UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 20-F

(Mark One)

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

OR

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

For the fiscal year ended December 31, 2010

OR

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

For the transition period from _________________ to _______________

OR

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

Date of event requiring this shell company report ________________

Commission File Number 1-14966

CNOOC LIMITED

(Exact name of Registrant as specified in its charter)

N/A

(Translation of Registrant’s name into English)

Hong Kong

(Jurisdiction of incorporation or organization)

65th Floor, Bank of China Tower

One Garden Road, Central

Hong Kong

(Address of principal executive offices)

Yongzhi Jiang

65th Floor, Bank of China Tower

One Garden Road, Central

Hong Kong

Tel +852 2213 2500

Fax +852 2525 9322

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

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

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

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

(Title of Class)

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

(Title of Class)

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

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

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

Yes   ý    No    ¨

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

Yes   ¨    No    ý

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

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

Yes   ý    No    ¨

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

Yes   ¨    No    ý

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

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

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

U.S. GAAP    ¨

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

Other    ¨

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

Item 17    ¨   Item 18    ¨

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

Yes    ¨   No    ý

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

Table of Contents

Page

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

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

2

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

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

3

TERMS AND CONVENTIONS

Definitions

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

Conventions

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

4

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

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

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

Glossary of Technical Terms

Unless otherwise indicated in the context, references to:

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

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

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

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

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

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

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

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

l   “LNG” means liquefied natural gas.

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

5

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

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

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

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

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

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

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

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

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

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

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

6

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

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

For further definitions relating to reserves:

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

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

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

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

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

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

References to:

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

l   mmbbls means million barrels;

l   BOE means barrels-of-oil equivalent;

l   mcf means thousand cubic feet;

l   mmcf means million cubic feet;

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

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

7

FORWARD-LOOKING STATEMENTS

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

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

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

· wells to be drilled or reworked,

· development projects,

· exploration prospects,

· estimates of proved oil and gas reserves,

· potential reserves,

· development and drilling potential,

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

· business strategy,

· production of oil and gas,

· development of undeveloped reserves,

· expansion and growth of our business and operations,

· oil and gas prices and demand,

· future earnings and cash flow, and

· our estimated financial information.

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

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

8

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

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

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

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

9

PART I

ITEM 1. IDENTITY OF DIRECTORS, SENIOR MANAGEMENT AND ADVISERS

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

ITEM 2. OFFER STATISTICS AND EXPECTED TIMETABLE

Not applicable.

ITEM 3. KEY INFORMATION

A. SELECTED FINANCIAL DATA

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

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

10

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

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

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

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

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

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

(1)           Capital expenditures paid exclude acquisition capital expenditures.

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

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

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

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

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

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

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

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

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

B. CAPITALIZATION AND INDEBTEDNESS

Not applicable.

C. REASONS FOR THE OFFER AND USE OF PROCEEDS

Not applicable.

D. RISK FACTORS

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

Risks Relating to Our Operations

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

Risks Relating to the Petroleum Industry

The oil and natural gas industries are very competitive

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

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

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

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

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

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

War and acts of terrorism could materially and adversely affect us

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

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

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

Risks Relating to the PRC

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

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

16

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

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

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

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

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

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

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

ITEM 4. INFORMATION ON THE COMPANY

A. HISTORY AND DEVELOPMENT

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

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

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

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

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

CNOOC has undertaken to us that:

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

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

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

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

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

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

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

The undertakings from CNOOC will cease to have any effect:

l   if we become a wholly owned subsidiary of CNOOC;

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

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

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

B. BUSINESS OVERVIEW

Overview

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

Competitive Strengths

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

l   large and diversified asset base with significant exploitation opportunities;

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

l   successful independent exploration and development track record;

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

l   competitive cost structure with strong margins; and

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

Large and diversified asset base with significant exploitation opportunities

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

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

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

Sizable operating areas in offshore China with demonstrated exploration potential

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

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

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Successful independent exploration and development track record

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

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

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

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

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

Competitive cost structure with strong margins

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

Experienced management team and a high level of corporate governance standard

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

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

Business Strategy

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

l   focus on reserve and production growth;

l   develop natural gas business; and

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l   maintain prudent financial policy.

Focus on reserve and production growth

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

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

Develop natural gas business

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

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

Maintain prudent financial policy

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

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

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

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Selected Operating and Reserves Data

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

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

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

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

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

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Summary of Oil and Gas Reserves

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

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

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

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

Total Net Proved Crude Oil Reserves

(mmbbls)

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

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Total Net Proved Natural Gas Reserves

(bcf)

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

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Total Net Proved Reserves

(million BOE)

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

Proved Undeveloped Reserves

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

The changes in our proved undeveloped reserves mainly include:

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

l   increase of 141 million BOE due to acquisitions;

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

l   decrease of 104 million BOE due to revisions; and

l   decrease of  44 million BOE due to output.

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

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

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

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

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

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

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

The RMG’s main responsibilities are to:

l   review our reserve policies;

l