SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
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FORM 6-K
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REPORT OF FOREIGN PRIVATE ISSUER
PURSUANT TO RULE 13a-16 OR 15d-16 OF
THE SECURITIES EXCHANGE ACT OF 1934
For September 8, 2005
CNOOC Limited
(Translation of registrant's name into English)
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65th Floor
Bank of China Tower
One Garden Road
Central, Hong Kong
(Address of principal executive offices)
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(Indicate by check mark whether the registrant files or will file annual
reports under cover Form 20-F or Form 40-F)
Form 20-F X Form 40-F
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(Indicate by check mark whether the registrant by furnishing the information
contained in this Form is also thereby furnishing the information to the
Commission pursuant to Rule 12g3-2(b) under the Securities Exchange Act of
1934.)
Yes No X
--------- ----------
(If "Yes" is marked, indicate below the file number assigned to the registrant
in connection with Rule 12g3-2(b): N/A.)
Interim Report for the Six Months Ended June 30, 2005
-----------------------------------------------------
CONTENTS
2 CHAIRMAN'S STATEMENT
4 KEY FIGURES
5 CONDENSED CONSOLIDATED INCOME STATEMENT
6 CONDENSED CONSOLIDATED BALANCE SHEET
7 CONDENSED CONSOLIDATED STATEMENT OF CHANGES IN EQUITY
8 CONDENSED CONSOLIDATED CASH FLOW STATEMENT
9 NOTES TO CONDENSED INTERIM FINANCIAL STATEMENTS
37 INDEPENDENT REVIEW REPORT
38 OTHER INFORMATION
CNOOC LIMITED 2005 Interim Report 01
CHAIRMAN'S STATEMENT
During the first half of 2005, the Company continued to achieve record business
results. We saw a steady growth in oil and gas production and satisfactory
progress in our development projects. Benefiting from the strong international
oil prices, our realised oil prices rose significantly, leading to a significant
increase in our interim oil and gas revenues. Noteworthy achievements were also
recorded in our overseas development. Based on these favorable factors, our
interim net profit again reached a record-high level.
During this period, the management effectively implemented the development
strategies of the Company and achieved stable growth across our business units.
The shareholders' value was maintained and enhanced to a higher level.
OPERATIONS REVIEW
During the first half of 2005, the Company's crude oil and natural gas
production reached 64.6 million barrels and 66.7 billion cubic feet
respectively. The total net oil and gas production reached 76.1 million
barrels-of-oil-equivalent (BOE), representing an increase of 14.3% over the same
period last year. The total net oil and gas production from offshore China
reached 69.4 million BOE, representing an increase of 19.4% over the same period
last year.
As the international oil prices continued their upward trend, our realised oil
price soared significantly to US$43.91 per barrel, representing an increase of
36.4% from the corresponding period last year. Our realised natural gas price
was US$2.95 per thousand cubic feet.
Due to the production growth and strong oil prices, our oil and gas sales
reached RMB 24.73 billion during the first half of this year, representing an
increase of 54.3% compared with the same period last year. Including revenues
from trading and other activities, we achieved a total revenue of RMB 32.83
billion, representing an increase of 35.0% from the corresponding period last
year. Our profit before tax for the first half was RMB 16.97 billion,
representing an increase of 65.8% from the same period last year, and our net
profit was RMB 11.83 billion, representing an increase of 68.6% compared with
the same period last year.
During this period, our basic and diluted earnings per share were RMB 0.29 and
RMB 0.28 respectively. According to our dividend policy, the board of directors
recommended an interim dividend of HK$0.05 per share and a special interim
dividend of HK$0.05 per share.
Through our vigorous exploration programs, we recorded four oil and gas
discoveries, of which three were independent discoveries, namely Bozhong 34-1N,
Bozhong 26-2N and Weizhou 6-10, and the other one was a PSC discovery, namely
Bozhong 19-4N. In addition, we successfully completed appraisals of 4
discoveries, namely Bozhong 3-2, Weizhou 11-4N, Liuhua 19-5 (all of which were
our independent discoveries), and Huizhou 25-3 (which was discoveried by our PSC
partners).
We made remarkable progress in the development of our oil and gas fields. Two
Luda oilfields have already been successfully on stream. In addition, 8 projects
are currently in progress. We are confident to complete all the projects on
schedule this year.
We also achieved remarkable breakthroughs in overseas development. We entered
into several PSC contracts and agreements in Asia and Africa, and acquired a
stake in the Canadian-based oil sand company MEG Energy Corp.
02 CNOOC LIMITED 2005 Interim Report
CHAIRMAN'S STATEMENT
On 23 June, we announced that we had proposed a merger with Unocal Corporation,
offering US$67 in cash per Unocal share. The combination was expected to more
than double our oil and gas production and increase our reserves by nearly 80%.
The merger was also anticipated to increase shareholders' value. But in the
following month, the unprecedented political opposition from US made it very
difficult for us to accurately assess our chances of success, creating a level
of uncertainty that presents an unacceptable risk to our ability to consummate
this transaction. It was therefore no longer in our shareholders' best interests
if we continued to pursue our bid under these circumstances. As a result, on 2
August, we announced that we had withdrawn our offer for Unocal.
Health, safety and environmental protection are always top priorities in our
agenda. During the first half of 2005, we successfully obtained the No.2 License
for Safe Operation in China and managed to keep our recordable accident rate and
our work hours lost rate at very low levels, which were 0.37 and 0.18
respectively.
On 1 June, the Company announced the retirement of Executive Director Mr. Jiang
Longsheng and the appointment of Mr. Wu Guangqi in place of Mr. Jiang Longsheng.
On 8 June, the Company announced the appointment of Mr. Tse Hau Yin, Aloysius as
Independent Non-executive Director of the Company in place of Dr. Erwin
Schurtenberger, who had resigned for personal reason due to ill health.
OUTLOOK
In the coming second half of 2005, the demand for energy and raw materials is
expected to continue to grow as the global economy maintains its robust
momentum, thus creating a favorable market environment for the Company. We will
continue to focus on protecting the shareholders' interests and enhancing our
operation and management capability, so as to maximize shareholders' return with
outstanding operation results. Our key tasks in the second half of the year
include:
o Keep our focus steady on achieving our oil and gas production targets for
the year, while maintaining our competitive cost control measures and
prudent financial policy.
o Achieve stable increase in our reserves through active independent and PSC
explorations.
o Maintain close control over the progress, costs and quality of our planned
exploration and production projects to meet the Company's development
targets.
o Continue to implement opportunistic acquisition strategy in the
international arena, with a fundamental objective to maximize shareholders'
value.
o Continue to keep health, safety and environmental protection as our top
priorities.
Fu Chengyu
Chairman & Chief Executive Officer
Hong Kong, 30 August 2005
CNOOC LIMITED 2005 Interim Report 03
KEY FIGURES
Six months ended
30 June
2005 2004
Net profit, million RMB(1) 11,829 7,017
Earnings per share, RMB 0.29 0.17
Total Oil and Gas Sales, million RMB 24,734 16,028
Total Revenue, million RMB 32,832 24,321
Total Production
Oil, million barrels 64.6 55.8
Gas, billion cubic feet 66.7 62.2
Total, million barrels of oil equivalent 76.1 66.6
Daily Production
Oil, barrels 356,826 306,730
Gas, million cubic feet 369 341
Total, barrels of oil equivalent 420,325 365,771
Note:
(1) Net profit for 2004 has been restated as a result of the adoption of
certain new accounting standards effective on 1 January 2005.
04 CNOOC LIMITED 2005 Interim Report
CONDENSED CONSOLIDATED
INCOME STATEMENT
For the six months ended 30 June 2005
(All amounts expressed in thousands of Renminbi, except per share data)
Six months ended 30 June
Notes 2005 2004
(Unaudited) (Unaudited)
(Restated)
REVENUE
Oil and gas sales 4 24,733,991 16,027,545
Marketing revenue 4 8,035,007 8,223,351
Other income 63,075 69,742
----------- -----------
32,832,073 24,320,638
----------- -----------
EXPENSES
Operating expenses (2,679,754) (2,094,917)
Production taxes (1,195,322) (726,667)
Exploration expenses (611,276) (550,671)
Depreciation, depletion and amortisation (2,786,582) (2,647,826)
Dismantlement (106,951) (99,542)
Impairment (90,189) --
Crude oil and product purchases 4 (7,951,389) (8,122,807)
Selling and administrative expenses (545,289) (489,232)
Others (41,464) (4,827)
----------- -----------
(16,008,216) (14,736,489)
----------- -----------
PROFIT FROM OPERATING ACTIVITIES 16,823,857 9,584,149
Interest income 208,358 92,569
Interest expenses 5 (321,354) (219,823)
Exchange gains/(losses), net 19,209 56,866
Short term investment gains/(losses), net 60,336 (1,863)
Share of profits of associates 180,480 185,301
Non-operating income/(expenses), net 1,154 541,683
----------- -----------
PROFIT BEFORE TAX 16,972,040 10,238,882
Tax 6 (5,143,017) (3,221,429)
----------- -----------
NET PROFIT 11,829,023 7,017,453
----------- -----------
EARNINGS PER SHARE
Basic 7 RMB0.29 RMB0.17
----------- -----------
Diluted 7 RMB0.28 RMB0.17
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DIVIDENDS
Interim dividend declared 14 2,138,128 1,308,225
Special interim dividend declared 14 2,138,128 2,180,375
Special interim dividend declared
in place of 2003 final dividend -- 2,617,526
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4,276,256 6,106,126
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CNOOC LIMITED 2005 Interim Report 05
CONDENSED CONSOLIDATED
BALANCE SHEET
30 June 2005
(All amounts expressed in thousands of Renminbi)
30 June 31 December
Notes 2005 2004
(Unaudited) (Audited)
(Restated)
NON-CURRENT ASSETS
Property, plant and equipment, net 8 60,139,478 57,456,697
Intangible assets 9 1,332,866 --
Investments in associates 1,335,244 1,327,109
Available-for-sale financial assets 1,017,000 --
----------- -----------
63,824,588 58,783,806
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CURRENT ASSETS
Accounts receivable, net 10 4,785,456 4,276,489
Inventories and supplies 1,308,408 1,147,294
Due from related companies 1,944,392 1,173,374
Other current assets 1,777,136 556,931
Available-for-sale financial assets 9,149,156 5,444,113
Time deposits with maturity over three months 5,903,000 8,603,000
Cash and cash equivalents 16,034,103 14,091,524
----------- -----------
40,901,651 35,292,725
----------- -----------
TOTAL ASSETS 104,726,239 94,076,531
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NON-CURRENT LIABILITIES
Long term bank loans 858,764 865,211
Long term guaranteed notes 11 15,886,256 15,865,165
Derivative financial instruments 454,705 448,385
Provision for dismantlement 3,278,630 3,089,448
Deferred tax liabilities 6,863,151 6,688,498
----------- -----------
27,341,506 26,956,707
----------- -----------
CURRENT LIABILITIES
Accounts payable 12 3,202,184 3,102,024
Other payables and accrued liabilities 5,323,901 4,191,024
Current portion of long term bank loans 20,401 24,364
Due to related companies 270,221 211,425
Due to the parent company 310,139 370,060
Tax payable 3,199,111 2,503,466
----------- -----------
12,325,957 10,402,363
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CAPITAL AND RESERVES
Issued capital 13 876,635 876,586
Reserves 64,182,141 55,840,875
----------- -----------
65,058,776 56,717,461
----------- -----------
TOTAL EQUITY AND LIABILITIES 104,726,239 94,076,531
----------- -----------
06 CNOOC LIMITED 2005 Interim Report
CONDENSED CONSOLIDATED
STATEMENT OF CHANGES IN EQUITY
For the six months ended 30 June 2005
(All amounts expressed in thousands of Renminbi)
Share premium
Issued and capital Cumulative Statutory and
share redemption Revaluation translation non-distributive Other Retained
capital reserve reserve reserve reserve reserve earnings Total
(Unaudited)
Balances at 1 January 2004
as previously reported 876,978 20,761,205 274,671 22,647 8,050,489 -- 16,750,542 46,736,532
Cumulative adjustment for
the adoption of
HKFRS2 (note 2) -- -- -- -- -- 63,502 (63,502) --
-------------- ------------ ------------ ------------ ------------- ----------- ------------- ---------
Balances at 1 January 2004
as restated 876,978 20,761,205 274,671 22,647 8,050,489 63,502 16,687,040 46,736,532
-------------- ------------ ------------ ------------ ------------- ----------- ------------- ---------
Repurchases of shares (359) -- -- -- -- -- (55,337) (55,696)
Transfer of reserve upon
shares repurchases -- 359 -- -- -- -- (359) --
Net profit for the period -- -- -- -- -- -- 7,017,453 7,017,453
2003 final and special
final dividends -- -- -- -- -- -- (2,617,526)(2,617,526)
Employee share option
expenses -- -- -- -- -- 24,474 -- 24,474
Foreign currency
translation
differences -- -- -- 2,269 -- -- -- 2,269
-------------- ------------ ------------ ------------ ------------- ----------- ------------- ---------
Net gains not recognised
in the income statement -- -- -- 2,269 -- -- -- 2,269
-------------- ------------ ------------ ------------ ------------- ----------- ------------- ---------
Balances at 30 June 2004
as restated 876,619 20,761,564 274,671 24,916 8,050,489 87,976 21,031,271 51,107,506
-------------- ------------ ------------ ------------ ------------- ----------- ------------- ---------
(Unaudited) Balances at
1 January 2005
as previously reported 876,586 20,761,597 274,671 (19,654) 9,413,610 -- 25,410,651 56,717,461
Cumulative adjustment
for the adoption of
HKFRS2 (note 2) -- -- -- -- -- 110,144 (110,144) --
Opening adjustment for the
adoption of HKAS 39
(note 2) -- -- -- -- -- 20,036 (20,036) --
-------------- ------------ ------------ ------------ ------------- ----------- ------------- ---------
Balances at 1 January 2005
as restated 876,586 20,761,597 274,671 (19,654) 9,413,610 130,180 25,280,471 56,717,461
-------------- ------------ ------------ ------------ ------------- ----------- ------------- ---------
Net profit for the period -- -- -- -- -- -- 11,829,023 11,829,023
2004 final and special
final dividends -- -- -- -- -- -- (3,495,963)(3,495,963)
Exercise of share options 49 4,451 -- -- -- -- -- 4,500
Employee share option
expenses -- -- -- -- -- 11,763 -- 11,763
Unrealised gains from
available-for-sale
marketable securities -- -- -- -- -- 31,645 -- 31,645
Foreign currency
translation
differences -- -- -- (39,653) -- -- -- (39,653)
-------------- ------------ ------------ ------------ ------------- ----------- ------------- ---------
Net gains/(losses) not
recognised
in the income statement -- -- -- (39,653) -- 31,645 -- (8,008)
-------------- ------------ ------------ ------------ ------------- ----------- ------------- ---------
Balances at 30 June 2005 876,635 20,766,048 274,671 (59,307) 9,413,610 173,588 33,613,531 65,058,776
-------------- ------------ ------------ ------------ ------------- ----------- ------------- ---------
CNOOC LIMITED 2005 Interim Report 07
CONDENSED CONSOLIDATED
CASH FLOW STATEMENT
For the six months ended 30 June 2005
(All amounts expressed in thousands of Renminbi)
Six months ended 30 June
2005 2004
(Unaudited) (Unaudited)
Net cash inflow from operating activities 14,293,418 9,316,835
Net cash outflow from investing activities (8,844,514) (15,957,255)
----------- -----------
Net cash inflow/(outflow) before financing activities 5,448,904 (6,640,420)
Net cash outflow from financing activities (3,506,325) (2,684,088)
----------- -----------
Net increase/(decrease) in cash and cash equivalents 1,942,579 (9,324,508)
Cash and cash equivalents at beginning of period 14,091,524 14,400,394
----------- -----------
Cash and cash equivalents at end of period 16,034,103 5,075,886
----------- -----------
08 CNOOC LIMITED 2005 Interim Report
NOTES TO CONDENSED INTERIM
FINANCIAL STATEMENTS
(All amounts expressed in Renminbi, except number of shares and unless
otherwise stated)
1. ORGANISATION AND PRINCIPAL ACTIVITIES
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. During the period ended 30 June 2005 (the
"Period"), the Company and its subsidiaries (hereinafter collectively
referred to as the "Group") were principally engaged in the exploration,
development, production and sale of crude oil, natural gas and other
petroleum products.
The registered office address is 65/F, Bank of China Tower, 1 Garden Road,
Hong Kong.
In the opinion of directors, the ultimate holding company is China National
Offshore Oil Corporation ("CNOOC"), a company established in the PRC.
As at 30 June 2005, the Company had direct or indirect interests in the
following principal subsidiaries and associates:
Place and date of Percentage of Nominal value
incorporation/ equity interest of issued and paid/
establishment attributable to registered ordinary Principal
Name of entity and operation the Group share capital activities
Directly held subsidiaries:
CNOOC China Limited Tianjin, PRC 100% RMB15 billion Offshore
15 September 1999 petroleum
exploration,
development,
production and
sale in the PRC
CNOOC International Limited British Virgin Islands 100% US$2 Investment
23 August 1999 holding
China Offshore Oil
(Singapore) Singapore 100% S$3 million Sale and
International Pte., Ltd. 14 May 1993 marketing of
petroleum
outside the
PRC
CNOOC Finance (2002) British Virgin Islands 100% US$1,000 Bond issuance
Limited 24 January 2002
CNOOC Finance (2003) British Virgin Islands 100% US$1,000 Bond issuance
Limited 2 April 2003
CNOOC Finance (2004) British Virgin Islands 100% US$1,000 Bond Issuance
Limited 9 December 2004
CNOOC LIMITED 2005 Interim Report 09
NOTES TO CONDENSED INTERIM
FINANCIAL STATEMENTS
(All amounts expressed in Renminbi, except number of shares and unless
otherwise stated)
1. ORGANISATION AND PRINCIPAL ACTIVITIES (CONTINUED)
Place and date of Percentage of Nominal value
incorporation/ equity interest of issued and paid/
establishment attributable to registered ordinary Principal
Name of entity and operation the Group share capital activities
Indirectly held subsidiaries*:
Malacca Petroleum Limited Bermuda 100% US$12,000 Offshore
2 November 1995 petroleum
exploration,
development
and
production in
Indonesia
OOGC America, Inc. State of Delaware, 100% US$1,000 Investment
United States of America holding
2 September 1997
OOGC Malacca Limited Bermuda 100% US$12,000 Offshore
2 November 1995 petroleum
exploration,
development
and production
in Indonesia
CNOOC Southeast Asia Limited Bermuda 100% US$12,000 Investment
16 May 1997 holding
CNOOC ONWJ Ltd. Labuan, F.T., 100% US$1 Offshore
Malaysia petroleum
27 March 2002 exploration,
development
and production
in Indonesia
CNOOC SES Ltd. Labuan, F.T., 100% US$1 Offshore
Malaysia petroleum
27 March 2002 exploration,
development
and production
in Indonesia
10 CNOOC LIMITED 2005 Interim Report
NOTES TO CONDENSED INTERIM
FINANCIAL STATEMENTS
(All amounts expressed in Renminbi, except number of shares and unless
otherwise stated)
1. ORGANISATION AND PRINCIPAL ACTIVITIES (CONTINUED)
Place and date of Percentage of Nominal value
incorporation/ equity interest of issued and paid/
establishment attributable to registered ordinary Principal
Name of entity and operation the Group share capital activities
Indirectly held subsidiaries* (continued):
CNOOC Poleng Ltd. Labuan, F.T., 100% US$1 Offshore
Malaysia petroleum
27 March 2002 exploration,
development
and production
in Indonesia
CNOOC Madura Ltd. Labuan, F.T., 100% US$1 Offshore
Malaysia petroleum
27 March 2002 exploration,
development
and production
in Indonesia
CNOOC Blora Ltd. Labuan, F.T., 100% US$1 Onshore
Malaysia petroleum
27 March 2002 exploration,
development
and production
in Indonesia
CNOOC NWS Private Ltd. Singapore 100% S$1 Offshore
8 October 2002 petroleum
exploration,
development
and production
in Australia
CNOOC Wiriagar Overseas Ltd. British Virgin Islands 100% US$1 Offshore
15 January 2003 petroleum
exploration,
development
and production
in Indonesia
CNOOC LIMITED 2005 Interim Report 11
NOTES TO CONDENSED INTERIM
FINANCIAL STATEMENTS
(All amounts expressed in Renminbi, except number of shares and unless
otherwise stated)
1. ORGANISATION AND PRINCIPAL ACTIVITIES (CONTINUED)
Place and date of Percentage of Nominal value
incorporation/ equity interest of issued and paid/
establishment attributable to registered ordinary Principal
Name of entity and operation the Group share capital activities
Indirectly held subsidiaries* (continued):
CNOOC Muturi Ltd. The Isle of Man 100% US$7,780,700 Offshore
8 February 1996 petroleum
exploration,
development
and production
in Indonesia
Associates**:
Shanghai Petroleum and Natural Shanghai, the PRC 30% RMB900 million Offshore
Gas Company Limited 7 September 1992 petroleum
exploration,
development,
production and
sale in South
Yellow Sea and
East China Sea
CNOOC Finance Corporation Beijing, the PRC 31.8% RMB1,415 million Provsion of
Limited 14 June 2002 Deposit-taking,
Transfer ,
Settlement, Loan,
Discounting and
Other Financing
Services to
CNOOC and its
Member Entities
* Indirectly held through CNOOC International Limited.
** Indirectly invested through CNOOC China Limited.
The above table lists the subsidiaries of the Company, which in the opinion
of the directors, principally affected the results for the period or formed
a substantial portion of the net assets of the Group. To give details of
other subsidiaries would in the opinion of the directors, result in
particulars of excessive length.
12 CNOOC LIMITED 2005 Interim Report
NOTES TO CONDENSED INTERIM
FINANCIAL STATEMENTS
(All amounts expressed in Renminbi, except number of shares and unless
otherwise stated)
2. BASIS OF PREPARATION AND ACCOUNTING POLICIES
The consolidated interim financial statements are prepared in accordance
with Hong Kong Accounting Standard ("HKAS") 34 "Interim Financial
Reporting". The accounting policies and basis of preparation used in the
preparation of the interim financial statements are the same as those used
in the annual financial statements for the year ended 31 December 2004,
except in relation to the following new and revised Hong Kong Financial
Reporting Standards ("HKFRSs", which also include HKASs and
Interpretations) which are generally effective and are relevant to the
Group's operations for accounting periods beginning on or after 1 January
2005, and are adopted the first time by the Group for the current period's
financial statements:
HKAS 1 Presentation of Financial Statements
HKAS 2 Inventories
HKAS 7 Cash Flow Statements
HKAS 8 Accounting Policies, Changes in Accounting Estimates and
Errors
HKAS 10 Events after the Balance Sheet Date
HKAS 12 Income Taxes
HKAS 16 Property, Plant and Equipment
HKAS 17 Leases
HKAS 18 Revenue
HKAS 19 Employee Benefits
HKAS 21 The Effects of Changes in Foreign Exchange Rates
HKAS 23 Borrowing Costs
HKAS 24 Related Party Disclosures
HKAS 27 Consolidated and Separate Financial Statements
HKAS 28 Investments in Associates
HKAS 32 Financial Instruments: Disclosure and Presentation
HKAS 33 Earnings per Share
HKAS 36 Impairment of Assets
HKAS 37 Provisions, Contingent Liabilities and Contingent Assets
HKAS 38 Intangible Assets
HKAS 39 Financial Instruments: Recognition and Measurement
HKFRS 2 Share-based Payment
HKFRS 3 Business Combinations
CNOOC LIMITED 2005 Interim Report 13
NOTES TO CONDENSED INTERIM
FINANCIAL STATEMENTS
(All amounts expressed in Renminbi, except number of shares and unless
otherwise stated)
2. BASIS OF PREPARATION AND ACCOUNTING POLICIES (CONTINUED)
The adoption of HKASs 1, 2, 7, 8, 10, 12, 16, 17, 18, 19, 21, 23, 24, 27,
28, 33, 36, 37, 38 and HKFRS 3 has no material impact on the accounting
policies of the Group and the methods of computation in the Group's
financial statements. The impacts of adopting other HKFRSs are detailed as
follows:
HKAS 32 and HKAS 39 - Financial Instruments
(i) Investments in equity and debt securities
In prior periods, the Group classified its investments in short term
debt and equity securities as short term investments which were not
intended to be held on a continuing basis and those investments were
stated at fair values at the balance sheet date, on an individual
investment basis. The gains or losses arising from changes in the fair
value of such securities were credited or charged to the income
statement in the period in which they arose.
Upon the adoption of HKAS 39, the Group classifies its financial
assets, including investments, in the following categories: financial
assets at fair value through profit or loss, loans and receivables,
held-to-maturity investments, and available-for-sale financial assets.
The classification depends on the purpose for which the financial
assets are acquired. Management determines the classification of its
financial assets at initial recognition and re-evaluates this
designation at every reporting date.
(a) Financial assets at fair value through profit or loss
This category has two sub-categories: financial assets held for
trading, and those designated at fair value through profit or
loss at inception. A financial asset is classified in this
category if it is acquired principally for the purpose of selling
in the short term or so designated by management. Derivatives are
also categorised as held for trading unless they are designated
as hedges as detailed below. Assets in this category are
classified as current assets if they are either held for trading
or are expected to be realised within 12 months from the balance
sheet date. During the period, the Group did not hold any
financial assets in this category.
(b) Loans and receivables
Loans and receivables are non-derivative financial assets with
fixed or determinable payments that are not quoted in an active
market. They arise when the Group provides money, goods or
services directly to a debtor with no intention of trading the
receivable. They are included in current assets, except for those
with maturities greater than 12 months after the balance sheet
date, which are included in non-current assets. Loans and
receivables are included in trade and other receivables in the
balance sheet.
14 CNOOC LIMITED 2005 Interim Report
NOTES TO CONDENSED INTERIM
FINANCIAL STATEMENTS
(All amounts expressed in Renminbi, except number of shares and unless
otherwise stated)
2. BASIS OF PREPARATION AND ACCOUNTING POLICIES (CONTINUED)
HKAS 32 and HKAS 39 - Financial Instruments (continued)
(i) Investments in equity and debt securities (continued)
(c) Held-to-maturity investments
Held-to-maturity investments are non-derivative financial assets
with fixed or determinable payments and fixed maturities that the
Group's management has the positive intention and ability to hold
to maturity. During the period, the Group did not hold any
investments in this category.
(d) Available-for-sale financial assets
Available-for-sale financial assets are non-derivatives that are
either designated in this category or not classified in any other
categories. They are included in non-current assets unless
management intends to dispose of the investment within 12 months
from the balance sheet date.
Investments are initially recognised at fair value plus transaction
costs for all financial assets not carried at fair value through
profit or loss. Investments are derecognised when the rights to
receive cash flows from the investments have expired or have been
transferred to another entity and the Group has transferred
substantially all risks and rewards of ownership to another entity.
Available-for-sale financial assets and financial assets at fair value
through profit or loss are subsequently carried at fair value. Loans
and receivables and held-to-maturity investments are carried at
amortised cost using the effective interest method. Realised and
unrealised gains and losses arising from changes in the fair value of
the "financial assets at fair value through profit or loss" are
included in the income statement in the period in which they arise.
Unrealised gains and losses arising from changes in the fair value of
non-monetary securities classified as available-for-sale are
recognised in equity. When securities classified as available-for-sale
are sold or impaired, the accumulated fair value adjustments are
included in the income statement as gains or losses from investment
securities.
The fair values of quoted investments are based on current bid prices.
If the market for a financial asset (and for unlisted securities) is
not active, the Group establishes fair value by using valuation
techniques. These include the use of recent arm's length transactions,
reference to other instruments that are substantially the same, and
the use of the discounted cash flow analysis and option pricing models
refined to reflect the issuer's specific circumstances.
When the fair value of unlisted equity securities cannot be reliably
measured because (1) the variability in the range of reasonable fair
value estimates is significant for that investment, or (2) the
probabilities of various estimates within the range cannot be
reasonably assessed and used in estimating fair value, such securities
are stated at cost.
CNOOC LIMITED 2005 Interim Report 15
NOTES TO CONDENSED INTERIM
FINANCIAL STATEMENTS
(All amounts expressed in Renminbi, except number of shares and unless
otherwise stated)
2. BASIS OF PREPARATION AND ACCOUNTING POLICIES (CONTINUED)
HKAS 32 and HKAS 39 - Financial Instruments (continued)
(i) Investments in equity and debt securities (continued)
The Group assesses at each balance sheet date whether there is
objective evidence that a financial asset or a group of financial
assets is impaired. In the case of equity securities classified as
available-for-sale, a significant or prolonged decline in the fair
value of the securities below their cost is a crucial factor in
determining whether the securities are impaired. If any such evidence
exists for available-for-sale financial assets, the cumulative loss
measured as the difference between the acquisition cost and the
current fair value, less any impairment losses on that financial asset
previously recognised in the income statement is removed from equity
and recognised in the income statement. Impairment losses recognised
in the income statement on equity instruments are not reversed through
the income statement.
(ii) Derivative financial instruments
In prior periods, the Group recognised at fair value all of its
derivative financial instruments that are not designated as part of a
hedging relationship with the resulting gain or loss being recognised
in the income statement.
HKAS 39 requires companies to recognise all of their derivative
financial instruments as either assets or liabilities at fair value.
The accounting for changes in the fair value (i.e. gains or losses) of
a derivative instrument depends on whether it has been designated and
qualifies as part of a hedging relationship, and further, on the type
of hedging relationship. For those derivative instruments that are
designated and qualify as hedging instruments, a company must
designate the hedging instrument, based upon the exposure being
hedged, as a fair value hedge, a cash flow hedge or a hedge of a net
investment in a foreign operation.
For derivative financial instruments that are designated and qualify
as a fair value hedge, the gain or loss on the derivative financial
instrument as well as the offsetting loss or gain on the hedged item
attributable to the hedged risk are recognised in the income statement
during the period of the change in fair values. For derivative
financial instruments that are designated and qualify as a cash flow
hedge, the effective portion of the gain or loss on a derivative
financial instrument is reported in equity and reclassified into
earnings in the same period or periods during which the hedged
transaction affects income. The remaining gain or loss on the
derivative financial instrument in excess of the cumulative change in
the present value of future cash flows of the hedged item, if any, is
recognised in the income statement during the period of change. For
derivative financial instruments that are designated and qualify as a
hedge of a net investment in a foreign currency, the gain or loss is
reported in equity as part of the cumulative translation adjustment to
the extent it is effective. Any ineffective portions of net investment
hedges are recognised in the income statement during the period of
change. For derivative financial instruments not designated as hedging
instruments, the gain or loss is recognised in the income statement
during the period of change.
16 CNOOC LIMITED 2005 Interim Report
NOTES TO CONDENSED INTERIM FINANCIAL
STATEMENTS
(All amounts expressed in Renminbi, except number of shares and unless
otherwise stated)
2. BASIS OF PREPARATION AND ACCOUNTING POLICIES (CONTINUED)
HKAS 32 and HKAS 39 - Financial Instruments (continued)
(iii) Convertible bonds
In prior periods, convertible bonds were stated at amortised cost.
Upon the adoption of HKAS 32 and HKAS 39, the Group's convertible
bonds issued with a cash settlement option and other derivative
features are split into liability and derivative components based
on their fair values.
The fair value of the liability component is determined using the
market rate for an equivalent non-convertible bonds on the
issuance of the convertible bonds and this amount is carried as a
long term liability on the amortised cost basis until extinguished
on conversion or redemption.
(iv) Combined effects of adoption of HKAS 32 and HKAS 39
HKAS 32 mainly affects the accounting and disclosure for the
convertible bonds, which has been applied retrospectively with
comparatives restated. The adoption of HKAS 32 resulted in an
increase in derivative financial instruments and a decrease in
long term guaranteed notes of RMB448,385,000 respectively as of 31
December 2004. There was no significant impact on the income
statements of current or prior years.
The adoption of HKAS 39 resulted in an increase in opening
reserves and a decrease in retained earnings at 1 January 2005 by
RMB20,036,000. The details of the adjustments to the condensed
consolidated balance sheet at 30 June 2005 and the condensed
consolidated income statement for the six months ended 30 June
2005 are as follows:
As at 30 June 2005
(Unaudited)
Condensed Consolidated Balance Sheet RMB'000
Increase in other reserves 51,681
Decrease in retained earnings (51,681)
-----------
For the six
months ended
30 June 2005
(Unaudited)
Condensed Consolidated Income Statement RMB'000
Increase in loss on derivative financial instruments 6,320
-----------
Comparative amounts have not been restated as this is not allowed
under the transitional provisions of HKAS 39.
CNOOC LIMITED 2005 Interim Report 17
NOTES TO CONDENSED INTERIM
FINANCIAL STATEMENTS
(All amounts expressed in Renminbi, except number of shares and unless
otherwise stated)
2. BASIS OF PREPARATION AND ACCOUNTING POLICIES (CONTINUED)
HKFRS 2 - Share-based Payment
In prior periods, no recognition and measurement of share-based
transactions in which employees (including directors) were granted share
options over shares in the Company was required until such options were
exercised by employees at which time share capital and share premium were
credited.
Upon the adoption of HKFRS 2, when employees (including directors) render
services as consideration for equity instruments ("equity-settled
transactions"), the cost of equity-settled transactions with employees is
measured by reference to the fair value at the date at which they are
granted. In valuing equity-settled transactions, no account is taken of any
performance conditions, other than conditions linked to the price of the
shares of the Company, if applicable.
The cost of equity-settled transactions is recognised, together with a
corresponding increase in equity, over the period in which the performance
and/or service conditions are fulfilled, ending on the date on which the
relevant employees become fully entitled to the award (the "vesting date").
The cumulative expense recognised for equity-settled transactions at each
balance sheet date until the vesting date reflects the extent to which the
vesting period has expired and the Group's best estimate of the number of
equity instruments that will ultimately vest. The charge or credit to the
income statement for a period represents the movement in cumulative expense
recognised as at the beginning and end of that period.
No expense is recognised for awards that do not ultimately vest, except for
awards where vesting is conditional upon a market condition, which are
treated as vesting irrespective of whether or not the market condition is
satisfied, provided that all other performance conditions are satisfied.
The dilutive effect of outstanding options is reflected as additional share
dilution in the computation of earnings per share.
18 CNOOC LIMITED 2005 Interim Report
NOTES TO CONDENSED INTERIM
FINANCIAL STATEMENTS
(All amounts expressed in Renminbi, except number of shares and unless
otherwise stated)
2. BASIS OF PREPARATION AND ACCOUNTING POLICIES (CONTINUED)
HKFRS 2 - Share-based Payment (continued)
The new accounting policy has been applied retrospectively with
comparatives restated in accordance with HKFRS 2. The impact of the
adoption of HKFRS 2 on the Company's financial position and results is as
follows:
30 June 2005 31 December 2004
(Unaudited) (Audited)
RMB'000 RMB'000
Increase in other reserves 121,907 110,144
Decrease in retained earnings (121,907) (110,144)
----------- -----------
For the six months ended
30 June 2005 30 June 2004
(Unaudited) (Unaudited)
RMB'000 RMB'000
Increase in selling and administrative expenses 11,763 24,474
----------- -----------
3. ACQUISITIONS
During the period, the Group completed the acquisition of the North West
Shelf Project in June 2005. The Group's participation in the North West
Shelf Project has not started commercial operations.
Details of the net assets acquired are as follows:
Purchase consideration: RMB'000
- Consideration paid 4,452,773
- Direct costs relating to the acquisition 84,132
-----------
Total purchase consideration 4,536,905
-----------
The assets and liabilities arising from the acquisition are as
follows:
RMB'000
Oil and gas properties 3,204,039
Gas processing rights 1,332,866
-----------
Net assets acquired 4,536,905
-----------
Purchase consideration settled in cash 4,536,905
-----------
CNOOC LIMITED 2005 Interim Report 19
NOTES TO CONDENSED INTERIM
FINANCIAL STATEMENTS
(All amounts expressed in Renminbi, except number of shares and unless
otherwise stated)
3. ACQUISITIONS (CONTINUED)
The purchase price allocation set out above is still preliminary, pending
the valuation of the relevant assets and the confirmation of the tax basis
of the underlying assets.
The interest of the Group in the North West Shelf Project have been charged
to the other partners of the Project as security for certain of the Group's
liabilities relating to the Project.
In addition, the Company, through its wholly-owned subsidiary, has signed
an agreement with a Canadian based company, MEG Energy Corporation ("MEG"),
to acquire a 16.69% equity interest in MEG. The Company completed the
transaction and paid C$150 million for the acquisition of 13,636,364 common
shares of MEG in March 2005. MEG is principally engaged in the exploitation
and production of oil sands.
4. OIL AND GAS SALES AND MARKETING REVENUE
Oil and gas sales represent the invoiced value of sales of oil and gas
attributable to the interests of the Group, net of royalties and the
government share of allocable oil that is lifted and sold on behalf of the
PRC government. Sales are recognised when the significant risks and rewards
of ownership of oil and gas have been transferred to customers.
Marketing revenues represent the sales of oil purchased from foreign
partners under production sharing contracts and the revenues from the
trading of oil through the Company's subsidiary in Singapore. The costs of
the oil sold are included in "Crude oil and product purchases" in the
condensed consolidated income statement.
5. INTEREST EXPENSES
An amount of approximately RMB52,478,000 (2004: RMB61,629,000) of accretion
expense for provision for dismantlement has been recognised in the
condensed consolidated income statement during the period.
20 CNOOC LIMITED 2005 Interim Report
NOTES TO CONDENSED INTERIM
FINANCIAL STATEMENTS
(All amounts expressed in Renminbi, except number of shares and unless
otherwise stated)
6. TAX
(i) Income tax
The Company and its subsidiaries are subject to income taxes on an
entity basis on the profits arising in or derived from the tax
jurisdictions in which they are domiciled and operate. The Company is
not liable for profits tax in Hong Kong as it does not have any
assessable income currently sourced from Hong Kong.
The Company's subsidiary, CNOOC China Limited, is a
wholly-foreign-owned enterprise established in the PRC. It is exempt
from the 3% local surcharge and is subject to the enterprise income
tax of 30% under the prevailing tax rules and regulations.
The Company's subsidiary in Singapore, China Offshore Oil (Singapore)
International Pte. Ltd., is subject to income tax at rates of 10% and
20%, for its oil trading activities and other income-generating
activities, respectively. The Company's subsidiaries owning interests
in oil and gas properties in Indonesia along the Malacca Strait are
subject to corporate and dividend tax at the rate of 44%. The
Company's subsidiaries owning interests in oil and gas properties in
Indonesia acquired from Repsol YPF, S.A. are subject to corporate and
dividend tax at rates ranging from 43.125% to 51.875%. All of the
Company's other subsidiaries are not subject to any income tax in
their respective jurisdictions for the period presented.
(ii) Other taxes
The Company's PRC subsidiary pays the following other taxes:
-- Production taxes equal to 5% of independent production and
production under production sharing contracts; and
-- Business tax ranging from 3% to 5% on other income.
CNOOC LIMITED 2005 Interim Report 21
NOTES TO CONDENSED INTERIM
FINANCIAL STATEMENTS
(All amounts expressed in Renminbi, except number of shares and unless
otherwise stated)
7. EARNINGS PER SHARE
Six months ended 30 June
2005 2004
(unaudited) (unaudited)
(restated)
Earnings:
Net profit for the period for the purpose
of basic earnings per share RMB 11,829,023,000 RMB 7,017,453,000
Interest expenses and losses recongnised
on the derivative component of
convertible bonds RMB 94,649,000 --
------------------- -------------------
Net profit for the period for the purpose
of diluted earnings per share RMB 11,923,672,000 RMB 7,017,453,000
------------------- -------------------
Number of shares:
Weighted average number of ordinary
shares for the purpose of basic earnings
per share before effects of shares
repurchased and share options exercised 41,052,375,275 41,070,828,275
Effect of shares repurchased -- (2,644,243)
Effect of share options exercised 1,946,406 --
------------------- -------------------
Weighted average number of ordinary
shares for the purpose of basic
earnings per share 41,054,321,681 41,068,184,032
Effect of dilutive potential ordinary shares
under the share option schemes 74,986,148 56,093,679
Effect of dilutive potential ordinary shares
for convertible bonds 1,183,066,002 --
------------------- -------------------
Weighted average number of ordinary
shares for the purpose of diluted earnings
per share 42,312,373,831 41,124,277,711
------------------- -------------------
Earnings per share - Basic RMB0.29 RMB0.17
------------------- -------------------
- Diluted RMB0.28 RMB0.17
------------------- -------------------
22 CNOOC LIMITED 2005 Interim Report
NOTES TO CONDENSED INTERIM
FINANCIAL STATEMENTS
(All amounts expressed in Renminbi, except number of shares and unless
otherwise stated)
8. PROPERTY, PLANT AND EQUIPMENT, NET
During the period, additions to the Group's property, plant and equipment
amounted to approximately RMB7,051,109,000 (2004: RMB13,010,141,000).
The amount does not include the acquisition of oil and gas properties.
9. INTANGIBLE ASSETS
During the period, the Company completed the acquisition of the North West
Shelf Project. Accordingly, the consideration prepaid for the gas
processing rights is recorded as an intangible asset and will be amortised
upon the commercial production of the liquefied natural gas.
10. ACCOUNTS RECEIVABLE, NET
The customers are required to make payment within 30 days after the
delivery of oil and gas. As at 30 June 2005 and 31 December 2004,
substantially all of the accounts receivable would be aged within six
months.
11. 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 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 HK$6.075 per share, subject to adjustment for, among other things,
subdivision or consolidation of shares, bonus issues, right issues,
capital distribution and other dilutive events. The conversion price
was adjusted to HK$ 5.97 per share on 7 June 2005 as a result of the
declaration of the final and special final dividends for 2004 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 a cash
settlement option when the holders exercise their conversion right.
The fair values of the debt component and the derivative component
were determined at issuance of the bonds at RMB7,716 million and
RMB448 million, respectively. The fair value of the derivative
component at 30 June 2005 amounted to RMB455 million. Interest expense
on the debt component is calculated using the effective interest
method.
CNOOC LIMITED 2005 Interim Report 23
NOTES TO CONDENSED INTERIM
FINANCIAL STATEMENTS
(All amounts expressed in Renminbi, except number of shares and unless
otherwise stated)
12. ACCOUNTS PAYABLE
As at 30 June 2005 and 31 December 2004, substantially all of the accounts
payable would be aged within six months.
13. SHARE CAPTIAL
Issued
Number of shares Share capital share capital
Equivalent of
Shares HK$'000 RMB'000
Authorised:
Ordinary shares of HK$0.02
each as at 30 June 2005
and 31 December 2004 75,000,000,000 1,500,000
------------------- -----------
Issued and fully paid:
Ordinary shares of HK$0.02
each as at 1 January 2004* 41,070,828,275 821,417 876,978
Repurchased and cancelled (18,453,000) (369) (392)
------------------- ----------- -----------
As at 31 December 2004 (audited) 41,052,375,275 821,048 876,586
Exercise of options 2,300,100 46 49
------------------- ----------- -----------
As at 30 June 2005 (unaudited) 41,054,675,375 821,094 876,635
------------------- ----------- -----------
* Adjustment has been made to take account of the subdivision of
issued and unissued shares of HK$0.10 each into five shares
of HK$0.02 each effective on 17 March 2004.
14. DIVIDENDS
On 30 August 2005, the board of directors declared an interim dividend of
HK$0.05 per share (2004: HK$0.03 per share), totalling HK$2,052,733,769
(equivalent to approximately RMB2,138,128,000) (2004: RMB1,308,225,000);
and a special interim dividend of HK$0.05 per share (2004: HK$0.05 per
share), totalling HK$2,052,733,769 (equivalent to approximately
RMB2,138,128,000) (2004: RMB2,180,375,000). In addition, the company paid a
special interim dividend in 2004 of HK$0.06 per share, totalling
HK$2,464,249,697 (equivalent to approximately RMB2,617,526,000) in place of
its 2003 final dividend.
24 CNOOC LIMITED 2005 Interim Report
NOTES TO CONDENSED INTERIM
FINANCIAL STATEMENTS
(All amounts expressed in Renminbi, except number of shares and unless
otherwise stated)
15. SHARE OPTION SCHEMES
The Company has the following three share option schemes:
(i) Pre-Global Offering Share Option Scheme (as defined in the Other
Information section);
(ii) 2001 Share Option Scheme (as defined in the Other Information
section); and
(iii) 2002 Share Option Scheme (as defined in the Other Information
section).
Details of these share option schemes are disclosed in the Other
Information section in this interim report.
During the six-month period ended 30 June 2005, the movements in the
options granted under all of the above share option schemes were as
follows:
No. of share Weighted average
options exercise price
HK$
Outstanding at beginning of year 124,250,000 2.20
Granted during the Period -- --
Forfeited during the Period (7,499,900) 2.27
Exercised during the Period (2,300,100) 1.84
Lapsed during the Period -- --
----------- -----------
Outstanding at end of Period 114,450,000 2.21
----------- -----------
Exercisable at end of Period 74,983,233 1.85
----------- -----------
The weighted average fair value of the options at the grant dates of award
under the schemes was HK$0.84 per share which was estimated using the
Black-Scholes model with the following assumptions: dividend yield of 2%,
expected life of five years, expected volatility of 44% and risk-free
interest rate of 5.25%. The weighted average exercise price of the stock
options was HK$2.06 per share.
CNOOC LIMITED 2005 Interim Report 25
NOTES TO CONDENSED INTERIM
FINANCIAL STATEMENTS
(All amounts expressed in Renminbi, except number of shares and unless
otherwise stated)
16. RELATED PARTY TRANSACTIONS
Companies are considered to be related if one company has the ability,
directly or indirectly, to control the other company or exercise
significant influence over the other company in making financial and
operating decisions. Companies are also considered to be related if they
are subject to common control or common significant influence.
The Group has entered into several agreements with CNOOC and its
affiliates, which govern the provision of materials, utilities and
ancillary services, technical services, research and development services
and various other commercial arrangements.
(i) Materials, utilities and ancillary services
CNOOC China Limited has entered into materials, utilities and
ancillary services supply agreements with the affiliates of CNOOC.
Under these agreements, the affiliates of CNOOC provide to CNOOC China
Limited various materials, utilities and ancillary services.
The materials, utilities and ancillary services are provided at:
-- state-prescribed prices; or
-- where there is no state-prescribed price, at market prices,
including the local or national market prices; or
-- where neither of the prices mentioned above is applicable, the
cost of CNOOC's affiliates for providing the relevant materials,
utilities and ancillary services, including the cost of sourcing
or purchasing from third parties, plus a margin of not more than
5% before any applicable taxes.
(ii) Technical services
Various affiliates of CNOOC, including China Oilfield Services Limited
and Offshore Oil Engineering Company Limited, provide the Group with
technical services for the Group's offshore oil and gas production
activities, including:
-- offshore drilling;
-- ship tugging, oil tanker transportation and security services;
-- well survey, well logging, well cementation and other related
technical services;
-- collection of geophysical data, ocean geological prospecting,
and data processing;
-- platform fabrication service and maintenance; and
-- design, construction, installation and test of offshore and
onshore production facilities.
The price for technical services was determined based on local market
prices.
26 CNOOC LIMITED 2005 Interim Report
NOTES TO CONDENSED INTERIM
FINANCIAL STATEMENTS
(All amounts expressed in Renminbi, except number of shares and unless
otherwise stated)
16. RELATED PARTY TRANSACTIONS (CONTINUED)
(iii) Research and development services
The Group has revised the original research and development
services agreement with CNOOC's affiliates, China Offshore Oil
Research Centre ("the Centre"), due to the restructuring of
operations in 2003, and only pays the Centre for research and
development for particular services. These research and
development services were determined at local market prices.
(iv) Lease and property management services
The Group has entered into lease and property management
agreements with certain affiliates of CNOOC for the leasing of
various office, warehouse and residential premises. Lease charges
reflect the fair and reasonable commercial market rent and
management fees.
The following is a summary of the significant recurring
transactions as stated above carried out in the ordinary course
of business between the Group and CNOOC and its affiliates.
Six months ended
30 June 2005 30 June 2004
(Unaudited) (Unaudited)
RMB'000 RMB'000
Materials, utilities and ancillary services 624,104 388,301
Technical services 3,038,150 2,225,474
Research and development services 8,678 503
Lease and property management services 23,778 21,702
----------- -----------
3,694,710 2,635,980
----------- -----------
Included in:
Exploration expenses 287,288 391,086
Operating expenses 649,186 457,275
Selling and administrative expenses 104,701 77,018
Capitalised under property, plant and
equipment 2,653,535 1,710,601
----------- -----------
3,694,710 2,635,980
----------- -----------
CNOOC LIMITED 2005 Interim Report 27
NOTES TO CONDENSED INTERIM
FINANCIAL STATEMENTS
(All amounts expressed in Renminbi, except number of shares and unless
otherwise stated)
16. RELATED PARTY TRANSACTIONS (CONTINUED)
(v) Sale of crude oil, condensate oil and liquefied petroleum gas
The Group sells crude oil, condensate oil and liquefied petroleum gas
at international market price to CNOOC's affiliates which engage in
the downstream petroleum business. For the six months ended 30 June
2005, the total sales amounted to approximately RMB12,108,674,000
(2004: RMB6,504,015,000).
In the prior period, the Company, through its wholly-owned subsidiary,
China Offshore Oil (Singapore) International Pte., Ltd., imported oil
into the PRC for trading, using CNOOC's import license. The total
sales to its customers through such arrangements amounted to
approximately RMB77 million while the commission paid by third party
customers to CNOOC for the period amounted to approximately RMB0.5
million for the six months ended 30 June 2004. No such trading by
using CNOOC's import license occurred during this period.
(vi) Transactions with CNOOC Finance Corporation Limited
The Company entered into a framework agreement ("Framework Agreement")
with CNOOC Finance Corporation Limited ("CNOOC Finance") on 8 April
2004. Under the Framework Agreement, the Group utilises the financial
services provided by CNOOC Finance, a 31.8% owned associate of the
Company that is also an affiliate of CNOOC. Such services include
placing of the Group's cash deposits with CNOOC Finance, and
settlement services for transactions between the Group and other
entities including CNOOC and its affiliates. Pursuant to the Framework
Agreement, the financial services provided by CNOOC Finance also
include provision of loan. The charges by CNOOC Finance for its
financial services to the Group are based on the pricing policies of
CNOOC Finance. Such pricing policies are subject to PBOC guidelines,
including the interest rates and foreign exchange rates, as well as
guidelines published by PRC self-regulatory bodies, such as
associations of finance companies. Based on these guidelines, CNOOC
Finance has limited discretion in setting its prices.
For the six months ended 30 June 2005, the maximum outstanding balance
of deposits (including interest received in respect of these deposits)
placed with CNOOC Finance amounted to RMB3,651 million (2004: RMB3,044
million).
28 CNOOC LIMITED 2005 Interim Report
NOTES TO CONDENSED INTERIM
FINANCIAL STATEMENTS
(All amounts expressed in Renminbi, except number of shares and unless
otherwise stated)
17. COMMITMENTS AND CONTINGENCIES
(i) Capital commitments
As at 30 June 2005, the Group had the following capital commitments,
principally for the construction and purchases of property, plant and
equipment:
30 June 31 December
2005 2004
(Unaudited) (Audited)
RMB'000 RMB'000
Contracted for 8,832,572 9,568,971
Authorised, but not contracted for 23,960,980 20,331,504
----------- -----------
As at 30 June 2005, the Group had unutilised banking facilities
amounting to approximately RMB32,273,254,000 (2004:
RMB20,662,120,000).
(ii) Operating lease commitments
(a) Office properties
The Group leases certain of its office properties under operating
lease arrangements. Property leases are negotiated for terms
ranging from 10 months to 3 years.
As at 30 June 2005, the Group had total minimum lease payments
under non-cancellable operating leases falling due as follow:
30 June 31 December
2005 2004
(Unaudited) (Audited)
RMB'000 RMB'000
Commitments due:
- Within one year 58,872 24,824
- In the first to second years, inclusive 22,242 549
- After the second but before the fifth
years, inclusive 30,310 --
----------- -----------
111,424 25,373
----------- -----------
CNOOC LIMITED 2005 Interim Report 29
NOTES TO CONDENSED INTERIM
FINANCIAL STATEMENTS
(All amounts expressed in Renminbi, except number of shares and unless
otherwise stated)
17. COMMITMENTS AND CONTINGENCIES (CONTINUED)
(ii) Operating lease commitments (continued)
(b) Plant and equipment
The Group leases certain of its plant and equipment under
operating lease arrangements for a term of 10 years.
As at 30 June 2005, the Group had total minimum lease payments
under non-cancelable operating leases falling due as follows:
30 June 31 December
2005 2004
(Unaudited) (Audited)
RMB'000 RMB'000
Commitments due:
- Within one year 186,860 149,360
- In the second to fifth years, inclusive 691,192 597,442
- After 5 years 490,230 1,834,023
----------- -----------
1,368,282 2,580,825
----------- -----------
(iii) Commitment to invest in Gorgon Joint Venture
In October 2003, the Company entered into an agreement with the
participants in Gorgon Joint Venture to place a significant volume of
Gorgon liquefied natural gas to supply the growing PRC market. Subject
to the completion of formal contracts, the Company will purchase a
certain equity stake in the Gorgon's gas development and its parent
company, CNOOC, will arrange to purchase LNG directly from Gorgon.
(iv) Contingent liabilities
The Group has no significant contingent liabilities as at 30 June
2005.
18. SEGMENT INFORMATION
The Group is involved in the upstream operating activities of the petroleum
industry which comprises production sharing contracts with foreign
partners, and independent operations and trading business. These segments
are presented primarily because senior management makes key operating
decisions and assesses the performance of these segments separately. The
Group's activities are conducted primarily in the PRC and Indonesia.
30 CNOOC LIMITED 2005 Interim Report
NOTES TO CONDENSED INTERIM
FINANCIAL STATEMENTS
(All amounts expressed in Renminbi, except number of shares and unless
otherwise stated)
18. SEGMENT INFORMATION (CONTINUED)
The following table presents revenue and profit information for the
Group's business segments.
Independent Production
operations sharing contracts Trading business
Six months ended Six months ended Six months ended
30 June 30 June 30 June
2005 2004 2005 2004 2005 2004
(Unaudited) (Unaudited) (Unaudited) (Unaudited) (Unaudited) (Unaudited)
(Restated) (Restated) (Restated)
RMB'000 RMB'000 RMB'000 RMB'000 RMB'000 RMB'000
Segment revenue
Sales to external customers:
Oil and gas sales 10,202,301 6,820,277 14,531,690 9,207,268 - -
Marketing revenues - - - - 8,035,007 8,223,351
Other income 5,367 6,387 57,420 63,355 - -
---------- --------- ---------- --------- --------- ---------
Total 10,207,668 6,826,664 14,589,110 9,270,623 8,035,007 8,223,351
---------- --------- ---------- --------- --------- ---------
Segment results
Net profit 6,826,573 4,081,059 10,097,885 5,275,654 83,618 100,544
---------- --------- ---------- --------- --------- ---------
Unallocated Consolidated
Six months ended Six months ended
30 June 30 June
2005 2004 2005 2004
(Unaudited) (Unaudited) (Unaudited) (Unaudited)
(Restated) (Restated)
RMB'000 RMB'000 RMB000 RMB'000
Segment revenue
Sales to external customers:
Oil and gas sales - - 24,733,991 16,027,545
Marketing revenues - - 8,035,007 8,223,351
Other income 288 - 63,075 69,742
----------- ----------- ---------- ----------
Total 288 - 32,832,073 24,320,638
----------- ----------- ---------- ----------
Segment results
Net profit (5,179,053) (2,439,804) 11,829,023 7,017,453
----------- ----------- ---------- ----------
19. ADDITIONAL FINANCIAL INFORMATION
As at 30 June 2005, net current assets and total assets less current
liabilities of the Group amounted to approximately RMB28,575,694,000 and
RMB92,400,282,000 (2004: RMB24,890,362,000 and RMB83,674,168,000),
respectively.
20. SIGNIFICANT DIFFERENCES BETWEEN HK GAAP AND US GAAP
The accounting policies adopted by the Group conform to generally accepted
accounting principles in Hong Kong ("HK GAAP"), which differ in certain
respects from generally accepted accounting principles in the United States
of America ("US GAAP").
(i) Net profit and equity
(a) Revaluation of land and buildings
The Group revalued certain land and buildings on 31 August 1999
and 31 December 2000 and the related revaluation surplus was
recorded on the respective dates. Under HK GAAP, revaluation of
property, plant and equipment is permitted and depreciation,
depletion and amortisation are based on the revalued amount.
Additional depreciation arising from the revaluation for the six
months ended 30 June 2005 was approximately RMB4,578,000 (2004:
RMB4,578,000). Under US GAAP, property, plant and equipment is
required to be stated at cost. Accordingly, no additional
depreciation, depletion and amortisation from the revaluation are
recognised under US GAAP.
CNOOC LIMITED 2005 Interim Report 31
NOTES TO CONDENSED INTERIM
FINANCIAL STATEMENTS
(All amounts expressed in Renminbi, except number of shares and unless
otherwise stated)
20. SIGNIFICANT DIFFERENCES BETWEEN HK GAAP AND US GAAP (CONTINUED)
(i) Net profit and equity (continued)
(b) Available-for-sale financial assets
Prior to 2005, according to HK GAAP, available-for-sale
investments in marketable securities are measured at fair value
and the related unrealised holding gains and losses were included
in the current period earnings. According to US GAAP, such
investments were also measured at fair value and classified in
accordance with Statement of Financial Accounting Standards
("SFAS") No. 115, "Accounting for certain investments in debt and
equity securities". Under US GAAP, related unrealised gains and
losses on available-for-sale securities were excluded from
current period earnings and included in other comprehensive
income.
With effect from 1 January 2005, there is no significant
difference between HK GAAP and US GAAP on the accounting for
investments in equity and debt securities.
(c) Impairment of long-lived assets
Under HK GAAP, impairment charges are recognised when a
long-lived asset's carrying amount exceeds the higher of the
asset's net selling price and value in use, which incorporates
the discounting of 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 impairment loss as
the difference between the carrying amount and fair value of the
asset. SFAS No. 144 requires a long-lived asset that is 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
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 impairment is indicated based on
undiscounted expected future cash flows, then 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.
32 CNOOC LIMITED 2005 Interim Report
NOTES TO CONDENSED INTERIM
FINANCIAL STATEMENTS
(All amounts expressed in Renminbi, except number of shares and unless
otherwise stated)
20. SIGNIFICANT DIFFERENCES BETWEEN HK GAAP AND US GAAP (CONTINUED)
(i) Net profit and equity (continued)
(c) Impairment of long-lived assets (continued)
In addition, under HK GAAP, a subsequent increase in the
recoverable amount of an asset is reversed to the income
statement to the extent that an impairment loss on the same asset
was previously recognised as an expense when the circumstances
and events that led to write-down or write-off cease to exist.
The reversal is reduced by the amount that would have been
recognised as depreciation had the write-off not occurred. Under
US GAAP, an impairment loss establishes a new cost basis for the
impaired asset and the new cost basis should not be adjusted
subsequently other than for further impairment losses.
For the six months ended 30 June 2005, an impairment of
approximately RMB90,189,000 was recognised under both HK GAAP and
US GAAP.
(d) Accounting for convertible bonds
Under HK GAAP, prior to 1 January 2005, there was no requirements
to segregate the debt derivative or equity components of
convertible bonds. As such, convertible bonds were stated at
amortised cost.
With effect from 1 January 2005, under HKAS 32 Financial
Instruments: Disclosure and Presentation, financial instruments
with cash settlement options and other derivative components will
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 will be charged/credited
to the income statement. The debt component is stated at
amortised cost. The requirements of HKAS 32 have been applied
retrospectively with comparatives restated.
Under US GAAP, convertible bonds are subject to different rules
on bifurcation of the debt and derivative components. There is no
significant difference on the accounting treatment adopted under
HK GAAP and US GAAP for the Group's convertible bonds.
CNOOC LIMITED 2005 Interim Report 33
NOTES TO CONDENSED INTERIM
FINANCIAL STATEMENTS
(All amounts expressed in Renminbi, except number of shares and unless
otherwise stated)
20. SIGNIFICANT DIFFERENCES BETWEEN HK GAAP AND US GAAP (CONTINUED)
(i) Net profit and equity (continued)
The effects on net profit and equity of the above significant
differences between HK GAAP and US GAAP are summarised below:
Net profit
Six months ended 30 June
2005 2004
(Unaudited) (Unaudited)
RMB'000 RMB'000
(Restated)
As reported under HK GAAP 11,829,023 7,041,927
Previously adjusted for adoption of HKFRS 2 -- (24,474)
----------- -----------
As restated under HK GAAP 11,829,023 7,017,453
Impact of US GAAP adjustments:
- Reversal of additional depreciation, depletion
and amortisation charges arising from the
revaluation surplus on land and buildings 4,578 4,578
- Unrealised (gains)/losses from available-for-
sale investments in marketable securities -- 50,443
- Realised holding gains/(losses) from
available-for-sale marketable securities -- (1,335)
----------- -----------
Net profit as restated under US GAAP 11,833,601 7,071,139
----------- -----------
Net profit per share under US GAAP
- Basic RMB0.29 RMB0.17
----------- -----------
- Diluted RMB0.28 RMB0.17
----------- -----------
34 CNOOC LIMITED 2005 Interim Report
NOTES TO CONDENSED INTERIM
FINANCIAL STATEMENTS
(All amounts expressed in Renminbi, except number of shares and unless
otherwise stated)
20. SIGNIFICANT DIFFERENCES BETWEEN HK GAAP AND US GAAP (CONTINUED)
(i) Net profit and equity (continued)
Equity
30 June 31 December
2005 2004
(Unaudited) (Audited)
RMB'000 RMB'000
As reported under HK GAAP 65,058,776 56,717,461
Impact of US GAAP adjustments:
- Reversal of revaluation surplus on land and
buildings (274,671) (274,671)
- Reversal of additional accumulated
depreciation, depletion and amortisation
charges arising from the revaluation
surplus on land and buildings 48,785 44,207
----------- -----------
As restated under US GAAP 64,832,890 56,486,997
----------- -----------
(ii) Comprehensive income
According to SFAS No. 130 "Reporting comprehensive income", it is
required to include a statement of other comprehensive income for
revenues and expenses, gains and losses that are included in
comprehensive income and excluded from net income under US GAAP.
Six months ended
30 June
2005 2004
(Unaudited) (Unaudited)
RMB'000 RMB'000
Net income under US GAAP 11,833,601 7,071,139
Included in other comprehensive income:
Foreign currency translation adjustments (39,653) 2,269
Unrealised gains/(losses) on short term
Investments 31,645 (50,443)
Less: Reclassification adjustment for realised
(gains)/losses included in net income -- 1,335
----------- -----------
11,825,593 7,024,300
----------- -----------
CNOOC LIMITED 2005 Interim Report 35
NOTES TO CONDENSED INTERIM
FINANCIAL STATEMENTS
(All amounts expressed in Renminbi, except number of shares and unless
otherwise stated)
21. APPROVAL OF THE INTERIM FINANCIAL STATEMENTS
The interim financial statements for the six months ended 30 June 2005 were
approved and authorised for issue by the board of directors on 30 August
2005.
36 CNOOC LIMITED 2005 Interim Report
INDEPENDENT REVIEW REPORT
[GRAPHIC OMITTED] ERNST & YOUNG
[GRAPHIC OMITTED]
To the board of directors
CNOOC Limited (the "Company")
(Incorporated in the Hong Kong Special Administrative Region with limited
liability)
We have been instructed by the Company to review the interim financial report of
the Company and its subsidiaries (collectively the "Group") for the six months
ended 30 June 2005 as set out on pages 5 to 36.
RESPECTIVE RESPONSIBILITIES OF DIRECTORS AND AUDITORS
The Rules Governing the Listing of Securities on The Stock Exchange of Hong Kong
Limited (the "Listing Rules") require the preparation of an interim financial
report to be in compliance with Hong Kong Accounting Standard 34 "Interim
Financial Reporting" issued by the Hong Kong Institute of Certified Public
Accountants and the relevant provisions thereof. The interim financial report is
the responsibility of, and has been approved by, the directors. It is our
responsibility to form an independent conclusion, based on our review, on the
interim financial report and to report our conclusion solely to you, as a body,
in accordance with our agreed terms of engagement, and for no other purpose. We
do not assume responsibility towards or accept liability to any other person for
the contents of this report.
REVIEW WORK PERFORMED
We conducted our review in accordance with Statement of Auditing Standards 700
"Engagements to review interim financial reports" issued by the Hong Kong
Institute of Certified Public Accountants. A review consists principally of
making enquiries of the Group's management and applying analytical procedures to
the interim financial report and based thereon, assessing whether the accounting
policies and presentation have been consistently applied unless otherwise
disclosed. A review excludes audit procedures such as tests of controls and
verification of assets, liabilities and transactions. It is substantially less
in scope than an audit and therefore provides a lower level of assurance than an
audit. Accordingly, we do not express an audit opinion on the interim financial
report.
REVIEW CONCLUSION
On the basis of our review which does not constitute an audit, we are not aware
of any material modifications that should be made to the interim financial
report for the six months ended 30 June 2005.
Ernst & Young
Certified Public Accountants
Hong Kong
30 August 2005
CNOOC LIMITED 2005 Interim Report 37
OTHER INFORMATION
DIRECTORS' INTERESTS
As at 30 June 2005, the interests of the Directors and the Chief Executives of
the Company in the equity securities of the Company and its associated
corporations (all within the meaning of Part XV of the Securities and Futures
Ordinance ("SFO")) as recorded in the register required to be kept under section
352 of the SFO or disclosed in accordance with the Rules Governing the Listing
of Securities on The Stock Exchange of Hong Kong Limited (the "Listing Rules")
comprised only the personal interests in options to subscribe for shares
("Shares") in the Company referred to below.
During the six months ended 30 June 2005, the following persons had the
following personal interests in options to subscribe for shares in the Company
granted under the share option schemes of the Company:
Closing price
No. of per share
No. of shares shares immediately
involved in the involved in before the
options the options date on which
outstanding at the outstanding the options
Name of Grantee beginning of the at the end of were granted Exercise
(Note 1) period (Note 2) the period Date of Grant (HK$)(Note 3) Price (HK$)
-------------------------------------------------------------------------------------------------------------------
Directors:
Fu Chengyu 1,750,000 1,750,000 12 Mar 2001 -- 1.19
1,750,000 1,750,000 27 Aug 2001 1.46 1.232
1,150,000 1,150,000 24 Feb 2003 2.09 2.108
2,500,000 2,500,000 5 Feb 2004 3.13 3.152
Zhou Shouwei 1,400,000 1,400,000 12 Mar 2001 -- 1.19
1,750,000 1,750,000 27 Aug 2001 1.46 1.232
1,750,000 1,750,000 24 Feb 2003 2.09 2.108
1,750,000 1,750,000 5 Feb 2004 3.13 3.152
Luo Han 1,400,000 1,400,000 12 Mar 2001 -- 1.19
1,150,000 1,150,000 27 Aug 2001 1.46 1.232
1,150,000 1,150,000 24 Feb 2003 2.09 2.108
1,150,000 1,150,000 5 Feb 2004 3.13 3.152
38 CNOOC LIMITED 2005 Interim Report
OTHER INFORMATION
Closing price
No. of per share
No. of shares shares immediately
involved in the involved in before the
options the options date on which
outstanding at the outstanding the options
Name of Grantee beginning of the at the end of were granted Exercise
(Note 1) period (Note 2) the period Date of Grant (HK$)(Note 3) Price (HK$)
-------------------------------------------------------------------------------------------------------------------
Chiu Sunghong 1,150,000 1,150,000 5 Feb 2004 3.13 3.152
Evert Henkes 1,150,000 1,150,000 5 Feb 2004 3.13 3.152
Kenneth S Courtis 1,150,000 1,150,000 5 Feb 2004 3.13 3.152
Others 9,100,000 8,250,000 12 Mar 2001 -- 1.19
24,950,000 22,300,000 27 Aug 2001 1.46 1.232
28,800,000 26,083,333 24 Feb 2003 2.09 2.108
39,300,000 35,716,667 5 Feb 2004 3.13 3.152
Note 1: Mr. Erwin Schurtenberger resigned as an Independent Non-executive
Director of the company on 1 April 2005 and Mr. Jiang Longsheng
retired as an Executive Director of the Company on 1 June 2005.
Note 2: Certain share options granted by the Company to employees had in
fact lapsed following termination of employment of the relevant
employees, and accordingly the Company had made adjustments to the
number of share options outstanding at the beginning of the period
to take into account such lapsed share options.
Note 3: Adjustments have been made to take into account the subdivision of
issued and unissued shares of the Company of HK$0.10 each into five
shares of HK$0.02 each effective on 17 March 2004.
During the six months ended 30 June 2005, apart from 2,300,100 shares options
exercised, no options granted under the share option schemes of the Company were
exercised.
All the interests stated above represent long positions. As at 30 June 2005, no
short positions were recorded in the Register of Directors' and Chief
Executives' Interests and Short Positions required to be kept under section 352
of the SFO.
Other than those disclosed above, no right to subscribe for equity or debt
securities of the Company has been granted by the Company to, nor have any such
rights been exercised by, any other person during the half year ended 30 June
2005.
CNOOC LIMITED 2005 Interim Report 39
OTHER INFORMATION
SUBSTANTIAL INTERESTS IN SHARE CAPITAL
The register maintained by the Company pursuant to the SFO recorded that, as at
30 June 2005, the following corporations had the interests (as defined in the
SFO) in the Company set opposite their respective names below:
Percentage
Ordinary Shares of Total
Directly held Indirectly held Issued Shares
-------------------------------------------------------------------------------------------
(i) CNOOC (BVI) Limited
("CNOOC (BVI)") 28,999,999,995 -- 70.64%
(ii) Overseas Oil & Gas Corporation,
Limited ("OOGC") 5 28,999,999,995 70.64%
(iii) China National Offshore Oil
Corporation ("CNOOC") -- 29,000,000,000 70.64%
CNOOC (BVI) is a wholly-owned subsidiary of OOGC, which is a wholly-owned
subsidiary of CNOOC. Accordingly, CNOOC (BVI)'s interests are recorded as the
interests of OOGC and CNOOC.
All the interests stated above represent long positions. As at 30 June 2005, no
short positions were recorded in the Register of Interests in Shares and Short
Positions required to be kept under section 336 of the SFO.
INFORMATION ON SHARE OPTION SCHEMES
On 4 February 2001, the Company adopted a pre-global offering share option
scheme (the "Pre-Global Offering Share Option Scheme"). Pursuant to the
Pre-Global Offering Share Option Scheme:
1. options for an aggregate of 23,100,000 Shares have been granted;
2. the subscription price per Share is HK$1.19; and
3. the period during which an option may be exercised is as follows:
(a) 50% of the rights to exercise the options shall vest 18 months after
the date of the grant; and
(b) 50% of the rights to exercise the options shall vest 30 months after
the date of the grant.
The exercise periods for options granted under the Pre-Global Offering Share
Option Scheme end not later than 10 years from 12 March 2001.
40 CNOOC LIMITED 2005 Interim Report
OTHER INFORMATION
On 4 February 2001, the Company adopted a share option scheme (the "2001 Share
Option Scheme") for the purposes of recognising the contribution that certain
individuals had made to the Company and attracting and retaining the best
available personnel to the Company. Pursuant to the 2001 Share Option Scheme:
1. options for an aggregate of 44,100,000 Shares have been granted;
2. the subscription price per Share is HK$1.232; and
3. the period during which an option may be exercised is as follows:
(a) one-third of the rights to exercise the options shall vest on the first
anniversary of the date of the grant;
(b) one-third of the rights to exercise the options shall vest on the
second anniversary of the date of the grant; and
(c) one-third of the rights to exercise the options shall vest on the third
anniversary of the date of the grant.
The exercise periods for options granted under the 2001 Share Option Scheme end
not later than 10 years from 27 August 2001.
In view of the amendments to the relevant provisions of the Listing Rules
regarding the requirements of share option schemes of a Hong Kong listed company
effective on 1 September 2001, no further options will be granted under the 2001
Share Option Scheme.
In June 2002, the Company adopted a new share option scheme (the "2002 Share
Option Scheme").
Under the 2002 Share Option Scheme, the Directors of the Company may, at their
discretion, invite employees, including executive Directors, of the Company or
any of its subsidiaries, to take up options to subscribe for Shares in the
Company. The maximum aggregate number of Shares (including those that could be
subscribed for under the Pre-Global Offering Share Option Scheme and the 2001
Share Option Scheme) which may be granted shall not exceed 10% of the total
issued share capital of the Company. The maximum number of Shares which may be
granted under the 2002 Share Option Scheme to any individual in any 12 month
period up to the next grant shall not exceed 1% of the total issued share
capital of the Company from time to time.
CNOOC LIMITED 2005 Interim Report 41
OTHER INFORMATION
According to the 2002 Share Option Scheme, the consideration payable by a
participant for the grant of an option will be HK$1.00. The subscription price
of a Share payable by a participant upon the exercise of an option is determined
by the Directors at their discretion at the date of grant, except that such
price may not be set below a minimum price which is the highest of:
1. the nominal value of a share;
2. the average closing price of the Shares on the Stock Exchange of Hong Kong
Limited ("HKSE") as stated in the HKSE's quotation sheet for the five
trading days immediately preceding the date of grant of the option; and
3. the closing price of the Shares on the HKSE as stated in the HKSE's
quotation sheet on the date of grant of the option.
On 24 February 2003, the board of Directors resolved to grant options in respect
of 42,050,000 Shares to the Company's senior management under the 2002 Share
Option Scheme. The exercise price for such options is HK$2.108 per Share. The
closing market price immediately before the date on which such options were
granted was HK$2.11 per Share. Options granted under the 2002 Share Option
Scheme may be exercised, in whole or in part, in accordance with the following
vesting schedule:
1. one-third of the rights to exercise the options shall vest on the first
anniversary of the date of the grant;
2. one-third of the rights to exercise the options shall vest on the second
anniversary of the date of the grant; and
3. one-third of the rights to exercise the options shall vest on the third
anniversary of the date of the grant.
The exercise periods for options granted under the 2002 Share Option Scheme end
not later than 10 years from the date on which the option is granted.
42 CNOOC LIMITED 2005 Interim Report
OTHER INFORMATION
On 5 February 2004, the board of directors approved a grant of options in
respect of 50,700,000 Shares to the Company's senior management under the 2002
Share Option Scheme. The exercise price for such options is HK$3.152 per Share.
The closing market price immediately before the date on which such options were
granted was HK$3.146 per Share. Options granted under the 2002 Share Option
Scheme may be exercised, in whole or in part, in accordance with the following
vesting schedule:
1. one-third of the rights to exercise the options shall vest on the first
anniversary of the date of the grant;
2. one-third of the rights to exercise the options shall vest on the second
anniversary of the date of the grant; and
3. one-third of the rights to exercise the options shall vest on the third
anniversary of the date of the grant.
The exercise periods for options granted under the 2002 Share Option Scheme end
not later than 10 years from the date on which the option is granted.
On 1 April 2005, Mr. Erwin Schurtengberger surrendered 1,150,000 share options
following his resignation as an Independent Non-executive Director of the
Company. The total number of options exercisable as of 30 June 2005 was
74,983,233.
The weighted average fair value of the options granted under the Pre-Global
Offering Share Option Scheme, the 2001 Share Option Scheme and the 2002 Share
Option Scheme at the grant dates was HK$0.84 per Share. This was estimated using
the Black-Scholes option pricing model under the following assumptions:
risk-free interest rates of 5.25%, expected volatility of 44%, an expected life
of five years and an expected dividend yield of 2.0%. The assumptions on which
the option pricing model is based represent the subjective estimations of the
Directors as to the circumstances existing at the time the options were granted.
AUDIT COMMITTEE
The audit committee has reviewed together with the management the accounting
principles and practices adopted by the Group and discussed the internal control
and financial reporting matters. The interim results for the six months ended 30
June 2005 are unaudited, but have been reviewed by Ernst & Young in accordance
with Statement of Auditing Standards 700 "Engagement to review interim financial
reports", issued by the Hong Kong Institute of Certified Public Accountants. The
interim financial report has been reviewed by the audit committee.
PURCHASE, SALE OR REDEMPTION OF THE COMPANY'S LISTED SECURITIES
There has been no purchase, sale or redemption of the Company's listed
securities by the Company or its subsidiaries during the six months ended 30
June 2005.
CNOOC LI MMITED 2005 Interim Report 43
OTHER INFORMATION
CODE ON CORPORATE GOVERNANCE PRACTICES
The Company has complied with the code provisions of the Code on Corporate
Governance Practices (the "Code") as set out in Appendix 14 of the Listing Rules
throughout the six months ended 30 June, 2005, except for the following
deviations from the code provisions A.2.1, A.4.1, A.4.2 and B.1.3 only.
Code Provision A.2.1
Under the 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 Company. In addition to the
role of the chairman, the role of chief executive officer is also designated to
Mr. Fu because of the nature of the Company's operations. This constitutes a
deviation from the code provision A.2.1. The reason for such deviation is set
out below.
The Company is engaged in the pure oil exploration and production business which
is different from integrated oil companies which engage 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 of Directors 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 the 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 the code
provision A.4.1. However, all the Directors of the Company (executive and
non-executive) 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 Mr. Tse Hau Yin, Aloysius ("Mr. Tse"), who was appointed as an
Independent Non-executive Director of the Company in place of Mr. Erwin
Schurtenberger ("Mr. Schurtenberger") on 8 June 2005. 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 Code.
44 CNOOC LIMITED 2005 Interim Report
OTHER INFORMATION
Code Provision A.4.2
Under the code provision A.4.2, every Director, including those appointed for a
specific term, should be subject to retirement by rotation at least once every
three years. Mr. Fu, the chairman of the Company, was re-elected as a Director
on 6 June 2002. He did not retire by rotation at the annual general meeting held
on 25 May 2005 as under Article 97 a Director who is also a chairman or chief
executive officer of the Company is exempted from the requirement to retire by
rotation. Mr. Fu will however retire by rotation and be subject to re-election
by shareholders in the future, in compliance with the code provision A.4.2.
Code Provision B.1.3
The code provision B.1.3 requires the terms of reference of the remuneration
committee of the Company to include, as a minimum, certain specific duties set
out in such code provision.
Previously, the Company's remuneration committee charter did not mirror the
exact wording of the terms of reference in the code provision B.1.3. The Company
has therefore revised its remuneration committee charter to comply with the
provisions in the code provision B.1.3.
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. Having made
specific enquiry of all Directors, the Directors confirm that they complied,
during the six months ended 30 June 2005, with the Company's Code of Ethics and
the required standards set out in the Model Code.
CHANGES IN DIRECTORSHIP
On 1 April 2005, Mr. Schurtenberger resigned as an Independent Non-executive
Director of the Company for personal reasons due to ill health. Mr. Tse was
subsequently appointed as an Independent Non-executive Director of the Company
in place of Mr. Schurtenberger on 8 June 2005. Mr. Tse was also appointed a
member of the audit committee and remuneration committee of the Company on 8
June 2005.
Mr. Jiang Longsheng ("Mr. Jiang") an Executive Director of the Company, retired
on 1 June 2005 and on the same day, Mr. Wu Guangqi ("Mr. Wu") was appointed as
an Executive Director of the Company in place of Mr. Jiang. Mr. Wu was also
appointed as the Compliance Officer of the Company.
During the period between Mr. Schurtenberger's resignation and Mr. Tse's
appointment as an Independent Non-executive Director of the Company, the audit
committee only comprised of 2 Independent Non-executive Directors and therefore
the Company was not in strict compliance with rule 3.21 of the Listing Rules
which requires an audit committee to comprise of at least 3 Independent
Non-executive Directors. The Company had informed the Stock Exchange immediately
and published an announcement in newspapers containing relevant details in
compliance with rule 3.23 of the Listing Rules. The Company had also, in
accordance with rule 3.23 of the Listing Rules, ensured that an appropriate
member was appointed to the audit committee within three months of Mr.
Schurtenberger's resignation. After Mr. Tse's appointment on 8 June 2005 as an
Independent Non-executive Director and a member of the audit committee of the
Company, the audit committee comprised 3 Independent Non-executive Directors and
the Company is in compliance with rule 3.21 of the Listing Rules.
CNOOC LIMITED 2005 Interim Report 45
OTHER INFORMATION
STATEMENT ON CORPORATE GOVERNANCE AS REQUIRED BY SECTION 303A.11 OF
THE NEW YORK STOCK EXCHANGE LISTED COMPANY MANUAL
The Company is incorporated under the laws of Hong Kong and the principal
trading market for the ordinary shares of the Company is the Hong Kong Stock
Exchange. In addition, because the Company's ordinary shares are registered with
the United Sates Securities and Exchange Commission and are listed on the New
York Stock Exchange (the "NYSE"), the Company is subject to certain corporate
governance requirements. However, many of the corporate governance rules in the
NYSE Listed Company Manual (the "NYSE Standards") do not apply to the Company as
a "foreign private issuer" and the Company is permitted to follow its home
country corporate governance practices in lieu of most corporate governance
standards contained in the NYSE Standards. Section 303A.11 of the NYSE Listed
Company Manual requires NYSE-listed foreign private issuers to describe the
significant differences between their corporate governance practices and the
corporate governance standards applicable to U.S. companies listed on the NYSE.
The Company has posted a brief summary of such significant differences on its
website, which may be accessed through the following web page:
http://www.cnoocltd.com/cnoocltd/template/Template010.jsp?Wc_Id=333&Wg_Id=16
MISCELLANEOUS
The Directors are of the opinion that there have been no material changes to the
information published in the annual report for the year ended 31 December 2004,
other than as disclosed in this Interim Report.
REGISTER OF MEMBERS
The Register of Members of the Company will be closed from 15 September 2005 to
22 September 2005 (both days inclusive) during which no transfer of shares can
be registered. In order to qualify for the interim dividend and the special
interim dividend, all transfers, accompanied by the relevant share certificates,
must be lodged with the Company's registrar, Hong Kong Registrars Limited, Room
1901-5, 19th Floor, Hopewell Centre, 183 Queen's Road East, Wanchai, Hong Kong,
not later than 4.00 p.m. on 14 September 2005.
By Order of the Board
Cao Yunshi
Company Secretary
Hong Kong, 30 August 2005
FORWARD-LOOKING STATEMENTS
Certain statements contained in this interim report may be viewed as
"forward-looking statements". Such forward-looking statements involve known and
unknown risks, uncertainties and other factors, which may cause the actual
performance, financial condition or results of operations of the Company to be
materially different from any future performance, financial condition or results
of operations implied by such forward-looking statements.
46 CNOOC LIMITED 2005 Interim Report
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, as
amended, the registrant has duly caused this report on Form 6-K to be signed on
its behalf by the undersigned, thereunto duly authorized.
CNOOC Limited
By: /s/ Cao Yunshi
-----------------------------
Name: Cao Yunshi
Title: Company Secretary
Dated: September 8, 2005