Exhibit
99.1
CNOOC Limited
(Incorporated in Hong Kong with
limited liability under the Companies Ordinance)
(Stock Code: 883)
2007 ANNUAL RESULTS
ANNOUNCEMENT
CHAIRMAN’S
STATEMENT
Dear
shareholders,
It is
again time for me to report on our annual results. I am honored to report to you
that during last year, CNOOC Limited has once again fulfilled our targets set at
the beginning of the year.
Our net
production for the year increased by 2.6% to 171 million
barrels-of-oil-equivalent (BOE); our proven reserves amounted to 2.6 billion
BOE, with a reserve replacement ratio of 142%; our net profit was approximately
RMB31.3 billion. The board of directors (the “Board”) has proposed a final
dividend of HK$0.17 per share.
The
figures speak for themselves, demonstrating that CNOOC Limited has fulfilled its
commitments, enhanced corporate values, and managed to maintain a stable track
in maximizing shareholders’ return. You can be proud of your investment on CNOOC
Limited while I am also honored about our remarkable results.
Nevertheless,
we will not stop with what we have achieved. Enhancing corporate value and
shareholders’ return is only one of our goals, although it has always been the
most important one. I sincerely hope that in addition to enhancing the Company’s
intrinsic value and creating value for shareholders, CNOOC Limited can
contribute to the industry’s well-being and development, and further dedicate
our efforts to address the energy needs of humanity and the
community.
I would
like to take this opportunity to share my thoughts with you so as to further
increase your understanding of CNOOC Limited.
Creator of corporate value and
shareholders’ value
Since our
listing, CNOOC Limited has been committed to maximize our corporate value and
shareholders’ value. Over the past seven years, the Company has adhered to this
principle with perseverance in various business practices, and reiterated this
principle on various internal and external occasions.
2007 was
another year of growth in corporate value and shareholders’ value. During the
year, due to high oil prices, the market had high expectations on CNOOC
Limited’s performance, and the Company continued to live up to their
expectations.
We will
not be satisfied to benefit solely from strong oil price and leave our corporate
value to the hands of oil price only. We further hope to fully demonstrate our
value by realising our growth potentials. In the past year, as always, we
strived to optimize the Company fundamentals, to explore and further demonstrate
our intrinsic value through discovering and revealing our
potentials.
During the
year, the Company continued to make positive progress in all business
segments:
Exploration
is fundamental for survival and growth of upstream oil companies. In 2007,
upholding the tradition, the Company continued to invest substantial human
resources and capitals in this segment, and made 12 commercial discoveries. Our
reserve replacement ratio again maintained at more than 100%. In addition, the
Company brought 5 new projects on stream successfully.
Despite
the continued high oil price, promising results of explorations and smooth
production, we still pursued to tighten our cost control in an environment of
increasing inflationary pressure and overall surge in costs within the industry.
During the period, the Company maintained its competitive cost structure,
leaving more room for growth in shareholders’ value.
In 2007,
we were pleased to see that the market has continued to uncover CNOOC Limited’s
value at a steady pace. During the year, the oil price grew by 57.2%, and our
share price increased by 79.7% .
In the
future, CNOOC Limited will work hard to increase corporate value and generate
more returns for shareholders. We will allocate more capital on exploration, so
as to conduct more seismic data collection and drilling activities. To ensure
the Company’s long-term growth, we will increase efforts on basic research and
regional research aiming at significant discoveries, and strive to achieve even
greater breakthrough. With respect to development and production, we will
comprehensively utilize new technologies, maintain high and stable production of
existing fields, and enhance oil recovery ratio.
We will
devote great efforts on developing natural gas business, by fully capitalizing
on China’s market potentials and leveraging on our existing advantages in the
LNG market.
Contributor to industry
progress
There are
many century-old companies in the oil industry, compared with them, CNOOC
Limited is a rather young company.
As such,
CNOOC Limited has been a learner for relentless improvement and reforms since
its establishment. In her growth history, we have adopted advanced western
technology and learned the business model of industrial leaders. With all these
efforts, we are transforming ourselves into a capable and efficient oil company
with global competitiveness.
However,
as a player in the industry, we sincerely hope that we can also make our own
contribution to the industry advancement and development rather than only being
a follower.
In 2007,
the successful restart of Liuhua 11-1 oilfield marked an important step towards
this target. Needlessly to say, this restart meant a lot to our production, and
also demonstrated our capability to overcome challenges. What I would like to
emphasize is the management and technology innovation brought by it to the whole
industry.
As you are
aware, Liuhua 11-1 oilfield was hit by a typhoon in 2006, and seven anchors and
three hoses were broken. In shallow water, similar damages are not difficult to
repair. But for Liuhua 11-1 oilfield, the picking up and repairing of a 13.5
-inch hose to resume production had to be conducted in waterdepth of over 300
meters. It is hard to find a precedent under similar operational conditions and
requirements.
CNOOC
Limited mobilized all available domestic and foreign resources efficiently. With
the spirit of innovation, the company finally managed to resume the production
of Liuhua 11-1 oilfield on 27 June 2007 after being shutdown for more than a
year. CNOOC Limited not only set up a good example for the deep water
engineering, but also developed 7 advanced proprietary techniques.
The
marginal oilfield development technology of the Company has the value of
‘turning waste to treasure’. In 2007, the commencement of the ‘super-small’
Bozhong 34-3/5 oilfield further proved that the Company had seized a
cutting-edge competitiveness in applying this technology in the
industry.
Generally
speaking, offshore development costs are higher than those for onshore. To be
profitable, newly discovered reserves should be larger to make an economic
discovery. Bozhong 34-3/5 oilfield is located in Bohai Bay, with a small size
and less development value. By introducing a “Three Ones” model, which means
using one jacket, one pipeline and one cable to implement unmanned automatic
production, we succeeded in commercially developing such a marginal
field.
My
personal experience taught me that technology innovations, management streamline
and case sharing could play a positive role in a company’s growth. I do hope and
believe that CNOOC Limited’s experience and lesson learnt from the restart of
Liuhua 11-1 oilfield and development technology of marginal oilfields could
bring benefits to the whole industry.
Energy problem
solver
As an
energy company with strong sense of responsibility, we always hope to, together
with other international energy players, contribute to tackling global energy
problems and particularly the growing demand of China.
In this
respect, our efforts are focused on three areas:
Firstly,
we strived to increase our reserves and production. When it was listed in 2001,
the Company’s reserves and production were only 1.79 billion BOE and 261.4
thousand BOE per day, respectively. By the end of 2007, such numbers have
reached 2.6 billion BOE and 469.4 thousand BOE per day, representing an increase
of 45.3% and 79.6% over the seven years, respectively. In 2001, the Company had
only 16 oil and gas fields under production in offshore China. In 2007, the
number of producing fields has reached 58, spreading all over offshore
China.
Secondly,
we looked for more overseas development opportunities on a value-driven basis.
For an oil company seeking growth, this is an important way leading to greater
and faster development.
Indeed,
offshore China is our home field of operation. The vast exploration area and
relatively lower exploration intensity mean that focusing on offshore China
benefits more to our short-term development. However, I believe that in seeking
for long-term development, CNOOC Limited should not give up any opportunity to
go overseas.
Further, I
firmly believe that nowadays, with growing demand for energy, in particular for
clean energy, CNOOC Limited’s efforts on value-oriented overseas expansion and a
rational exploitation of underground resources for human beings, together with
its endeavor of performing corporate social responsibility to help to meet the
global energy demand, in particular China’s demand, should be supported and
encouraged.
Thirdly,
we have consistently been engaged in energy conservation, emission reduction and
clean energy. Since November 2007, the wind farm on Suizhong 36-1 oilfield has
started to provide electricity for the field’s daily operation. Such a small
shift to wind power alone will reduce carbon dioxide emissions by 3,500 tons per
year. Such use of wind energy on offshore oilfield set up a precedent for the
oil and gas industry in China. Among various CNOOC Limited’s achievements of
energy conservation and emission reduction in 2007, it is only a minor point.
But I believe it is a new starting point for the Company in supporting the
research and use of new energy and better performing its mission of environment
protection. In addition to Suizhong 36-1 oilfield, we have also applied our
energy conservation and emission reduction policy in many other aspects, from
technology innovation, implementation of “zero discharge” plan, resources
recycling, optimization of lighting usage to water flow control. All these
reflect our strong belief and determination of energy conservation and
environmental protection, which in turn will contribute to solving energy
problems.
With a
firm and clear mission in mind, CNOOC Limited, full of youthful spirit, will
strive to pursue its determined goals at full pace. I hope that in 2008 and in
the future, you will continue your support to CNOOC Limited for achieving its
goals, and join hands with us to turn to a new page of the Company’s
development!
Fu Chengyu
Chairman and Chief Executive
Officer
Hong Kong,
27 March 2008
CONSOLIDATED INCOME STATEMENT
(AUDITED)
Year ended 31 December
2007
(All amounts expressed in thousands
of Renminbi, except per share data)
|
|
Notes
|
|
|
2007
|
|
|
2006
|
|
REVENUE
|
|
|
|
|
|
|
|
|
|
Oil
and gas sales
|
|
|
5 |
|
|
|
73,036,906 |
|
|
|
67,827,953 |
|
Marketing
revenues
|
|
|
6 |
|
|
|
17,397,338 |
|
|
|
20,964,093 |
|
Other
income
|
|
|
|
|
|
|
289,587 |
|
|
|
155,238 |
|
|
|
|
|
|
|
|
90,723,831 |
|
|
|
88,947,284 |
|
EXPENSES
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating
expenses
|
|
|
|
|
|
|
(8,039,603 |
) |
|
|
(6,999,184 |
) |
Production
taxes
|
|
|
|
|
|
|
(3,497,440 |
) |
|
|
(3,315,661 |
) |
Exploration
expenses
|
|
|
|
|
|
|
(3,432,419 |
) |
|
|
(1,705,075 |
) |
Depreciation,
depletion and amortisation
|
|
|
|
|
|
|
(7,374,469 |
) |
|
|
(6,933,214 |
) |
Dismantlement
|
|
|
|
|
|
|
(561,701 |
) |
|
|
(472,269 |
) |
Special
oil gain levy
|
|
|
7 |
|
|
|
(6,837,213 |
) |
|
|
(3,981,170 |
) |
Impairment
losses related to property, plant and equipment
|
|
|
|
|
|
|
(613,505 |
) |
|
|
(252,357 |
) |
Crude
oil and product purchases
|
|
|
6 |
|
|
|
(17,082,624 |
) |
|
|
(20,572,935 |
) |
Selling
and administrative expenses
|
|
|
|
|
|
|
(1,741,161 |
) |
|
|
(1,543,777 |
) |
Others
|
|
|
|
|
|
|
(344,679 |
) |
|
|
(117,301 |
) |
|
|
|
|
|
|
|
(49,524,814 |
) |
|
|
(45,892,943 |
) |
PROFIT
FROM OPERATING ACTIVITIES
|
|
|
|
|
|
|
41,199,017 |
|
|
|
43,054,341 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest
income
|
|
|
|
|
|
|
672,987 |
|
|
|
781,536 |
|
Finance
costs
|
|
|
8 |
|
|
|
(2,031,788 |
) |
|
|
(1,832,130 |
) |
Exchange
gains, net
|
|
|
|
|
|
|
1,855,968 |
|
|
|
308,382 |
|
Investment
income
|
|
|
|
|
|
|
902,378 |
|
|
|
613,028 |
|
Share
of profits of associates
|
|
|
|
|
|
|
719,039 |
|
|
|
321,676 |
|
Non-operating
income/(expenses), net
|
|
|
|
|
|
|
(6,979 |
) |
|
|
876,423 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
PROFIT
BEFORE TAX
|
|
|
|
|
|
|
43,310,622 |
|
|
|
44,123,256 |
|
Tax
|
|
|
9 |
|
|
|
(12,052,323 |
) |
|
|
(13,196,313 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
PROFIT
FOR THE YEAR
|
|
|
|
|
|
|
31,258,299 |
|
|
|
30,926,943 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
DIVIDENDS
|
|
|
|
|
|
|
|
|
|
|
|
|
Interim
dividend
|
|
|
|
|
|
|
5,547,488 |
|
|
|
5,334,091 |
|
Proposed
final dividend
|
|
|
|
|
|
|
7,052,445 |
|
|
|
6,001,819 |
|
|
|
|
|
|
|
|
12,599,933 |
|
|
|
11,335,910 |
|
EARNINGS
PER SHARE
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
|
|
|
10 |
|
|
RMB0.72
|
|
|
RMB0.73
|
|
Diluted
|
|
|
10 |
|
|
RMB0.72
|
|
|
RMB0.73
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
DIVIDEND
PER SHARE
|
|
|
|
|
|
|
|
|
|
|
|
|
Interim
dividend
|
|
|
|
|
|
RMB0.12
|
|
|
RMB0.12
|
|
Proposed
final dividend
|
|
|
|
|
|
RMB0.16
|
|
|
RMB0.14
|
|
CONSOLIDATED BALANCE SHEET
(AUDITED)
31 December
2007
(All amounts expressed in thousands
of Renminbi)
|
|
Notes
|
|
|
2007
|
|
|
2006
|
|
NON-CURRENT
ASSETS
|
|
|
|
|
|
|
|
|
|
Property,
plant and equipment, net
|
|
|
|
|
|
118,880,204 |
|
|
|
103,406,376 |
|
Intangible
assets
|
|
|
|
|
|
1,331,204 |
|
|
|
1,409,053 |
|
Interests
in associates
|
|
|
|
|
|
2,030,999 |
|
|
|
1,543,515 |
|
Available-for-sale
financial assets
|
|
|
|
|
|
1,818,732 |
|
|
|
1,017,000 |
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
non-current assets
|
|
|
|
|
|
124,061,139 |
|
|
|
107,375,944 |
|
|
|
|
|
|
|
|
|
|
|
|
|
CURRENT
ASSETS
|
|
|
|
|
|
|
|
|
|
|
|
Accounts
receivable, net
|
|
|
|
|
|
7,129,848 |
|
|
|
5,437,873 |
|
Inventories
and supplies
|
|
|
|
|
|
2,345,887 |
|
|
|
1,691,479 |
|
Due
from related companies
|
|
|
|
|
|
3,299,392 |
|
|
|
2,340,447 |
|
Held-to-maturity
financial asset
|
|
|
11 |
|
|
|
3,000,000 |
|
|
|
– |
|
Available-for-sale
financial assets
|
|
|
|
|
|
|
6,687,948 |
|
|
|
12,390,058 |
|
Other
current assets
|
|
|
|
|
|
|
1,625,663 |
|
|
|
2,435,363 |
|
Time
deposits with maturity over three months
|
|
|
|
|
|
|
7,200,000 |
|
|
|
9,232,797 |
|
Cash
and cash equivalents
|
|
|
|
|
|
|
23,356,569 |
|
|
|
14,364,055 |
|
|
|
|
|
|
|
|
54,645,307 |
|
|
|
47,892,072 |
|
Non-current
asset classified as held for sale
|
|
|
16 |
|
|
|
1,086,798 |
|
|
|
– |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
current assets
|
|
|
|
|
|
|
55,732,105 |
|
|
|
47,892,072 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
CURRENT
LIABILITIES
|
|
|
|
|
|
|
|
|
|
|
|
|
Accounts
payable
|
|
|
|
|
|
|
5,051,420 |
|
|
|
4,145,977 |
|
Other
payables and accrued liabilities
|
|
|
|
|
|
|
9,051,258 |
|
|
|
5,481,499 |
|
Current
portion of long term bank loans
|
|
|
|
|
|
|
– |
|
|
|
17,816 |
|
Due
to the parent company
|
|
|
|
|
|
|
587,228 |
|
|
|
456,961 |
|
Due
to related companies
|
|
|
|
|
|
|
1,533,424 |
|
|
|
1,175,271 |
|
Tax
payable
|
|
|
|
|
|
|
4,690,026 |
|
|
|
3,203,856 |
|
|
|
|
|
|
|
|
20,913,356 |
|
|
|
14,481,380 |
|
Liabilities
directly associated with non-current asset
|
|
|
|
|
|
|
|
|
|
|
|
|
classified
as held for sale
|
|
|
16 |
|
|
|
488,322 |
|
|
|
– |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
current liabilities
|
|
|
|
|
|
|
21,401,678 |
|
|
|
14,481,380 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
NET
CURRENT ASSETS
|
|
|
|
|
|
|
34,330,427 |
|
|
|
33,410,692 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
TOTAL
ASSETS LESS CURRENT LIABILITIES
|
|
|
|
|
|
|
158,391,566 |
|
|
|
140,786,636 |
|
NON-CURRENT
LIABILITIES
|
|
|
|
|
|
|
|
|
|
Long
term bank loans
|
|
|
12 |
|
|
|
2,720,431 |
|
|
|
2,438,172 |
|
Long
term guaranteed notes
|
|
|
13 |
|
|
|
8,325,519 |
|
|
|
17,885,841 |
|
Provision
for dismantlement
|
|
|
|
|
|
|
6,737,319 |
|
|
|
5,412,581 |
|
Deferred
tax liabilities
|
|
|
|
|
|
|
6,293,559 |
|
|
|
7,236,169 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
non-current liabilities
|
|
|
|
|
|
|
24,076,828 |
|
|
|
32,972,763 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
assets
|
|
|
|
|
|
|
134,314,738 |
|
|
|
107,813,873 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
EQUITY
|
|
|
|
|
|
|
|
|
|
|
|
|
Equity
attributable to equity holders of the Company
|
|
|
|
|
|
|
|
|
|
|
|
|
Issued
capital
|
|
|
14 |
|
|
|
942,541 |
|
|
|
923,653 |
|
Reserves
|
|
|
|
|
|
|
133,372,197 |
|
|
|
106,848,275 |
|
|
|
|
|
|
|
|
134,314,738 |
|
|
|
107,771,928 |
|
Minority
interest
|
|
|
|
|
|
|
– |
|
|
|
41,945 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
equity
|
|
|
|
|
|
|
134,314,738 |
|
|
|
107,813,873 |
|
NOTES TO FINANCIAL
STATEMENTS
31 December 2007
(All amounts expressed in Renminbi
unless otherwise stated)
1. CORPORATE
INFORMATION
CNOOC
Limited (the “Company”) was incorporated in the Hong Kong Special Administrative
Region (“Hong Kong”) of the People’s Republic of China (the “PRC”) on 20 August
1999 to hold the interests in certain entities whereby creating a group
comprising the Company and its subsidiaries (hereinafter collectively referred
to as the “Group”). During the year, the Group was principally engaged in the
exploration, development, production and sales of crude oil, natural gas and
other petroleum products.
The
registered office address of the Company is 65/F, Bank of China Tower, 1 Garden
Road, Hong Kong.
In the
opinion of the directors of the Company (the “Directors”), the parent and the
ultimate holding company is China National Offshore Oil Corporation (“CNOOC”), a
company established in the PRC.
2. BASIS OF
PREPARATION AND CONSOLIDATION
These
financial statements have been prepared in accordance with Hong Kong Financial
Reporting Standards (which
include all Hong Kong Financial Reporting Standards, Hong Kong Accounting
Standards (“HKASs”) and Interpretations) issued by the Hong Kong Institute of
Certified Public Accountants (the “HKICPA”), accounting principles generally
accepted in Hong Kong (“Hong Kong GAAP”) and the disclosure requirements of the
Hong Kong Companies Ordinance. They have been prepared under the historical cost
convention, except for available-for-sale investments and derivative financial
instruments which have been measured at fair value. These financial statements
are presented in Renminbi (“RMB”) and all values are rounded to the nearest
thousand except when otherwise indicated.
The
consolidated financial statements include the financial statements of the
Company and its subsidiaries for the year ended 31 December 2007. 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. All significant intercompany transactions and balances
within the Group are eliminated on consolidation.
The
acquisition of subsidiaries has been accounted for using the purchase method of
accounting. This method involves allocating the cost of the business
combinations to the fair value of the identifiable assets acquired, and
liabilities and contingent liabilities assumed at the date of acquisition. The
cost of the acquisition is measured at the aggregate of the fair value of the
assets given, equity instruments issued (if any) and liabilities incurred or
assumed at the date of exchange, plus costs directly attributable to the
acquisition.
Minority
interests represent the interests of outside shareholders not held by the Group
in the results and net assets of the Company’s subsidiaries.
3. IMPACT
OF NEW AND REVISED HONG KONG FINANCIAL REPORTING STANDARDS
(“HKFRSs”)
The Hong
Kong Institute of Certified Public Accountants has issued the following new and
amended HKFRSs, which are mandatory for annual periods beginning on or after 1
January 2007:
HKAS
1 Amendment
|
|
Capital
Disclosures |
HKFRS
7
|
|
Financial
Instruments: Disclosures
|
HK
(IFRIC)-Int 8
|
|
Scope
of HKFRS 2
|
HK
(IFRIC)-Int 9
|
|
Reassessment
of Embedded Derivatives
|
HK
(IFRIC)-Int 10
|
|
Interim
Financial Reporting and Impairment
|
The
adoption of these new and revised Hong Kong Financial Reporting Standards,
amendments and interpretation has had no impact on the Group’s results of
operations or financial position.
4.
PRODUCTION SHARING CONTRACTS
The
PRC
For
production sharing contracts in relation to offshore China (the “China PSC”),
the foreign parties to the China PSC (“foreign partners”) are normally required
to bear all exploration costs during the exploration period and such exploration
costs can be recovered according to the production sharing formula after
commercial discoveries are made and production begins.
After the
exploration stage, the development and operating costs are funded by the Group
and the foreign partners according to their respective percentage of the
participating interests.
In
general, the Group has the option to take up to 51% participating interests in
the development and production of the oil field and/or gas field under the China
PSC and may exercise such option after the foreign partners have independently
undertaken all the exploration risks and costs, completed all the exploration
works and viable commercial discoveries have been made.
After the
Group exercises its option to take certain participating interests in a China
PSC, the Group accounts for the oil and gas properties according to its
participating interest in the China PSC and recognizes its share of development
costs, revenues and expenses from operations according to its participating
interests in the China PSC. The Group does not account for either the
exploration costs incurred by its foreign partners or the foreign partners’
share of development costs, revenues and expenses from operations.
Part of
the annual gross production of oil and gas under the China PSC is distributed to
the PRC government as a settlement of royalties which are payable pursuant to
relevant requirements of the competent authority. The Group and the foreign
partners also pay the value-added tax, currently classified as production tax,
to the tax bureau at a pre- determined rate. In addition, there is a pre-agreed
portion of oil and gas designated to recover all exploration costs, development
costs (including the deemed interest) and operating costs incurred by the
foreign partners and the Group according to their respective participating
interests. Any remaining oil, after the foregoing priority allocations is first
distributed to the PRC government as government share oil on a pre-determined
ratio calculated by the successive incremental tiers on the basis of the annual
gross production, and then distributed to the Group and the foreign partners
according to their respective participating interests. As the government share
oil is not included in the Group’s interest in the annual production, the net
sales revenue of the Group does not include the sales revenue of the government
share oil.
The
foreign partners have the right either to take possession of their allocable
remainder oil for sale in the international market, or to sell their allocable
remainder oil in the PRC market according to the relevant laws and regulations
of the PRC.
Overseas
In certain
countries, the Group and the other partners to the overseas production sharing
contracts are required to bear all exploration, development and operating costs
according to their respective participating interests. Exploration, development
and operating costs which qualify for recovery can be recovered according to the
production sharing formula after commercial discoveries are made and production
begins.
The
Group’s net interest in the production sharing contracts in overseas locations
consists of its participating interest in the properties covered under the
relevant production sharing contracts, less oil and gas distributed to the local
government and/or the domestic market obligation.
In other
countries, the Group, as one of the title owners under certain exploration
and/or production licenses or permits, is required to bear all exploration,
development and operating costs together with other co-owners. Once production
occurs, a certain percentage of the annual production or revenue will first be
distributed to the local government, which, in most of cases, with the nature of
royalty, and the rest of the annual production or revenue will be allocated
among the co-owners. Exploration, development and operating costs can be
deductible for the purpose of income tax calculation in accordance with local
tax regulations.
|
|
2007
|
|
|
2006
|
|
|
|
RMB’000
|
|
|
RMB’000
|
|
|
|
|
|
|
|
|
|
|
Gross
sales
|
|
|
78,181,343 |
|
|
|
72,709,179 |
|
Less:
Royalties
|
|
|
(1,059,018 |
) |
|
|
(752,958 |
) |
PRC
government share oil
|
|
|
(4,085,419 |
) |
|
|
(4,128,268 |
) |
|
|
|
73,036,906 |
|
|
|
67,827,953 |
|
6.
MARKETING PROFIT
|
|
2007
|
|
|
2006
|
|
|
|
RMB’000
|
|
|
RMB’000
|
|
|
|
|
|
|
|
|
|
|
Marketing
revenues
|
|
|
17,397,338 |
|
|
|
20,964,093 |
|
Crude
oil and product purchases
|
|
|
(17,082,624 |
) |
|
|
(20,572,935 |
) |
|
|
|
314,714 |
|
|
|
391,158 |
|
7.
SPECIAL OIL GAIN LEVY
In 2006, a
Special Oil Gain Levy (“SOG Levy”) was imposed by the Ministry of Finance of the
PRC at the progressive rates from 20% to 40% on the portion of the monthly
weighted average sales price of the crude oil lifted in the PRC exceeding US$40
per barrel. The SOG Levy paid can be claimed as a deductible expense for
corporate income tax purpose and is calculated based on the actual volume of the
crude oil entitled.
|
|
2007
|
|
|
2006
|
|
|
|
RMB’000
|
|
|
RMB’000
|
|
Interest
on bank loans which are
|
|
|
|
|
|
|
–
repayable within five years
|
|
|
182,144 |
|
|
|
51,345 |
|
–
repayable after five years
|
|
|
– |
|
|
|
10,631 |
|
Interest
on other loans (including convertible bonds)
|
|
|
688,876 |
|
|
|
907,565 |
|
Other
borrowing costs
|
|
|
78,393 |
|
|
|
1,535 |
|
|
|
|
|
|
|
|
|
|
Total
borrowing costs
|
|
|
949,413 |
|
|
|
971,076 |
|
|
|
|
|
|
|
|
|
|
Less:
Amount capitalised in property, plant and equipment
|
|
|
(846,206 |
) |
|
|
(913,175 |
) |
|
|
|
103,207 |
|
|
|
57,901 |
|
Other
finance costs:
|
|
|
|
|
|
|
|
|
Increase
in discounted amount of provisions arising from
|
|
|
|
|
|
|
|
|
the
passage of time
|
|
|
305,758 |
|
|
|
250,922 |
|
Fair
value losses on embedded derivative component of convertible
bonds
|
|
|
1,622,823 |
|
|
|
1,523,307 |
|
|
|
|
2,031,788 |
|
|
|
1,832,130 |
|
The
interest rates used for interest capitalisation represented the cost of capital
from raising the related borrowings and varied from 4.1% to 6.375% (2006: from
4.1% to 6.375%) per annum for the year ended 31 December 2007.
9. INCOME
TAX
An
analysis of the provision for tax in the Group’s consolidated income statement
is as follows:
|
|
|
|
2007
|
|
|
2006
|
|
|
|
|
|
RMB’000
|
|
|
RMB’000
|
|
Overseas
|
|
|
|
|
|
|
|
– |
|
Current
income tax
|
|
|
967,047 |
|
|
|
874,378 |
|
|
– |
|
Deferred
income tax
|
|
|
(83,178 |
) |
|
|
141,615 |
|
PRC
|
|
|
|
|
|
|
|
|
|
– |
|
Current
income tax
|
|
|
11,786,176 |
|
|
|
11,791,620 |
|
|
– |
|
Deferred
income tax
|
|
|
(617,722 |
) |
|
|
388,700 |
|
|
|
|
|
|
|
|
|
|
Total
tax charge for the year
|
|
|
12,052,323 |
|
|
|
13,196,313 |
|
10. EARNINGS PER
SHARE
|
|
2007
|
|
|
2006
|
|
Earnings:
|
|
|
|
|
|
|
Profit
from ordinary activities attributable to shareholders for
|
|
|
|
|
|
|
the
year for the basic earnings per share calculation
|
|
|
RMB31,258,299,000 |
|
|
|
RMB30,926,943,000 |
|
Interest
expense and fair value losses recognised on the
|
|
|
|
|
|
|
|
|
embedded
derivative component of convertible bonds
|
|
|
RMB1,622,823,669 |
* |
|
|
RMB1,915,414,568 |
|
|
|
|
|
|
|
|
|
|
Profit
from ordinary activities attributable to shareholders for
|
|
|
|
|
|
|
|
|
the
year for the diluted earnings per share calculation
|
|
|
RMB32,881,122,669 |
* |
|
|
RMB32,842,357,568 |
|
|
|
|
|
|
|
|
|
|
Number
of shares:
|
|
|
|
|
|
|
|
|
Number
of ordinary shares issued at the beginning of the year
|
|
|
|
|
|
|
|
|
before
the weighted average effects of new shares issued and
|
|
|
|
|
|
|
|
|
share
options exercised during the year
|
|
|
43,328,552,648 |
|
|
|
41,054,675,375 |
|
|
|
|
|
|
|
|
|
|
Weighted
average effect of new shares issued during the year
|
|
|
276,884,564 |
|
|
|
1,457,036,115 |
|
Weighted
average effect of share options exercised during the year
|
|
|
– |
|
|
|
478,904 |
|
|
|
|
|
|
|
|
|
|
Weighted
average number of ordinary shares for the basic earnings
|
|
|
|
|
|
|
|
|
per
share calculation
|
|
|
43,605,437,212 |
|
|
|
42,512,190,394 |
|
|
|
|
|
|
|
|
|
|
Effect
of dilutive potential ordinary shares under the share
option
|
|
|
|
|
|
|
|
|
schemes
|
|
|
126,499,657 |
|
|
|
65,650,619 |
|
|
|
|
|
|
|
|
|
|
Effect
of dilutive potential ordinary shares for convertible
bonds
|
|
|
|
|
|
|
|
|
based
on the “if converted method”
|
|
|
1,055,500,755 |
* |
|
|
1,310,307,143 |
|
|
|
|
|
|
|
|
|
|
Weighted
average number of ordinary shares for the purpose of
|
|
|
|
|
|
|
|
|
diluted
earnings per share
|
|
|
44,787,437,624 |
* |
|
|
43,888,148,156 |
|
|
|
|
|
|
|
|
|
|
Earnings
per share
|
|
|
|
|
|
|
|
|
–
Basic
|
|
|
RMB0.72 |
|
|
|
RMB0.73 |
|
–
Diluted
|
|
|
RMB0.72 |
* |
|
|
RMB0.73 |
|
* Since
the diluted earnings per share amount is increased when taking the convertible
bonds into account, the convertible bonds had an anti-dilutive effect on the
basic earnings per share for the period and were ignored in the calculation of
diluted earnings per share. Therefore, the diluted earnings per share amounts
are based on the profit for the year of approximately RMB31,258,299,000, and the
weighted average of 43,731,936,869 ordinary shares.
11. HELD-TO-MATURITY FINANCIAL
ASSET
The
held-to-maturity financial asset comprises a corporates wealth management
product arranged with a financial institution with an expected interest rate of
4%. The product matured on 31 January 2008.
12. LONG TERM BANK
LOANS
As at 31
December 2007, the long term bank loans of the Group were used primarily to
finance the development of oil and gas properties and to meet working capital
requirements.
|
|
|
2007
|
|
|
2006
|
|
|
|
|
RMB’000
|
|
|
RMB’000
|
|
|
Effective
interest rate and final maturity
|
|
|
|
|
|
|
RMB
denominated
|
Effective
interest rate of 4.05% per annum with
|
|
|
|
|
|
|
bank
loans
|
maturity
through 2016
|
|
|
500,000 |
|
|
|
500,000 |
|
US$
denominated
|
Effective
interest rate of LIBOR+0.23%~0.38%
|
|
|
|
|
|
|
|
|
bank
loans*
|
per
annum with maturity through 2017
|
|
|
2,708,753 |
|
|
|
1,938,172 |
|
Japanese
Yen denominated
|
Effective
interest rate of 4.1% per annum
|
|
|
|
|
|
|
|
|
bank
loans
|
with
maturity through 2007
|
|
|
– |
|
|
|
17,816 |
|
|
|
|
|
3,208,753 |
|
|
|
2,455,988 |
|
Less:
Current portion of long term bank loans
|
|
|
– |
|
|
|
(17,816 |
) |
Less:
Liabilities directly associated with non-current asset
|
|
|
|
|
|
|
|
|
classified
as held for sale (note 16)
|
|
|
(488,322 |
) |
|
|
– |
|
|
|
|
|
2,720,431 |
|
|
|
2,438,172 |
|
* The
amount represented the Group’s share of the utilised bank loans in Tangguh
Liquefied Natural Gas Project (“Tangguh LNG Project”).
The
Company delivered a guarantee dated 29 October 2007 in favor of Mizuho Corporate
Bank, Ltd., as the facility agent for and on behalf of various international
commercial banks under a US$884 million commercial loan agreement dated 29
October 2007 in connection with the Tangguh LNG Project in Indonesia. The
Company guarantees the payment obligations of the trustee borrower under the
subject loan agreement and is subject to a maximum cap of approximately
US$164,888,000. Together with the loan agreement dated 31 July 2006 with a
maximum cap of approximately US$487,862,000, the total maximum guarantee cap is
US$652,750,000.
As at 31
December 2007, all the bank loans of the Group were unsecured, and none of the
outstanding borrowings were guaranteed by CNOOC.
13. LONG TERM GUARANTEED
NOTES
Long term
guaranteed notes comprised the following:
(i)
|
The
principal amount of US$500 million of 6.375% guaranteed notes due in 2012
issued by CNOOC Finance (2002)
Limited, a wholly-owned subsidiary of the Company. The obligations of
CNOOC Finance (2002) Limited in respect of the notes are unconditionally
and irrevocably guaranteed by the Company.
|
|
|
(ii)
|
The
principal amount of US$200 million of 4.125% guaranteed notes due in 2013
and the principal amount of US$300 million of 5.500% guaranteed notes due
in 2033 issued by CNOOC Finance (2003) Limited, a wholly- owned subsidiary
of the Company. The obligations of CNOOC Finance (2003) Limited in respect
of the notes are unconditionally and irrevocably guaranteed by the
Company.
|
|
|
(iii)
|
The
principal amount of US$1 billion zero coupon guaranteed convertible bonds
due in 2009, unconditionally and irrevocably guaranteed by, and
convertible into shares of the Company issued by CNOOC Finance (2004)
Limited, a wholly-owned subsidiary of the Company, on 15 December 2004.
The bonds are convertible from 15 January
2005 onwards at a price of HK$6.075 per share, subject to adjustments. The
conversion price was adjusted to HK$5.97, HK$5.90 and HK$5.79 per share on
7 June 2005, 7 June 2006 and 7 June 2007, respectively, as a result of the
declaration of the dividends for 2004, 2005 and 2006 by the Company.
Unless previously redeemed, converted or purchased and cancelled, the
bonds will be redeemed on the maturity date at 105.114% of the principal
amount. CNOOC Finance (2004) Limited has an early redemption option at any
time after 15 December 2007
(subject to certain criteria) and a cash settlement option to pay cash in
lieu of delivering shares when the bondholders exercise their conversion
right. The bondholders also have an early redemption option to require
CNOOC Finance (2004) Limited to redeem all or part of the bonds on 15
December 2007 at an early redemption amount of 103.038% of the principal
amount.
|
CNOOC
Finance (2004) Limited renounced its cash settlement option by way of a
supplemental trust deed dated 31 July 2007 entered into amongst the Company,
CNOOC Finance (2004) Limited and BNY Corporate Trustee Services Limited. As
such, the derivative component of the convertible bonds is no longer a liability
and was transferred to equity.
During the
year, convertible bonds with a face value of US$725,848,000 were converted into
new shares of the Company. As at 31 December 2007, US$274,151,000 of convertible
bonds were outstanding.
For
conversion before the renunciation of cash settlement option, the bifurcated
derivative component was marked to market through earnings up to the conversion
date. The host bond was accreted and any deferred issuance costs was amortized
up to the conversion date as if bond were to remain outstanding for its
contractual life. The accreted value of the host bond and the marked-to-market
value of derivative component were then reclassified into equity. Upon
renunciation of the cash settlement option, the entire derivative component was
marked to market and reclassified into equity. Subsequent conversions were
accounted for in the same way but without considering the derivative
component.
On 21
February 2008, CNOOC Finance (2004) Limited extinguished all the outstanding
convertible bonds by exercising an early redemption option. The withdrawal of
delisting of the convertible bonds on The Stock Exchange of Hong Kong Limited
(the “Hong Kong Stock Exchange”) was effective at the close of business on 6
March 2008. The Group currently has no convertible bond liability.
There is
no default during the year of principal, interest or redemption term of the long
term guaranteed notes.
14. SHARE
CAPITAL
|
|
|
|
|
|
|
|
Issued
|
|
|
|
Number
|
|
|
|
|
|
share
capital
|
|
|
|
of
shares
|
|
|
Share
capital
|
|
|
equivalent
of
|
|
Shares
|
|
|
|
|
HK$’000
|
|
|
RMB’000
|
|
Authorised:
|
|
|
|
|
|
|
|
|
|
Ordinary
shares of HK$0.02 each
|
|
|
|
|
|
|
|
|
|
as
at 31 December 2007 and 31 December 2006
|
|
|
75,000,000,000 |
|
|
|
1,500,000 |
|
|
|
|
Issued
and fully paid:
|
|
|
|
|
|
|
|
|
|
|
|
Ordinary
shares of HK$0.02 each as at 1 January 2006
|
|
|
41,054,675,375 |
|
|
|
821,094 |
|
|
|
876,635 |
|
Exercise
of options
|
|
|
1,150,000 |
|
|
|
23 |
|
|
|
24 |
|
Issue
of new shares for cash
|
|
|
2,272,727,273 |
|
|
|
45,454 |
|
|
|
46,994 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As
at 31 December 2006
|
|
|
43,328,552,648 |
|
|
|
866,571 |
|
|
|
923,653 |
|
Conversion
of bonds
|
|
|
974,064,328 |
|
|
|
19,481 |
|
|
|
18,888 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As
at 31 December 2007
|
|
|
44,302,616,976 |
|
|
|
886,052 |
|
|
|
942,541 |
|
15. SEGMENT
INFORMATION
Segment
information is presented by way of two segment formats: (i) on a primary segment
reporting basis, by business segment; and (ii) on a secondary segment reporting
basis, by geographical segment.
Intersegment
transactions: segment revenue, segment expenses and segment performance include
transfers between business segments and between geographical segments. Such
transfers are accounted for at cost. Those transfers are eliminated on
consolidation.
(a) Business
segments
The Group
is organised on a worldwide basis into three major operating segments. The Group
is involved in the upstream operating activities of the petroleum industry that
comprise independent operations, production sharing contracts with foreign
partners and trading business. These segments are determined primarily because
senior management makes key operating decisions and assesses the performance of
the segments separately. The Group evaluates the performance of each segment
based on profit or loss from operations before income taxes.
The
following table presents revenue, profit and certain assets, liabilities and
expenditure information for the Group’s business segments for the years ended 31
December 2007 and 2006.
|
Independent
operations
|
|
Production
sharing contracts
|
|
Trading
business
|
|
Unallocated
|
|
Eliminations
|
|
Consolidated
|
|
2007
|
|
2006
|
|
2007
|
|
2006
|
|
2007
|
|
2006
|
|
2007
|
|
2006
|
|
2007
|
|
2006
|
|
2007
|
|
2006
|
|
RMB’000
|
|
RMB’000
|
|
RMB’000
|
|
RMB’000
|
|
RMB’000
|
|
RMB’000
|
|
RMB’000
|
|
RMB’000
|
|
RMB’000
|
|
RMB’000
|
|
RMB’000
|
|
RMB’000
|
Sales
to external customers:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Oil
and gas sales
|
33,276,884
|
|
31,431,976
|
|
39,760,022
|
|
36,395,977
|
|
–
|
|
–
|
|
–
|
|
–
|
|
–
|
|
–
|
|
73,036,906
|
|
67,827,953
|
Marketing
revenues
|
–
|
|
–
|
|
–
|
|
–
|
|
17,397,338
|
|
20,964,093
|
|
–
|
|
–
|
|
–
|
|
–
|
|
17,397,338
|
|
20,964,093
|
Intersegment
revenues
|
1,128,726
|
|
851,604
|
|
6,006,262
|
|
11,056,807
|
|
–
|
|
–
|
|
–
|
|
|
|
(7,134,988)
|
|
(11,908,411)
|
|
–
|
|
–
|
Other
income
|
180,604
|
|
19,809
|
|
49,428
|
|
89,239
|
|
–
|
|
–
|
|
59,555
|
|
46,190
|
|
–
|
|
–
|
|
289,587
|
|
155,238
|
Total
|
34,586,214
|
|
32,303,389
|
|
45,815,712
|
|
47,542,023
|
|
17,397,338
|
|
20,964,093
|
|
59,555
|
|
46,190
|
|
(7,134,988)
|
|
(11,908,411)
|
|
90,723,831
|
|
88,947,284
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Segment
results
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating
expenses
|
(3,119,948)
|
|
(2,538,092)
|
|
(4,919,655)
|
|
(4,461,092)
|
|
–
|
|
–
|
|
–
|
|
–
|
|
–
|
|
–
|
|
(8,039,603)
|
|
(6,999,184)
|
Production
taxes
|
(1,697,064)
|
|
(1,606,059)
|
|
(1,800,376)
|
|
(1,709,602)
|
|
–
|
|
–
|
|
–
|
|
–
|
|
–
|
|
–
|
|
(3,497,440)
|
|
(3,315,661)
|
Exploration
costs
|
(1,870,775)
|
|
(1,296,424)
|
|
(1,561,644)
|
|
(408,651)
|
|
–
|
|
–
|
|
–
|
|
–
|
|
–
|
|
–
|
|
(3,432,419)
|
|
(1,705,075)
|
Depreciation,
depletion and amortisation
|
(2,690,210)
|
|
(2,502,336)
|
|
(4,684,259)
|
|
(4,430,878)
|
|
–
|
|
–
|
|
–
|
|
–
|
|
–
|
|
–
|
|
(7,374,469)
|
|
(6,933,214)
|
Dismantlement
|
(261,282)
|
|
(242,855)
|
|
(300,419)
|
|
(229,414)
|
|
–
|
|
–
|
|
–
|
|
–
|
|
–
|
|
–
|
|
(561,701)
|
|
(472,269)
|
Special
oil gain levy
|
(3,315,007)
|
|
(1,928,985)
|
|
(3,522,206)
|
|
(2,052,185)
|
|
–
|
|
–
|
|
–
|
|
–
|
|
–
|
|
–
|
|
(6,837,213)
|
|
(3,981,170)
|
Impairment
losses related to property,
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
plant
and equipment
|
–
|
|
(150,399)
|
|
(613,505)
|
|
(101,958)
|
|
–
|
|
–
|
|
–
|
|
–
|
|
–
|
|
–
|
|
(613,505)
|
|
(252,357)
|
Crude
oil and product purchases
|
(1,128,726)
|
|
(851,604)
|
|
(6,006,262)
|
|
(11,056,807)
|
|
(17,082,624)
|
|
(20,572,935)
|
|
–
|
|
–
|
|
7,134,988
|
|
11,908,411
|
|
(17,082,624)
|
|
(20,572,935)
|
Selling
and administrative expenses
|
(57,363)
|
|
(82,377)
|
|
(738,895)
|
|
(708,652)
|
|
–
|
|
–
|
|
(944,903)
|
|
(752,748)
|
|
–
|
|
–
|
|
(1,741,161)
|
|
(1,543,777)
|
Others
|
(82,468)
|
|
(6,134)
|
|
(256,348)
|
|
(101,147)
|
|
–
|
|
–
|
|
(5,863)
|
|
(10,020)
|
|
–
|
|
–
|
|
(344,679)
|
|
(117,301)
|
Interest
income
|
–
|
|
–
|
|
37,016
|
|
82,747
|
|
–
|
|
–
|
|
635,971
|
|
698,789
|
|
–
|
|
–
|
|
672,987
|
|
781,536
|
Finance
costs
|
(184,521)
|
|
(200,110)
|
|
(192,516)
|
|
(112,379)
|
|
–
|
|
–
|
|
(1,654,751)
|
|
(1,519,641)
|
|
–
|
|
–
|
|
(2,031,788)
|
|
(1,832,130)
|
Exchange
gains/(losses), net
|
79
|
|
(19)
|
|
(13,109)
|
|
19,544
|
|
–
|
|
–
|
|
1,868,998
|
|
288,857
|
|
–
|
|
–
|
|
1,855,968
|
|
308,382
|
Investment
income
|
–
|
|
–
|
|
–
|
|
–
|
|
–
|
|
–
|
|
902,378
|
|
613,028
|
|
–
|
|
–
|
|
902,378
|
|
613,028
|
Share
of profits of associates
|
–
|
|
–
|
|
–
|
|
–
|
|
–
|
|
–
|
|
719,039
|
|
321,676
|
|
–
|
|
–
|
|
719,039
|
|
321,676
|
Non-operating
income/(expenses), net
|
–
|
|
–
|
|
–
|
|
–
|
|
–
|
|
–
|
|
(6,979)
|
|
876,423
|
|
–
|
|
–
|
|
(6,979)
|
|
876,423
|
Tax
|
–
|
|
–
|
|
–
|
|
–
|
|
–
|
|
–
|
|
(12,052,323)
|
|
(13,196,313)
|
|
–
|
|
–
|
|
(12,052,323)
|
|
(13,196,313)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Profit
for the year
|
20,178,929
|
|
20,897,995
|
|
21,243,534
|
|
22,271,549
|
|
314,714
|
|
391,158
|
|
(10,478,878)
|
|
(12,633,759)
|
|
–
|
|
–
|
|
31,258,299
|
|
30,926,943
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other
segment information
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Segment
assets
|
45,256,127
|
|
34,244,925
|
|
85,965,366
|
|
76,750,372
|
|
889,072
|
|
1,793,132
|
|
44,564,882
|
|
40,936,072
|
|
–
|
|
–
|
|
176,675,447
|
|
153,724,501
|
Interests
in associates
|
–
|
|
–
|
|
–
|
|
–
|
|
–
|
|
–
|
|
2,030,999
|
|
1,543,515
|
|
–
|
|
–
|
|
2,030,999
|
|
1,543,515
|
Non-current
asset classified as held
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
for
sale
|
–
|
|
–
|
|
1,086,798
|
|
–
|
|
–
|
|
–
|
|
–
|
|
–
|
|
–
|
|
–
|
|
1,086,798
|
|
–
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
assets
|
45,256,127
|
|
34,244,925
|
|
87,052,164
|
|
76,750,372
|
|
889,072
|
|
1,793,132
|
|
46,595,881
|
|
42,479,587
|
|
–
|
|
–
|
|
179,793,244
|
|
155,268,016
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Segment
liabilities
|
(8,514,615)
|
|
(5,505,398)
|
|
(17,718,385)
|
|
(11,105,725)
|
|
(296,971)
|
|
(304,333)
|
|
(18,460,213)
|
|
(30,538,687)
|
|
–
|
|
–
|
|
(44,990,184)
|
|
(47,454,143)
|
Liabilities
directly associated with
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
non-current
asset classified as held
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
for
sale
|
–
|
|
–
|
|
(488,322)
|
|
–
|
|
–
|
|
–
|
|
–
|
|
–
|
|
–
|
|
–
|
|
(488,322)
|
|
–
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
liabilities
|
(8,514,615)
|
|
(5,505,398)
|
|
(18,206,707)
|
|
(11,105,725)
|
|
(296,971)
|
|
(304,333)
|
|
(18,460,213)
|
|
(30,538,687)
|
|
–
|
|
–
|
|
(45,478,506)
|
|
(47,454,143)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Capital
expenditure
|
12,437,280
|
|
8,839,966
|
|
15,150,291
|
|
35,673,922
|
|
–
|
|
–
|
|
26,186
|
|
128,538
|
|
–
|
|
–
|
|
27,613,757
|
|
44,642,426
|
(b)
Geographical segments
The Group
mainly engages in the exploration, development and production of crude oil,
natural gas and other petroleum products at offshore China. Any activities
outside the PRC are mainly conducted in Indonesia, Australia, Nigeria, Canada
and Singapore.
In
determining the Group’s geographical segments, revenues and results are
attributed to the segments based on the location of the Group’s customers, and
assets are attributed to the segments based on the location of the Group’s
assets. No further analysis of geographical segment information is presented for
revenues as over 86% 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 assets and capital expenditure information for
the Group’s geographical segments for the years ended 31 December 2007 and
2006.
|
|
PRC
|
|
|
Africa
|
|
|
Indonesia
|
|
|
Others
|
|
|
Consolidation
and elimination
|
|
|
Total
|
|
|
|
2007
|
|
|
2006
|
|
|
2007
|
|
|
2006
|
|
|
2007
|
|
|
2006
|
|
|
2007
|
|
|
2006
|
|
|
2007
|
|
|
2006
|
|
|
2007
|
|
|
2006
|
|
|
|
RMB’000
|
|
|
RMB’000
|
|
|
RMB’000
|
|
|
RMB’000
|
|
|
RMB’000
|
|
|
RMB’000
|
|
|
RMB’000
|
|
|
RMB’000
|
|
|
RMB’000
|
|
|
RMB’000
|
|
|
RMB’000
|
|
|
RMB’000
|
|
Segment
assets
|
|
|
165,069,955 |
|
|
|
141,671,505 |
|
|
|
28,552,281 |
|
|
|
24,885,876 |
|
|
|
18,869,876 |
|
|
|
19,006,251 |
|
|
|
39,600,715 |
|
|
|
35,901,096 |
|
|
|
(72,299,583 |
) |
|
|
(66,196,712 |
) |
|
|
179,793,244 |
|
|
|
155,268,016 |
|
Capital
expenditure
|
|
|
18,919,577 |
|
|
|
15,794,450 |
|
|
|
5,972,625 |
|
|
|
25,265,423 |
|
|
|
2,592,117 |
|
|
|
3,384,807 |
|
|
|
129,438 |
|
|
|
197,746 |
|
|
|
– |
|
|
|
– |
|
|
|
27,613,757 |
|
|
|
44,642,426 |
|
16. SUBSEQUENT
EVENTS
The
Company and certain of its subsidiaries were the named defendants (the
“Defendants”) in a case brought by a subsidiary of Talisman Energy Inc. (the
“Plaintiff”) which is a partner of a joint operating agreement (the “JOA”)
relating to the Southeast Sumatra production sharing contract working area in
Indonesia. The Plaintiff was claiming rights under the JOA to demand an interest
in the Tangguh LNG Project. The Defendants have fully settled the litigation
with the Plaintiff and Talisman Energy Inc. by reaching an agreement to sell to
Talisman Energy Inc. a 3.05691% working interest in the Tangguh LNG Project for
a consideration of US$212.5 million. The transaction was completed through the
equity transfer of an indirect subsidiary of the Company and became effective on
1 January 2008 (Hong Kong time). The Company through its subsidiary continues to
hold a 13.89997% working interest in the Tangguh LNG Project after the
sale.
Accordingly,
the related property, plant and equipment are classified as a non-current asset
classified as held for sale and the related long term bank loan is classified as
liabilities directly associated with non-current asset classified as held for
sale as at 31 December 2007.
MANAGEMENT DISCUSSION AND
ANALYSIS
BUSINESS REVIEW AND
PROSPECTS
In 2007,
the Company maintained its high speed development with high efficiency. Each of
its operation grew steadily.
For the
year ended 31 December 2007, our total revenue amounted to RMB 90,723.8 million
(US$11,892.1 million, the exchange rates used for 2007 and 2006 are 7.6289 and
7.9820 respectively), representing a 2.0% increase over last year. Net profit of
the Group was RMB31,258.3 million (US$4,097.4 million), representing an increase
of 1.1% over last year. The increase of net profit was mainly due to higher
realized oil price and production growth.
As at 31
December 2007, the Group’s basic and diluted earnings per share were both
RMB0.72.
In 2007,
oil price maintained at high levels and nearly reached US$100 per barrel by the
year-end. The main drivers included instability in oil producing countries and
speculation. It is anticipated that oil price will remain at a relatively high
level in 2008 due to complex factors.
In respect
of our operating environment, the PRC government has tightened macroeconomic
control. It is expected that China’s GDP growth may slightly slow down in 2008.
The inflation rate has not had any sign of retreat since 2007. Raw material cost
and service charges have been increasing continuously. In addition, the fiscal
policy may be further tightened. All these factors are exerting higher pressure
on the Company for cost control.
In order
to capitalize on the opportunity of oil price hike, add more reserve and
production volume, we will further increase capital expenditure on exploration
and development in 2008. The Company will further enhance its exploration
activities, collect more seismic data and drill more wells during the year. In
offshore China, it is expected that Penglai 19-3 platforms II B/D/E, Wenchang
oilfields and Xijiang 23-1 etc. will commence production in 2008. In addition,
there are more than 15 projects under development. As such, the development
capital expenditure will continue to increase.
CONSOLIDATED NET
PROFIT
Our
consolidated net profit increased 1.1% to RMB31,258.3 million (US$4,097.4
million) in 2007 from RMB30,926.9 million in 2006.
REVENUE
Our oil
and gas sales increased 7.7% to RMB73,036.9 million (US$9,573.7 million) in 2007
from RMB 67,828.0 million in 2006. The increase was primarily attributable to
higher oil prices in 2007. The average realised price for our crude oil
increased US$7.36 per barrel, or 12.5%, to US$66.26 per barrel in 2007 from
US$58.90 per barrel in 2006. We sold 134.6 million barrels of crude oil in 2007,
representing a decrease of 0.6% from 135.4 million barrels in 2006. The average
realised price for our natural gas increased US$0.25 per thousand cubic feet, or
8.7%, to US$3.30 per thousand cubic feet in 2007 from US$3.05 per thousand cubic
feet in 2006. Sales volume of our natural gas increased 16.1% to 34.7 million
BOE in 2007 from 29.9 million BOE in 2006.
Our net
marketing profit, which is marketing revenue less purchase costs, decreased
19.6% to RMB314.7 million (US$41.3 million) from RMB391.2 million in 2006. Our
realised marketing profit margin, which is our net marketing profit as a
percentage of marketing revenues was 1.8%, relatively unchanged from 2006. In
2007, over 86% of our revenues were contributed by customers located in China,
with the remainder generated from overseas.
EXPENSES
Operating
expenses
Our
operating expenses increased 14.9% to RMB8,039.6 million (US$1,053.8 million) in
2007 from RMB 6,999.2 million in 2006. Operating expenses per BOE increased
11.8% to RMB47.3 (US$6.20) per BOE in 2007 from RMB42.3 (US$5.30) per BOE in
2006. Operating expenses per BOE offshore China increased 11.4% to RMB38.6
(US$5.05) per BOE in 2007 from RMB34.6 (US$4.34) per BOE in 2006, primarily as a
result of higher service fees and raw material prices. Operating expenses per
BOE overseas decreased 4.6% to RMB104.7 (US$13.72) per BOE in 2007 from RMB109.8
(US$13.76) per BOE in 2006, primarily as a result of the increased production
volume of the North West Shelf Project in Australia, which has a lower than
average cost structure among our overseas operations.
Production taxes
Our
production taxes increased 5.5% to RMB3,497.4 million (US$458.4 million) in 2007
from RMB3,315.7 million in 2006, primarily as a result of increased oil and gas
sales.
Exploration costs
Our
exploration costs increased 101.3% to RMB3,432.4 million (US$449.9 million) in
2007 from RMB1,705.1 million in 2006. Exploration costs incurred offshore China
and overseas in 2007 increased 50.0% and 268.6%, respectively, in 2007, the
Company continued to invest substantial human resourses and capital in
exploration activities.
Depreciation, depletion and
amortisation
Our
depreciation, depletion and amortisation increased 6.4% to RMB7,374.5 million
(US$966.6 million) in 2007 from RMB 6,933.2 million in 2006. Our average
depreciation, depletion and amortisation per barrel increased 3.6% to RMB43.4
(US$5.69) per BOE in 2007 from RMB41.9 (US$5.25) per BOE in 2006, primarily as a
result of the commencement of production of oil and gas fields in 2006 and
2007.
Dismantlement
Our
dismantling expenses increased 18.9% to RMB561.7 million (US$73.6 million) in
2007 from RMB472.3 million in 2006, primarily as a result of the reevaluation of
work commitments, higher service fees and raw material prices. Our average
dismantling costs increased to RMB3.3 (US$0.43) per BOE in 2007 from RMB2.9
(US$0.36) per BOE in 2006.
Special Oil Gain
Levy
Our
Special Oil Gain Levy increased 71.7% to RMB6,837.2 million (US$896.2 million)
in 2007 from RMB3,981.2 million in 2006, primarily as a result of our higher
average realised oil price and the corresponding progressive rates imposed under
the levy. In addition, as the levy was implemented in April 2006, we were
subject to the levy for less than a full year in 2006.
Impairment losses related to
property, plant and equipment
Our
impairment losses increased 143.1% to RMB613.5 million (US$80.4 million) in
2007, from RMB252.4 million in 2006, primarily as a result of expected increase
in future capital expenditures and lower reserve estimation with respect to an
oil and gas field overseas.
Selling and administrative
expenses
Our
selling and administrative expenses increased 12.8% to RMB1,741.2 million
(US$228.2 million) in 2007 from RMB1,543.8 million in 2006. Selling and
administrative expenses for our offshore China operations increased 15.8% to
RMB8.2 (US$1.07) per BOE in 2007 from RMB7.0 (US$0.88) in 2006, primarily as a
result of higher prices in the PRC and share options expense recognised in 2007.
Selling and administrative expenses for our overseas operations decreased 22.5%
to RMB13.4 (US$1.76) per BOE in 2007 from RMB17.3 (US$2.17) per BOE in 2006,
primarily as a result of the increased production volume of the North West Shelf
Project in Australia, which has a lower than average cost structure among our
overseas operations.
Finance costs,
net
Our net
finance costs increased 10.9% to RMB2,031.8 million (US$266.3 million) in 2007
from RMB1,832.1 million in 2006, primarily as a result of losses on fair value
changes of the embedded derivative component of our convertible bonds and the
effect of an increase in the amount of our provision of dismantlement arising
from the passage of time, of which our interest income decreased 13.9% to
RMB673.0 million in 2007 from RMB781.5 million in 2006, primarily as a result of
an increase in financial investments in our short term asset
portfolio.
Exchange gains/losses,
net
Our net
exchange gains incurred in 2007 were RMB1,856.0 million (US$243.3 million),
representing an increase of RMB1,547.6 million (US$204.6 million) from net
exchange gains of RMB308.4 million in 2006. Compared with 2006, the
significantly increased exchange gains mainly came from dividends receivable
from a subsidiary and active changes in currency structure of our assets
portfolio in respond to the ongoing appreciation of RMB during
2007.
Investment income
Our
investment income increased RMB289.4 million, or 47.2% to RMB902.4 million
(US$118.3 million) in 2007 from RMB613.0 million in 2006, primarily as a result
of realised gain from sales of investment funds and the shares of well-known
public listed companies.
Share of profits of
associates
Primarily
contributed by good performance of one of our associate companies, CNOOC Finance
Limited, our share of profits of associates increased 123.5% to RMB719.0 million
(US$94.3 million) in 2007 from RMB321.7 million in 2007.
Non-operating income/expenses,
net
Our net
non-operating expenses for 2007 was RMB7.0 million (US$0.9 million), and our net
non- operating income for 2006 was RMB 876.4 million. The decrease was primarily
the result of a tax refund in 2006 in connection with re-investment in the
PRC.
Income tax
Our income
tax expense decreased 8.7% to RMB12,052.3 million (US$1,579.8 million) in 2007
from RMB13,196.3 million in 2006, primarily as a result of the deferred tax
liability effect of the implementation of a tax rate decrease from 30% to 25%
under the PRC Corporate Income Tax Law effective on 1 January 2008. Our
effective tax rate for 2007 was 27.8%, versus 29.9% in 2006.
Cash generated from operating
activities
Net cash
generated from operating activities in 2007 amounted to RMB42,712.6 million
(US$5,598.8 million), representing an increase of RMB3,487.0 million (US$684.5
million), or 8.9% from RMB39,225.6 million in 2006.
The
increase in cash was mainly due to an increase in non-cash items such as
depreciation, depletion and amortization expenses and impairment loss related to
property, plant and equipment of RMB802.4 million (US$146.8
million).
Increase
of cash flow was also partially offset by an increase of share of profit of
associates of RMB397.4 million (US$54.0 million), decrease of profit before
taxation of RMB812.6 million (US$149.3 million) and increase of net exchange
gains of RMB1,547.3 million (US$204.6 million).
On the
other hand, compared with 2006, the increase in operating cash flow was
partially attributable to the increase in changes of working capital of
RMB3,948.1 million (US$513.1 million). In addition, increase of investment
income received of RMB396.4 million (US$53.5 million) and decrease in income
taxes paid of RMB1,133.5 million (US$73.9 million) also contributed to the
increase of net cash inflow from operating activities.
Capital expenditures and
investments
Net cash
outflow from investing activities in 2007 was RMB22,939.0 million (US$3,006.9
million), representing a decrease of RMB16,586.6 million (US$1,945.0 million),
or 42.0% from RMB39,525.6 million in 2006.
In line
with our “successful efforts” method of accounting, total capital expenditures
and investments primarily include successful exploration and development
expenditures and purchases of oil and gas properties. Total capital expenditures
were RMB26,942.1 million (US$3,531.6 million) in 2007, representing a decrease
of RMB17,274.5 million (US$2,007.9 million), or 39.1%, from RMB44,216.6 million
in 2006. Our development expenditures in 2007 mainly related to the development
of OML130, Penglai 19-3 Phase II, Luda 22-1, Bozhong 34-1, Liuhua 11-1 and
Xijiang 23-1 oil and gas fields. Compared with 2006, there were no significant
merger and acquisition expenditures.
In
addition, cash inflow was attributable to the time deposits with maturities over
three months of RMB2,032.8 million (US$266.5 million) and the net proceeds from
sales of the available-for-sale financial assets and disposal of property, plant
and equipment of RMB8,577.3 million (US$1,124.3 million). On the other hand, the
cash outflow was attributable to the purchases of held-to-maturity financial
asset of RMB3,000.0 million (US$393.2 million) and available-for-sale financial
assets of RMB3,607.0 million (US$472.8 million).
Financing
activities
Net cash
outflow flow arising from financing activities in 2007 was RMB10,645.8 million
(US$1,395.5 million), an net cash inflow of RMB6,038.6 million in 2006,
representing an net increase of cash outflow of RMB16,684.4 million from 2006.
In 2007 the net cash outflow was mainly due to the distribution of dividends of
RMB11,523.7 million, and the repayment of bank loans of RMB17.8 million. It was
partially offset by the cash inflow was mainly contributed by bank borrowed of
RMB895.7 million.
The
gearing ratio of the Company was 7.9% which is defined as interest bearing debt
divided by interest bearing debt plus equity.
Market risks
Our market
risk exposures primarily consist of fluctuations in oil and gas prices, exchange
rates and interest rates.
Oil and gas price
risk
As our oil
prices are mainly determined by reference to the oil prices in international
markets, changes in international oil prices have a large impact on us. Unstable
and high volatility of international oil prices will have a significant effect
on our net sales and net profits.
Currency risk
Substantially
all of the Group’s oil and gas sales are denominated in Renminbi and US dollars.
Starting from 21 July 2005, China reformed the exchange rate regime by moving
into a managed floating exchange regime based on market supply and demand with
reference to a basket of currencies. Renminbi would no longer be pegged to the
United States dollar (“US dollars”). From that day to 31 December 2007, Renminbi
appreciated by approximately 13.31% against the US dollar.
Interest rate
risk
As of the
end of 2007, the interest rates for 78% of the Company’s debts were fixed. The
term of the weighted average balance was approximately 8.5 years. Fixed interest
rate is considered to be favourable under the environment of interest rate hikes
as it can reduce fluctuation in finance cost.
SUPPLEMENTAL INFORMATION FOR NORTH
AMERICAN SHAREHOLDERS SIGNIFICANT DIFFERENCES BETWEEN HONG KONG GAAP AND
GENERALLY ACCEPTED ACCOUNTING PRINCIPLES IN THE UNITED STATES OF AMERICA (“US
GAAP”)
(a) Impairment of
long-lived assets
Under Hong
Kong GAAP, impairment charges are recognised when a long-lived asset’s carrying
amount exceeds the higher of an asset’s fair value less costs to sell and value
in use, which incorporates discounting the asset’s estimated future cash
flows.
Under US
GAAP, long-lived assets are assessed for possible impairment in accordance with
SFAS No. 144 Accounting for
the Impairment or Disposal of Long-lived Assets. SFAS No. 144 requires
the Group to (a) recognise an impairment loss only if the carrying amount of a
long-lived asset is not recoverable from its undiscounted cash flows and (b)
measure an impairment loss as the difference between the carrying amount and the
fair value of the asset. SFAS No. 144 requires that a long-lived asset to be
abandoned, exchanged for a similar productive asset, or distributed to owners in
a spin- off be considered as held and used until it is disposed of.
SFAS No.
144 also requires the Group to assess the need for an impairment of capitalised
costs of proved oil and gas properties and the costs of wells and related
equipment and facilities on a property-by-property basis. If an impairment is
indicated based on undiscounted expected future cash flows, then an impairment
is recognised to the extent that net capitalised costs exceed the estimated fair
value of a property. The fair value of the property is estimated by the Group
using the present value of future cash flows. The impairment is determined based
on the difference between the carrying value of the assets and the present value
of future cash flows. It is reasonably possible that a change in reserve or
price estimates could occur in the near term and adversely impact management’s
estimate of future cash flows and consequently the carrying value of
properties.
In
addition, under Hong Kong GAAP, a subsequent increase in the recoverable amount
of an asset (other than goodwill and available-for-sale equity investments) is
reversed to the income statement to the extent that an impairment loss on the
same asset was previously recognised as an expense when the circumstances and
events that led to the write-down or write-off cease to exist. The reversal is
reduced by the amount that would have been recognised as depreciation had the
write- down or write-off not occurred. Under US GAAP, an impairment loss
establishes a new cost basis for the impaired asset and the new cost basis
should not be adjusted subsequently other than for further impairment
losses.
For the
year ended 31 December 2007, an impairment of approximately RMB613,505,000
related to an aged oil field was recognised under both Hong Kong GAAP and US
GAAP. For the year ended 31 December 2006, an impairment of approximately
RMB252,357,000 was recognised under Hong Kong GAAP and no impairment was
recognised under US GAAP. As a result, additional depreciation of approximately
RMB34,080,000 was recognised under US GAAP.
(b) Accounting for convertible
bonds
With
effect from 1 January 2005, under HKAS 32 Financial Instruments: Disclosure
and Presentation, financial instruments with cash settlement options and
other derivative components need to be bifurcated into a debt component and a
derivative component. The derivative component is marked to market at each
balance sheet date and the differences are charged/credited to the income
statement. However, with the renunciation of the cash settlement option in
relation to the Group’s convertible bonds on 27 July 2007, under Hong Kong GAAP,
the derivative component is transferred to equity. As such, no further
mark-to-market of the derivative component is required going forward. There was
no impact on the debt component, which has been stated at amortised
cost.
Under US
GAAP, convertible bonds are subject to different rules on the bifurcation of the
debt and derivative components. According to SFAS No. 133 Implementation Issue No. C8,
the renunciation of the cash settlement options does not cause the derivative
component to be reclassified to an equity component, therefore the derivative
component is still marked to market at each balance sheet date and the
differences will be charged/credited to the income statement. The debt component
is stated at amortised cost.
The
Company considered whether the convertible bonds contain embedded derivative
features which warrant separate accounting under the guidance provided in SFAS
No. 133. To the extent that the embedded derivatives are determined to exist,
the embedded derivatives are bifurcated as a single, compound derivative and are
accounted for in accordance with SFAS No. 133. The Company bifurcated its
embedded derivatives at fair value and determined the initial carrying value
assigned to the host contract as the difference between the basis of the hybrid
instrument and the fair value of the embedded derivatives, resulting in a
discount attributed to the host bond contract. The host bond contract is then
accreted from the initial amount to the maturity amount over the period from the
date of issuance to the maturity date using the effective interest
method.
The
embedded derivative features within the convertible bonds that would
individually warrant separate accounting as a derivative instrument under SFAS
No. 133 are bundled together as a single, compound embedded derivative
instrument that is bifurcated and accounted for separately from the host
contract under SFAS No. 133. The Company used the binominal tree valuation model
to value the compound embedded derivative features both initially and at each
reporting period to record the changes in fair value of the derivative
instruments.
Instruments
with potential embedded derivative features are evaluated at inception to
determine whether such features meet the definition of a derivative. The
embedded derivative feature would be separated from the host contract and
accounted for as a derivative instrument only if all of the following conditions
are met:
(i)
|
the
economic characteristics and risks of the embedded derivative instrument
are not clearly and closely related to the economic characteristics and
risks of the host contract;
|
(ii)
|
the
hybrid instrument that embodies both the embedded derivative instrument
and the host contract is not re-measured at fair value;
and
|
(iii)
|
a
separate instrument with the same terms as the embedded derivative
instrument would meet the definition of a derivative as described in SFAS
No. 133.
|
The
Group’s convertible bonds include the following embedded derivative features
that warrant separate accounting as a single, compound embedded derivative
instrument under SFAS No. 133:
(i)
|
The
bondholders’ right to convert the convertible bonds into the Company’s
shares at specific price;
|
(ii)
|
Prior
to the renunciation of cash settlement option, upon exercise of the
conversion right by the bondholders of the convertible bonds, the Company
has the option to settle the exercise of the conversion right in cash;
and
|
(iii)
|
The
convertible bonds are denominated in US dollars and are convertible into
the Company’s share denominated into Hong Kong dollars using a fixed
exchange rate of US$1 to HK$7.77.
|
(c) Use of estimates in
the preparation of financial statements
The
preparation of financial statements in conformity with US GAAP requires
management to make estimates and assumptions that affect the reported amounts of
assets and liabilities and disclosure of contingent assets and liabilities at
the date of the financial statements, and the reported amounts of revenues and
expenses during the reporting period. The most significant estimates pertain to
proved oil and gas reserve volumes, the future development cost and provision
for dismantlement as well as estimates relating to certain oil and gas revenues
and expenses. Actual amounts could differ from those estimates and
assumptions.
(d) Segment
reporting
The
Group’s segment information is based on the segmental operating results
regularly reviewed by the Group’s chief operating decision maker. The accounting
policies used are the same as those used in the preparation of the Group’s
consolidated Hong Kong GAAP financial statements.
(e) Income
tax
The Group
completed the acquisition of certain oil and gas interests in Nigeria in 2006.
The oil and gas properties are still under exploration and development
stage.
According
to HKAS 12 “Income Taxes”, no deferred income tax liability is recognised for an
asset acquisition. However, under US GAAP, a deferred income tax liability is
recognised in accordance with EITF 98-11 “Accounting for Acquired Temporary
Differences in Certain Purchase Transactions that are not Accounted for as
Business Combinations”. Accordingly, both the property, plant and equipment and
deferred tax liabilities related to OML130 are increased by RMB16,014,569,000
under US GAAP. The difference in accounting treatment has had no impact on the
net equity reported under US GAAP.
(f) Provision for
dismantlement
Hong Kong
GAAP requires the provision for dismantlement to be recorded for a present
obligation no matter whether the obligation is legal or constructive. The
associated cost is capitalised and the liability is discounted and accretion
expense is recognised using a pre-tax rate that reflects current market
assessments of the time value of money and the risks specific to the liability.
In cases of remeasuring the provision for dismantlement of oil and gas
properties, the Group shall use such a discount rate as mentioned above no
matter whether future cash flows would move upward or downward. HK(IFRIC)-Int 1
requires that adjustments arising from changes in the estimated cash flows or
the current discount rate should be added to or deducted from the cost of the
related asset and liability.
Under US
GAAP, SFAS No. 143 requires that the fair value of a liability for an asset
retirement obligation to be recognised in the period in which it is incurred if
a reasonable estimate of fair value can be made. The associated asset retirement
costs are capitalised as part of the carrying amount of the long-lived assets.
Further, under SFAS No. 143, the liability is discounted and accretion expense
is recognised using the credit-adjusted risk-free interest rate in effect when
the liability is initially recognised. If the Group remeasures the provision for
dismantlement of oil and gas properties, upward revisions in the amount of
undiscounted estimated cash flows shall be discounted using the current
credit-adjusted risk-free rate; downward revisions in the amount of undiscounted
estimated cash flows shall be discounted using the credit-adjusted risk-free
rate that existed when the original liability was recognised. In cases that
changes occur to the discount rate, the Group shall apply the original discount
rate used to initially measure the dismantlement costs, rather than remeasuring
the liability for changes in the discount rate. There were no differences
between the amounts under Hong Kong GAAP and US GAAP for the periods
presented.
(g) Income tax
rates
Under Hong
Kong GAAP, HKAS 12 required the application of tax rates that have been enacted
or substantively enacted by the balance sheet date.
Under US
GAAP, SFAS No. 109 requires that a deferred tax liability or asset shall be
measured using the enacted tax rates expected to apply to taxable income in the
periods in which the deferred tax liability or asset is expected to be settled
or realised.
There were
no differences in the tax rates used for both Hong Kong GAAP and US GAAP for the
periods presented.
(h) Accounting for
uncertainty in income taxes
Under US
GAAP, FIN 48 clarifies that the accounting for income taxes by prescribing the
minimum recognition threshold a tax position is required to meet before being
recognised in the financial statements. It provides guidance on derecognition,
measurement, classification, interest and penalties, accounting in interim
periods, disclosure and transition. The adoption of FIN 48 by the Company on 1
January 2007 had no significant impact on its financial position and result of
operations.
However,
under HK GAAP, there are no established standards specifically dealing with
accounting for uncertainty in income taxes except for HKAS 37 Provisions,
Contingent Liabilities and Contingent Assets that applies to all
contingencies.
(i) Effects on net
profit and equity
The
effects on net profit and equity of the above significant differences between
Hong Kong GAAP and US GAAP are summarised below:
|
|
|
|
Net
profit
|
|
|
|
|
|
|
|
|
2007
|
|
|
2006
|
|
|
|
|
|
RMB’000
|
|
|
RMB’000
|
|
|
|
|
|
|
|
|
|
|
As
reported under Hong Kong GAAP
|
|
|
31,258,299 |
|
|
|
30,926,943 |
|
|
|
|
|
|
|
|
|
|
Impact
of US GAAP adjustments:
|
|
|
|
|
|
|
|
|
|
– |
|
Fair
value losses on embedded derivative component of convertible
bonds
|
|
|
(2,975,664 |
) |
|
|
– |
|
|
– |
|
Depreciation
of property, plant and equipment due to reversal of
|
|
|
|
|
|
|
|
|
|
|
|
impairment
losses
|
|
|
(34,080 |
) |
|
|
– |
|
|
– |
|
Deferred
income tax related to depreciation of property, plant and
equipment
|
|
|
8,520 |
|
|
|
– |
|
|
– |
|
Reversal
of impairment losses related to property, plant and
equipment
|
|
|
– |
|
|
|
252,357 |
|
|
– |
|
Deferred
income tax related to impairment losses on property,
|
|
|
|
|
|
|
|
|
|
|
|
plant
and equipment
|
|
|
– |
|
|
|
(75,708 |
) |
|
|
|
|
|
|
|
|
|
Net
profit under US GAAP
|
|
|
28,257,075 |
|
|
|
31,103,592 |
|
|
|
|
|
|
|
|
|
|
Net
profit per share under US GAAP
|
|
|
|
|
|
|
|
|
–
Basic
|
|
RMB0.65
|
|
|
RMB0.73
|
|
–
Diluted
|
|
RMB0.65
|
|
|
RMB0.73
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
equity
|
|
|
|
|
|
|
2007
|
|
|
2006
|
|
|
|
|
|
|
RMB’000
|
|
|
RMB’000
|
|
As
reported under Hong Kong GAAP
|
|
|
134,314,738 |
|
|
|
107,771,928 |
|
Impact
of US GAAP adjustments:
|
|
|
|
|
|
|
|
|
|
– |
|
Reversal
of derivative component of convertible bond reclassified to
equity
|
|
|
(4,471,324 |
) |
|
|
– |
|
|
– |
|
Addition
of share premium related to conversion of bonds
|
|
|
4,076,738 |
|
|
|
– |
|
|
– |
|
Fair
value losses on embedded derivative component of convertible
bonds
|
|
|
(2,975,664 |
) |
|
|
– |
|
|
– |
|
Reversal
of impairment losses related to property, plant and
equipment
|
|
|
252,357 |
|
|
|
252,357 |
|
|
– |
|
Deferred
income tax related to impairment losses on property,
|
|
|
|
|
|
|
|
|
|
|
|
plant
and equipment
|
|
|
(75,708 |
) |
|
|
(75,708 |
) |
|
– |
|
Depreciation
of property, plant and equipment due to reversal of
|
|
|
|
|
|
|
|
|
|
|
|
impairment
losses
|
|
|
(34,080 |
) |
|
|
– |
|
|
– |
|
Deferred
income tax related to depreciation of property, plant and
equipment
|
|
|
8,520 |
|
|
|
– |
|
|
– |
|
Reversal
of additional accumulated depreciation, depletion and
amortisation
|
|
|
|
|
|
|
|
|
|
|
|
arising
from the revaluation surplus on land and buildings
|
|
|
44,207 |
|
|
|
44,207 |
|
|
|
|
|
|
|
|
|
|
|
|
|
As
reported under US GAAP
|
|
|
131,139,784 |
|
|
|
107,992,784 |
|
(j) Comprehensive
income
According
to SFAS No. 130, “Reporting comprehensive income”, the Group is required to
include a statement of other comprehensive income for revenues and expenses,
gains and losses which under US GAAP are included in comprehensive income and
excluded from net income.
|
|
2007
|
|
|
2006
|
|
|
|
RMB’000
|
|
|
RMB’000
|
|
|
|
|
|
|
|
|
|
|
Net
income under US GAAP
|
|
|
28,257,075 |
|
|
|
31,103,592 |
|
Other
comprehensive income:
|
|
|
|
|
|
|
|
|
Foreign
currency translation adjustments
|
|
|
(3,861,917 |
) |
|
|
(1,257,594 |
) |
Unrealised
gains on available-for-sale investments
|
|
|
63,426 |
|
|
|
60,010 |
|
Less:
Reclassification adjustment for gains included in net
income
|
|
|
(60,010 |
) |
|
|
(69,069 |
) |
|
|
|
|
|
|
|
|
|
Comprehensive
income under US GAAP
|
|
|
24,398,574 |
|
|
|
29,836,939 |
|
The
movement of accumulated other comprehensive income components is as
follows:
|
|
Foreign
currency
translation
adjustments
|
|
|
Unrealised
gains
on
available
-for-sale
investments
|
|
|
Accumulated
other
comprehensive
income
|
|
|
|
RMB’000
|
|
|
RMB’000
|
|
|
RMB’000
|
|
|
|
|
|
|
|
|
|
|
|
Balance
at 31 December 2005
|
|
|
(512,943 |
) |
|
|
69,069 |
|
|
|
(443,874 |
) |
Reversal
of current year’s realised gains
|
|
|
– |
|
|
|
(69,069 |
) |
|
|
(69,069 |
) |
Current
year’s change
|
|
|
(1,257,594 |
) |
|
|
60,010 |
|
|
|
(1,197,584 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance
at 31 December 2006
|
|
|
(1,770,537 |
) |
|
|
60,010 |
|
|
|
(1,710,527 |
) |
Reversal
of current year’s realised gains
|
|
|
– |
|
|
|
(60,010 |
) |
|
|
(60,010 |
) |
Current
year’s change
|
|
|
(3,861,917 |
) |
|
|
63,426 |
|
|
|
(3,798,491 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance
at 31 December 2007
|
|
|
(5,632,454 |
) |
|
|
63,426 |
|
|
|
(5,569,028 |
) |
(k) Additional disclosure
under FSP FAS19-1
The Group
adopted FASB Staff Position FAS19-1, “Accounting for Suspended Well Costs”. Upon
adoption of the FSP, the Group evaluated all existing capitalised exploratory
well costs under the provisions of the FSP. The following table reflects the net
changes in capitalised exploratory well costs during 2007 and 2006, and does not
include amounts that were capitalised and subsequently expensed in the same
period.
|
|
2007
|
|
|
2006
|
|
|
|
RMB’000
|
|
|
RMB’000
|
|
|
|
|
|
|
|
|
Beginning
of the year
|
|
|
879,189 |
|
|
|
281,573 |
|
Additions
to capitalised exploratory well costs
|
|
|
|
|
|
|
|
|
pending
the determination of proved reserves
|
|
|
1,592,302 |
|
|
|
803,184 |
|
Reclassifications
to oil and gas properties based on the
|
|
|
|
|
|
|
|
|
determination
of proved reserve
|
|
|
(36,027 |
) |
|
|
(182,582 |
) |
Capitalised
exploratory well costs charged to expense
|
|
|
(385,609 |
) |
|
|
(7,976 |
) |
Exchange
realignment
|
|
|
(55,913 |
) |
|
|
(15,010 |
) |
|
|
|
|
|
|
|
|
|
End
of the year
|
|
|
1,993,942 |
|
|
|
879,189 |
|
Aging of
capitalised exploratory well costs and the number of projects for which
exploratory well costs have been capitalised for a period greater than one year
as follows:
|
|
2007
|
|
|
2006
|
|
|
|
RMB’000
|
|
|
RMB’000
|
|
Capitalised
exploratory well costs that have been
|
|
|
|
|
|
|
capitalised
for a period for one year or less
|
|
|
1,549,223 |
|
|
|
834,333 |
|
Capitalised
exploratory well costs that have been
|
|
|
|
|
|
|
|
|
capitalised
for a period greater than one year
|
|
|
444,719 |
|
|
|
44,856 |
|
|
|
|
|
|
|
|
|
|
End
of the year
|
|
|
1,993,942 |
|
|
|
879,189 |
|
|
|
|
|
|
|
|
|
|
Number
of projects for which exploratory well costs
|
|
|
|
|
|
|
|
|
have
been capitalised for a period greater than one year
|
|
|
4 |
|
|
|
1 |
|
The
RMB444,719,000 of suspended well costs capitalised for a period greater than one
year as at 31 December 2007 represents six exploratory wells in four projects.
RMB48,162,000 is related to wells drilled in 2005 and 2006 for two projects that
had drilling activities under way that were firmly planned for the near future,
and RMB396,557,000 is related to wells drilled in 2005 and 2006 for two
projects, for which additional drilling was not deemed necessary, because the
presence of hydrocarbons had already been established, and other activities were
in process to enable a future decision on project development.
EMPLOYEES
We had
3,288 employees as at 31 December 2007.
We have
adopted 4 share option schemes for directors, senior management and other
eligible grantees of the Company since 4 February 2001. The Board has granted
options to directors, senior management and other eligible grantees pursuant to
each share option scheme.
During the
year, the Company took steps to enhance the planning and budget control of its
labor costs by implementing target benchmarks in performance appraisals to guide
various business units to cut their labor costs and to increase the accuracy
rate of their compensation budgets.
At the
same time, in order to maximize our return on human resources, the Company paid
particular attention to critical business units and key positions in formulating
compensation budgets and resources allocation.
In
addition, the Company made adjustments to the compensation and allowance policy
for staff based on the inflation rates and exchanges rates of their homeland
countries/regions.
CHARGES ON ASSETS
CNOOC NWS
Private Limited is a wholly owned subsidiary, and 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 interests in the NWS Project.
CONTINGENT
LIABILITIES
On 8
January 2006, the Company signed a definitive agreement with South Atlantic
Petroleum Limited (“SAPETRO”) to acquire a 45% working interest in the Offshore
Oil Mining Lease 130 (“OML130”) in Nigeria (the “OML130 Transaction”) and the
OML130 Transaction was completed on 20 April 2006. The OML130 project is still
in the exploration and development phase.
In 2007, a
local tax office in Nigeria (the “Nigeria local tax office”) conducted a tax
audit on SAPETRO. According to the preliminary tax audit results, the Nigeria
local tax office has raised a disagreement in the tax filings made for the
OML130 Transaction. The final tax audit results might affect the acquisition
cost of the Company for the OML130 Transaction.
The tax
audit assessment made by the Nigeria local tax office has been contested by the
Company in accordance with Nigerian laws. After seeking legal and tax advice,
the Company’s management believes that the Company has reasonable grounds in
making the contest. Consequently, no provision has been made for any expenses
and/or adjustment to the acquisition cost of OML130 which might arise as a
result of the dispute.
DIVIDENDS
On 29
August 2007, the Board declared an interim dividend of HK$0.13 per share (2006:
HK$0.12 per share). The interim dividends amounted to HK$5,730,284,000, based on
the number of issued shares as at the specified record date.
The Board
has recommended a final dividend of HK$0.17 (2006: HK$0.14) per share to
shareholders whose name appear on the register of members of the Company on 29
May 2008, totaling HK$0.30 per share for the year ended 31 December 2007. The
proposed final dividend for the year is subject to the approval of the Company’s
shareholders at the forthcoming annual general meeting.
The
payment of future dividends will be determined by the Company’s Board, which are
based upon, among other things, the Company’s future earnings, capital
requirements, financial conditions, future prospects and other factors which the
Board may consider relevant. The Company’s ability to pay dividends will also
depend on the cash flows determined by the dividends, if any, received by the
Company from its subsidiaries and associates.
Cash
dividends to the shareholders in Hong Kong will be paid in Hong Kong dollars.
Cash dividends to the American Depositary Receipts (“ADR”) holders will be paid
to the depositary in Hong Kong dollars and will be converted by the depositary
into United States dollars and paid to the holders of ADRs.
AUDIT COMMITTEE
The Audit
Committee of the Company has reviewed, together with the management, the Group’s
consolidated financial statements for the year ended 31 December 2007, including
the accounting principles and practices adopted by the Group and has discussed
the internal control and financial reporting matters. The Audit Committee of the
Company has reviewed the annual results of the Company for the year ended 31
December 2007.
PURCHASE, DISPOSAL AND REDEMPTION OF
THE COMPANY’S LISTED SECURITIES
The
Company and its subsidiaries did not purchase, dispose of or redeem any of the
listed securities of the Company during the year ended 31 December
2007.
CLOSURE OF REGISTER OF
MEMBERS
The
Register of Members of the Company will be closed from 22 May 2008 (Thursday) to
29 May 2008 (Thursday) (both dates inclusive) during which no transfer of shares
of the Company can be registered. In order to qualify for the dividends and to
attend the annual general meeting of the Company, all transfers, accompanied by
the relevant share certificates, must be lodged with the Company’s share
registrar, Hong Kong Registrars Limited, at Shops 1712-1716, 17th Floor,
Hopewell Centre, 183 Queen’s Road East, Wanchai, Hong Kong, not later than 4:00
p.m. on 21 May 2008 (Wednesday).
COMPLIANCE WITH THE CODE ON CORPORATE
GOVERNANCE PRACTICES
The
Company has complied with the code provisions (“Code Provisions”) of the Code on
Corporate Governance Practices (the “CG Code”) as set out in Appendix 14 of the
Rules Governing the Listing of Securities on The Stock Exchange of Hong Kong
Limited (the “Listing Rules”) throughout the year ended 31 December 2007, except
for deviations from Code Provisions A.2.1 and A.4.1 only. The following
summarise the Company’s deviations from the CG Code and the reasons for such
deviations.
Code Provision
A.2.1
Under Code
Provision A.2.1, the roles of the chairman and chief executive officer are
required to be separated and not to be performed by the same
individual.
Mr. Fu
Chengyu (“Mr. Fu”) is the Chairman of the Board. In addition to the role of the
Chairman, the role of Chief Executive Officer is also designated to Mr. Fu. This
constitutes a deviation from Code Provision A.2.1. The reason for such deviation
is set out below.
The
Company is engaged in the oil and gas exploration and production business which
is different from integrated oil companies engaging in both upstream and
downstream operations. In light of this, the Board considers that the interest
of the Company’s oil exploration and production business is best served when
strategic planning decisions are made and implemented by the same person. The
Company’s Nomination Committee also agreed that it is in the best interest of
the Company that the roles of the Chairman of the Board and Chief Executive
Officer be performed by the same individual.
In light
of the above, the Company does not currently propose to designate another person
as the Chief Executive Officer of the Company.
Code Provision
A.4.1
Under Code
Provision A.4.1, non-executive directors should be appointed for a specific term
and be subject to re-election.
None of
the existing Independent Non-executive Directors of the Company is appointed for
a specific term. This constitutes a deviation from Code Provision A.4.1.
However, all the Directors of the Company are subject to the retirement
provisions under article 97 of the articles of association of the Company
(“Article 97”). According to Article 97, one-third of the Directors for the time
being must retire from the office by rotation at each annual general meeting.
The Company has observed the need for good corporate governance practices and
all the existing Independent Non-executive Directors of the Company have been
re-elected in past three years, except Dr. Edgar W. K. Cheng, who was appointed
as an Independent Non-executive Director of the Company with effect from 24 May
2006. Therefore, the Company considers that sufficient measures have been taken
to ensure that the Company’s corporate governance practices are no less exacting
than those in the CG Code.
Further
information on the CG Code can be found in the Corporate Governance Report
contained in the annual report.
MODEL
CODE FOR SECURITIES TRANSACTIONS BY DIRECTORS OF LISTED ISSUERS
The
Company has adopted a code of ethics (“Code of Ethics”) incorporating the Model
Code for Securities Transactions by Directors of Listed Issuers (the “Model
Code”) as set out in Appendix 10 to the Listing Rules. All Directors have
confirmed that they complied, during the year ended 31 December 2007, with the
required standards set out in the Model Code.
PUBLICATION OF ANNUAL RESULTS AND
ANNUAL REPORT
The
electronic version of this announcement is published on the website of the Hong
Kong Stock Exchange (http://www.hkex.com.hk) and on the Company’s website
(http://www.cnoocltd.com). The annual report for the year ended 31 December
2007, containing all the information required by Appendix 16 to the Listing
Rules, will be dispatched to shareholders of the Company and published on the
Hong Kong Stock Exchange’s website and the Company’s website in due
course.
GENERAL
For the
purpose of this announcement, unless otherwise indicated, translations of
Renminbi into US dollars for 2007 have been made at the rate of RMB7.6289 to
US$1(2006: RMB7.9820 to US$1). These translations are for the purposes of
illustration only and no representation is made by the Company that any amounts
in Renminbi and US dollars can be or could have been converted at the above rate
or any other rates or at all.
Note: Some of the Company’s
operating data presented in this announcement includes its interest in an
associate.
As at the
date of this announcement, the Board comprises:
Executive
Directors
|
Independent
Non-executive Directors
|
Fu
Chengyu (Chairman)
|
Edgar
W. K. Cheng
|
Zhou
Shouwei
|
Chiu
Sung Hong
|
Wu
Guangqi
|
Evert
Henkes
|
Yang
Hua
|
Lawrence
J. Lau
|
|
Tse
Hau Yin, Aloysius
|
Non-executive
Directors
|
|
Luo
Han
|
|
Cao
Xinghe
|
|
Wu
Zhenfang
|
|
|
|
By
Order of the Board
|
|
CNOOC
Limited
|
|
Fu
Chengyu
|
|
Chairman
and Chief Executive Officer
|
|
|
|
Hong
Kong, 27 March 2008
|
|
This announcement 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 prospectus or financial results. The words
“believe,” “intend,” “expect,” “anticipate,” “project,” “estimate,” “plan,”
“predict” and similar expressions are intended to identify such forward- looking
statements. These statements are based on assumptions and analyses made by the
Company that the Company believes are reasonable under the circumstances.
However, whether actual results and developments will meet the expectations and
predictions depend on a number of risks and uncertainties which could cause the
Company’s actual results, performance and financial condition to differ
materially from the expectations. For a description of these and other risks and
uncertainties, please see the documents the Company files from time to time with
the United States Securities and Exchange Commission, including the Company’s
2006 Annual Report on Form 20-F filed on 29 June 2007.
Please also refer to the published
version of this announcement in the South China Morning
Post.
37