce.

 

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.

 

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 foreign enterprises 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.

 

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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.

 

Fiscal Regimes for Independent Operations

 

Taxation

 

We are subject to income taxes on an entity basis on profits 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 profits tax at a rate of 16.5%.

 

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. According to the formal approval, we are subject to the PRC corporate income tax at a rate of 25% starting from January 1, 2008. The corporate income tax we pay in Hong Kong can be credited against our PRC corporate income tax liability.

 

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. Our indirect wholly-owned PRC subsidiary, CNOOC Deepwater Development Limited, is subject to corporate income tax at the rate of 15% from 2018 to 2020 after being assessed as a high and new technology enterprise. The company is in the process of re-applying to be assessed as a high and new technology enterprise from 2021 to 2023.

 

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:

 

·Production tax at the rate of 5% on production under production sharing contracts;

 

·Value added tax ("VAT") at the rates from 10% to 16% on taxable sales under independent oil and gas fields before April 1, 2019. VAT rates of 16% and 10% have been adjusted to 13% and 9% respectively since April 1, 2019 according to "Announcement on Policies for Deepening the VAT Reform" (Announcement [2019] No.39 of the Ministry of Finance, the State Taxation Administration and the General Administration of Customs). The VAT payable is calculated using the taxable sales amount multiplied by the applicable tax rate less relevant deductible input VAT;

 

·Resource tax at the rate of 6% (reduced tax rates may apply to specific products and fields) on the oil and gas sales revenue (excluding production tax) derived by oil and gas fields under production sharing contracts signed after November 1,2011 and independent offshore oil and gas fields, except for those under production sharing contracts signed before November 1, 2011 which will be subject to related resource tax requirement after the expiration of such production sharing contracts;

 

·City construction tax at the rates of 1% or 7% on the production tax and VAT paid;

 

·Educational surcharge at the rate of 3% on the production tax and VAT paid; and

 

·Local educational surcharge at the rate of 2% on the production tax and VAT paid.

 

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We calculate our deferred tax to account for the losses available for offsetting against future taxable profit and 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, 2018, 2019 and 2020, we had Rmb24,285 million, Rmb22,390 million and Rmb22,632 million (US$3,468 million), respectively, in net deferred tax assets. See note 11 to our consolidated financial statements included elsewhere in this annual report.

 

Royalty

 

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 us, among other companies, with a royalty exemption in each field for up to one million tons, or approximately seven million BOE, per year for our crude oil production and for up to two billion cubic meters (approximately 70.6 billion cubic feet or 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 2011, the State Council of the PRC amended the Provisional Regulation of PRC Resource Tax. As a result, since November 1, 2011, the royalties payable to the PRC government have been replaced by resource tax, currently at 6% (5% before December 1, 2014) of the sales revenues from crude oil and natural gas. The PSCs that were signed before November 1, 2011 are not affected by the amendment of the Provisional Regulation of PRC Resource Tax and we continue to pay royalties to the PRC government for these PSCs.

 

Special Oil Gain Levy

 

In March 2006, the PRC government imposed a special oil gain levy at 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. In December 2011, the PRC government increased the threshold of the special oil gain levy from US$40 per barrel to US$55 per barrel, with effect from November 1, 2011. In December 2014, the PRC government decided to increase the threshold of the special oil gain levy from US$55 per barrel to US$65 per barrel, with effect from January 1, 2015. The special oil gain levy is collected on a monthly basis. For the years ended December 31, 2018, 2019 and 2020, we incurred approximately Rmb 2,599 million, Rmb 894 million and Rmb 79 million for the Special Oil Gain Levy, respectively.

 

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 in the future.

 

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

 

Realized Oil Price (US$/bbl) Rate of the Levy
65-70 (Include 70) 20%
70-75 (Include 75) 25%
75-80 (Include 80) 30%
80-85 (Include 85) 35%
Above 85 40%

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Fiscal Regimes for PSC Operations

 

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

 

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 exploitation operations in offshore China are conducted through a PSC, the operator of the oil or gas fields must submit a detailed evaluation report and an overall development program to a joint management committee established under the PSC upon the discovery of commercially viable oil or gas reserves. The program must be subsequently confirmed by CNOOC and filed with the PRC regulatory authorities before the parties to the PSC begin the commercial development of the oil and gas fields.

 

Under PRC law, only a state-owned company, such as CNOOC, may negotiate a PSC with foreign enterprises. 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 as a state-owned oil company.

 

Bidding Process

 

CNOOC and foreign enterprises enter into new PSCs primarily through bidding process 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 on the date of approval of the environmental impact statements for any oilfield and/or gas field by the competent authorities of the Chinese government 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 for oil and 20 years for natural gas.

 

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 may be 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.

 

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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)
   
62.5%

For the payment of resource tax and recovery:

 

 

1. Resource tax(2) payable to the PRC government

 

 

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 current year abandonment costs accrued by us and foreign partner(s) ;

 

(3) recovery of earlier exploration costs by foreign partner(s) or us (if any); and

 

(4) recovery of development costs and deemed interest by us and foreign partner(s) based on participating interests.

 

3. Any excess after the payment of resource tax and recovery of costs mentioned above 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)For PSCs that came into effect prior to November 1, 2011, instead of resource tax, royalties (with the rate ranging from 0.0%-12.5% of the annual gross production, depending on the annual gross production of the oilfield) shall be paid to the PRC government.

 

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

 

We calculate and pay oil and gas production tax and royalty (or resource tax) 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 entrust us to sell such crude oil on their behalf in the PRC market.

 

Management and Operator. A party will be designated as the operator to undertake the execution work of the petroleum operations, including 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 program, and approving significant procurements and expenditures as well as insurance coverage.

 

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After the full recovery of the exploration and development costs under PSCs in accordance with the overall development plan of any oilfield and / or gas field within the contract area in which the foreign partner is the operator, we have the right to take over the operation of the particular oil and/ or gas field. With the consent of the foreign partner, we may also take over the operation before the full recovery of the 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 production period under 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 monthly pay the abandonment cost to the designated bank accounts managed by the operator and jointly owned by the parties in proportion to their participating interests in the development of such oil field and/or gas field in accordance with relevant laws, decrees, and other rules and regulations then existing with respect to the abandonment of offshore facilities of the PRC.    

 

Regulatory Framework Overseas  

 

We are subject to other fiscal regimes in the foreign countries and regions where we conduct operations, including Indonesia, Iraq, Australia, Nigeria, Uganda, Argentina, the United States, Canada, United Kingdom, Brazil, Guyana, Russia, the United Arab Emirates and certain other countries. See “Item 4—Information on the Company—Business Overview—Overview by Region—Overseas.”

 

In countries including Indonesia, Nigeria, Guyana and certain other countries, we conduct our operations through PSCs. For example, the OML130 block in Nigeria involves a production sharing arrangement. We and 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 United States, Canada, United Kingdom, Argentina and certain other countries, 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 begins, 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.

  

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In Iraq, we operate our project under a technical service contract. We provide technology of developing oil and gas and invest capital to assist the host country to achieve the production goals. According to the technical service contract, we have the rights to recover all the investments and receive remuneration fee as defined in the contract as a return from the incremental production.

 

Taxation

 

Taxes paid and payable by our non-PRC subsidiaries and jointly controlled entities include royalties, duties and export tariffs, as well as taxes levied on petroleum related income, profits and budgeted operating and capital expenditures.

 

Our subsidiaries domiciled outside the PRC are subject to income tax rates ranging from 10% to 82%. The province income tax rate of Alberta, Canada reduced from 12% to 11% on July 1, 2019, and will decrease by one percentage point on January 1 of each year until it reaches 8% on January 1, 2022.

 

Environmental Regulation

 

Our operations are required to comply with various applicable environmental laws and regulations, including PRC laws and regulations administered by the Ministry of Ecology and Environment and national and local environmental protection agencies for our operations in China. The Marine Environment Protection Law of PRC was amended and came into effect on November 5, 2017. Such amended Marine Environment Protection Law strengthens the marine environment protection regulation system including but not limited to the regional restricted approval system of environmental impact assessment, provides marine ecological protection compensation system. We therefore face more stringent environmental supervision and law enforcement environment.

 

Government agencies set national or local environmental protection standards. The relevant State Oceanic Administration and/or environmental protection agencies 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 Ministry of Ecology and Environment and/or relevant environmental protection agencies generally issue approvals and permits for projects using modern pollution control measurement technology.

 

Pursuant to the Environmental Protection Tax Law of PRC which came into effect on January 1, 2018 and was amended on October 26, 2018, enterprises, public institutions and other producers/operators that discharge taxable pollutants directly to the environment within the territorial areas of PRC and other sea areas under the jurisdiction of PRC are required to pay environmental protection tax in accordance with the provisions of such law. The Ministry of Ecology and Environment or national and local environmental protection agencies 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 and overseas environmental laws require offshore petroleum investors to pay abandonment costs. Our financial statements include provisions for costs associated with the dismantlement of oil and gas fields as of December 31, 2018, 2019 and 2020 of approximately Rmb54,878 million, Rmb65,602 million and Rmb70,360 million (US$10,783 million), respectively.

 

According to the Notice of the National Development and Reform Commission, the National Energy Administration, the Ministry of Finance, the State Administration of Taxation, and the State Oceanic Administration on Issuing the Interim Provisions on Administration over the Abandonment and Disposal of Offshore Oil and Gas Production Facilities, investors of the offshore oil and gas fields are required to 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 must 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.

 

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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 more stringent regulations which would require additional environmental protection expenditures.

 

We are also subject to the environmental laws and regulations in jurisdictions where our logistical support facilities are located.

 

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

 

Patents and Trademarks

 

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

 

Employees and Employee Benefits

 

As of December 31, 2018, 2019 and 2020, we had 18,312 employees, 18,703 employees and 18,353 employees, respectively. Among the 18,353 employees as of December 31, 2020, approximately 80% were involved in oil exploration, development and production activities, approximately 5% were involved in accounting and finance work and the remainder were senior management and others. A portion of the workers for the operation of the oil and gas fields, maintenance and ancillary service are hired on a contract basis.

 

We have a union that protects employees’ rights, organizes educational programs, 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 our relations with our employees are good.

 

The total remuneration for an employee 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 U.S. government’s Occupational Safety & Health Administration guidelines.

 

All full-time employees in the PRC are covered by a government-regulated pension plan and are entitled to an annual pension at their retirement dates. 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 annual contributions to the government pension plan at rates ranging from 13% to 16% of our employees’ salaries, with each employee contributing 8% of his or her salary for retirement. The contributions vary based on the requirements of local governments.

 

For further details regarding retirement benefits, see note 33 to our consolidated financial statements included elsewhere in this annual report.

 

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In 2020, the Company implemented major talent projects and vigorously cultivated strategic high-level talents. The development channel for technology series was opened up and the first selection of senior technical experts of the Company was organized, 151 people were selected. Meanwhile, the Company vigorously promoted professional skill certifications and increased the proportion of highly skilled personnel. In 2020, the total number of appraisals reached 1,855. Currently, there are 4,620 employees with titles of senior skilled worker or above, accounting for approximately 78.37% of the total skilled workforce, and 1080 technicians and senior technicians, accounting for approximately 18.32% of the total technical workforce.

 

Key Talents Development: The Company continues to promote the training program of “International Professional Talents”, and actively cultivates core talents for international businesses and high-potential talents for its future development. The company signed a joint training cooperation agreement with China University of Petroleum (East China), and completed the first "CNOOC Strategic Master's Program" graduate recruitment, and enrolled 15 postgraduate students majoring in exploration and development.

 

Opportunities for Local Talents: Iraq Branch organizes more than 20 local employees to go to British universities for undergraduate and postgraduate education, and launches "scholarship program" to help excellent employees to further their studies.

 

From "offline" to "online": The company developed "2020 Oil Contract Training and Test" to improve employees' petroleum legal knowledge and internationalization level. Iraq Branch develops online courses on QHSE and procurement. Mexico branch conducts oil spill training, HSE system training, emergency medical safety training, procurement training and human resources training in the form of video training; Gabon and Congo project team organizes internal language training to improve employees' French level.

 

C.Organizational Structure

 

CNOOC indirectly and directly owned or controlled an aggregate of approximately 65.01% of our shares as of March 31, 2021. 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.

 

The following chart sets forth our controlling entities and our directly wholly-owned subsidiaries as of March 31, 2021 and notes our significant indirectly-held subsidiaries.  

 

 

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

 

(2)Owner of our overseas interests in oil and gas exploration and production businesses and operations, including our indirect wholly-owned subsidiaries CNOOC Southeast Asia Limited, CNOOC Muturi Limited, CNOOC NWS Private Limited, CNOOC Exploration & Production Nigeria Limited, CNOOC Iraq Limited, CNOOC Canada Energy Ltd., CNOOC Uganda Ltd, CNOOC Petroleum North America ULC,  CNOOC Petroleum Europe Limited, Nexen Petroleum Nigeria Limited, CNOOC Energy U.S.A. LLC, CNOOC Petroleum Offshore U.S.A. Inc., CNOOC Oil Sands Canada , CNOOC PETROLEUM BRASIL LTDA, CNOOC Finance (2014) ULC, CNOOC Finance (2015) U.S.A. LLC, CNOOC Finance (2015) Australia Pty Ltd, and CNOOC Petroleum Guyana Limited.

 

(3)Owner of substantially all of our PRC oil and gas exploration and production businesses, operations and properties, including our indirect wholly-owned subsidiary CNOOC Deepwater Development Limited and China United Coalbed Methane Corporation.

 

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

 

(5)Includes CNOOC Finance (2003) Limited, CNOOC Finance (2011) Limited, CNOOC Finance (2012) Limited and CNOOC Finance (2013) Limited, all of which are our financing vehicles. These finance companies are our wholly owned subsidiaries with the Company as their sole corporate director.

 

(6)CNOOC International Trading Co., Ltd. was incorporated on November 30, 2020.

 

D.Property, Plants and Equipment

 

For our property, plants and equipment relating to our business activities, see “Item 4—Information on the Company—Business Overview”. We also have some other real properties, including land, buildings and facilities in our onshore processing plants for our oil and gas fields, oil and gas pipelines in both offshore China and overseas, and the upgrader facilities for our oil sands projects in Canada.

 

ITEM 4A. unresolved staff comments

 

None.

 

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.”

 

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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 displayed a trend of growth in 2020.

 

In 2020, due to the impact of the COVID-19 pandemic, the global economy experienced the worst recession since the World War II, and the international financial market saw extreme volatility. Major economies rolled out large-scale economic stimulus policies, such as the unlimited quantitative easing policies launched by the Federal Reserve. With effective control of the pandemic, China became the only major economy to post growth with a GDP growth rate of 2.3% in 2020.

 

In 2020, international oil prices rebounded after decline, showing a deep “V” shape trend. Since March, due to the spread of the pandemic coupled with Saudi Arabia’s announcement of increasing production and cutting price, international oil prices plummeted. On April 20, WTI oil prices fell to US$-37.63 per barrel. Afterwards, as major oil-producing countries cut their production and major economies gradually eased pandemic restrictions and restarted their economies, international oil prices rebounded. At the end of the year, as the COVID-19 vaccines were successfully developed and applied in various countries, international oil prices continued to rise, with the Brent oil prices closed at US$51 per barrel at the end of the year. In 2020, the average price of Brent crude oil was US$43.21 per barrel, a year-on-year decrease of 33%.

 

In 2020, we strictly implemented pandemic prevention and control measures and vigorously promoted reserves and production growth, further conducted cost reduction and efficiency enhancement, and firmly facilitated technological innovation so as to ensure safe production with all strength. We realized a net production of 528.2 million BOE, representing an increase of approximately 4.3% year-on-year, which exceeded the adjusted annual oil and gas production target.

 

Influenced by the trend of international oil price, our profitability decreased in 2020, while partially offset by optimization of production structure and cost control. Oil and gas sales were RMB139,601 million (US$21,394.8 million), representing a decrease of approximately 29.2% year over year. Net profit was RMB24,956 million (US$3,824.7 million), representing a decrease of approximately 59.1% year over year.

 

As of December 31, 2020, our basic and diluted earnings per share were RMB0.56 and RMB0.56, respectively. The Board of Directors has recommended the payment of a final dividend of HK$0.25 per share (tax inclusive).

 

At present, many countries have begun to vaccinate against the COVID-19, which brings more hope for the recovery of the global economy. As forecasted by the World Bank, global economic growth will reach 4% in 2021. International oil prices have steadily recovered, and the Brent oil price has rallied above US$60 per barrel. However, there are still uncertainties in the future trend of international oil prices, trade frictions will also put pressure on us, and the external environment remains challenging and complex. On February 26, 2021, NYSE announced to commence delisting proceedings of ADSs of the Company and suspended the trading in ADSs since March 9, 2021. On March 10, 2021, the Company requested for review of NYSE's determination.

 

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Looking forward to the future, we will continue to enhance our capability to create value. While pursuing production growth, we will actively respond to climate change and build a green and low-carbon enterprise. To this end, we will further strengthen our business strategy, mainly including: intensifying natural gas exploration efforts, increasing production to a new level, focusing on return on investment, consolidating cost competitiveness, maintaining a healthy financial position, optimizing the layout of overseas assets, and practicing the concept of green and low-carbon development.

 

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, the outbreak of the COVID-19 pandemic, 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, decreases in crude oil and natural gas prices may reduce the amount of crude oil and natural gas we can produce economically and make our performance of existing contracts that we have entered into uneconomical.

 

Sustained lower commodity prices may reduce revenue, earnings and liquidity, negatively impact the economics of estimated proved reserves quantities, and result in impairment. When the oil price forecasts of authoritative and independent institutions are revised to a significantly lower level than our projection, our oil and gas properties may face the risk of impairment. If oil and natural prices did not rise to the prices used in our internal price forecasts, there would be potential impact on the economics of the estimated proved reserves. Since the negative effect of lower oil price may be partially or completely offset by effective cost controls and efficiency enhancement, the estimated proved reserves quantities may not decrease proportionately with the decline in commodity prices. However, the price is not the sole or determining factor affecting our liquidity, capital resources and operating results. In particular, we believe that we have adequate resources of short- and long-term funding because (i) we have sufficient cash and cash equivalents, readily disposable financial assets and time deposits on hand, and (ii) we enjoy a sound credit rating and has the ability to access financing.

 

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

 

   Year ended December 31,
   2018  2019  2020
Average realized prices:         
Crude oil (US$ per bbl)    67.22    63.34    40.96 
Natural gas (US$ per mcf)    6.41    6.27    6.17 

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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.

 

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,
   2018  2019  2020
Net production of crude oil (bbl/day)(1)    1,050,749    1,124,790    1,145,056 
Net production of natural gas (mmcf/day)(1)     1,462.5    1,537.9    1,727.4 

 

 

(1)Including our interest in equity method investees.

 

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

 

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Critical Accounting Policies

 

We prepare our consolidated financial statements in accordance with IFRSs issued by the IASB and HKFRSs issued by the HKICPA. 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 as exploration expenses 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 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 exploration costs as expenses when incurred. Productive oil and gas properties and other tangible and intangible costs of producing properties are depreciated 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 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. 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 proved reserves.

 

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We recognized the amount of 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. We included the unwinding of the discount on the dismantlement provision as a finance cost.  

 

Reserves Estimation

 

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 our oil and gas properties has been impaired.

 

Pursuant to the oil and gas reserve estimation requirements under U.S. SEC rules, we use 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 our proved oil and gas reserves.

 

Impairment of Non-Financial Assets other than Goodwill

 

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 our fair value less costs to sell. 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 profit or loss and other comprehensive income in the period in which it arises. A reversal of an impairment loss is credited to the consolidated statement of profit or loss and other comprehensive income in the period in which it arises.

 

The calculations of the recoverable amount of assets require the use of estimates and assumptions. The key assumptions include, but are not limited to, future commodity prices, future production estimates, estimated future capital expenditures, estimated future operating expenses and the discount rate.

 

Changes in the key assumptions used, which could be significant, include updates to future pricing estimates, updates to future production estimates to align with our anticipated drilling plan, changes in our capital costs and operating expense assumptions, and the discount rate. There is a significant degree of uncertainty with the assumptions used to estimate future cash flows due to, but are not limited to, the risk factors referred to in “Item 3.D. Risk Factors” The complex economic outlook may also materially and adversely affect our key assumptions. Changes in economic conditions can also affect the discount rates applied in assessments of impairment.

 

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Although it is not reasonably practicable to quantify the impact of future impairment charges at this time, our results of operations could be materially and adversely affected for the period in which impairment charges are incurred.

 

The sensitivity analysis for the impairment testing involves estimates and judgments to consider numerous assumptions comprehensively. Those assumptions interact on each other and interrelate with each other complexly and do not have fixed patterns along with the changes in price. Accordingly, we believe that the preparation of the sensitivity analysis for the impairment testing will be impracticable. Changes in assumptions could affect impairment charges and reversals in income statement, and the carrying amounts of assets in balance sheet.

 

Business Combinations and Goodwill

 

Business combinations, other than business combinations under common control, are accounted for using the acquisition method. The consideration transferred is measured at acquisition date fair value which is the sum of the acquisition date fair values of assets transferred by us, liabilities assumed by us from the former owners of the acquiree and the equity interests issued by us in exchange for control of the acquiree. For each business combination, we elect whether we measure the non-controlling interests in the acquiree either at fair value or at the proportionate share of the acquiree’s identifiable net assets. All other components of non-controlling interests are measured at fair value. Acquisition costs incurred are included in profit or loss.

 

Goodwill is initially measured at cost, being the excess of the aggregate of the purchase consideration, the amount recognized for non-controlling interests and any fair value of our previously held equity interests in the acquiree over the identifiable net assets acquired and liabilities assumed. If the sum of this consideration and other items is lower than the fair value of the net assets of the subsidiary acquired, the difference is recognized in profit or loss as a gain on bargain purchase.

 

Joint Arrangements

 

Certain of our activities are conducted through joint arrangements. Joint arrangements are classified as either a joint operation or joint venture, based on the rights and obligations arising from the contractual obligations between the parties to the arrangement.

 

Joint Operations

 

Some arrangements have been assessed by us as joint operations as both parties to the contract are responsible for the assets and obligations in proportion to their respective interest, whether or not the arrangement is structured through a separate vehicle. This evaluation applies to both our interests in production sharing arrangements and certain jointly-controlled entities.

 

Joint Venture

 

A joint venture is a joint arrangement whereby the parties that have joint control of the arrangement have rights to the net assets of the arrangement.

 

Our investments in joint ventures are stated in the consolidated statement of financial position at our share of net assets under the equity method of accounting, 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.

 

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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.

 

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 profit or loss.

 

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.

 

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.

 

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:

 

·when 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, when 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.  

 

Recognition of Revenue from Oil and Gas Sales and Marketing

 

Under IFRS 15/HKFRS 15, we recognize revenue when (or as) a performance obligation is satisfied, i.e. when “control” of the goods or services underlying the particular obligation is transferred to the customer.

 

77

 

For oil and gas sales, our revenues represent the sales of oil and gas, net of royalties and obligations to governments and other mineral interest owners. Revenue from the sales of oil and gas is recognized at a point in time when oil and gas has been delivered to the customer, which is when the customer obtains the control of oil and gas and we have present right to payment and collection of the consideration is probable. Settlement will be in kind or in cash when the liftings are equalized or in cash when production ceases. We have entered 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 customer to pay for minimum quantities, whether or not the customer takes delivery. These commitments contain protective provisions, such as force majeure provision, and adjustment provisions. If a customer has a right to get a “make up” delivery at a later date, revenue recognition is deferred and payments received from the customers for natural gas not yet taken are recorded as contract liabilities. 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 the sales of oil and gas belonging to the foreign partners under our PSCs and revenues from the trading of oil and gas through our subsidiaries, which is recognized at a point in time when oil and gas has been delivered to the customer, which is when the customer obtains the control of oil and gas, and we have present right to payment and collection of the consideration is probable. The cost of the oil and gas sold is included in crude oil and product purchases.

 

Results of Operations

 

Overview

 

The following table summarizes the components of our revenues and sales volume, in absolute amounts and as percentages of our total revenues and total sales volume, for the periods indicated:

 

   Year ended December 31,
   2018  2019  2020
         
   (Rmb in millions, except percentages and production data )
Revenues:                  
Oil and gas sales:                  
Crude oil    165,939    72.9%   175,495    75.3%   114,985    74.0%
Natural gas    20,618    9.1%   21,678    9.3%   24,616    15.8%
Total oil and gas sales    186,557    82.0%   197,173    84.6%   139,601    89.8%
Marketing revenues    35,830    15.7%   30,867    13.2%   12,131    7.8%
Other revenue    5,324    2.3%   5,159    2.2%   3,640    2.3%
Total revenues    227,711    100.0%   233,199    100.0%   155,372    100.0%
                               
Sales volume (million BOE)(1):                              
Crude oil    372.9    81.8%   402.2    82.5%   406.2    80.3%
Natural gas    83.1    18.2%   85.6    17.5%   99.6    19.7%
Total    456.0    100.0%   487.8    100%   505.8    100%

 

 

(1)Including our interest in equity method investees.

 

78

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

 

   Year ended December 31,
   2018  2019  2020
Operating Revenues:      
Oil and gas sales    82.0%   84.6%   89.8%
Marketing revenues    15.7%   13.2%   7.8%
Other revenue    2.3%   2.2%   2.4%
Total revenues    100.0%   100.0%   100.0%
Expenses:               
Operating expenses    (10.7)%   (10.6)%   (15.6)%
Taxes other than income tax    (4.0)%   (3.9)%   (4.6)%
Exploration expenses    (5.8)%   (5.3)%   (3.6)%
Depreciation, depletion and amortization    (22.3)%   (24.7)%   (33.7)%
Special oil gain levy    (1.1)%   (0.4)%   (0.1)%
Impairment and provision    (0.3)%   (0.9)%   (3.3)%
Crude oil and product purchases    (14.7)%   (12.5)%   (7.5)%
Selling and administrative expenses    (3.3)%   (3.5)%   (5.7)%
Others    (2.5)%   (2.1)%   (2.5)%
Total expenses    (64.8)%   (63.9)%   (76.6)%
                
Interest income    0.4%   0.5%   0.9%
Finance costs    (2.3)%   (2.5)%   (4.0)%
Exchange gain, net    (0.1)%   (0.1)%   0.3%
Investment income    1.6%   2.0%   1.9%
Share of profits of associates    0.2%   0.2%   0.1%
Profit/(loss) attributable to a joint venture    (2.5)%   0.2%   (0.5)%
Other income, net    0.4%   0.4%   0.3%
Profit before tax    33.1%   36.7%   22.4%
Income tax expense    (9.9)%   (10.6)%   (6.4)%
Profit for the year    23.1%   26.2%   16.0%

 

79

 

Calculation of Revenues

 

China

 

We report total revenues, which consist of oil and gas sales, marketing revenue and other revenue, 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.

 

Revenue from the sales of oil and gas is recognized at a point in time when oil and gas has been delivered to the customer, which is when the customer obtains the control of oil and gas, and we have present right to payment and collection of the consideration is probable.

 

Marketing revenues represent our sales of our foreign partners’ oil and gas produced under our PSCs. 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 foreign partners, handling fees charged to customers, the sales of diluents to third parties and gains from disposal of oil and gas properties and is recognized when the services have been rendered or the properties have been disposed of. Reimbursement of insurance claims is recognized when the compensation becomes receivable.

 

Indonesia

 

The oil and gas sales from our subsidiaries in Indonesia represent our sales of oil and gas derived from the relevant joint operation projects, 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.

 

Iraq

 

The oil sales from Iraq represent our sales of oil derived from the Missan project.

 

Australia

 

The oil and gas sales from our subsidiaries in Australia represent our sales of oil and gas derived from the North West Shelf project.

 

Nigeria

 

The oil and gas sales from our subsidiaries in Nigeria represent our sales of oil and gas derived from relevant joint operation projects, net of the rental concession, royalty, and oil and gas distributable to the host country. The royalty rates applicable to deepwater properties are zero. We record revenue when oil and gas has been delivered to the customer.

 

Trinidad and Tobago

 

The oil and gas sales from our subsidiaries in Trinidad and Tobago represent our sales of oil and gas derived from relevant joint operation projects.

 

The United States and Canada

 

The oil and gas sales from the United States represent our sales of oil and gas derived from the Eagle Ford project, Rokies (formerly Niobrara) project and properties in the Gulf of Mexico.

 

80

The revenue is calculated net of royalties and is recognized when oil and gas has been delivered to the customer.

 

United Kingdom

 

The oil and gas sales from the United Kingdom represent our sales of oil and gas derived from the Buzzard, Scott/Telford/Rochelle, Golden Eagle and Farragon properties.

 

Brazil

 

The oil sales from Brazil represent our sales of oil derived from relevant joint operation projects.

 

Guyana

 

The oil sales from Guyana represent our sales of oil derived from relevant joint operation projects.

 

United Arab Emirates

 

The oil and gas sales from United Arab Emirates represent our sales of oil and gas derived from relevant joint operation projects.

 

Unconsolidated Investees

 

Our share of the oil and gas sales of unconsolidated investees is not included in our revenues, but our share of the profits or losses of these investees is included as part of our share of profits or losses of associates and loss/profit attributable to a joint venture as shown in our consolidated statements of profit or loss and other comprehensive income.

 

2020 versus 2019

 

Consolidated net profit

 

Our consolidated net profit decreased 59.1% to RMB24,956 million (US$3,824.7 million) in 2020 from RMB61,045 million in 2019, primarily as a result of the decrease in profitability under the lower international oil price environment, at the same time, effective measures taken to strictly control costs partially offset the impact of lower oil price.

 

Revenues

 

Our oil and gas sales, realized prices and sales volume in 2020 are as follows:

 

   2020  2019  Amount  Change (%)
Oil and gas sales (Rmb million)    139,601    197,173    (57,572)   (29.2)%
Crude and liquids    114,985    175,495    (60,510)   (34.5)%
Natural gas    24,616    21,678    2,938    13.6%
Sales volume (million BOE) (1)   505.8    487.8    18.0    3.7%
Crude and liquids (million barrels)    406.2    402.2    4.0    1.0%
Natural gas (bcf)    577.2    501.9    75.3    15.0%
Realized prices                     
Crude and liquids (US$/barrel)    40.96    63.34    (22.37)   (35.3)%
Natural gas (US$/mcf)    6.17    6.27    (0.10)   (1.6)%

 

(1)Excluding our interest in equity-accounted investees.

 

81

 

The decrease in crude and liquids sales was primarily due to lower international oil price. The increase in natural gas sales was primarily due to higher sales volume.

 

Operating expenses

 

Our operating expenses decreased 2.0% to RMB24,240 million (US$3,714.9 million) in 2020 from RMB24,735 million in 2019, the operating expenses per BOE decreased 6.4% to RMB47.7 (US$7.31) per BOE in 2020 from RMB50.9 (US$7.32) per BOE in 2019. China operating expenses per BOE decreased 7.1% to RMB44.5 (US$6.82) per BOE in 2020 from RMB47.9 (US$6.88) per BOE in 2019. Overseas operating expenses per BOE decreased 3.6% to RMB55.1 (US$8.44) per BOE in 2020 from RMB57.1 (US$8.21) per BOE in 2019. Through strict costs control and efficiency enhancement, our operating expenses per BOE decreased compared with last year.

 

Taxes other than income tax

 

Our taxes other than income tax decreased 21.4% to RMB7,200 million (US$1,103.4 million) in 2020 from RMB9,156 million in 2019, mainly due to the decrease in oil and gas sales.

 

Exploration expenses

 

Our exploration expenses decreased 54.6% to RMB5,601 million (US$858.4 million) in 2020 from RMB12,342 million in 2019, mainly due to the optimized exploration deployment and the enhanced exploration effectiveness.

 

Depreciation, depletion and amortization

 

Our total depreciation, depletion and amortization decreased 9.3% to RMB52,306 million (US$8,016.3 million) in 2020 from RMB57,699 million in 2019.

 

The dismantlement-related depreciation, depletion and amortization costs increased 116.0% to RMB2,709 million (US$415.2 million) in 2020 from RMB1,254 million in 2019. Our average dismantling costs per BOE increased 106.6% to RMB5.33 (US$0.82) per BOE in 2020 from RMB2.58 (US$0.37) per BOE in 2019, primarily due to the increase of the present value of asset retirement obligations brought by the decrease of RMB bond and US bond interest rate in the market.

 

Our depreciation, depletion and amortization, excluding the dismantling costs, decreased 12.1% to RMB49,597 million (US$7,601.1 million) in 2020 from RMB56,445 million in 2019. Our average depreciation, depletion and amortization per BOE, excluding the dismantling costs, decreased 16.1% to RMB97.5 (US$14.94) per BOE in 2020 from RMB116.2 (US$16.69) per BOE in 2019, primarily as a result of the change in proportional distribution of production.

 

Impairment and provision

 

Our impairment and provision increased 148.3% to RMB5,199 million (US$796.8 million) in 2020 from RMB2,094 million in 2019, mainly due to the impairment of certain oil and gas properties located in North America, Africa and China resulting from the change of reserve assessment and the decline of forecasted oil price. Please refer to Note 14 to the Consolidated Financial Statement of this annual report.

 

82

Selling and administrative expenses

 

Our selling and administrative expenses increased 9.4% to RMB8,821 million (US$1,351.9 million) in 2020 from RMB8,062 million in 2019. Our selling and administrative expenses per BOE increased 4.5% to RMB17.35 (US$2.66) per BOE in 2020 from RMB16.60 (US$2.38) per BOE in 2019, due to the increase of research and development expenses, arising from the further increased investment in scientific and technological research and development.

 

Finance costs/Interest income

 

Our finance costs increased 5.5% to RMB6,190 million (US$948.7 million) in 2020 from RMB5,865 million in 2019, primarily due to the decreased capitalized interest expense as some oil and gas fields commencement of production. Our interest income increased 38.1% to RMB1,473 million (US$225.7 million) in 2020 from RMB1,067 million in 2019, primarily due to the expanded deposit scale.

 

Exchange losses/gains, net

 

Our net exchange gains changed to RMB445 million (US$68.2 million) in 2020, while there were net exchange losses of RMB213 million in 2019, primarily arising from RMB fluctuation against the US dollars and Hong Kong dollars.

 

Investment income

 

Our investment income decreased 35.7% to RMB2,978 million (US$456.4 million) in 2020 from RMB4,632 million in 2019, primarily attributable to the decreased average stock of corporate wealth management products and money market funds.

 

Share of losses/profits of associates and a joint venture

 

Our share of losses of associates and a joint venture changed to RMB632 million (US$96.9 million) in 2020, while in 2019 our shared profits was RMB1,002 million, mainly due to the decreased profitability of the joint venture resulting from the decline of international oil price.

 

Income tax expense

 

Our income tax expense decreased 59.6% to RMB9,951 million (US$1,525.1 million) in 2020 from RMB24,604 million in 2019, mainly because our overall profitability before tax decreased resulting from lower international oil price in 2020.

 

2019 versus 2018

 

Comparative data for the year ended December 31, 2018 have been restated as a result of the acquisition of CUCBM in this section, please refer to Note 4 to the consolidated financial statements of the annual report.

 

Consolidated net profit

 

Our consolidated net profit increased by 15.9% to RMB61,045 million (US$8,768.6 million) in 2019 from RMB52,675 million in 2018, primarily as a result of the increase in sales volume, the increase in profitability as we have taken effective measures to strictly control cost and the depreciation of Renminbi against the U.S. dollar.

 

83

Revenues

 

Our oil and gas sales, realized prices and sales volume in 2019 are as follows:

 

   2019  2018  Amount  Change (%)
Oil and gas sales (Rmb million)    197,173    186,557    10,616    5.7%
Crude and liquids    175,495    165,939    9,556    5.8%
Natural gas    21,678    20,618    1,060    5.1%
Sales volume (million BOE) (1)   487.8    456.0    31.8    7.0%
Crude and liquids (million barrels)    402.2    372.9    29.3    7.8%
Natural gas (bcf)    501.9    485.6    16.3    3.4%
Realized prices                     
Crude and liquids (US$/barrel)    63.34    67.22    (3.88)   (5.8)%
Natural gas (US$/mcf)    6.27    6.41    (0.14)   (2.2)%

 

 

(1)Excluding our interest in equity-accounted investees.

 

In 2019, the increase in crude and liquids sales was primarily due to higher sales volume and the depreciation of Renminbi against the U.S. dollar. The increase in natural gas sales was primarily due to higher sales volume.

 

Operating expenses

 

Our operating expenses increased by 1.4% to RMB24,735 million (US$3,553.0 million) in 2019 from RMB24,388 million in 2018. The operating expenses per BOE decreased by 4.7% to RMB50.9 (US$7.32) per BOE in 2019 from RMB53.4 (US$7.77) per BOE in 2018. Among them, operating expenses per BOE in offshore China decreased by 0.6% to RMB47.9 (US$6.88) per BOE in 2019 from RMB48.2 (US$7.02) per BOE in 2018. Overseas operating expenses per BOE decreased by 11.5% to RMB57.1 (US$8.21) per BOE in 2019 from RMB64.5 (US$9.39) per BOE in 2018. Through strict costs control and efficiency improvement, our operating expenses per BOE decreased compared with those in 2018.

 

Exploration expenses

 

Our exploration expenses decreased by 6.0% to RMB12,342 million (US$ 1,772.8 million) in 2019 from RMB13,135 million in 2018, mainly because of the combined impact of higher exploration expenses due to increased effort in oil and gas exploration this year and impairment provision related to certain exploration and evaluation assets in North America in 2018.

 

Depreciation, depletion and amortization

 

Our total depreciation, depletion and amortization increased by 13.5% to RMB57,699 million (US$8, 287.9 million) in 2019 from RMB50,838 million in 2018.

 

Among them, the dismantlement-related depreciation, depletion and amortization costs decreased by 3.1% to RMB1,254 million (US$180.1 million) in 2019 from RMB1,294 million in 2018. Our dismantling costs per BOE decreased by 9.2% to RMB2.58 (US$0.37) per BOE in 2019 from RMB2.84 (US$0.41) per BOE in 2018, primarily due to the decrease in the present value of asset retirement obligations brought by the increased interest rate of U.S. dollar bonds in the international market.

 

84

Our depreciation, depletion and amortization, excluding the dismantlement-related depreciation, depletion and amortization, increased by 13.9% to RMB56,445 million (US$8,107.9 million) in 2019 from RMB49,544 million in 2018. Our depreciation, depletion and amortization per BOE, excluding the dismantlement-related depreciation, depletion and amortization, increased by 7.1% to RMB116.2 (US$16.69) per BOE in 2019 from RMB108.5 (US$15.79) per BOE in 2018, primarily as a result of the change in proportional distribution of production.

 

Impairment and provision

 

Our impairment and provision increased by 214.4% to RMB2,094 million (US$300.8 million) in 2019 from RMB666 million in 2018, mainly due to the impairment of certain oil and gas properties located in North America and China because of the decrease of reserve. Please refer to Note 14 to the Consolidated Financial Statement of this annual report.

 

Selling and administrative expenses

 

Our selling and administrative expenses increased by 8.5% to RMB8,062 million (US$1, 158.0 million) in 2019 from RMB7,429 million in 2018. Our selling and administrative expenses per BOE increased by 2.0% to RMB16.60 (US$2.38) per BOE in 2019 from RMB16.28 (US$2.37) per BOE in 2018, mainly due to the increase of scientific research expenses, arising from the active implementation of the “innovation-driven” strategy, which increased the science and technology investment.

 

Finance costs/Interest income

 

Our finance costs increased by 13.6% to RMB5,865 million (US$842.5 million) in 2019 from RMB5,162 million in 2018, primarily due to the increase in interest expenses from new issuance of guaranteed notes and recognition of lease liabilities. Our interest income increased by 33.7% to RMB1,067 million (US$153.3 million) in 2019 from RMB798 million in 2018, primarily due to the increase in our deposit.

 

Exchange losses, net

 

Our net exchange losses increased by 51.1% to RMB213 million (US$30.6 million) in 2019 from RMB141 million in 2018, primarily due to the exchange rate fluctuation of Renminbi against the U.S. dollar and Hong Kong dollar.

 

Investment income

 

Our investment income increased by 25.7% to RMB4,632 million (US$665.3 million) in 2019 from RMB3,685 million in 2018, primarily attributable to the increased average amount of corporate wealth management products.

 

Share of profits/losses of associates and a joint venture

 

Our share of profits of associates and a joint venture was RMB1,002 million (US$143.9 million) in 2019, while in 2018 our shared losses were RMB5,187 million, mainly due to depreciation of the value of the assets in Argentina owned by the joint venture, BC ENERGY INVESTMENTS CORP. in 2018, as a result of the huge depreciation of the Argentina peso against the U.S. dollar and the sharp increase of interest rate.

 

Income tax expense

 

Our income tax expense increased by 9.4% to RMB24,604 million (US$3,534.1 million) in 2019 from RMB22,482 million in 2018, mainly because of the increase in our overall profitability and the impact of change of the province income tax rate of Alberta, Canada. Please refer to note 11 to the consolidated financial statements of this annual report.

 

85

 

B.Liquidity and Capital Resources

 

Our primary source of cash during 2020 was cash flows from operating activities. We used cash primarily to fund capital expenditure and dividends. The following table summarizes our cash flows for the periods presented:

 

   Year ended December 31,
   2018  2019  2020
         
   (Rmb million)
Cash generated from (used in):         
Operating activities    124,398    123,521    82,338 
Investing activities    (95,452)   (67,457)   (50,850)
Financing activities    (27,108)   (37,691)   (38,698)
Net (decrease)/increase in cash and cash equivalents    1,838    18,373    (7,210)

 

Cash Generated from Operating Activities

 

The cash inflow from operating activities decreased 33.3% to RMB82,338 million (US$12,618.9 million) in 2020 from RMB123,521 million in 2019, primarily attributable to the decrease in oil and gas sales cash inflow caused by the decline of international oil price.

 

Cash Used in Investing Activities

 

In 2020, our capital expenditure payment increased by 6.9% to RMB71,000 million (US$10,881.2 million) from 2019. Our development expenditures in 2020 were primarily related to the capital expenditure of Lingshui 17-2 project in China and overseas projects in Guyana, Iraq and the United Arab Emirates, as well as the expenses incurred for improving recovery factors of the oil and gas fields in producing. Our cash outflow from acquisition of oil and gas properties was RMB4,418 million (US$677.1 million) and our cash outflow from increased investments in associates was RMB6,401 million (US$981.0 million).

 

In addition, our cash used in investing activities was also attributable to the purchase of corporate wealth management products and money market funds of RMB140,375 million (US$21,513.4 million) this year. Our cash generated from investing activities was mainly from the proceeds from the sales of corporate wealth management products and money market funds in the amount of RMB190,142 million (US$29,140.5 million), and the increase in our time deposits with maturity over three months in the amount of RMB24,236 million (US$3,714.3 million).

 

Cash Used in Financing Activities

 

In 2020, the net cash outflow from financing activities was mainly due to the repayment of bank loans of RMB2,186 million (US$335.0 million), repayment of financial notes of RMB10,642 million (US$1,631.0 million) and the cash outflow of the distribution of dividends of RMB25,851 million (US$3,961.8 million), partially offset by the proceeds of bank loans of RMB7,417 million (US$1,136.7 million).

 

86

 

At the end of 2020, our total interest-bearing outstanding debt was RMB143,549 million (US$21,999.8 million), compared to RMB158,547 million at the end of 2019. The decrease in debt in 2020 was primarily attributable to the repayment of financial notes and impact of changes in the exchange rate of the US dollar and RMB. Our gearing ratio, which is defined as interest-bearing debts divided by the sum of interest-bearing debts plus equity, was 24.9%, lower than that of 26.1% in 2019, mainly due to the decrease of scale of interest-bearing debts.

 

   Debt maturities (principal only)
Due by December 31, 

Original currency 

US$ 

 

Total Rmb equivalents

  Total US$ equivalents
   (in millions, except percentages)
2021   1,533.7    10,007.4    1,533.7 
2022-2023    4,044.1    26,387.6    4,044.1 
2024-2025    4,371.0    28,520.6    4,371.0 
2026 and beyond    10,013.7    65,339.7    10,013.7 
Total    19,962.5    130,255.3    19,962.5 
Percentage of total debt    100%   100%   100%

 

As of December 31, 2020, we had total debt of US$19,962.5 million, 94.02% of which was in U.S. dollars, 5.35% was in Euro, and the other 0.63% was in RMB. As of March 31, 2021, we had total debt of US$18,441.7 million, 93.64% of which was in U.S. dollars, 5.56% was in Euro, and the other 0.80% was in RMB.

 

As of December 31, 2020, we had unutilized banking facilities amounting to approximately Rmb55,080 million (US$8,441 million) as compared to Rmb54,948 million as of December 31, 2019.

 

In 2018, 2019 and 2020, we paid dividends totaling Rmb23,523 million, Rmb28,973 million and Rmb25,851 million (US$3,961.8 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 2021. 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.  

 

87

Capital Expenditures

 

In early 2021, we have budgeted Rmb 90 to 100 billion for capital expenditures of the year 2021 for exploration and development. The following table sets forth our actual or budgeted capital expenditures on an accrual basis for the periods indicated.

 

  

Year ended December 31,

 

  

2018(1)

 

2019(1)

 

2020(1)

 

2021(2) 

 

2020(1)

   (Rmb million)  (US$ million)
China               
Development(3)   26,212    35,659    45,527    55,784    6,978 
Exploration   9,995    15,120    11,689    12,690    1,791 
Subtotal    36,207    50,779    57,216    68,475    8,769 
Overseas                         
Development(3)   23,564    24,253    17,503    20,932    2,682 
Exploration   2,331    3,546    2,687    4.282    412 
Subtotal    25,895    27,799    20,190    25,214    3,094 
Total    62,102    78,578    77,406    93,688    11,863 

 

 

(1)Capitalized interests were not included, and it was Rmb2,838 million, Rmb3,048 million and Rmb2,483 million in 2018, 2019 and 2020, respectively.

 

(2)Budgeted capital expenditures for 2021 was made in early 2021.

 

(3)Including production expenditures.

 

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.

 

Holding Company Structure

 

We are a holding company. Our entire oil and gas 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 oil and gas 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, or owned and conducted by CNOOC Petroleum North America ULC, a wholly-owned subsidiary of us located in Canada, or directly owned by us. 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.

 

88

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, in accordance with its articles of association, CNOOC China Limited should set aside a portion of its profit each year to fund certain reserve funds until the total amount of such funds is up to 50% of the registered capital of CNOOC China Limited. 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 2.1%, 2.9% and 2.5% in 2018, 2019 and 2020, respectively. Neither deflation nor inflation has had a significant impact on our results of operations in the respective years.

 

Impact of Recently Issued Accounting Standards

 

IFRSs and HKFRSs

 

We have adopted the IFRSs as issued by the IASB since January 1, 2008. Therefore, our consolidated financial statements for 2020 have been prepared in due compliance with both IFRSs and HKFRSs. The IASB has issued a number of new and revised IFRSs that are first effective for the current accounting year commencing January 1, 2020 or later but available for early adoption. The equivalent new and revised HKFRSs 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. The accounting policies adopted are consisted with those of the year ended December 31, 2019, except for the first time adoption of the new and amendments to IFRSs/HKFRSs effective for the Company's financial year beginning on January 1, 2020. Except as described in note 2.2 to our consolidated financial statements included elsewhere in this annual report, the adoption of those new amendments to IFRSs/HKFRSs in the current year had no material impact on the accounting policies, the disclosures or the amounts recognized in the consolidated financial statements of us.

 

Besides, a number of new and revised IFRSs and HKFRSs have been issued and would become effective for annual periods beginning on or after January 1, 2020. 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

 

At present, many countries have begun to vaccinate against the COVID-19, which brings more hope for the prevention and control of the pandemic and the recovery of the world economy. As forecasted by the World Bank, global economic growth will reach 4% in 2021. International oil prices have steadily recovered, and the Brent oil price has rallied above US$60 per barrel. However, there are still uncertainties in the future trend of international oil prices, and trade frictions will also put pressure on the Company. In view of this, we will pay more attention to efficiency and risk control.

 

In 2021, the capital expenditure plan is set at RMB90.0-100.0 billion, and the production target is set at 545-555 million BOE. We plan to put 19 new projects into production during the year, and strive for a reserve replacement rate of 120%, while maintaining a high standard of health, safety and environmental protection.

 

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As an upstream company specializing in the exploration, development, production and sales of oil and natural gas, we strive to increase our reserves and production through exploration and development and value-driven acquisitions. In China, we will continue to concentrate on our independent exploration efforts in major operating areas, while continuing to cooperate with our partners through production sharing contracts to lower capital expenditures and exploration risks. Overseas, we will strive to acquire more high-quality exploration blocks and improve exploration efficiency.

 

We will continue to develop the natural gas market, and strengthen exploration and development activities in natural gas fields, and enhance natural gas supply capability. We will advance key projects such as Lingshui 17-2 and Bozhong 19-6 natural gas, and strengthen the development of onshore unconventional gas. In 2025, the Company will increase the proportion of natural gas production to 30%.

 

We will continue to maintain our prudent financial policy. As an essential part of our corporate culture, we will continue to raise cost awareness among all of our employees. At the same time, in our performance evaluation system, cost control has been one of the most important key performance indicators.

 

Other than as disclosed in the paragraphs above under Item 5.D, we are not aware of any trends that are reasonably 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. You are urged to read the forward-looking statements contained elsewhere in this annual report, the cautionary statement on page 12 and the risk factors on page 17, which describe the risks and uncertainties that may cause actual results and developments to differ materially from those expressed or implied by these forward-looking statements. We provide no commitment to update the forward-looking statements or to publish financial projections for forward-looking statements in the future.  

 

E.Off-Balance Sheet Arrangements

 

None.

 

F.Tabular Disclosure of Contractual Obligations

 

The following table sets forth information regarding our contractual obligations as of December 31, 2020.

 

  

Payments due by period

Contractual Obligations

 

Total

 

Less than 1 year 

 

1-3 years 

 

3-5 years 

 

More than 5 years 

    Rmb million    Rmb million    Rmb million    Rmb million    Rmb million 
Long-term debt obligations(1)    130,255.3    10,007.4    26,387.6    28,520.6    65,339.7 
Provision for dismantlement(2)    70,360    916    —    —    69,444 
Total    200,615.3    10,923.4    26,387.6    28,520.6    134,783.7 

 

 

(1)The amount of long-term debt obligations represents the principal of the long-term debt obligations.

 

(2)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.

 

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As of December 31, 2018, 2019 and 2020, we had the following capital commitments, principally for the construction and purchase of property, plant and equipment:

 

Capital Commitments  2018  2019  2020
    Rmb million    Rmb million    Rmb million 
Contracted, but not provided for    55,538    64,542    30,856 

 

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 12 of this annual report.

 

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 had nine members, including two executive directors, three non-executive director and four independent non-executive directors as of March 31, 2021.

 

The table below sets forth information about our directors and senior officers as of March 31, 2021:

 

Name

Year of Birth

Position

     
Dongjin Wang 1962 Chairman and Non-executive Director
Yong Li 1963 Vice Chairman and Non-executive Director (effective September 29, 2020)
Dongfen Wen 1964 Non-executive Director (effective April 27, 2020)
Keqiang Xu 1971 Executive Director and Chief Executive Officer
Guangjie Hu 1973 Executive Director and President
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
Zhi Zhong Qiu 1955 Independent Non-executive Director
Yuhong Xie 1961 Executive Vice President and the Chief Safety Official (resigned as Executive Vice President and the Chief Safety Official in September 2020)
Xinjian Cao 1966 Executive Vice President and General Manager of CNOOC China Limited Tianjin Branch
Qinglong Xia 1964 Executive Vice President
Weizhi Xie 1964 Chief Financial Officer
Yunhua Deng 1963 Deputy Chief Exploration Engineer and Deputy Director of Beijing Research Center of CNOOC China Limited
Yun Yang 1964 Vice President and General Manager of CNOOC China Limited Zhanjiang Branch
Chenggang Duan 1963 Vice President and General Manager of CNOOC China Limited Shenzhen Branch
Fujie Sun 1965 Vice President (effective December 31, 2020)
Xiaonan Wu 1967 Joint Company Secretary and General Counsel and Compliance Officer (resigned as General Counsel and Compliance Officer in February 2021)
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 opportunities 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.

 

Non-executive Directors

 

Dongjin Wang Born in 1962, Mr. Wang is a professor-level senior engineer and received a Bachelor of Science degree in Petroleum Drilling from Development Department of China University of Petroleum and a Doctor of Science degree in Petroleum Engineering Management from China University of Petroleum-Beijing in 2012. From July 1995 to December 1997, he was appointed as Deputy Director-General of Jiangsu Petroleum Exploration Bureau. From December 1997 to October 2002, he was appointed as Vice President of China National Oil & Gas Exploration and Development Corporation (“CNODC”). From December 2000 to October 2002, he also served as President of CNPC International (Kazakhstan) Ltd. and President of AktobeMunai Gas Corp. From October 2002 to September 2008, he served as President of CNODC. From January 2004 to September 2008, he was appointed as Assistant President of China National Petroleum Corporation (“CNPC”) and Vice Chairman of CNODC. From September 2008 to March 2018, he served as Vice President of CNPC. From May 2011 to May 2014, he was concurrently appointed as Director of PetroChina Company Limited (“PetroChina”). From July 2013 to March 2018, he was concurrently appointed as President of PetroChina. From May 2014 to March 2018, he served as Vice Chairman of PetroChina. In March 2018, Mr. Wang was appointed as a Director of CNOOC. From October 2018 to October 2019, Mr. Wang was appointed as President of CNOOC. In October 2019, Mr. Wang was appointed as Chairman of CNOOC. On April 27, 2018, Mr. Wang was appointed as a Non-executive Director of the Company. From April 27, 2018 to September 29, 2020, Mr. Wang served as a member of the Remuneration Committee of the Company. From December 5, 2018 to November 18, 2019, Mr. Wang was appointed as the Vice Chairman of the Company. Mr. Wang has been appointed as Chairman of the Board and Chairman of the Nomination Committee of the Company with effect from November 18, 2019.

 

Yong Li Born in 1963, Mr. Li is a senior engineer. He received a Bachelor of Science degree in Petroleum Engineering from Southwest Petroleum Institute and an MBA degree from Peking University. From April 2003 to October 2005, he served as Vice General Manager of Tianjin Branch of CNOOC China Limited. From October 2005 to April 2009, he served as Executive Vice President of China Oilfield Services Limited (“COSL”). From April 2009 to September 2010, he served as President of COSL. From September 2010 to June 2016, he served as Chief Executive Officer and President of COSL. From June 2016 to March 2017, he served as Assistant President of CNOOC, Executive Vice President of the Company, Director of Bohai Petroleum Administration Bureau and General Manager of Tianjin Branch of CNOOC China Limited. He also served as a Director of CNOOC International Limited from June 2016 to May 2017. From March 2017 to September 2020, he served as Vice President of China Petrochemical Corporation. From May 2018 to September 2020, he also served as Director of China Petroleum & Chemical Corporation. In September 2020, Mr. Li served as Director and President of CNOOC. Mr. Li has been appointed as the Vice Chairman of the Board, a Non-executive Director and a member of the Remuneration Committee of the Company with effect from September 29, 2020.

 

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Dongfen Wen Born in 1964, Ms. Wen is a professor-level senior accountant. She received a Bachelor of Economics Degree in Business Management from Shanxi Finance and Economics College. She served as Deputy Director of Financial Planning Department of China Petrochemical Corporation (“Sinopec Group”), Deputy Director of Financial Department of Sinopec Group and Director of Financial Department of Sinopec Group. From May 2012 to December 2015, she also served as Chairwoman of Shengjun International Investment Limited. From December 2015 to July 2016, she served as Financial Director and Director of Financial Department of China Petroleum & Chemical Corporation. Since July 2016, she has been serving as Chief Accountant of CNOOC. From August 2016 to August 2017, she also served as Chairwoman of CNOOC International Financial Leasing Co., LTD. From August 2016 to February 2018, she also served as Chairwoman of CNOOC Finance Corporation Limited and CNOOC Insurance Limited. From August 2016 to May 2018, she also served as Chairwoman of Zhonghai Trust Co., Ltd. Ms. Wen was appointed as a Non-executive Director of the Company with effect from April 27, 2020.

 

Executive Directors

 

Keqiang Xu Born in 1971, Mr. Xu is a professor-level senior engineer. He graduated from Northwest University with a Bachelor of Science degree in Oil and Gas Geology. He received a master’s degree in Coalfield Oil and Gas Geology from Northwest University in 1996. Mr. Xu joined China National Petroleum Corporation in 1996 and served different positions. From April 2003 to April 2005, he served as Deputy General Manager of Sinopetro Investment Company Ltd. From April 2005 to September 2008, he served as Deputy General Manager of CNPC International (Kazakhstan) Ltd. and concurrently General Manager of CNPC Ai-Dan Munai Joint Stock Company. From September 2008 to March 2014, he served as Deputy General Manager of CNPC International (Kazakhstan) Ltd. and concurrently General Manager of Joint Stock Company CNPC International Aktobe Petroleum. From March 2014 to March 2017, he served as General Manager of PetroChina Tuha Oilfield Company, and Director of Tuha Petroleum Exploration & Development Headquarters. From March 2017 to February 2020, Mr. Xu served as a Vice President of CNOOC. From February 25, 2020, Mr. Xu has been appointed as a Director of CNOOC. From April 2017 to June 2018, Mr. Xu served as the Chairman of Nexen Energy ULC, a subsidiary of the Company. In between May 2017 and June 2018, he served as the Chairman and a Director of a subsidiary of the Company-CNOOC International Limited. In May 2017, Mr. Xu was appointed as a Director of CNOOC China Limited, a subsidiary of the Company. From May 2018 to April 2020, Mr. Xu served as the General Manager of CNOOC China Limited. Mr. Xu was appointed as an Executive Director of the Company with effect from April 18, 2017, and was appointed as the President of the Company from April 2017 to March 2020. He has been appointed as the Chief Executive Officer of the Company with effect from November 19, 2019.

 

Guangjie Hu Born in 1973, Mr. Hu is a professor-level senior engineer. He received a Bachelor of Science degree in Petroleum Engineering (Reservoir Engineering) from Chengdu University of Technology and a Master’s degree in Oil and Gas Field Development Engineering from China University of Petroleum (Huadong). He served in a number of positions in China Petrochemical Corporation (“Sinopec Group”) from August 2008 to October 2018, including Vice Manager of Northwest Oil Field Company, a subsidiary of China Petroleum & Chemical Corporation (“Sinopec Corp.”), Vice General Manager of Northwest Oil Field Company, Executive Vice Director General of Northwest Petroleum Bureau, Executive Vice General Manager of Northwest Oil Field Company, Director General of Northwest Petroleum Bureau, General Manager of Northwest Oil Field Company and General Manager of Northwest Petroleum Bureau Co., Ltd. From October 2018 to March 2020, he served as an Executive Vice Director of Oilfield Exploration & Production Department of Sinopec Corp., Director of Oilfield Exploration & Production Department, General Manager of Oilfield Exploration & Production Department. In March 2020, Mr. Hu was appointed as Vice President of CNOOC. In April 2020, Mr. Hu was appointed as the General Manager of CNOOC China Limited, a subsidiary of the Company. In November 2020, Mr. Hu was appointed as a Director of CNOOC China Limited. Mr. Hu has been appointed as an Executive Director and the President of the Company with effect from March 20, 2020, and he serves as the Chief Safety Official of the Company since September 29, 2020.

 

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Independent Non-executive Directors

 

Sung Hong Chiu Born 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 a senior research fellow of Centre for Law & Globalization of Renmin University of China since 2016. He also 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 Tianda Pharmaceuticals Limited (formerly Yunnan Enterprises Holdings Limited, Tianda Holdings Limited) since April 2008, a company listed on The Stock Exchange of Hong Kong Limited. Mr. Chiu is also an Independent Non-executive Director of Bank of China (Australia) Limited (a wholly subsidiary of Bank of China 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 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 the Vice-chancellor (President) of The Chinese University of Hong Kong. From September 2010 to September 2014, Professor Lau served as Chairman of CIC International (Hong Kong) Co., Limited. From March 2008 to February 2018, Professor Lau served as a member of the 11th and 12th National Committee of the Chinese People’s Political Consultative Conference (and a Vice Chairman of its Economics Subcommittee). 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 sixteen books, including The China-U.S. Trade War and Future Economic Relations, and published more than 210 articles and notes in professional journals. Professor Lau serves as a member of the Hong Kong Special Administrative Region Exchange Fund Advisory Committee Currency Board Subcommittee, and a member of the Hong Kong Trade Development Council (HKTDC) Belt and Road and Greater Bay Area Committee. In addition, he also serves as the Chairman of the Board of Directors of the Chinese University of Hong Kong (Shenzhen) Advanced Finance Institute, aka Shenzhen Finance Institute, a member and Chairman of the Prize Recommendation Committee of the LUI Che Woo Prize Company, as well as a Vice-Chairman of Our Hong Kong Foundation. He was appointed a Justice of the Peace in Hong Kong in July 2007 and awarded the Gold Bauhinia Star in 2011 by the Government of the Hong Kong Special Administrative Region. He currently serves as the Ralph and Claire Landau Professor of Economics at the Lau Chor Tak Institute of Global Economics and Finance, the Chinese University of Hong Kong, an independent non-executive director of AIA Group Limited and Semiconductor Manufacturing International Corporation, and served as an independent non-executive director from December 2014 to May 2020 of Hysan Development Company Limited, all listed on the Hong Kong Stock Exchange. He also serves as an independent non-executive director of Far EasTone Telecommunications Company Limited, Taipei, which is listed on the Taiwan Stock Exchange. Professor Lau was appointed as an Independent Non-executive Director of the Company with effect from August 31, 2005.

 

94

 

Aloysius Tse Hau Yin Born 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 a former member 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, SJM Holdings Limited, Sinofert Holdings Limited and China Huarong Asset Management Company, Limited, companies listed on The Stock Exchange of Hong Kong Limited. From 2004 to 2010, he was an independent non-executive director of China Construction Bank Corporation, which is listed on the HKSE Main Board. From 2005 to 2016, Mr. Tse was also an independent non-executive director of Daohe Global Group Limited (formerly known as Linmark Group Limited), which is listed on the HKSE Main Board, Mr. Tse is currently an independent non-executive director of CCB International (Holdings) Limited, a wholly owned subsidiary of China Construction Bank Corporation and OCBC Wing Hang Bank Limited (formerly named as Wing Hang Bank Limited whose shares were delisted from The Stock Exchange of Hong Kong Limited with effect from October 16, 2014). 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.

 

Zhi Zhong Qiu Born in 1955, Mr. Qiu obtained a Bachelor of Science degree in Computer Science from New York University and a Bachelor of Engineering degree in Electrical Engineering from Cooper Union for the Advancement of Science and Art in 1983, a Master of Science degree in Electrical Power Engineering from Ohio State University in 1985, and a Master of Business Administration from Harvard Business School in 1990. Mr. Qiu has served as an independent non-executive director and chairman of the nomination committee of Sinochem Energy Co., Ltd since November 2020. He also serves as the Honorary Consul of Republic of Rwanda in Hong Kong. From 1991 to 2002, Mr. Qiu served as the Chairman of Greater China Region and a Managing Director of Credit Suisse First Boston. From 2002 to 2006, Mr. Qiu established and served as the Managing Director of Quartz Capital. From 2004 to 2014, he served as the Chairman of the DragonTech Ventures Fund and DragonTech Ventures Management Limited. From 2006 to 2009, he served as the Executive Chairman of China and Vice Chairman of Asia of ABN AMRO Bank N.V., and during this period he also served as the Chairman of ABN AMRO (China) Co. Ltd. and the Chairman of ABN AMRO Leasing (China) Co. Ltd. From 2009 to March 2013, he served as a Managing Director, the Vice Chairman of Asia Pacific and Chairman of Greater China of Barclays Capital. From 2013 to 2016, he served as the Chairman of Meridian Capital (Asia) Limited. In 1994 and 1995, Mr. Qiu was named as one of the world’s “50 Most Wanted in Finance” and “World's 50 Derivatives Superstars” respectively by the Global Finance magazine. Mr. Qiu was appointed as an independent non-executive director and a member of the Nomination Committee of the Company with effect from May 7, 2019.

 

Other Members of Senior Management  

 

Yuhong Xie Born in 1961, Mr. Xie is an Executive Vice President and the Chief Safety Official of the Company as well as a professor-level senior engineer. Mr. Xie obtained a Ph.D. degree from China University of Geosciences in 2005. From 1982 to 1995, Mr. Xie served as an engineer of Research Institute and Exploration Department of CNOOC Nanhai West Corporation. From 1995 to 1996, he served as the Deputy Manager of Exploration Department of CNOOC Nanhai West Corporation. From 1996 to 1999, he served as Manager of Tepu Company of CNOOC Nanhai West Corporation, Deputy Chief Earth Physicist and Manager of Exploration Department of Nanhai West Corporation. From 2001 to 2005, he was Deputy Chief Manager of CNOOC China Limited Zhanjiang Branch. From 2005 to 2013, he served as the Chief Manager of CNOOC China Limited Zhanjiang Branch. From 2013 to 2015, he was appointed as the Director of Nanhai West Petroleum Administrative Bureau of CNOOC. From July 2015 to May 2016, he was appointed as Deputy Chief Geologist of CNOOC and Deputy Chief Geologist of the Company. From July 2015 to October 2019, he was appointed as General Manager of Exploration Department of the Company. From 2016 to September 2020, he was appointed as the Chief Geologist of CNOOC and an Executive Vice President of the Company. From May 2018 to September 2020, he was appointed as the Chief Safety Official of the Company. From September 2020, Mr. Xie resigned as Executive Vice President and Chief Safety Official of the Company.

 

95

 

Xinjian Cao Born in 1966, Mr. Cao is an Executive Vice President and the General Manager of CNOOC China Limited Tianjin Branch as well as a professor-level senior economist. Mr. Cao obtained a master degree of Business Administration from the University of Wales in 2003. From 1989 to 1999, Mr. Cao served as a geological delegate of the Contract Area of CNOOC Donghai Company & Caltex and the deputy manager of Exploration Department of CNOOC Donghai Company. From 1999 to 2004, he served as Exploration Manager of Exploration Department, Assistant Manager, Acting Manager and Manager of Human Resources Department of CNOOC China Limited Shanghai Branch. From 2004 to 2006, he served as Deputy Director of the CNOOC Talent Work Leading Group’s Office. From 2006 to 2013 he served as Deputy General Manager of CNOOC China Limited Shanghai Branch. From 2009 to 2013, he also served as Deputy Director of Donghai Petroleum Administration Bureau of CNOOC. From 2013 to 2017, he served as Deputy General Manager and General Manager of Human Resources Department of CNOOC and the Company. From March 2017 to February 2020, he served as the Director of Bohai Petroleum Administration Bureau of CNOOC. From March 2017, he has served as General Manager of CNOOC China Limited Tianjin Branch. From August 2017, he was appointed as an Executive Vice President of the Company. In September 2017, he was appointed as Assistant President of CNOOC.

 

Qinglong Xia Born in 1964, Mr. Xia is a professor-level senior engineer. He graduated from Geophysical Exploration Department of Chengdu Institute of Geology with a bachelor's degree in engineering. He graduated from Institute of Geology and Geophysics, Chinese Academy of Sciences with a PhD degree of science in solid earth geophysics. From August 1986 to November 2005, Mr. Xia successively served as assistant engineer and engineer of the Computation Centre of Bohai Oil Corporation, project manager of Bohai Oil Research Institute, an officer, chief of geophysics, deputy chief engineer (geophysical prospect) and exploration chief of the exploration department of Bohai Oil Corporation, Chief engineer (exploration) of Bohai Research Institute CNOOC Research Institute and the manager of at the Technology Department of CNOOC (China) Limited Tianjin Branch. He served as chief geologist, deputy general manager and executive deputy general manager of CNOOC (China) Limited Tianjin Branch from November 2005 to May 2016, deputy director and executive deputy director of CNOOC Bohai Petroleum Administrative Bureau from April 2013 to May 2016, and successively served as Chief Executive Officer and President, Chairman of BlueChemical Ltd. from May 2016 to December 2019. He serves as Chairman of the Board of CNOOC International Limited since December 2019 and was appointed as an Executive Vice President of the Company on March 20, 2020.

 

Weizhi Xie Born in 1964, Mr. Xie is the Chief Financial Officer of the Company. Mr. Xie is a Senior Accountant. He graduated from Guanghua School of Management of Peking University with a master’s degree in Business Administration. Mr. Xie joined CNOOC in 1986. Mr. Xie served as Deputy Manager of Finance Department of CNOOC Nanhai West Corporation, Deputy Manager and Manager of Controllers’ Department and General Manager of Treasury Department of CNOOC. From January 2002 to February 2011, Mr. Xie served as General Manager of CNOOC Finance Corporation Ltd. From February 2011 to May 2016, Mr. Xie served as Assistant President of CHINALCO, Executive Director of CHINALCO Finance Company Limited, President of CHINALCO Offshore Holding Company, Vice President & CFO of CHALCO, President of CHALCO (Hong Kong), Chairman of CHINALCO Finance Company Limited, General Auditor & Director of Audit Department CHINALCO. From 2016 to 2017, Mr. Xie was appointed as General Manager of Finance Department of CNOOC. From August 2017, Mr. Xie was appointed as the Chief Financial Officer of the Company.

 

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Yunhua Deng Born in 1963, Mr. Deng is an academician of the Chinese Academy of Engineering and the Deputy Chief Exploration Engineer of the Company. Mr. Deng graduated from the Scientific Research Institute of Petroleum Exploration and Development with a major in Petroleum Geology and Exploration and received a master’s degree in Engineering in 1988. He was assistant geologist and then geologist in the Exploration Department of CNOOC Bohai Corporation Institute from 1988 to 1989; and served as the Team Leader of the Comprehensive Petroleum Geological Research Team, Project Manager, Deputy Principal of Geologist, Deputy Principal Geologist and Director of the Exploration Department and Deputy Chief Geologist in the CNOOC Bohai Corporation Institute from 1989 to 1999. Mr. Deng became Deputy Chief Geology Engineer and Deputy General Manager of CNOOC China Limited Tianjian Branch from 1999 to 2005. He was Deputy Director of CNOOC Research Center from 2005 to 2006. He served as the Deputy Chief Exploration Engineer of the Company and Deputy Director of Beijing Research Center of CNOOC China Limited since 2006. He served as the Deputy Director of CNOOC Research Center from 2006 to 2009. Mr. Deng served as Deputy Chief Geology Engineer of CNOOC since 2007; and Deputy General Director of CNOOC Research Institute and Deputy Chief Manager of CNOOC Research Institute Co., Ltd. from 2009.

 

Yun Yang Born in 1964, Mr. Yang is a professor-level senior engineer. He graduated from Southwest Petroleum Institute with a bachelor of engineering degree in oil exploration engineering department and graduated from School of Economics and Management of Tsinghua University with an MBA degree in business administration. From September 1985 to December 1999, Mr. Yang successively serviced as assistant engineer, engineer and deputy officer of the craft room of oil production plant of Qinghai Petroleum Management Bureau, engineer and deputy head of the operation department of Nanhai West Oil Corporation, a section level officer and chief engineer of the production office of Nanhai West Oil Corporation and the manager of development and production department of CNOOC. From December 1999 to June 2007, he served as production manager of the production department of the Company. From June 2007 to May 2011, he served as the deputy general manager of CNOOC (China) Limited Shenzhen Branch and the deputy director of CNOOC Nanhai East Petroleum Administration Bureau. From May 2011 to July 2015, he served as the executive vice president of Offshore Oil Engineering Co., Ltd.. From July 2015 to December 2019, he served as the director of CNOOC Donghai Petroleum Administration Bureau, general manager of CNOOC (China) Limited Shanghai Branch and chairman of CNOOC Rongfeng Energy Co., Ltd.. He was appointed as the general manager of CNOOC (China) Limited Zhanjiang Branch in December 2019 and was appointed as a Vice President of the Company on March 20, 2020. From October 2020, he concurrently served as the general manager of CNOOC China Limited Hainan Branch.

 

Chenggang Duan Born in 1963, Mr. Duan is a professor-level senior engineer. He graduated from Southwest Petroleum Institute with a bachelor degree of engineering in petroleum geological exploration and graduated from China University of Petroleum with a master degree of management in management science and engineering. From August 1984 to May 2001, Mr. Duan successively served as an engineer of the exploration department and the science and technology research center, the chief engineer, deputy director of science and technology research center, deputy manager of exploration and development department of CNOOC Nanhai East Corporation. He served as the chief representative of the Chinese side of the joint management committee of the contract area, Assistant to General Manager and Deputy General Manager of CNOOC (China) Limited Shenzhen Branch from May 2001 to June 2007, Executive Vice President and President of CNOOC Southeast Asia Co., Ltd. from June 2007 to August 2012, General Manager of CNOOC Iraq Limited from August 2012 to February 2016. From February 2016 to February 2020, he served as Director of CNOOC Nanhai East Petroleum Administration Bureau. From February 2016, he served as General Manager of CNOOC (China) Limited Shenzhen Branch. He was appointed as a Vice President of the Company on March 20, 2020.

  

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Fujie Sun Born in 1965. Mr. Sun graduated from China University of Petroleum (Beijing) with a Doctor Degree of Engineering in Oil and Gas Field Development. From July 1988 to April 1998, he serviced as Engineer of Development Office, Deputy Director of 1st Development Office, Deputy Director of Development Office and Deputy Chief Engineer and Deputy Director of Research Institute of CNOOC Bohai Company. From April 1998 to July 1999, he served as Chief Engineer of Development Department of CNOOC Bohai Company. From July 1999 to January 2002, he served as Deputy Chief Geologist of Tianjin Branch of CNOOC China Limited. From January 2002 to December 2011, he served as Chief Development Engineer, Chief Development and Design Engineer and Manager of Development and Design Department, Chief Development and Design Engineer of CNOOC Research Center, and Chief Development and Design Engineer of CNOOC Research Institute. From December 2011 to December 2013, he served as Chief Engineer of Development, Deputy General Manager and Chief Engineer of Development of Development and Production Department of the Company. From December 2013 to February 2017, he served as General Manager of Science and Technology Development Department of CNOOC and the Company. From February 2017 to December 2020, he served as Executive Deputy Director of CNOOC Consulting Center. Mr. Sun has been appointed as the Vice President of the Company with effect from December 31, 2020.

 

Xiaonan Wu Born in 1967, Ms. Wu is the Joint Company Secretary of the Company. Ms. Wu is an Enterprise Legal Adviser (註冊企業法律顧問) and Certified Senior Enterprise Risk Manager (註冊高級企業風險管理師). Ms. Wu received a bachelor of laws degree from China University of Political Science and Law in 1990. Ms. Wu has been working in the oil and gas industry for over 20 years. From September 1999 to June 2002, Ms. Wu successively worked in the Regulatory and Legislative Division of the Legal Department of CNOOC and the Company. From June 2002 to February 2012, Ms. Wu served as the Manager of the Regulatory and Legislative Division of the Legal Department of the Company. From February 2012 to May 2016, she served as the Deputy General Manager of the Legal Department of the Company. From May 2016 to December 2020, Ms. Wu served as the General Manager of the Legal Department. From September 2018 to December 2020, she served as the Director of the Legal Support Center of CNOOC. From August 2018 to February 2021, Ms. Wu served as the Vice General Counsel of CNOOC and the General Counsel and the Compliance Officer of the Company. Ms. Wu was appointed as a Joint Company Secretary of the Company with effect from November 19, 2018.

 

Joint Company Secretaries  

 

Xiaonan Wu

 

See “Item 6— Directors, Senior Management and Employees—A. Directors and Senior Management— Other Members of Senior Management —Xiaonan Wu.”

 

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, and MBA from The University of Hong Kong from 2014 to 2016. She is a fellow member of both The Chartered Governance Institute and the Hong Kong Institute of Chartered Secretaries since 2012 and became a member of Company Secretaries Panel and Advisor for Academy of Professional Certification in the same year, and became a member of ACCA since 2016. 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. Furthermore, she was granted a Practitioner's Endorsement (PE) since 2017/2018 under The Hong Kong Institute of Chartered Secretaries and accredited a General Mediator under Hong Kong Mediation Accreditation Association Limited (HKMAAL) since August 2017. 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 gained The Chartered Governance Professional (CGP) qualification of The Institute of Chartered Secretaries and Administrators and The Hong Kong Institute of Chartered Secretaries on September 30, 2018. She volunteered on Hong Kong Management Association (HKMA) of Panel of Adjudicators HKMA Best Annual Reports Awards since 2018. She volunteered on the Hong Kong Institute of Chartered Secretaries of Committee member of Professional Development Council (PDC) since 2021 and Committee member of Company Secretaries Panel (CSP) since 2017. Ms. Tsue was appointed as a Joint Company Secretary of the Company with effect from November 25, 2008.

 

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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, 2020 was Rmb4,710,037 (US$721,845), while the amount paid to our other senior management for the same period was Rmb10,413,494 (US$1,595,938). In addition, under our pension plan for 2020, we set aside an aggregate amount of Rmb1,178,135 (US$180,557) 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 Rmb490,025 (US$75,100) to the pension plan for 2020. Each director’s annual compensation, including fees, salaries, allowances, benefits in kind, pension benefits and share option benefits, is disclosed in note 9 to our consolidated financial statements included elsewhere in this annual report. Note 10 to our consolidated financial statements included elsewhere in this annual report discloses our five highest paid employees during 2020. For further details regarding share options granted to our directors, officers and employees, see “Item 6—Directors, Senior Management and Employees—E. Share Ownership.” For further details regarding our employee compensation, see “Item 4—Information on the Company—Business Overview—Employees and Employee Benefits.”  

 

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 (both internal and external) and procedures as well as the effectiveness of our risk management and internal control systems. Our audit committee together with senior management and the external auditors, review the accounting principles and practices adopted by us and discuss the risk management and internal control and financial reporting matters. 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 omissions resulting from financial reporting. In addition, our audit committee reviews our Company’s business ethics and compliance policies, related reports and performs other corporate governance functions. 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 Aloysius Hau Yin Tse as the audit committee financial expert for the purposes of U.S. securities laws and chairman of the audit committee, Sung Hong Chiu and Professor Lawrence J. Lau.  Our audit committee charter is available on our website, www.cnoocltd.com.  

 

The main responsibilities and authorities of our remuneration committee include making recommendations to our Board on our policy and structure of the remuneration of our directors and senior management and on the establishment of a formal and transparent procedure for developing remuneration policy, determining the service contracts and specific remuneration packages for all executive directors and senior management, such as benefits in kind, pension rights and compensation payments, including any compensation payable for loss or termination of their office or appointment, reviewing and approving the compensation arrangements relating to dismissal or removal of directors for misconduct to ensure consistency with contractual terms, and making recommendations to our Board on the remuneration of non-executive directors and independent non-executive directors. Our remuneration committee consisted of two independent non-executive directors (Sung Hong Chiu as chairman and Aloysius Hau Yin Tse) and one non-executive director (Dongjin Wang until September 29, 2020 and Yong Li effective from September 29, 2020). Our remuneration committee charter is available on our website, www.cnoocltd.com.

 

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The main authorities and responsibilities of our nomination committee include nominating candidates to serve as our directors and senior management for approval by our Board, reviewing the structure and composition of our Board, and evaluating the leadership abilities of our executive directors so as to ensure our competitive position, determine the policy and establish proper procedures for the selection of our leadership positions. Our nomination committee is also responsible for reviewing and monitoring the training and continuous professional development of directors and senior management and make recommendations to our Board in this regard. Our nomination committee comprised two independent non-executive directors (Professor Lawrence J. Lau and Zhi Zhong Qiu) and one non-executive director (Dongjin Wang), with Dongjin Wang serving as chairman. Our nomination committee charter is available on our website, www.cnoocltd.com.

 

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 director’s service contracts with us and the terms of appointment of our independent non-executive directors are governed by appointment letters. There is no severance pay arrangement 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 ordinary shares is the Hong Kong Stock Exchange. In addition, because our ordinary shares, represented by American Depositary 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, certain 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.

 

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. As of March 31, 2021, four of our nine directors were independent non-executive directors.

 

NYSE Standards require U.S. domestic issuers to schedule regular executive sessions of non-management directors, or regular executive sessions of independent directors only. NYSE Standards also require that, if a U.S. domestic issuer chooses to hold regular meetings of all non-management directors, it should hold an executive session at least once a year to be attended by only independent directors. We are not subject to such requirements and our independent directors attend all board meetings where possible. We also schedule meetings between our chairman and our independent non-executive directors.

 

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NYSE Standards require U.S. domestic issuers to disclose a method for interested parties to communicate directly with the presiding director of the executive sessions, or with the non-management or independent 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 board of directors of the U.S. domestic issuer is 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 on or through the U.S. domestic issuer’s website or 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 external auditors and the general managers of internal audit and risk management departments 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.

 

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 also require the board of directors of U.S. domestic issuers to consider additional factors in evaluating the independence of compensation committee members, including the source of compensation of the director, including any consulting, advisory or other compensatory fee paid by the issuer to such director and whether such director is affiliated with the issuer, a subsidiary of the issuer or an affiliate of a subsidiary of the issuer. We are not subject to such requirement and we have not considered such additional factors in evaluating the independence of compensation committee members.

 

NYSE Standards require U.S. domestic issuers to address in their compensation 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 compensation committees of U.S. domestic issuers to produce a compensation 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, senior management by band and the five highest paid employees in our annual reports according to the requirements of the Hong Kong Stock Exchange Listing Rules.

  

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NYSE Standards require compensation committees of U.S. domestic issuers may, in its sole discretion, retain or obtain the advice of compensation consultants or other advisers, only after taking into consideration all factors relevant to such advisers’ independence from management, including the various factors as specified in the NYSE Standards, and issuers must provide funding for the retention of such advisers. Also, compensation committees shall be directly responsible for the appointment, compensation and oversight of the advisers they retain. We are not subject to these requirements and we have not applied such requirements and addressed them in our remuneration committee charter.

 

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 two 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.

 

5. Corporate Governance Guidelines

 

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 websites and provide the website addresses. 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, www.cnoocltd.com. See “Item 16B—Code of Ethics.”

 

D.Employees

 

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

 

E.Share Ownership

 

As of the date of this annual report, all of the options that were granted but not exercised have expired and none of our directors and employees holds any options under our share option schemes.

 

Name of Grantee  Number of shares involved in the options outstanding as of January 1, 2020  Number of shares involved in the options outstanding as of March 31, 2021  Date of Grant 

Date of Expiration(1)

  Closing price per share immediately before the date of grant (HK$)  Exercise Price (HK$)
Director:   —    —    —    —    —    — 
Other Employees In Aggregate:                              
    27,030,000    —    May 20, 2010    May 20, 2020    12.22    12.696 
Total   27,030,000    —                     

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(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.

 

For the year ended December 31, 2020, no share options granted under our share option schemes were exercised. For the period from January 1, 2020 to March 31, 2021, no share options were exercised.

 

As of December 31, 2020, we had no share options outstanding under our share option schemes.

 

For further details about our share option schemes, see notes 10 and 30 to our consolidated financial statements included elsewhere in this annual report.

 

As of March 31, 2021, 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, 2021.

 

Shareholder

Number of Shares Owned

Percentage

CNOOC(1) 29,026,607,273 65.01%

 

 

(1)Includes both the shares owned by CNOOC directly and the shares owned by CNOOC 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, 2021, 1,193,562 ADSs, representing approximately 0.27% of our then outstanding shares, were held of record in the form of ADSs. At such date, the number of registered ADS holders in the United States was 45.

 

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B.Related Party Transactions

 

Overview

 

We regularly enter into transactions with related parties, including CNOOC and its associates. Since CNOOC indirectly and directly owns an aggregate of approximately 65.01% of our outstanding shares, 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.

 

These transactions are conducted in the normal course of business on terms comparable to those with other non-state-owned enterprises.

 

Categories of Continuing Connected Transactions

 

As we are controlled by CNOOC, transactions with CNOOC, and its associates are deemed to be related party transactions. The continuing connected transactions defined in Chapter 14A of the Hong Kong Stock Exchange Listing Rules in respect of items listed below also constitute related party transactions. We entered into a comprehensive framework agreement with CNOOC on November 1, 2019 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, 2020. The comprehensive framework agreement is substantially on the same terms as the terms contained in the comprehensive framework agreement entered into by the Company on November 15, 2016, with more details about the pricing principles. The continuing connected transactions under such comprehensive framework agreement and the relevant annual caps for the three years from January 1, 2020 were approved by our independent shareholders on November 21, 2019. The approved continuing connected transactions are as follows:

 

1.Provision of exploration, oil and gas development, oil and gas production as well as sales, 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 sales, 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

 

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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 liquefied natural gas)

 

(b)Long-term sales of natural gas and liquefied natural gas

 

Pricing principles

 

The basic pricing principle for the continuing connected transactions between the Company and CNOOC is based on arm’s length negotiations, on normal commercial terms or better and with reference to the prevailing local market conditions (including the volume of sales, length of contracts, the volume of services, overall customer relationship and other market factors).

 

On the basis of the above basic pricing principle, each type of products or services must be charged in accordance with the following pricing mechanism and in the following sequential order:

 

(a) government-prescribed price; or

 

(b) where there is no government-prescribed price, in accordance with market prices, including the local, national or international market prices.

 

The continuing connected transactions referred to in paragraph 1(a)-1(b) above provided by CNOOC to the Company and 3(a)-3(b) above provided by the Company to CNOOC, on the basis of the above pricing principle, are determined through arm’s length negotiations based on market prices (as defined in the comprehensive framework agreement).

 

The continuing connected transactions referred to in paragraph 1(c)-1(d) above provided by CNOOC to the Company, on the basis of the above pricing principle, are based on government-prescribed price or market prices (as defined in the comprehensive framework agreement).

 

The continuing connected transactions referred to in paragraph 1(e) on the basis of the above pricing principle, are unanimously determined with the subsidiaries of CNOOC which provides the FPSO vessel leases after arm’s length negotiation in accordance with normal commercial terms.

 

The continuing connected transactions referred to in paragraph 2 above provided by the Company to CNOOC on the basis of the above pricing principle, are determined through arm’s length negotiation between both parties with reference market price (as defined in the comprehensive framework agreement).

 

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 announcement, annual report and annual review requirements or all the connected transaction requirements set out in the Hong Kong Stock Exchange Listing Rules, because each of the percentage ratios for these categories under the Hong Kong Stock Exchange Listing Rules (other than the profits ratio), where applicable, is expected to be less than 5% on an annual basis:

 

(a)  Provision of sales, management and ancillary services by CNOOC and/or its associates to us;

 

(b)  FPSO vessel leases from CNOOC and/or its associate to us; and

 

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(c)  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 connected transaction requirements:

 

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

 

(e)   Long-term sales of natural gas and liquefied natural gas.

 

We obtained independent shareholders’ approval at the extraordinary general meetings held on November 21, 2019 for the renewal of the non-exempt continuing connected transactions and relevant annual caps for the period from January 1, 2020 to December 31, 2022, respectively. The annual caps for our continuing connected transactions with CNOOC and/or its associates are specified as follows:

 

Categories 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 ended December 31, 2022,

 

Rmb 13,892 million,

 

Rmb 14,811 million and

 

Rmb 15,444 million respectively

 

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

For the three years ended December 31, 2022

 

Rmb 49,083 million,

 

Rmb 48,857 million and

 

Rmb 58,536 million, respectively

 

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

For the three years ended December 31, 2022,

 

Rmb 18,815 million,

 

Rmb 20,651 million and

 

Rmb 22,778 million, respectively

 

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Categories of Continuing Connected Transactions Relevant Annual Caps
   

(d) Provision of sales, management and ancillary services

 

For the three years ended December 31, 2022,

 

Rmb 2,773 million,

 

Rmb 3,004 million and

 

Rmb 3,231 million, respectively

 

(e) FPSO vessel leases

For the three years ended December 31, 2022,

 

Rmb 1,663 million,

 

Rmb 1,394 million and

 

Rmb 1,316 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 ended December 31, 2022,

 

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 ended December 31, 2022,

 

Rmb 229,990 million,

 

Rmb 250,736 million and

 

Rmb 278,819 million, respectively

 

(b) Long-term sales of natural gas and liquefied natural gas

For the three years ended December 31, 2022,

 

Rmb 28,270 million,

 

Rmb 38,509 million and

 

Rmb 51,642 million, respectively

 

 

A detailed discussion of significant connected transactions entered into in the ordinary course of business between us and our related parties during 2020 and the balances arising from connected transactions at the end of 2020 is included in note 32 to our consolidated financial statements included elsewhere in this annual report.

 

The non-exempt continuing connected transactions for the year ended December 31, 2020 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)  on normal commercial terms or better; and

 

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(iii)  in accordance with the relevant agreements (including pricing principles and guidelines set out therein) governing the transactions on terms that were fair and reasonable and in the interests of the shareholders of our Company 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, 2020 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.  

 

Transactions with CNOOC Finance Corporation Limited

 

On November 21, 2019, we entered into a financial services framework agreement (“Financial Services Framework Agreement”) with CNOOC Finance Corporation Limited (“CNOOC Finance”), our 31.8% owned affiliate and a subsidiary of CNOOC, pursuant to which CNOOC Finance provides a range of financial services as may be required and requested by the Company, for a term of three years from January 1, 2020 to December 31, 2022. The Financial Services Framework Agreement is substantially on the same terms as the terms contained in the financial services framework agreement entered into by the Company on December 1, 2016. The continuing connected transactions in respect of the depositary services under the Financial Services Framework Agreement are exempted from independent shareholders’ approval requirement, but subject to the annual reporting, annual review and announcement requirements.

 

The maximum daily outstanding balance of deposits and interest (excluding funds placed for the purpose of extending entrustment loans pursuant to the entrustment loan services) placed by the Company with CNOOC Finance should not exceed Rmb 23.5 billion for the period from January 1, 2020 to December 31, 2022.

 

We confirmed that the maximum daily outstanding balance of deposits and interest (excluding funds placed for the purpose of extending entrustment loans pursuant to the entrustment loan services) placed by us with CNOOC Finance did not exceed Rmb 23.5 billion for the period from January 1, 2020 to December 31, 2020.

 

Borrowings from CNOOC

 

In September 2014, CNOOC provided CNOOC International Limited, a wholly-owned subsidiary of us a five-year uncommitted revolving loan facility for general purposes, with the principal amount of US$135 million of 0.95% per annum. We have repaid the outstanding principal amount and accrued interest under this facility on December 2, 2019.

 

In December 2014, CNOOC provided us a five-year uncommitted revolving loan facility for general purposes, with the principal amount of US$600 million of 0.95% per annum. We have repaid the outstanding principal amount and accrued interest under this facility on December 11, 2019.

 

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.

 

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Legal Proceedings

 

As at December 31, 2020, we were not involved in any material litigation or arbitration and no material litigation or arbitration were pending or threatened or made against us so far as we are aware.

 

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 2018, we declared and paid dividends totaling Rmb 23,523 million. In 2019, we declared and paid dividends totaling Rmb 28,973 million. In 2020, we declared and paid dividends totaling Rmb 25,851 million (US$3,961.8 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. The general reserve fund, which is determined at the discretion of the board of directors of CNOOC China Limited, can only be used, upon approval by the relevant authority, to offset against accumulated losses or to increase capital. 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 IFRSs. 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. None of the contributions of CNOOC China Limited to these statutory funds may be used for dividend purposes.    

 

For the years ended December 31, 2018, 2019 and 2020, CNOOC China Limited made the following appropriations to the statutory reserves:

 

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For the year ended

December 31, 2018

 

For the year ended

December 31, 2019 

 

For the year ended

December 31, 2020

  

Percentage

of Net Profits

 

Rmb

(in millions)

 

Percentage 

of Net Profits

 

Rmb 

(in millions)

 

Percentage 

of Net Profits

 

Rmb

(in millions) 

Reserve fund  —  —  —  —  —  —
Staff and workers’ bonus and welfare fund    —   —   —   —   —   —
Safety fund    1.1%   667.3    1.0%   630.0    2.6%   643.0 

 

Contingencies

 

As a Chinese Resident Enterprise, we may be liable to pay taxes on the deemed interest income for the funding provided to our overseas subsidiaries starting from January 1, 2008. We have prepared contemporaneous documentation in accordance with applicable PRC tax laws and regulations and is currently awaiting confirmation from our local tax authority.

 

We are subject to tax in numerous jurisdictions around the world. There are audits in progress and items under review. Difference in positions taken by taxation authorities over the interpretation and application of tax laws and regulations may increase our tax liability. We have assessed the possible future outcome of matters that are currently under dispute. We believe that an adequate provision for future tax liability has been included in the consolidated financial statements based on available information.

 

In addition to the matters mentioned above, we are dealing with a number of other lawsuits and arbitrations that arise in the ordinary course of business. While the results of these legal proceedings cannot be ascertained at this stage, we believe these proceedings are not expected to have a material effect on the consolidated financial statements.

 

B.Significant Changes

 

We have no other subsequent events needed to be disclosed except those disclosed in note 40 to our consolidated financial statements included elsewhere in this annual report.

 

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 in February 2001 under the stock code “00883”, our ADSs on the New York Stock Exchange in February 2001 under the symbol “CEO”, and our ADSs on the Toronto Stock Exchange in September 2013 under the symbol “CNU”.

 

On February 26, 2021, the NYSE posted on its website a news release stating that the NYSE Regulation has determined to commence proceedings to delist our ADSs, on the basis that we are no longer suitable for listing pursuant to NYSE Listed Company Manual Section 802.01D in light of the Executive Order 13959 – “Addressing the Threat from Securities Investments that Finance Communist Chinese Military Companies” signed by the President of the United States of America on November 12, 2020 (as amended on January 13, 2021) and updated guidance provided by the Office of Foreign Assets Control of the U.S. Department of the Treasury in General License 1A and frequently asked questions 879 issued on January 27, 2021. The NYSE suspended trading in our ADSs at 4:00 a.m. (Eastern Standard Time) on March 9, 2021. On March 10, 2021 (Eastern Standard Time), we filed with the NYSE a written request for a review of the determination by a Committee of the Board of Directors of the NYSE (the “Committee”). If the Committee decides that our ADSs should be removed from listing, the NYSE will apply to the SEC to delist the ADSs upon completion of all applicable procedures.

 

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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, the predecessor to the Hong Kong Companies Ordinance). Our Company registration number in Hong Kong is 685974. Under the Hong Kong Companies Ordinance, we have the capacity, rights, powers and privileges of a natural person of full age and may do anything which we are permitted or required to do by our articles of association or any enactment or rule of law.

 

The following are summaries of provisions of our articles of association and the Hong Kong Companies Ordinance. By operation of this Ordinance, provisions that were previously contained in our memorandum of association are deemed to be incorporated into our articles of association except for those provisions which conflict with 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 was filed as an exhibit to our annual report on Form 20-F for the fiscal year of 2010. We are required by the Hong Kong Stock Exchange Listing Rules to upload, among other things, our memorandum and articles of association on our website and on the website of the Hong Kong Stock Exchange. We have complied with such requirement and as such, our memorandum and articles of association were further filed as an exhibit to the Form 6-K filed with the SEC on March 30, 2012 (File Number: 1-14966).

 

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 or grant rights to subscribe for, or to convert any security into, 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 or to grant rights to subscribe for shares generally shall continue in force from the date of the passing of the resolution until the earlier of:

 

·the conclusion of the next annual general meeting following the passing of the resolution; and

 

·the date on which the authority given under the resolution is revoked or varied by an ordinary resolution of our shareholders in a general meeting.

 

If such an approval for a general mandate to issue shares is given, our Board shall have the discretion to issue such number of shares as are approved pursuant to such general mandate, and our directors may offer, allot, grant options or other rights of subscription or conversion over, or otherwise issue, such number of 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.

 

111

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 total number of shares in issue as of the date of granting such approval plus the number of shares 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. Further, 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 our Company until claimed, and all dividends unclaimed for six years after having become payable may be forfeited by the directors and shall revert to our Company.

 

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 amount paid on the shares held by them respectively, and if such surplus assets are insufficient to repay the whole of the paid-up share capital, they are to be distributed so that the losses are borne by our shareholders in proportion to the amount 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.

 

·An ordinary resolution is a resolution passed by a 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 articles;

 

·change of a company’s name;

 

·reduction of share capital; and

 

·voluntary winding up.

 

112

The Hong Kong Stock Exchange Listing Rules require that voting at any general meeting must be taken by way of poll, except where the chairman, in good faith, decides to allow a resolution which relates purely a procedural or administrative matter to be voted on by a show of hands. On a poll, every shareholder who is present in person or by proxy has one vote for every share held or represented by him or her.

 

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 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 six months from the end of our financial year. 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, 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 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.

 

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.

 

113

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. Subject to provision of the Hong Kong Companies Ordinance, our directors may vote at a board meeting or by way of written resolution of directors 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 incurred or 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 for the giving by us of any security or indemnity to a third party for our debts or obligations or debts or obligations of our subsidiaries for which such director or his or her associates assumed responsibility, or guaranteed or secured in whole or in part whether alone or jointly;

 

·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 is/are or is/are to be interested as a participant in the underwriting or sub-underwriting;

 

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

 

·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.

 

C.Material Contracts

 

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

 

D.Exchange Controls

 

A portion of our Renminbi revenue may need to be converted into other currencies by our wholly owned principal operating subsidiary in the PRC to meet our substantial requirements for foreign currency, 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. For more information on foreign exchange rates, hedging activities and related foreign exchange risks, see “Item 11—Qualitative and Quantitative Disclosures about Market Risk.”

 

114

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 the 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. laws. Accordingly, we urge you to consult your tax adviser regarding the tax consequences of owning 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 change. There is no reciprocal tax treaty in effect between Hong Kong and the United States.

 

The PRC

 

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 “Enterprise Income Tax Law of the PRC” (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.

 

We are considered a PRC resident enterprise for purposes of the Notice. In accordance with the Notice and the PRC income tax law as well as 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 are required to withhold 10% corporate income tax when we make dividend distributions to the ADS depositary and to our non-Chinese resident enterprise shareholders, whose names appear on our register of members, as of the record date for such dividend, and who are not individuals. 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, or the PRC Treaty. In the past, we did not withhold any tax in respect of dividends payable to any natural person shareholders whose names appeared on our register of members on the relevant record dates.

 

Currently, gains realized by foreign individual investors upon the sale of overseas-listed shares or American depositary shares 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 or American depositary 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 exemption.

 

Hong Kong

 

Tax on Dividends

 

Under the current practices of the Hong Kong Inland Revenue Department, no tax is payable in Hong Kong on 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,

 

115

profession or business will be subject to Hong Kong profits tax which is currently imposed at a rate of 16.5% on corporations and at a standard 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.

 

U.S. Federal Income Tax Considerations

 

The following is a discussion of material U.S. federal income tax consequences of owning and disposing of ADSs or shares by the U.S. Holders described 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 own such ADSs or shares. This discussion does not address any alternative minimum tax considerations or the potential application of the Medicare contribution tax to “net investment income” of non-corporate U.S. Holders. In addition, 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 all of the U.S. federal income tax consequences that may be relevant to U.S. Holders that are subject to special rules, 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 straddle, conversion transaction, integrated transaction or similar transaction;

 

·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;

 

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

 

·persons that own or are deemed to own 10% or more of our stock, by vote or value;

 

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

 

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

 

116

If an entity that is classified as a partnership for U.S. federal income tax purposes owns 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 owning ADSs or shares and partners in such partnerships should consult their tax advisers as to the particular U.S. federal income tax consequences of owning and disposing of the ADSs or shares.

 

This discussion is based on the Internal Revenue Code of 1986, as amended (the “Code”), 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 owning and disposing of ADSs or shares in their particular circumstances.

 

As used herein, a “U.S. Holder” is a person that for U.S. federal income tax purposes is a beneficial owner of ADSs or shares and is: (i) a citizen or individual 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, any state therein or the District of Columbia; 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.

 

Except as specifically described below, this discussion assumes that we were not, and will not become, a passive foreign investment company, or PFIC, for any taxable year.

 

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. Dividends will be included in a U.S. Holder’s income on the date of the U.S. Holder’s or, in the case of ADSs, the Depositary’s receipt of the dividend. The amount of the dividend 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 of receipt, 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 dividends-received deductions with respect to dividends paid by us.

 

Subject to applicable limitations, dividends paid by “qualified foreign corporations” to certain non-corporate U.S. shareholders are taxable at rates applicable to long-term capital gains. 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. A foreign corporation may also be treated as a qualified foreign corporation if it is eligible for benefits of a comprehensive income tax treaty with the United States determined by the U.S. Treasury to be satisfactory for these purposes and that includes an exchange of information program. Non-corporate U.S. Holders should consult their 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 these favorable rates.

 

117

As described in “Item10—Taxation—The PRC,” 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 generally will 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 (in the case of a U.S. Holder that is eligible for the benefits of the PRC Treaty, 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. Where a U.S. Holder is eligible for the benefits of the PRC Treaty, PRC taxes withheld in excess of the rate applicable under the PRC Treaty will not be eligible for credit against the U.S. Holder’s U.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 in computing taxable income, subject to applicable limitations. An election to deduct foreign taxes instead of claiming foreign tax credits must apply to all foreign taxes paid or accrued in the taxable year.

 

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 U.S. 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 and the U.S. Holder’s tax basis in the ADSs or shares (each determined in U.S. dollars).

 

As described in “Item10—Taxation —The PRC,” gains from dispositions of our ADSs or shares may be subject to PRC tax. A U.S. Holder’s amount realized would include the gross amount of the disposition proceeds before any withholding or deduction of PRC tax. Although under the Code any such gain of a U.S. Holder would generally be characterized as U.S.-source income, a U.S. Holder that is eligible for the benefits of the PRC Treaty may be able to elect to treat the gain as foreign-source gain for foreign tax credit purposes. The rules governing foreign tax credits are complex and the creditability of foreign taxes is subject to limitations. U.S. Holders should consult their tax advisers regarding their eligibility for benefits under the PRC Treaty and the creditability or deductibility of any PRC tax paid with respect to dispositions in their particular circumstances.

 

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, 2020. In general, a non-U.S. company will be 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 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 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 a PFIC for any taxable year.

 

If we were 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 certain pledges) 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 resulting tax liability for each such taxable year. 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. Certain elections (such as a mark-to-market election) may be available to U.S. Holders and may result in alternative tax treatment.

 

118

 

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 favorable rates discussed above with respect to dividends received by certain non-corporate U.S. Holders would not apply.

 

If we are a PFIC for any taxable year during which a U.S. Holder owned our ADSs or shares, the U.S. Holder will generally be required to file annual reports on IRS Form 8621.

 

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 may be subject to information reporting and 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 U.S. Holder’s U.S. federal income tax liability and may entitle such U.S. Holder to a refund, provided that the required information is timely furnished to the Internal Revenue Service.

 

Subject to certain exceptions, U.S. Holders who are individuals or certain specified entities may be required to report information relating to their ownership of the securities of non-U.S. companies, or non-U.S. accounts through which they are held.  U.S. Holders should consult their tax advisers regarding the effect, if any, of this requirement on the ownership and disposition of our ADSs or shares.

 

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.

 

119

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.

 

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—Our business, cash flows and profits fluctuate with volatility 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. China adopted a managed floating exchange rate approach based on market supply and demand and with reference to a basket of currencies. From January 1, 2020 to December 31, 2020, Rmb has appreciated by approximately 6.92% against the US dollars.

 

Management has assessed our exposure to foreign currency risk by using a sensitivity analysis on the change in foreign exchange rate of the US dollars, to which the Group is mainly exposed to as at December 31, 2020 and 2019. Based on management's assessment at December 31, 2020, a 5% strengthening/weakening of Rmb against US dollars would have increased/decreased the profit for the year of the Group by 0.35% (2019: 0.04%) and the equity of the Group by 0.51% (2019: 0.47%). This analysis has been determined assuming that the change in foreign exchange rates had occurred at the end of the reporting period and had been applied to the foreign currency balances to which the Group has significant exposure with all other variables held constant. The analysis is performed on the same basis for 2019.

 

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 most of our debt is denominated in U.S. dollars.

 

For further information on our currency risk, see “Item 3—Key Information—Risk Factors—We face currency risks and liquidity risks.”

 

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.

 

120

As of December 31, 2020, the interest rates for 91.4% of our outstanding debts were fixed. The term of the weighted average balance was approximately 8.57 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.

 

As of December 31, 2020, the interest rates for 91.4% 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 (including the current portion) as of December 31, 2020.

 

121

 

2021

2022

2023

2024

2025

2026 and after

Total

Fair value as of December 31, 2020

  (Rmb in millions, except percentages)
Long-term loans, including current portion                
Floating rate 219.9 287.9 326.0    376.6 412.7 9,616.2 11,239.3 11,266.6
Interest rate- Tangguh Libor + 0.19%~0.335% Libor + 0.19%~0.335% Libor + 0.19%~0.335% Libor + 0.19%~0.335% Libor + 0.19%~0.335% Libor + 0.19%~0.335%    
Interest rate- Tangguh III Libor + 1.37%~3.45% Libor + 1.37%~3.45% Libor + 1.37%~3.45% Libor + 1.37%~3.45% Libor + 1.37%~3.45% Libor + 1.37%~3.45%    
Interest rate- Arctic LNG2 EURIBOR+ 1.20% EURIBOR+ 1.20% EURIBOR+ 1.20% EURIBOR+ 1.20% EURIBOR+ 1.20% EURIBOR+ 1.20%    
Interest rate- CUCBM LPR-0.60% LPR-0.60% LPR-0.60% LPR-0.60% LPR-0.60% LPR-0.60%    
Long-term guaranteed notes, including current portion                
Fixed rate  9,787.5 9,787.5  15,986.2  14,681.3 13,050.0 55,723.5 119,016.0 136,997.7
Average interest rate 4.49% 4.53% 4.71% 4.89% 5.14% 5.28%    

 

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.

 

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D.American Depositary Shares

 

JPMorgan Chase Bank, N.A. is our Depositary. The depositary’s office is located at 383 Madison Ave, Floor 11 New York, NY 10179. Each of our ADSs represents 100 shares.

 

ADR Fees Payable by Investors

 

The Depositary may charge each person to whom ADRs are issued, including, without limitation, issuances against deposits of shares, issuances in respect of share distributions, rights and other distributions, issuances pursuant to a stock dividend or stock split declared by us, or issuances pursuant to a merger, exchange of securities or any other transaction or event affecting the ADSs or the deposited securities, and each person surrendering ADSs for withdrawal of deposited securities or whose ADSs are cancelled or reduced for any other reason, US$5.00 for each 100 ADSs (or portion thereof) issued, delivered, reduced, cancelled or surrendered, as the case may be.

 

The following additional charges shall be incurred by the ADR holders, by any party depositing or withdrawing shares or by any party surrendering ADSs and/or to whom ADSs are issued (including, without limitation, issuances pursuant to a stock dividend or stock split declared by us or an exchange of stock regarding the ADSs or the Deposited Securities or a distribution of ADSs), whichever is applicable:

 

·a fee of up to US$0.05 per ADS for any cash distribution made pursuant to the deposit agreement;

 

·a fee of US$1.50 per ADR for transfers of certificated or direct registration ADRs;

 

·a fee of up to US$0.05 per ADS per calendar year (or portion thereof) for services performed by the Depositary in administering the ADRs (which fee may be charged on a periodic basis during each calendar year and shall be assessed against holders of ADRs as of the record date or record dates set by the Depositary during each calendar year shall be payable in the manner described in the next succeeding provision);

 

·a fee for the reimbursement of such fees, charges and expenses as are incurred by the Depositary or any of its agents (including, without limitation, the custodian and expenses incurred on behalf of holders in connection with compliance with foreign exchange control regulations or any law or regulation relating to foreign investment) in connection with the servicing of the shares or other deposited securities, the sale of securities (including, without limitation, deposited securities), the delivery of deposited securities or otherwise in connection with the Depositary’s or its custodian's compliance with applicable law, rule or regulation (which fees and charges shall be assessed on a proportionate basis against holders as of the record date or dates set by the Depositary and shall be payable at the sole discretion of the Depositary by billing such holders or by deducting such charge from one or more cash dividends or other cash distributions);

 

·stock transfer or other taxes and other governmental charges;

 

·cable, telex and facsimile transmission and delivery charges incurred at the request of an ADR holder in connection with the deposit or delivery of shares;

 

·transfer or registration fees for the registration of transfer of deposited securities on any applicable register in connection with the deposit or withdrawal of deposited securities;

 

·in connection with the conversion of foreign currency into U.S. dollars, the fees, expenses and other charges charged by the Depositary or its agent (which may be a division, branch or affiliate) so appointed in connection with such conversion; and

 

·fees of any division, branch or affiliate of the Depositary utilized by the Depositary to direct, manage or execute any public or private sale of securities under the deposit agreement.

 

123

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 our fees and expenses, of US$535,344.42 for the year ended December 31, 2020.

 

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, 2020 that were reimbursed:

 

Category of Expenses  Amount Reimbursed for Fiscal Year Ended December 31, 2020 (US$)(1)
ADR training expenses   $65,556.66 
Directors & Officers Liability insurance fees   $469,787.76 
Total   $535,344.42 

 

(1)Includes the 30% withholding tax paid to the U.S. government.

 

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, 2020:

 

Category of Expenses  Amount Reimbursed for Fiscal Year Ended December 31, 2020 (US$)
Fees waived   150,000 
      

124

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, 2020, 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).

  

125

 

Based upon this evaluation, our Chief Executive Officer and Chief Financial Officer concluded that, as of December 31, 2020, 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, 2020 using the criteria set forth in Internal Control – Integrated Framework (2013) 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, 2020 was effective.

 

(c)  Attestation Report of the Independent Registered Public Accounting Firm

 

Our independent registered public accounting firm has issued an audit report on the effectiveness of our internal control over financial reporting. This report appears on page F-6.

 

(d)  Changes in Internal Control over Financial Reporting

 

An internal shared finance service made was implemented to cover ten subsidiaries, as well as new IT systems being introduced to support such shared service. Our management carefully identified the changes in reporting process, standardized new internal control matrix in corresponding to the environment change, and concluded that no significant and/or material deficiencies in our internal control over financial reporting occurred during the year ended December 31, 2020 that have materially affected, or that were reasonably likely to materially affect, our internal control over financial reporting.

 

ITEM 16A.  AUDIT COMMITTEE FINANCIAL EXPERT

 

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 in 2003 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. The Code of Ethics covers areas such as supervisory rules, insider dealing, market malpractices, conflict of interests, company opportunities, protection and proper use of our assets as well as reporting requirements. As part of the continued efforts to improve our corporate governance standards, our Board conducted an annual review to the Code of Ethics since 2009, and the current version of the Code of Ethics was reviewed and adopted in August 2020.

 

126

 

We have provided all our directors and senior officers with a copy of the Code of Ethics and require them to comply with the Code of Ethics, so as to ensure that our business is conducted with integrity. We will take disciplinary actions towards any act which is in breach of the Code of Ethics. Any change or waiver, explicit or implicit, with respect to our 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 our investor relations manager, by email to ir@cnooc.com.cn.

 

ITEM 16C. PRINCIPAL ACCOUNTANT FEES AND SERVICES

 

Audit Fees

 

The aggregate fees billed for professional services rendered by our principal accountant for the audit of our annual financial statements were Rmb54.1 million for 2019 and Rmb55 million (US$8.4 million) for 2020.

 

Audit-Related Fees

 

The aggregate fees billed for services that are normally provided by the accountants in connection with statutory and regulatory filings or engagements and assurance and related services by our principal accountant that are reasonably related to the performance of the audit or review of financial statements and are not reported under “Audit Fees” were Rmb8.2 million for 2019 and Rmb7.8 million (US$1.2 million) for 2020.

 

Tax Fees

 

The aggregate fees billed for professional service rendered by the principal accountant for tax compliance, tax advice and tax planning were Rmb2.1 million for 2019 and Rmb0.04 million (US$0.006 million) for 2020.

 

All Other Fees

 

The aggregate fees billed for professional services rendered by our principal accountant for risk management advisory services and information systems reviews were Rmb0.25 million for 2019 and Rmb0.23 million (US$0.035 million) for 2020.

 

There are no other fees payable to our principal accountant for products and/or services provided by our principal accountant, other than the services reported above, for the financial year ended December 31, 2019 and for the financial year ended December 31, 2020.  

 

127

 

 

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 2020, 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

 

On March 25, 2021, our Board resolved, as recommended by our audit committee, to propose change in our independent registered public accounting firm, Deloitte Touche Tohmatsu, after the completion of the audit of the consolidated financial statements for the year ended December 31, 2020, with effect from the conclusion of our forthcoming 2020 annual general meeting to be held on May 21, 2021, due to the requirements of the Ministry of Finance of the PRC and the State-owned Assets Supervision and Administration Commission of the State Council of the PRC in respect of the term of office of the auditors. As a result, we have reached a mutual understanding with Deloitte Touche Tohmatsu on the non-renewal of its appointment.

 

The reports of Deloitte Touche Tohmatsu on our consolidated financial statements for the past two fiscal years did not contain any adverse opinion or a disclaimer of opinion, nor were such reports qualified or modified as to uncertainty, audit scope, or accounting principles.

 

During the two most recent fiscal years and through April 22, 2021, there were no disagreements with Deloitte Touche Tohmatsu on any matter of accounting principles or practices, financial statement disclosure, or auditing scope or procedure, which disagreements, if not resolved to the satisfaction of Deloitte Touche Tohmatsu, would have caused it to make reference to the subject matter of the disagreements in their report on the consolidated financial statements for such years.

 

During the two most recent fiscal years and through April 22, 2021, there were no “reportable events” (hereinafter defined) requiring disclosure pursuant to Item 16F(a)(1)(v) of Form 20-F. As used herein, the term “reportable event” means any of the items listed in paragraphs (a)(1)(v)(A)-(D) of Item 16F of Form 20-F.

  

128

 

We provided a copy of this disclosure to Deloitte Touche Tohmatsu and requested that Deloitte Touche Tohmatsu furnish a letter addressed to the SEC stating whether it agrees with the above statements, and if not, stating the respects in which it does not agree. A copy of the letter from Deloitte Touche Tohmatsu addressed to the SEC, dated April 22, 2021, is filed as Exhibit 15.12 to this annual report.

 

On March 25, 2021, our Board resolved, as recommended by our audit committee, to propose to appoint Ernst & Young as our independent registered public accounting firm, which is subject to the approval of shareholders at our forthcoming 2020 annual general meeting and with effect from the conclusion of such annual general meeting. During the two most recent fiscal years and through April 22, 2021, neither we nor anyone on our behalf consulted Ernst & Young either (i) the application of accounting principles to a specified transaction, either completed or proposed; or the type of audit opinion that might be rendered on our consolidated financial statements, and neither a written report nor oral advice was provided to us that Ernst & Young concluded was an important factor considered by us in reaching a decision as to the accounting, auditing or financial reporting issue, or (ii) any matter that was either the subject of a “disagreement”, as defined in Item 16F(a)(1)(iv) of Form 20-F and the related instructions to Item 16F of Form 20-F, with Ernst & Young or a “reportable event” as described in Item 16F(a)(1)(v) of Form 20-F.

 

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.”

 

Item 16H. MINE SAFETY DISCLOSURE

 

Not applicable.

 

129

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, incorporated by reference to Exhibit 1.1 to our Annual Report on Form 20-F for fiscal year 2010 filed with the Securities and Exchange Commission (File number: 1-14966) and Exhibit 99.1 to Form 6-K furnished with the Securities and Exchange Commission on March 30, 2012 (File number: 1-14966).
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) and Exhibit 99.1 to Form 6-K furnished with the Securities and Exchange Commission on March 30, 2012 (File number: 1-14966).
2.1 Registrant’s Specimen Certificate for Ordinary Shares, incorporated by reference to Exhibit 2.1 to our annual report on Form 20-F for fiscal year 2019 filed with the Securities and Exchange Commission (File Number: 1-14966).
2.2 Registrant’s Specimen American Depositary Receipt (included in Exhibit 2.3).
2.3 Form of Amendment No. 2 to Deposit Agreement, incorporated by reference to Exhibit (a)(3) to From F-6 (File No. 333-210253) filed with the Securities and Exchange Commission on March 17, 2016.
2.4 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).
2.5 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).
2.6 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*.

 

 

* 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.

 

130

2.7 Indentures dated May 2, 2012 among CNOOC Finance (2012) Limited, as Issuer, CNOOC Limited, as Guarantor, Citicorp International Limited, as Trustee, Citibank, N.A., London Brach, as Paying Agent, and Citigroup Global Markets Deutschland AG, as Registrar*.
2.8 Fourth Supplemental Indenture dated March 22, 2013 to the Senior Debt Indenture dated May 4, 2007 among CNOOC Limited, Deutsche Bank Trust Company Americas and Nexen Inc., incorporated by reference to Exhibit 4.1 to Form 6-K furnished with the Securities and Exchange Commission on March 22, 2013 (File number: 1-14966).
2.9 Seventh Supplemental Indenture dated March 22, 2013 to the Trust Indenture dated April 28, 1998 among CNOOC Limited, CIBC Mellon Trust Company, The Bank of New York Mellon and Nexen Inc., incorporated by reference to Exhibit 4.2 to Form 6-K furnished with the Securities and Exchange Commission on March 22, 2013 (File number: 1-14966).
2.10 Form of Indenture among CNOOC Finance (2013) Limited, CNOOC Limited and The Bank of New York Mellon, incorporated by reference to Exhibit 4.1 to Form F-3 filed with the Securities and Exchange Commission on May 1, 2013 (File number: 333-188261).
2.11 Form of 1.125% Guaranteed Note due 2016, incorporated by reference to Exhibit 4.2 to Form 6-K furnished with the Securities and Exchange Commission on May 9, 2013 (File number: 1-14966).
2.12 Form of 1.750% Guaranteed Note due 2018, incorporated by reference to Exhibit 4.3 to Form 6-K furnished with the Securities and Exchange Commission on May 9, 2013 (File number: 1-14966).
2.13 Form of 3.000% Guaranteed Note due 2023, incorporated by reference to Exhibit 4.4 to Form 6-K furnished with the Securities and Exchange Commission on May 9, 2013 (File number: 1-14966).
2.14 Form of 4.250% Guaranteed Note due 2043, incorporated by reference to Exhibit 4.5 to Form 6-K furnished with the Securities and Exchange Commission on May 9, 2013 (File number: 1-14966).
2.15 Form of Indenture among CNOOC Nexen Finance (2014) ULC, CNOOC Limited and The Bank of New York Mellon, incorporated by reference to Exhibit 4.3 to Post-Effective Amendment No. 1  to Form F-3 filed with the Securities and Exchange Commission on April 22, 2014 (File number: 333-188261).
2.16 Form of 1.625% Guaranteed Note due 2017, incorporated by reference to Exhibit 4.2 to Form 6-K furnished with the Securities and Exchange Commission on May 1, 2014 (File number: 1-14966).
2.17 Form of 4.250% Guaranteed Note due 2024, incorporated by reference to Exhibit 4.3 to Form 6-K furnished with the Securities and Exchange Commission on May 1, 2014 (File number: 1-14966).
2.18 Form of 4.875% Guaranteed Note due 2044, incorporated by reference to Exhibit 4.4 to Form 6-K furnished with the Securities and Exchange Commission on May 1, 2014 (File number: 1-14966).

131

2.19 Form of Indenture among CNOOC Finance (2015) Australia Pty Ltd, CNOOC Limited and The Bank of New York Mellon, incorporated by reference to Exhibit 4.5 to Post-Effective Amendment No.2 to Form F-3 filed with the Securities and Exchange Commission on April 27, 2015 (File number: 333-188261).
2.20 Form of Indenture among CNOOC Finance (2015) U.S.A. LLC, CNOOC Limited and The Bank of New York Mellon, incorporated by reference to Exhibit 4.7 to Post-Effective Amendment No. 2 to Form F-3 filed with the Securities and Exchange Commission on April 27, 2015 (File number: 333-188261).
2.21 Form of 2.625% Guaranteed Note due 2020, incorporated by reference to Exhibit 4.1 to Form 6-K furnished with the Securities and Exchange Commission on May 5, 2015 (File number: 1-14966).
2.22 Form of 3.500% Guaranteed Note due 2025, incorporated by reference to Exhibit 4.2 to Form 6-K furnished with the Securities and Exchange Commission on May 5, 2015 (File number: 1-14966).
2.23 Form of 4.200% Guaranteed Note due 2045, incorporated by reference to Exhibit 4.3 to Form 6-K furnished with the Securities and Exchange Commission on May 5, 2015 (File number: 1-14966).
2.24 Form of Indenture among CNOOC Finance (2015) U.S.A. LLC, CNOOC Limited and The Bank of New York Mellon, incorporated by reference to Exhibit 4.1 to Form F-3 filed with the Securities and Exchange Commission on April 20, 2018 (File number: 333-224357).
2.25 Form of 2.875% Guaranteed Note due 2029, incorporated by reference to Exhibit 4.1 to Form 6-K furnished with the Securities and Exchange Commission on September 30, 2019 (File number: 001-14966).
2.26 Form of 3.300% Guaranteed Note due 2049, incorporated by reference to Exhibit 4.2 to Form 6-K furnished with the Securities and Exchange Commission on September 30, 2019 (File number: 001-14966).
2.27 Form of Indenture among CNOOC Finance (2013) Limited, CNOOC Limited and The Bank of New York Mellon, incorporated by reference to Exhibit 4.3 to Form F-3 filed with the Securities and Exchange Commission on September 20, 2019 (File number: 333-224357).
2.28 Description of Securities registered under Section 12 of the Exchange Act, incorporated by reference to Exhibit 2.28 to our Annual Report on Form 20-F for fiscal year 2019 filed with the Securities and Exchange Commission (File number: 1-14966).
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).

132

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).
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).

133

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).
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).

134

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).
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).

135

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).
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), incorporated by reference to Exhibit 4.43 to our Annual Report on Form 20-F for fiscal year 2010 filed with the Securities and Exchange Commission (File number: 1-14966).
4.44 Arrangement Agreement dated July 23, 2012 among CNOOC Limited, CNOOC Canada Holding Ltd. and Nexen Inc., incorporated by reference to Exhibit 4.44 to our Annual Report on Form 20-F for fiscal year 2012 filed with the Securities and Exchange Commission (File number: 1-14966).

136

4.45 Framework Agreement dated November 6, 2013 with CNOOC (Summary Translation), incorporated by reference to Exhibit 4.45 to our Annual Report on Form 20-F for fiscal year 2014 filed with the Securities and Exchange Commission (File number: 1-14966).
4.46 Framework Agreement dated November 15, 2016 with CNOOC (Summary Translation), incorporated by reference to Exhibit 4.46 to our Annual Report on Form 20-F for fiscal year 2016 filed with the Securities and Exchange Commission (File number: 1-14966).
4.47 Framework Agreement dated December 1, 2016 with CNOOC Finance (Summary Translation), incorporated by reference to Exhibit 4.47 to our Annual Report on Form 20-F for fiscal year 2016 filed with the Securities and Exchange Commission (File number: 1-14966).
4.48 Framework Agreement dated November 1, 2019 with CNOOC (Summary Translation), incorporated by reference to Exhibit 4.48 to our Annual Report on Form 20-F for fiscal year 2019 filed with the Securities and Exchange Commission (File number: 1-14966).
4.49 Financial Services Framework Agreement dated November 21, 2019 with CNOOC Finance (Summary Translation), incorporated by reference to Exhibit 4.49 to our Annual Report on Form 20-F for fiscal year 2019 filed with the Securities and Exchange Commission (File number: 1-14966).
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 2020.
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 2020 Reserves Report of Ryder Scott Company, L.P. (Certain Leasehold Interests and Certain Production Sharing Contracts).
15.2 2020 Reserves Report of Ryder Scott Company, L.P. (Pan American Energy SL).
15.3 2020 Reserves Report of Ryder Scott Company, L.P. (Certain Leasehold and Royalty Interests).
15.4 2020 Reserves Report of RPS.
15.5 2020 Reserves Audit Report of DeGolyer and MacNaughton.
15.6 2020 Reserves Audit Report of McDaniel & Associates Consultants Ltd.
15.7 Consent from Ryder Scott Company, L.P.
15.8 Consent from RPS.
15.9 Consent from McDaniel & Associates Consultants Ltd.
15.10 Consent from DeGolyer and MacNaughton.
15.11 Consent from Deloitte Touche Tohmatsu.
15.12 Letter from Deloitte Touche Tohmatsu.

137

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/ Xiaonan Wu
    Name: Xiaonan Wu
    Title: Joint Company Secretary

 

Date: April 22, 2021  

 

 

138 

 

 

 

 

 

 

 

 

 

 

 

CNOOC LIMITED

 

CONSOLIDATED FINANCIAL STATEMENTS

FOR THE YEARS ENDED DECEMBER 31, 2018, 2019 AND 2020

TOGETHER WITH REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

 

 

 

 

 

 

 

 

 

 

 

 

F-1 

 

INDEX TO FINANCIAL STATEMENTS

 

  Page
   
CNOOC LIMITED  
   
Report of independent registered public accounting firm on consolidated financial statements F-3
   
Report of independent registered public accounting firm on internal control over financial reporting F-6
   
Consolidated statements of profit or loss and other comprehensive income for the years ended December 31, 2018, 2019 and 2020 F-8
   
Consolidated statements of financial position as of December 31, 2019 and 2020 F-9
   
Consolidated statements of changes in equity for the years ended December 31, 2018, 2019 and 2020 F-10
   
Consolidated statements of cash flows for the years ended December 31, 2018, 2019 and 2020 F-12
   
Notes to the consolidated financial statements F-13

 

F-2 

 

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

 

To the Shareholders and the Board of Directors of CNOOC Limited

 

Opinion on the Financial Statements

 

We have audited the accompanying consolidated statements of financial position of CNOOC Limited and subsidiaries (the "Company") as of December 31, 2020 and 2019, the related consolidated statements of profit or loss and other comprehensive income, consolidated statements of changes in equity, and consolidated statements of cash flows, for each of the three years in the period ended December 31, 2020, and the related notes (collectively referred to as the "financial statements"). In our opinion, the financial statements present fairly, in all material respects, the financial position of the Company as of December 31, 2020 and 2019, and the results of its operations and its cash flows for each of the three years in the period ended December 31, 2020, 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) (PCAOB), the Company's internal control over financial reporting as of December 31, 2020, based on criteria established in Internal Control — Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission and our report dated March 25, 2021 expressed an unqualified opinion on the Company's internal control over financial reporting.

 

Basis for Opinion

 

These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on the Company's financial statements based on our audits. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.

 

We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. Our audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that our audits provide a reasonable basis for our opinion.

 

F-3 

 

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM (continued)

 

Convenience Translation

 

Our audits also comprehended the translation of Renminbi amounts into United State dollar amounts and, in our opinion, such translation has been made in conformity with the basis stated in Note 3 to the consolidated financial statements. Such United States dollar amounts are presented solely for the convenience of readers in the United States of America.

 

Critical Audit Matters

 

The critical audit matters communicated below are matters arising from the current-period audit of the financial statements that were communicated or required to be communicated to the audit committee and that (1) relate to accounts or disclosures that are material to the financial statements and (2) involved our especially challenging, subjective, or complex judgments. The communication of critical audit matters does not alter in any way our opinion on the financial statements, taken as a whole, and we are not, by communicating the critical audit matters below, providing separate opinions on the critical audit matters or on the accounts or disclosures to which they relate.

 

Impairment and provision; Depreciation, depletion and amortization-The estimation of oil and gas reserves has a significant impact on the consolidated financial statements, particularly oil and gas properties' impairment testing and depreciation, depletion and amortization charges — Refer to Notes 3 and 14 to the consolidated financial statements

 

Critical Audit Matter Description

 

The estimation of oil and gas reserves has a significant impact on the consolidated financial statements, particularly oil and gas properties' impairment testing and depreciation, depletion and amortization charges. For the year ended December 31, 2020, oil and gas properties' impairment and provision, depreciation, depletion and amortization of RMB6,697 million and RMB51,816 million respectively were recognized.

 

We identified the estimation of oil and gas reserves as a critical audit matter because of the significant judgments made by management in assessing quantities of reserves. This required extensive audit effort and a high degree of auditor judgment, when performing audit procedures to evaluate the reasonableness of management’s assessment.

 

How the Critical Audit Matter Was Addressed in the Audit

 

Our procedures related to the estimation of oil and gas reserves included the following, among others:

 

·We tested the effectiveness of controls over reserves estimation and review process.

 

·We evaluated whether the methodology adopted by the Company’s internal and external reserve specialists to estimate oil and gas reserves was consistent with recognized industry standards.

 

·We evaluated the competence and objectivity of the reserve specialists to assess whether they were appropriately qualified to carry out the estimation of oil and gas reserves.

 

·We compared the Company’s oil and gas reserves volumes at December 31, 2020 to that at December 31, 2019, and performed corroborative inquires of the reserve specialists and management as to the reason for any significant changes.

 

·We tested whether the updated estimation of oil and gas reserves was included appropriately in the Company’s consideration in oil and gas properties' impairment testing and depreciation, depletion and amortization charges.

 

F-4 

 

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM (continued)

 

Impairment and provision-Determination of the recoverable amount of the oil and gas properties — Refer to Notes 3 and 14 to the consolidated financial statements

 

Critical Audit Matter Description

 

We identified the determination of the recoverable amount of the oil and gas properties, where an indication of impairment exists, as a critical audit matter. The Company used the discounted cash flow model (“DCF”) to estimate the recoverable amounts, which require management to make significant estimates and assumptions related to estimated future oil and gas prices, future production estimates, estimated future capital expenditures, estimated future operating expenses and the discount rates applied. Changes in these assumptions could have a significant impact on the amount of any impairment charge.

 

How the Critical Audit Matter Was Addressed in the Audit

 

Our procedures in relation to the determination of the recoverable amount of oil and gas properties included:

 

·We tested the effectiveness of controls over oil and gas properties' impairment assessment processes.

 

·We examined the methodology used in management's determination of the recoverable amount of oil and gas properties.

 

·We assessed the key assumptions and estimations used in the DCF in management’s determination of the recoverable amount, including:

 

·Checked the estimated future oil and gas prices by comparing with forecasted prices derived from third parties and the Company’s internal oil and gas prices forecasts.

 

·Assessed the future production estimates, estimated future capital expenditures and estimated future operating expenses by comparing with prior year estimates, and with corresponding data from reserve reports prepared by the Company’s internal and external reserve specialists.

 

·Evaluated the competence and objectivity of the internal and external reserve specialists and performing procedures to assess the reliability of data provided to the external reserve specialists.

 

·We involved our valuation specialists to assess the reasonableness of the discount rates used by management.

 

 

/s/Deloitte Touche Tohmatsu

Certified Public Accountants

Hong Kong

March 25, 2021

 

We have served as the Company's auditor since 2013.

 

F-5 

 

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

 

To the Shareholders and the Board of Directors of CNOOC Limited

 

Opinion on Internal Control over Financial Reporting

 

We have audited the internal control over financial reporting of CNOOC Limited and subsidiaries (the "Company") as of December 31, 2020, based on criteria established in Internal Control — Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO). In our opinion, the Company maintained, in all material respects, effective internal control over financial reporting as of December 31, 2020, based on criteria established in Internal Control —Integrated Framework (2013) issued by COSO.

 

We have also audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the consolidated financial statements as of and for the year ended December 31, 2020 of the Company and our report dated March 25, 2021 expressed an unqualified opinion on those financial statements and included an explanatory paragraph regarding the translation of Renminbi amounts into United States dollar amounts for the convenience of readers in the United States of America.

 

Basis for Opinion

 

The Company'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 are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.

 

We conducted our audit in accordance with the standards of the PCAOB. 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.

 

F-6 

 

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM (continued)

 

Definition and Limitations of Internal Control over Financial Reporting

 

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.

 

/s/Deloitte Touche Tohmatsu

Certified Public Accountants

Hong Kong

March 25, 2021

 

F-7 

 

CNOOC LIMITED

CONSOLIDATED STATEMENTS OF PROFIT OR LOSS AND OTHER COMPREHENSIVE INCOME

FOR THE YEARS ENDED DECEMBER 31, 2018, 2019 AND 2020

(All amounts expressed in millions of Renminbi/US$, except per share data)

 

  Notes 2018 2019 2020 2020
    RMB RMB RMB US$
           
           
REVENUE                    
Revenue recognized from contracts with customers                    
Oil and gas sales  5   186,557   197,173   139,601   21,395 
Marketing revenues  5   35,830   30,867   12,131   1,859 
Other revenue      5,324   5,159   3,640   558 
                     
       227,711   233,199   155,372   23,812 
                     
EXPENSES                    
Operating expenses      (24,388)  (24,735)  (24,240)  (3,715)
Taxes other than income tax  11 (ii)  (9,141)  (9,156)  (7,200)  (1,103)
Exploration expenses      (13,135)  (12,342)  (5,601)  (858)
Depreciation, depletion and amortization  7   (50,838)  (57,699)  (52,306)  (8,016)
Special oil gain levy  11 (iii)   (2,599)  (894)  (79)  (12)
Impairment and provision  7, 14   (666)  (2,094)  (5,199)  (797)
Crude oil and product purchases      (33,558)  (29,040)  (11,671)  (1,789)
Selling and administrative expenses      (7,429)  (8,062)  (8,821)  (1,352)
Others      (5,790)  (4,982)  (3,866)  (592)
                     
       (147,544)  (149,004)  (118,983)  (18,234)
                     
PROFIT FROM OPERATING ACTIVITIES      80,167   84,195   36,389   5,578 
                     
Interest income  7   798   1,067   1,473   226 
Finance costs  8   (5,162)  (5,865)  (6,190)  (949)
Exchange (losses)/gains, net      (141)  (213)  445   68 
Investment income  7   3,685   4,632   2,978   456 
Share of profits of associates  17   406   459   171   26 
(Loss)/profit attributable to a joint venture  18   (5,593)  543   (803)  (123)
Other income, net      997   831   444   68 
                     
PROFIT BEFORE TAX  7   75,157   85,649   34,907   5,350 
Income tax expense  11 (i)   (22,482)  (24,604)  (9,951)  (1,525)
                     
PROFIT FOR THE YEAR ATTRIBUTABLE TO OWNERS OF THE PARENT      52,675   61,045   24,956   3,825 
                     
OTHER COMPREHENSIVE INCOME/(EXPENSE)                    
Items that may be subsequently reclassified to profit or loss                    
Exchange differences on translation of foreign operations      8,638   2,848   (11,983)  (1,836)
Share of other comprehensive income/(expense) of  associates      16   25   (85)  (13)
Other items that will not be reclassified to profit or loss                    
Fair value change on equity investments designated as at fair value through other comprehensive income  19 (ii)   278   (1,167)  (1,040)  (159)
    Others      80   (133)  (128)  (20)
                     
OTHER COMPREHENSIVE INCOME/(EXPENSE) FOR THE YEAR, NET OF TAX      9,012   1,573   (13,236)  (2,028)
                     
TOTAL COMPREHENSIVE INCOME FOR THE YEAR ATTRIBUTABLE TO OWNERS OF THE PARENT      61,687   62,618   11,720   1,797 
                     
EARNINGS PER SHARE ATTRIBUTABLE TO OWNERS OF THE PARENT                    
Basic (RMB Yuan)  12   1.18   1.37   0.56   0.09 
Diluted (RMB Yuan)  12   1.18   1.37   0.56   0.09 

 

Details of the dividends proposed and paid for the year are disclosed in note 13 to the consolidated financial statements.

 

The accompanying notes are an integral part of these financial statements.

 

F-8 

 

CNOOC LIMITED

CONSOLIDATED STATEMENTS OF FINANCIAL POSITION

AS OF DECEMBER 31, 2019 AND 2020

(All amounts expressed in millions of Renminbi/US$)

 

  Notes 2019 2020 2020
    RMB RMB US$
         
NON-CURRENT ASSETS                
Property, plant and equipment  14   440,554   446,668   68,455 
Right-of-use assets  15   9,179   9,161   1,404 
Intangible assets  16   16,306   15,129   2,319 
Investments in associates  17   24,513   23,544   3,608 
Investment in a joint venture  18   20,977   18,822   2,885 
Debt investment      1,618   3,620   555 
Equity investments  19(i), 36   2,936   1,829   280 
Deferred tax assets  11 (i)   25,992   27,751   4,253 
Other non-current assets  20   9,721   11,360   1,741 
                 
Total non-current assets      551,796   557,884   85,500 
                 
CURRENT ASSETS                
Inventories and supplies  21   6,314   5,644   865 
Trade receivables  22   10,006   9,474   1,452 
Due from related companies  32   15,300   10,249   1,571 
Other financial assets  19(ii), 36   114,513   61,662   9,450 
Other current assets      8,963   10,531   1,614 
Time deposits with maturity over three months  23   17,160   41,812   6,408 
Cash and cash equivalents  23   33,679   24,019   3,681 
                 
Total current assets      205,935   163,391   25,041 
                 
CURRENT LIABILITIES                
Loans and borrowings  27   13,908   11,217   1,719 
Trade and accrued payables  24   19,828   18,106   2,775 
Due to the parent company  32   3   2   — 
Due to related companies  32   20,318   23,097   3,540 
Lease liabilities  28   1,425   1,297   199 
Contract liabilities  25   2,231   1,544   237 
Other payables and accrued liabilities  26   19,580   12,137   1,860 
Taxes payable      13,956   7,452   1,142 
                 
Total current liabilities      91,249   74,852   11,472 
                 
NET CURRENT ASSETS      114,686   88,539   13,569 
                 
TOTAL ASSETS LESS CURRENT LIABILITIES      666,482   646,423   99,069 
                 
NON-CURRENT LIABILITIES                
Loans and borrowings  27   136,152   125,013   19,159 
Lease Liabilities  28   7,062   6,022   923 
Provision for dismantlement  29   64,163   69,444   10,643 
Deferred tax liabilities  11 (i)   3,602   5,119   785 
Other non-current liabilities      7,277   6,895   1,057 
                 
Total non-current liabilities      218,256   212,493   32,567 
                 
Net Assets      448,226   433,930   66,502 
                 
EQUITY                
                 
Issued capital  30   43,081   43,081   6,602 
Reserves  31   405,106   390,627   59,866 
Equity attributable to owners of the parent      448,187   433,708   66,468 
Non-controlling interests      39   222   34 
                 
TOTAL EQUITY      448,226   433,930   66,502 

 

The accompanying notes are an integral part of these financial statements.

 

F-9 

 

CNOOC LIMITED

CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY

FOR THE YEARS ENDED DECEMBER 31, 2018, 2019 AND 2020

(All amounts expressed in millions of Renminbi)

 

 

  Attributable to owners of the parent    
 

Issued

capital

Cumulative

translation

reserve

Statutory and

non-

distributable

reserves

Other

reserves

Retained

earnings

Proposed final

dividend

 Total

Non-

controlling

interests

Total

equity

                   
Balance at December 31, 2017  43,081   (12,638)  70,000   6,738   264,560   10,830   382,571   —   382,571 
Impact of adopting IFRS 15/HKFRS 15  —   —   —   —   (1,218)  —   (1,218)  —   (1,218)
Balance at January 1, 2018  43,081   (12,638)  70,000   6,738   263,342   10,830   381,353   —   381,353 
Profit for the year  —   —   —   —   52,675   —   52,675   —   52,675 
Other comprehensive income, net of tax  —   8,638   —   374   —   —   9,012   —   9,012 
Total comprehensive income  —   8,638   —   374   52,675   —   61,687   —   61,687 
2017 final dividend  —   —   —   —   (463)  (10,830)  (11,293)  —   (11,293)
2018 interim dividend  —   —   —   —   (11,785)  —   (11,785)  —   (11,785)
Proposed 2018 final dividend  —   —   —   —   (15,221)  15,221   —   —   — 
Disposal of investments in equity instruments at FVTOCI  —   —   —   —   (14)  —   (14)  —   (14)
Others  —   —   —   19   (67)  —   (48)  10   (38)
                                     
Balance at December 31, 2018  43,081   (4,000)*  70,000*  7,131*  288,467*  15,221*  419,900   10   419,910 
                                     
Balance at January 1, 2019  43,081   (4,000)  70,000   7,131   288,467   15,221   419,900   10   419,910 
Profit for the year  —   —   —   —   61,045   —   61,045   —   61,045 
Other comprehensive income/(expense), net of tax  —   2,848   —   (1,275)  —   —   1,573   —   1,573 
Total comprehensive income/(expense)  —   2,848   —   (1,275)  61,045   —   62,618   —   62,618 
2018 final dividend  —   —   —   —   (489)  (15,221)  (15,710)  —   (15,710)
2019 interim dividend  —   —   —   —   (13,290)  —   (13,290)  —   (13,290)
Proposed 2019 final dividend  —   —   —   —   (18,055)  18,055   —   —   — 
Acquisition of a subsidiary under common control  —   —   —   (5,331)  —   —   (5,331)  29   (5,302)
                                     
Balance at December 31, 2019  43,081   (1,152)*  70,000*  525*  317,678*  18,055*  448,187   39   448,226 
                                     

 

F-10 

 

CNOOC LIMITED

CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY

FOR THE YEARS ENDED DECEMBER 31, 2018, 2019 AND 2020 (continued)

(All amounts expressed in millions of Renminbi)

 

 

  Attributable to owners of the parent    
 

Issued

capital

 Cumulative translation reserve Statutory and non-
distributable reserves		 Other reserves Retained earnings Proposed final dividend Total

Non-

controlling

interests

Total

equity

                   
                   
Balance at January 1, 2020  43,081   (1,152)  70,000   525   317,678   18,055   448,187   39   448,226 
Profit for the year  —   —   —   —   24,956   —   24,956   —   24,956 
Other comprehensive expense, net of tax  —   (11,983)  —   (1,253)  —   —   (13,236)  —   (13,236)
Total comprehensive (expense)/income  —   (11,983)  —   (1,253)  24,956   —   11,720   —   11,720 
2019 final dividend  —   —   —   —   (297)  (18,055)  (18,352)  —   (18,352)
2020 interim dividend  —   —   —   —   (7,847)  —   (7,847)  —   (7,847)
Proposed 2020 final dividend  —   —   —   —   (9,314)  9,314   —   —   — 
Others  —   —   —   —   —   —   —   183   183 
                                     
Balance at December 31, 2020  43,081   (13,135)*  70,000*  (728)*  325,176*  9,314*  433,708   222   433,930 

 

*These reserve accounts constitute the consolidated reserves of approximately RMB390,627 million (2019: RMB405,106 million) in the consolidated statement of financial position.

 

The accompanying notes are an integral part of these financial statements.

 

F-11 

 

CNOOC LIMITED

CONSOLIDATED STATEMENTS OF CASH FLOWS

FOR THE YEARS ENDED DECEMBER 31, 2018, 2019 AND 2020

(All amounts expressed in millions of Renminbi/US$)

 

    2018 2019 2020 2020
  Notes RMB RMB RMB US$
    million million million million
                     
CASH FLOWS FROM OPERATING ACTIVITIES                    
Cash generated from operations  34   140,082   145,979   99,813   15,297 
Income taxes paid      (15,684)  (22,458)  (17,475)  (2,678)
                     
Net cash flows from operating activities      124,398   123,521   82,338   12,619 
                     
CASH FLOWS FROM INVESTING ACTIVITIES                    
Acquisition of oil and gas properties      (264)  (5,619)  (4,418)  (677)
Capital expenditure      (51,002)  (66,395)  (71,000)  (10,881)
Additions to investments in associates      (64)  (7,707)  (6,401)  (981)
Decrease/(increase) in time deposits with maturity over three months
     1,620   (3,095)  (24,236)  (3,714)
Dividends received from associates      162   231   329   50 
Dividends received from a joint venture      132   172   42   6 
Interest received      872   923   1,016   156 
Investment income received      2,721   3,822   4,075   624 
Purchase of other financial assets      (178,100)  (187,805)  (140,375)  (21,513)
Purchase of equity investments      (39)  —   (26)  (4)
Proceeds from sale of other financial assets      127,903   197,952   190,142   29,141 
Proceeds from sale of equity investments      17   —   —   — 
Proceeds from disposal of property, plant and equipment      590   64   2   — 
Net cash flows used in investing activities      (95,452)  (67,457)  (50,850)  (7,793)
                     
CASH FLOWS FROM FINANCING ACTIVITIES                    
Proceeds from issuance of guaranteed notes      9,952   10,464   —   — 
Repayment of guaranteed notes      (4,976)  (2,067)  (10,642)  (1,631)
Repayments of lease liabilities      —   (1,451)  (1,619)  (248)
Proceeds from bank loans      2,874   3,846   7,417   1,137 
Repayment of bank loans      (6,133)  (8,206)  (2,186)  (335)
Dividends paid      (23,589)  (28,973)  (25,851)  (3,962)
Interest paid      (5,264)  (5,998)  (6,000)  (920)
Acquisition of a subsidiary under common control      —   (5,335)  —   — 
Others      28   29   183   28 
                     
Net cash flows used in financing activities      (27,108)  (37,691)  (38,698)  (5,931)
                     
NET INCREASE/(DECREASE) IN CASH AND CASH EQUIVALENTS      1,838   18,373   (7,210)  (1,105)
Cash and cash equivalents at beginning of year      12,949   14,995   33,679   5,162 
Effect of foreign exchange rate changes, net      208   311   (2,450)  (376)
                     
CASH AND CASH EQUIVALENTS AT END OF YEAR  23   14,995   33,679   24,019   3,681 

 

Total cash outflow for leases amounted to RMB3,668 million.

 

The accompanying notes are an integral part of these financial statements.

 

F-12 

 

CNOOC LIMITED

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(All amounts expressed in millions of 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 sale of crude oil and natural gas.

 

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 at the end of the reporting period are as follows:

 

Name of entity

Place of

establishment

Nominal value of ordinary shares

issued and paid-up/

registered capital

Percentage

of equity

attributable

to the Group

 Principal activities
         
Directly held subsidiaries:        
CNOOC China Limited(1) Tianjin, PRC RMB20 billion 100% Offshore petroleum and natural gas exploration, development, production and sales, and shale gas exploration in the PRC
China Offshore Oil (Singapore) International Pte Ltd Singapore SG$3 million 100% Sales and marketing of petroleum and natural gas products outside the PRC
CNOOC International Limited(2) British Virgin Islands US$24,000,000,002 100% Investment holding
CNOOC Finance (2003) Limited British Virgin Islands US$1,000 100% Bond issuance
CNOOC Finance (2011) Limited British Virgin Islands US$1,000 100% Bond issuance
CNOOC Finance (2012) Limited British Virgin Islands US$1,000 100% Bond issuance
CNOOC Finance (2013) Limited British Virgin Islands US$1,000 100% Bond issuance

CEPR Limited 

 Hong Kong, PRC EUR1,000 100% Investment holding
         
Indirectly held subsidiaries(3):        
CNOOC Deepwater Development Limited(1) (4) Zhuhai, PRC RMB22.28 billion 100% Deepwater and low-grade oil and gas fields exploitation in the PRC and exploration, development, production and sales of oil and gas in the oil and gas fields of South China Sea
China United Coalbed Methane Corporation Limited Beijing, PRC RMB1.311 billion 100% Coalbed methane exploration and sales, Coalbed methane surface exploration, gas mineral prospecting, shallow gas development and utilization in the coalbed methane fields in the PRC
CNOOC Southeast Asia Limited Bermuda

US$12,000

 

100%

 

Investment holding

 

CNOOC Muturi Limited Isle of Man US$7,780,770 100% Petroleum and natural gas exploration, development and production in Indonesia

CNOOC NWS Private Limited

 

 Singapore

SG$2

 

100%

 

Offshore petroleum and natural gas exploration, development and production in Australia

CNOOC Exploration & Production Nigeria Limited Nigeria

NGN10 million

 

100%

 

 Petroleum and natural gas exploration, development and production in Africa
CNOOC Iraq Limited British Virgin Islands

US$1

 

 100%

Providing services of petroleum and natural gas exploration and development in the Republic of Iraq

 

F-13 

 

CNOOC LIMITED

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(All amounts expressed in millions of Renminbi unless otherwise stated)

 

 

1.CORPORATE INFORMATION (continued)

 

Name of entity

Place of

establishment

 Nominal value of ordinary shares issued and paid-up/registered capital

Percentage

of equity

attributable to the Group

 Principal activities
         
Indirectly held subsidiaries(3) (continued):        
CNOOC Canada Energy Ltd. Canada

100 common shares

without a par value 103,000 preferred

shares without a par value

 100% Oil sands exploration,   development and production in Canada
CNOOC Uganda Ltd Uganda 1 million Uganda Shilling 100% Petroleum and natural gas exploration, development and production in Africa

CNOOC Petroleum North

America ULC

 Canada 13,671,421,700 common shares without a par value 100% Petroleum and natural gas exploration, development and production in Canada
CNOOC Petroleum Europe Limited England and Wales GBP98,009,131 100% Petroleum and natural gas exploration, development and production in the UK
Nexen Petroleum Nigeria Limited Nigeria NGN30 million 100% Petroleum and natural gas exploration, development and production in Nigeria
CNOOC Energy U.S.A. LLC USA N/A 100% Petroleum and natural gas exploration, development and production in the USA
CNOOC Petroleum Offshore U.S.A. Inc. USA US$15,830 100% Petroleum and natural gas exploration, development and production in the USA
CNOOC Oil Sands Canada Canada N/A 100% Petroleum and natural gas exploration, development and production in Canada
CNOOC PETROLEUM BRASIL LTDA(5)   Brazil R$7,207,464,100 100% Petroleum and natural gas exploration, development and production in Brazil
CNOOC Finance (2014) ULC Canada 100 common shares without a par value 100% Bond issuance
CNOOC Finance (2015) U.S.A. LLC USA N/A 100% Bond Issuance
CNOOC Finance (2015) Australia Pty Ltd Australia US$1 100% Bond Issuance
CNOOC Petroleum Guyana Limited Barbados US$200,100 100% Petroleum and natural gas exploration, development and production in Guyana

 

(1)Registered as a wholly foreign owned enterprise under the PRC law.

 

(2)CNOOC Limited subscribed for 2,000 redeemable shares with a par value of US$1.00 each in CNOOC International Limited for the sum of US$ 4,000,000,000 on January 10, 2020.

 

(3)All subsidiaries are indirectly held through CNOOC International Limited, except CNOOC Deepwater Development Limited and China United Coalbed Methane Corporation Limited which are indirectly held through CNOOC China.

 

(4)The registered capital of CNOOC Deepwater Development Limited increased from 20.78billion to 22.28billion on December 30, 2020.

 

(5)The registered capital of CNOOC PETROLEUM BRASIL LTDA increased from R$6,778,134,300 to R$7,207,464,100 on December 15, 2020.

 

F-14 

 

CNOOC LIMITED

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(All amounts expressed in millions of Renminbi unless otherwise stated)

 

 

1.CORPORATE INFORMATION (continued)

 

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 total assets of the Group. To give details of other subsidiaries would, in the opinion of the Directors, result in particulars of excessive length.

 

2.1STATEMENT OF COMPLIANCE

 

These financial statements have been prepared in accordance with International Financial Reporting Standards ("IFRSs") issued by the International Accounting Standards Board (the "IASB"), Hong Kong Financial Reporting Standards ("HKFRSs") issued by the Hong Kong Institute of Certified Public Accountants (the "HKICPA"), the Rules Governing the Listing of Securities on The Stock Exchange of Hong Kong Limited (the "Listing Rules") and the Hong Kong Companies Ordinance (Cap. 622 of the Laws of Hong Kong). A summary of the significant accounting policies adopted by the Group is set out below.

 

2.2CHANGES IN ACCOUNTING POLICIES AND DISCLOSURES

 

The IASB has issued a number of new and amendments to IFRS standards that are first effective for the current accounting year commencing January 1, 2020 or later but available for early adoption. The equivalent new and amendments to HKFRSs 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.

 

The accounting policies adopted are consistent with those of the year ended December 31, 2019, except for the first time adoption of the new and amendments to IFRS standards/HKFRSs effective for the Group's financial year beginning on January 1, 2020. The application of the new and amendments to IFRS standards/HKFRSs in the current year has had no material impact on the accounting policies, the disclosures or the amounts recognized in the consolidated financial statements of the Group.

 

F-15 

 

CNOOC LIMITED

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(All amounts expressed in millions of Renminbi unless otherwise stated)

 

 

2.2CHANGES IN ACCOUNTING POLICIES AND DISCLOSURES (continued)

 

The Group has not applied the following new and amendments to IFRS standards/HKFRSs, which may be relevant to the Group and have been issued but are not yet effective, in these consolidated financial statements:

 

IFRS 17/HKFRS 17 Insurance Contracts and the related Amendments1
Amendments to IFRS 16/HKFRS 16 Covid-19-Related Rent Concessions4
Amendments to IFRS 3/HKFRS 3 Reference to the Conceptual Framework2

Amendments to IFRS 9/HKFRS 9,

IAS 39/HKAS 39, IFRS 7/HKFRS 7,

IFRS 4/HKFRS 4 and IFRS 16/HKFRS 16

 Interest Rate Benchmark Reform – Phase 25

Amendments to IFRS 10/HKFRS 10 and
IAS 28/HKAS 28

Sale or Contribution of Assets between an Investor and its Associate or Joint Venture3
Amendments to IAS 1/HKAS 1

Classification of Liabilities as Current or Non-current 

And related amendments to Hong Kong

Interpretation 5 (2020)1
   

Amendments to IAS 1 and IFRS

Practice Statement 2

 Disclosure of Accounting Policies1
Amendments to IAS 8 Definition of Accounting Estimates1
Amendments to IAS 16/HKAS 16

Property, Plant and Equipment: Proceeds before Intended Use2
   
Amendments to IAS 37/HKAS 37 Onerous Contracts – Cost of Fulfilling a Contract2
Amendments to IFRS standards/HKFRSs Annual Improvements to IFRS standards/HKFRSs 2018-20202

 

1.Effective for annual periods beginning on or after January 1, 2023

2.Effective for annual periods beginning on or after January 1, 2022

3.Effective for annual periods beginning on or after a date to be determined

4.Effective for annual periods beginning on or after June 1, 2020

5.Effective for annual periods beginning on or after January 1, 2021

 

3.SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

 

Basis of preparation

 

These consolidated financial statements have been prepared under the historical cost convention, except for as disclosed in the accounting policies notes hereafter. These consolidated financial statements are presented in Renminbi ("RMB") and all values are rounded to the nearest million 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, 2020.

 

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 profit or loss and other comprehensive income to the extent of dividends received and receivable. The Company's interests in subsidiaries are stated at cost less any impairment losses.

 

F-16 

 

CNOOC LIMITED

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(All amounts expressed in millions of Renminbi unless otherwise stated)

 

 

3.SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)

 

Basis of consolidation (continued)

 

All intra-group balances, income and expenses, unrealized gains and losses and dividends resulting from intra-group transactions are eliminated in full.

 

Business combinations or asset acquisitions

 

Optional concentration test

 

Effective from January 1, 2020, the Group can elect to apply an optional concentration test, on a transaction-by-transaction basis, that permits a simplified assessment of whether an acquired set of activities and assets is not a business. The concentration test is met if substantially all of the fair value of the gross assets acquired is concentrated in a single identifiable asset or group of similar identifiable assets. The gross assets under assessment exclude cash and cash equivalents, deferred tax assets, and goodwill resulting from the effects of deferred tax liabilities. If the concentration test is met, the set of activities and assets is determined not to be a business and no further assessment is needed.

 

Asset acquisitions

 

When the Group acquires a group of assets and liabilities that do not constitute a business, the Group identifies and recognizes the individual identifiable assets acquired and liabilities assumed by allocating the purchase price first to financial assets/ financial liabilities at the respective fair values, the remaining balance of the purchase price is then allocated to the other identifiable assets and liabilities on the basis of their relative fair values at the date of purchase. Such a transaction does not give rise to goodwill or bargain purchase gain.

 

Business combinations

 

Business combinations, other than business combinations under common control, are accounted for using the acquisition method. The consideration transferred is measured at fair value which is calculated as the sum of the acquisition-date fair values of the assets transferred by the Group, liabilities assumed by the Group from the former owners of the acquiree and the equity interests issued by the Group in exchange for control of the acquiree. For each business combination, the Group elects whether it measures the non-controlling interests in the acquiree either at fair value or at the proportionate share of the acquiree's identifiable net assets. Acquisition-related costs are recognized in profit or loss as incurred.

 

If the business combination is achieved in stages, the Group's previously held equity interest in the acquiree is remeasured to fair value at the acquisition date through profit or loss or other comprehensive income, as appropriate.

 

Any contingent consideration to be transferred by the acquirer is recognized at fair value at the acquisition date. Contingent consideration that is classified as equity is not remeasured at subsequent reporting dates and its subsequent settlement is accounted for within equity. Contingent consideration that is classified as an asset or a liability is remeasured to fair value at subsequent reporting dates, with the corresponding gain or loss being recognized in profit or loss.

 

F-17 

 

CNOOC LIMITED

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(All amounts expressed in millions of Renminbi unless otherwise stated)

 

 

3.SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)

 

Business combinations or asset acquisitions (continued)

 

Business combinations (continued)

 

Goodwill is initially measured at cost, being the excess of the aggregate of the purchase consideration, the amount recognized for non-controlling interests and any fair value of the Group's previously held equity interests in the acquiree over the identifiable net assets acquired and liabilities assumed. If the sum of this consideration and other items is lower than the fair value of the net assets of the business acquired, the difference is recognized in profit or loss as a gain on bargain purchase.

 

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 value may be impaired. For goodwill arising on an acquisition in a reporting period, the cash-generating unit (or group of cash-generating units) to which goodwill has been allocated is tested for impairment before the end of that reporting period.

 

For the purposes of impairment testing, goodwill is allocated to each of the Group's cash-generating units (or group of cash-generating units) that is expected to benefit from the synergies of the combination, which represent the lowest level at which the goodwill is monitored for internal management purposes and not larger than an operating segment.

 

Impairment is determined by assessing the recoverable amount of the exploration and production ("E&P") segment, using value in use, to which the goodwill relates. Where the recoverable amount of the cash-generating unit (or group of cash-generating units) is less than the carrying amount, an impairment loss on goodwill is recognized. An impairment loss recognized for goodwill is not reversed in a subsequent period.

 

Where goodwill has been allocated to a cash-generating unit (or group of cash-generating units) 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 the disposal. Goodwill disposed of in these circumstances is measured based on the relative value of the operation disposed of and the portion of the cash-generating unit (or group of cash-generating units) retained.

 

Subsidiaries

 

Subsidiaries are all those entities over which the Group has power over the investee such that the Group is able to direct the relevant activities, has exposure or rights to variable returns from its involvement with the investee and has the ability to use its power over the investee to affect the amount of the investor's returns.

 

F-18 

 

CNOOC LIMITED

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(All amounts expressed in millions of Renminbi unless otherwise stated)

 

 

3.SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)

 

Associates

 

Based on the Group's ownership percentage (considering its direct ownership as well as potentially exercisable or convertible shares) and other contractual terms, the Group has significant influence over its associates, rather than the power to control.

 

The Group's investments in associates are stated in the consolidated statement of financial position at the Group's share of net assets under the equity method of accounting, less any impairment losses. Necessary adjustments are made to bring into line any dissimilar accounting policies that may exist. Under the equity method, an investment in an associate is initially recognized in the consolidated statement of financial position at cost and adjusted thereafter to recognize the Group's share of the profit or loss and other comprehensive income of the associate. Unrealized gains and losses resulting from transactions between the Group and its associates are eliminated to the extent of the Group's investments in the associates, except where unrealized losses provide evidence of an impairment of the asset transferred. Goodwill arising from the acquisition of associates is included as part of the Group's investments in associates and is not individually tested for impairment.

 

Joint arrangements

 

Certain of the Group's activities are conducted through joint arrangements. Joint arrangements are classified as either a joint operation or joint venture, based on the rights and obligations arising from the contractual obligations between the parties to the arrangement.

 

Joint control

 

Joint control is the contractually agreed sharing of control of an arrangement, which exists only when decisions about the relevant activities require unanimous consent of the parties sharing control.

 

Joint operations

 

Some arrangements have been assessed by the Group as joint operations as both parties to the contract are responsible for the assets and obligations in proportion to their respective interest, whether or not the arrangement is structured through a separate vehicle. This evaluation applies to both the Group's interests in production sharing arrangements and certain joint operation.

 

The Group entered into numerous production sharing arrangements or similar agreements in China and overseas countries. The Group's participating interest may vary in each arrangement. The Group, as one of the title owners under certain exploration and/or production licenses or permits, is required to bear exploration (with some exceptions in China), development and operating costs together with other co-owners based on each owner's participating interest. Once production occurs, a certain percentage of the annual production or revenue is first distributed to the local government, which, in most cases, with the nature of royalty and other taxes or expenses, and the rest of the annual production or revenue is allocated among the co-owners.

 

The Group accounts for the assets, liabilities, revenues and expenses relating to its interest in a joint operation in accordance with the IFRS standards/HKFRSs applicable to the particular assets, liabilities, revenues and expenses.

 

F-19 

 

CNOOC LIMITED

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(All amounts expressed in millions of Renminbi unless otherwise stated)

 

 

3.SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)

 

Joint arrangements (continued)

 

Joint venture

 

A joint venture is a joint arrangement whereby the parties that have joint control of the arrangement have rights to the net assets of the arrangement.

 

The Group's investments in joint ventures are stated in the consolidated statement of financial position at the Group's share of net assets under the equity method of accounting, less any impairment losses. Necessary adjustments are made to bring into line any dissimilar accounting policies that may exist. Under the equity method, an investment in a joint venture is initially recognized in the consolidated statement of financial position at cost and adjusted thereafter to recognize the Group's share of the profit or loss and other comprehensive income of the joint venture. Where the profit sharing ratios are different to the Group's equity interest, the share of post-acquisition results of the joint ventures is determined based on the agreed profit sharing ratio. Unrealized gains and losses resulting from transactions between the Group and its joint ventures are eliminated to the extent of the Group's investments in the joint ventures, except where unrealized losses provide evidence of an impairment of the asset transferred. Goodwill arising from the acquisition of joint ventures is included as part of the Group's investments in joint ventures and is not individually tested for impairment.

 

Related parties

 

A party is considered to be related to the Group if:

 

(a)the party is a person or a close member of that person's family and that person:

 

(i)has control or joint control of the Group;

 

(ii)has significant influence over the Group; or

 

(iii)is a member of the key management personnel of the Group or of a parent of the Group.

 

(b)the party is an entity where any of the following conditions applies:

 

(i)the entity and the Group are members of the same group;

 

(ii)one entity is an associate or joint venture of the other entity (or of a parent, subsidiary or fellow subsidiary of the other entity);

 

(iii)the entity and the Group are joint ventures of the same third party;

 

(iv)one entity is a joint venture of a third entity and the other entity is an associate of the third entity;

 

F-20 

 

CNOOC LIMITED

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(All amounts expressed in millions of Renminbi unless otherwise stated)

 

 

3.SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)

 

Related parties (continued)

 

A party is considered to be related to the Group if: (continued)

 

(b)the party is an entity where any of the following conditions applies: (continued)

 

(v)the entity is a post-employment benefit plan for the benefit of employees of either the Group or an entity related to the Group;

 

(vi)the entity is controlled or jointly controlled by a person identified in (a);

 

(vii)a person identified in (a)(i) has significant influence over the entity or is a member of the key management personnel of the entity (or of a parent of the entity); and

 

(viii)the entity, or any member of a group of which it is a part, provides key management personnel services to the Company or to the parent of the Company.

 

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 goodwill), the asset's recoverable amount is estimated. An asset's recoverable amount is the higher of the asset's value in use and its fair value less costs of disposal, 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 profit or loss in the period in which it arises in those expense categories consistent with the function of the impaired asset.

 

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 profit or loss in the period in which it arises.

 

F-21 

 

CNOOC LIMITED

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(All amounts expressed in millions of Renminbi unless otherwise stated)

 

 

3.SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)

 

Property, plant and equipment

 

Property, plant and equipment comprise oil and gas properties, and vehicles and office equipment and others.

 

(a)Oil and gas properties

 

For oil and gas properties, the successful efforts method of accounting is adopted. The Group capitalized the initial acquisition costs of oil and gas properties. Impairment of initial acquisition costs is recognized based on exploratory experience and management judgement and charged to profit and loss as exploration expenses. Upon discovery of commercial reserves, acquisition costs are transferred to prove 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.

 

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.

 

Producing 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, office equipment and others

 

Vehicles, office equipment and others 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 useful lives of vehicles, office equipment and other assets are in line with their beneficial periods.

 

F-22 

 

CNOOC LIMITED

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(All amounts expressed in millions of Renminbi unless otherwise stated)

 

 

3.SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)

 

Property, plant and equipment (continued)

 

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 recognized in profit or loss.

 

Intangible assets other than goodwill

 

The intangible assets of the Group comprise software and others, gas processing rights under NWS Project, marketing transportation and storage contracts, exploration rights. 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. Intangible assets with finite lives except for gas processing rights, are amortized on the 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 assets regarding software have been amortized on the straight-line basis over their respective useful lives. 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 the marketing transportation and storage contracts and drilling rig contracts are amortized over the life of the contracts on the straight-line basis. The intangible assets related to the exploration rights are amortized over the estimated useful life.

 

Major maintenance and repairs

 

Expenditure on major maintenance refits and repairs comprises the costs of replacement assets or parts of assets and overhaul costs. Where an asset or part of an asset that is separately depreciated and 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 is 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.

 

F-23 

 

CNOOC LIMITED

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(All amounts expressed in millions of Renminbi unless otherwise stated)

 

 

3.SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)

 

Financial assets

 

Financial assets are initially measured at fair value except for trade receivables arising from contracts with customers which are initially measured in accordance with IFRS 15/HKFRS 15. All recognized financial assets are subsequently measured in their entirety at either amortized cost or fair value, depending on the classification of the financial assets.

 

(a)Financial assets at amortized cost

 

Debt instruments that meet the following conditions are subsequently measured at amortized cost less impairment loss:

 

·the asset is held within a business model whose objective is to hold assets in order to collect contractual cash flows; and

 

·the contractual terms of the instrument give rise on specified dates to cash flows that are solely payments of principal and interest on the principal amount outstanding.

 

All other financial assets are subsequently measured at fair value.

 

The effective interest method is a method of calculating the amortized cost of a financial asset or financial liability and of allocating interest income and interest expense over the relevant period. The effective interest rate is the rate that accurately discounts estimated future cash receipts and payments (including all fees and points paid or received that form an integral part of the effective interest rate, transaction costs and other premiums or discounts) through the expected life of the financial asset or financial liability, or, where appropriate, a shorter period, to the net carrying amount on initial recognition.

 

(b)Financial assets at fair value through other comprehensive income (FVTOCI)

 

On initial recognition, the Group can make an irrevocable election (on an instrument-by-instrument basis) to designate investments in equity instruments as at FVTOCI. The Group has investments in certain equity instruments (publicly traded or non-publicly traded), the purpose of which are not held for trading, but held for medium or long-term strategic purpose. Therefore, those investments in equity instruments are designated as at FVTOCI.

 

Investments in equity instruments at FVTOCI are initially measured at fair value plus transaction costs. Subsequently, they are measured at fair value with gains or losses arising from changes in fair value recognized in other comprehensive income and accumulated in other reserves. The cumulative gain or loss will not be reclassified to profit or loss on disposal of the investments.

 

Dividends from these investments in equity instruments are recognized in profit or loss when the Group's right to receive the dividends is established, unless the dividends clearly represent a recovery of part of the cost of the investment.

 

F-24 

 

CNOOC LIMITED

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(All amounts expressed in millions of Renminbi unless otherwise stated)

 

 

3.SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)

 

Financial assets (continued)

 

(c)Financial assets at fair value through profit or loss (FVTPL)

 

Financial assets that do not meet the criteria for being measured at amortized cost or FVTOCI or designated as at FVTOCI are measured at FVTPL.

 

Financial assets at FVTPL are measured at fair value at the end of each reporting period, with any gains or losses arising on remeasurement recognized in profit or loss.

 

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 36.

 

Impairment of financial assets

 

The Group performs impairment assessment under expected credit loss ("ECL") model on financial assets (including cash and cash equivalents, time deposits with maturity over three months, trade receivables, other receivables and debt investment), which are subject to impairment assessment under IFRS 9/HKFRS 9. The amount of ECL is updated at each reporting date to reflect changes in credit risk since initial recognition.

 

Lifetime ECL represents the ECL that will result from all possible default events over the expected life of the relevant instrument. In contrast, 12-month ECL ("12m ECL") represents the portion of lifetime ECL that is expected to result from default events that are possible within 12 months after the reporting date. Assessment is done based on the Group's historical credit loss experience, adjusted for factors that are specific to the debtors, general economic conditions and an assessment of both the current conditions at the reporting date as well as the forecast of future conditions.

 

The Group always recognizes lifetime ECL for trade receivables without significant financing component.

 

For all other instruments, the Group measures the loss allowance equal to 12m ECL, unless when there has been a significant increase in credit risk since initial recognition, in which case the Group recognizes lifetime ECL. The assessment of whether lifetime ECL should be recognized is based on significant increases in the likelihood or risk of a default occurring since initial recognition.

 

F-25 

 

CNOOC LIMITED

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(All amounts expressed in millions of Renminbi unless otherwise stated)

 

 

3.SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)

 

Impairment of financial assets (continued)

 

Significant increase in credit risk

 

In assessing whether the credit risk has increased significantly since initial recognition, the Group compares the risk of a default occurring on the financial instrument as at the reporting date with the risk of a default occurring on the financial instrument as at the date of initial recognition. In making this assessment, the Group considers both quantitative and qualitative information that is reasonable and supportable, including historical experience and forward-looking information that is available without undue cost or effort.

 

In particular, the following information is taken into account when assessing whether credit risk has increased significantly:

 

·an actual or expected significant deterioration in the financial instrument's external (if available) or internal credit rating;

 

·significant deterioration in external market indicators of credit risk, e.g. a significant increase in the credit spread, the credit default swap prices for the debtor;

 

·existing or forecast adverse changes in business, financial or economic conditions that are expected to cause a significant decrease in the debtor's ability to meet its debt obligations;

 

·an actual or expected significant deterioration in the operating results of the debtor;

 

·an actual or expected significant adverse change in the regulatory, economic, or technological environment of the debtor that results in a significant decrease in the debtor's ability to meet its debt obligations.

 

Irrespective of the outcome of the above assessment, the Group presumes that the credit risk has increased significantly since initial recognition when contractual payments are more than 30 days past due, unless the Group has reasonable and supportable information that demonstrates otherwise.

 

The Group regularly monitors the effectiveness of the criteria used to identify whether there has been a significant increase in credit risk and revises them as appropriate to ensure that the criteria are capable of identifying significant increase in credit risk before the amount becomes past due.

 

Definition of default

 

For internal credit risk management, the Group considers an event of default occurs when information developed internally or obtained from external sources indicates that the debtor is unlikely to pay its creditors, including the Group, in full (without taking into account any collaterals held by the Group).

 

F-26 

 

CNOOC LIMITED

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(All amounts expressed in millions of Renminbi unless otherwise stated)

 

 

3.SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)

 

Impairment of financial assets (continued)

 

Credit-impaired financial assets

 

A financial asset is credit-impaired when one or more events of default that have a detrimental impact on the estimated future cash flows of that financial asset have occurred. Evidence that a financial asset is credit-impaired includes observable data about the following events:

 

·significant financial difficulty of the issuer or the borrower;

 

·a breach of contract, such as a default or past due event;

 

·the lenders of the borrower, for economic or contractual reasons relating to the borrower's financial difficulty, having granted to the borrower a concession that the lenders would not otherwise consider;

 

·it is becoming probable that the borrower will enter bankruptcy or other financial reorganization;

 

·the disappearance of an active market for that financial asset because of financial difficulties; or

 

·the purchase or origination of a financial asset at a deep discount that reflects the incurred credit losses.

 

Write-off policy

 

The Group writes off a financial asset when there is information indicating that the counterparty is in severe financial difficulty and there is no realistic prospect of recovery. Financial assets written off may still be subject to enforcement activities under the Group's recovery procedures, taking into account legal advice where appropriate. A write-off constitutes a derecognition event. Any subsequent recoveries are recognized in profit or loss.

 

Measurement and recognition of ECL

 

The measurement of ECL is a function of the probability of default, loss given default (i.e. the magnitude of the loss if there is a default) and the exposure at default. The assessment of the probability of default and loss given default is based on historical data and forward-looking information. Estimation of ECL reflects an unbiased and probability-weighted amount that is determined with the respective risks of default occurring as the weights.

 

Generally, the ECL is the difference between all contractual cash flows that are due to the Group in accordance with the contract and all the cash flows that the Group expects to receive, discounted at the effective interest rate determined at initial recognition.

 

The Group recognizes an impairment gain or loss in profit or loss for all financial instruments by adjusting their carrying amount, with the exception of trade receivables and other receivables where the corresponding adjustment is recognized through a loss allowance account.

 

F-27 

 

CNOOC LIMITED

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(All amounts expressed in millions of Renminbi unless otherwise stated)

 

 

3.SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)

 

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 when:

 

(i)The contractual rights to receive cash flows from the asset have expired; or

 

(ii)the Group has transferred its rights to receive cash flows from the asset, or the Group retains the contractual rights to receive the 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; 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 no control of the asset.

 

When the Group has transferred its rights to receive cash flows from an asset or has entered into a pass-through arrangement, it evaluates if and to what extent it has retained the risk and rewards of ownership of the asset. When it has neither transferred nor retained substantially all the risks and rewards of the asset nor transferred control of the asset, the Group continues to recognize the transferred asset to the extent of the Group's continuing involvement. In that case, the Group also recognizes an associated liability. The transferred asset and the associated liability are measured on a basis that reflects the rights and obligations that the Group has retained.

 

Financial liabilities at amortized cost (including interest-bearing loans and borrowings)

 

Financial liabilities including trade and accrued payables, other payables, and interest-bearing loans and borrowings are initially stated at fair value including directly attributable transaction costs and are subsequently measured at amortized cost, using the effective interest method.

 

Gains and losses are recognized in profit or loss when the liabilities are derecognized as well as through the amortization process.

 

Derecognition of financial liabilities

 

The Group derecognizes financial liabilities when, and only when the Group's obligations are discharged, cancelled or have expired. The difference between the carrying amount of the financial liability derecognized and the consideration paid and payable is recognized in profit of loss.

 

When the contractual terms of financial liability are modified, the revised terms would result in a substantial modification from the original terms, after taking into account all relevant facts and circumstances including qualitative factors, such modification is accounted for as derecognition of the original financial liability and the recognition of new financial liability. The difference between the carrying amount of financial liability derecognized and the fair value of consideration paid or payable, including any liabilities assumed is recognized in profit or loss.

 

For non-substantial modifications of financial liabilities that do not result in derecognition, the carrying amount of the relevant financial liabilities is calculated at the present value of the modified contractual cash flows discounted at the financial liabilities' original effective interest rate. Transaction costs or fees incurred are adjusted to the carrying amount of the modified financial liabilities and are amortized over the remaining term. Any adjustment to the carrying amount of the financial liability is recognized in profit or loss at the date of modification.

 

F-28 

 

CNOOC LIMITED

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(All amounts expressed in millions of Renminbi unless otherwise stated)

 

 

3.SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)

 

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 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 profit or loss.

 

(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.

 

F-29 

 

CNOOC LIMITED

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(All amounts expressed in millions of Renminbi unless otherwise stated)

 

 

3.SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)

 

Income tax

 

Income tax comprises current and deferred tax. Income tax is recognized in the consolidated statement of profit or loss and other 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 expense.

 

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 balance sheet 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:

 

·when 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, when the timing of the reversal of the temporary differences can be controlled and it is probable that the temporary differences will not reverse in the foreseeable future.

 

Deferred tax assets are recognized for all deductible temporary differences, the carryforward of unused tax credits and any unused tax losses to the extent that it is probable that taxable profit and taxable temporary differences will be available against which the deductible temporary differences, the carryforward of unused tax credits and unused tax losses can be utilized, except:

 

·when 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

 

·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.

 

F-30 

 

CNOOC LIMITED

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(All amounts expressed in millions of Renminbi unless otherwise stated)

 

 

3.SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)

 

Income tax (continued)

 

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 and taxable temporary differences 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.

 

In assessing any uncertainty over income tax treatments, the Group considers whether it is probable that the relevant tax authority will accept the uncertain tax treatment used, or proposed to be use by individual group entities in their income tax filings. If it is probable, the current and deferred taxes are determined consistently with the tax treatment in the income tax filings. If it is not probable that the relevant taxation authority will accept an uncertain tax treatment, the effect of each uncertainty is reflected by using either the most likely amount or the expected value.

 

Revenue

 

The Group recognizes revenue when (or as) a performance obligation is satisfied, i.e. when "control" of the goods or services underlying the particular obligation is transferred to the customer.

 

A performance obligation represents a good or service (or a bundle of goods or services) that is distinct or a series of distinct goods or services that are substantially the same.

 

Control is transferred over time and revenue is recognized over time by reference to the progress towards complete satisfaction of the relevant performance obligation if any one of the following criteria is met:

 

·the customer simultaneously receives and consumes the benefits provided by the Group's performance as the Group performs;

 

·the Group's performance creates or enhances an asset that the customer controls as the Group performs; or

 

·the Group's performance does not create an asset with an alternative use to the Group and the Group has an enforceable right to payment for performance completed to date.

 

Otherwise, revenue is recognized at a point in time when the customer obtains control of the distinct good or service.

 

A contract liability represents the Group's obligation to transfer goods or services to a customer for which the Group has received consideration (or an amount of consideration is due) from the customer.

 

F-31 

 

CNOOC LIMITED

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(All amounts expressed in millions of Renminbi unless otherwise stated)

 

 

3.SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)

 

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 31.

 

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 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 profit or loss 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.

 

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 Group's contributions to these defined contribution plans are charged to profit or loss in the year to which they relate.

 

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.

 

F-32 

 

CNOOC LIMITED

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(All amounts expressed in millions of Renminbi unless otherwise stated)

 

 

3.SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)

 

Leases

 

Definition of a lease

 

A contract is, or contains, a lease if the contract conveys the right to control the use of an identified asset for a period of time in exchange for consideration.

 

For contracts entered into or modified or arising from business combinations, the Group assesses whether a contract is or contains a lease based on the definition under IFRS 16/HKFRS 16 at inception, modification date or acquisition date, as appropriate. Such contract will not be reassessed unless the terms and conditions of the contract are subsequently changed.

 

The Group as a lessee

 

Allocation of consideration to components of a contract

 

For a contract that contains a lease component and one or more additional lease or non-lease components, the Group allocates the consideration in the contract to each lease component on the basis of the relative stand-alone price of the lease component and the aggregate stand-alone price of the non-lease components.

 

Non-lease components are separated from lease component on the basis of their relative stand-alone prices.

 

As a practical expedient, leases with similar characteristics are accounted on a portfolio basis when the Group reasonably expects that the effects on the consolidated financial statements would not differ materially from individual leases within the portfolio.

 

Short-term leases and leases of low-value assets

 

The Group applies the short-term lease recognition exemption to leases that have a lease term of 12 months or less from the commencement date and do not contain a purchase option. It also applies the recognition exemption for lease of low-value assets. Lease payments on short-term leases and leases of low-value assets are recognized as expense on a straight-line basis or another systematic basis over the lease term.

 

Right-of-use assets

 

The cost of right-of-use asset includes:

 

·the amount of the initial measurement of the lease liability;

 

·any lease payments made at or before the commencement date, less any lease incentives received;

 

F-33 

 

CNOOC LIMITED

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(All amounts expressed in millions of Renminbi unless otherwise stated)

 

 

3.SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)

 

Leases (continued)

 

Right-of-use assets (continued)

 

The cost of right-of-use asset includes: (continued)

 

·any initial direct costs incurred by the Group; and

 

·an estimate of costs to be incurred by the Group in dismantling and removing the underlying assets, restoring the site on which it is located or restoring the underlying asset to the condition required by the terms and conditions of the lease, unless those costs are incurred to produce inventories.

 

Right-of-use assets in which the Group is reasonably certain to obtain ownership of the underlying leased assets at the end of the lease term are depreciated from commencement date to the end of the useful life. Otherwise, right-of-use assets are depreciated on a straight-line basis over the shorter of its estimated useful life and the lease term.

 

The Group presents right-of-use assets as a separate line item on the consolidated statement of financial position.

 

Lease liabilities

 

At the commencement date of a lease, the Group recognizes and measures the lease liability at the present value of lease payments that are unpaid at that date. In calculating the present value of lease payments, the Group uses the incremental borrowing rate at the lease commencement date if the interest rate implicit in the lease is not readily determinable.

 

The lease payments include:

 

·fixed payments (including in-substance fixed payments) less any lease incentives receivable;

 

·variable lease payments that depend on an index or a rate, initially measured using the index or rate as at the commencement date;

 

·amounts expected to be payable by the Group under residual value guarantees;

 

·the exercise price of a purchase option if the Group is reasonably certain to exercise the option; and

 

·payments of penalties for terminating a lease, if the lease term reflects the Group exercising an option to terminate the lease.

 

Variable lease payments that reflect changes in market rental rates are initially measured using the market rental rates as at the commencement date. Variable lease payments that do not depend on an index or a rate are not included in the measurement of lease liabilities and right-of-use assets, and are recognized as expense in the period in which the event or condition that triggers the payment occurs.

 

F-34 

 

CNOOC LIMITED

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(All amounts expressed in millions of Renminbi unless otherwise stated)

 

 

3.SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)

 

Leases (continued)

 

Lease liabilities (continued)

 

After the commencement date, lease liabilities are adjusted by interest accretion and lease payments.

 

The Group remeasures lease liabilities (and makes a corresponding adjustment to the related right-of-use assets) whenever:

 

·the lease term has changed or there is a change in the assessment of exercise of a purchase option, in which case the related lease liability is remeasured by discounting the revised lease payments using a revised discount rate at the date of reassessment.

 

·the lease payments change due to changes in market rental rates following a market rent review or expected payment under a guaranteed residual value, in which cases the related lease liability is remeasured by discounting the revised lease payments using the initial discount rate.

 

The Group presents lease liabilities as a separate line item on the consolidated statement of financial position.

 

Lease modifications

 

The Group accounts for a lease modification as a separate lease if:

 

·the modification increases the scope of the lease by adding the right to use one or more underlying assets; and

 

·the consideration for the leases increases by an amount commensurate with the stand-alone price for the increase in scope and any appropriate adjustments to that stand-alone price to reflect the circumstances of the particular contract.

 

For a lease modification that is not accounted for as a separate lease, the Group remeasures the lease liability based on the lease term of the modified lease by discounting the revised lease payments using a revised discount rate at the effective date of the modification.

 

The Group accounts for the remeasurement of lease liabilities by making corresponding adjustments to the relevant right-of-use asset. When the modified contract contains a lease component and one or more additional lease or non-lease components, the Group allocates the consideration in the modified contract to each lease component on the basis of the relative stand-alone price of the lease component and the aggregate stand-alone price of the non-lease components.

 

F-35 

 

CNOOC LIMITED

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(All amounts expressed in millions of Renminbi unless otherwise stated)

 

 

3.SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)

 

Foreign currencies

 

These consolidated 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 exchange rates ruling at the dates of the transactions. Monetary assets and liabilities denominated in foreign currencies are retranslated at the exchange rates ruling at the end of the reporting period. All differences arising on settlement or translation of monetary items are taken to profit or loss. 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 gain or loss arising on retranslation of a non-monetary item is treated consistently with the recognition of the gain or loss on change in fair value of the item.

 

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 profit or loss and other 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.

 

Convenience translation

 

Translations of the consolidated balance sheets, the consolidated statements of operations and comprehensive income/(loss) and the consolidated statements of cash flows from RMB into US$ as of and for the year ended December 31, 2020 are solely for the convenience of the readers and were calculated at the rate of US$1.00=RMB6.5250, representing the noon buying rate set forth in the H.10 statistical release of the U.S. Federal Reserve Board on December 31, 2020. No representation is made that the RMB amounts could have been, or could be, converted, realized or settled into US$ at that rate on December 31, 2020, or at any other rate.

 

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 accordance with IFRSs and HKFRSs requires management to make estimates and assumptions that affect the reported amounts of assets and 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.

 

In the process of applying the Group's accounting policies, the Directors have made the following judgements, estimates and assumptions, which have the most significant effect on the amounts recognized in the consolidated financial statements.

 

F-36 

 

CNOOC LIMITED

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(All amounts expressed in millions of Renminbi unless otherwise stated)

 

 

3.SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)

 

Significant accounting judgements, estimates and assumptions (continued)

 

(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 oil and gas reserve estimation requirements under US Securities and Exchange Commission's rules, 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.

 

(b)Carrying value of oil and gas properties

 

The calculation of the unit-of-production rate for oil and gas properties depreciation 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 oil and gas prices and oil and gas price assumptions and unforeseen operational issues.

 

(c)Recoverable amount of oil and gas properties

 

The Group makes 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, the Group would make an estimate of the asset's recoverable amount, which is calculated at the higher of the asset's value in use and its fair value less costs of disposal. The Group recognizes an impairment loss only if the carrying amount of an asset exceeds its recoverable amount. The Group charges an impairment loss to the profit or loss in the period in which it arises. A reversal of an impairment loss is credited to the profit or loss in the period in which it arises.

 

The calculations of the recoverable amount of assets require the use of estimates and assumptions. The key assumptions include, but are not limited to, future oil and gas prices, future production estimates, estimated future capital expenditures, estimated future operating expenses and the discount rate.

 

Changes in the key assumptions used, which could be significant, include updates to future pricing estimates, updates to future production estimates to align with the Group's anticipated drilling plan, changes in the Group's capital costs and operating expense assumptions, and discount rate. There is a significant degree of uncertainty with the assumptions used to estimate future cash flows due to various risk factors. The complex economic outlook may also materially and adversely affect the Group's key assumptions. Changes in economic conditions can also affect the discount rates applied in assessments of impairment.

 

F-37 

 

CNOOC LIMITED

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(All amounts expressed in millions of Renminbi unless otherwise stated)

 

 

3.SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)

 

Significant accounting judgements, estimates and assumptions (continued)

 

(c)Recoverable amount of oil and gas properties (continued)

 

Actual cash flows are likely to be different from those estimated or forecast since anticipated events frequently do not occur as expected and unforeseen events may arise. The Group's results of operations could be materially and adversely affected for the period in which future impairment charges are incurred.

 

The sensitivity analysis for the impairment testing involves estimates and judgments to consider numerous assumptions comprehensively. Those assumptions interact on each other and interrelate with each other complexly and do not have fixed patterns along with the changes in price. Accordingly, the Group believes that the preparation of the sensitivity analysis for the impairment testing will be impracticable. Changes in assumptions could affect impairment charges and reversals in the consolidated statement of profit or loss and other comprehensive income, and the carrying amounts of assets in the consolidated statement of financial position.

 

In the calculations of the recoverable amount of the oil and gas properties in a joint venture, the Group uses the approach above.

 

(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.

 

(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.

 

F-38 

 

CNOOC LIMITED

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(All amounts expressed in millions of Renminbi unless otherwise stated)

 

 

4.ACQUISITION AND OTHER VENTURE

 

2020

 

During 2020, the Company did not enter into material acquisitions.

 

2019

 

On 7 June 2019, the Company and CEPR Limited (“CEPR”), a wholly-owned subsidiary of the Company, entered into a share purchase agreement with Joint Stock Company Novatek (“JSC Novatek”) and Ekropromstroy Limited Liability Company (“Ekropromstroy”), a wholly-owned subsidiary of JSC Novatek, pursuant to which, CEPR shall acquire a 10% equity interest in Arctic LNG 2 LLC held by Ekropromstroy. The acquisition was completed on July 19, 2019. The Company has the ability to participate in the financial and operating policy decisions through the voting power of its share ownership interest at general meetings of shareholders, which is the decision-making institution of Arctic LNG 2 LLC. It is therefore determined that the Company has significant influence, and recognized Arctic LNG 2 LLC as an associate and accounted for its participation interest using the equity method. The total consideration comprised a cash consideration of US$903 million paid in 2019, a deferred consideration of US$820 million paid in 2020, and a series of contingent payments, which were capped at US$920 million, based on the date on which the LNG facility train 1 achieves operational start-up and future oil prices.

 

On August 1, 2019, CNOOC China Limited (“CNOOC China”), a wholly-owned subsidiary of the Company, entered into an equity transfer agreement with CNOOC, pursuant to which, CNOOC China shall acquire the 100% equity interest in China United Coalbed Methane Corporation Limited (“CUCBM”) held by CNOOC at a total consideration of approximately RMB5.335 billion, which was settled in cash by CNOOC China. The acquisition was completed on October 11, 2019 and CUCBM became an indirect wholly-owned subsidiary of the Company.

 

Since the Group and CUCBM are under common control of CNOOC, the Group’s acquisition of CUCBM was accounted for as a combination of entities under common control. Accordingly, the assets and liabilities of CUCBM were accounted for at historical amounts and consolidated financial statements of the Group prior to the acquisition were combined with the financial statements of CUCBM. The consideration for the acquisition was accounted for as an equity transaction in the consolidated statement of changes in equity.

 

F-39 

 

CNOOC LIMITED

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(All amounts expressed in millions of Renminbi unless otherwise stated)

 

 

5.OIL AND GAS SALES AND MARKETING REVENUES

 

  2018 2019 2020
       
Gross sales  191,966   202,635   142,863 
Less:  Royalties  (4,215)  (4,432)  (2,725)
PRC government's share of oil  (1,194)  (1,030)  (537)
Oil and gas sales  186,557   197,173   139,601 
Marketing revenues  35,830   30,867   12,131 

 

Oil and gas sales represent the sales of oil and gas, net of royalties and obligations to government and other mineral interest owners. Revenue from the sales of oil and gas is recognized at a point in time when oil and gas has been delivered to the customer, which is when the customer obtains the control of oil and gas, and the Group has present right to payment and the collection of the consideration is probable.

 

Marketing revenues principally represent the sales of oil and gas belonging to the foreign partners under the production sharing contracts and revenue from the trading of oil and gas through the Company’s subsidiaries, which is recognized at a point in time when oil and gas has been delivered to the customer, which is when the customer obtains the control of oil and gas, and the Group has present right to payment and the collection of the consideration is probable. The cost of the oil and gas sold is included in “Crude oil and product purchases” in the consolidated statement of profit or loss and other comprehensive income.

 

The payment is typically due within 30 days after the delivery of oil and gas. For contracts where the period between payment and transfer of the associated goods is less than one year, the Group applies the practical expedient of not adjusting the transaction price for any significant financing component.

 

F-40 

 

CNOOC LIMITED

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(All amounts expressed in millions of Renminbi unless otherwise stated)

 

 

6.SEGMENT INFORMATION

 

(a)Segment results

 

The Group is engaged worldwide in the upstream operating activities of the conventional oil and gas, shale oil and gas, oil sands and other unconventional oil and gas business. The Group reports the business through three operating and reporting segments: E&P, trading business and corporate. The division of these operating segments is made because the Group’s chief operating decision makers make decisions on resource allocation and performance evaluation by reviewing the financial information of these operating segments. The geographical information is separately disclosed in (b).

 

The following table presents the segment financial information of the Group for the years ended December 31, 2018, 2019 and 2020.

 

  E&P Trading business Corporate Eliminations Consolidated
                               
   2018   2019   2020   2018   2019   2020   2018   2019   2020   2018   2019   2020   2018   2019   2020 
                                                             
External Revenue  174,671   179,654   128,847   52,610   53,093   26,362   430   452   163   —   —   —   227,711   233,199   155,372 
Intersegment Revenue*  16,805   22,256   14,257   (16,805)  (22,256)  (14,257)  176   84   158   (176)  (84)  (158)  —   —   — 
                                                             
Total revenue  191,476   201,910   143,104   35,805   30,837   12,105   606   536   321   (176)  (84)  (158)  227,711   233,199   155,372 
                                                             
Segment profit/(loss) for the year  53,935   60,296   24,895   1,894   1,517   179   4,581   (776)  1,342   (7,735)  8   (1,460)  52,675   61,045   24,956 
                                                             

Amounts included in the measure of segment profit or loss

                                                            
Operating expenses  (24,405)  (24,754)  (24,243)  —   —   —   —   —   —   17   19   3   (24,388)  (24,735)  (24,240)
Taxes other than income tax  (9,086)  (9,094)  (7,120)  —   —   1   (55)  (62)  (81)  —   —   —   (9,141)  (9,156)  (7,200)
Exploration expenses  (13,201)  (12,342)  (5,601)  —   —   —   —   —   —   66   —   —   (13,135)  (12,342)  (5,601)
Depreciation, depletion and amortization  (50,558)  (57,213)  (51,982)  (55)  (79)  (63)  (301)  (478)  (328)  76   71   67   (50,838)  (57,699)  (52,306)
Impairment and provision  (659)  (2,094)  (5,085)  —   —   —   (7)  —   (114)  —   —   —   (666)  (2,094)  (5,199)
Selling and administrative expenses  (5,359)  (6,124)  (6,857)  (296)  (199)  (188)  (1,816)  (1,757)  (1,863)  42   18   87   (7,429)  (8,062)  (8,821)
Interest income  478   759   871   3   4   2   1,385   1,104   1,059   (1,068)  (800)  (459)  798   1,067   1,473 
Finance costs  (4,048)  (4,451)  (4,240)  (1)  (2)  (2)  (2,181)  (2,238)  (2,517)  1,068   826   569   (5,162)  (5,865)  (6,190)
Share of (losses)/profits of associates and a joint venture  (2)  31   (272)  —   —   —   (5,185)  971   (360)  —   —   —   (5,187)  1,002   (632)
Income tax expense  (23,552)  (21,551)  (10,311)  (4)  (7)  (5)  1,074   (3,046)  265   —   —   100   (22,482)  (24,604)  (9,951)
                                                             
Other segment information                                                            

Investments in associates and a joint venture 

  661   20,447   19,450   —   —   —   24,040   25,043   22,916   —   —   —   24,701   45,490   42,366 
Others  490,065   541,591   547,774   3,154   6,347   3,781   401,290   407,851   404,484   (232,829)  (243,548)  (277,130)  661,680   712,241   678,909 
                                                             
Segment assets  490,726   562,038   567,224   3,154   6,347   3,781   425,330   432,894   427,400   (232,829)  (243,548)  (277,130)  686,381   757,731   721,275 
                                                             
Segment liabilities  (336,370)  (384,359)  (404,959)  (2,125)  (4,535)  (2,244)  (138,232)  (152,870)  (201,981)  210,256   232,259   321,839   (266,471)  (309,505)  (287,345)
                                                             
Capital expenditure  70,783   85,001   80,492   —   —   —   542   487   342   —   —   —   71,325   85,488   80,834 

 

*Certain oil and gas produced by the E&P segment are sold via the trading business segment. For the Group’s chief operating decision maker’s assessment of segment performance, these revenues are reclassified back to E&P segment.

 

F-41 

 

CNOOC LIMITED

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(All amounts expressed in millions of Renminbi unless otherwise stated)

 

 

6.SEGMENT INFORMATION (continued)

 

(b)Geographical information

 

The Group mainly engages in the exploration, development, production and sale of crude oil and natural gas in offshore China, Canada, the United States of America, the United Kingdom, Nigeria, Argentina, Indonesia, Uganda, Iraq, Brazil, Guyana, Russia and Australia etc.

 

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. 71% (2019: 66%, 2018: 68%) 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 information for the Group's geographical information for the years ended December 31, 2018, 2019 and 2020.

 

  PRC Canada Others Consolidated
                         
   2018   2019   2020   2018   2019   2020   2018   2019   2020   2018   2019   2020 
                                                 
Property, plant and equipment  173,846   197,115   224,742   92,386   92,537   86,251   147,151   150,902   135,675   413,383   440,554   446,668 
Right-of-use assets  —   5,774   6,402   —   689   562   —   2,716   2,197   —   9,179   9,161 
Investments in associates  and a joint venture  3,947   4,649   4,865   —   —   2   20,754   40,841   37,499   24,701   45,490   42,366 
Other non-current assets  8,827   9,275   11,027   636   405   287   79   41   46   9,542   9,721   11,360 

 

(c)Information about major customers

 

The current year's revenue of approximately RMB7,585 million (2019: approximately RMB19,126 million, 2018: approximately RMB13,329 million) was derived from sales by the E&P segment and the trading business segment to China Petroleum & Chemical Corporation. Sales to CNOOC, its subsidiaries (excluding the Group) and associates (the "CNOOC Group") are included in Note 32 (iii).

 

F-42 

 

CNOOC LIMITED

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(All amounts expressed in millions of Renminbi unless otherwise stated)

 

 

7.PROFIT BEFORE TAX

 

The Group's profit before tax is arrived at after (crediting)/charging:

 

  2018 2019 2020
       
       
Crediting:            
Interest income from bank deposits  (798)  (1,067)  (1,473)
             
Investment income:            
– Fair value changes on other financial assets  (3,685)  (4,603)  (2,978)
             
Insurance compensation on disposal of property, plant and equipment  (611)  (436)  (65)
             
Charging:            
Auditors' remuneration:            
– Audit fee  52   54   55 
– Other fees  7   10   8 
             
   59   64   63 
             
Employee wages, salaries, allowances and social security costs  8,406   7,943   7,968 
             
Impairment and provision:            
  - Property, plant and equipment  196   2,072   6,697 
  - Recognition/(reversal) of expected credit losses, net  151   57   (1,373)
  - Others  319   (35)  (125)
   666   2,094   5,199 
             
Depreciation, depletion and amortization:            
– Property, plant and equipment  50,810   54,862   52,106 
– Right-of-use assets  —   1,359   1,258 
– Intangible assets  405   365   402 
– Net amount capitalized  (377)  1,113   (1,460)
             
   50,838   57,699   52,306 
             
Lease rentals:            
– Office properties  668   444   413 
– Plant and equipment  1,563   280   412 
             
   2,231   724   825 
             
Repairs and maintenance  4,596   5,415   4,721 
Research and development costs
 2,350   1,632   2,702 
Loss/(gain) on disposal of property, plant and equipment
 77   (92)  (1)

F-43 

 

CNOOC LIMITED

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(All amounts expressed in millions of Renminbi unless otherwise stated)

 

 

8.FINANCE COSTS

 

  2018 2019 2020
       
       
Interest on bank loans  139   114   51 
Interest on other loans  5,280   5,631   5,579 
Interest on lease liabilities  —   348   399 
Other borrowing costs  21   26   8 
             
Total borrowing costs  5,440   6,119   6,037 
             
Less: Amount capitalized in property, plant and equipment (note 14)  (2,838)  (3,048)  (2,483)
             
   2,602   3,071   3,554 
Other finance costs:            
Unwinding of discount on provision for dismantlement (note 29)  2,560   2,794   2,636 
             
   5,162   5,865   6,190 

 

During the year ended December 31, 2020, the effective interest rates used to determine the amount of related borrowing costs for capitalization varied from 0.7% to 7.875% (2019: 0.7% to 7.875%, 2018: from 0.95% to 7.875%) per annum.

 

9.KEY MANAGEMENT PERSONNEL'S REMUNERATION

 

Key management personnel are those persons having authority and responsibility for planning, directing and controlling the activities of the entity, directly or indirectly, including any director (whether executive or otherwise) of the Company.

 

(i)Directors' remuneration

 

    Salaries     Total
    allowances Performance Pension paid/payable
    and benefits related scheme during
  Fees (1) in kind (1) bonuses (1) contributions the year
  RMB'000 RMB'000 RMB'000 RMB'000 RMB'000
           
2018                    
Executive directors:                    
                     
Yuan Guangyu  —   231   546   143   920 
Xu Keqiang  —   231   467   143   841 
                     
Subtotal  —   462   1,013   286   1,761 
                     
Non-executive directors:                    
                     
Yang Hua  —   —   —   —   — 
Wang Dongjin(2) (4)  —   —   —   —   — 
Liu Jian(3)  —   —   —   —   — 
Wu Guangqi (2)  —   —   —   —   — 
                     
Subtotal  —   —   —   —   — 
                     
Independent non-executive directors:                    
Chiu Sung Hong  946   —   —   —   946 
Lawrence J. Lau  802   —   —   —   802 
Tse Hau Yin, Aloysius  946   —   —   —   946 
Kevin G. Lynch  802   —   —   —   802 
Subtotal
 3,496   —   —   —   3,496 
Total
 3,496   462   1,013   286   5,257 

 

F-44 

 

CNOOC LIMITED

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(All amounts expressed in millions of Renminbi unless otherwise stated)

 

 

9.KEY MANAGEMENT PERSONNEL'S REMUNERATION (continued)

 

(i)Directors' remuneration (continued)

 

           
    Salaries     Total
    allowances Performance Pension paid/payable
    and benefits related scheme during
  Fees (1) in kind (1) bonuses (1) contributions the year
  RMB'000 RMB'000 RMB'000 RMB'000 RMB'000
           
2019                    
Executive directors:                    
                     
Xu Keqiang (10)  —   257   870   186   1,313 
Yuan Guangyu (8)  —   175   1,034   128   1,337 
                     
Subtotal  —   432   1,904   314   2,650 
                     
Non-executive directors:                    
                     
Wang Dongjin(9)  —   —   —   —   — 
Yang Hua(7)  —   —   —   —   — 
                     
Subtotal  —   —   —   —   — 
                     
Independent non-executive                    
directors:                    
                     
Chiu Sung Hong  985   —   —   —   985 
Lawrence J. Lau  835   —   —   —   835 
Tse Hau Yin, Aloysius  1,029   —   —   —   1,029 
Qiu Zhi Zhong (6)  543   —   —   —   543 
Kevin G. Lynch(5)  294   —   —   —   294 
                     
Subtotal  3,686   —   —   —   3,686 
Total
 3,686   432   1,904   314   6,336 
                     

2020

                    
Executive directors:                    
                     
Xu Keqiang (11)  —   239   576   149   964 
Hu Guangjie (12)  —   176   193   116   485 
Subtotal  —   415   769   265   1,449 
                     
Non-executive directors:                    
                     
Wang Dongjin (15)  —   —   —   —   — 
Li Yong (14)  —   —   —   —   — 
Wen Dong Fen (13)  —   —   —   —   — 
                     
Subtotal  —   —   —   —   — 
                     
Independent non-executive directors:                    
   directors:                    
                     
Chiu Sung Hong  998   —   —   —   998 
Lawrence J. Lau  846   —   —   —   846 
Tse Hau Yin, Aloysius  1,042   —   —   —   1,042 
Qiu Zhi Zhong  846   —   —   —   846 
                     
Subtotal  3,732   —   —   —   3,732 
                     
Total  3,732   415   769   265   5,181 
                     

F-45 

 

CNOOC LIMITED

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(All amounts expressed in millions of Renminbi unless otherwise stated)

 

 

9.KEY MANAGEMENT PERSONNEL'S REMUNERATION (continued)

 

(i)Directors' remuneration (continued)

 

Notes:

 

(1)Fees, salaries, allowances, benefits in kind and performance related bonuses represent the gross amount (before applicable individual salary tax) paid/payable to individual directors.

 

(2)On April 27, 2018, Mr. Wang Dongjin was appointed as a Non-executive Director and a member of the Remuneration Committee of the Company. Mr. Wu Guangqi resigned as a Non-executive Director and a member of the Remuneration Committee of the Company.

 

(3)On August 16, 2018, Mr. Liu Jian resigned as the Vice Chairman and a Non-executive Director of the Company.

 

(4)On December 5, 2018, Mr. Wang Dongjin, a Non-executive Director, was appointed as the Vice Chairman of the Company.

 

(5)On May 7, 2019, Mr. Kevin G. Lynch resigned as an Independent Non-executive Director and a member of the Nomination Committee of the Company.

 

(6)On May 7, 2019, Mr. Qiu Zhi Zhong was appointed as an Independent Non-executive Director and a member of the Nomination Committee of the Company.

 

(7)On September 2, 2019, Mr. Yang Hua resigned as a Non-executive Director, the Chairman of the Board and the Chairman of the Nomination Committee of the Company.

 

(8)On September 2, 2019, Mr. Yuan Guangyu resigned as an Executive Director and the Chief Executive Officer of the Company.

 

(9)On November 18, 2019, Mr. Wang Dongjin was appointed as the Chairman of the Board and the Chairman of the Nomination Committee of the Company, and no longer served as the Vice Chairman of the Board.

 

(10)On November 19, 2019, Mr. Xu Keqiang, Executive Director and the President of the Company, was appointed as the Chief Executive Officer of the Company.

 

(11)On March 20, 2020, Mr. Xu Keqiang resigned as the President of the Company and he remains to serve as an Executive Director and the Chief Executive Officer of the Company.

 

(12)On March 20, 2020, Mr. Hu Guangjie was appointed as an Executive Director and the President of the Company.

 

(13)On April 27, 2020, Ms. Wen Dongfen was appointed as Vice Chairman of the Board, a Non-executive Director of the Company.

 

(14)On September 29, 2020, Mr. Li Yong was appointed as a Non-executive Director and a member of the Remuneration Committee of the Company.

 

(15)On September 29, 2020, Mr. Wang Dongjin ceased to serve as a member of the Remuneration Committee of the Company.

 

The Company has adopted the share option schemes for the grant of options to the Company's directors. The fair value of share options for the directors is measured according to the Group's accounting policies as set out in Note 3. No Directors exercised any share option in 2018, 2019 or 2020. No new share option was granted to Directors in respect of their services to the Group under the applicable share option schemes of the Company in 2018, 2019 or 2020. Further details of share option scheme and valuation techniques are set out in Note 30.

 

Save as disclosed above, there was no arrangement under which a director waived or agreed to waive any remuneration during the year. In 2018, 2019 or 2020, the executive directors' remuneration shown above were for their services in connection with the management of the affairs of the Company. The other directors' remuneration shown above were for their services as directors of the Company.


F-46 

 

CNOOC LIMITED

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(All amounts expressed in millions of Renminbi unless otherwise stated)

 

 

9.KEY MANAGEMENT PERSONNEL'S REMUNERATION (continued)

 

(ii)Other key management personnel's (excluding Directors') remuneration

 

  2018 2019 2020
       
Short term employee benefits  9   13   10 
Pension scheme contributions  1   1   1 
Amount paid/payable during the year  10   14   11 
             

 

The bands of the remuneration of other key management personnel (excluding Directors) and the related number of members of other key management personnel (excluding Directors) are as follows:

 

  Number of employees
  2018 2019 2020
       
Nil to RMB2,000,000  9   4   10 
RMB2,000,001 to RMB2,500,000  —   3   — 
   9   7   10 
             

 

10.FIVE HIGHEST PAID EMPLOYEES

 

During the year, none (2019: none; 2018: none) of the Directors, details of whose remuneration are disclosed in note 9(i) above, received an amount which falls within the category of the five highest paid employees. Details of the remuneration of the five (2019: five; 2018: five) highest paid employees, for the year are as follows:

 

  2018 2019 2020
       
Salaries, allowances and benefits in kind(1)  21   27   25 
Performance-related bonuses  18   18   18 
Pension scheme contributions  1   2   2 
Amount paid/payable during the year  40   47   45 

      

  (1)Salaries, allowances, and benefits in kind represent the gross amount (before applicable individual salary tax) paid/payable to individual employees.

 

The remuneration of the five (2019: five, 2018: five) highest paid employees, falls within the following bands:

 

  2018 2019 2020
       
RMB6,500,001 to RMB7,000,000   2   —   1 
RMB7,000,001 to RMB7,500,000   —   —   1 
RMB7,500,001 to RMB8,000,000   1   2   — 
RMB8,000,001 to RMB8,500,000   —   1   1 
RMB8,500,001 to RMB9,000,000   1   —   — 
RMB10,000,001 to RMB10,500,000   —   1   — 
RMB10,500,001 to RMB11,000,000   1   —   1 
RMB12,500,001 – RMB13,000,000   —   1   1 
    5   5   5 

 

F-47 

 

CNOOC LIMITED

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(All amounts expressed in millions of Renminbi unless otherwise stated)

 

 

11.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% (2019: 16.5%, 2018: 16.5%) on profits arising in or derived from Hong Kong.

 

The Company is regarded as a Chinese Resident Enterprise (as defined in the "Enterprise Income Tax Law of the People’s Republic of China") by the State Administration of Taxation of the PRC. As a result, the Company is subject to the PRC corporate income tax at the rate of 25% starting from January 1, 2008. The corporate income tax which is subjected in Hong Kong is qualified as a foreign tax credit to offset the PRC corporate income tax starting from January 1, 2008.

 

The Company’s subsidiary in Mainland China, CNOOC China, 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. CNOOC Deepwater Development Limited, a wholly-owned subsidiary of CNOOC China, is subject to corporate income tax at the rate of 15% from 2018 to 2020, after being reassessed as a high and new technology enterprise. The company is in the process of re-applying to be assessed as a high and new technology enterprise from 2021 to 2023.

 

Subsidiaries of the Group domiciled outside the PRC are subject to income tax at rates ranging from 10% to 82% (2019: 10% to 50%, 2018: 10% to 50%). The provincial income tax rate of Alberta, Canada reduced from 12% to 11% on July 1, 2019, and will decrease by one percentage point on January 1 of each year until it reaches 8% on January 1, 2022.

 

As at December 31, 2020, deferred tax liabilities related to undistributed earnings of the Company’s overseas subsidiaries have not been provided 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 profit or loss and other comprehensive income is as follows:

 

  2018 2019 2020
       
       
Current tax            
Provision for PRC enterprise income tax on the estimated taxable profits for the year  18,151   19,054   9,821 
Provision for overseas enterprise income tax on the estimated taxable profits for the year  5,043   3,179   2,080 
Deferred tax            
Temporary differences in the current year  (712)  (130)  (1,950)
Effect of changes in tax rates  —   2,501   — 
             
Income tax expense for the year  22,482   24,604   9,951 

 

F-48 

 

CNOOC LIMITED

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(All amounts expressed in millions of Renminbi unless otherwise stated)

 

 

11.TAX (continued)

 

(i)Income tax (continued)

 

A reconciliation of the PRC statutory corporate income tax rate to the effective income tax rate of the Group is as follows:

 

  2018 2019 2020
  % % %
       
       
PRC statutory enterprise income tax rate  25.0   25.0   25.0 
Effect of different tax rates for overseas subsidiaries  7.0   2.6   4.3 
Effect of changes in tax rates  —   2.9   — 
Tax credit from the government  (0.8)  (2.6)  (3.3)
Tax reported in equity-accounted entities within China  (0.2)  (0.1)  (0.3)
Tax losses previously not recognized  (0.2)  —   — 
Others  (0.9)  0.9   2.8 
             
Group's effective income tax rate  29.9   28.7   28.5 

 

The movements of deferred tax liabilities net of deferred tax assets are as follows:

 

  2018 2019 2020
       
       
Opening Balance  (22,232)  (24,285)  (22,390)
Credit to the profit or loss  (712)  (130)  (1,950)
Changes in tax rates  —   2,501   — 
Charge to equity  (190)  (111)  2 
Exchange differences  (1,151)  (365)  1,706 
Closing Balance  (24,285)  (22,390)  (22,632)

 

F-49 

 

CNOOC LIMITED

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(All amounts expressed in millions of Renminbi unless otherwise stated)

 

 

11.TAX (continued)

 

(i)Income tax (continued)

 

Principal components of deferred tax balances are as follows:

 

  2019 2020
     
     
Deferred tax assets        
Property, plant and equipment  5,996   6,064 
Provision for dismantlement  12,418   12,980 
Losses available for offsetting against future taxable profit  19,367   20,157 
Fair value of long term borrowings  1,472   1,316 
Others  687   1,070 
         
   39,940   41,587 
         
Deferred tax liabilities        
Property, plant and equipment  (17,313)  (18,632)
Others  (237)  (323)
         
   (17,550)  (18,955)
         
Net deferred tax assets  22,390   22,632 
Of which        
– deferred tax assets  25,992   27,751 
– deferred tax liabilities  (3,602)  (5,119)

 

As at December 31, 2020, the Group had approximately RMB98,008 million (2019: RMB95,794 million) of carryforward tax losses, predominantly in North America, that would be available to offset against future taxable profits of the subsidiaries in which the tax losses arose. Most of the US and Canadian tax losses will expire in 4 to 20 years.

 

Deferred tax assets in respect of tax losses are recognized only to the extent of the anticipated future taxable profits or reversal of existing taxable temporary differences.

 

As at December 31, 2020, the Group's recognized deferred tax assets on tax losses amounted to RMB92,644 million (2019: RMB89,268 million). Unrecognized tax losses, where recovery is not currently expected, amounted to RMB5,364 million (2019: RMB6,526 million). These unrecognized tax losses are subject to time limits in accordance with tax regulations in different countries.

 

At December 31, 2020, the Group's unrecognized deferred tax assets related to unused tax credits amounted to RMB7,382 million (2019: RMB10,220 million), which are subject to time limits in accordance with tax regulations in different countries.

 

The realisability of the deferred tax assets recognized mainly depends on whether sufficient future profits or taxable temporary differences will be available in the future. In case where the actual future taxable profits generated are less than expected, or change in facts and circumstances which result in revision of future taxable profits estimation, the balance of deferred tax assets may be significantly revised.

 

F-50 

 

CNOOC LIMITED

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(All amounts expressed in millions of Renminbi unless otherwise stated)

 

 

11.TAX (continued)

 

(ii)Other taxes

 

The Company's PRC subsidiaries pay the following other taxes and dues:

 

i.Production tax at the rate of 5% on production under production sharing contracts;

 

ii.Value added tax ("VAT") at the rates from 10% to 16% on taxable sales under independent oil and gas fields before April 1, 2019. VAT rates of 16% and 10% have been adjusted to 13% and 9% respectively since April 1, 2019 according to "Announcement on Policies for Deepening the VAT Reform" (Announcement [2019] No. 39 of the Ministry of Finance, the State Taxation Administration and the General Administration of Customs).

 

The VAT payable is calculated using the taxable sales amount multiplied by the applicable tax rate less relevant deductible input VAT;

 

iii.Resource tax at the rate of 6% (reduced tax rates may apply to specific products and fields) on the oil and gas sales revenue (excluding production tax) derived by oil and gas fields under production sharing contracts signed after November 1, 2011 and independent offshore oil and gas fields, except for those under production sharing contracts signed before November 1, 2011 which will be subject to related resource tax requirement after the expiration of such production sharing contracts;

 

iv.City construction tax at the rates of 1% or 7% on the production tax and VAT paid;

 

v.Educational surcharge at the rate of 3% on the production tax and VAT paid; and

 

vi.Local educational surcharge at the rate of 2% on the production tax and VAT paid.

 

In addition, other taxes paid and payable by the Company's non-PRC subsidiaries include royalty as well as taxes levied on petroleum-related income, budgeted operating and capital expenditure.

 

(iii)Special Oil Gain Levy

 

In 2006, a Special Oil Gain Levy ("SOG Levy") was imposed by the Ministry of Finance of the PRC ("MOF") 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 MOF has decided to increase the threshold of the SOG Levy to US$65 with effect from January 1, 2015. Notwithstanding this adjustment, the SOG Levy continues to have five levels and is calculated and charged according to the progressive and ad valorem rates on the excess amounts. 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-51 

 

CNOOC LIMITED

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(All amounts expressed in millions of Renminbi unless otherwise stated)

 

 

12.EARNINGS PER SHARE

 

  2018 2019 2020
       
       
Earnings:            
Profit for the purpose of basic and diluted earnings per share calculation  52,675   61,045   24,956 
             
Number of shares:            
Number of ordinary shares for the purpose of basic earnings per share calculation  44,647,455,984   44,647,455,984   44,647,455,984 
             
Effect of dilutive potential ordinary shares under the share option schemes  8,566,982   3,654,758   — 
             
Weighted average number of ordinary shares for the purpose of diluted earnings per share  44,656,022,966   44,651,110,742   44,647,455,984 
             
Earnings per share:            
Basic (RMB Yuan)  1.18   1.37   0.56 
Diluted (RMB Yuan)  1.18   1.37   0.56 

 

13.DIVIDENDS

 

  2018 2019 2020
       
Dividend per ordinary share:            
2020 interim dividend - HK$0.20 (2019: interim dividend HK$0.33, 2018: interim dividend HK$0.30) per ordinary share  11,890   13,260   7,744 
2019 final dividend - HK$0.45 (2018: final dividend HK$0.40, 2017: Final dividend HK $0.30) per ordinary share  11,633   15,713   18,107 
             
2020 final dividend proposed at HK$0.25 per ordinary share by the Board of Directors - not recognized as a liability as at the end of the year  15,713   18,107   9,314 
             

 

Pursuant to the Enterprise Income Tax Law of the People’s Republic of China and related laws and regulations, the Company is regarded as a Chinese Resident Enterprise, and thus is required to withhold corporate income tax at the rate of 10% when it distributes dividends to its non-resident enterprise (as defined in the "Enterprise Income Tax Law of the People’s Republic of China") 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-resident enterprise shareholders), the Company will distribute the dividend after deducting corporate income tax of 10%.

 

F-52 

 

CNOOC LIMITED

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(All amounts expressed in millions of Renminbi unless otherwise stated)

 

 

14.PROPERTY, PLANT AND EQUIPMENT

 

       
  Oil and gas properties Vehicles and office equipment and others Total
       
Cost:            
             
At January 1, 2019  972,605   5,269   977,874 
Additions  78,523   710   79,233 
Acquisitions  5,619   —   5,619 
Disposals and write-offs  (9,270)  (313)  (9,583)
Exchange differences  8,463   36   8,499 
             
At December 31, 2019  1,055,940   5,702   1,061,642 
             
At January 1, 2020  1,055,940   5,702   1,061,642 
Additions  74,862   1,383   76,245 
Acquisitions  4,418   —   4,418 
Disposals and write-offs  (3,018)  (232)  (3,250)
Exchange differences  (33,710)  (139)  (33,849)
             
At December 31, 2020  1,098,492   6,714   1,105,206 
             
Accumulated depreciation, depletion and amortization and impairment:            
             
At January 1, 2019  (562,144)  (2,347)  (564,491)
Depreciation charge for the year  (54,451)  (411)  (54,862)
Impairment  (2,072)  —   (2,072)
Disposals and write-offs  4,312   278   4,590 
Exchange differences  (4,233)  (20)  (4,253)
             
At December 31, 2019  (618,588)  (2,500)  (621,088)
             
At January 1, 2020  (618,588)  (2,500)  (621,088)
Depreciation charge for the year  (51,816)  (290)  (52,106)
Impairment  (6,697)  —   (6,697)
Disposals and write-offs  2,163   227   2,390 
Exchange differences  18,886   77   18,963 
             
At December 31, 2020  (656,052)  (2,486)  (658,538)
             
Net book value:            
At December 31, 2019  437,352   3,202   440,554 
             
At December 31, 2020  442,440   4,228   446,668 
             

 

Included in the current year's additions was an amount of approximately RMB2,483 million (2019: approximately RMB3,048 million, 2018: approximately RMB2,838 million) in respect of interest capitalized in property, plant and equipment (note 8). Included also in the depreciation charge for the year was an amount of approximately RMB2,764 million (2019: approximately RMB1,199 million, 2018: approximately RMB1,298 million) in respect of a depreciation charge on dismantlement cost capitalized in oil and gas properties.

 

F-53 

 

CNOOC LIMITED

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(All amounts expressed in millions of Renminbi unless otherwise stated)

 

 

14.PROPERTY, PLANT AND EQUIPMENT (continued)

 

Impairment and provision recognized during the year included the impairment loss to reduce the carrying amount of certain oil and gas properties to the recoverable amount. In 2020, impairment losses of RMB6,697 million (2019: RMB2,072 million in North America and China) related to oil and gas properties in North America, Africa and China were recognized as impairment and provision in profit or loss, primarily triggered by the change of reserve assessment and the decline of forecasted oil price.

 

For both years, the recoverable amount was calculated based on the assets’ value in use and was determined at the cash-generating unit level. The Company identifies a field or a group of fields that could generate cash inflows independently as a cash-generating unit. The principal parameters used in determining the recoverable amount of the Group’s assets include estimates of proved and unproved reserves, future commodity prices that come from the price forecast of respected and independent institutions, combined with internal analysis and judgment of the international market environment, as well as best estimates of drilling and development costs.

 

The discount rate is derived from the Company’s weighted average cost of capital ("WACC") and is adjusted, where applicable, to take into account any specific risks relating to the country where the asset is located as well as the asset specific characteristics, such as specific tax treatments, cash flow profiles and economic life. The discount rate used for value in use calculations was 7%-12% in 2020 after tax (2019: 8%). A derived pre-tax discount rate would be 7%-16% (2019: 8%-10%).

 

F-54 

 

CNOOC LIMITED

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(All amounts expressed in millions of Renminbi unless otherwise stated)

 

 

15.RIGHT-OF-USE ASSETS

 

  FPSO  Building and structures  Equipment  Pipelines  Leasehold lands  Total 
Cost:                        
At January 1, 2020  7,365   752   864   922   877   10,780 
Additions  —   209   230   —   1,224   1,663 
Disposals and write-offs  (91)  (27)  (741)  (1)  —   (860)
Exchange differences  (118)  (37)  (56)  (60)  —   (271)
At December 31, 2020  7,156   897   297   861   2,101   11,312 
                         
Accumulated depreciation, depletion and amortization and impairment:                        
At January 1, 2020  (712)  (169)  (422)  (187)  (111)  (1,601)
Depreciation charge for the year  (706)  (207)  (275)  (39)  (31)  (1,258)
Disposals and write-offs  12   23   624   —   —   659 
Exchange differences  10   —   27   12   —   49 
At December 31, 2020  (1,396)  (353)  (46)  (214)  (142)  (2,151)
                         
Net book value:                        
At January 1, 2020  6,653   583   442   735   766   9,179 
At December 31, 2020  5,760   544   251   647   1,959   9,161 
                         
Expense relating to short-term leases  44   357   —   12   —   413 
                         
Variable lease payments not included in the measurement of lease liabilities  412   —   —   —   —   412 

 

 

For both years, the Group leases various FPSO and offices for its operations. Lease contracts are entered into for fixed term of 13 months to 171 months, but may have extension options. Lease terms are negotiated on an individual basis and contain a wide range of different terms and conditions. In determining the lease term and assessing the length of the non-cancellable period, the Group applies the definition of a contract and determines the period for which the contract is enforceable.

 

During the current period, the Group recognized right-of-use assets of approximately RMB113 million for leases with the CNOOC Group.

 

Variable lease payments

 

Leases of FPSO are either with only fixed lease payments or contain variable lease payment that are based on production volume and minimum annual lease payment that are fixed over the lease term. The fixed and variable lease payments paid to relevant FPSO lessors for the year ended December 31, 2020 amounted to RMB1,002 million and RMB412 million.

 

The overall financial effect of using variable payment terms is that higher rental costs are incurred by FPSO with higher production volume. Variable rent expenses are expected to continue to represent a similar proportion of production volume in future years.

 

F-55 

 

CNOOC LIMITED

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(All amounts expressed in millions of Renminbi unless otherwise stated)

 

 

16.INTANGIBLE ASSETS

 

  Gas processing rights under NWS Project Exploration
rights		 Marketing transportation and storage contracts Software and others Goodwill Total
             
Cost:                        
At January 1, 2019  1,259   531   1,507   3,039   14,592   20,928 
Additions  —   —   —   348   —   348 
Disposal  —   —   —   (27)  —   (27)
Exchange differences  21   —   24   14   239   298 
                         
At December 31, 2019  1,280   531   1,531   3,374   14,831   21,547 
                         
At January 1, 2020  1,280   531   1,531   3,374   14,831   21,547 
Additions  —   —   —   221   —   221 
Disposal  —   —   —   (1)  —   (1)
Exchange differences  (83)  —   (99)  (66)  (960)  (1,208)
                         
At December 31, 2020  1,197   531   1,432   3,528   13,871   20,559 
                         
Accumulated amortization:                        
At January 1, 2019  (836)  (219)  (1,299)  (2,501)  —   (4,855)
Amortization charge for the year  (53)  (30)  (55)  (227)  —   (365)
Disposal  —   —       27   —   27 
Exchange differences  (15)  —   (20)  (13)  —   (48)
                         
At December 31, 2019  (904)  (249)  (1,374)  (2,714)  —   (5,241)
                         
At January 1, 2020  (904)  (249)  (1,374)  (2,714)  —   (5,241)
Amortization charge for the year  (75)  (30)  (58)  (239)  —   (402)
Exchange differences  63   —   92   58   —   213 
                         
At December 31, 2020  (916)  (279)  (1,340)  (2,895)  —   (5,430)
                         
Net book value:                        
At December 31, 2019  376   282   157   660   14,831   16,306 
                         
At December 31, 2020  281   252   92   633   13,871   15,129 

 

Goodwill represents the excess of the purchase price over the estimated fair value of the assets acquired and liabilities assumed in a business combination. Goodwill acquired through business combinations is held at the E&P segment.

 

According to the accounting policies as set out in note 3, goodwill is acquired in the acquisition of Nexen Inc., and from the acquisition date, allocated to the entire E&P assets, which are the groups of cash-generating units that are expected to benefit from the synergies of the acquisition.

 

Impairment is determined by assessing the recoverable amount of the entire E&P assets to which the goodwill relates. Where the recoverable amount of the entire E&P assets is less than the carrying amount of the assets and the goodwill together, an impairment loss on goodwill is recognized.

 

In assessing value in use of E&P segment, the key assumptions include, but are not limited to, future commodity prices, future production estimates, estimated future capital expenditures, estimated future operating expenses and the discount rate. The discount rate used for value in use is derived from the Company’s WACC and is adjusted, where applicable, to take into account any specific risks relating to the country where the asset is located as well as the asset specific characteristics, such as specific tax treatments, cash flow profiles and economic life. However, actual results could differ from those estimates.

 

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 the marketing transportation and storage contracts are amortized on a straight-line basis over the life of the contracts which is less than 20 years. Other identifiable intangible assets are amortized on a straight-line basis over a period ranging from 3 to 5 years.

 

F-56 

 

CNOOC LIMITED

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(All amounts expressed in millions of Renminbi unless otherwise stated)

 

 

17.INVESTMENTS IN ASSOCIATES

 

Particulars of the principal associates at the end of the reporting period are as follows:

 

        Nominal value        
        of ordinary shares issued and   Percentage of equity    
    Place of   paid-up/registered   attributable to    
Name of associates   establishment   capital   the Group   Principal activities
                 

Shanghai Petroleum

Corporation Limited(1)

   Shanghai, PRC   RMB900 million   30.0%   Production, processing and technology consultation of oil, gas and relevant products in the PRC
                 

CNOOC Finance

Corporation Limited(1)

   Beijing, PRC   RMB4 billion   31.8%   Provision of deposit, transfer, settlement, loan, discounting and other financing services to CNOOC and its member entities
                 
Jiangsu Shuangchuang Renewable Energy Development Corporation Limited (1) Jiangsu, PRC   RMB960 million   47%   New energy technology research and development, technical consulting, technical services; wind power; technical services for power system and facilities; power engineering and construction (operated with qualification certificates); generator set installation, commissioning and maintenance
                 
Arctic LNG 2 LLC   Russian Federation   RUB15,976 million   10%   Exploration and development of natural gas and production and marketing of liquefied natural gas in Russia
                 

 

(1)Registered as a limited liability company under the PRC Law.

 

To give details of other associates would, in the opinion of the Directors, result in particulars of excessive length.

 

The Group's investments in associates represent:

 

  2019 2020

Share of net assets

   24,513   23,544 

 

 

None of the Group’s associates are considered to be individually material. The following table illustrates the Group’s share of the profits and other comprehensive income of its associates in the consolidated financial statements:

 

  2018 2019 2020
       
Profit for the year  406   459   171 
Other comprehensive income/(expense)  16   25   (85)
Total comprehensive income  422   484   86 

 

Dividend of RMB329 million was received from the associates in 2020 (2019: RMB231 million, 2018: RMB162 million).

 

F-57 

 

CNOOC LIMITED

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(All amounts expressed in millions of Renminbi unless otherwise stated)

 

 

18.INVESTMENT IN A JOINT VENTURE

 

Particulars of the joint venture at the end of the reporting period are as follows:

 

Name of entity

Place of

establishment

 Nominal value of ordinary shares issued and paid- up/registered capital

Percentage

of equity

attributable to the Group

 Principal activities

BC ENERGY

INVESTMENTS CORP.

British Virgin Islands

US$102,325,582

50%

Investment holding

 

Summarized financial information of the joint venture is disclosed below:

 

  2019 2020
     
Current assets      10,742   9,092 
             
Non-current assets      49,417   47,737 
             
Current liabilities      (7,616)  (7,391)
             
Non-current liabilities      (10,589)  (11,794)
             
             
   2018   2019   2020   
Revenue  18,661   18,178   12,089 
Depreciation, depletion and amortization  (3,446)  (3,195)  (3,321)
Interest income  95   140   101 
Finance costs  (518)  (822)  (946)
             
(Loss)/profit before tax  (17,816)  1,961   (1,641)
Income tax credit/(expense)  6,630   (875)  35 
(Loss)/Profit after tax  (11,186)  1,086   (1,606)
Total comprehensive (expense)/income  (11,186)  1,086   (1,606)
             

 

Dividend of US$6 million (equivalent to RMB42 million) was received from the joint venture in 2020 and US$25 million (equivalent to RMB172 million) was received from the joint venture in 2019 and US$20 million (equivalent to RMB132 million) was received from the joint venture in 2018.

 

F-58 

 

CNOOC LIMITED

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(All amounts expressed in millions of Renminbi unless otherwise stated)

 

 

19.EQUITY INVESTMENTS AND OTHER FINANCIAL ASSETS

 

(i)Equity investments

 

  2019 2020
Non-current:
       
Publicly traded investments        
Equity investment in MEG Energy Corporation ("MEG") classified at FVTOCI (1)  1,127   653 
   1,127   653 
         
Non-publicly traded investments        

Private equity fund in Kerogen Energy Fund classified at FVTOCI (2)

  1,778   1,140 
Other equity investments classified at FVTOCI  31   36 
   1,809   1,176 
   2,936   1,829 

 

(1)MEG is principally engaged in the exploitation and production of oil sands. The investment in MEG is designated by the Group as at FVTOCI. As at December 31, 2020, the investment in MEG was stated at the quoted market price.

 

(2)Kerogen Energy Fund is principally engaged in the investment in the oil and gas industry. The equity investment in Kerogen Energy Fund is designated by the Group as at FVTOCI.

 

During the year, the fair value changes on the Group's equity investments recognized directly in other comprehensive expense amounted to RMB1,040 million (2019: other comprehensive expense RMB1,167 million, 2018: other comprehensive income RMB278 million).

 

(ii)Other financial assets

 

  2019 2020
Current:        
Publicly traded investments classified at FVTPL:        
Money market funds (1)  6,660   — 
         
Non-publicly traded investments classified at FVTPL:        
Corporate wealth management products (2)  107,853   61,662 
   114,513   61,662 
         

 

(1)The money market funds can be redeemed at any time.

 

(2)The corporate wealth management products will mature from 6 January, 2021 to 13 October, 2021 (2019: from January 8, 2020 to October 14, 2020).

 

The gains of the Group's other financial assets recognized in the profit or loss for the year was RMB2,978 million (2019: RMB4,603 million, 2018: RMB3,685 million).

 

F-59 

 

CNOOC LIMITED

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(All amounts expressed in millions of Renminbi unless otherwise stated)

 

 

20.OTHER NON-CURRENT ASSETS

 

Included in the other non-current assets were mainly restricted deposits for future dismantlement. Pursuant to the Provisional Regulations on the Dismantlement of Offshore Oil and Gas Production Facilities of the People’s Republic of China, the Group accrues dismantlement costs for all the oil and gas fields under production sharing contracts in the PRC, and makes monthly cash contributions to the specified dismantlement fund accounts supervised by the PRC government. The deposit cannot be withdrawn or utilized for any other purposes but the dismantlement of oil and gas production facilities in the future. As at December 31, 2020, the balance of the specified dismantlement fund accounts was RMB9,738 million (December 31, 2019: RMB8,860 million).

 

21.INVENTORIES AND SUPPLIES

 

   
  2019 2020
     
     
Materials and supplies  5,758   5,064 
Oil in tanks  1,483   1,377 
Less: Provision for inventory obsolescence  (927)  (797)
         
   6,314   5,644 

 

22.TRADE RECEIVABLES

 

The credit terms of the Group are generally within 30 days after the delivery of oil and gas. Payment in advance or collateral may be required from customers, depending on credit rating. Trade receivables are non-interest bearing.

 

All customers have good credit quality with good repayment history and no significant receivables are past due. As at December31, 2020 and December 31, 2019, the age of substantially all the trade receivables was within one year.

 

23.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.

 

The weighted average effective interest rate of the Group's bank deposits was 2.56% per annum for the year ended December 31, 2020 (2019: 2.71% per annum, 2018: 2.83% per annum).

 

24.TRADE AND ACCRUED PAYABLES

 

As at December 31, 2020 and 2019, substantially all the trade and accrued payables were aged within six months. The trade and accrued payables are non-interest-bearing.

 

F-60 

 

CNOOC LIMITED

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(All amounts expressed in millions of Renminbi unless otherwise stated)

 

 

25.CONTRACT LIABILITIES

 

  2019 2020
     
Contract Liabilities  2,231   1,544 
-Current  2,231   1,544 
         

 

Under the natural gas sale contracts, which contain take-or-pay clauses, the Group recorded the payments received from customers for natural gas not yet taken as contract liabilities.

 

The amount of RMB1,242 million contract liability at the beginning of the year has been recognized as revenue for the year ended December 31, 2020.

 

26.OTHER PAYABLES AND ACCRUED LIABILITIES

 

   2019*  2020*
         
Accrued payroll and welfare payable  2,128   1,765 
Accrued expenses  1,527   589 
Special oil gain levy payable  327   — 
Royalties payable  81   136 
Provision for dismantlement (note 29)  1,439   916 
Deferred consideration to Arctic LNG 2 LLC  5,720   — 
Other payables  8,361   8,733 
   19,583   12,139 

*       These amounts include balances with related parties.

 

F-61 

 

CNOOC LIMITED

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(All amounts expressed in millions of Renminbi unless otherwise stated)

 

 

27.LOANS AND BORROWINGS

 

Current*

 

        2019   2020
    Effective interest rate and final maturity   Loans Notes Total   Loans Notes Total
Short-term loans and borrowings                                
General loans*****   LIBOR+0.60% to 3.915% per annum with maturity within one year
   1,905   —   1,905     —   —   — 
                                 
         1,905   —   1,905     —   —   — 
Loans and borrowings due within one year                                
For Tangguh LNG Project***   LIBOR+0.19% to 0.335% per annum with maturity within one year    226   —   226     78   —   78 
                                 
For Tangguh LNG III
 
Project****
  LIBOR+1.37% to 3.45% per annum with maturity within one year    —   —   —     142   —   142 
For Arctic LNG 2 Project*****   EURIBOR+0.7% to 1.2% per annum with maturity in 2026    —   —   —     18   —   18 
General loans   LPR-60BPS per annum with maturity in 2033    —   —   —     1   —   1 
Notes**        —   11,777   11,777     —   10,978   10,978 
         226   11,777   12,003     239   10,978   11,217 
         2,131   11,777   13,908     239   10,978   11,217 

 

F-62 

 

CNOOC LIMITED

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(All amounts expressed in millions of Renminbi unless otherwise stated)

 

 

27.LOANS AND BORROWINGS (continued)

 

Non-current*

 

        2019   2020
    Effective interest rate and final maturity   Loans Notes Total   Loans Notes Total
For Tangguh LNG Project***   LIBOR+0.19% to 0.335% per annum with maturity through to 2021    84   —   84     —   —   — 
For Tangguh LNG III Project ****   LIBOR+1.37% to 3.45% per annum with maturity from 2021 to 2029    2,866   —   2,866     3,233   —   3,233 
For Arctic LNG 2 Project*****   EURIBOR+0.7% to 1.2% per annum with maturity in 2026    735   —   735     7,011   —   7,011 
General loans   LPR-60BPS per annum with maturity in 2033    —   —   —     814   —   814 
Notes**        —   132,467   132,467     —   113,955   113,955 
         3,685   132,467   136,152     11,058   113,955   125,013 

 

*The amount of loans and borrowings included interest payable.

 

**The details of notes are as follows:

 

Issued by Maturity Coupon Rate

Outstanding Principal Amount

December 

31, 2019

 December 31, 2020
      USD million USD million
CNOOC Finance (2003) Limited Due in 2033 5.500% 300 300
CNOOC Finance (2011) Limited Due in 2021 4.25% 1,500 1,500
CNOOC Finance (2011) Limited Due in 2041 5.75% 500 500
CNOOC Finance (2012) Limited Due in 2022 3.875% 1,500 1,500
CNOOC Finance (2012) Limited Due in 2042 5.000% 500 500
CNOOC Finance (2013) Limited Due in 2023 3.000% 2,000 2,000
CNOOC Finance (2013) Limited Due in 2043 4.250% 500 500
CNOOC Finance (2013) Limited Due in 2029 2.875% 1,000 1,000
CNOOC Finance (2013) Limited Due in 2049 3.300% 500 500
CNOOC Finance (2014) ULC Due in 2024 4.25% 2,250 2,250
CNOOC Finance (2014) ULC Due in 2044 4.875% 500 500
CNOOC Petroleum North America ULC Due in 2028 7.4% 200 200
CNOOC Petroleum North America ULC Due in 2032 7.875% 500 500
CNOOC Petroleum North America ULC Due in 2035 5.875% 790 790
CNOOC Petroleum North America ULC Due in 2037 6.4% 1,250 1,250
CNOOC Petroleum North America ULC Due in 2039 7.5% 700 700
CNOOC Finance (2015) Australia Pty Ltd Matured in 2020 2.625% 1,500 -
CNOOC Finance (2015) Australia Pty Ltd Due in 2045 4.200% 300 300
CNOOC Finance (2015) U.S.A. LLC Due in 2023 3.75% 450 450
CNOOC Finance (2015) U.S.A. LLC Due in 2025 3.500% 2,000 2,000
CNOOC Finance (2015) U.S.A. LLC Due in 2028 4.375% 1,000 1,000

 

All the notes issued mentioned above were fully and unconditionally guaranteed by the Company.

 

F-63 

 

CNOOC LIMITED

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(All amounts expressed in millions of Renminbi unless otherwise stated)

 

 

27.LOANS AND BORROWINGS (continued)

 

Non-current (continued)

 

***In connection with the Tangguh LNG Project in Indonesia, the Company delivered a guarantee dated October 29, 2007, in favor 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. The Company guarantees the payment obligations of the trustee borrower under the subject loan agreement and is subject to a maximum cap of US$135,163,308.28.

 

****In connection with the financing for the third LNG process train of Tangguh LNG Project in Indonesia, the Company delivered two guarantees dated August 3, 2016, in favor of Mizuho Bank, Ltd., which acts as the facility agent for and on behalf of various international commercial banks and Indonesian local commercial banks under two commercial loan agreements with aggregate loan amount of US$2,145 million. The Company guarantees the payment obligations of the trustee borrower under the subject loan agreements and is subject to an aggregate maximum cap of approximately US$573 million.

 

*****As at December 31, 2020, US$1,075 million of the bank loans for Arctic LNG 2 Project and general loans (2019: US$ 378 million) were guaranteed by the Company.

 

As at December 31, 2020, no shareholder loans (2019: nil) were included in general loans.

 

The maturities of the long term loans are as follows:

 

     
  2019 2020
     
Repayable:        
Within one year  226   239 
After one year but within two years  204   288 
After two years but within three years  244   326 
After three years but within four years  277   495 
After four years but within five years  320   649 
After five years  2,640   9,300 
   3,911   11,297 
         
Amount due within one year shown under current liabilities  (226)  (239)
   3,685   11,058 

 

Supplemental information with respect to the long term loans:

 

      Weighted
    Weighted average
    average interest rate
For the year ended Balance interest rate during the
December 31 at year end at year end year (1)
       
2019   3,911   2.70%   3.43% 
2020   11,297   0.95%   1.83% 

 

(1)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 loans and borrowings during the year.

 

F-64 

 

CNOOC LIMITED

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(All amounts expressed in millions of Renminbi unless otherwise stated)

 

 

28.LEASE LIABILITIES

 

   12/31/2019   12/31/2020 
         
Lease liabilities payable:        
Within one year  1,732   1,522 
Within a period of more than one year but not more than two years  1,266   1,218 
Within a period of more than two years but not more than five years  3,091   2,762 
Within a period of more than five years  4,536   3,632 
   10,625   9,134 
Less: Discount to present value  (2,138)  (1,815)
         
Total lease liabilities  8,487   7,319 

 

The incremental borrowing rates applied to lease liabilities range from 3.3% to 5.16% (2019: from 3.3% to 5.16%).

 

29.PROVISION FOR DISMANTLEMENT

 

   
  2019 2020
     
At January 1  54,878   65,602 
New projects(1)  3,309   3,765 
Revision(1)  5,117   35 
Utilization  (1,141)  (444)
Deletion  (15)  (115)
Unwinding of discount(2) (note 8)  2,794   2,636 
Exchange differences  660   (1,119)
         
At December 31  65,602   70,360 
         

Current portion of provision for dismantlement included in other payables and accrued liabilities (note 26)

 (1,439)  (916)
         
At December 31  64,163   69,444 

 

(1)The amounts are included in the additions of oil and gas properties in note 14.

 

(2)The discount rates used for calculating the provision for dismantlement is 3.25%-4.25% (2019：3.50%-4.25%，2018: 5% ).

 

F-65 

 

CNOOC LIMITED

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(All amounts expressed in millions of Renminbi unless otherwise stated)

 

 

30.SHARE CAPITAL

 

  Number of

Issued share
capital

equivalent of

  shares RMB million 
     
Issued and fully paid:        
Ordinary shares with no par value as at January 1, 2019, as at December 31, 2019 and as at December 31, 2020  44,647,455,984   43,081 

 

Share option schemes

 

The Company has adopted the 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 (expired in 2011);

 

(2)2001 Share Option Scheme (expired in 2011);

 

(3)2002 Share Option Scheme (expired in 2015); and

 

(4)2005 Share Option Scheme (as defined below).

 

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.

 

F-66 

 

CNOOC LIMITED

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(All amounts expressed in millions of Renminbi unless otherwise stated)

 

 

30.SHARE CAPITAL (continued)

 

Share option schemes (continued)

 

2005 Share Option Scheme

 

On December 31, 2005, the Company adopted a new share option scheme (the "2005 Share Option Scheme"). The purpose of the 2005 Share Option Scheme is to provide incentive and/or reward to eligible persons for their contribution to, and continuing efforts to promote the interests of the Company. 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 Group, 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 daily quotation sheets of The Stock Exchange of Hong Kong Limited 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 no 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. The exercise periods for all options granted under the 2005 Share Option Scheme have lapsed.

 

No new share option was granted during the year (2019 and 2018: nil) and the Group recognized an equity-settled share option expense of nil (2019 and 2018: nil) during the year.

 

The fair value of equity-settled share options granted was estimated as at the date of grant if any, using the Black-Scholes option pricing model, taking into account the terms and conditions upon which the options were granted.

 

Details of the share options outstanding are as follows:

 

  2018 2019 2020
  Number of share options

Weighted average

exercise price

 Number of share options

Weighted average

exercise price

Number of

share options

Weighted

average

exercise price

    HK$   HK$   HK$
Outstanding at the beginning of the year  129,919,000   12.34   67,907,000   11.44   27,030,000   12.70 
Granted during the year  —   —   —   —   —   — 
Forfeited during the year  (26,732,000)  11.33   (9,977,000)  12.70   (3,255,000)  12.70 
Expired during the year  (35,280,000)  14.83   (30,900,000)  9.93   (23,775,000)  12.70 
Exercised during the year  —   —   —   —   —   — 
                         
Outstanding at the end of the year  67,907,000   11.44   27,030,000   12.70   —   — 
                         
Exercisable at the end of the year  67,907,000   11.44   27,030,000   12.70   —   — 

 

F-67 

 

CNOOC LIMITED

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(All amounts expressed in millions of Renminbi unless otherwise stated)

 

 

30.SHARE CAPITAL (continued)

 

Share option schemes (continued)

 

2005 Share Option Scheme (continued)

 

No share options had been cancelled or modified during the years ended December 31, 2018, 2019 or 2020.

 

31.RESERVES

 

According to the laws and regulations of the PRC and the articles of association of CNOOC China, CNOOC China is required to provide for certain statutory funds, namely, the general reserve fund and the staff and workers' bonus and welfare fund, which are appropriated from net profit (after making up for losses from previous years), but before dividend distribution.

 

The general reserve fund, which is determined at the discretion of the board of directors of CNOOC China, 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, is expensed as incurred under IFRS standards/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, 2020, the general reserve fund amounted to RMB57,504 million (2019: RMB57,504 million).

 

In accordance with the "Temporary Regulation for Safety Expense Financial Management of Higher Risk Industry" and the implementation guidance issued by the MOF of the PRC, the Group is required to accrue a safety fund for its oil and gas exploration and production activities within the PRC by appropriating a portion of its net profit to other reserves based on its annual production from offshore China. Such reserve is reduced for expenses incurred to improve the safety conditions of oil and gas production. When the safety fund is fully utilized, additional expenses incurred for safety production purposes are charged directly to the profit or loss for the year. As of December 31, 2020, the Group's safety fund reserve under the PRC regulations amounted to nil (2019: nil).

 

F-68 

 

CNOOC LIMITED

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(All amounts expressed in millions of Renminbi unless otherwise stated)

 

 

32.RELATED PARTY TRANSACTIONS

 

As disclosed in note 1, the Company is a subsidiary of CNOOC, which is a state-owned enterprise subject to the control of the State Council of the PRC. The State Council of the PRC directly and indirectly controls a significant number of state-owned entities and organizations.

 

Comprehensive framework agreement with CNOOC in respect of a range of products and services

 

As the Group is controlled by CNOOC, transactions with the CNOOC Group are disclosed as related party transactions. The connected transactions or continuing connected transactions defined in Chapter 14A of the Listing Rules in respect of items listed below also constitute related party transactions. The Company has complied with the disclosure requirements in accordance with Chapter 14A of the Listing Rules for continuing connected transactions listed below. The Company entered into a comprehensive framework agreement with CNOOC on November 1, 2019 for the provision (1) by the Group to the CNOOC Group and (2) by the CNOOC Group 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, 2020. The continuing connected transactions under the comprehensive framework agreement and the relevant annual caps for the three years from January 1, 2020 were approved by the independent shareholders of the Company on November 21, 2019. The approved continuing connected transactions are as follows:

 

(1)Provision of exploration, oil and gas development, oil and gas production as well as sales, management and ancillary services by the CNOOC Group 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 sales, management and ancillary services

 

(e)Floating production, storage and offloading ("FPSO") vessel leases

 

(2)Provision of management, technical, facilities and ancillary services, including the supply of materials by the Group to the CNOOC Group; and

 

(3)Sales of petroleum and natural gas products by the Group to the CNOOC Group:

 

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

 

(b)Long-term sales of natural gas and liquefied natural gas

 

F-69 

 

CNOOC LIMITED

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(All amounts expressed in millions of Renminbi unless otherwise stated)

 

 

32.RELATED PARTY TRANSACTIONS (continued)

 

Pricing principles

 

The basic pricing principle for the continuing connected transactions between the Group and the CNOOC Group is based on arm's length negotiations, on normal commercial terms or better and with reference to the prevailing local market conditions (including the volume of sales, the term of contracts, the volume of services, overall customer relationship and other market factors).

 

On the basis of the above basic pricing principle, each type of products or services must be charged in accordance with the following pricing mechanism and in the following sequential order:

 

(a)government-prescribed prices; or

 

(b)where there is no government-prescribed price, in accordance with market prices, including the local, national or international market prices.

 

The continuing connected transactions referred to in paragraph (1)(a)-(1)(b) above provided by the CNOOC Group to the Group and (3)(a)-(3)(b) above provided by the Group to the CNOOC Group, on the basis of the above pricing principle, are determined through arm's length negotiations based on market prices (as defined in the comprehensive framework agreement).

 

The continuing connected transactions referred to in paragraph (1)(c)-(1)(d) above provided by the CNOOC Group to the Group, on the basis of the above pricing principle, are based on government-prescribed price or market prices (as defined in the comprehensive framework agreement).

 

The continuing connected transactions referred to in paragraph (1)(e), on the basis of the above pricing principle, are unanimously determined with the CNOOC Group which provides the FPSO vessel leases after arm's length negotiation in accordance with normal commercial terms.

 

The continuing connected transactions referred to in paragraph (2) above provided by the Group to the CNOOC Group, on the basis of the above pricing principle, are determined through arm's length negotiation between both parties with reference to market price (as defined in the comprehensive framework agreement).

 

F-70 

 

CNOOC LIMITED

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(All amounts expressed in millions of Renminbi unless otherwise stated)

 

 

32.RELATED PARTY TRANSACTIONS (continued)

 

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 sales, management and ancillary services by the CNOOC Group to the Group

 

   
  2018 2019 2020
       
       
Provision of exploration and support services  7,378   10,284   8,536 
- Inclusive of amounts capitalized under property, plant and equipment
 3,803   6,369   5,962 
Provision of oil and gas development and support services  24,061   31,723   36,776 
Provision of oil and gas production and support services (note a)  9,284   9,414   9,726 
Provision of sales, management and ancillary services (note b)  1,460   1,261   1,940 
FPSO vessel leases (note c)*  1,213   1,236   1,249 
   43,396   53,918   58,227 

 

*For the right-of-use assets recognized during this period from the lease agreements with CNOOC Group please refer to note 15.

 

(ii)Provision of management, technical, facilities and ancillary services, including the supply of materials by the Group to the CNOOC Group

 

The Group did not enter into any transactions in the above category for the years ended December 31, 2018, 2019 or 2020.

 

(iii)Sales of petroleum and natural gas products by the Group to the CNOOC Group

 

   
  2018 2019 2020
       
       
Sales of petroleum and natural gas products (other than long-term sales of natural gas and liquefied natural gas) (note d)  131,730   132,222   88,843 
Long term sales of natural gas and liquefied natural gas (note e)  15,461   15,425   14,613 
   147,191   147,647   103,456 

 

F-71 

 

CNOOC LIMITED

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(All amounts expressed in millions of Renminbi unless otherwise stated)

 

 

32.RELATED PARTY TRANSACTIONS (continued)

 

(iv)Transactions and balances with CNOOC Finance Corporation Limited ("CNOOC Finance") (note f)

 

(a)Interest income received by the Group

 

   
   2018   2019   2020
             
Interest income from deposits in CNOOC Finance  391   333   303 

 

(b)Deposits balances made by the Group

 

  2019 2020
         
Deposits in CNOOC Finance  23,380   23,370 

 

(v)Balances with the CNOOC Group

 

  2019 2020
     
     
Amount due to CNOOC        
- included in other payables and accrued liabilities  3   2 
Amounts due to other related parties        
- included in trade and accrued payables  20,318   23,097 
  - included in lease liabilities  5,327   4,767 
   25,648   27,866 
         
Amounts due from other related parties
       
– included in trade receivables  14,788   9,508 
– included in other current assets  512   741 
   15,300   10,249 

 

(vi)Balance with a joint venture

 

   
  2019 2020
         
Amount due from a joint venture        
  – included in other current assets  77   82 

 

F-72 

 

CNOOC LIMITED

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(All amounts expressed in millions of Renminbi unless otherwise stated)

 

 

32.RELATED PARTY TRANSACTIONS (continued)

 

(vii)Transactions and balances with other state-owned enterprises

 

The Group enters into extensive transactions covering sales of crude oil and natural gas, purchase of property, plant and equipment and other assets, receiving of services, and making deposits with state-owned enterprises, other than the CNOOC Group, in the normal course of business on terms comparable to those with other non-state-owned enterprises. The purchases of property, plant and equipment and other assets, and receipt of services from these state owned enterprises are individually not significant. The individually significant sales transactions with these state-owned enterprises are disclosed in note 37. In addition, the Group has certain of its cash in bank and time deposits with certain state-owned banks in the PRC as at December 31, 2020, as summarized below:

 

  2019 2020
     
Cash and cash equivalents  22,129   14,071 
Time deposits with maturity over three months  221   21,844 
Specified dismantlement fund accounts (note 20)  8,860   9,738 
   31,210   45,653 

 

Interest rates for the above time deposits and specified dismantlement fund accounts are at prevailing market rates.

 

(viii)Key management personnel's remuneration

 

Key management personnel's remuneration is disclosed in note 9.

 

Notes:

 

a)These represent the services for production operations, the provision of various facilities and ancillary services.

 

b)These include sales, administration and management, management of oil and gas operations and integrated research services as well as other ancillary services relating to exploration, development, production and research activities of the Group. In addition, the CNOOC Group 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 leased FPSO vessels to the Group for use in oil production operations.

 

d)The sales include crude oil, natural gas, condensate oil, liquefied petroleum gas to the CNOOC Group. Individual sales contracts were entered into from time to time between the Group and the CNOOC Group.

 

F-73 

 

CNOOC LIMITED

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(All amounts expressed in millions of Renminbi unless otherwise stated)

 

 

32.RELATED PARTY TRANSACTIONS (continued)

 

(viii)Key management personnel's remuneration (continued)

 

Notes: (continued)

 

e)It is the 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 5 to 25 years.

 

f)CNOOC Finance is a 31.8% owned associate of the Company and also a subsidiary of CNOOC. The financial services provided by CNOOC Finance to the Group also constitute continuing connected transactions defined in Chapter 14A of the Listing Rules and the Company has complied with the disclosure requirements in accordance with Chapter 14A of the Listing Rules for the continuing connected transactions. Under the financial services framework agreement with CNOOC Finance dated November 21, 2019, CNOOC Finance continues to provide to the Group settlement, depository, discounting, loans and entrustment loans services. The agreement is effective from January 1, 2020 to December 31, 2022. The depository services were exempted from independent shareholders’ approval requirements under the Listing Rules. On November 21, 2019, the Board approved to maintain the maximum daily outstanding balance of deposits and interest (excluding funds placed for the purpose of extending entrustment loans pursuant to the entrustment loan services) placed by the Group with CNOOC Finance for the period from January 1, 2020 to December 31, 2022 with the amount of RMB23,500 million. The Group’s actual maximum daily outstanding balance for deposits and interest stated in CNOOC Finance (excluding funds placed for the purpose of extending entrustment loans pursuant to the entrustment loan services) in 2020 did not exceed RMB23,500 million (2019: RMB23,500 million).

 

F-74 

 

CNOOC LIMITED

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(All amounts expressed in millions of Renminbi unless otherwise stated)

 

 

33.RETIREMENT 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 13% to 16% of the employees' base salaries.

 

The Company is required to make contributions to a defined contribution mandatory provident fund at a rate of 5% of the salaries of all full-time employees in Hong Kong. The related pension costs are expensed as incurred.

 

The Group provides retirement benefits for all local employees in overseas locations in accordance with relevant labor 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 statement of profit or loss and other comprehensive income amounted to RMB900 million (2019: RMB1,075 million).

 

34.NOTE TO THE CONSOLIDATED STATEMENT OF CASH FLOWS

 

Reconciliation of profit before tax to cash generated from operations

 

  2018 2019 2020
       
       
Profit before tax  75,157   85,649   34,907 
             
Adjustments for:            
Interest income  (798)  (1,067)  (1,473)
Finance costs  5,162   5,865   6,190 
Exchange losses/(gains), net  141   213   (445)
Share of profits of associates  (406)  (459)  (171)
Loss/(profit) attributable to a joint venture  5,593   (543)  803 
Investment income  (3,685)  (4,632)  (2,978)
Impairment and provision  6,331   2,094   5,199 
Depreciation, depletion and amortization  50,838   57,699   52,306 
Loss on disposal and write-off of property, plant and equipment  668   4,238   941 
Subtotal  139,001   149,057   95,279 
             
             
(Increase)/Decrease in trade receivables and other current assets  (940)  (3,213)  5,621 
Decrease/(Increase) in inventories and supplies  1,720   (1,304)  2,248 
Increase/(Decrease) in trade and accrued payables, contract liabilities and other payables and accrued liabilities
 301   1,439   (3,335)
             
Cash generated from operations  140,082   145,979   99,813 

 

F-75 

 

CNOOC LIMITED

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(All amounts expressed in millions of Renminbi unless otherwise stated)

 

 

34.NOTE TO THE CONSOLIDATED STATEMENT OF CASH FLOWS (continued)

 

Reconciliation of liabilities arising from financing activities

 

The table below details changes in the Group's liabilities arising from financing activities, including both cash and non-cash changes. Liabilities arising from financing activities are those for which cash flows were, or future cash flows will be, classified in the Group's consolidated statement of cash flows as cash flows from financing activities.

 

 

Loans and

borrowings

 

Lease

liabilities

 

Dividend

payable

  Total 
  (Note 27)  (Note 28)       
             
At January 1, 2019  143,751   9,139   —   152,890 
Financing cash flows  (1,961)  (1,451)  (28,973)  (32,385)
New lease entered  —   687   —   687 
Foreign exchange translation  2,499   (236)  (27)  2,236 
Finance costs (Note 8)  5,771   348   —   6,119 
Dividends declared  —   —   29,000   29,000 
At December 31, 2019  150,060   8,487   —   158,547 
                 
At January 1, 2020  150,060   8,487   —   158,547 
Financing cash flows  (11,411)  (1,619)  (25,851)  (38,881)
New lease entered  —   439   —   439 
Foreign exchange translation  (8,057)  (387)  (348)  (8,792)
Finance costs (Note 8)  5,638   399   —   6,037 
Dividends declared  —   —   26,199   26,199 
At December 31, 2020  136,230   7,319   —   143,549 

 

F-76 

 

CNOOC LIMITED

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(All amounts expressed in millions of Renminbi unless otherwise stated)

 

 

35.COMMITMENTS AND CONTINGENCIES

 

(i)Capital commitments

 

As at December 31, 2020, the Group had the following capital commitments, principally for the construction of property, plant and equipment:

 

  2019 2020

Contracted, but not provided for(1)

  64,542   30,856 

 

(1)The capital commitments contracted, but not provided for, include the estimated payments to the Ministry of Natural Resources of the PRC for the next five years with respect to the Group’s exploration and production licenses.

 

The above table includes a commitment of approximately RMB8,854 million (2019: RMB10,528 million) contracted with the CNOOC Group.

 

Capital commitments of a joint venture:

 

  2019 2020
Contracted, but not provided for  344   800 

 

As at December 31, 2020, the Group had unutilized banking facilities amounting to approximately RMB55,080 million (2019: RMB54,948 million).

 

(ii)Contingencies

 

As a Chinese Resident Enterprise, the Company may be liable to pay taxes on the deemed interest income for the funding provided to its overseas subsidiaries starting from January 1, 2008. The Company has prepared contemporaneous documentation in accordance with applicable PRC tax laws and regulations and is currently awaiting confirmation from its local tax authority.

 

The Group is subject to tax in numerous jurisdictions around the world. There are audits in progress and items under review. Difference in positions taken by taxation authorities over the interpretation and application of tax laws and regulations may increase the Group's tax liability. Management of the Company has assessed the possible future outcome of matters that are currently under dispute. Management of the Company believes that an adequate provision for future tax liability has been included in the consolidated financial statements based on available information.

 

In addition to the matters mentioned above, the Group is dealing with a number of lawsuits and arbitrations that arise in the ordinary course of business. While the results of these legal proceedings cannot be ascertained at this stage, management of the Company believes these proceedings are not expected to have a material effect on the consolidated financial statements.

 

F-77 

 

CNOOC LIMITED

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(All amounts expressed in millions of Renminbi unless otherwise stated)

 

 

36.FINANCIAL INSTRUMENTS

 

Fair value of financial instruments

 

The carrying values of the Group's cash and cash equivalents, time deposits with maturity more than three months, trade receivables, other current assets, short-term loans and borrowings, trade and accrued payables, and other payables and accrued liabilities approximated to their fair values at the reporting date due to the short maturity of these instruments.

 

The fair value of the Group's long term bank loans with floating interest rates approximated to the carrying amount as at December 31, 2020 and 2019.

 

The estimated fair value of the Group's long term guaranteed notes was approximately RMB136,996 million as at December 31, 2020 (2019: RMB154,407 million), which was determined by reference to the market price as at December 31, 2020.

 

Fair value hierarchy

 

The Group uses the following hierarchy that reflects the significance of the inputs used in making the fair value measurement:

 

Level 1: quoted prices (unadjusted) in active markets for identical assets or liabilities. Active markets are those in which transaction occur in sufficient frequency and volume to provide pricing information on an on-going basis.

 

Level 2: fair value measurements are those derived from inputs other than quoted prices included within Level 1 that are observable for the asset or liability, either directly or indirectly. The Group obtains information from sources of independent price publications, over-the-counter broker quotes and the fund management's quotations as at the reporting date.

 

Level 3: fair value measurements are those derived from valuation techniques that include inputs for the asset or liability that are not based on observable market data (unobservable inputs), or where the observable data does not support the majority of the instruments fair value.

 

As at December 31, 2020 and December 31, 2019, the Group held the following financial instruments measured at fair value for each hierarchy respectively:

 

  December 31, 2020

Level 1

Level 2

Level 3

Assets measured at fair value                
Other financial assets-current                
Corporate wealth management products  61,662   —   61,662   — 
Money market funds  —   —   —   — 
Equity investments                
Non-publicly traded investments – non current  1,176   —   —   1,176 
Publicly traded investments – non current*  653   653   —   — 
   63,491   653   61,662   1,176 
                 

F-78 

 

CNOOC LIMITED

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(All amounts expressed in millions of Renminbi unless otherwise stated)

 

 

36.FINANCIAL INSTRUMENTS (continued)

 

Fair value hierarchy (continued)

 

As at December 31, 2020 and December 31, 2019, the Group held the following financial instruments measured at fair value for each hierarchy respectively: (continued)

 

 

December 31,

2019

 Level 1 Level 2 Level 3
Assets measured at fair value                
Other financial assets-current                
Corporate wealth management products  107,853   —   107,853   — 
Money market funds  6,660   6,660   —   — 
Equity investments                
   Non-publicly traded investments – non current  1,809   —   —   1,809 
   Publicly traded investments – non current*  1,127   1,127   —   — 
   117,449   7,787   107,853   1,809 

 

*All gains and losses included in other comprehensive income related to financial assets at fair value through other comprehensive income held at the end of the reporting period are reported as fair value change on equity investments designated as at fair value through other comprehensive income.

 

Financial assets classified within Level 3 are made up of Kerogen Energy Fund invested by the Group. Significant unobservable inputs are used to determine the fair value of the financial assets. As observable prices are not available, the fair value of the financial assets is derived by using valuation techniques, mainly including embedded terms of the instrument, bid offer price as well as valuations based on net asset value using the discounted cash-flow of each project or asset, having applied an appropriate risk factor for the stage of development of the project. The significant unobservable inputs used in the fair value measurement include net asset value, price to net asset value.

 

No amounts have been transferred between the different levels of the fair value hierarchy for the year.

 

37.CONCENTRATION OF CUSTOMERS

 

A substantial portion of the Group's oil and gas commodities sales to third-party customers is made to a small number of customers on credit. Details of the gross sales to these top five third party customers are as follows:

 

  2018 2019 2020
       
China Petroleum & Chemical Corporation*  13,329   19,126   7,585 
Castle Peak Power Station  740   1,476   4,471 
BP p.l.c.  3,232   2,807   2,832 
Phillips 66  4,440   5,197   2,643 
PetroChina Company Limited*  15,841   6,964   2,373 

 

*These transactions are with other state-owned enterprises.

 

F-79 

 

CNOOC LIMITED

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(All amounts expressed in millions of Renminbi unless otherwise stated)

 

 

38.FINANCIAL RISK MANAGEMENT OBJECTIVES AND POLICIES

 

The Group's principal financial instruments comprise bank loans, long term guaranteed notes, equity investments and other financial assets, cash and short term deposits. The Group has various other financial assets and liabilities such as trade receivables, other receivables, trade and accrued payables, which arise directly from its operations.

 

The Group is exposed to credit risk, oil and gas price risk, currency risk, interest rate 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 and management assessment

 

As at December 31, 2020, the carrying amounts of the Group's cash and cash equivalents, time deposits with maturity more than three months, trade receivables and other receivables (approximately RMB6,631 million included in other current assets) represent the Group's maximum exposure to credit risk in relation to its financial assets. The Group does not hold any collateral or other credit enhancements to cover its credit risks associated with its financial assets.

 

In order to minimize the credit risk, the management of the Group has delegated a team responsible for determination of credit limits and credit approvals. Before accepting any new counterparties, the Group uses an internal credit scoring system to assess the potential counterparty's credit quality and defines credit limits by counterparty. Limits and scoring attributed to counterparties are reviewed twice a year. Other monitoring procedures are in place to ensure that follow-up action is taken to recover overdue debts. In addition, the Group performs impairment assessment under ECL model upon application of IFRS 9/HKFRS 9 on trade receivables individually or based on provision matrix, and other receivables individually. In this regard, the Directors of the Company consider that the Group's credit risk is significantly reduced.

 

Concentrations of credit risk are managed by counterparty and by geographical region. At December 31, 2020, the Group has certain concentrations of credit risk as 6.62% (2019: 1.89%) and 10.27% (2019: 5.83%) of the Group's trade receivables were due from the Group's largest third-party customer and the five largest third-party customers, respectively.

 

(ii)Oil and gas price risk

 

Since the Group makes reference to international oil prices to determine its realized oil price, fluctuations in international oil price would have a significant impact on the Group's sales revenue, profit, assets value and cash-flow. In addition, certain of the Group's natural gas sales contracts contain price adjustment provisions. Any changes in international oil prices, inflation rate and domestic natural gas pricing policies may result in changes in natural gas prices, which will affect the Group's profitability.

 

F-80 

 

CNOOC LIMITED

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(All amounts expressed in millions of Renminbi unless otherwise stated)

 

 

38.FINANCIAL RISK MANAGEMENT OBJECTIVES AND POLICIES (continued)

 

(iii)Currency risk

 

Substantially all of the Group's oil and gas sales are denominated in RMB and United States dollars ("US dollars"). 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. RMB would no longer be pegged to the US dollars. From January 1, 2020 to December 31, 2020, RMB has appreciated by approximately 6.92% (2019: depreciated by approximately 1.62%) against the US dollars. At December 31, 2020, approximately 42% (2019: 52%) of the Group's cash and cash equivalents and time deposits with maturity over three months were denominated in RMB, and the remaining amounts were substantially denominated in US dollars and Hong Kong dollars. The Group also has exposures to currencies other than the US dollars, such as Canadian dollars and British Pounds as such exposures are considered insignificant.

 

Management has assessed the Group's exposure to foreign currency risk by using a sensitivity analysis on the change in foreign exchange rate of the US dollars, to which the Group is mainly exposed to as at December 31, 2020 and 2019. Based on management's assessment at December 31, 2020, a 5% strengthening/weakening of RMB against US dollars would have increased/decreased the profit for the year of the Group by 0.35% (2019: 0.04%) and the equity of the Group by 0.51% (2019: 0.47%). This analysis has been determined assuming that the change in foreign exchange rates had occurred at the end of the reporting period and had been applied to the foreign currency balances to which the Group has significant exposure with all other variables held constant. The analysis is performed on the same basis for 2019.

 

Senior management is closely monitoring the Group's net exposure to foreign currency risk. The appreciation of RMB 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 RMB, the Group's oil and gas sales may decrease due to the depreciation of the US dollars against RMB. On the other hand, the depreciation of the US dollars against RMB will also decrease the Group's costs for imported equipment and materials, most of which are 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 2020, the interest rates for 91.34% of the Group's debts were fixed. Apart from borrowing for General Loan, Tangguh LNG Project and Arctic LNG Project, all of the Group's long term debts are fixed rate. The weighted average term of the Group's debt balance outstanding was approximately 8.58 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.

 

 

 

F-81 

 

CNOOC LIMITED

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(All amounts expressed in millions of Renminbi unless otherwise stated)

 

 

38.FINANCIAL RISK MANAGEMENT OBJECTIVES AND POLICIES (continued)

 

(v)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 equity investments and other 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 six months after the reporting date.

 

(vi)Capital management

 

The primary objectives of the Group's capital management are 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 ended December 31, 2020 and 2019.

 

The Group monitors capital on the basis of the debt to capital ratio, which is calculated as interest-bearing debts divided by total capital (equity attributable to owners of the parent plus interest-bearing debts).

 

  2018 2019 2020
       
       
Loans and borrowings  143,751   150,060   136,230 
Lease liability  —   8,487   7,319 
Total Equity  419,910   448,226   433,930 
Total capital  563,661   606,773   577,479 
             
Gearing ratio  25.5%   26.1%   24.9% 

 

 

39.CHARGES ON 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.

 

40.SUBSEQUENT EVENTS

 

The Group has no significant subsequent events needed to be disclosed in the consolidated financial statements.

 

41.APPROVAL OF THE FINANCIAL STATEMENTS

 

The consolidated financial statements were approved and authorized for issue by the Board of Directors on March 25, 2021.

 

F-82 

 

CNOOC LIMITED

SUPPLEMENTARY INFORMATION ON OIL AND GAS PRODUCING ACTIVITIES (UNAUDITED)

(All amounts expressed in millions of 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").

 

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 producible 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 US Securities and Exchange Commission's final rules on "Modernization of oil and Gas Reporting" (the "SEC Final Rule").

 

For the years 2020, 2019 and 2018, approximately 62%, 66% and 69%,, respectively, of our total proved reserves were evaluated by us, and the remaining were evaluated by independent third parties.

 

We implemented rigorous internal control system that monitors the entire reserves estimation process 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 Committee, or RMC, which is led by one of our Executive Vice Presidents and comprises the general managers of the relevant departments. The RMC'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 RMC follows certain procedures to appoint our internal reserves estimators and reserves 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 a professional society, such as China Petroleum Society (CPS), and are required to take the professional trainings and examinations as required by the professional society and us.

 

The RMC 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 RMC periodically and is independent from operating divisions such as the exploration, development and production departments. Our Chief Reserve Supervisor has 25 years' experience in oil and gas industry.

 

F-83 

 

CNOOC LIMITED

SUPPLEMENTARY INFORMATION ON OIL AND GAS PRODUCING ACTIVITIES (UNAUDITED)

(All amounts expressed in millions of Renminbi unless otherwise stated)

 

 

(a)Reserve quantity information (continued)

 

The Group's net proved reserves consist of its 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.

 

The Company determines its net entitlement oil and gas reserves under production sharing contracts using the economic interest method.

 

F-84 

 

CNOOC LIMITED

SUPPLEMENTARY INFORMATION ON OIL AND GAS PRODUCING ACTIVITIES (UNAUDITED)

(All amounts expressed in millions of Renminbi unless otherwise stated)

 

 

(a)Reserve quantity information (continued)

 

Proved developed and undeveloped reserves:

 

  PRC Asia (excluding PRC) Oceania Africa Canada

North America

(excluding Canada)

 South America   Europe Total
  Oil Natural gas Oil Natural gas Oil Natural gas Oil Natural gas Oil Natural gas

Synthetic

oil

   Bitumen Oil Natural gas Oil Natural gas   Oil   Natural gas Oil Natural gas  

Synthetic

oil

 Bitumen
  (mmbls) (bcf) (mmbls) (bcf) (mmbls) (bcf) (mmbls) (bcf) (mmbls) (bcf) (mmbls)   (mmbls) (mmbls) (bcf) (mmbls) (bcf)   (mmbls)   (bcf) (mmbls) (bcf)   (mmbls) (mmbls)
Consolidated entities                                                                          
December 31, 2017 1,627   5,911   70   885   11   297   137   - - 24 786   118 282 421   80   -   88   5   2295   7,543   786 118
Purchase/(Disposal) of reserves -   -   -   -   -   -   -   - - - -   - - -   -   -   -   -   -   -   - -
Discoveries and extensions 213   519   -   -   -   -   1   - - - 13   1 28 47   -   -   11   3   253   570   13 1
Improved Recovery -   4   -   -   -   -   -   - - - -   - 5 1   -   -   -   -   5   5   - -
Production (257)   (305)   (22)   (60)   (2)   (41)   (22)   - - (13) (6)   (17) (19) (46)   (1)   -   (27)   (6)   (350)   (470)   (6) (17)
Revisions of prior estimates 200   (21)   6   17   -   23   (2)   - - (11) 4   (14) (32) (32)   1   -   38   5   211   (20)   4 (14)
December 31, 2018 1,783   6,108   54   842   9   280   114   - - - 796   88 263 391   79   -   111   7   2,414   7,627   796 88
Purchase/(Disposal) of reserves -   96   -   -   -   -   -   - - - -   - (1) (3)   -   -   -   -   (1)   93   - -
Discoveries and extensions 175   639   -   -   -   -   -   - - - 26   1 22 69   67   -   3   1   268   709   26 1
Improved Recovery -   2   -   -   -   -   -   - - - -   - 5 1   -   -   -   -   5   3   - -
Production (265)   (361)   (16)   (53)   (1)   (34)   (44)   - - (1) (7)   (19) (23) (50)   (1)   -   (23)   (3)   (374)   (502)   (7) (19)
Revisions of prior estimates 207   (125)   19   10   1   15   14   - - 1 (36)   83 (17) (3)   (1)   -   16   -   239   (102)   (36) 83
December 31, 2019 1,900   6,358   56   799   9   260   84   - - - 780   154 250 405   145   -   108   4   2,550   7,827   780 154
Purchase/(Disposal) of reserves -   -   126   -   -   -   -   - - - -   - - -   -   -   -   -   126   -   - -
Discoveries and extensions 189   807   -   -   -   -   -   - - - 21   1 2 11   43   -   1   -   235   818   21 1
Improved Recovery 3   16   -   -   -   -   -   - - - -   - - -   89   -   -   -   93   16   - -
Production (284)   (422)   (18)   (56)   (2)   (51)   (33)   - - - (7)   (13) (25) (47)   (7)   -   (20)   (3)   (388)   (578)   (7) (13)
Revisions of prior estimates 144   104   35   (28)   (1)   (24)   27   -   - 3   (48) (62) (179)   17   -   (17)   -   143   (127)   3 48
December 31, 2020 1,953   6,863   199   715   6   185   77   - - - 797   94 165 191   287   -   72   2   2,758   7,956   797 94

 

F-85 

 

CNOOC LIMITED

SUPPLEMENTARY INFORMATION ON OIL AND GAS PRODUCING ACTIVITIES (UNAUDITED)

(All amounts expressed in millions of Renminbi unless otherwise stated)

 

 

(a)Reserve quantity information (continued)

 

Proved developed and undeveloped reserves: (continued)

 

  PRC Asia (excluding PRC) Oceania Africa Canada

North America

(excluding Canada)

 South America   Europe Total
  Oil Natural gas Oil Natural gas Oil Natural gas Oil Natural gas Oil Natural gas

Synthetic

oil

   Bitumen Oil Natural gas Oil Natural gas   Oil   Natural gas Oil Natural gas  

Synthetic

oil

 Bitumen
  (mmbls) (bcf) (mmbls) (bcf) (mmbls) (bcf) (mmbls) (bcf) (mmbls) (bcf) (mmbls)   (mmbls) (mmbls) (bcf) (mmbls) (bcf)   (mmbls)   (bcf) (mmbls) (bcf)   (mmbls) (mmbls)
Enterprise's share of equity method investees:                                                                          
December 31, 2017 1   6   -   -   -   -   -   - - - -   - - -   244   701   -   -   245   707   - -
Purchase/(Disposal) of reserves -   -   -   -   -   -   -   - - - -   - - -   -   -   -   -   -   -   - -
Discoveries and extensions -   -   -   -   -   -   -   - - - -   - - -   11   36   -   -   11   36   - -
Improved Recovery -   1   -   -   -   -   -   - - - -   - - -   -   1   -   -   -   2   - -
Production -   (2)   -   -   -   -   -   - - - -   - - -   (10)   (62)   -   -   (10)   (63)   - -
Revisions of prior estimates -   -   -   -   -   -   -   - - - -   - - -   12   (19)   -   -   12   (19)   - -
December 31, 2018 1   5   -   -   -   -   -   - - - -   - - -   258   657   -   -   258   661   - -
Purchase/(Disposal) of reserves -   -   -   -   -   -   -   - - - -   - - -   -   -   -   -   -   -   - -
Discoveries and extensions -   -   -   -   -   -   -   - - - -   - - -   20   46   -   -   20   46   - -
Improved Recovery -   -   -   -   -   -   -   - - - -   - - -   -   1   -   -   -   1   - -
Production -   (2)   -   -   -   -   -   - - - -   - - -   (10)   (57)   -   -   (11)   (59)   - -
Revisions of prior estimates 1   3   -   -   -   -   -   - - - -   - - -   1   (33)   -   -   2   (30)   - -
December 31, 2019 1   6   -   -   -   -   -   - - - -   - - -   269   614   -   -   270   620   - -
Purchase/(Disposal) of reserves -   -   -   -   -   -   -   - - - -   - - -   -   -   -   -   -   -   - -
Discoveries and extensions -   -   -   -   -   -   -   - - - -   - - -   8   36   -   -   8   35   - -
Improved Recovery -   -   -   -   -   -   -   - - - -   - - -   -   -   -   -   -   -   - -
Production -   (2)   -   -   -   -   -   - - - -   - - -   (10)   (52)   -   -   (10)   (54)   - -
Revisions of prior estimates -   -   -   -   -   -   -   - - - -   - - -   3   (19)   -   -   3   (18)   - -
December 31, 2020 1   5   -   -   -   -   -   - - - -   - - -   270   578   -   -   271   584   - -
                                                                           
Total consolidated and equity Interests in reserves                                                                          
December 31, 2018 1,784   6,112   54   842   9   280   114   - - - 796   88 263 391   337   657   111   7   2,672   8,288   796 88
December 31, 2019 1,901   6,365   56   799   9   260   84   - - - 780   154 250 405   414   614   108   4   2,820   8,447   780 154
December 31, 2020 1,953   6,868   199   715   6   185   77   - - - 797   94 165 191   557   578   72   2   3,029   8,540   797 94

 

F-86 

 

CNOOC LIMITED

SUPPLEMENTARY INFORMATION ON OIL AND GAS PRODUCING ACTIVITIES (UNAUDITED)

(All amounts expressed in millions of Renminbi unless otherwise stated)

 

 

(a)Reserve quantity information (continued)

 

Proved developed reserves:

 

  PRC Asia(excluding PRC) Oceania Africa Canada North America(excluding Canada) South America Europe Total
  Oil Natural gas Oil Natural gas Oil Natural gas Oil Natural gas Oil Natural gas

Synthetic

oil

 Bitumen Oil Natural gas Oil Natural gas Oil Natural gas Oil Natural gas

Synthetic

oil

 Bitumen  
  (mmbls) (bcf) (mmbls) (bcf) (mmbls) (bcf) (mmbls) (bcf) (mmbls) (bcf) (mmbls) (mmbls) (mmbls) (bcf) (mmbls) (bcf) (mmbls) (bcf) (mmbls) (bcf) (mmbls) (mmbls)  
                                               
Consolidated entities                                              
December 31, 2018 902 1,544 25 531 8 260 102 - - - 136 - 143 275 1 - 98 3 1,279 2,614 136 -  
December 31, 2019 910 1,730 30 473 8 241 80 - - - 122 95 166 278 26 - 97 1 1,317 2,723 122 95  
December 31, 2020 1,047 2,514 124 419 5 169 74 - - - 120 91 143 180 73 - 65 - 1,531 3,282 120 91  
                                               
Enterprise's share of equity                                              
  method investees:                                              
December 31, 2018 - 5 - - - - - - - - - - - - 135 486 - - 136 491 - -  
December 31, 2019 1 6 - - - - - - - - - - - - 139 445 - - 140 452 - -  
December 31, 2020 1 5 - - - - - - - - - - - - 141 385 - - 142 390 - -  

 

F-87 

 

CNOOC LIMITED

SUPPLEMENTARY INFORMATION ON OIL AND GAS PRODUCING ACTIVITIES (UNAUDITED)

(All amounts expressed in millions of Renminbi unless otherwise stated)

 

 

(a)Reserve quantity information (continued)

 

Proved undeveloped reserves:

 

  PRC Asia(excluding PRC) Oceania Africa Canada North America(excluding Canada) South America Europe Total
  Oil Natural gas Oil Natural gas Oil Natural gas Oil Natural gas Oil Natural gas

Synthetic

oil

 Bitumen Oil Natural gas Oil Natural gas Oil Natural gas Oil Natural gas

Synthetic

oil

 Bitumen
  (mmbls) (bcf) (mmbls) (bcf) (mmbls) (bcf) (mmbls) (bcf) (mmbls) (bcf) (mmbls) (mmbls) (mmbls) (bcf) (mmbls) (bcf) (mmbls) (bcf) (mmbls) (bcf) (mmbls) (mmbls)
                                             
Consolidated entities                                            
December 31, 2018 882 4,564 29 310 - 20 11 - - - 660 88 120 116 78 - 13 4 1,135 5,013 660 88
December 31, 2019 989 4,628 26 326 - 20 4 - - - 657 58 84 127 119 - 11 4 1,233 5,105 657 58
December 31, 2020 906 4,349 76 296 - 16 4 - - - 677 3 22 11 214 - 6 2 1,228 4,675 677 3
                                             
Enterprise's share of equity                                            
  method investees:                                            
December 31, 2018 - - - - - - - - - - - - - - 122 171 - - 122 171 - -
December 31, 2019 - - - - - - - - - - - - - - 130 169 - - 130 169 - -
December 31, 2020 - - - - - - - - - - - - - - 129 193 - - 129 193 - -

 

F-88 

 

CNOOC LIMITED

SUPPLEMENTARY INFORMATION ON OIL AND GAS PRODUCING ACTIVITIES (UNAUDITED)

(All amounts expressed in millions of Renminbi unless otherwise stated)

 

 

(b)Results of operations

 

    2018
       Consolidated entities 
   PRC   Asia (excluding PRC)   Oceania   Africa   Canada   

North America

(excluding Canada)

   South America   Europe   Total 
                                     
Net sales to customers  134,993   12,567   1,567   10,025   4,690   8,573   529   12,928   185,872 
Operating expenses  (14,870)  (2,098)  (438)  (933)  (3,183)  (1,221)  (198)  (1,327)  (24,268)
Taxes other than income tax  (7,823)  —   (192)  (359)  (155)  (438)  (89)  (16)  (9,072)
Exploration expense  (5,054)  (125)  (1)  (441)  (5,660)  (849)  (346)  (514)  (12,990)
Accretion expense  (1,935)  (3)  —   (133)  (150)  (93)  (2)  (244)  (2,560)
Depreciation, depletion and amortization, and impairment  (25,805)  (7,648)  (199)  (6,919)  (2,719)  (3,721)  (91)  (3,389)  (50,491)
Special oil gain levy  (2,599)  —   —   —   —   —   —   —   (2,599)
   76,907   2,693   737   1,240   (7,177)  2,251   (197)  7,438   83,892 
                                     
Income tax expense  (19,227)  (1,292)  (221)  (621)  1,880   (137)  203   (3,022)  (22,437)
                                     
Result of operations  57,680   1,401   516   619   (5,297)  2,114   6   4,416   61,455 

 

F-89 

 

CNOOC LIMITED

SUPPLEMENTARY INFORMATION ON OIL AND GAS PRODUCING ACTIVITIES (UNAUDITED)

(All amounts expressed in millions of Renminbi unless otherwise stated)

 

 

(b)Results of operations (continued)

 

    2018
    Enterprise's share of equity method investees
  PRC Asia (excluding PRC) Oceania Africa Canada

North America

(excluding Canada)

South

America

 Europe Total
                   
Net sales to customers  208   —   —   —   —   —   3,651   —   3,859 
Operating expenses  (101)  —   —   —   —   —   (1,554)  —   (1,655)
Taxes other than income tax  (13)  —   —   —   —   —   (1,320)  —   (1,333)
Exploration expense  —   —   —   —   —   —   (22)  —   (22)
Accretion expense  (9)  —   —   —   —   —   (69)  —   (78)
Depreciation, depletion and amortization, and impairment  (132)  —   —   —   —   —   (11,877)  —   (12,009)
Special oil gain levy  —   —   —   —   —   —   —   —   — 
   (47)  —   —   —   —   —   (11,191)  —   (11,238)
                                     
Income tax expense  —   —   —   —   —   —   —   —   — 
                                     
Result of operations  (47)  —   —   —   —   —   (11,191)  —   (11,238)
                                     
Total result of operations for producing activities  57,633   1,401   516   619   (5,297)  2,114   (11,185)  4,416   50,217 

 

F-90 

 

CNOOC LIMITED

SUPPLEMENTARY INFORMATION ON OIL AND GAS PRODUCING ACTIVITIES (UNAUDITED)

(All amounts expressed in millions of Renminbi unless otherwise stated)

 

 

(b)Results of operations (continued)

 

    2019
    Consolidated entities
  PRC Asia (excluding PRC) Oceania Africa Canada

North America

(excluding Canada)

 South America Europe Total
                   
Net sales to customers  139,386   9,728   1,389   20,016   7,117   9,080   507   9,950   197,173 
Operating expenses  (15,606)  (1,044)  (517)  (1,718)  (3,062)  (1,426)  (178)  (1,203)  (24,754)
Taxes other than income tax  (7,826)  —   (142)  (514)  (111)  (389)  (67)  (45)  (9,094)
Exploration expense  (6,480)  (55)  (3)  (1,311)  (2,666)  (198)  (292)  (1,337)  (12,342)
Accretion expense  (2,032)  (6)  —   (225)  (151)  (112)  (13)  (256)  (2,795)
Depreciation, depletion and amortization, and impairment  (27,921)  (6,733)  (178)  (13,362)  (2,324)  (6,706)  (99)  (1,962)  (59,285)
Special oil gain levy  (894)  —   —   —   —   —   —   —   (894)
   78,627   1,890   549   2,886   (1,197)  249   (142)  5,147   88,009 
                                     
Income tax expense  (19,656)  (755)  (165)  (1,833)  446   342   15   (2,393)  (23,999)
                                     
Result of operations  58,971   1,135   384   1,053   (751)  591   (127)  2,754   64,010 

 

F-91 

 

CNOOC LIMITED

SUPPLEMENTARY INFORMATION ON OIL AND GAS PRODUCING ACTIVITIES (UNAUDITED)

(All amounts expressed in millions of Renminbi unless otherwise stated)

 

 

(b)Results of operations (continued)

 

    2019
    Enterprise's share of equity method investees
  PRC Asia (excluding PRC) Oceania Africa Canada

North

America

(excluding Canada)

South

America

 Europe Total
                   
Net sales to customers  198   —   —   —   —   —   9,159   —   9,357 
Operating expenses  (106)  —   —   —   —   —   (753)  —   (859)
Taxes other than income tax  (11)  —   —   —   —   —   (976)  —   (987)
Exploration expense  —   —   —   —   —   —   (141)  —   (141)
Accretion expense  (9)  —   —   —   —   —   (72)  —   (81)
Depreciation, depletion and amortization, and impairment  (21)  —   —   —   —   —   (1,598)  —   (1,619)
Special oil gain levy  —   —   —   —   —   —   —   —   — 
   51   —   —   —   —   —   5,619   —   5,670 
       —   —   —   —   —       —     
Income tax expense  (7)  —   —   —   —   —   —   —   (7)
       —   —   —   —   —             
Result of operations  44   —   —   —   —   —   5,619   —   5,663 
                                     
Total result of operations for producing activities  59,015   1,135   384   1,053   (751)  591   5,492   2,754   69,673 

 

F-92 

 

CNOOC LIMITED

SUPPLEMENTARY INFORMATION ON OIL AND GAS PRODUCING ACTIVITIES (UNAUDITED)

(All amounts expressed in millions of Renminbi unless otherwise stated)

 

 

(b)Results of operations (continued)

 

    2020
    Consolidated entities
  PRC Asia (excluding PRC) Oceania Africa Canada

North America

(excluding Canada)

 South America Europe Total
                   
Net sales to customers  104,904   6,692   1,709   9,538   3,196   6,623   1,557   5,382   139,601 
Operating expenses  (15,799)  (1,110)  (632)  (1,622)  (2,377)  (1,040)  (734)  (930)  (24,244)
Taxes other than income tax  (5,846)  (247)  (169)  (338)  (86)  (333)  (37)  (64)  (7,120)
Exploration expense  (4,838)  (11)  —   (13)  (224)  (246)  (134)  (135)  (5,601)
Accretion expense  (1,967)  (18)  —   (162)  (182)  (85)  —   (223)  (2,637)
Depreciation, depletion and amortization, and impairment  (29,937)  (3,432)  (229)  (9,492)  (2,041)  (11,316)  (635)  (1,597)  (58,679)
Special oil gain levy  (79)  —   —   —   —   —   —   —   (79)
   46,438   1,874   679   (2,089)  (1,714)  (6,397)  17   2,433   41,241 
                                     
Income tax expense  (11,610)  (755)  (204)  1,006   640   1,789   —   (633)  (9,767)
                                     
Result of operations  34,828   1,119   475   (1,083)  (1,074)  (4,608)  17   1,800   31,474 

 

F-93 

 

CNOOC LIMITED

SUPPLEMENTARY INFORMATION ON OIL AND GAS PRODUCING ACTIVITIES (UNAUDITED)

(All amounts expressed in millions of Renminbi unless otherwise stated)

 

 

(b)Results of operations (continued)

 

    2020
    Enterprise's share of equity method investees
  PRC Asia (excluding PRC) Oceania Africa Canada

North

America

(excluding Canada)

South

America

 Europe Total
                   
Net sales to customers  194   —   —   —   —   —   2,036   —   2,230 
Operating expenses  (94)  —   —   —   —   —   (1,266)  —   (1,360)
Taxes other than income tax  (9)  —   —   —   —   —   (197)  —   (206)
Exploration expense  —   —   —   —   —   —   (6)  —   (6)
Accretion expense  (10)  —   —   —   —   —   (78)  —   (88)
Depreciation, depletion and amortization, and impairment  (38)  —   —   —   —   —   (1,636)  —   (1,674)
Special oil gain levy  —   —   —   —   —   —   —   —   — 
   43   —   —   —   —   —   (1,147)  —   (1,104)
                                     
Income tax expense  (6)  —   —   —   —   —   —   —   (6)
                                     
Result of operations  37   —   —   —   —   —   (1,147)  —   (1,110)
                                     
Total result of operations for producing activities  34,865   1,119   475   (1,083)  (1,074)  (4,608)  (1,130)  1,800   30,364 

 

F-94 

 

CNOOC LIMITED

SUPPLEMENTARY INFORMATION ON OIL AND GAS PRODUCING ACTIVITIES (UNAUDITED)

(All amounts expressed in millions of Renminbi unless otherwise stated)

 

 

(c)Capitalized costs

 

    2018
    Consolidated entities
  PRC Asia (excluding PRC) Oceania Africa Canada

North America

(excluding Canada)

 South America Europe Total
                   
Proved oil and gas properties  471,242   46,634   2,558   101,050   50,554   64,875   3,856   20,402   761,171 
Unproved oil and gas properties  18,908   1,645   2   27,835   77,824   35,502   9,471   33,519   204,706 
Accumulated depreciation, depletion and amortization  (324,046)  (36,000)  (1,692)  (78,819)  (36,785)  (37,164)  (1,088)  (45,652)  (561,246)
Net capitalized costs  166,104   12,279   868   50,066   91,593   63,213   12,239   8,269   404,631 

 

    2018
    Enterprise's share of equity method investees
  PRC Asia (excluding PRC) Oceania Africa Canada

North America

(excluding Canada)

 South America Europe Total
                   
Proved oil and gas properties  2,159   —   —   —   —   —   40,661   —   42,820 
Unproved oil and gas properties  —   —   —   —   —   —   4,675   —   4,675 
Accumulated depreciation, depletion and amortization  (2,100)  —   —   —   —   —   (13,956)  —   (16,056)
Net capitalized costs  59   —   —   —   —   —   31,380   —   31,439 

 

F-95 

 

CNOOC LIMITED

SUPPLEMENTARY INFORMATION ON OIL AND GAS PRODUCING ACTIVITIES (UNAUDITED)

(All amounts expressed in millions of Renminbi unless otherwise stated)

 

 

(c)Capitalized costs (continued)

 

    2019
    Consolidated entities
  PRC Asia (excluding PRC) Oceania Africa Canada

North America

(excluding Canada)

 South America Europe Total
                   
Proved oil and gas properties  520,332   52,968   2,597   109,525   45,485   75,140   11,852   23,977   841,876 
Unproved oil and gas properties  23,139   2,101   2   24,149   85,849   31,749   13,189   33,886   214,064 
Accumulated depreciation, depletion and amortization  (348,621)  (42,497)  (1,830)  (92,951)  (39,509)  (43,677)  (1,204)  (48,299)  (618,588)
Net capitalized costs  194,850   12,572   769   40,723   91,825   63,212   23,837   9,564   437,352 

 

    2019
    Enterprise's share of equity method investees
  PRC Asia (excluding PRC) Oceania Africa Canada

North America

(excluding Canada)

 South America Europe Total
                   
Proved oil and gas properties  2,252   —   —   —   —   —   41,827   —   44,079 
Unproved oil and gas properties  —   —   —   —   —   —   6,627   20,565   27,192 
Accumulated depreciation, depletion and amortization  (2,122)  —   —   —   —   —   (15,804)  —   (17,926)
Net capitalized costs  130   —   —   —   —   —   32,650   20,565   53,345 

 

F-96 

 

CNOOC LIMITED

SUPPLEMENTARY INFORMATION ON OIL AND GAS PRODUCING ACTIVITIES (UNAUDITED)

(All amounts expressed in millions of Renminbi unless otherwise stated)

 

 

(c)Capitalized costs (continued)

 

    2020
    Consolidated entities
  PRC Asia (excluding PRC) Oceania Africa Canada

North America

(excluding Canada)

 South America Europe Total
                   
Proved oil and gas properties  572,782   60,047   2,429   106,271   33,527   76,058   22,956   18,295   892,365 
Unproved oil and gas properties  26,187   576   2   19,356   91,106   26,837   6,172   35,891   206,127 
Accumulated depreciation, depletion and amortization  (377,546)  (42,924)  (1,856)  (96,475)  (39,037)  (51,042)  (1,764)  (45,408)  (656,052)
Net capitalized costs  221,423   17,699   575   29,152   85,596   51,853   27,364   8,778   442,440 

 

    2020
    Enterprise's share of equity method investees
  PRC Asia (excluding PRC) Oceania Africa Canada

North America

(excluding Canada)

 South America Europe Total
                   
Proved oil and gas properties  2,252   —   —   —   —   —   41,032   —   43,284 
Unproved oil and gas properties  —   —   —   —   —   —   6,264   21,016   27,280 
Accumulated depreciation, depletion and amortization  (2,160)  —   —   —   —   —   (24,732)  —   (26,892)
Net capitalized costs  92   —   —   —   —   —   22,564   21,016   43,672 

 

F-97 

 

CNOOC LIMITED

SUPPLEMENTARY INFORMATION ON OIL AND GAS PRODUCING ACTIVITIES (UNAUDITED)

(All amounts expressed in millions of Renminbi unless otherwise stated)

 

 

(d)Costs incurred in oil and gas property acquisition, exploration and development

 

    2018
    Consolidated entities
  PRC Asia (excluding PRC) Oceania Africa Canada

North America

(excluding Canada)

 South America Europe Total
Acquisition costs:                  
–Proved  —   —   —   —   —   —   —   —   — 
–Unproved  —   —   —   —   —   —   264   —   264 
Exploration costs  10,075   181   1   357   246   178   846   531   12,415 
Development costs*  26,801   6,158   —   8,263   463   7,117   2,215   176   51,193 
Total costs incurred  36,876   6,339   1   8,620   709   7,295   3,325   707   63,872 

 

    2018
    Enterprise's share of equity method investees
  PRC Asia (excluding PRC) Oceania Africa Canada

North America

(excluding Canada)

 South America Europe Total
Acquisition costs:                  
–Proved  —   —   —   —   —   —   —   —   — 
–Unproved  —   —   —   —   —   —   —   —   — 
Exploration costs  —   —   —   —   —   —   32   —   32 
Development costs*  —   —   —   —   —   —   2,455   —   2,455 
Total costs incurred  —   —   —   —   —   —   2,487   —   2,487 

 

F-98 

 

CNOOC LIMITED

SUPPLEMENTARY INFORMATION ON OIL AND GAS PRODUCING ACTIVITIES (UNAUDITED)

(All amounts expressed in millions of Renminbi unless otherwise stated)

 

 

(d)Costs incurred in oil and gas property acquisition, exploration and development (continued)

 

    2019
    Consolidated entities
  PRC Asia (excluding PRC) Oceania Africa Canada

North

America

(excluding Canada)

 South America Europe Total
Acquisition costs:                  
–Proved  833   —   —   —   —   —   —   —   833 
–Unproved  5,185   —   —   —   —   —   5,619   —   10,804 
Exploration costs  14,974   87   1   121   291   112   1,192   1,465   18,243 
Development costs*  41,571   6,281   —   3,220   3,737   6,242   4,845   2,802   68,698 
Total costs incurred  62,563   6,368   1   3,341   4,028   6,354   11,656   4,267   98,578 

 

    2019
    Enterprise's share of equity method investees
  PRC Asia (excluding PRC) Oceania Africa Canada

North

America

(excluding Canada)

 South America Europe Total
Acquisition costs:                  
–Proved  —   —   —   —   —   —   —   —   — 
–Unproved  —   —   —   —   —   —   —   19,075   19,075 
Exploration costs  —   —   —   —   —   —   252   —   252 
Development costs*  92   —   —   —   —   —   2,230   1,490   3,812 
Total costs incurred  92   —   —   —   —   —   2,482   20,565   23,139 

 

F-99 

 

CNOOC LIMITED

SUPPLEMENTARY INFORMATION ON OIL AND GAS PRODUCING ACTIVITIES (UNAUDITED)

(All amounts expressed in millions of Renminbi unless otherwise stated)

 

 

(d)Costs incurred in oil and gas property acquisition, exploration and development (continued)

 

    2020
    Consolidated entities
  PRC Asia (excluding PRC) Oceania Africa Canada

North

America

(excluding Canada)

 South America Europe Total
Acquisition costs:                  
–Proved  —   4,418   —   —   —   —   —   —   4,418 
–Unproved  —   —   —   —   —   —   —   —   — 
Exploration costs  11,686   17   —   84   312   974   783   318   14,174 
Development costs*  49,192   4,942   —   616   1,223   2,808   4,617   1,022   64,420 
Total costs incurred  60,878   9,377   —   700   1,535   3,782   5,400   1,340   83,012 

 

    2020
    Enterprise's share of equity method investees
  PRC Asia (excluding PRC) Oceania Africa Canada

North

America

(excluding Canada)

 South America Europe Total
Acquisition costs:                  
–Proved  —   —   —   —   —   —   —   —   — 
–Unproved  —   —   —   —   —   —   —   —   — 
Exploration costs  —   —   —   —   —   —   76   —   76 
Development costs*  —   —   —   —   —   —   2,024   1,887   3,911 
Total costs incurred  —   —   —   —   —   —   2,100   1,887   3,987 

 

*The development costs include estimated future dismantlement costs of dismantling offshore oil and gas properties.

 

F-100 

 

CNOOC LIMITED

SUPPLEMENTARY INFORMATION ON OIL AND GAS PRODUCING ACTIVITIES (UNAUDITED)

(All amounts expressed in millions of Renminbi unless otherwise stated)

 

 

(e)Standardized measure of discounted future net cash flows and changes therein

 

Pursuant to FASB Topic 932, the average of first-day-of-the-month oil price during the 12-month period before the year end, were used to estimate annual future production from 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.

 

Present value of estimated future net cash flows:

 

      2018
      Consolidated entities
  Notes PRC

Asia

(excluding PRC)

 Oceania Africa Canada

North America

(excluding Canada)

 South America Europe Total
                     
Future cash inflows  (1)   1,265,804   56,121   10,388   53,962   339,668   125,898   38,104   53,669   1,943,614 
Future production costs      (435,664)  (23,068)  (2,576)  (10,929)  (227,445)  (51,544)  (14,271)  (18,333)  (783,830)
Future development costs  (2)   (233,501)  (3,990)  (1,792)  (8,373)  (43,197)  (15,186)  (6,539)  (8,939)  (321,517)
Future income taxes      (118,666)  (9,665)  (1,507)  (4,895)  —   (5,537)  (1,616)  (9,882)  (151,768)
                                         
Future net cash flows  (3)   477,973   19,398   4,513   29,765   69,026   53,631   15,678   16,515   686,499 
10% discount factor      (174,025)  (7,780)  (1,044)  (4,375)  (52,665)  (20,690)  (6,481)  (3,364)  (270,424)
                                         
Standardized measure of discounted future net cash flows      303,948   11,618   3,469   25,390   16,361   32,941   9,197   13,151   416,075 

 

F-101 

 

CNOOC LIMITED

SUPPLEMENTARY INFORMATION ON OIL AND GAS PRODUCING ACTIVITIES (UNAUDITED)

(All amounts expressed in millions of Renminbi unless otherwise stated)

 

 

(e)Standardized measure of discounted future net cash flows and changes therein (continued)

 

      2018
      Enterprise's share of equity method investees
  Notes PRC

Asia

(excluding PRC)

 Oceania Africa Canada

North America

(excluding Canada)

 South America Europe Total
                     
Future cash inflows  (1)   509   —   —   —   —   —   116,334   —   116,843 
Future production costs      (282)  —   —   —   —   —   (39,352)  —   (39,634)
Future development costs  (2)   (174)  —   —   —   —   —   (12,577)  —   (12,751)
Future income taxes      —   —   —   —   —   —   (14,202)  —   (14,202)
Future net cash flows  (3)   53   —   —   —   —   —   50,203   —   50,256 
10% discount factor      36   —   —   —   —   —   (27,336)  —   (27,300)
Standardized measure of discounted future net cash flows      89   —   —   —   —   —   22,867   —   22,956 
Total standardized measure of discounted future net cash flow      304,037   11,618   3,469   25,390   16,361   32,941   32,064   13,151   439,031 

 

F-102 

 

CNOOC LIMITED

SUPPLEMENTARY INFORMATION ON OIL AND GAS PRODUCING ACTIVITIES (UNAUDITED)

(All amounts expressed in millions of Renminbi unless otherwise stated)

 

 

(e)Standardized measure of discounted future net cash flows and changes therein (continued)

 

      2019
      Consolidated entities
  Notes PRC

Asia

(excluding PRC)

 Oceania Africa Canada

North America

(excluding Canada)

 South America Europe Total
                     
Future cash inflows  (1)   1,271,208   67,935   9,746   37,014   337,576   98,597   61,932   46,503   1,930,511 
Future production costs      (406,482)  (27,631)  (2,595)  (10,012)  (205,623)  (41,739)  (22,611)  (13,542)  (730,235)
Future development costs  (2)   (218,067)  (12,807)  (1,565)  (7,383)  (46,306)  (11,633)  (13,163)  (8,949)  (319,873)
Future income taxes      (116,697)  (8,320)  (1,383)  —   —   (4)  (2,052)  (8,998)  (137,454)
                                         
Future net cash flows  (3)   529,962   19,178   4,204   19,619   85,646   45,222   24,107   15,015   742,952 
10% discount factor      (196,568)  (7,252)  (916)  (2,153)  (66,281)  (15,609)  (8,444)  (3,201)  (300,424)
                                         
Standardized measure of discounted future net cash flows      333,394   11,926   3,288   17,466   19,365   29,613   15,663   11,814   442,529 

 

F-103 

 

CNOOC LIMITED

SUPPLEMENTARY INFORMATION ON OIL AND GAS PRODUCING ACTIVITIES (UNAUDITED)

(All amounts expressed in millions of Renminbi unless otherwise stated)

 

 

(e)Standardized measure of discounted future net cash flows and changes therein (continued)

 

      2019
      Enterprise's share of equity method investees
  Notes PRC

Asia

(excluding PRC)

 Oceania Africa Canada

North America

(excluding Canada)

 South America Europe Total
                     
Future cash inflows  (1)   774   —   —   —   —   —   105,608   —   106,382 
Future production costs      (318)  —   —   —   —   —   (31,515)  —   (31,833)
Future development costs  (2)   (240)  —   —   —   —   —   (13,541)  —   (13,781)
Future income taxes      —   —   —   —   —   —   (10,974)  —   (10,974)
Future net cash flows  (3)   215   —   —   —   —   —   49,578   —   49,794 
10% discount factor      31   —   —   —   —   —   (28,372)  —   (28,341)
Standardized measure of  discounted future net cash flows      246   —   —   —   —   —   21,206   —   21,452 
Total standardized measure of discounted future net cash flow      333,640   11,926   3,288   17,466   19,365   29,613   36,869   11,814   463,982 

 

F-104 

 

CNOOC LIMITED

SUPPLEMENTARY INFORMATION ON OIL AND GAS PRODUCING ACTIVITIES (UNAUDITED)

(All amounts expressed in millions of Renminbi unless otherwise stated)

 

 

(e)Standardized measure of discounted future net cash flows and changes therein (continued)

 

      2020
      Consolidated entities
  Notes PRC

Asia

(excluding PRC)

 Oceania Africa Canada

North America

(excluding Canada)

 South America Europe Total
                     
Future cash inflows  (1)   964,397   72,286   5,322   21,097   204,691   42,177   75,883   19,420   1,405,273 
Future production costs      (319,368)  (28,704)  (1,497)  (8,919)  (165,730)  (20,380)  (35,618)  (8,443)  (588,659)
Future development costs  (2)   (204,411)  (13,535)  (983)  (4,612)  (35,995)  (4,925)  (14,761)  (7,630)  (286,852)
Future income taxes      (70,878)  (10,763)  (581)  —   —   (41)  (1,953)  —   (84,216)
                                         
Future net cash flows  (3)   369,740   19,284   2,261   7,566   2,966   16,831   23,551   3,347   445,546 
10% discount factor      (142,949)  (7,126)  (346)  (691)  (7,945)  (4,136)  (8,369)  996   (170,566)
                                         
Standardized measure of  discounted future net cash flows      226,791   12,158   1,915   6,875   (4,979)  12,695   15,182   4,343   274,980 

 

F-105 

 

CNOOC LIMITED

SUPPLEMENTARY INFORMATION ON OIL AND GAS PRODUCING ACTIVITIES (UNAUDITED)

(All amounts expressed in millions of Renminbi unless otherwise stated)

 

 

(e)Standardized measure of discounted future net cash flows and changes therein (continued)

 

      2020
      Enterprise's share of equity method investees
  Notes PRC

Asia

(excluding PRC)

 Oceania Africa Canada

North America

(excluding Canada)

 South America Europe Total
                     
Future cash inflows  (1)   544   —   —   —   —   —   66,673   —   67,217 
Future production costs      (319)  —   —   —   —   —   (27,583)  —   (27,902)
Future development costs  (2)   (224)  —   —   —   —   —   (10,811)  —   (11,035)
Future income taxes      —   —   —   —   —   —   (1,510)  —   (1,510)
Future net cash flows  (3)   1   —   —   —   —   —   26,769   —   26,770 
10% discount factor      60   —   —   —   —   —   (15,440)  —   (15,380)
Standardized measure of discounted future net cash flows      61   —   —   —   —   —   11,329   —   11,390 
Total standardized measure of discounted future net cash flow      226,852   12,158   1,915   6,875   (4,979)  12,695   26,511   4,343   286,370 

 

 

(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, 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.

 

(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-106 

 

CNOOC LIMITED

SUPPLEMENTARY INFORMATION ON OIL AND GAS PRODUCING ACTIVITIES (UNAUDITED)

(All amounts expressed in millions of 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:

 

       
  2018
      Consolidated
      and equity
      share of
    Equity share of equity
  Consolidated equity method method
  Total investee investee
       
Standardized measure, beginning of year  241,904   13,341   255,245 
Sales of production, net of royalties and production costs  (152,494)  (872)  (153,366)
Net change in prices, net of royalties and production costs  210,479   5,771   216,250 
Extensions discoveries and improved recovery, net of related future costs  65,730   1,743   67,473 
Change in estimated future development costs  (73,551)  (1,754)  (75,305)
Development costs incurred during the year  50,833   2,552   53,385 
Revisions in quantity estimates  38,365   850   39,215 
Accretion of discount  30,145   2,142   32,287 
Net change in income taxes  (51,384)  941   (50,443)
Purchase of properties  —   —   — 
Changes in timing and other  56,048   (1,758)  54,290 
             
Standardized measure, end of year  416,075   22,956   439,031 

 

F-107 

 

CNOOC LIMITED

SUPPLEMENTARY INFORMATION ON OIL AND GAS PRODUCING ACTIVITIES (UNAUDITED)

(All amounts expressed in millions of Renminbi unless otherwise stated)

 

 

(e)Standardized measure of discounted future net cash flows and changes therein (continued)

 

       
  2019
      Consolidated
      and equity
      share of
    Equity share of equity
  Consolidated equity method method
  Total investee investee
       
Standardized measure, beginning of year  416,075   22,956   439,031 
Sales of production, net of royalties and production costs  (163,282)  (7,604)  (170,886)
Net change in prices, net of royalties and production costs  (2,633)  (557)  (3,190)
Extensions discoveries and improved recovery, net of related future costs  69,736   2,388   72,125 
Change in estimated future development costs  (16,430)  (7,787)  (24,217)
Development costs incurred during the year  34,193   16,201   50,394 
Revisions in quantity estimates  43,404   (42)  43,363 
Accretion of discount  52,330   2,991   55,321 
Net change in income taxes  12,169   1,881   14,050 
Purchase of properties  2,789   —   2,789 
Changes in timing and other  (5,822)  (8,976)  (14,797)
             
Standardized measure, end of year  442,529   21,452   463,982 

 

F-108 

 

CNOOC LIMITED

SUPPLEMENTARY INFORMATION ON OIL AND GAS PRODUCING ACTIVITIES (UNAUDITED)

(All amounts expressed in millions of Renminbi unless otherwise stated)

 

 

(e)Standardized measure of discounted future net cash flows and changes therein (continued)

 

  2020
      Consolidated
      and equity
      share of
    Equity share of equity
  Consolidated equity method method
  Total investee investee
       
Standardized measure, beginning of year 442,529    21,452    463,982   
Sales of production, net of royalties and production costs  (108,161)  (3,911)  (112,072)
Net change in prices, net of royalties and production costs  (207,451)  (19,639)  (227,090)
Extensions discoveries and improved recovery, net of related future costs  53,325   653   53,978 
Change in estimated future development costs  (31,412)  (5,356)  (36,768)
Development costs incurred during the year  63,274   14,596   77,870 
Revisions in quantity estimates  19,800   1,228   21,028 
Accretion of discount  49,640   2,445   52,085 
Net change in income taxes  30,843   3,751   34,594 
Purchase of properties  9,360   —   9,360 
Changes in timing and other  (46,765)  (3,831)  (50,596)
             
Standardized measure, end of year  274,982   11,388   286,371 

 

 

 

F-109