Edgar Filing: CNOOC LTD

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 20-F

(Mark One)

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

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

For the fiscal year ended December 31, 2012

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

For the transition period from _________________ to _______________

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

Date of event requiring this shell company report ________________

Commission File Number 1-14966

CNOOC LIMITED

(Exact name of Registrant as specified in its charter)

N/A

(Translation of Registrant’s name into English)

Hong Kong

(Jurisdiction of incorporation or organization)

65th Floor, Bank of China Tower

One Garden Road, Central

Hong Kong

(Address of principal executive offices)

Hua Zhong

65th Floor, Bank of China Tower

One Garden Road, Central

Hong Kong

Tel +852 2213 2500

Fax +852 2525 9322

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

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

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

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

(Title of Class)

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

(Title of Class)

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

Shares, par value HK$0.02 per share

44,646,305,984

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

Yes ý No ¨

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

Yes ¨ No ý

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

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

Yes ý No ¨

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

Yes ¨ No ý

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

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

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

U.S. GAAP ¨

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

Other ¨

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

Item 17 ¨ Item 18 ¨

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

Yes ¨ No ý

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

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Page

TERMS AND CONVENTIONS		4
FORWARD-LOOKING STATEMENTS		9
SPECIAL NOTE ON THE FINANCIAL INFORMATION AND CERTAIN STATISTICAL INFORMATION PRESENTED IN THIS ANNUAL REPORT		10
PART I		11
ITEM 1. IDENTITY OF DIRECTORS, SENIOR MANAGEMENT AND ADVISERS		11
ITEM 2. OFFER STATISTICS AND EXPECTED TIMETABLE		11
ITEM 3. KEY INFORMATION		11
A.	Selected Financial Data	11
B.	Capitalization and Indebtedness	13
C.	Reasons for the Offer and Use of Proceeds	13
D.	Risk Factors	14
ITEM 4. INFORMATION ON THE COMPANY		21
A.	History and Development	21
B.	Business Overview	22
C.	Organizational Structure	56
D.	Property, plants and equipment	56
ITEM 4A. UNRESOLVED STAFF COMMENTS		56
ITEM 5. OPERATING AND FINANCIAL REVIEW AND PROSPECTS		57
A.	Operating Results	57
B.	Liquidity and Capital Resources	69
C.	Research and Development, Patents and Licenses, etc.	72
D.	Trend Information	72
E.	Off-Balance Sheet Arrangements	73
F.	Tabular Disclosure of Contractual Obligations	73
G.	Safe Harbor	74
ITEM 6. DIRECTORS, SENIOR MANAGEMENT AND EMPLOYEES		74
A.	Directors and Senior Management	74
B.	Compensation	81
C.	Board Practice	81
D.	Employees	84
E.	Share Ownership	84
ITEM 7. MAJOR SHAREHOLDERS AND RELATED PARTY TRANSACTIONS		85
A.	Major Shareholders	85
B.	Related Party Transactions	86
C.	Interests of Experts and Counsel	90
ITEM 8. FINANCIAL INFORMATION		90
A.	Consolidated Statements and Other Financial Information	90
B.	Significant Changes	93
ITEM 9. THE OFFER AND LISTING		93
ITEM 10. ADDITIONAL INFORMATION		94
A.	Share Capital	94
B.	Memorandum and Articles of Association	94
C.	Material Contracts	97
D.	Exchange Controls	97
E.	Taxation	97
F.	Dividends and Paying Agents	101
G.	Statement by Experts	102
H.	Documents on Display	102
I.	Subsidiary Information	102
ITEM 11. QUALITATIVE AND QUANTITATIVE DISCLOSURES ABOUT MARKET RISK		102
ITEM 12. DESCRIPTION OF SECURITIES OTHER THAN EQUITY SECURITIES		103
A.	Debt Securities	103
B.	Warrants and Rights	103
C.	Other Securities	103
D.	American Depositary Shares	104
PART II		105
ITEM 13. DEFAULTS, DIVIDEND ARREARAGES AND DELINQUENCIES		105
ITEM 14. MATERIAL MODIFICATIONS TO THE RIGHTS OF SECURITY HOLDERS AND USE OF PROCEEDS		105
A.	Material Modifications to the Instruments Defining the Rights of Security Holders	105

B.	Material Modifications to the Rights of Registered Securities by Issuing or Modifying any Other Class of Securities	105
C.	Withdrawal or Substitution of a Material Amount of the Assets Securing any Registered Securities	105
D.	Change of Trustees or Paying Agents for any Registered Securities	105
E.	Use of Proceeds	105
ITEM 15. CONTROLS AND PROCEDURES		105
ITEM 16A. AUDIT COMMITTEE FINANCIAL EXPERT		106
ITEM 16B. CODE OF ETHICS		106
ITEM 16C. PRINCIPAL ACCOUNTANT FEES AND SERVICES		107
ITEM 16D. EXEMPTIONS FROM THE LISTING STANDARDS FOR AUDIT COMMITTEES		107
ITEM 16E. PURCHASES OF EQUITY SECURITIES BY THE ISSUER AND AFFILIATED PURCHASERS		107
ITEM 16F. CHANGE IN REGISTRANT'S CERTIFYING ACCOUNTANT		108
ITEM 16G. CORPORATE GOVERNANCE		108
ITEM 16H. MINE SAFETY DISCLOSURE		108
PART III		109
ITEM 17. FINANCIAL STATEMENTS		109
ITEM 18. FINANCIAL STATEMENTS		109
ITEM 19. EXHIBITS		109

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TERMS AND CONVENTIONS

Definitions

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

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

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

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

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

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

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

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

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

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

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

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

“IASB” are to the International Accounting Standards Board;

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

“NYSE” are to the New York Stock Exchange;

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

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

Conventions

We publish our financial statements in Renminbi. Unless otherwise indicated, we have translated amounts from Renminbi into U.S. dollars solely for the convenience of the reader at the noon buying rate for cable transfers of Renminbi per U.S. dollar certified for customs purposes by the Federal Reserve Bank of New York, as set forth in the H.10 weekly statistical release of the Federal Reserve Board on December 31, 2012 of US$1.00=Rmb 6.2301. We have also translated amounts in Hong Kong dollars

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solely for the convenience of the reader at the noon buying rate for cable transfers of Hong Kong dollars per U.S. dollar certified for customs purposes by the Federal Reserve Bank of New York, as set forth in the H.10 weekly statistical release of the Federal Reserve Board on December 31, 2012 of US$1.00=HK$7.7507. We make no representation that the Renminbi amounts or Hong Kong dollar amounts could have been, or could be, converted into U.S. dollars at those rates on December 31, 2012, or at all. For further information on exchange rates, see “Item 3—Key Information—Selected Financial Data.”

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

For the years 2010, 2011 and 2012, approximately 11%, 23% and 36%, respectively, of our reserves were evaluated by us independently, and the remaining were based upon estimates prepared by independent petroleum engineering consulting companies and reviewed by us. Our reserve data for 2010, 2011 and 2012 were prepared in accordance with the SEC’s final rules on “Modernization of Oil and Gas Reporting”, which became effective for accounting periods ended on or after December 31, 2009. Except as otherwise stated, all amounts of reserve and production in this report include our interests in equity method investees.

In calculating barrels-of-oil equivalent amounts, we have assumed that 6,000 cubic feet of natural gas equals one BOE, with the exception of natural gas from South America, Oceania and Indonesia in Asia, which we have used actual thermal unit for such conversion purpose.

Glossary of Technical Terms

Unless otherwise indicated in the context, references to:

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

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

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

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

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

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

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

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

“LNG” means liquefied natural gas.

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

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

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

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

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

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

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

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

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

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

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

(i) Reserves on undrilled acreage shall be limited to those directly offsetting development spacing areas that are reasonably certain of production when drilled, unless evidence using

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reliable technology exists that establishes reasonable certainty of economic producibility at greater distances.

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

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

For further definitions relating to reserves:

“reserve replacement ratio” means, for a given year, total additions to proved reserves, which consist of additions from purchases, discoveries and extensions and revisions of prior reserve estimates, divided by production during the year. Reserve additions used in this calculation are proved developed and proved undeveloped reserves; unproved reserve additions are not used. Data used in the calculation of reserve replacement ratio is derived directly from the reserve quantity reconciliation prepared in accordance with U.S. Accounting Standards Codification 932-235-50, which reconciliation is included in “Supplementary Information on Oil and Gas Producing Activities” beginning on page F-77 of this annual report.

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

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

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

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

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

References to:

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

mmbbls means million barrels;

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BOE means barrels-of-oil equivalent;

mcf means thousand cubic feet;

mmcf means million cubic feet;

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

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

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FORWARD-LOOKING STATEMENTS

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

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

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

wells to be drilled or reworked,

development projects,

exploration prospects,

estimates of proved oil and gas reserves,

development and drilling potential,

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

business strategy,

production of oil and gas,

development of undeveloped reserves,

expansion and growth of our business and operations,

oil and gas prices and demand,

future earnings and cash flow, and

our estimated financial information.

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

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

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

Our consolidated financial statements for the years ended December 31, 2010, 2011 and 2012 included in this annual report on Form 20-F have been prepared in accordance with International Financial Reporting Standards, or IFRSs, as issued by the International Accounting Standards Board.

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

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

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PART I

ITEM 1. IDENTITY OF DIRECTORS, SENIOR MANAGEMENT AND ADVISERS

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

ITEM 2. OFFER STATISTICS AND EXPECTED TIMETABLE

Not applicable.

ITEM 3. KEY INFORMATION

A.	SELECTED FINANCIAL DATA

The following tables present selected historical financial data of our company as of and for the years ended December 31, 2008, 2009, 2010, 2011 and 2012. Except for amounts presented in U.S. dollars, the selected historical consolidated statement of financial position data and consolidated statement of comprehensive income data as of and for the years ended December 31, 2008, 2009, 2010, 2011 and 2012 set forth below are derived from, should be read in conjunction with, and are qualified in their entirety by reference to, our consolidated financial statements and their notes under “Item 18—Financial Statements” and “Item 5—Operating and Financial Review and Prospects” in this annual report. As disclosed above under “Special Note on the Financial Information and Certain Statistical Information Presented in This Annual Report”, our consolidated financial statements as of and for the years ended December 31, 2008, 2009, 2010, 2011 and 2012 have been prepared and presented in accordance with IFRS.

	Year ended December 31,
	2008			2009			2010(1)			2011			2012			2012
	Rmb			Rmb			Rmb			Rmb			Rmb			US$
Statement of Comprehensive Income Data:	(in millions, except per share and per ADS data)
Statement of Comprehensive Income Data:
Operating revenues:
Oil and gas sales		100,831			83,914			146,134			189,279			194,774			31,263
Marketing revenues		22,967			20,752			32,446			50,469			50,771			8,149
Other income		2,179			529			1,456			1,196			2,082			334
Total operating revenues		125,977			105,195			180,036			240,944			247,627			39,746

Expenses:
Operating expenses		(9,990	)		(12,490	)		(15,647	)		(18,264	)		(21,445	)		(3,442	)
Taxes other than income tax		(5,150	)		(3,888	)		(7,109	)		(10,332	)		(15,632	)		(2,509	)
Exploration expenses		(3,410	)		(3,234	)		(5,483	)		(5,220	)		(9,043	)		(1,452	)
Depreciation, depletion and amortization		(10,058	)		(15,943	)		(26,756	)		(30,521	)		(32,903	)		(5,281	)
Special oil gain levy		(16,238	)		(6,357	)		(17,706	)		(31,982	)		(26,293	)		(4,220	)
Impairment and provision		(1,541	)		(7	)		(27	)		(22	)		(31	)		(5	)
Crude oil and product purchases		(22,675	)		(20,455	)		(32,236	)		(50,307	)		(50,532	)		(8,111	)
Selling and administrative expenses		(1,743	)		(2,264	)		(3,039	)		(2,854	)		(3,377	)		(542	)
Others		(1,307	)		(232	)		(888	)		(835	)		(1,230	)		(197	)
Total expenses		(72,112	)		(64,870	)		(108,891	)		(150,337	)		(160,486	)		(25,759	)

Profit from operating activities		53,865			40,325			71,145			90,607			87,141			13,987
Interest income		1,091			638			618			1,196			1,002			161
Finance costs		(415	)		(535	)		(1,122	)		(1,707	)		(1,603	)		(257	)
Exchange gains, net		2,551			54			995			637			359			58
Investment income		476			200			427			1,828			2,392			384
Share of profits of associates		374			173			199			320			284			46
Share of profits/(losses) of a joint venture		-			-			199			247			(311	)		(50	)
Non-operating income/(expenses), net		(62	)		(34	)		142			(563	)		908			146
Profit before tax		57,880			40,821			72,603			92,565			90,172			14,475

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	Year ended December 31,
	2008			2009			2010(1)			2011			2012			2012
	Rmb			Rmb			Rmb			Rmb			Rmb			US$
	(in millions, except per share and per ADS data)
Income tax expense		(13,505	)		(11,335	)		(18,193	)		(22,310	)		(26,481	)		(4,250	)
Profit for the year		44,375			29,486			54,410			70,255			63,691			10,225

Earningspershare(basic)(2)		0.99			0.66			1.22			1.57			1.43			0.23
Earnings per share (diluted) (3)		0.99			0.66			1.21			1.57			1.42			0.23
Earnings per ADS (basic) (2)		99.44			66.01			121.81			157.28			142.66			22.90
Earnings per ADS (diluted) (3)		99.08			65.86			121.39			156.63			142.14			22.82

Dividend per share
Interim		0.175			0.176			0.181			0.204			0.122			0.02
Proposed final		0.176			0.176			0.211			0.227			0.259			0.04

	As of December 31,
	2008		2009		2010(1)		2011		2012		2012
	Rmb		Rmb		Rmb		Rmb		Rmb		US$
	(in millions)
Statement of Financial Position Data:
Cash and cash equivalents		19,762		22,615		27,287		23,678		55,024		8,832
Available-for sale financial assets		11,661		8,582		18,940		27,576		61,795		9,919
Held-to-maturity financial assets		-		-		3,040		23,467		-		-
Current assets		63,770		70,871		99,384		131,923		170,894		27,430
Property, plant and equipment, net		138,358		165,320		186,678		220,567		252,132		40,470
Investments in associates		1,785		1,727		1,781		2,822		3,857		619
Investments in a joint venture		-		-		20,823		20,175		20,160		3,236
Intangible assets		1,206		1,230		1,148		1,033		973		156
Long term available-for-sale financial assets		1,550		3,120		8,616		7,365		7,051		1,132
Total assets		206,669		242,268		318,430		384,264		456,070		73,204
Current loans and borrowings		17		122		21,194		19,919		28,830		4,628
Current liabilities		18,799		31,042		68,423		70,216		82,437		13,232
Long term loans and borrowings, net of current portion		13,864		18,570		9,859		18,076		29,056		4,664
Total non-current liabilities		27,632		37,291		34,241		51,192		63,853		10,249
Total liabilities		46,431		68,333		102,664		121,408		146,290		23,481
Capital stock		43,078		43,078		43,078		43,078		43,078		6,914
Shareholders’ equity		160,238		173,936		215,766		262,856		309,780		49,723

(1)

From January 1, 2011, the Company adopted IFRS 10-Consolidated Financial Statements, IFRS 11-Joint Arrangements, IFRS 12-Disclosure of Interest in Other Entities, IAS 27 (Revised)-Separated Financial Statements and IAS 28 (Revised)-Investments in Associates and Joint Ventures before their mandatory effective date on January 1, 2013. Certain comparative figures have been adjusted.

(2)

Earnings per share (basic) and earnings per ADS (basic) for each year from 2008 to 2012 have been computed, without considering the dilutive effect of the shares underlying our share option schemes and, as applicable, convertible bonds, by dividing profit by the weighted average number of shares and the weighted average number of ADSs of 44,623,856,311 and 446,238,563, respectively, for 2008, 44,669,199,984 and 446,692,000, respectively, for 2009, 44,669,199,984 and 446,692,000, respectively, for 2010, 44,668,570,359 and 446,685,704, respectively, for 2011 and 44,646,305,984 and 446,463,060, respectively, for 2012, in each case based on a ratio of 100 shares to one ADS.

(3)

Earnings per share (diluted) and earnings per ADS (diluted) for each year from 2008 to 2012 have been computed, after considering the dilutive effect of the shares underlying our share option schemes and, as applicable, convertible bonds, by using 44,786,097,516 shares and 447,860,975 ADSs for 2008, 44,771,714,329 shares and 447,717,143 ADSs for 2009, 44,821,187,466 shares and 448,211,875 ADSs for 2010 , 44,853,615,010 shares and 448,536,150 ADSs for 2011 and 44,808,042,330 shares and 448,080,423 ADSs for 2012.

	Year ended December 31,
	2008			2009			2010(1)			2011			2012			2012
	Rmb			Rmb			Rmb			Rmb			Rmb			US$
	(in millions, except percentages and ratios)
Other Financial Data:
Capital expenditures paid(2)		33,161			39,376			28,332			36,823			54,331			8,721
Cash provided by/(used for):
Operating activities		52,489			49,624			70,883			116,171			92,574			14,858
Investing activities		(45,735	)		(37,307	)		(64,203	)		(99,036	)		(63,797	)		(10,240	)
Financing activities		(10,129	)		(9,403	)		(1,610	)		(20,246	)		2,584			413
Gearing ratio(3)		8.0%			9.7%			12.6%			12.6%			15.7%			15.7%

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(1)

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

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

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

	Noon Buying Rate
Period	End		Average(1)		High		Low
	(Rmb per US$1.00)
2008		6.8225		6.9193		7.2946		6.7800
2009		6.8259		6.8295		6.8470		6.8176
2010		6.6000		6.7603		6.8330		6.6000
2011		6.2939		6.4475		6.6364		6.2939
2012		6.2301		6.2990		6.3879		6.2221
October 2012		6.2372		—		6.2877		6.2372
November 2012		6.2265		—		6.2454		6.2221
December 2012		6.2301		—		6.2502		6.2251
January 2013		6.2186		—		6.2303		6.2134
February 2013		6.2213		—		6.2438		6.2213
March 2013		6.2108		—		6.2246		6.2105

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

On March 29, 2013, the noon buying rate between U.S. dollars and Renminbi as set forth in the H.10 weekly statistical release of the Federal Reserve Board was Rmb 6.2108 to US$1.00.

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

	Noon Buying Rate
Period	End		Average(1)		High		Low
	(HK$ per US$1.00)
2008		7.7499		7.7814		7.8159		7.7497
2009		7.7536		7.7513		7.7618		7.7495
2010		7.7810		7.7692		7.8040		7.7501
2011		7.7663		7.7793		7.8087		7.7634
2012		7.7507		7.7556		7.7699		7.7493
October 2012		7.7494		—		7.7549		7.7494
November 2012		7.7501		—		7.7518		7.7493
December 2012		7.7507		—		7.7518		7.7493
January 2013		7.7560		—		7.7585		7.7503
February 2013		7.7546		—		7.7580		7.7531
March 2013		7.7629		—		7.7640		7.7551

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

On March 29, 2013, the noon buying rate between U.S. dollars and Hong Kong dollars as set forth in the H.10 weekly statistical release of the Federal Reserve Board was HK$7.7629 to US$1.00.

B.	CAPITALIZATION AND INDEBTEDNESS

Not applicable.

C.	REASONS FOR THE OFFER AND USE OF PROCEEDS

Not applicable.

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D.	RISK FACTORS

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

Risks Relating to Our Operations

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

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

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

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

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

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

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

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

Exploring for, developing and acquiring reserves is highly risky and capital intensive. Our exploration and development activities involve inherent risks, including the risk that we will not encounter commercially productive oil or gas reservoirs. In addition, approximately 58.5% of our proved reserves were undeveloped as of December 31, 2012. Our future success will depend on our ability to develop these reserves in a timely and cost-effective manner. There are various risks in developing reserves, including construction, operational, geophysical, geological and regulatory risks.

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

Our ability to maintain and increase our revenues, profit and cash flows depends upon continuous capital spending, which is subject to a number of contingencies, some of which are beyond our control. These variables include: cash flows from operations, the availability and terms of external financing, our

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ability to execute our project plans and commence production on time, weather conditions, the availability of services and facilities, approvals required from the PRC and foreign governments for certain capital expenditures and investments, and economic, political and other conditions in the PRC and overseas where we have operations or assets.

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

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

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

Mergers and acquisitions may expose us to additional risks and uncertainties

In the past few years, we expanded our operations into Argentina, the U.S., Canada, Uganda, United Kingdom and certain other countries through mergers and acquisitions. For example, we completed our acquisition of Nexen Inc. (“Nexen”), a Canada-based energy company then-listed on the Toronto Stock Exchange and the New York Stock Exchange, in February 2013. We may continue to pursue opportunities for mergers and acquisitions to expand our business in the future.

In light of political instability, unexpected changes to fiscal regime and various other factors, there may be uncertainties with respect to the operations of those merged and acquired overseas assets. In particular, we may face increasing exploration and environmental risks arising from Nexen’s unconventional resources development, including oil sands operations. The relatively high production cost of Nexen’s oil sands and deep water operations may negatively affect our overall profitability. Further, we may face other risks and uncertainties as we become subject to additional regulatory requirements as a result of the acquisition of Nexen. Therefore, we may not be able to achieve the anticipated economic return. Also, the increase in the scale of our operations may increase our operational risks.

We may not be able to realize the anticipated benefits from the Nexen acquisition

Achieving the advantages of the Nexen acquisition will depend partly on the efficient combination of the activities of the Company and Nexen, two companies that functioned independently and were incorporated in different countries, with geographically dispersed operations and with different business cultures.

The integration process involves inherent costs and uncertainties. Our purchase price paid for the Nexen acquisition represents a premium of 61% to the closing price of Nexen’s common shares on the NYSE on July 20, 2012, and a premium of 66% to Nexen’s 20 trading-day volume-weighted average share price. We expect the acquisition of Nexen will expand our existing business and assets and create sustainable growth opportunities, synergies and other benefits. However, our anticipated benefits may not develop. In addition, implementation of the acquisition and the successful integration of Nexen will also require management time and attention, as well as those employees with the appropriate skill sets for the tasks associated with such integration. Any failures, material delays or unexpected costs of the integration process could therefore have a material adverse effect on our business, results of operations and financial condition.

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

CNOOC indirectly owned or controlled 64.45% of our shares as of March 28, 2013. As a result, CNOOC is able to control the composition of the board of directors of our company, or our Board, determine the timing and amount of our dividend payments and otherwise control us. If CNOOC takes actions that favor its interests over ours, our results of operations and financial position may be adversely affected.

In addition, we regularly enter into transactions with CNOOC and its affiliates, such as China Oilfield Services Limited, or COSL, Offshore Oil Engineering Co., Ltd., or COOEC, and China BlueChemical Ltd. Some of our transactions with CNOOC and its affiliates constitute connected transactions under The Rules Governing the Listing of Securities on The Stock Exchange of Hong Kong Limited, or the Hong Kong Stock Exchange Listing Rules. Furthermore, these connected transactions are subject to review by the Hong Kong Stock Exchange and may also be subject to the prior approval of our independent shareholders. For example, we have obtained the independent shareholders’ approval in respect of certain continuing connected transactions under a comprehensive framework agreement with

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CNOOC and its affiliates on November 24, 2010. If we do not obtain these approvals, we will not be allowed to effect these transactions and our business operations and financial condition could be adversely affected.

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

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

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

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

Quite a few of our operations are conducted with partners or in joint ventures in which we may have limited ability to influence or control their operation or future development. Our limited ability to influence or control the operation or future development of such joint ventures could materially and adversely affect the realization of our target returns on capital and lead to unexpected future costs.

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

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

We maintain various insurance coverage for our operations against certain types of potential losses. For detailed information on our insurance coverage, see “Item 4—Information on the Company—Business Overview—Operating Hazards and Uninsured Risks.” However, our ability to insure against our risks is limited by the availability of relevant insurance products in the market. In addition, we cannot assure you that our insurance coverage is sufficient to cover any losses that we may incur, or that we will be able to successfully claim our losses under our existing insurance policies timely or at all. If any of our losses is not covered by our insurance policies, or if the insurance compensation is less than our losses or not paid timely, our business, financial condition and results of operations could be materially and adversely affected.

We conduct exploration and development in deepwater areas in both offshore China and overseas by cooperating with our partners and by ourselves. Operations in deepwater are more difficult, risky and costly than those in shallower water. Operations in deepwater may require a significant amount of time between the discovery and the initial production, thus increasing the risks involved in these operations.

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

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

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

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

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

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

The Iran Sanctions Act, as amended, or ISA, the Comprehensive Iran Sanctions, Accountability and Divestment Act of 2010, or CISADA, the National Defense Authorization Act for Fiscal Year 2012, or NDAA, the Iran Threat Reduction and Syria Human Rights Act of 2012, or TRA, and the Iran Freedom and Counter-Proliferation Act of 2012, or IFCA, authorize the imposition of sanctions on companies that engage in, among other things, certain activities related to Iran’s energy, petrochemical, shipping or shipbuilding sectors, and in certain instances, on their parent companies. It is possible that the U.S. Government could determine that CNOOC or its affiliates engage in activities targeted by U.S. sanctions. If the U.S. President determined that CNOOC or one of its affiliates engaged in targeted activities, CNOOC and/or its affiliate could be subject to U.S. sanctions, which range from restrictions on U.S. exports or bank financing to outright blocking of CNOOC or its affiliate’s property within U.S. jurisdiction. If the most extreme sanction, blocking, were applied to CNOOC’s property, including controlled subsidiaries, CNOOC Limited could be prohibited from engaging in business activities in the United States or with U.S. individuals or entities, and U.S. transactions in our securities and distributions to U.S. individuals and entities with respect to our securities could also be prohibited.

As required by the Iran Threat Reduction and Syria Human Rights Act of 2012, which added a disclosure requirement to the Securities Exchange Act of 1934, we are providing certain information regarding our non-controlled affiliates’ activities. In 2012, to our knowledge, one of our non-controlled affiliates, COSL, was engaged in certain drilling and other related services in Iran in relation to subcontracting agreements entered into in 2009 and another non-controlled affiliate of ours was engaged in installation services in Iran. We cannot predict at this time whether U.S. sanctions will be imposed on any of our affiliates.

Our business and financial condition may be adversely affected by a severe and prolonged global economic downturn and deteriorating economic conditions

Recent global market and economic conditions have been unprecedented with recession in most major economies. Continued concerns about the systemic impact of a potentially long-term and

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widespread recession and the sovereign debt crisis in Europe, energy costs, geopolitical issues and the availability and cost of credit have contributed to increased market volatility and diminished expectations for economic growth around the world. The difficult economic outlook has negatively affected business and consumer confidence and contributed to unprecedented volatility levels. We cannot predict the short- and long-term impacts of these events on our business and financial condition, which could be materially and adversely affected.

Risks Relating to the Petroleum Industry

The oil and natural gas industries are very competitive

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

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

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

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

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

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

War and acts of terrorism could materially and adversely affect us

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

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

Our business is subject to environmental protection laws and regulations in the PRC, as well as other jurisdictions where we operate. The environmental laws and regulations to which we are subject may become increasingly strict and have an increasing impact on our operations. Our compliance with such laws or regulations may require us to incur significant capital expenditures or other obligations or liabilities, which could create a substantial financial burden on us. Furthermore, these jurisdictions may impose fees and fines for the discharge of waste substances or serious environmental pollution, and

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authorize a government, at its discretion, to close or suspend any facility which fails to comply with orders requiring it to cease or cure operations causing environmental damage.

We have established an enterprise risk management system to identify, evaluate and manage the risks that we face. In addition, to help address various health, safety, security, environmental and operational risks, we have established a comprehensive management system to improve our employees’ awareness of our health, safety and environmental policies in our business operations and strengthen their skills of risk identification and risk management. We also continuously focus on workplace safety and prevention of oil spills or other adverse environmental events. However, there can be no assurance that our management systems and controls will function as intended at all times. Substantial liabilities and other adverse impacts could result if our management systems and controls cannot adequately identify all process safety, personal safety and environmental risks or provide effective mitigations, or that our operations will be able to conform with our management systems and controls at all times.

Risks Relating to the PRC

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

Our operations are mainly in the People’s Republic of China. The PRC government exercises control over the PRC petroleum industry, including licensing, exploring, producing, distributing, pricing, taxing, importing, exporting and allocating of various resources. We have benefited from various favorable PRC government policies, laws and regulations that have been enacted to encourage the development of the offshore petroleum industry. We cannot guarantee that the legal and fiscal regimes affecting our businesses will remain substantially unchanged or that we will continue to benefit from favorable PRC government policies.

For instance, in 2011, the State Council of the PRC amended the Provisional Regulation of PRC Resource Tax and as a result, since November 1, 2011, the royalties payable to the PRC government have been replaced by resource tax, currently at 5% of the sales revenues from crude oil and natural gas. For detailed information on the resource tax, see “Item 4—Information on the Company—Business Overview—Regulatory Framework in the PRC.”

In 2011 and 2012, the Ministry of Finance and the State Administration of Taxation of the PRC promulgated the Circular on Printing and Issuing the Pilot Proposals for the Conversion from Business Tax to Value-Added Tax (Cai Shui [2011] No.110) and various supporting Circulars (including Cai Shui [2011] No.111, Cai Shui [2012] No.71) . As a result, since January 1, 2012, the business tax in certain industries and regions have been replaced by value-added tax. This tax reform is very complex and may have some financial impact on the Company.

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

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

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

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

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

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

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

Our auditor, like other independent registered public accounting firms operating in China, is not permitted to be subject to inspection by Public Company Accounting Oversight Board, and as such, investors may be deprived of the benefits of such inspection

Our independent registered public accounting firm that issues the audit reports included in our annual reports filed with the SEC, as an auditor of companies that are traded publicly in the United States and a firm registered with the Public Company Accounting Oversight Board, or PCAOB, is required by the laws of the United States to undergo regular inspections by PCAOB to assess its compliance with the laws of the United States and professional standards. Because our auditor is located in China, a jurisdiction where PCAOB is currently unable to conduct inspections without the approval of the PRC authorities, our auditor, like other independent registered public accounting firms operating in China, is currently not inspected by PCAOB.

Inspections of other firms that PCAOB has conducted outside of China have identified deficiencies in those firms’ audit procedures and quality control procedures, which may be addressed as part of the inspection process to improve future audit quality. The lack of PCAOB inspections in China may prevent PCAOB from regularly evaluating our auditor’s audits and quality control procedures. The inability of PCAOB to conduct inspections of auditors in China makes it more difficult to evaluate the effectiveness of our auditor’s audit procedures or quality control procedures. As a result, investors may be deprived of the benefits of PCAOB inspections.

Recent action being taken by the SEC against the PRC affiliates of the Big Four accounting firms, including our auditor, could create additional uncertainty about the status of audits of U.S.-listed PRC-based companies and may materially and adversely affect the liquidity and value of our ADSs.

On December 3, 2012, the SEC announced that it had begun administrative proceedings against the PRC affiliates of each of the Big Four accounting firms (namely Deloitte, Ernst & Young, KPMG and PricewaterhouseCoopers), including our auditor, and another large U.S. accounting firm for refusing to produce audit work papers and other documents related to China-based companies under investigation by the SEC for potential accounting fraud against U.S. investors. The SEC charged the firms with violating the Securities Exchange Act and the Sarbanes-Oxley Act, which requires foreign public accounting firms to provide the SEC upon request with audit work papers involving any company trading on the U.S. markets. If this proceeding by the SEC ultimately results in actions or sanctions that affect the ability or right of these accounting firms, including the PRC affiliate of our auditor, to engage in audits of U.S.-listed PRC-based companies, it may make it difficult or

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impossible for us to engage an auditor qualified to audit accounts for U.S.-listed PRC-based companies and make us unable to comply with SEC rules and regulations and the listing standards of securities exchanges in the United States, which would materially and adversely affect the liquidity and value of our ADSs and force us to de-list our ADSs from the NYSE. As the administrative proceedings being taken against these accounting firms is in a preliminary stage, we cannot predict the eventual possible impact on our company.

ITEM 4. INFORMATION ON THE COMPANY

A.	HISTORY AND DEVELOPMENT

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

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

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

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

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

CNOOC has undertaken to us that:

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

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

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

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

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

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

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

The undertakings from CNOOC will cease to have any effect:

if we become a wholly owned subsidiary of CNOOC;

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

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

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

B.	BUSINESS OVERVIEW

Overview

We are an upstream company specializing in the exploration, development and production of oil and natural gas. We are the dominant oil and natural gas producer in offshore China and, in terms of reserves and production, we are also one of the largest independent oil and natural gas exploration and production companies in the world. As of the end of 2012, we had net proved reserves of approximately 3.49 billion BOE (including approximately 0.29 billion BOE under our equity method investees). In 2012, we had a total net oil and gas production of 935,615 BOE per day (including 46,767 BOE per day under our equity method investees).

Competitive Strengths

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

large and diversified asset base with significant exploitation opportunities;

sizable operating areas in offshore China with demonstrated exploration potential;

successful independent exploration and development track record;

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

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

Large and diversified asset base with significant exploitation opportunities

We have a large net proved reserve base spread across offshore China and globally. As of December 31, 2012, we had approximately 3.49 billion BOE of net proved reserves. Our core operating area, offshore China, contributed to approximately 69.0% of our net proved reserves, while overseas contributed to the balance of 31.0%.

In addition to offshore China, we have a diversified global portfolio which provides us with further exploration and exploitation potential. We have a strong track record of successfully acquiring and

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operating many quality overseas upstream assets worldwide. Currently, we have assets in resource rich countries such as Indonesia, Australia, Nigeria, Uganda, the United States, Canada, and United Kingdom.

As of December 31, 2012, approximately 58.5% of our net proved reserves were classified as net proved undeveloped. Our large proved reserve base gives us the opportunity to achieve substantial production growth.

Sizable operating areas in offshore China with demonstrated exploration potential

We are the dominant oil and gas producer in offshore China, a region that we believe has substantial exploration upside. As of December 31, 2012, our total major exploration areas acreage in offshore China was approximately 257 thousand km2. We believe that offshore China is relatively underexplored, compared to other prolific offshore exploration areas such as the shallow water of the U.S. Gulf of Mexico, providing us with substantial exploration upside.

We have maintained an active drilling exploration program, which continues to demonstrate the exploration potential of offshore China. During 2012, we and our foreign partners have together drilled a total of 99 exploratory wells in offshore China, of which 41 were wildcat wells. During the same year, we and our foreign partners made 12 new discoveries in offshore China.

Successful independent exploration and development track record

We have a strong record of growing our reserves base for oil and natural gas, both independently and with our foreign partners through PSCs. In recent years, we have been adding reserves and production mainly through independent exploration and development. As of the end of 2012, in offshore China, approximately 79.6% of our net proved reserves were independent and approximately 75.3% of our production came from independent projects.

In 2012, in offshore China, our independent exploration resulted in 11 new discoveries. We also successfully appraised 14 oil and gas structures. On the development front, in 2012, our major new development projects progressed smoothly with 5 new projects on stream.

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

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

For more information about PSC, see “Item 4—Information on the Company—Business Overview—Regulatory Framework in the PRC.”

Experienced management team and a high level of corporate governance standard

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

We have a proven track record of complying with a high level of corporate governance standard, which was recognized by the industry. For example, we were awarded the “Best Managed Asian Company in the Oil/Gas Sector” for the third year in a row by Euromoney and the “Corporate Governance Asia Recognition Awards 2012” by Corporate Governance Asia in 2012.

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Business Strategy

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

focus on reserve and production growth;

develop natural gas business; and

maintain prudent financial policy.

Focus on reserve and production growth

As an upstream company specializing in the exploration, development, production and sales of oil and natural gas, we consider reserve and production growth as top priority. We plan to increase our reserves and production through drill bits and value-driven acquisitions. We will continue to concentrate independent exploration efforts on major operating areas, especially in offshore China. In the meantime, we will continue to enter into PSCs with foreign partners to lower capital requirements and exploration risks. In 2012, we achieved a reserve replacement ratio of 188%. After acquisition of Nexen, Nexen will add approximately 20% net production and 24% proved reserves to the Company based on reserves and production as at the end of 2012.

We increase production primarily through the development of proved undeveloped reserves. As of December 31, 2012, approximately 58.5% of our proved reserves were classified as proved undeveloped, which gives us the opportunity to achieve future production growth, as long as these proved undeveloped reserves are developed faster than the depletion rate of our currently producing reserves.

Develop natural gas business

In 2013, the large-size gas field Liwan 3-1 in deepwater South China Sea will commence production. We expect that our natural gas production would continue to increase accordingly.

Maintain prudent financial policy

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

Aiming to reduce production cost, we plan to actively promote the regional development of oil and gas field groups and to apply up-to-date offshore engineering, drilling and production technologies to our operations.

Currently, we have a strong financial profile with a low gearing ratio. We intend to maintain our financial strength by managing key measures such as capital expenditures, cash flows and costs per BOE. We also intend to actively manage our account receivables and inventories to enhance liquidity and improve profitability. We will continue to monitor our foreign currency denominated assets and debts and to manage exposure to foreign exchange rate fluctuations.

Nexen Acquisition

On February 25, 2013, Canada local time, we completed the acquisition of Nexen. Incorporated in Canada in 1971, Nexen is an independent global energy company, whose securities were previously listed on the Toronto Stock Exchange (the “TSX”) and the NYSE under the symbol “NXY”. Upon completion of the acquisition, Nexen’s securities were delisted from the TSX and the NYSE, and were deregistered with the SEC. Nexen focuses on three core businesses: conventional oil and gas, oil sands and shale gas, and has operations in the U.K. North Sea, Canada, U.S. Gulf of Mexico, Nigeria, Yemen and Colombia. Based on information included in Nexen’s Form 40-F filed with the SEC on February 25, 2013, Nexen’s total revenue and other income, cash flow from operations and net income for the fiscal year ended December 31, 2012 were Cnd$6,711 million, Cnd$2,651 million and Cnd$333 million, respectively, and Nexen had 3,228 employees as of December 31, 2012.

As disclosed in the Circular included in the Company’s Form 6-K furnished to the SEC on December 21, 2012, an arrangement agreement was entered into on July 23, 2012 among the Company, CNOOC Canada Holding Ltd., our wholly owned subsidiary, and Nexen (the “Arrangement Agreement”) for acquisition of all outstanding common shares and preferred shares of Nexen pursuant to a Plan of Arrangement under the Canada Business Corporations Act for an aggregate consideration of approximately US$15.1 billion in cash (the “Nexen Acquisition”). The indebtedness of Nexen of approximately US$4.3 billion would remain outstanding following the acquisition. Based on information included in Nexen’s Form 6-K furnished to the SEC on March 28, 2013, Nexen completed the redemption of its 7.35% subordinated debentures due 2043 for a total outstanding principal amount of US$460 million on March 28, 2013, which have been cancelled and delisted from the TSX and the NYSE.

Based on information included in Nexen’s Form 40-F filed with the SEC on February 25, 2013, as of December 31, 2012, Nexen’s proved plus probable reserves estimates were approximately 2.2 billion BOE, of which 0.9 billion BOE are proved and 1.3 billion BOE are probable. About 70% of Nexen’s proved plus probable reserves relate to its Canadian oil sands properties. The remainder of reserves are widely distributed throughout its oil and gas properties around the world. Nexen’s production before royalties averaged 197,900 BOE/day in 2012.

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Selected Operating and Reserves Data

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

Our reserve data for 2010, 2011 and 2012 were prepared in accordance with the SEC’s final rules on “Modernization of Oil and Gas Reporting”, which became effective for accounting periods ended on or after December 31, 2009.

	Year ended December 31,
	2010(1)		2011		2012
Net Production(3):
Oil (daily average bbls/day)		722,086		708,286		742,765
Gas (daily average mmcf/day)		1,050.1		1,171.7		1,109.7
Oil equivalent (BOE/day)		902,932		909,000		935,615

Net Proved Reserves (end of period):
Oil (mmbbls)		1,719.1		1,873.3		2,031.1
Gas (bcf)		5,944.9		5,627.4		6,005.3
Synthetic Oil (mmbbls)		—		87.4		137.0
Bitumen (mmbbls)		—		8.6		12.6
Total (million BOE)		2,710.0		2,921.1		3,202.6
Total with equity method investees (million BOE) (3)		2,998.3		3,190.1		3,491.9
Annual reserve replacement ratio(2)		116%		167%		187%
Annual reserve replacement ratio(3)		202%		158%		188%
Estimated reserve life (years)		8.5		9.3		9.8
Estimated reserve life (years) (3)		9.1		9.6		10.2
Standardized measure of discounted future net cash flow (million Rmb)		293,768		339,234		356,998

(1)

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

(3)	Including our interest in equity method investees.

For the years 2010, 2011 and 2012, approximately 11%, 23% and 36%, respectively, of our reserves were evaluated by us independently and the remaining were based upon estimates prepared by independent petroleum engineering consulting companies and reviewed by us. For further information regarding our reserves, see “Item 3—Key Information—Risk Factors—Risks Relating to Our Operations—The oil and gas reserve estimates in this annual report may require substantial revision as a result of future drilling, testing, production and oil and gas price changes” and “Item 4—Information on the Company—Business Overview—Exploration, Development and Production.”

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Summary of Oil and Gas Reserves

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

	Net proved reserves at December 31,				Net proved reserves at December 31, 2012
	2010(1)		2011		Oil		Natural Gas		Synthetic Oil		Bitumen		Total
	(mmboe)		(mmboe)		(mmbbls)		(bcf)		(mmbbls)		(mmbbls)		(mmboe) (2)
Developed
Offshore China
Bohai		650.9		632.9		523.2		338.3		—		—		579.6
Western South China Sea		289.0		230.4		87.9		719.7		—		—		207.8
Eastern South China Sea		215.0		213.4		142.6		401.4		—		—		209.5
East China Sea		1.5		8.4		0.4		40.2		—		—		7.1
Subtotal		1,156.4		1,085.1		754.1		1,499.6		—		—		1,004.0
Overseas
Asia		110.6		68.0		22.3		460.4		—		—		105.3
Oceania		37.4		34.9		5.9		124.0		—		—		30.2
Africa		57.1		46.4		44.2		—		—		—		44.2
North America		8.3		47.0		51.0		129.1		32.1		0.8		105.4
Subtotal		213.4		196.3		123.4		713.5		32.1		0.8		285.1
Total Developed		1,369.8		1,281.4		877.5		2,213.1		32.1		0.8		1,289.1

Undeveloped
Offshore China
Bohai		468.2		466.9		544.0		254.2		—		—		586.3
Western South China Sea		310.0		356.3		136.9		1,665.2		—		—		414.4
Eastern South China Sea		219.1		306.5		211.5		774.3		—		—		340.5
East China Sea		79.2		60.0		19.3		265.7		—		—		63.6
Subtotal		1,076.5		1,189.7		911.7		2,959.4		—		—		1,404.9
Overseas
Asia		108.8		155.3		42.8		340.0		—		—		102.2
Oceania		66.3		75.8		10.7		285.5		—		—		66.6
Africa		88.6		87.3		91.5		—		—		—		91.5
North America		—		131.7		96.9		207.3		104.9		11.9		248.3
Subtotal		263.7		450.1		241.9		832.8		104.9		11.9		508.6
Total Undeveloped		1,340.2		1,639.8		1,153.6		3,792.2		104.9		11.9		1,913.5

TOTAL PROVED		2,710.0		2,921.1		2,031.1		6,005.3		137.0		12.6		3,202.6
Equity method investees		288.3		269.0		200.7		513.7		—		—		289.3
Total with equity method investees		2,998.3		3,190.1		2,231.8		6,519.0		137.0		12.6		3,491.9

(1)

(2)	In calculating barrels-of-oil equivalent amounts, we have assumed that 6,000 cubic feet of natural gas equals one BOE, with the exception of natural gas from South America, Oceania and Indonesia in Asia, which we have used actual thermal unit for such conversion purpose.

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

Total Net Proved Crude Oil Reserves

(mmbbls)

	As of December 31,				As of December 31, 2012
	2010(1)		2011		Developed		Undeveloped		Total
Offshore China
Bohai		997.7		1,000.4		523.2		544.0		1,067.2
Western South China Sea		260.0		250.5		87.9		136.9		224.8
Eastern South China Sea		225.0		316.1		142.6		211.5		354.0
East China Sea		18.9		17.7		0.4		19.3		19.8
Subtotal		1,501.6		1,584.7		754.1		911.7		1,665.7
Overseas
Asia		49.9		81.8		22.3		42.8		65.0
Oceania		20.7		19.0		5.9		10.7		16.7
Africa		145.7		133.7		44.2		91.5		135.7
North America		1.2		54.1		83.9		213.7		297.6
Subtotal		217.5		288.6		156.3		358.7		515.0
Total		1,719.1		1,873.3		910.4		1,270.4		2,180.7
Equity method entities		197.4		196.3		104.5		96.2		200.7
Total with equity method investees		1,916.5		2,069.6		1,014.9		1,366.6		2,381.5

(1)

Total Net Proved Natural Gas Reserves

(bcf)

	As of December 31,				As of December 31, 2012
	2010(1)		2011		Developed		Undeveloped		Total
Offshore China
Bohai		728.3		596.2		338.3		254.2		592.5
Western South China Sea		2,034.1		2,017.2		719.7		1,665.2		2,384.9
Eastern South China Sea		1,254.3		1,222.4		401.4		774.3		1,175.7
East China Sea		370.6		303.7		40.2		265.7		305.9
Subtotal		4,387.3		4,139.5		1,499.6		2,959.4		4,459.0
Overseas
Asia		1,016.7		848.7		460.4		340.0		800.4
Oceania		498.0		467.8		124.0		285.5		409.5
North America		42.9		171.4		129.1		207.3		336.4
Subtotal		1,557.6		1,487.9		713.5		832.8		1,546.3
Total		5,944.9		5,627.4		2,213.1		3,792.2		6,005.3
Equity method investees		527.8		422.0		329.5		184.2		513.7
Total with equity method investees		6,472.7		6,049.4		2,542.6		3,976.4		6,519.0

(1)

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Total Net Proved Reserves

(million BOE)

	As of December 31,				As of December 31, 2012
	2010(1)		2011		Developed		Undeveloped		Total
Offshore China
Bohai		1,119.1		1,099.8		579.6		586.3		1,165.9
Western South China Sea		599.0		586.7		207.8		414.5		622.3
Eastern South China Sea		434.1		519.9		209.5		340.5		550.0
East China Sea		80.7		68.4		7.1		63.6		70.7
Subtotal		2,232.9		2,274.8		1,004.0		1,404.9		2,408.9
Overseas
Asia		219.4		223.2		105.3		102.2		207.5
Oceania		103.7		110.7		30.2		66.6		96.8
Africa		145.7		133.7		44.2		91.5		135.7
North America		8.3		178.7		105.4		248.3		353.7
Subtotal		477.1		646.3		285.1		508.6		793.7
Total		2,710.0		2,921.1		1,289.1		1,913.5		3,202.6
Equity method investees		288.3		269.0		161.3		128.0		289.3
Total with equity method investees		2,998.3		3,190.1		1,450.4		2,041.5		3,491.9

(1)

Proved Undeveloped Reserves

As of December 31, 2012, we had proved undeveloped reserves of 2,041.5 million BOE, including 1,249.8 million barrels of crude oil, 104.9 million barrels of synthetic oil, 11.9 million barrels of bitumen and 3,976.4 bcf of natural gas, representing an increase of 285.7 million BOE as compared to proved undeveloped reserves of 1,755.8 million BOE as of December 31, 2011.

The changes in our proved undeveloped reserves mainly include:

An increase of 488.9 million BOE due to new discoveries and expansions;

A decrease of 36.4 million BOE due to revision of previous estimates; and

A decrease of 166.9 million BOE due to proved undeveloped reserves being developed into proved developed reserves.

In 2012, we spent approximately US$3.3 billion on developing proved undeveloped reserves into proved developed reserves. US$2.8 billion, or 84.2%, were spent on 19 major development projects in Bohai, Western South China Sea and Eastern South China Sea in offshore China, the Akpo oilfield in Nigeria, Missan oilfields in Iraq, Long Lake project in Canada and Eagle Ford project in the U.S. The remaining 15.8% was spent on the infill drilling programs in offshore China, Indonesia, Nigeria and Canada.

As of December 31, 2012, 142.7 million BOE of our proved undeveloped reserves were first booked before 2008. These proved undeveloped reserves were mainly located in East China Sea, Eastern South China Sea and Western South China Sea, including (i) 29.1 million BOE in East China Sea, approximately 84% of which is planned to be developed together with certain new discoveries; (ii) 39.0 million BOE in Eastern South China Sea, including Panyu 34-1 gas field associated with Liwan 3-1 gas field located in the same area that is currently under construction; and (iii) 74.6 million BOE in Western South China Sea, including Weizhou 12-8 oil field associated with Weizhou 6-12 oil field located in the same area that is currently under construction.

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

Since 2001, we have engaged independent third party consulting firms, including Ryder Scott Company, L.P., Gaffney, Cline & Associates (Consultants) Pte Ltd., Lee Keeling and Associates, Inc., and McDaniel & Associates Consultants Ltd. to perform annual estimates for our proved oil and gas reserves under our consolidated subsidiaries. In 2012, the reserves of certain fields in offshore China and overseas were evaluated by us independently, which accounted for approximately 36% of our total net proved reserves.

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

While we engage third parties to conduct our annual estimates for most of our reserves, we continue to enhance the supervision over our procedures to ensure the quality control of our reserve evaluation process. For the year ended December 31, 2012, we implemented rigorous in-house technical scrutiny and compliance audit for the reserves evaluated independently by us, while third party consulting firms, such as Ryder Scott Company, were also engaged to perform annual procedural audit for all the reserves independently evaluated by us to monitor the entire reserves estimation procedure and certain key metrics in order to ensure market transparency and compliance.

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

The RMG’s main responsibilities are to:

review our reserve policies;

review our proved reserves and other categories of reserves; and

select our reserve estimators and auditors.

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

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

The RMG delegates its daily operation to our Reserves Office, which is led by our Chief Reserves Supervisor. The Reserves Office is mainly responsible for supervising reserves estimates and auditing. It reports to the RMG periodically and is independent from operating divisions such as the exploration, development and production departments. Our Chief Reserve Supervisor has over 30 years’ experience in oil and gas industry.

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

Exploration, Development and Production

Summary

In offshore China, the Company engages in oil and natural gas exploration, development and production in Bohai, Western South China Sea, Eastern South China Sea and East China Sea, either

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independently or through cooperation with foreign partners by production sharing contracts (“PSCs”). As of the end of 2012, approximately 69.0% of the Company’s net proved reserves and approximately 78.0% of its net production were located in offshore China.

For independent operations, the Company has been adding more reserves and production mainly through independent exploration and development in offshore China. As of the end of 2012, approximately 79.6% of the Company’s net proved reserves and approximately 75.3% of its production in offshore China were derived from independent projects.

For PSC operations, China National Offshore Oil Corporation (“CNOOC”), the Company’s controlling shareholder, has the exclusive right to explore and develop oil and natural gas in offshore China with foreign partners through PSCs. CNOOC has transferred to the Company all of its rights and obligations under all the PSCs (except those relating to its administrative functions), including new PSCs that will be signed in the future. As of the end of 2012, the Company had 27 PSCs with 22 partners in force.

Overseas, the Company holds interests in oil and natural gas blocks in Indonesia, Australia, Nigeria, Uganda, Argentina, the U.S., Canada, the United Kingdom and various other countries. As of December 31, 2012, the Company’s overseas net proved reserves and net production accounted for approximately 31.0% and 22.0%, respectively, of the Company’s total net proved reserves and total net production.

Exploration

Exploration is a top priority for the Company. In 2012, the Company increased its investment in and refreshed its strategic thinking about exploration, and achieved remarkable results in both shallow water and deepwater areas offshore China as well as overseas. The Company’s reserve replacement ratio amounted to 188% in 2012.

The Company’s exploration investment and activities reached a record high in offshore China in 2012, approximately 16,100 km² 2D seismic data and 26,700 km² 3D seismic data were acquired and 99 exploration wells were drilled. An aggregate of 12 new discoveries were made and 14 oil and gas structures were successfully appraised in offshore China, resulting in a success rate of 53%-68%.

In 2012, our achievements in exploration in offshore China mainly included:

First, the successful appraisal of the large-scale oil and gas structure Penglai 9-1 due to our concentrated research and technological advancement Penglai 9-1, which has the potential to be developed into a large oilfield.

Second, the successful appraisal of the Qinhuangdao 29-2/29-2 East structure, which is expected to be built into another large-scale light oil field in Bohai.

Third, the discovery of the large-scale natural gas structure, Dongfang 13-2, marking another breakthrough in high-temperature and high-pressure natural gas exploration.

Fourth, the discovery of the medium scale oil and gas structure Luda 6-2.

In 2012, the Company made its first important move in independent exploration in deepwater areas. Three independent deepwater exploration wells were drilled and the natural gas discovery of Liuhua 29-2 was made in the deepwater areas of South China Sea.

Furthermore, the Company achieved record breakthroughs in overseas exploration with nine new discoveries and five successful appraisals of oil and gas structures. Among these achievements, important discoveries were made in HBR permit in Algeria, where the Company holds 24.5% interests. Four new discoveries were made in Indonesia.

These achievements indicated great potential and our unique advantages for exploration, in offshore China, as well as good prospects for the Company’s deepwater and overseas exploration.

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The Company’s major exploratory activities in 2012 are shown in the table below:

	Exploration Wells								New Discoveries				Successful Appraisal Wells				Seismic Data
	Independent				PSC													2D				3D
	Wildcat		Appraisal		Wildcat		Appraisal		Independent		PSC		Independent		PSC		Independent		PSC		Independent		PSC
Offshore China
Bohai		13		37		—		—		7		—		28		—		—		—		7,215		—
Eastern South China Sea		12		3		—		—		3		—		1		—		4,413		—		5,743		3,375
Western South China Sea		10		14		3		—		1		1		8		—		5,269		—		6,182		—
East China Sea		3		4		—		—		—		—		3		—		6,461		—		4,218		—
Subtotal		38		58		3		—		11		1		40		—		16,143		—		23,358		3,375
Overseas		—		—		22		18		—		9		—		11		—		1,791		—		1,538
Total		38		58		25		18		11		10		40		11		16,143		1,791		23,358		4,913

Engineering Construction, Development and Production

In 2012, more than 10 new projects were under construction. The Company carefully allocated operational resources and made good progress in engineering construction.

Four new projects, namely, Yacheng 13-4 gas field, Panyu 4-2/5-1 adjustment, Liuhua 4-1 oilfield and Weizhou 6-9/6-10 oilfield, commenced production in 2012 as scheduled. In 2013, the Company is going to see a new peak for construction work with its full capacity to be utilized for on land construction and offshore installation. A total of 24 new projects will be constructed, among which 10 new oil and gas fields are expected to commence production in 2013, including Liwan 3-1, the first large-scale deepwater gas field in China, as well as Suizhong 36-1 Phase II adjustment project. Other projects are expected to commence production in the coming years and will provide additional momentum for the Company’s growth in mid-to-long term and its production growth target for 2011-2015.

The Company overcame a lot of challenges in oil and gas development and production in 2012. Adverse factors included the decrease in the number of new projects, the shutdown of production of Penglai 19-3 oilfield, frequent typhoons that affected production operation, as well as delays of some overseas projects, all of which created significant pressure for the Company’s production. Despite this grim situation, the Company still managed to accomplish its annual production target mainly through focusing on the following areas:

First, maintaining productivity of existing oilfields. This mainly includes: strengthening the dynamic management of water injection, maintaining reasonable reservoir pressure and low decline rate in mature oilfields; refining daily operation especially oil well management to enhance production efficiency as well as optimising water production scheme in order to achieve stable oil production.

Second, bringing on stream new oil and gas fields for production contribution. With careful arrangements, new oilfields including Panyu 4-2/5-1 adjustment projects, Liuhua 4-1 oilfield and Yacheng 13-4 gas field came on stream during the year, making a significant contribution to production for the year.

Third, through optimising construction process and procedures and the selection of favourable time windows, suspension time for maintenance of significant projects due to maintenance was shortened and loss in production was reduced accordingly.

Fourth, the Company proactively communicated and cooperated with operators, to facilitate the production performance of overseas project including the U.S. Eagle Ford project.

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Through efforts of all staff of the Company, its net production for oil and gas in 2012 reached 342.4 million BOE, representing an increase of 3.2% year over year and achieving a stable production growth.

In 2012, the Company also adhered to its strategies on comprehensive adjustments and regional development to accelerate the development of oil and gas fields. Panyu4-2/5-1 adjustment projects were brought on stream as scheduled. The construction of Suizhong 36-1 Phase II adjustment and Qikou 18-1 adjustment projects were proceeding smoothly, both of which are expected to commence production in 2013. For regional development, the Company conducted research on a few oil and gas fields in East China Sea, and organised the regional development for the gas fields near Dongfang 13-2 and Bozhong 28/34 oilfields. These initiatives enhanced the economic return and reduced development barriers for oil and gas fields.

In addition, following a series of rectification measures, Penglai19-3 oilfield has recovered to normal state, with operating conditions. The revised Overall Development Plan as well as the recomposed Environmental Impact Assessment prepared by Conocophillips China Inc.(“COPC”), the operator of Penglai 19-3 oilfield have been approved, and COPC is permitted to gradually resume the production of Penglai 19-3 oilfield.

Our task in 2013 would be to focus on accomplishing our annual production target with emphasis on the following areas:

First, to carefully allocate and coordinate resources for operation with a view to maintain and enhance production of existing oilfields, providing a solid base for accomplishment of the annual production target. The Company will also strengthen daily operation management and innovate technology in order to achieve this target.

Second, to facilitate timely commencement of production of new oil and gas fields. 10 new projects will come on stream in 2013, including the large-scale deepwater gas field Liwan 3-1, Weizhou 6-12, Suizhong 36-1 Phase II adjustment project and Qikou18-1 adjustment project. The commencement of these projects will provide significant support for our production growth in the coming years.

Third, to focus on technology research and development to improve recovery factor of producing oilfields through the application of heavy oil thermal production technology and particular development technology on oilfields with low permeability.

Fourth, to strengthen the management of overseas projects and actively coordinate with local partners to ensure the safe and stable production of each project.

Through the above mentioned measures, the Company will strive to achieve its production growth target for 2011-2015 and lay a solid foundation for long-term growth.

Overseas Development

In recent years, the Company has greatly extended its global presence and raised its international profile to a new level. From a geographic perspective, the Company’s operations are located in Asia, Africa, Oceania, North America, South America and Europe. For resource types, it has expanded from conventional oil and gas resources to unconventional resources such as shale oil and gas, and oil sands. Overseas reserves, production and oil and gas sales revenue accounted for 31.0%, 22.0% and 14.7%, respectively, of the Company’s total reserves, production and oil and gas revenue in 2012, thereby becoming an integral part of the Company’s assets. With the combination of conventional and unconventional resources, as well as exploration and production assets, our global operational capability has been significantly enhanced.

In 2012, the overseas development of the Company made significant progress. In July 2012, the Company entered into a definitive agreement with Nexen. Total consideration for the acquisition of Nexen’s common and preferred shares was approximately US$15.1 billion, and Nexen’s debt of approximately US$4.3 billion would remain outstanding following the acquisition. The acquisition of Nexen was completed in February 2013. For more information about the acquisition and the related agreement, see “Item 4—Information on the Company—Business Overview—Nexen Acquisition.”

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The acquisition of Nexen is important to both near-term and mid-to-long term growth of the Company:

First, reserve and production growth. Based on the reserve and production as at the end of 2012, Nexen will add approximately 20% net production and 24% proved reserves to the Company.

Second, diversified portfolio. We strategically entered into North Sea and Horn River Basin, and strengthened our existing position in Canadian oil sands, Gulf of Mexico and offshore Nigeria. Furthermore, more than 90% of Nexen’s reserves are located in OECD countries.

Third, new overseas platform. We will establish Calgary as the head office of North and Central American operations. Also, we plan to retain Nexen’s current management and employees, which will enhance the development of our overseas business.

In the future, the Company will focus on the integration of corporate culture, management system and technologies, etc, and strive to create a win-win situation.

At the beginning of 2012, the Company completed the acquisition of the partial working interests in each of Exploration Areas of 1, 2 and 3A in Uganda. Since the Lake Albert Basin is the key basin yet to be developed in East Africa, the project is expected to become one of Africa’s largest onshore oil and gas development projects in coming years.

Other overseas projects progressed in sound track. The production volume of Eagle Ford shale oil and gas project in the U.S. maintained steady growth; the Missan oilfields in Iraq officially entered its recovery period; and the development of the Egina oilfield in Nigeria was also in smooth progress.

Along with the growth of our overseas business, we will further study the trend and dynamics of the international energy sector and enhance our global vision. Meanwhile, we will strive to strengthen our overseas operational capability, including management, resource integration and risk control, in order to further raise the degree of internationalization of the Company. We will continue to optimize our overseas assets according to three major factors as potential including resources, return and risk profile.

Regional Overview

Offshore China

Bohai

Bohai is the most important crude oil producing area for the Company. The crude oil produced in this region is mainly heavy oil. As of the end of 2012, the reserve and daily production volume in Bohai were 1,165.9 million BOE and 432,285 BOE/day, respectively, representing approximately 33.4% and 46.2%, of the Company’s total reserves and daily production, respectively. The operation area in Bohai is mainly shallow water with a depth of 10 to 30 meters.

Bohai has rich oil and gas resources and has been one of the Company’s primary areas for exploration and development. In recent years, the Company has made several commercial discoveries in this region each year. In 2012, the Company made seven successful discoveries in Bohai, namely Penglai 15-2, Qinhuangdao 27-3, Luda21-2, Kenli 2-1, Luda 6-2, Bozhong 34-1 North and Caofeidian 21-3. In addition, the Company also successfully appraised seven oil and gas structures, namely Penglai9-1, Qinhuangdao 29-2 East, Luda 6-2, Qinhuangdao33-3, Penglai 15-2, Bozhong 34-1 North and Kenli 9-1. The Company’s major accomplishments in Bohai included:

First, the successful appraisal of Penglai 9-1 large oil and gas structure as a result of our concentrated research and technological advancement. Since its discovery in 2009, the Company intensified the geological research programs and combined a number of innovative testing techniques.

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Penglai 9-1has the potential to be developed into a large oilfield.

Second, the Company successfully appraised another large-scale light oil field in Bohai, i.e. Qinhuangdao 29-2/29-2 East, through new researches and better understanding of reservoirs.

Third, the Company discovered Luda 6-2 mid-scale oil and gas structure through retuning its understanding of the underground reservoir and implementing advanced technology.

Benefiting from the new discoveries and successful appraisals, crude oil reserve replacement ratio reached 144% in Bohai, reflecting Bohai’s potential as the core production region for the Company.

For development and production, the Bohai region faced a number of challenges in 2012. There was no new start-up oilfield in Bohai and Penglai 19-3 oilfield did not resume full production for the whole year. To address these challenges, the Company strengthened its management of producing oil and gas fields, and actively implemented measures such as infill drilling and water injection. As a result, production in Caofeidian 11-6, Bozhong 34-1 and Suizhong 36-1 outperformed our expectation.

With regard to oilfields with high decline rate of post-commencement production, such as Qikou 18-2, we seek to understand the underground fractures through careful study of the 3D seismic data to locate our infill drilling wells. The production of those oilfields increased and maintained at a high level after new wells were put into production. The drilling technology and reservoirs studies had been applied to other adjustment programs in oilfields with medium-to-deep formation as well as with medium to low permeability, which contributed to the steady performance of mature oilfields in Bohai.

The Company, through its efforts, overcame various adverse factors and achieved a slight increase in net production in Bohai.

Western South China Sea

Western South China Sea is one of the most important natural gas production areas for the Company. Currently, the typical water depth of the Company’s operation area in this region ranges from 40 to 120 meters. As of the end of 2012, the reserves and daily production volume in Western South China Sea reached 622.2 million BOE and 135,007 BOE/day, respectively, representing approximately 17.8% and 14.4%, respectively, of the Company’s total reserves and daily production.

In 2012, the Company had one independent new discovery, Dongfang 13-2, and one PSC new discovery, Weizhou 6-12 North, in Western South China Sea, and successfully appraised three oil and gas structures, including Dongfang 13-2, Weizhou 11-7 North and Weizhou 11-4 North.

For the Yinggehai Basin, the Company continued to achieve exploration results of natural gas under the high temperature and high pressure environment. In addition to the successful appraisal of Dongfang 13-1 medium formation, which was discovered in 2011, the Company again discovered Dongfang 13-2 large-scale gas field, further enhancing the exploration performance in this field.

As for development and production, the Company continued to implement streamlined management, and optimize the production process for all oil and gas fields. Meanwhile, the Company minimized the impact of typhoons and maintenance downtime on its production activities through thorough planning.

Eastern South China Sea

Eastern South China Sea is one of the Company’s most important crude oil producing areas. Currently, the typical water depth of the Company’s operating area in this region ranges from 100 to 300 meters. The crude oil produced is mostly of light to medium gravity. As of the end of 2012, the reserves and daily production volume in Eastern South China Sea reached 550.0 million BOE and 155,070 BOE/day, respectively, representing approximately 15.8% and 16.6%, respectively, of the Company’s total reserves and daily production.

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The Company made breakthroughs in deepwater exploration and continued to achieve new discoveries from rolling exploratory activities in Eastern South China Sea in 2012. The Company achieved three independent discoveries, namely Liuhua 29-2, Enping 18-1 and Lufeng 15-1, in 2012. In addition, the Company successfully appraised one oil and gas structure, Panyu 35-1. The discovery of Liuhua 29-2 deepwater gas field marked an important milestone for the Company’s independent deepwater exploration endeavours.

In 2012, the Company overcame unfavorable factors such as typhoons and equipment modification for oil and gas fields. Net oil and gas production derived from Eastern South China Sea rose steadily, mainly attributable to the active implementation of infill drilling in mature oilfields. The full deployment of enhanced recovery measures also helped to increase production. For example, the infill drilling has significantly increased the production of Xijiang 24-3 oilfield. Also, the increased infill drilling activities of Xijiang 30-2 oilfield and Lufeng 13-1 oilfield contributed to production growth.

The Company actively coordinated with its partner to promote the development and construction of the first large-scale deepwater natural gas project Liwan 3-1 in offshore China. Currently, the project has been making steady progress and is expected to commence production at the end of 2013.

East China Sea

East China Sea is the least explored area among the Company’s four principal producing regions in offshore China. The typical water depth of the Company’s operation area in this region is approximately 90 meters. As of the end of 2012, approximately 2.1% of the Company’s reserves and 0.8% of the Company’s production were derived from East China Sea.

In 2012, the Company continued to focus on exploration surrounding the existing production facilities and oil and gas fields and strengthen the exploration and development of oil and gas reservoirs with low permeability, which achieved positive results and laid a strong foundation for future growth in production.

In addition, the Company has actively promoted regional development of gas fields in East China Sea, consolidated design work, reviewed and negotiated gas prices with downstream users, and ensured the progress of projects as scheduled.

In 2012, as a result of increased gas delivery volume to downstream users, the Company’s production volume in East China Sea increased significantly.

Overseas

Asia

Asia was the first overseas region that the Company entered into and has become one of its major overseas oil and gas producing areas. Currently, the Company holds oil and gas assets in Asia mainly in Indonesia and Iraq. As of the end of 2012, the reserves and daily production volume derived from Asia (excluding China) reached 207.5 million BOE and 43,752 BOE/day, respectively, representing approximately5.9% and 4.7%, respectively, of the Company’s total reserves and daily production.

Indonesia

In Indonesia, the Company maintains ownership interests in primarily the following contracts: the SES PSC, the Malacca Strait PSC and the Poleng Technical Assistance Contract. Among these, the Company is the operator of the SES block and owns approximately 65.54% of its interests. All these contracts are currently at the production stage.

The Company also owns approximately 13.90% interests in the Tangguh LNG Project in Indonesia. Located in West Papua and comprised three blocks, namely Berau, Muturi and Wiriagar, this

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project commenced production in 2009.

In addition, the Company owns interests in the following PSCs: the South East Palung Aru PSC, the Batanghari PSC and the Madura Strait PSC.

In Indonesia, the Company made four new discoveries in 2012, all located in established regions. The production facilities of our existing oil and gas fields could be leveraged for economic development of these new discoveries.

In 2012, given that the oil and gas fields in the SES areas are matured fields with high water concentration and decline rate, the Company adopted measures to stabilize and increase production and to control decline rate.

Iraq

In 2010, the Company entered into a technical service contract for the development and production of the Missan oilfields in Iraq, pursuant to which the Company acts as the lead contractor and holds 63.75% participating interest.

Through the Company’s efforts, the project reached its required production level in 2012, and entered the cost recovery period, starting to make contribution to the Company’s production growth.

As the Missan Project is a technical service contract, its cost of operation is relatively high and consequently raised the cost for the Company. Nevertheless, major oil and gas companies in the world have all entered into the exploration and development industry in the Middle East through technical service contracts, demonstrating an industry consensus on the future growth of the area.

Other Regions in Asia

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

Oceania

Currently, the Company’s oil and gas resources in Oceania are all located in Australia. As of the end of 2012, the reserves and daily production volume derived from Oceania reached 96.8 million BOE and 24,628 BOE/day, respectively, representing approximately 2.8% and 2.6%, respectively, of the Company’s total reserves and daily production.

Australia

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

In 2012, the North West Shelf Project generated stable production and healthy returns.

Africa

The Company has a relatively large reserve base in Africa. The Company’s assets in Africa are primarily located in Nigeria and Uganda. As of the end of 2012, the reserves and daily production volume derived from Africa reached 135.7 million BOE and 56,998 BOE/day, respectively, representing approximately 3.9% and 6.1%, respectively, of the Company’s total reserves and daily production.

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Nigeria

The Company owns a 45% interest in the OML 130 block in Nigeria, which is a deepwater project and comprises four oilfields, namely, Akpo, Egina, Egina South and Preowei. The Akpo oilfield commenced production in March 2009. In 2012, the Akpo oilfield generated stable production.

In 2012, the Company continued to carry out preliminary development work with the operator of the other three oilfields, including the Egina oilfield. The Egina oilfield is expected to commence comprehensive construction in 2013.

Uganda

In 2011, the Company entered into a sales and purchase agreement with Tullow and TOTAL S.A. to acquire one-third of the interest in each of Exploration Areas (“EA”) 1, 2 and 3A in Uganda from Tullow. EA 1, 2 and 3A are located at the Lake Albert Basin in Uganda, which is one of the most promising basins with oil and gas resources in Africa.

In February 2012, the Company and Tullow completed the acquisition. The Company will operate the new Kanywataba exploration license in the former EA 3A, and the Kingfisher production license which was converted due to the discovery in the former EA 3A. Tullow and TOTAL S.A. will operate EA 2 and EA 1, respectively.

In 2013, the Company will actively facilitate the development of the Kingfisher oilfield.

Other Regions in Africa

Apart from Nigeria and Uganda, the Company also owns interests in several blocks in Equatorial Guinea, the Republic of Congo, Algeria and the Gabonese Republic. These blocks are currently under exploration.

North America

The Company holds interests in the oil and gas exploration areas in the U.S., Canada and Trinidad and Tobago in North America, as well as part of the shares of MEG Energy Corporation (“MEG”) in Canada. As of the end of 2012, the Company’s reserve and daily production volume derived from North America reached 353.7 million BOE and 36,183 BOE/day, respectively, representing approximately 10.1% and 3.9%, respectively, of the Company’s total reserves and daily production.

The U.S.

The Company has acquired a 33.3% interest in each of two shale projects in the U.S., namely the Eagle Ford project, which is located in South Texas with 600,000 net acres, and the Niobrara project, which is located in northeast Colorado and southeast Wyoming with 800,000 net acres. Chesapeake is the operator of these projects.

The Eagle Ford project commenced production in 2012 and achieved a considerable increase in production volume. In addition, the Niobrara project has accelerated its contribution to the production of the Company.

The shale oil and gas resources have become one of the growth areas for the world’s oil and gas exploration and development. The Company expects that participation in this field could support its sustainable growth in the future.

In addition, the Company owns several exploration blocks in Alaska.

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Canada

Canada is one of the countries with rich oil sands resources. As oil sands are expected to become one of the new growth areas of oil and gas exploration and development in the future, the Company believes that participation in oil sands development would enable us to achieve sustainable growth.

In 2005, the Company acquired part of shares of MEG in Canada. In August 2010, MEG’s shares started trading on the Toronto Stock Exchange in Canada, resulting in considerable appreciation of the value of the Company’s shares in MEG. As of the end of 2012, the Company owns 12.39% of the shares of MEG.

In 2011, the Company completed the acquisition of OPTI Canada Inc. (“OPTI”), an oil sands producer in Canada. The major assets of OPTI includes a 35% working interest in Long Lake and interests in three other oil sands projects located in the Athabasca region of northeastern Alberta.

In addition, the Company owns a 60% interest in Northern Cross (Yukon) Limited, which owns oil and gas exploration blocks in the Yukon area in Canada.

Trinidad and Tobago

In 2009, the Company acquired a 12.5% interest in the 2C block and a 12.75% interest in the 3A block in Trinidad and Tobago. The 2C block commenced production of crude oil in 2005. With natural gas field start up in 2011, the production volume in this region increased significantly.

South America

The Company mainly holds a 50% interest in Bridas Corporation (“Bridas”). The Company’s interest in this project is accounted by the equity method. As of the end of 2012, the Company’s reserves and daily production volume derived from South America reached 287.6 million BOE and 44,634 BOE/day, respectively, representing approximately 8.2% and 4.8%, respectively, of the Company’s total reserves and production.

Argentina

In March 2010, the Company announced to form a 50%-50% joint venture with Bridas Energy Holding Ltd. (“BEH”) in Bridas Corporation for a consideration of approximately US$3.1 billion in cash. The transaction was already completed. Each of the Company and BEH holds a 50% interest in Bridas and makes management decisions jointly. Bridas holds a 40% interest in Pan American Energy in Argentina (“PAE”).

Through its affiliates (including the interest in PAE), Bridas has oil and gas exploration and production activities in Argentina. Following the acquisition, the Company designated senior management staff to participate in the daily management of Bridas. In 2012, the production enhancement measures in Bridas’ major producing blocks worked well to maintain stable production.

Newly added assets after the Nexen deal

The Company completed the acquisition of Nexen Inc. in Canada in February 2013 and further diversified its overseas portfolio. The Company will establish its North and Central America headquarters in Calgary of Canada to manage Nexen’s global operations and the Company’s existing assets in North and Central America.

In Canada, through this acquisition, we hold 100% of the interests in the Long Lake project and partial interests in several other projects. The Long Lake project is in the production stage. We also hold interests in Syncrude oil sands project, which has been producing for over 34 years. We have also entered into the Horn River and Liard Basins through this acquisition. Horn River Basin, with a total of 300,000 acres, is one of the regions in North America with the high quality shale gas, and with great potential for development.

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In the Gulf of Mexico in the U.S., we own more than 200 exploration blocks with more than 100 exploration targets, containing considerable exploration potential.

In the United Kingdom, we entered into the North Sea for the first time and acquired a portfolio consisting of producing, development and exploration assets, mainly including: 43.2% interest in Buzzard oilfield, which enables us to become the second largest producer in the North Sea, and 36.5% interests in Golden Eagle block.

In Nigeria, we own 20% interests in each of Usan and Usan West offshore oilfields as well as several other discoveries and exploration targets.

Other Oil and Gas Data

Oil and Gas Production, Production Prices and Production Costs

The following table sets forth our net production, average sales price and average production cost (excluding ad valorem and severance taxes) in the years of 2010, 2011 and 2012.

	Net Production						Average Sales Price				Average Production Cost
	Total		Oil		Gas		Oil		Gas
	(BOE/day)		(Bbls/day)		(Mmcf/day)		(US$/bbl)		(US$/Mmcf)		(US$/ BOE)
2012
Offshore China
Bohai		432,285		411,642		123.9		—		—		—
Western South China Sea		135,007		72,672		364.1		—		—		—
Eastern South China Sea		155,070		130,266		148.8		—		—		—
East China Sea		4,925		542		26.3		—		—		—
Subtotal		727,287		615,122		663.1		111.71		6,019		9.28
Overseas
Asia		43,752		14,883		157.8		112.38		7,752		23.58
Oceania		24,628		4,846		101.1		99.73		3,171		9.26
Africa		56,998		56,998		—		111.39		—		9.41
North America		36,183		27,896		49.7		82.83		1,426		23.80
Subtotal		161,561		104,623		308.6		103.38		5,232		16.45
Total		888,848		719,745		971.7		110.48		5,769		10.58
Equity method investees		46,767		23,020		138.0		—		—		—

2011
Offshore China
Bohai		426,190		405,682		123.0		—		—		—
Western South China Sea		138,712		72,006		390.4		—		—		—
Eastern South China Sea		146,864		120,563		157.8		—		—		—
East China Sea		3,453		339		18.7		—		—		—
Subtotal		715,219		598,590		689.9		109.59		5,305		8.50
Overseas
Asia		53,872		17,427		218.7		115.09		5,647		19.91
Oceania		25,195		5,382		101.1		104.58		3,230		8.48
Africa		56,348		56,348		—		111.74		—		8.03
North America		9,096		4,836		25.6		93.46		4,481		15.78
Subtotal		144,511		83,993		345.3		110.86		4,850		12.98
Total		859,730		682,582		1,035.2		109.75		5,153		9.25
Equity method investees		49,270		25,704		136.5		—		—		—

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2010(1)
Offshore China
Bohai	429,008	408,946	120.4	—	—	—
Western South China Sea	145,274	84,116	354.0	—	—	—
Eastern South China Sea	144,712	121,454	139.5	—	—	—
East China Sea	972	53	5.5	—	—	—
Subtotal	719,966	614,569	619.4	77.74	4,963	6.77
Overseas
Asia	58,421	20,892	225.2	79.53	3,790	17.17
Oceania	27,217	6,210	107.0	77.65	3,252	7.17
Africa	62,609	62,609	—	79.05	—	6.51
North America	709	709	—	85.32	—	20.23
Subtotal	148,956	90,419	332.2	79.06	3,614	10.91
Total	868,922	704,988	951.6	77.93	4,494	7.47
Equity method investees	34,010	17,097	98.4	—	—	—

(1)

Drilling and Other Exploratory and Development Activities

The following table sets forth our net exploratory wells and development wells drilled in the years of 2010, 2011 and 2012.

	Net Exploratory Wells Drilled						Net Development Wells Drilled
	Total		Productive		Dry		Total		Productive		Dry
2012
Offshore China
Independent
Bohai		50		35		15		101		101		—
Western South China Sea		24		9		15		29		29		—
Eastern South China Sea		15		4		11		20		19		1
East China Sea		7		5		2		—		—		—
Subtotal		96		53		43		150		149		1
PSCs
Bohai		—		—		—		25		25		—
Western South China Sea		3		1		2		—		—		—
Eastern South China Sea		—		—		—		11		11.3		—
East China Sea		—		—		—		2		2		—
Subtotal		3		1		2		38		38		—
Overseas
Asia		8.2		3.4		4.8		14.5		14.5		—
Oceania		—		—		—		—		—		—
Africa		7.4		5.8		1.6		0.9		0.9		—
North America		60.9		60.7		0.2		127.3		127.3		—
Subtotal		76.5		69.6		6.6		142.7		142.7		—

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2011
Offshore China
Independent
Bohai	39	21	18	106	106	—
Western South China Sea	24	13	11	8	8	—
Eastern South China Sea	14	4	10	19	19	—
East China Sea	5	5	—	—	—	—
Subtotal	82	43	39	133	133	—
PSCs
Bohai	3	3	—	72	72	—
Western South China Sea	0.5	0.5	—	1.0	1.0	—
Eastern South China Sea	2	2	—	4.5	4.5	—
East China Sea	2.5	2.5	—	2.5	2.5	—
Subtotal	8.0	8.0	—	79.5	79.5	—
Overseas
Asia	5.0	3.7	1.3	10.0	10.0	—
Oceania	—	—	—	—	—	—
Africa	—	—	—	1.8	1.8	—
North America	0.3	0.2	0.1	145.0	145.0	—
Subtotal	5.3	3.9	1.4	156.8	156.8	—
2010
Offshore China
Independent
Bohai	30	24	6	177	177	—
Western South China Sea	31	14	17	18	18	—
Eastern South China Sea	13	10	3	15	15	—
East China Sea	7	4	3	—	—	—
Subtotal	81	52	29	210	210	—
PSCs
Bohai	—	—	—	93	93	—
Western South China Sea	—	—	—	3	3	—
Eastern South China Sea	—	—	—	12	12	—
East China Sea	—	—	—	3	3	—
Subtotal	—	—	—	110	110	—
Overseas
Asia	0.9	—	0.9	12	12	—
Oceania	—	—	—	—	—	—
Africa	1.4	—	1.4	2	2	—
North America	—	—	—	—	—	—
South America	—	—	—	—	—	—
Subtotal	2.3	—	2.3	14	14	—

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Present Activities

The following tables set forth our present activities as of December 31, 2012.

	Wells Being Drilled				Waterfloods Being Installed
	Gross		Net		Gross		Net
Offshore China
Bohai		13		13		392		349
Western South China Sea		8		8		23		23
Eastern South China Sea		6		5	—		—
East China Sea		7		3	—		—
Subtotal		34		29		415		372
Overseas
Asia		5		3.2		41		26.9
Oceania		—		—		—		—
Africa		2		0.7		1		0.5
North America		137		42.9		—		—
Subtotal		144		46.8		42		27.4

Oil and Gas Properties, Wells, Operations, and Acreage

The following table sets forth our productive wells, developed acreage and undeveloped acreage as of December 31, 2012.

	Productive Wells								Developed Acreage (km2)				Undeveloped Acreage (km2)
	Oil				Natural Gas
	Gross		Net		Gross		Net		Gross		Net		Gross		Net
Offshore China
Bohai		1,611		1,377.4		29		29		2,296		2,296		43,068		43,068
Western South China Sea		197		184.2		72		61.7		1,705		1,705		73,388		73,388
Eastern South China Sea		286		232.3		16		12.6		1,686		1,686		55,424		55,424
East China Sea		13		3.9		30		12.4		—		—		85,413		85,413
Subtotal		2,107		1,797.9		147		115.6		5,687		5,687		257,292		257,292
Overseas
Asia		599		351.3		23		7.8		18,596		7,429		61,986		52,843
Oceania		—		—		48		2.5		3,950		209		28,111		19,678
Africa		20		9		—		—		1,295		583		40,908		12,434
North America		845		250.1		4		0.5		335		76		13,593		5,073
Subtotal		1,464		610.4		75		10.8		24,176		8,297		144,598		90,028
Total		3,571		2,408		222		126		29,863		13,984		401,890		347,320

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

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Delivery Commitment

We have certain delivery commitments under the take-or-pay contracts for sales of natural gas. In 2012, the annual sales from our largest gas contract contributed to only approximately 0.4% of our total oil and gas sales. Moreover, total revenues from gas sales account for approximately 5.2% of our total revenues in 2012. Therefore, we believe that we did not have any material delivery commitment as of the end of 2012.

Sales and Marketing

Sales of Crude Oil

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

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

In 2012, the sluggish growth in the global economy, in particular the economic downturn in developed countries, put a halt to the growth of demand for energy. On the other hand, the U.S. Cushing crude oil inventory has continued to increase due to the increases in net proved reserves and production in the U.S. together with the glitches on transportation pipelines network, thus putting pressure on WTI oil price. Since Asia maintained a strong demand for crude oil, product oil and fuel oil, the realized price for mid to heavy benchmark crude oil in the Far East was rather high, approaching the price level of Brent crude oil.

Capturing the opportunities of strong demand for crude oil in China and the higher benchmark oil prices in the Far East, the Company has been closely monitoring market movements and striving to meet customer demand and realized relatively high oil price.

In 2012, the Company’s average realized oil price was US$110.48/barrel, representing an increase of 0.7% year over year.

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

	Year ended December 31,
		2010		2011		2012
Sales and Marketing Volumes (mmbbls)(1)	Benchmark Prices
Light Crude	APPI(2) Tapis(3)		11.3		12.4		14.1
Medium Crude	Daqing OSP(4)		121.8		114.4		120.2
Heavy Crude	ICP Duri(5)		148.6		136.6		123.5

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

(2)	Asia Petroleum Price Index.

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

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

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

Sales of Natural Gas

The Company’s natural gas sale prices are determined by the Company’s negotiations with its customers. The Company’s natural gas sales agreements are generally long-term contracts, which normally provide a periodic price adjustment mechanism. The Company’s natural gas customers are

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primarily located on the south-eastern coast of China, including Hong Kong Castle Peak Power Company Limited, CNOOC Gas and Power Group, and China BlueChemical Ltd.

The LNG sourced by the Company from the North West Shelf Project in Australia and the Tangguh LNG Project in Indonesia is mainly based on long-term supply contracts and is sold to various customers in the Asia-Pacific region, including LNG Terminals in Guangdong Dapeng and Fujian Putian, China.

In 2012, the Company’s average realized gas price was US$5.77/mcf, representing a 12.0% increase over the previous year, primarily due to: (i) the Company negotiated with major customers and increased the sales price after the Chinese government raised the onshore natural gas prices; (ii) higher price for natural gas from oil and gas fields that have commenced production recently; and (iii) higher sales price for certain production of Tangguh LNG in Indonesia in the spot market.

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

	Year ended December 31,
	2010		2011		2012
Average Realized Prices
Crude Oil (US$/bbl)		77.93		109.75		110.48
Natural Gas (US$/mcf)		4.49		5.15		5.77
West Texas Intermediate (US$/bbl)		79.49		95.08		94.10

The international benchmark crude oil price, West Texas Intermediate, was US$91.82 per barrel as of December 31, 2012 and US$97.23 per barrel as of March 28, 2013.

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

	Year ended December 31,
	2010(1)		2011		2012
	(Rmb in millions, except percentages)
Revenues sourced in the PRC		133,631		185,671		184,619
Revenues sourced outside the PRC		46,405		55,273		63,008
Total revenues		180,036		240,944		247,627
% of revenues sourced outside the PRC		25.8%		22.9%		25.4%

(1)

Procurement of Services

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

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

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

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Research and Development

In 2012, the Company continued to focus on the R&D of offshore oil and gas exploration, development and engineering construction to secure stable growth in reserves and production. Certain research findings have applied to operations and have generated positive results. One of the exploration research findings was honored with the Second-Class National Technological Progress Award of China in 2012.

Major Scientific Project Development

With a view to strengthen key technologies and to proactively develop technologies for the Company’s sustainable development in the mid to long term, the Company has established a number of major projects in 2012, primarily including new areas and technologies for offshore oil exploration, efficient development and enhanced oil recovery of offshore oilfield, deepwater oilfield development projects, and exploration technology for oil and gas fields with low porosity and low permeability.

In addition, the Company has completed its research for all of the six major research projects, including the “deepwater high-precision seismic exploration technology”, which have obtained the approval and acceptance from China’s expert team.

Innovative Development of Key Technologies

To provide strong technical support for new discoveries of oil and gas reserves and to maintain oil and gas production, the Company has enhanced its efforts in the research and application of exploration development technology in 2012. Our research breakthroughs, including technologies involving the exploration of oil and gas fields with low porosity and low permeability and the recovery of heavy oil in complex thermal fluid, have been utilized in the exploration and development of oil and gas fields, and generated satisfactory results.

In the meantime, the research findings of the “deepwater high-precision seismic exploration technology” have been applied in the exploration and development activities in South China Sea. This marks our success in research in relation to offshore high-precision seismic data acquisition and processing technologies.

Health, Safety and Environmental Protection, or HSE

As an offshore exploration and production company, we face significant operational risks and always emphasize on HSE. The Company promotes the philosophy and culture of HSE among its employees. The Company strives to establish a comprehensive management system to improve employees’ awareness of HSE during operations and to strengthen their risk identification and risk management skills.

In 2012, as the Company was rapidly developing its deepwater and overseas businesses, the scope of management in health, safety and environmental protection also expanded accordingly, and the Company faced greater challenges. For this reason, the Company continued to improve the environmental protection management system, promote intrinsic safety management and strengthen inspection and training, ensuring overall stability in health, safety and environmental protection performance. In 2012, the Company met its objectives related to annual health, safety and environmental protection. In production activities, the health, safety and environmental protection system was effectively implemented. There was no accident causing critical casualties throughout the year, and neither was there any liability claims for losses of over RMB1 million.

At the same time, we strictly comply with the regulatory requirements imposed by the governmental authorities, and carry out risk identification and targeted prevention works. Our efforts have been recognized by the governmental authorities.

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For health, safety and environmental protection information system protection, the Company utilized the environmental management information system to successfully track pollutants in 2012, and adopted categorized management in the risk identification system.

In 2012, the Company’s headquarters started to develop an emergency management system to track typhoons, and proactively gave warnings of 14 typhoons, which helped to respond to 12 typhoons that affected our operations. Such well-planned preparation contributed to eventual zero casualties.

In 2012, there was no accident causing critical casualties. The Company’s Occupational Safety and Health Administration (“OSHA”) statistics were maintained at a good level, and the Company’s performance continued to improve.

Operating Hazards and Uninsured Risks

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

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

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

As of December 31, 2012, we paid an annual insurance premium of approximately US$93 million and US$70 million for operational insurance and all risk construction insurance, respectively, to maintain our insurance coverage. We believe that our level of insurance is adequate and customary for the PRC petroleum industry and international practices. However, we may not have sufficient coverage for some of the risks we face, either because insurance is not available or because of high premium costs. See “Item 3—Key Information—Risk Factors—Risks Relating to Our Operations—Extreme weather conditions may have a material adverse impact on us and could result in losses that are not covered by insurance.”

We have purchased a number of insurance policies with varying policy limits to meet our risk management requirements and cover our potential liabilities in the event that any of our rigs is involved in an explosion or similar event at any of our offshore locations. The policy limits and other terms and conditions of these insurance policies comply with all applicable laws and regulations in the PRC and other relevant jurisdictions. The coverage under operational insurance policies and construction insurance policies are subject to policy limits of US$18.9 billion in aggregate and US$3.2 billion in aggregate, respectively. The coverage under operator’s extra-expense and third-party liabilities insurance policies are mainly subject to policy limits of US$20 million to US$200 million for each and every occurrence. The deductible for each insurance policy mainly ranges from US$2 million to US$5 million for different types of insurance policies.

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

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

Competition

Domestic Competition

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

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

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

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

Foreign Competition

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

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

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Segment Information

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

	Year ended December 31,
	2010(1)						2011						2012
	Rmb in millions			%			Rmb in millions			%			Rmb in millions			%
Exploration and production		165,166			91.7			211,082			87.6			210,706			85.1
Trading businesses		32,446			18.0			50,469			20.9			50,771			20.5
Unallocated and elimination		(17,576	)		(9.7	)		(20,607	)		(8.6	)		(13,850	)		(5.6	)
Total operating revenues		180,036			100.0			240,944			100.0			247,627			100.0

(1)

We are mainly engaged in the exploration, development, production and sales of crude oil and natural gas primarily in offshore China. For the year ended December 31, 2012, approximately 74.6% of our total revenue was sourced in the PRC. Our overseas activities are mainly conducted in Indonesia, Myanmar, Iraq, Australia, Nigeria, Uganda, Argentina, the United States, Canada, United Kingdom and other countries.

Regulatory Framework in the PRC

Government Control

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

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

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

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

Fiscal Regimes for Independent Operations

Taxation

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

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

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

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

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

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

production taxes at the rate of 5% on independent production and production under PSCs;

Resource taxes at the rate of 5% (reduced tax rates may apply to specific products and fields) on the oil and gas sales revenue (excluding production taxes) derived from oil and gas fields under production sharing contracts signed after November 1, 2011 and independent offshore oil and gas fields starting from November 1, 2011, which replaced the royalties for oil and gas fields except for those under production sharing contracts signed before November 1, 2011;

Mineral resource compensation at the temporary rate of 1% (reduced tax rates may apply) on the oil and gas sales revenue derived by oil and gas fields under production sharing contracts signed after November 1, 2011 and independent offshore oil and gas fields starting from November 1, 2011;

export tariffs at the rate of 5% on the export value of petroleum oil;

business tax at the rates of 3% to 5% or value-added tax at the rate of 6% on other income;

city construction tax at the rates of 1% or 7% on the actual paid production taxes, business tax and value-added tax;

educational surcharge at the rate of 3% on the actual paid production taxes, business tax and value-added tax; and

local educational surcharge at the rate of 2% on the actual paid production taxes, business tax and value-added tax.

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We calculate our deferred tax to account for the temporary differences between our tax base, which is used for income tax reporting and prepared in accordance with applicable tax guidelines, and our accounting base, which is prepared in accordance with applicable financial reporting requirements. The temporary differences include accelerated amortization allowances for oil and gas properties, which are partially offset by provisions for dismantlement and for impairment of property, plant and equipment and write-off of unsuccessful exploratory drilling. As of December 31, 2010, 2011 and 2012, we had Rmb 6,841 million, Rmb 5,488 million and Rmb 3,363 million (US$539 million) respectively, in net deferred tax liabilities. See note 12 to our consolidated financial statements included elsewhere in this annual report.

Royalty

Royalties paid to the PRC government are based on our gross production from both independent operations and oil and gas fields under PSCs. The amount of the royalties varies up to 12.5% based on the annual production of the relevant property. The PRC government has provided us, among other companies, with a royalty exemption in each field for up to one million tons, or approximately seven million BOE, per year for our crude oil production and for up to 2 billion cubic meters (approximately 70.6 billion cubic feet or 11.8 million BOE) per year for our natural gas production. The limits in these exemptions apply to our total production from both independent properties and properties under PSCs.

In 2011, the State Council of the PRC amended the Provisional Regulation of PRC Resource Tax. As a result, since November 1, 2011, the royalties payable to the PRC government have been replaced by resource tax, currently at 5% of the sales revenues from crude oil and natural gas. The PSCs which are signed before November 1, 2011 are not affected by the amendment of the Provisional Regulation of PRC Resource Tax and we continue to pay royalties to the PRC government for these PSCs.

Special Oil Gain Levy

In March 2006, the PRC government imposed a special oil gain levy at progressive rates from 20% to 40% on any income derived from sales of locally produced crude oil by an oil exploration and production company at a price which exceeds US$40 per barrel. In December 2011, the PRC government increased the threshold of the special oil gain levy from US$40 per barrel to US$55 per barrel, with effect from November 1, 2011. The special oil gain levy is collected on a quarterly basis. For the years ended December 31, 2010, 2011 and 2012 we incurred approximately Rmb 17.7 billion, Rmb 32.0 billion and Rmb 26.3 billion (US$4.22 billion) for the Special Oil Gain Levy. As international oil prices, the exchange rate of Renminbi and our crude oil production fluctuate, we cannot ascertain the full impact of the Special Oil Gain Levy going forward.

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

Realized Oil Price (US$/bbl)	Rate of the Levy
55-60 (Include 60)	20%
60-65 (Include 65)	25%
65-70 (Include 70)	30%
70-75 (Include 75)	35%
Above 75	40%

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

Fiscal Regimes for PSC Operations

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

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

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

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

Bidding Process

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

Terms of PSCs

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

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

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

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

Percentage of annual gross production		Allocation
5.0%		Production tax payable to the PRC government(1)

0.0% — 12.5%(2)		Royalty oil payable to the PRC government(3)
5.0%		Resource tax payable to the PRC government(3)
50.0% — 62.5%(2)		Cost recovery oil allocated according to the following priority:

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		1. recovery of current year operating costs by us and foreign partner(s); 2. recovery of earlier exploration costs by foreign partner(s); 3. recovery of development costs and deemed interest by us and foreign partner(s) based on participating interests; and 4. any excess, allocated to the remainder oil.
32.5%(4)		Remainder oil allocated according to the following formula: 1. (1-X) multiplied by 32.5% represents share oil payable to the PRC government; and 2. X multiplied by 32.5% represents remainder oil distributed according to each partner’s participating interest.

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

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

(3)	As a result of the amendment to the Provisional Regulation of PRC Resource Tax by the State Council of the PRC, effective November 1, 2011, the royalties payable to the PRC government have been replaced by resource tax for new PSCs. Pre-existing PSCs are not affected.

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

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

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

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

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

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

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

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

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Regulatory Framework in Overseas

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

In countries including Indonesia, Nigeria, Trinidad and Tobago and certain other countries, we conduct our operations through PSCs. For example, the OML130 block in Nigeria involves a production sharing arrangement. We and the other partners to overseas PSCs are required to bear all exploration, development and operating costs according to our respective participating interests. Exploration, development and operating costs which qualify for recovery can be recovered according to the production sharing formula after commercial discoveries are made and production begins.

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

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

Taxation

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

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

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

Environmental Regulation

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

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

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

The PRC environmental laws require offshore petroleum developers to pay abandonment costs. Our financial statements include provisions for costs associated with the dismantlement of oil and gas fields as of December 31, 2010, 2011 and 2012 of approximately Rmb15,825.3 million, Rmb24,964.3 million and Rmb29,406.0 million (US$ 4,720.0 million), respectively.

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

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

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

Patents and Trademarks

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

Real Properties

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

We own the following main property interests in the PRC:

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

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

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

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

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

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

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

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

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

Employees and Employee Benefits

During the years ended December 31, 2010, 2011 and 2012, we employed 4,650 persons, 5,377 persons and 10,063 persons, respectively. Of the 10,063 employees we employed as of December 31, 2012, approximately 74.9% were involved in oil exploration, development and production activities, approximately 5.5% were involved in accounts and finance work and the remainder were senior management, coordinators of PSCs, safety and environmental supervisors and others. Workers for the operation of the oil and gas fields, maintenance personnel and ancillary service workers are hired on a contract basis.

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

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

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

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

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

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

As of December 31, 2012, our Indonesian subsidiaries employed 799 employees, including 36 expatriates. We provide benefits to expatriates that we believe to be in line with customary international practices. Our local staffs in Indonesia enjoy welfare benefits mandated by Indonesian labor laws.

For further details regarding retirement benefits, see note 31 to our consolidated financial statements included elsewhere in this annual report.

As an oil and gas exploration and production company operating in highly competitive markets, we depend in large part on our employees for effective and efficient operations. We devote significant resources to train our employees. During 2012, we held approximately 6,000 training workshops, which

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were attended by approximately over 75,000 person-times of participants. To ensure smooth implementation of our overseas strategy, we have established an international human resources system to attract and retain talent in the international market. In order to enhance the planning and budget control of our labor costs, we have installed target benchmarks in performance appraisals to guide various business units to cut their labor costs and to increase the accuracy of their budgets.

C.	ORGANIZATIONAL STRUCTURE

CNOOC indirectly owned or controlled an aggregate of approximately 64.45% of our shares as of March 28, 2013. Accordingly, CNOOC continues to be able to exercise all the rights of a controlling shareholder, including electing our directors and voting to amend our articles of association. Although CNOOC has retained a controlling interest in us, the management of our business will be our directors’ responsibility.

The following chart sets forth our controlling entities and our directly-held subsidiaries as of March 28, 2013 and notes our significant indirectly-held subsidiaries.

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

(2)

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

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

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

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

D.	PROPERTY, PLANTS AND EQUIPMENT

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

ITEM 4A. UNRESOLVED STAFF COMMENTS

None.

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ITEM 5. OPERATING AND FINANCIAL REVIEW AND PROSPECTS

A.	OPERATING RESULTS

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

Overview

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

Factors Affecting Our Results of Operations

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

Oil and Gas Prices

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

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

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

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

			Year ended December 31,
	2010(1)		2011		2012
Average net realized prices:
Crude oil (US$ per bbl)		77.93		109.75		110.48
Natural gas (US$ per mcf)		4.49		5.15		5.77

(1)

Production and Sales Volumes

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

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

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

			Year ended December 31,
	2010		2011		2012
Net production of crude oil (bbl/day) (1)		722,086		708,286		742,765
Net production of natural gas (mmcf/day) (1)		1,050.1		1,171.7		1,109.7

(1) Including our interest in equity method investees.

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

Critical Accounting Policies

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

Oil and Gas Properties

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

The costs incurred in installing enhanced recovery facilities are capitalized together with the development costs of the relevant oil and gas properties. We treat the costs of unsuccessful exploratory wells and all other exploration costs as expenses when incurred. Productive oil and gas properties and other tangible and intangible costs of producing properties are depreciated using the unit-of-production method on a property-by-property basis under which the ratio of produced oil and gas to the estimated remaining proved developed reserves is used to determine the provision of depreciation, depletion and amortization. Common facilities that are built specifically to service production directly attributed to designated oil and gas properties are amortized based on the proved developed reserves of the respective oil and gas properties on a pro-rata basis. Common facilities that are not built specifically to service identified oil and gas properties are depreciated using the straight-line method over their estimated

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useful lives. Costs associated with significant development projects are not depreciated until commercial production commences and the reserves related to those costs are excluded from the calculation of depreciation. We amortize capitalized acquisition costs of proved properties by the unit-of-production method on a property-by-property basis based on the total estimated proved reserves.

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

Reserves Estimation

Oil and gas properties are depreciated on a unit-of-production basis at a rate calculated by reference to proved reserves. Commercial reserves are determined using estimates of oil in place, recovery factors and future oil prices, the latter having an impact on the proportion of the gross reserves which are attributable to the host government under the terms of the production sharing contracts. The level of estimated commercial reserves is also a key determinant in assessing whether the carrying value of any of the Company’s oil and gas properties has been impaired.

Pursuant to the oil and gas reserve estimation requirements under US SEC rules, the Company uses the average, first-day-of-the-month oil price during the 12-month period before the ending date of the period covered by the consolidated financial statements to estimate its proved oil and gas reserves.

Impairment of Non-Financial Assets other than Goodwill

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

The calculations of recoverable amount of assets require the use of estimates and assumptions. It is reasonably possible that the oil price assumption may change, which may then impact the estimated life of the field and may then require a material adjustment to the carrying value of tangible assets. The Company monitors internal and external indicators of impairment relating to its tangible and intangible assets.

Business Combinations and Goodwill

Business combinations are accounted for using the acquisition method. The consideration transferred is measured at acquisition date fair value which is the sum of the acquisition date fair values of assets transferred by the Company, liabilities assumed by the Company to the former owners of the acquiree and the equity interests issued by the Company in exchange for control of the acquiree. For each business combination, the Company elects whether it measures the non-controlling interests in the acquiree either at fair value or at the proportionate share of the acquiree’s identifiable net assets. All other components of non-controlling interests are measured at fair value. Acquisition costs incurred are expensed and included in administrative expenses.

Goodwill is initially measured at cost, being the excess of the aggregate of the consideration transferred, the amount recognised for non-controlling interests and any fair value of the Company’s previously held equity interests in the acquiree over the identifiable net assets acquired and liabilities assumed. If the sum of this consideration and other items is lower than the fair value of the net assets of

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the subsidiary acquired, the difference is, after reassessment, recognised in profit or loss as a gain on bargain purchase.

The acquisition of Nexen was completed in February 2013. Due to the timing of the transaction, the Company is still assessing the allocation of fair values of the assets acquired and liabilities assumed. The Company has not yet been able to analyse all books and records of Nexen, and therefore the initial accounting for the business combination is still incomplete. Accordingly, certain disclosures in relation to the business combination as at the date of the acquisition, such as fair values of assets acquired and liabilities assumed, goodwill recognised (if any) and acquisition-related costs, have not been presented in the consolidated financial statements included elsewhere in this annual report.

Joint Arrangements

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

Joint Operations

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

Joint Venture

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

The Company’s investments in joint ventures are stated in the consolidated statement of financial position at the Company’s share of net assets under the equity method of accounting, less any impairment losses.

Fair Value

The fair value of financial instruments that are traded in active markets at each reporting date is determined by reference to quoted market prices or dealer price quotations, without any deduction for transaction costs.

For financial instruments not traded in an active market, the fair value is determined using appropriate valuation techniques. Such techniques may include using recent arm’s length market transactions; reference to the current fair value of another instrument that is substantially the same; a discounted cash flow analysis or other valuation models.

Provisions

We recognize a provision when a present obligation (legal or constructive) has arisen as a result of a past event and it is probable that a future outflow of resources will be required to settle the obligation provided that a reliable estimate can be made of the amount of the obligation. When the effect of discounting is material, the amount recognized for a provision is the present value at the reporting date of the future expenditures expected to be required to settle the obligation. The increase in the discounted present value amount arising from the passage of time is included in finance costs in the consolidated statement of comprehensive income.

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

The ultimate dismantlement costs are uncertain and cost estimates can vary in response to many factors including changes to relevant legal requirements, the emergence of new restoration techniques or experience at other production sites. The expected timing and amount of expenditure can also change, for example, in response to changes in reserves or changes in laws and regulations or their interpretation. As a result, there could be significant adjustments to the provisions established which would affect future financial results.

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Deferred Tax

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

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

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

in respect of taxable temporary differences associated with investments in subsidiaries, associates and interests in a joint venture, where the timing of the reversal of the temporary differences can be controlled and it is probable that the temporary differences will not reverse in the foreseeable future.

A typical example of transactions that are not business combinations and, at the time of the transaction, affect neither accounting profit or loss nor taxable profit or loss is the acquisition of an asset, such as an exploration license or concession, where no previous activity has taken place, whereby the consideration paid is higher than its tax base.

Recognition of Revenue from Oil and Gas Sales and Marketing

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

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

Results of Operations

Overview

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

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	Year ended December 31,
	2010(1)				2011				2012
	(Rmb in millions, except percentages, production data and prices)
Revenues:
Oil and gas sales:
Crude oil		135,558	75.3	%		176,703	73.3	%		181,825	73.4	%
Natural gas		10,576	5.9	%		12,576	5.2	%		12,949	5.2	%
Total oil and gas sales		146,134	81.2	%		189,279	78.6	%		194,774	78.7	%

Marketing revenues		32,446	18.0	%		50,469	20.9	%		50,771	20.5	%
Other income		1,456	0.8	%		1,196	0.5	%		2,082	0.8	%
Total revenues		180,036	100.0	%		240,944	100.0	%		247,627	100.0	%

Net production (million BOE) (2):
Crude oil		263.6	80.0	%		258.5	77.9	%		271.9	79.4	%
Natural gas		66.0	20.0	%		73.3	22.1	%		70.6	20.6	%
Total net production		329.6	100.0	%		331.8	100.0	%		342.4	100.0	%
Average net realized prices:
Crude oil (US$ per bbl)		77.93				109.75				110.48
Natural Gas (US$ per mcf)		4.49				5.15				5.77

(1)

(2)	Including our interest in equity method investees.

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

	Year ended December 31,
	2010(1)			2011			2012
Operating Revenues:
Oil and gas sales		81.2	%		78.6	%		78.7	%
Marketing revenues		18.0	%		20.9	%		20.5	%
Other income		0.8	%		0.5	%		0.8	%
Total revenues		100.0	%		100.0	%		100.0	%
Expenses:
Operating expenses		(8.7	)%		(7.6	)%		(8.7	)%
Taxes other than income tax		(3.9	)%		(4.3	)%		(6.3	)%
Exploration expenses		(3.0	)%		(2.2	)%		(3.7	)%
Depreciation, depletion and amortization		(14.9	)%		(12.7	)%		(13.3	)%
Special oil gain levy		(9.8	)%		(13.3	)%		(10.6	)%
Impairment and provision		0.0	%		0.0	%		0.0	%
Crude oil and product purchases		(17.9	)%		(20.9	)%		(20.4	)%
Selling and administrative expenses		(1.7	)%		(1.2	)%		(1.4	)%
Others		(0.5	)%		(0.3	)%		(0.5	)%
		(60.5	)%		(62.4	)%		(64.8	)%

Interest income		0.3	%		0.5	%		0.4	%
Finance costs		(0.6	)%		(0.7	)%		(0.6	)%
Exchange gain, net		0.6	%		0.3	%		0.1	%
Investment income		0.2	%		0.8	%		1.0	%
Share of profits of associates		0.1	%		0.1	%		0.1	%
Share of profits/(losses) of a joint venture		0.1	%		0.1	%		(0.1	)%
Non-operating income/(expenses), net		0.1	%		(0.2	)%		0.4	%
Profit before tax		40.3	%		38.4	%		36.4	%
Income tax expense		(10.1	)%		(9.3	)%		(10.7	)%
Profit for the year		30.2	%		29.2	%		25.7	%

(1)

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Calculation of Revenues

China

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

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

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

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

Indonesia

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

Australia

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

Nigeria

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

Trinidad and Tobago

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

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The U.S. and Canada

The oil and gas sales from the U.S. consist of our participating interest in the properties of the Eagle Ford project and the Niobrara project.

In respect of oil and gas products derived from Canada, our share of sales is recognized when the ownership of products is transferred at the plant gate. The revenue is calculated net of royalties. In respect of power generated, our share of sales is recognized when the excess power starts to leave the plant gate.

Unconsolidated Investees

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

2012 versus 2011

Consolidated net profit

Our consolidated net profit decreased 9.3% to Rmb 63,691 million (US$10,223.1 million) in 2012 from Rmb 70,255 million in 2011. Benefitting from the stable growth in production, oil and gas sales increased continuously in 2012. However, due to the increased investments in exploration and the increased workload on maintenance, workover and well stimulation, the increased proportion of shale oil and gas and oil sands projects with relatively higher costs, as well as the full utilisation of investment tax credits applicable to Nigeria OML130 project in 2011, our net profit decreased compared with last year.

Revenues

Our oil and gas sales, realized prices and sales volume in 2012 are as follows:

	2012		2011		Change			Change (%)

Oil and gas sales (Rmb million)		194,774		189,279		5,495			2.9	%
Crude oil		181,825		176,703		5,122			2.9	%
Natural gas		12,949		12,576		373			3.0	%
Sales volume (million BOE)		322.6		314.0		8.6			2.7	%
Crude oil (million barrels)		260.8		249.3		11.5			4.6	%
Natural gas (bcf)		356		378		(22	)		(5.8	%)
Realized prices
Crude oil (US$/barrel)		110.48		109.75		0.73			0.7	%
Natural gas (US$/mcf)		5.77		5.15		0.62			12.0	%
Net production (million BOE)		342.4		331.8		10.6			3.2	%
China		267.0		261.9		5.1			1.9	%
Overseas		75.4		69.9		5.5			7.9	%

The increase of our oil sales was primarily due to the significant increase of production in North American shale oil and gas projects and the production from the acquired oil sands project in Canada at the end of 2011.

The increase of our gas sales was primarily due to the commencement of production of Yacheng 13-4 in offshore China and the increase in realized overseas gas prices as a result of our increased gas sales in the spot market by capturing the opportunities from the increase of spot market gas prices in Southeast Asia.

In 2012, our oil and gas net production was 342.4 million BOE (including our interest in equity-accounted investees), of which offshore China and overseas operations contributed 267.0 million BOE and 75.4 million BOE, respectively. The overseas production accounted for 22.0% of our total net production in 2012, compared with 21.1% in 2011.

Operating expenses

Our operating expenses increased 17.4% to Rmb 21,445 million (US$3,442.2 million) in 2012 from Rmb 18,264 million in 2011. Operating expenses per BOE increased 13.3% to Rmb 65.9 (US$10.58)

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per BOE in 2012 from Rmb 58.2 per BOE in 2011. Operating expenses per BOE offshore China increased 8.1% to Rmb 57.8 (US$9.28) per BOE in 2012 from Rmb 53.5 per BOE in 2011, mainly attributable to the increased workload on maintenance, workover and well stimulation. Overseas operating expenses per BOE increased 25.4% to Rmb 102.5 (US$16.45) per BOE in 2012 from Rmb 81.7 per BOE in 2011. These increases were primarily contributed by the increased production proportion from oil sands in Canada, which has higher operating cost than conventional projects, and the commencement of production of Iraq technical service contract.

Taxes other than income tax

Our taxes other than income tax increased 51.3% to Rmb 15,632 million (US$2,509.1 million) in 2012 from Rmb10,332 million in 2011, primarily as a result of payment of resource tax for operations in offshore China since November 2011.

Exploration expenses

Our exploration expenses increased 73.3% to Rmb 9,043 million (US$1,451.5 million) in 2012 from Rmb 5,220 million in 2011, primarily as a result of our continuously enhancing exploratory activities in offshore China. In 2012, we acquired 16,100 km2 2D seismic data and 26,700 km2 3D seismic data offshore China, among which the collection of 3D seismic data represented an increase of 3,300 km2 from 2011. Our continuing efforts in exploration has led to a series of important reserves discoveries and upgrade. In addition, our investment in drilling also increased continuously. Our independent exploration activities consisted of 96 exploration wells, increased by 17.1% from 82 exploration wells. Dry hole expenses increased 101.4% to Rmb 3,999 million (US$ 641.9 million) in 2012 from Rmb 1,986 million in 2011, including costs of some uncertain wells those were capitalized previously and written off according to appraisal result this year. In addition, due to the unfavorable exploration drilling results, some of the unproved properties of shale oil and gas project located in North America were written off in 2012, which also contributed to the increase of exploration expenses.

Depreciation, depletion and amortization

Our depreciation, depletion and amortization increased 7.8% to Rmb 32,903 million (US$5,281.3 million) in 2012 from Rmb 30,521 million in 2011. Our average depreciation, depletion and amortization per BOE, excluding the dismantlement-related depreciation, depletion and amortization, increased 5.9% to Rmb 92.1 (US$14.78) per BOE in 2012 from Rmb 86.9 per BOE in 2011. These increases were mainly attributable to the increased production proportion from shale oil and gas and oil sands projects overseas, which have higher depreciation per BOE.

The dismantlement-related depreciation, depletion and amortization costs decreased 9.6% to Rmb 2,946 million (US$ 472.9 million) in 2012 from Rmb 3,258 million in 2011. Our average dismantling costs per BOE decreased 12.8% to Rmb 9.06 (US$1.45) per BOE in 2012 from Rmb 10.38 per BOE in 2011. The main reason for these decreases was because, according to the latest estimated dismantlement scheme in 2012, the Company adjusted the dismantlement obligations of some oil and gas fields in offshore China.

Special Oil Gain Levy

Our Special Oil Gain Levy decreased 17.8% to Rmb 26,293million (US$4,220.3 million) in 2012 from Rmb 31,982 million in 2011, primarily benefiting from the PRC government’s increase in the levy threshold from US$40 to US$55 (effective from November 2011).

Selling and administrative expenses

Our selling and administrative expenses increased 18.3% to Rmb 3,377 million (US$542.0 million) in 2012 from Rmb 2,854 million in 2011. Our selling and administrative expenses per BOE increased 14.1% to Rmb 10.38 (US$1.67) per BOE in 2012 from Rmb 9.10 per BOE in 2011. These increases were primarily due to the continuous increase in technical research expenses, which was in

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accordance with the Company’s strategy of leading future development through technology innovation in the Company’s blueprint of “A New Leap Forward”.

Finance costs/Interest income

Our finance costs decreased 6.1% to Rmb 1,603 million (US$257.3 million) in 2012 from Rmb 1,707 million in 2011, primarily due to the interest and fees paid by the Company upon the early redemption of the first lien notes of Canada oil sand project in 2011. Our interest income decreased 16.2% to Rmb 1,002 million (US$160.8 million) in 2012 from Rmb 1,196 million in 2011, mainly as a result of less interest earned from the narrowed scale of banking deposits in 2012 and the decreased effective interest rates to increase liquidity for preparation of the closing of the acquisition project of Nexen.

Exchange gains, net

Our net exchange gains decreased 43.6% to Rmb 359 million (US$57.6 million) in 2012 from Rmb 637 million in 2011, primarily as a result of the reduced exchange gain of Renminbi/US dollars and Renminbi/HK dollars, partially offset by the exchange gain of Canadian/US dollars during 2012.

Investment income

Our investment income increased 30.9% to Rmb 2,392 million (US$383.9 million) in 2012 from Rmb 1,828 million in 2011, primarily attributable to the increase in investments on corporate wealth management products and the optimization of investment portfolios under the condition that the products and portfolios are of good liquidity and low risk.

Share of profits/(losses) of associates/a joint venture

Due to changes in local preferential tax policy applicable to our joint venture, our share of losses of associates/a joint venture was Rmb 27 million (US$4.3 million) in 2012, while in 2011, we shared a profit of Rmb 567 million.

Income tax expense

Our income tax expense increased 18.7% to Rmb 26,481 million (US$4,250.5 million) in 2012 from Rmb 22,310 million in 2011, and the effective tax rate increased to 29.4% in 2012 from 24.1% in 2011, The increase in effective tax rate was mainly attributable to the full utilisation of investment tax credits applicable to Nigeria OML130 project in 2011.

2011 versus 2010

Consolidated net profit

Our consolidated net profit increased 29.1% to Rmb 70,255 million in 2011 from Rmb 54,410 million in 2010. The primary driving factor for the profit increase was higher realized prices. However, this positive factor was partially offset by higher special oil gain levy, higher income tax payments due to higher realized prices, and higher operating expenses and depreciation.

Revenues

The increase of our oil sales was primarily due to higher oil prices achieved by adopting adaptive marketing policies in the circumstance of higher benchmark oil prices affected by worldwide political conditions and strong domestic demand for crude oil in China. Although our production and sales of crude oil were affected by the Penglai 19-3 oil spill accidents and suspension of production of the OML130 project, we still achieved our production and sales goals set at the beginning of 2011 by expanding capacity of other oilfields and managing the production of new projects.

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The increase of our gas sales was primarily due to increase of gas prices. Having seized the opportunities from the increase of spot market prices for gas in Southeast Asia due to the earthquake in Japan, we increased our gas sales in the spot market in 2011. In addition, in consideration of the development of domestic natural gas market, we have been adjusting our natural gas prices for customers through negotiations since the second half of 2010.

In 2011, our oil and gas production was 331.8 million BOE (including our interest in equity-accounted investees), of which offshore China and overseas operations contributed 261.9 million BOE and 69.9 million BOE, respectively. The overseas production accounted for 21.1% of our total net production in 2011, compared with 20.0% in 2010.

In 2011, our net marketing profit, which is marketing revenues less costs of purchases, decreased 22.9% to Rmb 162 million from Rmb 210 million in 2010, mainly because we had no trading activities in Indonesia in 2011 as the gas production in Indonesia already met the need for the year. Our realized marketing profit margin, which is our marketing profit calculated as a percentage of marketing revenues, decreased from 0.7% in 2010 to 0.3% in 2011, primarily due to a lower profit margin of fixed premium trading, which was caused by the increase in sales volume when oil price was higher in 2011.

Operating expenses

Our operating expenses increased 16.7% to Rmb 18,264 million in 2011 from Rmb 15,647 million in 2010. Operating expenses per BOE increased 18.0% to Rmb 58.2 per BOE in 2011 from Rmb 49.3 per BOE in 2010. Operating expenses per BOE offshore China increased 19.7% to Rmb 53.5 per BOE in 2011 from Rmb 44.7 per BOE in 2010. These increases were mainly attributable to the increase in raw material prices and supplier service fees as well as the increased operation workload on workover. In addition, due to the extreme weather and other exceptional events, our HSE and maintenance costs also increased accordingly. Overseas operating expenses per BOE increased 13.6% to Rmb 81.7 per BOE in 2011 from Rmb 72.0 per BOE in 2010, primarily contributed by higher operating cost of newly acquired oil sands projects, increased prices of fuel and other resources in Southeast Asia, as well as increased repair cost and reduced production as a result of the equipment failure of OML130 AKPO oilfield.

Taxes other than income tax

Our taxes other than income tax increased 45.3% to Rmb 10,332 million in 2011 from Rmb 7,109 million in 2010, primarily as a result of increased tax payments due to the increase in higher realized oil and gas prices, as well as payment of resource tax for operations in offshore China since November 2011.

Exploration expenses

Our exploration expenses decreased 4.8% to Rmb 5,220 million in 2011 from Rmb 5,483 million in 2010, primarily as a result of our continuously enhancing exploratory activities including more wells being drilled and more seismic data being acquired. In 2011, we acquired 18,914 km2 2D seismic data, as well as 15,822 km2 3D seismic data, representing an increase of 4,935 km2 from 2010. Our continuing efforts in exploration have led to a series of important discoveries on reserves. In addition, the discovery rate maintained at a high level. Our independent exploration activities consisted of 82 exploration wells, relatively the same as in 2010. Dry hole expenses decreased 33.5% to Rmb 1,986 million in 2011 from Rmb 2,985 million in 2010.

Depreciation, depletion and amortization

Our depreciation, depletion and amortization increased 14.1% to Rmb 30,521 million in 2011 from Rmb 26,756 million in 2010. Our average depreciation, depletion and amortization per barrel, excluding the dismantlement-related depreciation, depletion and amortization, increased 9.8% to Rmb 86.9 per BOE in 2011 from Rmb 79.1 per BOE in 2010, mainly attributable to the commencement of production on new oil and gas fields as well as comprehensive adjustment projects in recent years, which were developed under the environment of increasing prices of raw materials and services over the past few years. Meanwhile, we conducted comprehensive inspections on production safety conditions of the oil and gas fields offshore China, increased preventive maintenance, and put off some workload on

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stabilization and improvement of production performance, which led to dynamic variations of the production of some oil and gas fields in offshore China and the resulting downward adjustment of related proved reserve estimates.

The dismantlement-related depreciation, depletion and amortization costs increased 96.0% to Rmb 3,258 million in 2011 from Rmb 1,662 million in 2010. Our average dismantling costs per barrel increased 98.1% to Rmb 10.38 per BOE in 2011 from Rmb 5.24 per BOE in 2010. The main reason for these increases was because, according to the PRC government’s filing requirement for domestic oil and gas fields abandonment schemes, the estimation methods for the abandonment of oil and gas fields were comprehensively adjusted in 2011, and projected service fees and raw material prices were raised further.

Special Oil Gain Levy

Our Special Oil Gain Levy increased 80.6% to Rmb 31,982 million in 2011 from Rmb 17,706 million in 2010, primarily as a result of our increased sales volume and higher realized oil prices in offshore China. Benefiting from the PRC government’s increase in the levy threshold from US$40 to US$55 (effective November 2011), our Special Oil Gain Levy is expected to decrease in the future.

Selling and administrative expenses

Our selling and administrative expenses decreased 6.1% to Rmb 2,854 million in 2011 from Rmb 3,039 million in 2010 mainly due to the decrease of commission expenses for acquisition projects. Our selling and administrative expenses per barrel decreased 5.1% to Rmb 9.10 per BOE in 2011 from Rmb 9.58 per BOE in 2010.

Finance costs/Interest income

Our finance costs increased 52.1% to Rmb 1,707 million in 2011 from Rmb 1,122 million in 2010, primarily due to the increase in unwinding of discount on provision for dismantlement in 2011. Our interest income increased 93.5% to Rmb 1,196 million in 2011 from Rmb 618 million in 2010, mainly as a result of more interest earned from the enlarged scale of banking deposits and the increased effective interest rates.

Exchange gains, net

Our net exchange gains decreased 35.9% to Rmb 637 million in 2011 from Rmb 995 million in 2010, primarily as a result of the decrease in the size of dividends receivable from a subsidiary.

Investment income

Our investment income increased 328.2% to Rmb 1,828 million in 2011 from Rmb 427 million in 2010, primarily attributable to the increase in investments on corporate wealth management products and the optimization of investment portfolios under the condition that the products and portfolios are of good liquidity and low risk.

Share of profits of associates/a joint venture

Contributed by good performance of our associated companies/joint venture, our share of profits of associates/a joint venture increased 42.4% to Rmb 567 million in 2011 from Rmb 398 million in 2010.

Income tax expense

Our income tax expense increased 22.6% to Rmb 22,310 million in 2011 from Rmb 18,193 million in 2010, primarily as a result of the increase in revenues and profit due to the increase of average

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realized oil and gas prices. Our effective tax rate decreased to 24.1% in 2011 from 25.1% in 2010, mainly attributable to the tax benefit obtained in the mechanism of investment tax credit applied to OML130 project in Nigeria, which had better profitability this year.

B.	LIQUIDITY AND CAPITAL RESOURCES

Our primary source of cash during 2012 was cash flow from operating activities. We used cash primarily to fund capital spending program and dividends. The following table summarizes our cash flows for the periods presented:

	Year ended December 31,
	2010(1)			2011			2012
				(Rmb in millions)
Cash generated from (used for):
Operating activities		70,883			116,171			92,574
Investing activities		(64,203	)		(99,036	)		(63,797	)
Financing activities		(1,610	)		(20,246	)		2,584
Net increase/(decrease) in cash and cash equivalents		5,070			(3,111	)		31,361

(1)

Cash Generated from Operating Activities

In 2012, the decrease in cash inflow from operating activities was mainly attributable to the increase of tax payment and operating expense.

Cash Used in Investing Activities

In 2012, the cash outflow from investing activities mainly included the payments of (1) Rmb 7,863 million for the acquisition of Uganda assets; (2) Rmb 1,610 million for the acquisition by Bridas of downstream refinery; (3) Rmb 822 million for the increased investment in Finance; and (4) Rmb 708 million to fund Chesapeake’s share of drilling and completion costs pursuant to a commitment made at the acquisition of the Niobrara project.

In 2012, our capital expenditures (other than for the acquisitions mentioned above) increased 47.5% to Rmb 54,331 million (US$8,720.7 million), primarily as a result of the increase in exploration activities and the development of projects under construction. Our development expenditures in 2012 primarily related to the development of the Eagle Ford Shale project, Liwan3-1 and Suizhong36-1 PhaseⅡ, as well as the expenses incurred for improving recovery factors of the oilfields in production.

In addition, our cash used in investing activities was also attributable to purchase of available-for-sale and held-to-maturity financial assets of Rmb 151,292 million (US$24,284.0 million). Our cash generated from investing activities was mainly from the proceeds from the sales of available-for-sale and held-to-maturity financial assets in the amount of Rmb 140,359 million (US$22,529.2 million). Our time deposits with maturity of more than three months decreased by Rmb 7,586 million (US$1,217.6 million) in 2012.

For 2013, we have budgeted approximately US$14.3 billion for capital expenditures for exploration and development (excluding those for Nexen). The following table sets forth actual or budgeted capital expenditures on an accrual basis for our key operating areas for the periods indicated.

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	Year ended December 31,
	2010(1) (3)		2011(1)		2012(1)		2012(1)		2013(2)
	(Rmb million)						(US$ million)
Offshore China
Bohai
Development		14,802.1		8,400.9		10,954.5		1,758.3		3,183.0
Exploration		2,480.1		3,120.7		4,117.4		660.9		531.8
Western South China Sea
Development		2,337.6		2,847.5		4,559.0		731.8		718.1
Exploration		1,774.2		2,060.4		2,531.4		406.3		486.9
Eastern South China Sea
Development		4,484.5		11,474.7		14,755.9		2,368.5		2,391.3
Exploration		1,634.1		1,934.0		2,415.4		387.7		499.3
East China Sea
Development		137.0		362.9		1,090.4		175.0		396.2
Exploration		512.8		716.1		1,111.5		178.4		107.8
Others
Development		—		-		—		—		826.1
Exploration		137.8		180.1		395.8		63.5		223.5
Subtotal		28,300.2		31,097.2		41,931.4		6,730.5		9,364.0
Overseas
Development		3,620.6		8,061.9		15,458.8		2,481.3		4035.1
Exploration		865.4		1,351.4		2,614.5		419.7		853.2
Subtotal		4,486.0		9,413.3		18,073.4		2,901.0		4,888.3
Total		32,786.2		40,510.5		60,004.8		9,631.4		14,252.3

(1)	Figures for 2010, 2011, and 2012 represent our actual spending for capital expenditure purposes, including expensed exploration costs.

(2)	Figures for 2013 represent our budgeted capital expenditures.

(3)

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

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

Cash Generated from Financing Activities

In 2012, the increase in net cash inflow from financing activities was mainly due to the proceeds of bank borrowings of Rmb 21,459 million (US$3,444.4 million) and Rmb 12,571 million (US$2,017.8 million) from the issuance of guaranteed notes, partially offset by the cash outflow of the distribution of dividends of Rmb 15,635 million (US$2,509.6 million), the repayment of bank loans of Rmb 10,825 million (US$1,737.5 million) and guaranteed notes of Rmb 3,150 million (US$505.6 million).

At the end of 2012, our total outstanding debt was Rmb 57,886 million (US$9,291.3 million), compared to Rmb 37,995 million at the end of 2011. The increase in debt in 2012 was primarily attributable to the issuance of guaranteed notes of US$2 billion and the increase of short-term bank loans. Our gearing ratio, which is defined as interest-bearing debt dividend by the sum of interest-bearing debt plus equity, was 15.7%, higher than that of 12.6% in 2011.

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We have debt service obligations consisting of principal and interest payments on our outstanding indebtedness. The following table summarizes the maturities of our long-term debt (including the current portion) outstanding as of December 31, 2012.

	Debt maturities (principal only)
	Original currency		Total Rmb equivalents		Total US$ equivalents
Due by December 31,	US$		Total Rmb equivalents		Total US$ equivalents
	(in millions, except percentages)
2013		238.8		1,487.6		238.8
2014-2015		84.7		527.8		84.7
2016-2017		102.9		640.9		102.9
2018 and beyond		4,523.9		28,184.5		4,523.9
Total		4,950.3		30,840.7		4,950.3
Percentage of total debt		53.3%		53.3%		53.3%

In May 2012, we, through CNOOC Finance (2012) Limited, our wholly owned subsidiary, issued US$1,500 million 3.875% guaranteed notes due 2022 and US$500 million 5.000% guaranteed notes due 2042. The obligations of CNOOC Finance (2012) Limited in respect of the notes are unconditionally and irrevocably guaranteed by us.

On March 22, 2013, the Company unconditionally and irrevocably guaranteed various series of senior unsecured notes for a total outstanding principal amount of approximately US$3.9 billion following the successful consent solicitation process commenced by Nexen on March 7, 2013.

As of December 31, 2012, we had total foreign currency debt of US$9,209.40 million, all of which is in U.S. dollars. As of March 28, 2013, we had total foreign currency debt of US$19,635 million (including, among others, approximately US$6 billion short-term debt with the maturity of one year for payment of the consideration related to the acquisition of Nexen and approximately US$3.9 billion indebtedness of Nexen), all of which is in U.S. dollars.

As of December 31, 2012, we had unutilized banking facilities amounting to approximately Rmb 57,662.3 million (US$9,255.4 million) as compared to Rmb 160,579.8 million as of December 31, 2011. As of March 28, 2013, we had unutilized banking facilities amounting to approximately Rmb 36,944 million (US$5,930 million).

In 2010, 2011 and 2012, we paid dividends totaling Rmb 15,893.8 million, Rmb 18,392.4 million and Rmb 15,635.1 million (US$2,509.6 million) (before PRC withholding tax deducted), respectively. The payment and the amount of any dividends in the future will depend on our results of operations, cash flows, financial condition, the payment by our subsidiaries of cash dividends to us, future prospects and other factors which our directors may consider relevant. The amount of dividends we paid historically is not indicative of the dividends that we will pay in the future.

We believe our future cash flows from operations, borrowing capacity and funds raised from our debt offerings will be sufficient to fund planned capital expenditures and investments, debt maturities and working capital requirements through at least 2013. However, our ability to obtain adequate financing to satisfy our capital expenditures and debt service requirements may be limited by our financial condition and results of operations and the liquidity of international and domestic financial markets. See “Item 3—Key Information—Risk Factors—Risks Relating to Our Operations—Our future prospects largely depend on our capital expenditures, which are subject to various risks.”

Holding Company Structure

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

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Inflation/Deflation

According to the China Statistical Bureau, as represented by the general consumer price index, China experienced an overall inflation rate of 3.3%, 5.4% and 2.6% in 2010, 2011 and 2012, respectively. Neither deflation nor inflation has had a significant impact on our results of operations in the respective years.

Impact of Recently Issued Accounting Standards

IFRS and HKFRS

We have adopted the IFRS as issued by the IASB since January 1, 2008. Therefore, our consolidated financial statements for 2012 have been prepared in due compliance with both IFRS and HKFRS (including the early adoption of the following accounting standards before their mandatory effective date of January 1, 2013: IFRS 10/HKFRS 10-Consolidated Financial Statements, IFRS 11/HKFRS 11-Joint Arrangements, IFRS 12/HKFRS 12-Disclosures of Interests in Other Entities, IAS 27 (Revised)/HKAS 27 (Revised)-Separate Financial Statements, and IAS 28 (Revised)/HKAS 28 (Revised)- Investments in Associates and Joint Ventures).

There have been no material changes to IFRSs and HKFRSs during 2012 that would have any material impact on our accounting policies, financial position or results of operations. A number of amendments to IFRSs/HKFRSs become effective beginning on January 1, 2012, which are primarily with a view to remove inconsistencies and clarify wording. The adoption of those amendments upon their effective dates did not have any material impact on our accounting policies, financial position or performance.

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

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

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

D.	TREND INFORMATION

The 2013 outlook of the global political and economic situation remains complex and tough. The global economic recovery continued to be largely uncertain. On the other hand, China will continue to implement a proactive fiscal policy and prudent monetary policy, and by adhering to the overall goal of “pursuing growth cautiously” for economic and social development, China’s economy is expected to maintain steady growth.

Facing complex and tough external conditions in 2013, the Company is committed to solidifying its foundation for development and carrying out various works in accordance with the Company’s blueprint of “A New Leap Forward”. The Company’s key tasks include:

First, to strive to achieve the annual production target.

Second, to continue to enhance exploration and development efforts.

Third, to strengthen overseas operations.

Fourth, to tighten cost control and further improve efficiency.

Other trend information disclosed elsewhere in this annual report include:

Prices for crude oil may fluctuate widely in response to relatively minor changes in the supply and demand for oil, market uncertainty and various other factors that are beyond our control.

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We consider reserve and production growth as top priority. We plan to increase our reserves through drill bits and value-driven acquisitions. We will continue to concentrate independent exploration efforts on major operating areas, especially in offshore China. In the meantime, we will continue to enter into PSCs with foreign partners to lower capital requirements and exploration risks.

We plan to capitalize on the growth potential of the PRC natural gas market, and continue to explore and develop natural gas fields. To the extent we invest in businesses and geographic areas where we have limited experience and expertise, we plan to structure our investments as alliances or partnerships with partners possessing the relevant experience and expertise. In 2013, the large-size gas field Liwan 3-1 in deepwater South China Sea will commence production. We expect that our natural gas production would continue to increase accordingly.

We will continue to maintain our prudent financial policy. Aiming to reduce production cost, we plan to actively promote the regional development of oil and gas field groups and to apply up-to-date offshore engineering, drilling and production technologies to our operations. We intend to maintain our financial strength by managing key measures such as capital expenditures, cash flows and costs per BOE. We also intend to actively manage our account receivables and inventories to enhance liquidity and improve profitability. We will continue to monitor our foreign currency denominated assets and debts and to manage exposure to foreign exchange rate fluctuations.

For 2013, we have budgeted approximately US$14.3 billion for capital expenditures for exploration and development (excluding those for Nexen). However, our capital expenditure plans are subject to a number of risks, contingencies and other factors, some of which are beyond our control. We believe our future cash flows from operations, borrowing capacity and funds raised from our debt offerings will be sufficient to fund planned capital expenditures and investments, debt maturities and working capital requirements through at least 2013. However, our ability to obtain adequate financing to satisfy our capital expenditures and debt service requirements may be limited by our financial condition and results of operations and the liquidity of international and domestic financial markets.

We expect Nexen’s oil sands operations will have relatively high production cost.

Other than as disclosed in the paragraphs above under Item 5.D, we are not aware of any trends that are reasonably likely to have a material effect on our net sales or revenues, income from continuing operations, profitability, liquidity or capital resources, or that would cause reported financial information not necessarily to be indicative of future operating results or financial conditions. You are urged to read the forward-looking statements contained elsewhere in this annual report, the cautionary statement on page 9 and the Risk factors on pages 14-21, which describe the risks and uncertainties that may cause actual results and developments to differ materially from those expressed or implied by these forward-looking statements. The Company provides no commitment to update the forward-looking statements or to publish financial projections for forward-looking statements in the future.

E.	OFF-BALANCE SHEET ARRANGEMENTS

None.

F.	TABULAR DISCLOSURE OF CONTRACTUAL OBLIGATIONS

The following table sets forth information regarding our contractual obligations as of December 31, 2012.

	Payments due by period
Contractual Obligations	Total		Less than 1 year		1-3 years		3-5 years		More than 5 years
	Rmb million		Rmb million		Rmb million		Rmb million		Rmb million
Long-term debt obligations		30,841		1,488		528		641		28,184
Operating lease obligations		3,137		920		594		450		1,173
Provision for dismantlement(1)		29,406		-		-		-		29,406
Total		63,384		2,408		1,122		1,091		58,763

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

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As of December 31, 2010, 2011 and 2012, we had the following capital commitments, principally for the construction and purchase of property, plant and equipment:

Capital Commitments	2010(1)		2011		2012
	Rmb million		Rmb million		Rmb million
Contracted, but not provided for		9,030		15,219		27,502
Authorized, but not contracted for		45,973		59,584		80,682

(1)

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

G.	SAFE HARBOR

The safe harbor provided in Section 27A of the Securities Act and Section 21E of the Exchange Act, or the statutory safe harbors, shall apply to forward-looking information provided pursuant to Item 5.F above. For our cautionary statement on the forward looking statement in this annual report, see the section “Forward-Looking Statements” on page 9 of this annual report.

ITEM 6. DIRECTORS, SENIOR MANAGEMENT AND EMPLOYEES

A.	DIRECTORS AND SENIOR MANAGEMENT

In accordance with Hong Kong law and our articles of association, our affairs are managed by our Board, which has 10 members, including two executive directors, four non-executive directors and four independent non-executive directors as of December 31, 2012.

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

Name	Year of Birth	Position
Yilin Wang	1956	Chairman of our Board and Non-executive Director

Hua Yang	1961	Vice Chairman of our Board and Non-executive Director

Fanrong Li	1963	Executive Director, Chief Executive Officer and President

Guangqi Wu	1957	Executive Director and Compliance Officer

Shouwei Zhou	1950	Non-executive Director

Zhenfang Wu	1952	Non-executive Director

Sung Hong Chiu	1947	Independent Non-executive Director

Lawrence J. Lau	1944	Independent Non-executive Director

Aloysius Hau Yin Tse	1948	Independent Non-executive Director

Tao Wang	1931	Independent Non-executive Director

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Guangyu Yuan	1959	Executive Vice President

Weilin Zhu	1956	Executive Vice President

Liguo Zhao	1953	General Counsel

Bi Chen	1961	Executive Vice President

Wei Chen	1958	Senior Vice President and General Director of CNOOC Research Institute

Guohua Zhang	1960	Senior Vice President and General Manager of CNOOC China Limited Shanghai Branch

Hua Zhong	1960	Chief Financial Officer and Joint Company Secretary (since March 22, 2012)

Zhi Fang	1962	Vice President and General Manager of CNOOC International Limited

Yongzhi Jiang	1973	Former Joint Company Secretary (resigned on March 22, 2012)

May Sik Yu Tsue	1973	Joint Company Secretary

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

Executive Directors

Fanrong Li Born in 1963, Mr. Li is a professor-level senior engineer. He obtained a B.S. degree majoring in oil production from Jiang Han Petroleum Institute (now Yangtze University) in China in 1984, and received an MBA degree from the Business School of Cardiff University in United Kingdom in July 2003. Mr. Li has been working in the oil and gas industry in China for nearly 30 years. He joined China National Offshore Oil Corporation (the “CNOOC”) in 1984, and worked as Petroleum Engineer, later as Offshore Platform Supervisor, Managing Director of Joint Operating Group, Chief Representative of Joint Management Committee in Operators Group, General Manager of Development and Production Department of the Company and President of CNOOC China Limited Shenzhen Branch. From January 2009 to April 2010, he served as an Assistant President of CNOOC. Mr. Li has worked as President of CNOOC Energy Technology & Services Limited since February 2009, and has served as Vice President of CNOOC since May 2010. Mr. Li was appointed as President of the Company with effect from September 16, 2010, and was appointed as Chief Executive Officer of the Company with effect from November 23, 2011. He also serves as a Director of CNOOC China Limited and CNOOC International Limited, and Chairman and Director of CNOOC Southeast Asia Limited and CNOOC Deepwater Development Limited, all being subsidiaries of the Company. Mr. Li was appointed as a Non-executive Director of the Company with effect from May 24, 2010 and was re-designated from Non-executive Director to Executive Director with effect from September 16, 2010. Following the completion of the acquisition of Nexen Inc., Mr. Li was appointed as its chairman of the board with effect from February 26, 2013.

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

Non-executive Directors

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

Hua Yang Born in 1961, Mr. Yang is a professor-level senior engineer and graduated from China University of Petroleum with a B.S. degree in petroleum engineering. He also received an MBA degree from the Sloan School of Management at MIT as a Sloan Fellow. Mr. Yang joined CNOOC in 1982 and has over 30 years of experience in petroleum exploration and production. From 1982 to 1992, Mr. Yang served in a number of positions in CNOOC Research Center including the Director of Field Development Department, the Manager of Reservoir Engineering Department and the Project Manager. Thereafter, Mr. Yang was mainly involved in international business, M&A, corporate finance and capital market operations in the Company and its subsidiaries. From 1993 to 1999, he served as the Deputy Chief Geologist, the Deputy Director and the Acting Director for Overseas Development Department of the Company and the Vice President of CNOOC International Limited, a subsidiary of the Company. In 1999, Mr. Yang became a Senior Vice President of the Company and served as Chief Financial Officer of the Company from January 2005 to September 2010, Executive Vice President of the Company from October 2005 to March 2009, President of the Company from March 2009 to September 2010, and was appointed as Vice Chairman of the Board and Chief Executive Officer of the Company with effect from September 16, 2010. Mr. Yang also served as an Assistant President of CNOOC from November 2006 to April 2010 and as Vice President of CNOOC from April 2010 to August 2011. Mr. Yang was appointed as Director and President of CNOOC in August 2011. In addition, he serves as Chairman and Director of CNOOC China Limited and CNOOC International Limited, both being subsidiaries of the Company. He was Director and President of CNOOC Southeast Asia Limited, a subsidiary of the Company, from 2002 to 2003, General Manager of CNOOC China Limited, a subsidiary of the Company, from February 2009 to July 2011, Chairman and Director of CNOOC Southeast Asia Limited, a subsidiary of the Company, from July 2009 to September 2010, Chairman and Director of CNOOC Deepwater Development Limited from January 2010 to September 2010 and a Director of CNOOC Finance Corporation Limited, a subsidiary of CNOOC, from May 2005 to December 2010. Mr. Yang was appointed as an Executive Director of the Company with effect from August 31, 2005. He resigned as Chief Executive Officer of the Company and was re-designated from an Executive Director to a Non-Executive Director of the Company with effect from November 23, 2011.

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Shouwei Zhou Born in 1950, Mr. Zhou, a member of Chinese Academy of Engineering, received a doctorate degree from the Southwest Petroleum Institute in China majoring in petroleum and natural gas engineering. He joined CNOOC in 1982. Mr. Zhou served as the Deputy General Manager of CNOOC Bohai Corporation, a subsidiary of CNOOC and the General Manager of CNOOC China Limited Tianjin Branch. He was appointed as an Executive Vice President of the Company in September 1999 and served as the President of the Company from July 2002 to March 2009. He also served as Vice President of CNOOC from October 2000 to August 2011. He also served as a Director and the General Manager of CNOOC China Limited, a subsidiary of the Company. From October 2004 to July 2009, Mr. Zhou served as a Director of CNOOC International Limited, a subsidiary of the Company. From April 2003 to July 2009, Mr. Zhou also served as the Chairman of CNOOC Southeast Asia Limited, a subsidiary of the Company. From December 2003 to December 2010, Mr. Zhou served as the Chairman of Offshore Oil Engineering Co., Ltd., a listed company on the Shanghai Stock Exchange and a subsidiary of CNOOC. Mr. Zhou was appointed as an Executive Director of the Company with effect from August 23, 1999 and was re-designated from Executive Director to Non-executive Director with effect from March 31, 2009.

Zhenfang Wu Born in 1952, Mr. Wu is a professor-level senior engineer and graduated with a bachelor degree from Dalian University of Technology, majoring in Offshore Petroleum Engineering and Construction. He later received an EMBA degree from Shanghai Jiao Tong University. Mr. Wu joined the petroleum industry in 1971. He joined CNOOC in 1980 when it was still in the pre-establishment stage. From 1993 to 2000, he was Deputy General Manager of CNOOC Nanhai West Corporation, a subsidiary of CNOOC and the President of CNOOC Chemical Limited, a subsidiary of CNOOC. He was also the Chairman of the Board of Directors of Fudao Fertilizer Limited and CNOOC Chemical Limited, both being subsidiaries of CNOOC, from 2001 to 2003 and from 2003 to 2005 respectively. From 2003 to 2004, Mr. Wu was an Assistant President of CNOOC and then served as Vice President of CNOOC from August 2004 to February 2013. Mr. Wu also served as the Chairman and President of CNOOC Gas and Power Group, the General Manager of CNOOC Oil & Petrochemicals Co., Ltd., Chairman of CNOOC and Shell Petrochemical Co. Ltd, all being subsidiaries of CNOOC, as well as the Chairman of a number of subsidiaries of CNOOC. Mr. Wu also serves as Chairman of CNOOC Oil & Petrochemicals Co., Ltd. and a number of subsidiaries of CNOOC. Mr. Wu was appointed as an Executive Director of the Company with effect from August 31, 2005 and was re-designated from Executive Director to Non-executive Director with effect from September 1, 2006.

Independent Non-executive Directors

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

Lawrence J. Lau Born in 1944, Professor Lau graduated with a B.S. (with Great Distinction) in Physics from Stanford University in 1964, and received his M.A. and Ph.D. degrees in Economics from the University of California at Berkeley in 1966 and 1969 respectively. He joined the faculty of the Department of Economics at Stanford University in 1966, becoming Professor of Economics in 1976, the first Kwoh-Ting Li Professor in Economic Development in 1992, and Kwoh-Ting Li Professor in Economic Development, Emeritus in 2006. From 2004 to 2010, Professor Lau served as Vice-chancellor (President) of The Chinese University of Hong Kong. Professor Lau specializes in economic development, economic growth, and the economies of East Asia, including that of China. He has authored, co-authored, or edited six books and published more than 170 articles and notes in professional journals. A member of the 11th National Committee of the Chinese People’s Political Consultative Conference and a Vice-Chairman of its Subcommittee of Population, Resources and Environment. Professor Lau also serves as a Member of the Hong Kong Special Administrative Region Exchange Fund Advisory Committee and its Currency Board and Governance Sub-Committees and as an adviser to the Hong Kong-Taiwan Economic and Cultural Cooperation and Promotion Council. He was appointed a Justice of the Peace in Hong Kong in July 2007. He currently serves as Chairman of CIC International (Hong Kong) Co., Limited, Non-executive Vice-Chairman of CITIC Capital Holdings Limited, Hong Kong, Non-executive Director of Semiconductor Manufacturing International Corporation, Shanghai, which is listed on the Hong Kong Stock Exchange and the New York Stock Exchange and a Non-executive Independent Director of Far EasTone Telecommunications Company Limited, Taipei, which is listed on the Taiwan Stock Exchange. Professor Lau was appointed as an Independent Non-executive Director of the Company with effect from August 31, 2005.

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Aloysius Hau Yin Tse Born in 1948, Mr. Tse is a fellow of The Institute of Chartered Accountants in England and Wales, and the Hong Kong Institute of Certified Public Accountants (“HKICPA”). Mr. Tse is a past president and a former member of the Audit Committee of the HKICPA. He joined KPMG in 1976, became a partner in 1984 and retired in March 2003. Mr. Tse was a non-executive Chairman of KPMG’s operations in the PRC and a member of the KPMG China advisory board from 1997 to 2000. Mr. Tse is currently an independent non-executive director of China Telecom Corporation Limited, Wing Hang Bank Limited, Linmark Group Limited, SJM Holdings Limited and Sinofert Holdings Limited, companies listed on The Stock Exchange of Hong Kong Limited. He was an independent non-executive director of China Construction Bank Corporation, which is listed on the HKSE Main Board from 2004 to 2010. Mr. Tse was appointed as an independent non-executive director of CCB International (Holdings) Limited, a wholly owned subsidiary of China Construction Bank Corporation in March 2013. Mr. Tse is also a member of the International Advisory Council of the People’s Municipal Government of Wuhan. Mr. Tse was appointed as an Independent Non-executive Director of the Company with effect from June 8, 2005.

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

Other Members of Senior Management

Guangyu Yuan Born in 1959, Mr. Yuan is an Executive Vice President of the Company, responsible for the operation safety, engineering and construction, and drilling and completion. Mr. Yuan is a professor-level senior engineer. He graduated from China University of Petroleum with a bachelor’s degree in drilling engineering. He obtained a master degree from the Capital University of Economics and Business in 2001. He graduated from the CEO Class and the EMBA program of China Europe International Business School in 2004 and 2007 respectively with an MBA degree. With over 31 years of experience in the oil and gas industry, Mr. Yuan joined CNOOC in 1982, having served as Deputy Manager of CNOOC Bohai Drilling Company, Deputy General Manager of CNOOC China Offshore Oil Northern Drilling Company, Deputy General Manager of Operational Department of CNOOC, General Manager of CNOOC China Offshore Oil Northern Drilling Company, Chairman of the Board of Directors and General Manager of CNOOC Services, and Vice Chairman of the Board of Directors, Executive

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Director, Chief Executive Officer and President of COSL. Mr. Yuan also serves as the Director of CNOOC China Limited, CNOOC International Limited, CNOOC Southeast Asia Ltd. and CNOOC Deepwater Development Limited, all being the subsidiaries of the Company. In November 2006, Mr. Yuan was appointed as the Assistant President of CNOOC. In March 2009, Mr. Yuan was appointed as the Executive Vice President of the Company.

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

Liguo Zhao Born in 1953, Mr. Zhao is the General Counsel of the Company. He is a professor-level senior economist.He graduated from the Faculty of Law, Peking University in 1983 with a bachelor of laws’ degree. In 1988, he studied at the Law School of Niigata University in Japan for a year. Mr. Zhao joined CNOOC in 1983. He served as Head of Contract Negotiation Division, Deputy General Manager and General Manager of Legal Department of CNOOC. At present, he serves as the General Counsel of CNOOC and the Company. Mr. Zhao was granted PRC lawyer qualification in 1985 and corporate counsel qualification in 1998. He is an arbitrator of China International Economic and Trade Arbitration Commission and a member of the China Maritime Arbitration Commission. Mr. Zhao also serves as the Director of CNOOC China Limited and CNOOC International Limited, both being the subsidiaries of the Company. Mr. Zhao was appointed as the General Counsel of the Company effective June 2008.

Bi Chen Born in 1961, Mr. Chen is an Executive Vice President of the Company and is responsible for development, production and sales of the Company. Mr. Chen is a professor-level senior engineer. He graduated from the Southwest Petroleum University and received a bachelor degree in oil production. He received a master degree of petroleum engineering from Edinburgh Heriot-Watt University in 1988, an MBA degree from Tsinghua University in 2000 and an honorary doctoral degree in petroleum engineering from Edinburgh Heriot-Watt University in 2010. Mr. Chen joined CNOOC in 1982 and has over 31 years of experience in the oil and natural gas industry. He served as the Deputy Manager of CNOOC Nanhai West Corporation Oil Production Company, Director of Production Section, Deputy Manager and General Manager of Development and Production Department of the Company, and General Manager of CNOOC China Limited Tianjin Branch. Mr. Chen also serves as the Director of CNOOC China Limited, CNOOC International Limited and CNOOC Deepwater Development Limited, all being the subsidiaries of the Company. In December 2005, Mr. Chen was appointed as Vice President of the Company and General Manager of CNOOC China Limited Tianjin Branch. In March 2009, Mr. Chen was appointed as the Executive Vice President of the Company.

Wei Chen Born in 1958, Mr. Chen is the Worker’s Director of CNOOC, a Senior Vice President of the Company and the General Director of CNOOC Research Institute (formerly CNOOC Research Center). He is a professor-level senior engineer. He received his B.S. degree from China University of Petroleum and MBA from Tsinghua University. He has around 30 years of experience in the oil and gas industry. Mr. Chen joined CNOOC in 1984 and previously served as the Deputy Manager for the Development Department, the Deputy Manager of the Overseas Research Department, the Manager of the Information Department, and the Deputy Director of CNOOC Research Center. He has also served as General Manager of Human Resources Department and Science and Technology Development of CNOOC, and the Senior Vice President of the Company and General Manager of Administration Department of the Company. In July 2003, Mr. Chen was appointed as the Director of CNOOC Research Center (later became President of CNOOC Research Institute). In February 2012, Mr.Chen was appointed as the Worker’s Director of CNOOC.

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

Hua Zhong Born in 1960, Mr. Zhong is Chief Financial Officer, Joint Company Secretary and General Manager (Director) of Investor Relations Department (Office for the Board of Directors) of the Company. Mr. Zhong is a professor-level senior economist and senior engineer and graduated from Southwest Petroleum Institute with a bachelor’s degree in Oil Exploitation. He received a master’s degree in Petroleum Engineering from Heriot-Watt University in the United Kingdom in 1988. He joined CNOOC in 1982, and has been working in the oil and gas industry for over 30 years. From 1982 to 1999, Mr. Zhong served as Petroleum Engineer of China Offshore Oil Nanhai West Corporation ("COONWC"), Expro Northsea Staff in UK, Deputy Manager of Downhole Services Company, Manager of Wei 10-3 Oilfield, Oilfield Superintendent of CNOOC Indonesia Project, Supervisor of Ya 21-1-3 HTHP Well Testing Project, Deputy Manager of Drilling and Exploitation Institute, Manager of Science and Technology Department and Manager of Administration Department of COONWC. From September 1999 to August 2005, Mr. Zhong was General Manager of Administration Department and General Manager of Development and Planning Department of the Company. From August 2005 to September 2010, Mr. Zhong served as Vice President, Executive Vice President, Executive Vice President and Chief Financial Officer of China Oilfield Services Limited, a company listed on The Stock Exchange of Hong Kong Limited and Shanghai Stock Exchange, a subsidiary of CNOOC. On September 16, 2010, Mr. Zhong was appointed as Chief Financial Officer of the Company. On March 22, 2012, Mr. Zhong was appointed as Joint Company Secretary of the Company.

Zhi Fang Born in 1962, Mr. Fang is a Vice President of the Company and the General Manager of CNOOC International Limited and is responsible for the Company’s International affairs. He is a professor-level senior engineer.He graduated from Zhejiang University with a bachelor degree in science and received a MBA degree from University of Birmingham in 1995. Mr. Fang joined CNOOC in 1982. He served as Deputy Director of the Research Center of CNOOC Nanhai East Corporation, Deputy General Manager of CNOOC-AMOCO Liuhua Joint Operating Group, Manager and Deputy General Manager of Exploration and Development Department of CNOOC Nanhai East Corporation, the Depute General Manager and General Manager of CNOOC China Limited Shenzhen Branch, and the President of CNOOC Southeast Asia Ltd. Mr. Fang also serves as the Director of CNOOC International Limited and CNOOC Southeast Asia Ltd., both being the subsidiaries of the Company. In October 2005, Mr. Fang was appointed as the Vice President of the Company. In April 2009, Mr. Fang was appointed as General Manager of CNOOC International Limited. In December 2011, Mr. Fang was appointed as Vice President and General Manager of International Cooperation Department of the Company and the head of the Foreign Affairs Bureau of CNOOC. In February 2013, Mr. Fang was appointed as Vice Chairman of Nexen Inc.

Joint Company Secretaries

Hua Zhong Please refer to the biography of Mr. Zhong above for details.

Yongzhi Jiang Born in 1973, Mr. Jiang was the Joint Company Secretary of the Company. He is a CFA Charterholder and qualified PRC lawyer. In 1995, Mr. Jiang graduated from China University of Political Science and Law with a bachelor of laws degree majoring in International Economic Law. In 1997, he completed his study in Mattei School (“La Scuola Superiore della’ Mattei”) in Milan, Italy with a Master degree in Energy and Environmental Management and Economics, majoring in Management of Energy Company. In 2003, he obtained his MBA degree from Kelley School of Business, Indiana University in United States of America, majoring in Finance and Accounting. From 1995 to 2001, Mr. Jiang worked in China National Petroleum Corporation and then in Petrochina Company Limited as a legal counsel for the international business. Mr. Jiang joined the Company in 2003. He firstly served as the Senior Supervisor of Mergers & Acquisitions in the Controllers Department, then as the Commercial Manager in CNOOC International Limited, a subsidiary of the Company, and as the Assistant Chief Financial Officer of the Company from 2007 to 2009. Mr. Jiang served as the General Manager of the Investor Relations Department and Director of the Office for the Board of Directors of the Company since December 14, 2009. Mr. Jiang was appointed as the Joint Company Secretary of the Company with effect from January 29, 2010. Mr. Jiang resigned as a Joint Company Secretary of the Company on March 22, 2012.

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May Sik Yu Tsue Born in 1973, Ms. Tsue Sik Yu, May is the Joint Company Secretary of the Company. She graduated from Curtin University of Technology in Australia with a bachelor of commerce in accounting. Ms. Tsue furthered her education at The Hong Kong Polytechnic University in Master of Corporate Governance from 2004 to 2006. She is a fellow member of both the Institute of Chartered Secretaries and Administrators and the Hong Kong Institute of Chartered Secretaries since 2012 and became a member of Company Secretaries Panel and Advisor for Academy of Professional Certification in the same year. Furthermore, she is also a fellow member and certified risk trainer of the Institute of Crisis and Risk Management and an associate member of CPA Australia. From August 1998 to March 1999, Ms. Tsue worked in LG International (HK) Ltd. as a senior accounts clerk. Ms. Tsue joined China Ocean Oilfield Services (HK) Limited in 1999 as an accountant. She helped to manage the finance of CNOOC Insurance Limited since 2000 and became its employee in 2004 as a manager of finance department. She serves as company secretary of CNOOC Insurance Limited since March 2007. Ms. Tsue was appointed as Joint Company Secretary of the Company with effect from November 25, 2008.

B.	COMPENSATION

The aggregate amount of fees, salaries, bonus, housing allowances, other allowances and benefits in kind paid to our directors for the year ended December 31, 2012 was approximately Rmb 8.0 million (US$1.3 million), while the amount paid to our other senior management for the same period was approximately Rmb 6.2 million (US$1.0 million). In addition, under our pension plan for 2012, we set aside an aggregate amount of Rmb 801,923 (US$128,720) for pension and similar benefits for our directors (other than independent non-executive directors) and senior management. Our directors (other than independent non-executive directors) and senior management contributed an additional Rmb 492,524 (US$79,057) to the pension plan for 2012. Each director’s annual compensation, including fees, salaries, allowances, benefits in kind, pension benefits and share option benefits, is disclosed in note 10 to our consolidated financial statements included elsewhere in this annual report. Note 11 to our consolidated financial statements included elsewhere in this annual report discloses our five highest paid employees during 2012. For further details regarding share options granted to our directors, officers and employees, see “Item 6—Directors, Senior Management and Employees—Share Ownership.” For further details regarding our employee compensation, see “Item 4—Information on the Company—Business Overview—Employees and Employee Benefits.”

C.	BOARD PRACTICE

Committees

We have established an audit committee, a remuneration committee and a nomination committee. Our audit committee meets at least twice a year and is responsible for reviewing the completeness, accuracy and fairness of our accounts, evaluating our auditing scope (both internal and external) and procedures, as well as its internal control systems. Our audit committee is also responsible for overseeing the operation of the internal monitoring systems, so as to ensure our Board is able to monitor our overall financial position, to protect our assets, and to prevent major errors or omissions resulting from financial reporting. In addition, our audit committee reviews our Company’s business ethics and compliance policies, related reports and performs other corporate governance functions. Our Board is responsible for these systems and appropriate delegations and guidance have been made. Our audit committee regularly reports to our Board. Our audit committee consists of Mr. Aloysius Hau Yin Tse as the audit committee financial expert for the purposes of U.S. securities laws and chairman of the audit committee, Mr. Sung Hong Chiu and Professor Lawrence J. Lau. Our audit committee charter is available on our website, www.cnoocltd.com.

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The main responsibilities and authorities of our remuneration committee include making recommendations to our Board on our policy and structure of the remuneration of our directors and senior management, determining the service contracts and specific remuneration packages for all executive directors and senior management, such as benefits in kind, pension rights and compensation payments, including any compensation payable for loss or termination of their office or appointment, and making recommendations to our Board on the remuneration of non-executive directors and independent non-executive directors. In 2012, our remuneration committee consisted of two independent non-executive directors (Mr. Sung Hong Chiu as chairman and Mr. Aloysius Hau Yin Tse) and one non-executive director (Mr. Zhenfang Wu). Our remuneration committee charter is available on our website, www.cnoocltd.com.

The main authorities and responsibilities of our nomination committee include nominating candidates to serve as our directors and senior management for approval by our Board, reviewing the structure and composition of our Board, and evaluating the leadership abilities of our executive directors so as to ensure our competitive position. Our nomination committee is also responsible for reviewing and monitoring the training and continuous professional development of directors and senior management and make recommendations to our Board in this regard. As of December 31, 2012, our nomination committee consists of Mr. Wang Yilin as chairman, Professor Lawrence J. Lau and Mr. Tao Wang. Mr. Yilin Wang, the Chairman of our Board, was appointed as the Chairman of our nomination committee with effect from March 28, 2012. Mr. Shouwei Zhou ceased acting as the Chairman and a member of our nomination committee with effect from the same day. Our nomination committee charter is available on our website, www.cnoocltd.com.

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

Directors Service Contracts

Our executive directors and non-executive directors have entered into director’s service contracts with us and the terms of appointment of our independent non-executive directors are governed by appointment letters. There is no severance pay arrangement for our directors.

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

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

1. Board and Committee Independence

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

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

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

2. Audit Committee

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

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

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

3. Remuneration Committee

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

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

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

4. Nomination Committee

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

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

5. Corporate Governance Guidelines

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

EMPLOYEES

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

E.	SHARE OWNERSHIP

As of March 28, 2013, our directors and employees had the following personal interests in options to subscribe for shares granted under our share option schemes:

Name of Grantee	Number of shares involved in the options outstanding as of January 1, 2012		Number of shares involved in the options outstanding as of March 28, 2013		Date of Grant	Date of Expiration(1)	Closing price per share immediately before the date of grant (HK$)		Exercise Price (HK$)

Executive Directors:

Guangqi Wu		1,610,000		1,610,000	August 31, 2005	August 31, 2015		5.75		5.62
		1,770,000		1,770,000	June 14, 2006	June 14, 2016		5.30		5.56
		1,857,000		1,857,000	May 25, 2007	May 25, 2017		7.43		7.29
		1,857,000		1,857,000	May 29, 2008	May 29, 2018		14.20		14.828
		1,857,000		1,857,000	May 27, 2009	May 27, 2019		9.33		9.93
		1,857,000		1,857,000	May 20, 2010	May 20, 2020		12.22		12.696

Non-executive Directors:
Hua Yang		1,150,000		—	February 24, 2003	February 24, 2013		2.09		2.108
		1,150,000		1,150,000	February 5, 2004	February 5, 2014		3.13		3.152
		1,610,000		1,610,000	August 31, 2005	August 31, 2015		5.75		5.62
		1,770,000		1,770,000	June 14, 2006	June 14, 2016		5.30		5.56
		1,857,000		1,857,000	May 25, 2007	May 25, 2017		7.43		7.29
		1,857,000		1,857,000	May 29, 2008	May 29, 2018		14.20		14.828
		2,835,000		2,835,000	May 27, 2009	May 27, 2019		9.33		9.93
		2,000,000		2,000,000	May 20, 2010	May 20, 2020		12.22		12.696

Shouwei Zhou		1,750,000		—	February 24, 2003	February 24, 2013		2.09		2.108
		1,750,000		1,750,000	February 5, 2004	February 5, 2014		3.13		3.152
		2,450,000		2,450,000	August 31, 2005	August 31, 2015		5.75		5.62
		2,700,000		2,700,000	June 14, 2006	June 14, 2016		5.30		5.56
		2,835,000		2,835,000	May 25, 2007	May 25, 2017		7.43		7.29
		2,835,000		2,835,000	May 29, 2008	May 29, 2018		14.20		14.828
		1,800,000		1,800,000	May 27, 2009	May 27, 2019		9.33		9.93
		1,800,000		1,800,000	May 20, 2010	May 20, 2020		12.22		12.696

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Name of Grantee	Number of shares involved in the options outstanding as of January 1, 2012		Number of shares involved in the options outstanding as of March 28, 2013		Date of Grant	Date of Expiration(1)	Closing price per share immediately before the date of grant (HK$)		Exercise Price (HK$)

Zhenfang Wu		800,000		800,000	August 31, 2005	August 31, 2015		5.75		5.62
		1,770,000		1,770,000	June 14, 2006	June 14, 2016		5.30		5.56
		1,857,000		1,857,000	May 25, 2007	May 25, 2017		7.43		7.29
		1,857,000		1,857,000	May 29, 2008	May 29, 2018		14.20		14.828
		1,800,000		1,800,000	May 27, 2009	May 27, 2019		9.33		9.93
		1,800,000		1,800,000	May 20, 2010	May 20, 2020		12.22		12.696

Independent Non-executive Directors:
Sung Hong Chiu		1,150,000		1,150,000	February 5, 2004	February 5, 2014		3.13		3.152
Other Employees In Aggregate:
		10,649,966		—	February 24, 2003	February 24, 2013		2.09		2.108
		17,649,934		17,649,934	February 5, 2004	February 5, 2014		3.13		3.152
		27,230,000		27,230,000	August 31, 2005	August 31, 2015		5.75		5.62
		40,370,000		39,870,000	June 14, 2006	June 14, 2016		5.30		5.56
		47,848,000		46,798,000	May 25, 2007	May 25, 2017		7.43		7.29
		59,283,000		57,795,000	May 29, 2008	May 29, 2018		14.20		14.828
		73,776,000		71,676,000	May 27, 2009	May 27, 2019		9.33		9.93
		90,163,000		85,495,000	May 20, 2010	May 20, 2020		12.22		12.696
Total		420,960,900		397,604,934

(1)

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

For the year ended December 31, 2012, no share options granted under our share option schemes were exercised. For the period from January 1, 2013 to March 28, 2013, no share options were exercised.

As of December 31, 2012, we had 411,154,900 share options outstanding under our share option schemes, which represented approximately 0.92% of our shares in issue as of that date.

For further details about our share option schemes, see notes 10 and 28 to our consolidated financial statements included elsewhere in this annual report.

As of March 28, 2013, none of our directors or employees owned 1% or more of our shares including the shares underlying the share options granted as of that date.

ITEM 7. MAJOR SHAREHOLDERS AND RELATED PARTY TRANSACTIONS

A.	MAJOR SHAREHOLDERS

The following table sets forth information regarding the ownership of our outstanding shares by major shareholders as of March 28, 2013.

Shareholder	Number of Shares Owned	Percentage
CNOOC(1)	28,772,727,273	64.45%

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

Our major shareholder listed above does not have voting rights different from our other shareholders. Except as set forth in the above table, we are not aware of any shareholders that hold more than 5% of our shares. Except as disclosed above, we are not aware of any significant changes in the

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percentage ownership of our major shareholder over the course of the past three years. To our knowledge, no arrangements are currently in place that could lead to a change of control of our company.

As of March 28, 2013, 10,327,400 ADSs were outstanding in the United States, representing approximately 2.3% of our then outstanding shares. At such date, the number of registered ADS holders in the United States was 48.

B.	RELATED PARTY TRANSACTIONS

Overview

We regularly enter into transactions with related parties, including CNOOC and its associates, as defined under the Hong Kong Stock Exchange Listing Rules. Since CNOOC indirectly owns an aggregate of approximately 64.45% of our issued share capital, some of these transactions constitute connected transactions under the Hong Kong Stock Exchange Listing Rules, and are regulated by the Hong Kong Stock Exchange.

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

Sales and purchase of goods and services;

Purchases of assets, goods and services;

Leases of assets; and

Bank deposits and borrowings.

These transactions are conducted in the ordinary course of business.

Categories of Continuing Connected Transactions

As we are controlled by CNOOC, transactions with CNOOC, its subsidiaries and associates are disclosed as related party transactions. We entered into a comprehensive framework agreement with CNOOC on November 1, 2010 for the provision (1) by us and/or its associates and (2) by CNOOC and/or its associates to us, of a range of products and services which may be required and requested from time to time by either party and/or its associates in respect of the continuing connected transactions. The term of the comprehensive framework agreement is for a period of three years from January 1, 2011. The continuing connected transactions and relevant annual caps were approved by our independent shareholders on November 24, 2010. The annual caps of the “sales of petroleum and natural gas products (other than long term sales of natural gas and liquefied natural gas)” and “provision of exploration and support services” categories for the years 2012 and 2013 were revised in 2012. The approved related party/continuing connected transactions are as follows:

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

(a)

Provision of exploration and support services

(b)

Provision of oil and gas development and support services

(c)

Provision of oil and gas production and support services

(d)

Provision of marketing, management and ancillary services

(e)

FPSO vessel leases

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

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

(a)

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

(b)

Long term sales of natural gas and liquefied natural gas

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Pricing principles

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

For services provided by CNOOC and/or its associates to us as described above, on the basis of the above pricing principle, such services must be charged in accordance with the following pricing mechanism and in the following sequential order:

(i)

state-prescribed prices; or

(ii)

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

(iii)

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

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

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

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

A detailed discussion of significant connected transactions entered into in the ordinary course of business between us and our related parties during 2012 and the balances arising from connected transactions at the end of 2012 is included in note 30 to our consolidated financial statements included elsewhere in this annual report.

Disclosure and/or Independent Shareholders’ Approval Requirements

Under the Hong Kong Stock Exchange Listing Rules, the following categories of continuing connected transactions are exempted from the independent shareholders’ approval requirement but are subject to the reporting and announcement requirements set out in Rules 14A.45 to 14A.47 of the Hong Kong Stock Exchange Listing Rules, because each of the percentage ratios for these categories under the Hong Kong Stock Exchange Listing Rules (other than the profits ratio) , where applicable, is expected to be less than 5% on an annual basis:

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

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

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

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

(a) Provision of exploration and support services;

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

(d) FPSO vessel leases.

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

(a)

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

(b)

Long term sales of natural gas and liquefied natural gas.

We obtained independent shareholders’ approval at the extraordinary general meetings held on November 24, 2010 for our continuing connected transactions and the annual caps with CNOOC and/or its associates for the period from January 1, 2011 to December 31, 2013, respectively. The annual caps of the “sales of petroleum and natural gas products (other than long term sales of natural gas and liquefied natural gas)” and “provision of exploration and support services” categories for the years 2012 and 2013 were revised in 2012. The existing annual caps and the conditions are specified as follows:

Category of Continuing Connected Transactions	Relevant Annual Caps

Provision of exploration, oil and gas development, oil and gas production as well as marketing, management and ancillary services by CNOOC and/or its associates to us
(a) Provision of exploration and support services	For the three years ending December 31, 2013, Rmb 6,676 million, Rmb 10,450 million and Rmb 11,950 million, respectively

(b) Provision of oil and gas development and support services	For the three years ending December 31, 2013, Rmb 24,067 million, Rmb 37,906 million and Rmb 38,822 million, respectively

(c) Provision of oil and gas production and support services	For the three years ending December 31, 2013, Rmb 8,228 million, Rmb 9,051 million and Rmb 9,956 million, respectively

(d) Provision of marketing, management and ancillary services	For the three years ending December 31, 2013, Rmb 820.98 million, Rmb 856.52 million and Rmb 905.09 million, respectively

(e) FPSO vessel leases	For the three years ending December 31, 2013, Rmb 1,401 million, Rmb 1,390 million and Rmb 1,546 million, respectively

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

Provision of management, technical, facilities and ancillary services, including the supply of materials to CNOOC and/or its associates	For the three years ending December 31, 2013, Rmb 100 million, Rmb 100 million and Rmb 100 million, respectively

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

(a) Sales of petroleum and natural gas products (other than long-term sales of natural gas and liquefied natural gas)	For the three years ending December 31, 2013, Rmb 152,315 million, Rmb 195,469 million and Rmb 296,722 million, respectively

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

For the three years ending December 31, 2013,

Rmb 8,034 million,

Rmb 9,146 million and

Rmb 21,155 million, respectively

The non-exempt continuing connected transactions for the year ended December 31, 2012 to which any member of us was a party were entered into by us:

(i)

in the ordinary and usual course of our business;

(ii)

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

(iii)

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

We confirmed that the annual amount of each category of the non-exempt continuing connected transactions for the year ended December 31, 2012 did not exceed the applicable annual caps; and we have complied with other relevant provisions of the Hong Kong Stock Exchange Listing Rules in relation to each category of the non-exempt continuing connected transactions.

Transactions with CNOOC Finance Corporation Limited

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

As the financial services framework agreement entered into by us and CNOOC Finance Corporation Limited dated October 14, 2008 expired on December 31, 2010, we entered into a renewal agreement with CNOOC Finance Corporation Limited on August 20, 2010 to renew the financial services framework agreement. The renewal agreement is effective from January 1, 2011 to December 31, 2013. According to the renewal agreement, the maximum daily outstanding balance should not exceed Rmb 9.8 billion for the period from January 1, 2011 (being the effective date of the renewal agreement) to May 30, 2012, and Rmb 18.5 billion (as revised) for the period from May 31, 2012 to December 31, 2013. The depository services were exempted from independent shareholders’ approval requirements and the settlement, discounting, loans and entrustment loans services were exempted from the reporting, announcement, annual review and independent shareholders’ approval requirements under the Hong Kong Stock Exchange Listing Rules.

We confirmed that the maximum daily outstanding balance of deposits (including accrued interest) we placed with CNOOC Finance Corporation Limited (excluding funds placed for the purpose of extending entrustment loans pursuant to the entrustment loan services) did not exceed Rmb 9.8 billion and Rmb 18.5 billion for the periods from January 1, 2012 to May 30, 2012 and from May 31, 2012 to December 31, 2012, respectively.

Coalbed Methane Resources Exploration and Development Cooperation Agreement with China United Coalbed Methane Corporation Limited

On August 3, 2012, CNOOC China Limited, our wholly-owned subsidiary, entered into the Coalbed Methane Resources Exploration and Development Cooperation Agreement (“Cooperation Agreement”) with China United Coalbed Methane Corporation Limited (“CUCBM”) in connection with the exploration, development, production and sale of Coalbed Methane (“CBM”) and CBM products within the contract areas (as defined in the Cooperation Agreement). The term of the Cooperation Agreement commences on the effective date and expires on the later of (i) 30 years from the effective date of the Cooperation Agreement, and (ii) the end of the production period of the last CBM field (as

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defined in the Cooperation Agreement) in the contract areas, unless otherwise agreed by CNOOC China Limited and CUCBM. The Cooperation Agreement and the transactions contemplated thereunder were approved by our independent shareholders on August 21, 2012. As at the date of the Cooperation Agreement, CNOOC China Limited expected to incur total expenses of Rmb 9,933.3 million (being (1) Rmb 9,713.3 million for the initial three years of the five years exploration period, plus (2) the minimum exploration costs of Rmb 220 million as required under the applicable PRC laws and regulations for the remaining two years of the exploration period). CUCBM is connected person of us, hence the Cooperation Agreement constitutes a connected transaction of us under the Hong Kong Stock Exchange Listing Rules.

Capital Injection into CNOOC Finance Corporation Limited

For the purpose of meeting external regulatory requirements as well as enhancing risk resilience and developmental strength, CNOOC China Limited, China Offshore Oil & Gas Development & Utilization Company (“CNOOC Oil & Gas”), an enterprise incorporated in the PRC and a wholly-owned subsidiary of CNOOC, CNOOC, our controlling shareholder, and COOEC, a company limited by shares incorporated in PRC with its shares listed on the Shanghai Stock Exchange and CNOOC as its controlling shareholder, entered into a Capital Injection Agreement (the “Capital Injection Agreement”) with CNOOC Finance Corporation Limited, which is a subsidiary of CNOOC and therefore a connected person of us by virtue of being an associate of CNOOC, on August 27, 2012. Pursuant to the Capital Injection Agreement, CNOOC China Limited, CNOOC, CNOOC Oil & Gas and COOEC agreed to inject further capital into CNOOC Finance Corporation Limited according to their respective holding of equity interests in CNOOC Finance Corporation Limited as at the date of the Capital Injection Agreement (the “Capital Injection”). Under the Capital Injection Agreement, CNOOC China Limited subscribed for CNOOC Finance Corporation Limited’s increased registered capital according to its holding of equity interests therein, which was Rmb 822,084,806 at the date of the Capital Injection Agreement. Upon completion of the Capital Injection, the respective holding of equity interests of CNOOC China Limited, CNOOC, CNOOC Oil & Gas and COOEC in CNOOC Finance Corporation Limited will remain unchanged, being approximately 31.80%, 62.90%, 3.53% and 1.77%, respectively.

C.	INTERESTS OF EXPERTS AND COUNSEL

Not applicable.

ITEM 8. FINANCIAL INFORMATION

A.	CONSOLIDATED STATEMENTS AND OTHER FINANCIAL INFORMATION

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

Legal Proceedings

Save for the Complaint disclosed below and in note 33 (iii) on page F-70 to our consolidated financial statement entitled “Commitments and Contingencies” included elsewhere in this annual report, as at December 31, 2012, the Company was not involved in any material litigation or arbitration and no material litigation or arbitration were pending or threatened or made against the Company so far as the Company is aware.

Dividend Distribution Policy

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

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

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

In 2010, we declared and paid dividends totaling Rmb 15,893.8 million. In 2011, we declared and paid dividends totaling Rmb 18,392.4 million. In 2012, we declared and paid dividends totaling Rmb 15,635.1 million (US$2,509.6 million). The amount of dividends we paid historically is not indicative of the dividends that we will pay in the future.

Substantially all our dividend payments result from dividends paid to us by CNOOC China Limited. CNOOC China Limited must follow the laws and regulations of the PRC and its articles of association in determining its dividends. As a wholly foreign owned enterprise in China, CNOOC China Limited has to provide for a reserve fund and staff and workers’ bonus and welfare fund, each of which is appropriated from net profit after taxation but before dividend distribution according to the prevailing accounting rules and regulations in the PRC. CNOOC China Limited is required to allocate at least 10% of its net profit to the reserve fund until the balance of this fund has reached 50% of its registered capital, which amount was reached in 2009. Appropriations to the staff and workers’ bonus and welfare fund, which are determined at the discretion of the directors of CNOOC China Limited, are charged to expense as incurred in our consolidated financial statements, which were prepared under IFRS. In accordance with the “Temporary Regulation for Safety Expense Financial Management of High Risk Industry” and the implementation guidance issued by the Ministry of Finance of the PRC, a safety fund has been accrued for our oil and gas exploration and production activities within the PRC. The accrued safety fund will be utilized for improving the safety conditions of our production. Included in other reserves was a provision for safety fund under the PRC regulation amounting to Rmb 605.8 million (US$97.2 million) in 2012, which was nil in 2011. None of the contributions of CNOOC China Limited to these statutory funds may be used for dividend purposes.

For the years ended December 31, 2010, 2011 and 2012, CNOOC China Limited made the following appropriations to the statutory reserves:

	For the year ended December 31, 2010					For the year ended December 31, 2011					For the year ended December 31, 2012
	Percentage of Net Profits			Rmb (in millions)		Percentage of Net Profits			Rmb (in millions)		Percentage of Net Profits			Rmb (in millions)
Reserve fund		0.0	%		—		0.0	%		—		0.0	%		—
Staff and workers’ bonus and welfare fund		0.3	%		154.3		0.2	%		121.8		0.0	%		—
Safety fund		1.2	%		628.6		0.8	%		595.1		1.0	%		605.8

Contingencies

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

In 2007, a local tax office in Nigeria (the “Nigerian Local Tax Office”) conducted a tax audit on SAPETRO. According to the preliminary tax audit results, the Nigerian Local Tax Office has raised a disagreement with the tax filings made for the OML130 Transaction.

The tax audit assessment made by the Nigerian Local Tax Office has been contested by the Company in accordance with Nigerian laws. The Company then filed a suit in the Nigerian Federal High

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Court (“FHC”). In March 2011, the FHC delivered a binding judgment in favour of the Company, agreeing that the Company is not subject to Value Added Tax for the OML130 Transaction. The judgment was appealed by counterparties to the High Court. After seeking legal advice, the Company’s management believes that the Company has reasonable grounds in defending for such appeal. Consequently, no provision has been made for any expenses which might arise as a result of the dispute.

(b) On October 26, 2011, the Company received a notice of assessment from Federal Inland Revenue Service of Nigeria (“FIRS”), confirming that the effective Petroleum Profit Tax (“PPT”) and related tax in the year of 2010 for the Company’s investment in OML130 project, shall be calculated and payable on the basis of the PPT Tax Return prepared by Nigerian National Petroleum Corporation. The Company contested the notice of assessment. On January 13, 2012, the Company, together with SAPETRO (collectively referred to as the “PSC Partners”), has filed an appeal in relation thereto to the local Tax Appeal Tribunal (“TAT”).

The Company received a notice of assessment issued by FIRS on June 13, 2012, stating that the investment tax allowance (“ITA”), instead of investment tax credit (“ITC”), should be applied for the PPT calculation of the Company’s investment in OML130 project. In July 2012, the PSC Partners filed an appeal in relation thereto to the TAT. However, whether TAT has jurisdiction over this dispute is uncertain under the Nigerian Law. In order to protect the right of action, the PSC Partners filed an application to the FHC on September 13, 2012, seeking the permission to file a lawsuit over the application of ITA/ITC dispute at the FHC. The appeal over ITA/ITC dispute at TAT was withdrawn on November 9, 2012.

No verdict has been issued to date, and the result of the appeal is still uncertain.

(c) As a Chinese Resident Enterprise, the Company may be liable to pay taxes on the deemed interest income for the funding provided to its overseas subsidiaries starting from January 1, 2008. The Company has prepared contemporaneous documentation in accordance with applicable PRC tax laws and regulations and is currently awaiting confirmation from its in-charge tax authority.

(d) Two oil spill accidents occurred on June 4 and June 17, 2011 respectively at Platforms B and C of Penglai 19-3 oilfield, which is being operated under a production sharing contract (“PSC”) among CNOOC China Limited, the subsidiary of the Company, and two subsidiaries of ConocoPhillips (“ConocoPhillips”), a US based oil company, among which ConocoPhillips China Inc. (“COPC”) is the operator and responsible for the daily operations of the oilfield.

On June 21, 2012, the State Oceanic Administration of the PRC (the “SOA”) announced the Accident Investigation and Settlement Report by a Joint Investigation Team on the Penglai 19-3 Oilfield Oil Spill Accidents, pointing out that “the Joint Investigation Team has concluded that COPC violated the oilfield Overall Development Program, had defects in its operation procedures and management, and failed to take necessary precautionary measures against foreseen risks, all of which eventually resulted in the oil spills. The Penglai 19-3 Oilfield Oil Spill Accidents were accidents involving liabilities, causing significant marine pollution by oil spill. Pursuant to the PSC, COPC (the operator of the oilfield) shall bear full responsibility for the oil spill accidents.” On February 16, 2013, the SOA announced, through its official website, that following a series of rectification measures, COPC was permitted to gradually resume the production of the Penglai 19-3 oilfield.

The Company is of the view that the Company’s obligations, if any, arising from the above mentioned accidents shall be determined in accordance with relevant laws and regulations, the PSC and related agreements, among others. Based on evaluations performed as of the date of the Company’s financial statements, the Company believes that it is not possible to determine provisions, if any, for the above mentioned accidents in the Company’s financial statements. The financial impact of such oil spill accidents on the Company is still uncertain, and the Company has not made any provision for the accidents in the Company’s financial statements.

(e) On October 11, 2012, the Company was served with process for a purported class action complaint filed by Sam Sinay, individually and on behalf of all others similarly situated, in the Unites States District Court for the Southern District of New York (the “Complaint”). The Complaint is lodged

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against the Company and certain of its officers, which alleged that during the period between January 27, 2011 and September 16, 2011, the Company made materially false and misleading statements regarding its business and financial results and the oil spill accidents occurred at the Penglai 19-3 oilfield.

The Company believes that the allegations and the claims in the Complaint are without merit and intends to defend itself vigorously against such claims, and no provision has been made in the Company’s financial statements. On December 21, 2012, the Company filed a motion to dismiss the Complaint in the same court.

B.	SIGNIFICANT CHANGES

The Company has no other subsequent events needed to be disclosed except those disclosed in note 4-2012(ii) and note 33(iii) (d) to our consolidated financial statements included elsewhere in this annual report.

ITEM 9. THE OFFER AND LISTING

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

We listed our shares on the Hong Kong Stock Exchange and our ADSs on the New York Stock Exchange in February 2001. Our shares are listed on the Hong Kong Stock Exchange under the stock code “00883” and our ADSs are listed on the New York Stock Exchange under the symbol “CEO.” Pursuant to certain undertakings in connection with our acquisition of Nexen, we plan to make an application to list our ADSs for trading on the Toronto Stock Exchange. The proposed listing of our ADSs on the Toronto Stock Exchange is not a new issuance of equity securities and will not generate additional funds for us. We have limited control over whether our application for listing will be approved or when our ADSs will be listed if our application is approved. The following table sets forth, for the periods indicated, the high and low closing prices per share, as reported on the Hong Kong Stock Exchange and adjusted retroactively to reflect the stock split, and per ADS, as reported on the New York Stock Exchange.

Period	Hong Kong Stock Exchange				New York Stock Exchange
	High		Low		High		Low
	(HK$ per share)				(US$ per ADS)
2008		15.90		4.24		203.00		56.04
2009		12.90		6.08		166.63		76.63
2010		18.48		11.02		238.80		139.83
2011		20.85		11.34		270.64		145.32
2012		18.10		13.28		232.84		173.82

2011 Financial Quarter
1st Quarter		19.60		16.12		253.04		210.64
2nd Quarter		20.85		17.54		270.64		226.45
3rd Quarter		18.50		11.84		238.01		145.32
4th Quarter		15.76		11.34		210.47		150.35
2012 Financial Quarter
1st Quarter		18.10		13.58		232.84		174.68
2nd Quarter		16.78		13.28		216.96		173.82
3rd Quarter		16.24		14.16		207.36		180.93
4th Quarter		16.88		15.36		220.00		198.50
2013 Financial Quarter
1st Quarter		17.34		14.28		226.60		182.62

Last Six Months
October 2012		16.32		15.36		209.23		198.50
November 2012		16.58		15.74		214.00		202.06
December 2012		16.88		16.38		220.00		210.11
January 2013		17.34		15.76		226.60		203.76
February 2013		16.02		14.98		207.79		194.74
March 2013		15.10		14.28		194.64		182.62

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ITEM 10. ADDITIONAL INFORMATION

A.	SHARE CAPITAL

Not applicable.

B.	MEMORANDUM AND ARTICLES OF ASSOCIATION

We were incorporated with limited liability on August 20, 1999 in Hong Kong under the Companies Ordinance (Chapter 32 of the Laws of Hong Kong), or the Hong Kong Companies Ordinance. Our company registration number in Hong Kong is 685974. Under section three of our memorandum of association, we have the capacity and the rights, powers and privileges of a natural person and we may also do anything which we are permitted or required to do by any enactment or rule of law. The following are summaries of provisions of our memorandum and articles of association and the Hong Kong Companies Ordinance. For further details, you should read our memorandum of association, which was filed as an exhibit to our registration statement on Form F-1 (Registration No.333-10862) and our articles of association, as amended, which was filed as an exhibit to our annual report on Form 20-F for the fiscal year of 2010. Due to the recent changes in the Hong Kong Stock Exchange Listing Rules, we are required to upload, among other things, our memorandum and articles of association on our website and on the website of the Hong Kong Stock Exchange. We have complied with such requirement and as such, our memorandum and articles of association were further filed as an exhibit to the Form 6-K filed with the SEC on March 30, 2012 (File Number: 1-14966).

Issue of Shares

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

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

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

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

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

Dividends

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

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

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Winding Up

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

Voting Rights

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

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

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

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

alteration of the object clause;

alteration of the articles;

change of a company’s name;

reduction of share capital; and

voluntary winding up.

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

the chairman of the meeting;

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

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

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

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

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

General Meetings

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

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

Modification of Rights

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

Borrowing Powers

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

Interested Transactions

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

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

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

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

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

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

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

any proposal or arrangement concerning the adoption, modification or operation of any employees’ share scheme involving the issue or grant of options over shares or other securities by us to, or for the benefit of, our employees or employees of our subsidiaries under which the director or his or her associates may benefit.

C.	MATERIAL CONTRACTS

We have not entered into any material contracts in the last two years other than in the ordinary course of business, those described in “Item 7―Major Shareholders and Related Party Transactions ― Related Party Transactions” and the Arrangement Agreement dated July 23, 2012 entered into by us, CNOOC Canada Holding Ltd. and Nexen Inc., which is filed as Exhibit 4.44 to this annual report. For more information about the Arrangement Agreement, see “Item 4—Information on the Company—Business Overview—Overseas—Nexen Acquisition.”

D.	EXCHANGE CONTROLS

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

TAXATION

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

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The PRC

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

Pursuant to the New EIT Law and the Notice, enterprises established outside of China whose “de facto management bodies” are located in China are considered Chinese Resident Enterprises, or CREs. According to the formal approval from the SAT in October 2010, we are regarded as a CRE pursuant to the provisions of the New EIT Law and the Notice. Accordingly, we are required to withhold 10% corporate income tax when we make dividend distributions to our non-Chinese resident enterprise shareholders or ADS holders. The 10% dividend withholding tax rate will not be reduced under the 1984 Agreement between the United States and the People’s Republic of China for the Avoidance of Double Taxation, or the PRC Treaty. We distributed the final dividend for the years ended December 31, 2008, 2009 and 2010 and the interim dividend for the periods ended June 30, 2009 and 2010, or the Dividends, after withholding a 10% enterprise income tax in respect of all shareholders whose names appeared on our register of members on the relevant record dates who are not individual natural persons. We did not withhold any tax in respect of Dividends payable to any natural person shareholders whose names appeared on our register of members on the relevant record dates.

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

Hong Kong

Tax on Dividends

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

Profits Tax

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

Stamp Duty

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

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U.S. Federal Income Tax Considerations

The following is a discussion of material U.S. federal income tax consequences of owning and disposing of ADSs or shares by the U.S. Holders described below, but it does not purport to be a comprehensive description of all the tax considerations that may be relevant to a particular person’s decision to own such ADSs or shares. This discussion does not address the potential application of the “Medicare contribution tax” to “net investment income” of non-corporate U.S. Holders. In addition, this discussion does not address U.S. state, local and non-U.S. tax consequences. The discussion applies only to U.S. Holders who hold ADSs or shares as capital assets for U.S. federal income tax purposes and does not address special classes of U.S. Holders, such as:

certain financial institutions;

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

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

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

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

persons liable for the alternative minimum tax;

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

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

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

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

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

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

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

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

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

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received by certain non-corporate holders, described below, could be affected by actions taken by such parties or intermediaries.

This discussion assumes that we were not a passive foreign investment company, or PFIC, for the taxable year ended December 31, 2012, as described below, and that we will not become a PFIC.

Taxation of Distributions

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

Subject to applicable limitations and the discussion above regarding concerns expressed by the U.S. Treasury, dividends paid by “qualified foreign corporations” to certain non-corporate U.S. Holders are taxable at rates applicable to long-term capital gains. A foreign corporation is treated as a qualified foreign corporation with respect to dividends paid on stock that is readily tradable on an established securities market in the United States, such as the New York Stock Exchange where our ADSs are traded. A foreign corporation may also be treated as a qualified foreign corporation if it is eligible for benefits of a comprehensive income tax treaty with the United States determined by the U.S. Treasury to be satisfactory for these purposes and that includes an exchange of information program. Non-corporate U.S. Holders should consult their tax advisers to determine whether these favorable rates may apply to dividends they receive from us and whether they are subject to any special rules that limit their ability to be taxed at these favorable rates.

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

Sale or Other Disposition of ADSs or Shares

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

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

Passive Foreign Investment Company Considerations

We believe that we were not a PFIC for U.S. federal income tax purposes for our taxable year ended December 31, 2012. In general, a non-U.S. company will be considered a PFIC for U.S. federal income tax purposes for any taxable year in which (i) 75% or more of its gross income consists of passive income or (ii) 50% or more of the average quarterly value of its assets consists of assets that produce, or are held for the production of, passive income. As PFIC status depends upon the composition of our income and assets and the market value of our assets from time to time, and since there are uncertainties in the manner of application of the PFIC rules, there can be no assurance that we will not be considered a PFIC for any taxable year.

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

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

If we are a PFIC for any taxable year, a U.S. Holder may be required to file a report with the Internal Revenue Service containing such information as the Treasury Department may require.

Information Reporting and Backup Withholding

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

F.	DIVIDENDS AND PAYING AGENTS

Not applicable.

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G.	STATEMENT BY EXPERTS

Not applicable.

H.	DOCUMENTS ON DISPLAY

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

I.	SUBSIDIARY INFORMATION

Not applicable.

ITEM 11. QUALITATIVE AND QUANTITATIVE DISCLOSURES ABOUT MARKET RISK

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

Commodity Price Risks

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

Currency Risk

Our foreign exchange exposure gives rise to market risk associated with exchange rate movements.

Substantially all of our oil and gas sales are denominated in Renminbi and U.S. dollars. On July 21, 2005, China reformed its exchange rate regime by adopting a managed floating exchange rate approach based on market supply and demand and with reference to a basket of currencies. Renminbi was no longer pegged to U.S. dollars. From January 1, 2012 to March 28, 2013, Renminbi appreciated approximately 1.3% against U.S. dollar.

Our management has assessed our exposure to foreign currency risk using a sensitivity analysis. Based on a five percent change in the value of the U.S. dollar occurring on December 31, 2011, the exposure of our results of operations, monetary assets and liabilities and investments in foreign subsidiaries would each be less than 0.72% of our profit for the year.

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

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

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

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

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

Interest Rate Risk

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

As of December 31, 2012, the interest rates for 48.6% of our outstanding debts were fixed. The term of the weighted average balance was approximately 7.11 years. A fixed interest rate can reduce the volatility of finance costs in uncertain markets. We do not currently engage in any interest rate hedging activities.

As of December 31, 2012, the interest rates for 91.7% of our total outstanding long-term debts were fixed. The following table sets forth additional information about the expected maturity dates of our outstanding long-term debt (including the current portion) as of December 31, 2012.

	2013	2014	2015	2016	2017	2018 and after	Total	Fair value as of December 31, 2012
	(Rmb in millions, except percentages)
Long-term loans, including current portion

Floating rate	230.5	248.8	279.0	309.1	331.8	1,156.8	2,556.0	2,558.5
Interest rate	Libor + 0.23%~0.38%	Libor + 0.23%~0.38%	Libor + 0.23%~0.38%	Libor + 0.23%~0.38%	Libor + 0.23%~0.38%	Libor + 0.23%~0.38%

Long-term guaranteed notes, including current portion	Libor + 0.23%~0.38%	Libor + 0.23%~0.38%	Libor + 0.23%~0.38%	Libor + 0.23%~0.38%	Libor + 0.23%~0.38%	Libor + 0.23%~0.38%

Fixed rate	1,257.1	-	-	-	-	27,027.7	28,284.8	31,577.1
Average interest rate	4.46%	4.47%	4.47%	4.47%	4.47%	4.47%

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

ITEM 12. DESCRIPTION OF SECURITIES OTHER THAN EQUITY SECURITIES

A.	DEBT SECURITIES

Not applicable.

B.	WARRANTS AND RIGHTS

Not applicable.

C.	OTHER SECURITIES

Not applicable.

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D.	AMERICAN DEPOSITARY SHARES

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

ADR Fees Payable by Investors

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

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

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

Payments Received by Foreign Private Issuer

The Depositary has agreed to reimburse certain company expenses related to our ADS program and incurred by us in connection with the program. The Depositary reimbursed us, or paid amounts on our behalf to third parties, or waived its fees and expenses, of US$476,035 for the year ended December 31, 2012.

Direct Payments

The table below sets forth the types of expenses that the Depositary has agreed to reimburse, and the invoices relating to the year ended December 31, 2012 that were reimbursed:

Category of Expenses	Amount Reimbursed for Fiscal Year Ended December 31, 2012 (US$)(3)
Investor relations(1)		185,463
Broker reimbursements(2)		140,572
Total		326,035

(1)	Includes investor relation service fees, ADR training fees and investor relations expenses for road show in 2012.

(2)

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

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

Indirect Payments

The Depositary has also agreed to waive fees for standard costs associated with the administration of the ADS program and has paid certain expenses directly to third parties on our behalf. The table below

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sets forth those expenses that the Depositary waived or paid directly to third parties relating to the year ended December 31, 2012:

Category of Expenses		Amount Reimbursed for Fiscal Year Ended December 31, 2012 (US$)
Fees waived			150,000

PART II

ITEM 13. DEFAULTS, DIVIDEND ARREARAGES AND DELINQUENCIES

None.

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

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

None.

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

None.

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

Not applicable.

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

Not applicable.

E.	USE OF PROCEEDS

Not applicable.

ITEM 15. CONTROLS AND PROCEDURES

(a)

Disclosure Controls and Procedures

An evaluation was carried out under the supervision and with the participation of management, including our Chief Executive Officer and Chief Financial Officer, of the effectiveness, as of December 31, 2012, of the design and operation of our disclosure controls and procedures (as defined in Rule 13a-15(e) under the Securities Exchange Act of 1934, as amended, or the Exchange Act).

Based upon this evaluation, our Chief Executive Officer and Chief Financial Officer concluded that, as of December 31, 2012, our disclosure controls and procedures were effective to ensure that information required to be disclosed by us in our reports filed or submitted under the Exchange Act is recorded, processed, summarized and reported as and when required by the SEC’s rules and forms and is accumulated and communicated to our management, including our Chief Executive Officer and Chief Financial Officer, as appropriate to allow timely decisions regarding required disclosure.

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(b)

Management’s annual report on internal control over financial reporting

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

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

Our management assessed the effectiveness of our internal control over financial reporting as of December 31, 2012 using the criteria set forth in Internal Control – Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO). Based on this assessment, our management has concluded that our internal control over financial reporting as of December 31, 2012 was effective.

(c)

Attestation Report of the Registered Public Accounting Firm

Our independent auditors have issued an audit report on the effectiveness of our internal control over financial reporting. This report appears on page F-5.

(d)

Changes in Internal Control over Financial Reporting

There were no changes in our internal control over financial reporting that occurred during the year ended December 31, 2012 that have materially affected, or that were reasonably likely to materially affect, our internal control over financial reporting.

ITEM 16A. AUDIT COMMITTEE FINANCIAL EXPERT

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

ITEM 16B. CODE OF ETHICS

Our Board adopted a Code of Ethics to provide guidelines to our senior management and directors in legal and ethical matters as well as the sensitivities involved in reporting illegal and unethical matters. Such Code of Ethics covers such areas as supervisory rules, insider dealing, market malpractices, conflict of interests, company opportunities, protection and proper use of our assets as well as reporting requirements. As part of the continued efforts to improve our corporate governance standards, our Board conducted an annual review of the Code of Ethics since 2009, and the current version of the Code of Ethics was reviewed and adopted in August 2012.

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

We have posted our Code of Ethics on our website. To request a copy of our Code of Ethics free of charge, please contact our investor relations manager, by email to ir@cnooc.com.cn.

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ITEM 16C. PRINCIPAL ACCOUNTANT FEES AND SERVICES

Audit Fees

The aggregate fees billed for professional services rendered by our principal accountant for the audit of our annual financial statements or services that are normally provided by the accountants in connection with statutory and regulatory filings or engagements were Rmb19.3 million for 2011 and Rmb23.7 million (US$3.8 million) for 2012.

Audit-Related Fees

The aggregate fees billed for assurance and related services by our principal accountant that are reasonably related to the performance of the audit or review of financial statements and are not reported under “Audit Fees” were Rmb0.7 million for 2011 and Rmb10.2 million (US$1.6 million) for 2012.

Tax Fees

The aggregate fees billed for professional service rendered by the principal accountant for tax compliance, tax advice and tax planning were approximately Rmb0.7 million for 2011 and Rmb 1.4 million (US$0.2 million) for 2012.

All Other Fees

The aggregate fees billed for professional services rendered by our principal accountant for risk management advisory services and information systems reviews were Rmb1.3 million for 2011 and nil for 2012.

The aggregate fees billed for products and services provided by our principal accountant, other than the services reported above, were nil for fiscal years 2011 and 2012.

Audit Committee’s pre-approval policies and procedures

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

During 2012, all fees for audit-related services, tax services and all other services paid to our principal accountant were approved by our audit committee.

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

Not applicable.

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

None.

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ITEM 16F. CHANGE IN REGISTRANT’S CERTIFYING ACCOUNTANT

On March 22, 2013, our Board resolved, as recommended by our audit committee, to propose change in our independent registered public accounting firm, Ernst & Young, after the completion of the audit of the consolidated financial statements for the year ended December 31, 2012, with effect from the conclusion of our forthcoming 2012 annual general meeting to be held in May 2013, due to the requirements of the Ministry of Finance of the PRC and the State-owned Assets Supervision and Administration Commission of the State Council of the PRC in respect of the term of office of the auditors. As a result, Ernst & Young will not offer themselves for re-appointment at our forthcoming 2012 annual general meeting.

The reports of Ernst & Young on our consolidated financial statements for the past two fiscal years did not contain any adverse opinion or a disclaimer of opinion, nor were such reports qualified or modified as to uncertainty, audit scope, or accounting principles, except for the emphasis of matter in their 2011 opinion highlighting the Company’s early adoption of the accounting method for consolidation and joint arrangements by the Group during 2011.

During the two most recent fiscal years and through April 24, 2013, there were no disagreements with Ernst & Young on any matter of accounting principles or practices, financial statement disclosure, or auditing scope or procedure, which disagreements, if not resolved to the satisfaction of Ernst & Young, would have caused it to make reference to the subject matter of the disagreements in their report on the consolidated financial statements for such years.

During the two most recent fiscal years and through April 24, 2013, there were no “reportable events” (hereinafter defined) requiring disclosure pursuant to Item 16F(a)(1)(v) of Form 20-F. As used herein, the term “reportable event” means any of the items listed in paragraphs (a)(1)(v)(A)-(D) of Item 16F of Form 20-F.

We provided a copy of this disclosure to Ernst & Young and requested that Ernst & Young furnish a letter addressed to the SEC stating whether it agrees with the above statements, and if not, stating the respects in which it does not agree. A copy of the letter from Ernst & Young addressed to the SEC, dated April 24, 2013, is filed as Exhibit 15.7 to this annual report.

On March 22, 2013, our Board resolved, as recommended by our audit committee, to propose to appoint Deloitte Touche Tohmatsu, or Deloitte, as our independent registered public accounting firm, which is subject to the approval of shareholders at our forthcoming 2012 annual general meeting and with effect from the conclusion of such annual general meeting. During the two most recent fiscal years and through April 24, 2013, neither we nor anyone on our behalf consulted Deloitte regarding either (i) the application of accounting principles to a specified transaction, either completed or proposed; or the type of audit opinion that might be rendered on our consolidated financial statements, and neither a written report nor oral advice was provided to us that Deloitte concluded was an important factor considered by us in reaching a decision as to the accounting, auditing or financial reporting issue, or (ii) any matter that was either the subject of a “disagreement”, as defined in Item 16F(a)(1)(iv) of Form 20-F and related instructions to Item 16-F of Form 20-F, with Deloitte or a “reportable event” as described in Item 16F(a)(1)(v) of Form 20-F.

ITEM 16G. CORPORATE GOVERNANCE

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

ITEM 16H. MINE SAFETY DISCLOSURE

Not applicable.

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PART III

ITEM 17. FINANCIAL STATEMENTS

Not applicable.

ITEM 18. FINANCIAL STATEMENTS

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

ITEM 19. EXHIBITS

The following documents are filed as part of this annual report:

Exhibit Number	Document
1.1	Articles of Association of the Registrant, as amended in 2009, incorporated by reference to Exhibit 1.1 to our Annual Report on Form 20-F for fiscal year 2010 filed with the Securities and Exchange Commission (File number: 1-14966) and Exhibit 99.1 to Form 6-K furnished with the Securities and Exchange Commission on March 30, 2012 (File number: 1-14966).
1.2	Memorandum of Association of the Registrant, incorporated by reference to Exhibit 3.2 to our Registration Statement on Form F-1 filed with the Securities and Exchange Commission (File Number: 333-10862) and Exhibit 99.1 to Form 6-K furnished with the Securities and Exchange Commission on March 30, 2012 (File number: 1-14966).
2.1	Form of Indenture, incorporated by reference to Exhibit 2.1 to our annual report on Form 20-F for fiscal year 2002 filed with the Securities and Exchange Commission (File Number: 1-14966).
2.2	Trust Deed dated December 15, 2004 among CNOOC Limited, CNOOC Finance (2004) Limited and J.P. Morgan Corporate Trustee Services Limited, incorporated by reference to Exhibit 2.2 to our annual report on Form 20-F for fiscal year 2004 filed with the Securities and Exchange Commission (File Number: 1-14966).
2.3	Indentures dated January 26, 2011 among CNOOC Finance (2011) Limited, as Issuer, CNOOC Limited, as Guarantor, and The Bank of New York Mellon, as Trustee*.
2.4	Indentures dated May 2, 2012 among CNOOC Finance (2012) Limited, as Issuer, CNOOC Limited, as Guarantor, Citicorp International Limited, as Trustee, Citibank, N.A., London Brach, as Paying Agent, and Citigroup Global Markets Deutschland AG, as Registrar*.
2.5	Fourth Supplemental Indenture dated March 22, 2013 to the Senior Debt Indenture dated May 4, 2007 among CNOOC Limited, Deutsche Bank Trust Company Americas and Nexen Inc., incorporated by reference to Exhibit 4.1 to Form 6-K furnished with the Securities and Exchange Commission on March 22, 2013 (File number: 1-14966).
2.6	Seventh Supplemental Indenture dated March 22, 2013 to the Trust Indenture dated April 28, 1998 among CNOOC Limited, CIBC Mellon Trust Company, The Bank of New York Mellon and Nexen Inc., incorporated by reference to Exhibit 4.2 to Form 6-K furnished with the Securities and Exchange Commission on March 22, 2013 (File number: 1-14966).
4.1	The Asset Swap Agreement dated July 20, 1999 between CNOOC and Offshore Oil Company Limited, incorporated by reference to Exhibit 10.1 to our Registration Statement on Form F-1 filed with the Securities and Exchange Commission (File Number: 333-10862).
4.2	The Asset Allocation Agreement dated July 20, 1999 between CNOOC and Offshore Oil Company Limited, incorporated by reference to Exhibit 10.2 to our Registration Statement on Form F-1 filed with the Securities and Exchange Commission (File Number: 333-10862).

* Pursuant to Instruction 2(b)(i) to Item 19 of Form 20-F, we undertake to furnish this document upon request of the Securities and Exchange Commission.

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4.3	The Reorganization Agreement dated September 13, 1999 between CNOOC, Offshore Oil Company Limited and CNOOC Limited, incorporated by reference to Exhibit 10.3 to our Registration Statement on Form F-1 filed with the Securities and Exchange Commission (File Number: 333-10862).
4.4	Form of the Equity Transfer Agreement between CNOOC and CNOOC Limited, incorporated by reference to Exhibit 10.4 to our Registration Statement on Form F-1 filed with the Securities and Exchange Commission (File Number: 333-10862).
4.5	Form of the Transfer Agreement dated October 1, 1999 between CNOOC and Offshore Oil Company Limited regarding the transfer of the rights and obligations of CNOOC under the 37 PSCs and one geophysical exploration agreement, incorporated by reference to Exhibit 10.5 to our Registration Statement on Form F-1 filed with the Securities and Exchange Commission (File Number: 333-10862).
4.6	Form of Equity Transfer Agreement between China Offshore Oil East China Sea Corporation and Offshore Oil Company Limited regarding the transfer of the rights and obligations under Joint Venture Contract of Shanghai Petroleum and Natural Gas Company Limited dated July 28, 1992 to Offshore Oil Company Limited, incorporated by reference to Exhibit 10.6 to our Registration Statement on Form F-1 filed with the Securities and Exchange Commission (File Number: 333-10862).
4.7	Transfer Agreement dated September 9, 1999 between CNOOC and Offshore Oil Company Limited regarding the transfer of the rights and obligations of CNOOC under the Natural Gas Sale and Purchase Contract dated December 22, 1992 to Offshore Oil Company Limited, incorporated by reference to Exhibit 10.7 to our Registration Statement on Form F-1 filed with the Securities and Exchange Commission (File Number: 333-10862).
4.8	Transfer Agreement dated September 9, 1999 between CNOOC and Offshore Oil Company Limited regarding the transfer of the rights and obligations of CNOOC under the Natural Gas Sale and Purchase Contract dated November 7, 1992 to Offshore Oil Company Limited, incorporated by reference to Exhibit 10.8 to our Registration Statement on Form F-1 filed with the Securities and Exchange Commission (File Number: 333-10862).
4.9	Transfer Agreement dated September 9, 1999 among CNOOC, Offshore Oil Company Limited, the four PRC subsidiaries and CNOOC’s affiliates regarding the transfer of the rights and obligations of the technical services agreements to Offshore Oil Company Limited, incorporated by reference to Exhibit 10.9 to our Registration Statement on Form F-1 filed with the Securities and Exchange Commission (File Number: 333-10862).
4.10	Nanshan Terminal Leasing Agreement dated September 9, 1999 between CNOOC, Hainan China Oil and Offshore Natural Gas Company and Offshore Oil Company Limited, incorporated by reference to Exhibit 10.10 to our Registration Statement on Form F-1 filed with the Securities and Exchange Commission (File Number: 333-10862).
4.11	Trademark License Agreement dated September 9, 1999 between CNOOC, Offshore Oil Company Limited and CNOOC Limited, incorporated by reference to Exhibit 10.11 to our Registration Statement on Form F-1 filed with the Securities and Exchange Commission (File Number: 333-10862).
4.12	Trademark License Agreement dated September 9, 1999 between China Offshore Oil Marketing Company, CNOOC Limited and Offshore Oil Company Limited, incorporated by reference to Exhibit 10.12 to our Registration Statement on Form F-1 filed with the Securities and Exchange Commission (File Number: 333-10862).
4.13	Trademark License Agreement between CNOOC, CNOOC Limited and CNOOC China Limited, incorporated by reference to Exhibit 4.13 to our Annual Report on Form 20-F for fiscal year 2008 filed with the Securities and Exchange Commission (File Number: 1-14966).

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4.14	Trademark License Agreement between CNOOC, CNOOC Limited and CNOOC China Limited, incorporated by reference to Exhibit 4.14 to our Annual Report on Form 20-F for fiscal year 2008 filed with the Securities and Exchange Commission (File Number: 1-14966).
4.15	Property Leasing Agreement dated September 9, 1999 between Wui Hai Enterprise Company Limited and Offshore Oil Company Limited in respect of the office premises at 6th, 7th and 8th Floors, CNOOC Plaza, No. 6 Dong Zhi Men Wai Xiao Jie, Beijing, incorporated by reference to Exhibit 10.18 to our Registration Statement on Form F-1 filed with the Securities and Exchange Commission (File Number: 333-10862).
4.16	Property Leasing Agreement dated September 9, 1999 between China Offshore Oil Western South China Sea Corporation and Offshore Oil Company Limited in respect of the office premises at 1st to 9th Floors, Nantiao Road, Potou District Zhangjiang, Guangdong, incorporated by reference to Exhibit 10.19 to our Registration Statement on Form F-1 filed with the Securities and Exchange Commission (File Number: 333-10862).
4.17	Property Leasing Agreement dated September 9, 1999 between China Offshore Oil Bohai Corporation and Offshore Oil Company Limited in respect of the office premises at 1st to 7th Floors and 9th Floor, 2-37 He Kou Jie, Tanggu District, Tianjin, incorporated by reference to Exhibit 10.20 to our Registration Statement on Form F-1 filed with the Securities and Exchange Commission (File Number: 333-10862).
4.18	Property Leasing Agreement dated September 9, 1999 between China Offshore Oil East China Sea Corporation and Offshore Oil Company Limited in respect of the office premises at 20th, 22nd and 23rd Floors, 583 Ling Ling Road, Shanghai, the PRC, incorporated by reference to Exhibit 10.21 to our Registration Statement on Form F-1 filed with the Securities and Exchange Commission (File Number: 333-10862).
4.19	Property Leasing Agreement dated September 9, 1999 between China Offshore Oil Eastern South China Sea Corporation and Offshore Oil Company Limited in respect of the office premises at 3rd Floor and 6th to 11th Floors, 1 Second Industrial Road, Shekou, Shenzhen, the PRC, incorporated by reference to Exhibit 10.22 to our Registration Statement on Form F-1 filed with the Securities and Exchange Commission (File Number: 333-10862).
4.20	Property Leasing Agreement dated September 9, 1999 between China Offshore Oil Bohai Corporation and Offshore Oil Company Limited in respect of the Chengbei Warehouse, Chengbei Road, Tanggu District, Tianjin City, the PRC, incorporated by reference to Exhibit 10.23 to our Registration Statement on Form F-1 filed with the Securities and Exchange Commission (File Number: 333-10862).
4.21	Property Leasing Agreement dated September 9, 1999 between Overseas Oil & Gas Corporation, Ltd. and China Offshore Oil (Singapore) International Pte Ltd in respect of the residential premises at 10-01 and 17-002 Aquamarine Tower, 50 Bayshore Road, 13-05 Jade Tower, 60 Bayshore Road, Singapore, incorporated by reference to Exhibit 10.24 to our Registration Statement on Form F-1 filed with the Securities and Exchange Commission (File Number: 333-10862).
4.22	Suizhong Pier Agreement dated September 9, 1999 between Offshore Oil Company Limited and China Offshore Bohai Corporation, incorporated by reference to Exhibit 10.25 to our Registration Statement on Form F-1 filed with the Securities and Exchange Commission (File Number: 333-10862).
4.23	Form of Novation Agreement among CNOOC, CNOOC China Limited, the Banks and other financial institution and the Fuji Bank Limited Hong Kong Branch, as agent, in respect of the transfer of the US$110 million syndicated loan, incorporated by reference to Exhibit 10.26 to our Registration Statement on Form F-1 filed with the Securities and Exchange Commission (File Number: 333-10862).

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4.24	Form of the Undertaking Agreement between CNOOC and CNOOC Limited, incorporated by reference to Exhibit 10.27 to our Registration Statement on Form F-1 filed with the Securities and Exchange Commission (File Number: 333-10862).
4.25	Form of Pre-Global Offering Share Option Scheme for the Senior Management of CNOOC Limited, incorporated by reference to Exhibit 10.31 to our Registration Statement on Form F-1 filed with the Securities and Exchange Commission (File Number: 333-10862).
4.26	Form of Share Option Scheme for the Senior Management of CNOOC Limited, incorporated by reference to Exhibit 10.32 to our Registration Statement on Form F-1 filed with the Securities and Exchange Commission (File Number: 333-10862).
4.27	CNOOC Limited Share Option Scheme adopted on December 31, 2005, incorporated by reference to Exhibit 4.37 to our Annual Report on Form 20-F for fiscal year 2005 filed with the Securities and Exchange Commission (File Number: 1-14966).
4.28	Subscription Agreement dated March 17, 2000 among CNOOC Limited, CNOOC (BVI) Limited, Overseas Oil & Gas Corporation, Ltd., et al., incorporated by reference to Exhibit 10.33 to our Registration Statement on Form F-1 filed with the Securities and Exchange Commission (File Number: 333-10862).
4.29	Subscription Agreement dated May 31, 2000 among CNOOC Limited, CNOOC (BVI) Limited, Overseas Oil & Gas Corporation, Ltd. and Hutchison International Limited, incorporated by reference to Exhibit 10.34 to our Registration Statement on Form F-1 filed with the Securities and Exchange Commission (File Number: 333-10862).
4.30	Subscription Agreement dated May 31, 2000 among CNOOC Limited, CNOOC (BVI) Limited, Overseas Oil & Gas Corporation, Ltd. and Hong Kong Electric Holdings Limited, incorporated by reference to Exhibit 10.35 to our Registration Statement on Form F-1 filed with the Securities and Exchange Commission (File Number: 333-10862).
4.31	Subscription Agreement dated June 28, 2000 among CNOOC Limited, CNOOC (BVI) Limited, Overseas Oil & Gas Corporation, Ltd., et al., incorporated by reference to Exhibit 10.36 to our Registration Statement on Form F-1 filed with the Securities and Exchange Commission (File Number: 333-10862).
4.32	Corporation Placing Agreement dated February 6, 2001 among CNOOC Limited, China National Offshore Oil Corporation, Shell Eastern Petroleum (Pte) Limited and Merrill Lynch Far East Limited, incorporated by reference to Exhibit 10.37 to our Registration Statement on Form F-1 filed with the Securities and Exchange Commission (File Number: 333-10862).
4.33	Equity Transfer Agreement dated September 5, 2003 between CNOOC China Limited and CNOOC (Summary Translation), incorporated by reference to Exhibit 4.38 to our annual report on Form 20-F for fiscal year 2003 filed with the Securities and Exchange Commission (File Number: 1-14966).
4.34	Framework Agreement dated April 8, 2004 with CNOOC Finance Corporation Limited (Summary Translation), incorporated by reference to Exhibit 4.39 to our annual report on Form 20-F for fiscal year 2003 filed with the Securities and Exchange Commission (File Number: 1-14966).
4.35	Framework Agreement dated December 8, 2005 with CNOOC (Summary Translation), incorporated by reference to Exhibit 4.45 to our Annual Report on Form 20-F for fiscal year 2005 filed with the Securities and Exchange Commission (File number: 1-14966).
4.36	Framework Agreement dated December 8, 2005 with China Oilfield Services Limited (Summary Translation), incorporated by reference to Exhibit 4.46 to our Annual Report on Form 20-F for fiscal year 2005 filed with the Securities and Exchange Commission (File number: 1-14966).

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4.37	Framework Agreement dated December 8, 2005 with Offshore Oil Engineering Co., Ltd. (Summary Translation), incorporated by reference to Exhibit 4.47 to our Annual Report on Form 20-F for fiscal year 2005 filed with the Securities and Exchange Commission (File number: 1-14966).
4.38	Sale and Purchase Agreement, dated January 8, 2006 between CNOOC Exploration & Production Limited and South Atlantic Petroleum Limited (certain statements, marked with an asterisk in brackets [*], have been omitted from this agreement pursuant to a request for confidential treatment pursuant to Rule 24b-2 under the Securities Exchange Act of 1934, as amended, and the omitted materials have been filed separately in paper form with the Securities and Exchange Commission), incorporated by reference to Exhibit 4.49 to our Annual Report on Form 20-F for fiscal year 2005 filed with the Securities and Exchange Commission (File number: 1-14966).
4.39	Framework Agreement dated November 8, 2007 with China BlueChemical Ltd. (Summary Translation), incorporated by reference to Exhibit 4.37 to our Annual Report on Form 20-F for fiscal year 2007 filed with the Securities and Exchange Commission (File number: 1-14966).
4.40	Framework Agreement dated November 8, 2007 with CNOOC (Summary Translation), incorporated by reference to Exhibit 4.38 to our Annual Report on Form 20-F for fiscal year 2007 filed with the Securities and Exchange Commission (File number: 1-14966).
4.41	Framework Agreement dated November 8, 2007 with China Oilfield Services Limited (Summary Translation), incorporated by reference to Exhibit 4.39 to our Annual Report on Form 20-F for fiscal year 2007 filed with the Securities and Exchange Commission (File number: 1-14966).
4.42	Framework Agreement dated November 8, 2007 with Offshore Oil Engineering Co., Ltd. (Summary Translation), incorporated by reference to Exhibit 4.40 to our Annual Report on Form 20-F for fiscal year 2007 filed with the Securities and Exchange Commission (File number: 1-14966).
4.43	Framework Agreement dated November 1, 2010 with CNOOC (Summary Translation), incorporated by reference to Exhibit 4.43 to our Annual Report on Form 20-F for fiscal year 2010 filed with the Securities and Exchange Commission (File number: 1-14966).
4.44	Arrangement Agreement dated July 23, 2012 among CNOOC Limited, CNOOC Canada Holding Ltd. and Nexen Inc.
8.1	List of Subsidiaries.
10.1	Letter from CNOOC Limited dated May 23, 2002 regarding receipt of certain representations from Arthur Andersen & Co pursuant to the requirements of the Securities and Exchange Commission, incorporated by reference to Exhibit 10 to our annual report on Form 20-F for fiscal year 2001 filed with the Securities and Exchange Commission (File Number: 1-14966).
11.1	Code of Ethics for Directors and Senior Officers, as amended in 2012.
12.1	Certification by the Chief Executive Officer in accordance with Section 302 of the Sarbanes-Oxley Act of 2002.
12.2	Certification by the Chief Financial Officer in accordance with Section 302 of the Sarbanes-Oxley Act of 2002.
13.1	Sarbanes-Oxley Act of 2002 Section 906 Certification furnished to (not filed with) the Securities and Exchange Commission.
15.1	2012 Reserves Report of Ryder Scott Company, L.P.
15.2	2012 Reserves Report of Ryder Scott Company, L.P.
15.3	2012 Reserves Reports of Gaffney, Cline & Associates (Consultants) Pte Ltd.
15.4	2012 Reserves Reports of Gaffney, Cline & Associates (Consultants) Pte Ltd.
15.5	2012 Reserves Report of McDaniel & Associates Consultants Ltd.

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15.6	2012 Reserves Report of RPS.
15.7	Letter from Ernst & Young.
15.8	Consent from Ernst & Young.
15.9	Consent from Ryder Scott Company, L.P.
15.10	Consent from Gaffney, Cline & Associates (Consultants) Pte Ltd.
15.11	Consent from McDaniel & Associates Consultants Ltd.
15.12	Consent from RPS.
15.13	Consent from Lee Keeling and Associates, Inc.

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SIGNATURE

The registrant hereby certifies that it meets all of the requirements for filing on Form 20-F and that it has duly caused and authorized the undersigned to sign this annual report on its behalf.

CNOOC Limited



By:	/s/ Hua Zhong
	Name:	Hua Zhong
	Title:	Joint Company Secretary

Date: April 24, 2013

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CNOOC LIMITED

CONSOLIDATED FINANCIAL STATEMENTS

FOR THE YEARS ENDED DECEMBER 31, 2010, 2011 AND 2012

TOGETHER WITH REPORT OF INDEPENDENT PUBLIC ACCOUNTING FIRM

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INDEX TO FINANCIAL STATEMENTS

	Page

CNOOC LIMITED

Report of independent registered public accounting firm on financial statements	F-3

Report of independent registered public accounting firm on internal control over financial reporting	F-5

Consolidated statements of comprehensive income for the years ended December 31, 2010, 2011 and 2012	F-6

Consolidated statements of financial position as of December 31, 2011 and 2012	F-7

Consolidated statements of changes in equity for the years ended December 31, 2010, 2011 and 2012	F-8

Consolidated statements of cash flows for the years ended December 31, 2010, 2011 and 2012	F-10

Notes to the consolidated financial statements	F-11

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REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM ON FINANCIAL STATEMENTS

To the Board of Directors and Shareholders of CNOOC Limited

(Incorporated in Hong Kong with limited liability)

We have audited the accompanying consolidated statements of financial position of CNOOC Limited (the “Company”) and its subsidiaries (the “Group”) as at December 31, 2012 and 2011, and the related consolidated statements of comprehensive income, statements of changes in equity and statements of cash flows for each of the years in the three-year period ended December 31, 2012, and a summary of significant accounting policies and other explanatory information.

Management’s responsibility for the consolidated financial statements

Management is responsible for the preparation and fair presentation of these consolidated financial statements in accordance with International Financial Reporting Standards issued by the International Accounting Standards Board, and Hong Kong Financial Reporting Standards issued by the Hong Kong Institute of Certified Public Accountants, and for such internal control as management determines is necessary to enable the preparation of consolidated financial statements that are free from material misstatement, whether due to fraud or error.

Auditors’ responsibility

Our responsibility is to express an opinion on these consolidated financial statements based on our audits. We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States) and Hong Kong Standards on Auditing issued by the Hong Kong Institute of Certified Public Accountants. Those standards require that we comply with ethical requirements and plan and perform the audit to obtain reasonable assurance about whether the consolidated financial statements are free from material misstatement.

An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the consolidated financial statements. The procedures selected depend on the auditors’ judgment, including the assessment of the risks of material misstatement of the consolidated financial statements, whether due to fraud or error. In making those risk assessments, the auditors consider internal control relevant to the entity's preparation and fair presentation of the consolidated financial statements in order to design audit procedures that are appropriate in the circumstances. An audit also includes examining, on a test basis, evidence supporting the amounts and disclosures in the consolidated financial statements, evaluating the appropriateness of accounting policies used and the reasonableness of accounting estimates made by management, as well as evaluating the overall presentation of the consolidated financial statements.

We believe that the audit evidence we have obtained in our audits is sufficient and appropriate to provide a basis for our audit opinion.

Opinion

In our opinion, the consolidated financial statements present fairly, in all material respects, the consolidated financial position of the Group at December 31, 2012 and 2011 and the consolidated results of its operations and its cash flows for each of the three years in the period ended December 31, 2012, in conformity with International Financial Reporting Standards as issued by the International Accounting Standards Board and Hong Kong Financial Reporting Standards as issued by the Hong Kong Institute of Certified Public Accountants.

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Other matter

We have also audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), the Company’s internal control over financial reporting as of December 31, 2012, based on criteria established on Internal Control-Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission and our report dated March 22, 2013 expressed an unqualified opinion thereon.

Certified Public Accountants

/s/ Ernst & Young

Hong Kong

March 22, 2013

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REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM ON INTERNAL CONTROL OVER FINANCIAL REPORTING

The Board of Directors and Shareholders of CNOOC Limited

(Incorporated in Hong Kong with limited liability)

We have audited CNOOC Limited’s internal control over financial reporting as of December 31, 2012, based on criteria established in Internal Control—Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (the COSO criteria). CNOOC Limited’s management is responsible for maintaining effective internal control over financial reporting, and for its assessment of the effectiveness of internal control over financial reporting included in the accompanying “Management’s annual report on internal control over financial reporting”. Our responsibility is to express an opinion on the company’s internal control over financial reporting based on our audit.

We conducted our audit in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether effective internal control over financial reporting was maintained in all material respects. Our audit included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, testing and evaluating the design and operating effectiveness of internal control based on the assessed risk, and performing such other procedures as we considered necessary in the circumstances. We believe that our audit provides a reasonable basis for our opinion.

A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company’s internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use or disposition of the company’s assets that could have a material effect on the financial statements.

In our opinion, CNOOC Limited maintained, in all material respects, effective internal control over financial reporting as of December 31, 2012, based on the COSO criteria.

We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), the consolidated statements of financial position of CNOOC Limited as of December 31, 2012 and 2011, and the related consolidated statements of comprehensive income, statements of changes in equity and statements of cash flows for each of the three years in the period ended December 31, 2012 of CNOOC Limited and our report dated March 22, 2013 expressed an unqualified opinion thereon.

Certified Public Accountants

/s/ Ernst & Young

Hong Kong

March 22, 2013

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CNOOC LIMITED

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

FOR THE YEARS ENDED DECEMBER 31, 2010, 2011 AND 2012

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

			2010			2011			2012			2012
	Notes		RMB			RMB			RMB			US$
			million			million			million			million

REVENUE
Oil and gas sales		6		146,134			189,279			194,774			31,263
Marketing revenues				32,446			50,469			50,771			8,149
Other income				1,456			1,196			2,082			334

				180,036			240,944			247,627			39,746

EXPENSES
Operating expenses				(15,647	)		(18,264	)		(21,445	)		(3,442	)
Taxes other than income tax	12 (ii)			(7,109	)		(10,332	)		(15,632	)		(2,509	)
Exploration expenses				(5,483	)		(5,220	)		(9,043	)		(1,452	)
Depreciation, depletion and amortization		8		(26,756	)		(30,521	)		(32,903	)		(5,281	)
Special oil gain levy		7		(17,706	)		(31,982	)		(26,293	)		(4,220	)
Impairment and provision				(27	)		(22	)		(31	)		(5	)
Crude oil and product purchases				(32,236	)		(50,307	)		(50,532	)		(8,111	)
Selling and administrative expenses				(3,039	)		(2,854	)		(3,377	)		(542	)
Others				(888	)		(835	)		(1,230	)		(197	)

				(108,891	)		(150,337	)		(160,486	)		(25,759	)

PROFIT FROM OPERATING ACTIVITIES				71,145			90,607			87,141			13,987

Interest income		8		618			1,196			1,002			161
Finance costs		9		(1,122	)		(1,707	)		(1,603	)		(257	)
Exchange gains, net		8		995			637			359			58
Investment income		8		427			1,828			2,392			384
Share of profits of associates				199			320			284			46
Share of profits/(losses) of a joint venture				199			247			(311	)		(50	)
Non-operating income/(expenses), net				142			(563	)		908			146

PROFIT BEFORE TAX		8		72,603			92,565			90,172			14,475
Income tax expense		12(i)		(18,193	)		(22,310	)		(26,481	)		(4,250	)

PROFIT FOR THE YEAR ATTRIBUTABLE TO OWNERS OF THE PARENT				54,410			70,255			63,691			10,225

OTHER COMPREHENSIVE (LOSS)/INCOME
Exchange differences on translation of foreign operations				(2,496	)		(3,826	)		(42	)		(7	)
Net gain/(loss) on available-for-sale financial assets, net of tax		19		5,590			(800	)		(1,128	)		(181	)
Share of other comprehensive income/(loss) of associates				3			(20	)		21			3

OTHER COMPREHENSIVE INCOME/(LOSS) FOR THE YEAR, NET OF TAX				3,097			(4,646	)		(1,149	)		(185	)

TOTAL COMPREHENSIVE INCOME FOR THE YEAR ATTRIBUTABLE TO OWNERS OF THE PARENT				57,507			65,609			62,542			10,040

EARNINGS PER SHARE ATTRIBUTABLE TO ORDINARY EQUITY HOLDERS OF THE PARENT
Basic (RMB Yuan)		14		1.22			1.57			1.43			$US0.23
Diluted (RMB Yuan)		14		1.21			1.57			1.42			$US0.23

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

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CNOOC LIMITED

CONSOLIDATED STATEMENTS OF FINANCIAL POSITION

AS OF DECEMBER 31, 2011 AND 2012

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

			2011		2012		2012
	Notes		RMB		RMB		US$
			million		million		million

NON-CURRENT ASSETS
Property, plant and equipment		15		220,567		252,132		40,470
Intangible assets		16		1,033		973		156
Investments in associates		17		2,822		3,857		619
Investments in a joint venture		18		20,175		20,160		3,236
Available-for-sale financial assets		19, 34		7,365		7,051		1,132
Deferred tax assets		12(i)		-		40		6
Other non-current assets				379		963		155

Total non-current assets				252,341		285,176		45,774

CURRENT ASSETS
Inventories and supplies		21		4,380		5,247		842
Trade receivables		22		10,604		8,262		1,326
Due from related companies				10,312		15,793		2,535
Held-to-maturity financial assets				23,467		-		-
Available-for-sale financial assets		19, 34		27,576		61,795		9,919
Other current assets				7,430		7,883		1,265
Time deposits with maturity over three months		23		24,476		16,890		2,711
Cash and cash equivalents		23		23,678		55,024		8,832

Total current assets				131,923		170,894		27,430

CURRENT LIABILITIES
Loans and borrowings		26		19,919		28,830		4,628
Trade and accrued payables		24		9,349		12,014		1,928
Due to the parent company				456		337		54
Due to related companies				11,075		11,975		1,922
Other payables and accrued liabilities		25		21,761		17,098		2,744
Taxes payable				7,656		12,183		1,956

Total current liabilities				70,216		82,437		13,232

NET CURRENT ASSETS				61,707		88,457		14,198

TOTAL ASSETS LESS CURRENT LIABILITIES				314,048		373,633		59,972

NON-CURRENT LIABILITIES
Loans and borrowings		26		18,076		29,056		4,664
Provision for dismantlement		27		24,964		29,406		4,720
Deferred tax liabilities		12(i)		5,488		3,403		546
Other non-current liabilities				2,664		1,988		319

Total non-current liabilities				51,192		63,853		10,249

Net assets				262,856		309,780		49,723

EQUITY
Equity attributable to owners of the parent
Issued capital		28		949		949		152
Reserves		29		261,907		308,831		49,571

Total equity				262,856		309,780		49,723

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

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CNOOC LIMITED

CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY

FOR THE YEARS ENDED DECEMBER 31, 2010, 2011 AND 2012

(All amounts expressed in millions of Renminbi)

	Attributable to owners of the parent
	Issued capital		Share premium and capital redemption reserve			Cumulative translation reserve			Statutory and non- distributable reserves			Other reserves			Retained earnings			Proposed final dividend			Total

At January 1, 2010		949		42,129			(10,865	)		20,000			5,173			108,694			7,856			173,936

Total comprehensive income for the year		-		-			(2,496	)		-			5,593			54,410			-			57,507

2009 final dividend		-		-			-			-			-			61			(7,856	)		(7,795	)
2010 interim dividend		-		-			-			-			-			(8,100	)		-			(8,100	)
Proposed 2010 final dividend		-		-			-			-			-			(9,421	)		9,421			-
Equity-settled share option expenses		-		-			-			-			218			-			-			218
Appropriation and utilization of safety fund, net		-		-			-			-			(12	)		12			-			-

At December 31, 2010		949		42,129	*		(13,361	)*		20,000	*		10,972	*		145,656	*		9,421	*		215,766

At January 1, 2011		949		42,129			(13,361	)		20,000			10,972			145,656			9,421			215,766

Total comprehensive income for the year		-		-			(3,826	)		-			(820	)		70,255			-			65,609
2010 final dividend		-		-			-			-			-			134			(9,421	)		(9,287	)
2011 interim dividend		-		-			-			-			-			(9,106	)		-			(9,106	)
Proposed 2011 final dividend		-		-			-			-			-			(10,142	)		10,142			-
Share repurchases																(256	)					(256	)
Equity-settled share option expenses		-		-			-			-			143			-			-			143
Appropriation and utilization of safety fund, net		-		-			-			-			(13	)		-			-			(13	)

At December 31, 2011		949		42,129	*		(17,187	)*		20,000	*		10,282	*		196,541	*		10,142	*		262,856

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

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CNOOC LIMITED

CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY

FOR THE YEARS ENDED DECEMBER 31, 2010, 2011 AND 2012

(All amounts expressed in millions of Renminbi)

	Attributable to owners of the parent
	Issued capital		Share premium and capital redemption reserve			Cumulative translation reserve			Statutory and non-distributable reserves			Other reserves			Retained earnings			Proposed final dividend			Total

At January 1, 2012		949		42,129			(17,187	)		20,000			10,282			196,541			10,142			262,856

Total comprehensive income for the year		-		-			(42	)		-			(1,107	)		63,691			-			62,542
2011 final dividend		-		-			-			-			-			(49	)		(10,142	)		(10,191	)
2012 interim dividend		-		-			-			-			-			(5,477	)		-			(5,477	)
Proposed 2012 final dividend		-		-			-			-			-			(11,563	)		11,563			-
Equity-settled share option expenses (note 28)		-		-			-			-			50			-			-			50

At December 31, 2012		949		42,129	*		(17,229	)*		20,000	*		9,225	*		243,143	*		11,563	*		309,780

*	These reserve accounts comprise the consolidated reserves of approximately RMB308,831 million (2011: RMB261,907 million, 2010: RMB214,817 million) in the consolidated statements of financial position.

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

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CNOOC LIMITED

CONSOLIDATED STATEMENTS OF CASH FLOWS

FOR THE YEARS ENDED DECEMBER 31, 2010, 2011 AND 2012

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

			2010			2011			2012			2012
	Notes		RMB			RMB			RMB			US$
			million			million			million			million

CASH FLOWS FROM OPERATING ACTIVITIES
Cash generated from operations		32		85,921			140,809			117,736			18,897
Income taxes paid				(15,038	)		( 24,638	)		(25,162	)		(4,039	)

Net cash flows from operating activities				70,883			116,171			92,574			14,858

CASH FLOWS FROM INVESTING ACTIVITIES
Acquisition of oil and gas properties				(11,309	)		( 15,950	)		(8,709	)		(1,398	)
Additions of property, plant and equipment				(28,247	)		( 36,422	)		(54,145	)		(8,691	)
Additions of intangible assets				( 85	)		( 121	)		(142	)		(23	)
Purchase of leasing rights				-			( 280	)		(44	)		(7	)
Acquisition of interest in a joint venture				(21,258	)		-			-			-
Acquisition of subsidiaries				-			( 7,933	)		-			-
Acquisition of interest in an associate				-			( 948	)		-			-
Additions in associate/joint venture investment				-			-			(2,432	)		(390	)
Disposal of a subsidiary				-			1,340			-			-
Decrease/(increase) in time deposits with maturity over three months				8,894			( 12,500	)		7,586			1,218
Dividends received from associates/a joint venture				147			184			1,352			217
Interest received				513			1,013			1,591			255
Investment income received				310			1,288			1,956			314
Purchase of current available-for-sale and held-to-maturity financial assets				(38,480	)		(206,266	)		(151,292	)		(24,284	)
Proceeds from sale of current available-for-sale and held-to-maturity financial assets				25,193			177,467			140,359			22,529
Proceeds from disposal of property, plant and equipment				119			92			123			20
Net cash flows used in investing activities				(64,203	)		( 99,036	)		(63,797	)		(10,240	)

CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from issuance of guaranted notes				-			12,966			12,571			2,018
Repayment and redemption of guaranteed notes				-			( 5,321	)		(3,150	)		(506	)
Proceeds from bank loans				17,245			5,166			21,459			3,444
Repayment of bank loans				( 4,034	)		( 10,259	)		(10,825	)		(1,738	)
Dividends paid				(14,390	)		( 20,877	)		(15,635	)		(2,510	)
Interest paid				( 431	)		( 1,665	)		(1,836	)		(295	)
Share repurchases				-			( 256	)		-			-

Net cash flows (used in)/from financing activities				( 1,610	)		( 20,246	)		2,584			413

NET INCREASE/(DECREASE) IN CASH AND CASH EQUIVALENTS				5,070			( 3,111	)		31,361			5,031
Cash and cash equivalents at beginning of year				22,615			27,287			23,678			3,801
Effect of foreign exchange rate changes, net				( 398	)		( 498	)		(15	)		(2	)

CASH AND CASH EQUIVALENTS AT END OF YEAR		23		27,287			23,678			55,024			8,830

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

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CNOOC LIMITED

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

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

1.	CORPORATE INFORMATION

CNOOC Limited (the “Company”) was incorporated in the Hong Kong Special Administrative Region (“Hong Kong”) of the People’s Republic of China (the “PRC”) on August 20, 1999 to hold the interests in certain entities thereby creating a group comprising the Company and its subsidiaries (hereinafter collectively referred to as the “Group”). During the year, the Group was principally engaged in the exploration, development, production and sales of crude oil, natural gas and other petroleum products.

The registered office address of the Company is 65/F, Bank of China Tower, 1 Garden Road, Hong Kong.

In the opinion of the directors of the Company (the “Directors”), the parent and the ultimate holding company of the Company is China National Offshore Oil Corporation (“CNOOC”), a company established in the PRC.

Particulars of the principal subsidiaries are as follows:

Name of entity	Place and date of establishment	Nominal value of issued and paid-up/ registered ordinary share capital	Percentage of equity attributable to the Group	Principal activities

Directly held subsidiaries:
CNOOC China Limited	Tianjin, PRC September 15, 1999	RMB20 billion	100%	Offshore petroleum exploration, development, production and sales in the PRC
China Offshore Oil (Singapore) International Pte Ltd	Singapore May 14, 1993	SG$3 million	100%	Sale and marketing of petroleum products outside the PRC
CNOOC International Limited	British Virgin Islands August 23, 1999	US$20,000,000,002	100%	Investment holding
OOGC America, Inc.	State of Delaware, United States of America August 28, 1997	US$1,000	100%	Investment holding
CNOOC Finance (2002) Limited**	British Virgin Islands January 24, 2002	US$1,000	100%	Bond issuance
CNOOC Finance (2003) Limited	British Virgin Islands April 2, 2003	US$1,000	100%	Bond issuance
CNOOC Finance (2011) Limited	British Virgin Islands December 31, 2010	US$1,000	100%	Bond issuance
CNOOC Finance (2012) Limited***	British Virgin Islands April 10, 2012	US$1,000	100%	Bond issuance

Indirectly held subsidiaries*:
CNOOC Deepwater Development Limited****	Zhuhai, PRC March 1, 2010	RMB 8.5 billion	100%	Deepwater and low-grade oil and gas fields exploration, development, and oil and gas production sales in the PRC
CNOOC Southeast Asia Limited	Bermuda May 16, 1997	US$12,000	100%	Investment holding
CNOOC SES Ltd.	Labuan, F.T., Malaysia March 27, 2002	US$1	100%	Petroleum exploration, development and production in Indonesia

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CNOOC LIMITED

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

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

1.	CORPORATE INFORMATION (CONTINUED)

Name of entity	Place and date of establishment	Nominal value of issued and paid-up/ registered ordinary share capital	Percentage of equity attributable to the Group	Principal activities

Indirectly held subsidiaries*:
CNOOC Muturi Limited	Isle of Man February 8, 1996	US$7,780,770	100%	Petroleum exploration, development and production in Indonesia
CNOOC NWS Private Limited	Singapore October 8, 2002	SG$2	100%	Offshore petroleum exploration, development and production in Australia
CNOOC Exploration & Production Nigeria Limited	Nigeria January 6, 2006	Naira10 million	100%	Petroleum exploration, development and production in Africa
CNOOC Iraq Limited	British Virgin Islands October 15, 2010	US$1	100%	Providing services of petroleum exploration and development in oilfield of the Republic of Iraq
CNOOC Canada Inc. (note 4)	Canada January 15, 1999	281,749,526 common shares without a par value	100%	Oil sands exploration, development and production in Canada
CNOOC Uganda Ltd (note 4)	Uganda May 11, 2010	1,000,000 Uganda Shillings	100%	Petroleum explration, development and production in Africa
CNOOC Cananda Holding Ltd*****. (note 4)	Canada July 18, 2012	CAD9,505,391,000	100%	Oil and gas investment in Canada

All subsidiaries are indirectly held through CNOOC International Limited, except CNOOC Deepwater Development Limited which is indirectly held through CNOOC China Limited.

The guarantee notes issued by CNOOC Finance(2002) Limited were repaid in March 2012(note 26), and CNOC Finance(2002) Limited was dissolved on July 27, 2012.

***

CNOOC Finance (2012) Limited was incorporated on April 10, 2012, for issuance of guaranteed notes (note 26).

****

The registered capital of CNOOC Deepwater Development Limited was increased to RMB8.5 billion on November 29, 2012.

*****

CNOOC Canada Holding Ltd. was incorporated on 18 July 2012, for oil and gas investment in Canada. On February 25, 2013, the registered capital was increased to CAD9,505,391,000

The above table lists the subsidiaries of the Company which, in the opinion of the Directors, principally affected the results for the year or formed a substantial portion of the net assets of the Group. To give details of other subsidiaries would, in the opinion of the Directors, result in particulars of excessive length.

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CNOOC LIMITED

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

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

2.1	STATEMENT OF COMPLIANCE

These financial statements have been prepared in accordance with International Financial Reporting Standards “IFRSs” (which also include International Accounting Standards (“IASs”) and Interpretations) issued by the International Accounting Standards Board (the “IASB”), Hong Kong Financial Reporting Standards “HKFRSs” (which also include Hong Kong Accounting Standards (“HKASs”) and Interpretations) issued by the Hong Kong Institute of Certified Public Accountants (the “HKICPA”), and accounting principles generally accepted in Hong Kong. A summary of the significant accounting policies adopted by the Group is set out below.

2.2	CHANGES IN ACCOUNTING POLICY AND DISCLOSURES

The accounting policies adopted are consistent with those of the year ended 31 December 2011 (including the early adoption of the following accounting standards before their mandatory effective date of January 1, 2013: IFRS 10/HKFRS 10 – Consolidated Financial Statements; IFRS 11/HKFRS 11 – Joint Arrangements; IFRS 12/HKFRS 12 – Disclosures of Interests in Other Entities; IAS 27 (Revised)/HKAS 27 (Revised) – Separate Financial Statements; and IAS 28 (Revised)/HKAS 28 (Revised) – Investments in

Associates and Joint Ventures), except for a number of amendments to IFRSs/HKFRSs effective as of January 1, 2012 primarily with a view to removing inconsistencies and clarifying wording. The adoption of those amendments upon their effective dates did not have any material impact on the accounting policies, financial position or performance of the Group.

The Group has not applied the following new and revised IFRSs/HKFRSs, that have been issued but are not yet effective, in these financial statements:

IFRS 9/HKFRS 9	Financial Instruments3
IFRS 13/HKFRS 13	Fair Value Measurement2
IAS 1 Amendments/HKAS 1 Amendments	Presentation of Financial Statements – Presentation of Items of Other Comprehensive Income1
IAS 19 (2011)/HKAS 19 (2011)	Employee Benefits2
IFRIC-Int 20/HK(IFRIC)-Int 20	Stripping Costs in the Production Phase of a Surface Mine2

1 Effective for annual periods beginning on or after 1 July 2012

2 Effective for annual periods beginning on or after 1 January 2013

3 Effective for annual periods beginning on or after 1 January 2015

Further information about those changes that are expected to significantly affect the Group is as follows:

IFRS 9/HKFRS 9 issued in November 2009 is the first part of phase 1 of a comprehensive project to entirely replace IAS 39/HKAS 39 Financial Instruments: Recognition and Measurement. This phase focuses on the classification and measurement of financial assets. Instead of classifying financial assets into four categories, an entity shall classify financial assets as subsequently measured at either amortised cost or fair value, on the basis of both the entity’s business model for managing the financial assets and the contractual cash flow characteristics of the financial assets. This aims to improve and simplify the approach for the classification and measurement of financial assets compared with the requirements of IFRS 39/HKAS 39.

In 2010, the IASB/HKICPA issued additions to IFRS 9/HKFRS 9 to address financial liabilities (the “Additions”) and incorporated in IFRS 9/HKFRS 9 the current derecognition principles of financial instruments of IAS 39/HKAS 39. Most of the Additions were carried forward unchanged from IAS 39/HKAS 39, while changes were made to the measurement of financial liabilities designated at fair value through profit or loss using the fair value option (“FVO”). For these FVO liabilities, the amount of change in the fair value of a liability that is attributable to changes in credit risk must be presented in other comprehensive income (“OCI”). The remainder of the change in fair value is presented in profit or loss, unless presentation of the fair value change in respect of the liability’s credit risk in OCI would create or enlarge an accounting mismatch in profit or loss. However, loan commitments and financial guarantee contracts which have been designated under the FVO are scoped out of the Additions.

IAS 39/HKAS 39 is aimed to be replaced by IFRS 9/HKFRS 9 in its entirety. Before this entire replacement, the guidance in IAS 39/HKAS 39 on hedge accounting and impairment of financial assets continues to apply. The Group expects to adopt IFRS 9/HKFRS 9 from January 1, 2015.

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CNOOC LIMITED

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

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

3.	SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Basis of preparation

These financial statements have been prepared under the historical cost convention, except for available-for-sale financial assets and derivative financial instruments, which have been measured at fair value. These financial statements are presented in Renminbi (“RMB”) and all values are rounded to the nearest million except when otherwise indicated.

Basis of consolidation

The consolidated financial statements include the financial statements of the Company and its subsidiaries for the year ended December 31, 2012.

The results of subsidiaries are consolidated from the date of acquisition, being the date on which the Group obtains control, and continue to be consolidated until the date that such control ceases. The financial statements of the subsidiaries are prepared for the same reporting period as the parent company, using consistent accounting policies.

The results of subsidiaries are included in the Company’s statement of comprehensive income to the extent of dividends received and receivable. The Company’s interests in subsidiaries are stated at cost less any impairment losses.

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

Business combinations and goodwill

Business combinations are accounted for using the acquisition method. The consideration transferred is measured at acquisition date fair value which is the sum of the acquisition date fair values of assets transferred by the Group, liabilities assumed by the Group to the former owners of the acquiree and the equity interests issued by the Group in exchange for control of the acquiree. For each business combination, the Group elects whether it measures the non-controlling interests in the acquiree either at fair value or at the proportionate share of the acquiree’s identifiable net assets. All other components of non-controlling interests are measured at fair value. Acquisition related costs incurred are expensed and included in administrative expenses.

When the Group acquires a business, it assesses the financial assets and liabilities assumed for appropriate classification and designation in accordance with the contractual terms, economic circumstances and pertinent conditions as at the acquisition date. This includes the separation of embedded derivatives in host contracts by the acquiree.

If the business combination is achieved in stages, the acquisition date fair value of the acquirer’s previously held equity interest in the acquiree is remeasured to fair value at the acquisition date through profit or loss.

Any contingent consideration to be transferred by the acquirer is recognised at fair value at the acquisition date. Contingent consideration classified as an asset or liability that is a financial instrument and within the scope of IAS 39/HKAS 39 is measured at fair value with changes in fair value either recognised in profit or loss or as a change to other comprehensive income. If the contingent consideration is not within the scope of IAS 39/HKAS 39, it is measured in accordance with the appropriate IFRS/HKFRS. Contingent consideration that is classified as equity is not remeasured and subsequent settlement is accounted for within equity.

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

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CNOOC LIMITED

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

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

3.	SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)

Business combinations and goodwill (continued)

After initial recognition, goodwill is measured at cost less any accumulated impairment losses. Goodwill is tested for impairment annually or more frequently if events or changes in circumstances indicate that the carrying value may be impaired. The Group performs its impairment test of goodwill at each reporting date. For the purpose of impairment testing, goodwill acquired in a business combination is, from the acquisition date, allocated to each of the Group’s cash-generating units, or groups of cash-generating units, that are expected to benefit from the synergies of the combination, irrespective of whether other assets or liabilities of the Group are assigned to those units or groups of units.

Impairment is determined by assessing the recoverable amount of the cash-generating unit (group of cash-generating units) to which the goodwill relates. Where the recoverable amount of the cash-generating unit (group of cash-generating units) is less than the carrying amount, an impairment loss is recognized. An impairment loss recognized for goodwill is not reversed in a subsequent period.

Where goodwill has been allocated to a cash-generating unit (or group of cash-generating units) and part of the operation within that unit is disposed of, the goodwill associated with the operation disposed of is included in the carrying amount of the operation when determining the gain or loss on the disposal. Goodwill disposed of in these circumstance is measured based on the relative value of the operation disposed of and the portion of the cash-generating unit retained.

Subsidiaries

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

Associates

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

The Group’s investments in associates are stated in the consolidated statement of financial position at the Group’s share of net assets under the equity method of accounting, less any impairment losses. Adjustments are made to bring into line any dissimilar accounting policies that may exist. The Group’s share of the post-acquisition results and reserves of associates is included in the consolidated statement of comprehensive income and consolidated reserves, respectively. Unrealized gains and losses resulting from transactions between the Group and its associates are eliminated to the extent of the Group’s investments in the associates, except where unrealized losses provide evidence of an impairment of the asset transferred. Goodwill arising from the acquisition of associates is included as part of the Group’s investments in associates and is not individually tested for impairment.

The results of associates are included in the Company’s comprehensive income statement to the extent of dividends received and receivable. The Company’s investments in associates are treated as non-current assets and are stated at cost less any impairment losses.

When an investment in an associate is classified as held for sale, it is accounted for in accordance with IFRS 5/ HKFRS 5 Non-current Assets Held for Sale and Discontinued Operations.

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CNOOC LIMITED

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

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

3.	SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)

Joint arrangements

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

Joint operations

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

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

Joint venture

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

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

The results of joint ventures are included in the Company’s comprehensive income statement to the extent of dividend received and receivable. The Company’s investments in joint ventures are treated as non-current assets and are stated at cost less any impairment losses.

When an investment in a joint venture is classified as held for sale, it is accounted for in accordance with IFRS 5/HKFRS 5 Non-current Assets Held for Sale and Discontinued Operations.

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CNOOC LIMITED

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

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

3.	SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)

Related parties

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

(a)

the party is a person or a close member of that person’s family and that person

(i)

has control or joint control over the Group;

(ii)

has significant influence over the Group; or

(iii)

is a member of the key management personnel of the Group or of a parent of the Group;

(b)

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

(i)

the entity and the Group are members of the same group;

(ii)

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

(iii)

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

(iv)

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

(v)

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

(vi)

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

(vii)

a person identified in (a)(i) has significant influence over the entity or is a member of the key management personnel of the entity (or of a parent of the entity).

Impairment of non-financial assets other than goodwill

Where an indication of impairment exists, or when annual impairment testing for an asset is required (other than inventories, deferred tax assets, financial assets and goodwill), the asset’s recoverable amount is estimated. An asset’s recoverable amount is the higher of the asset’s or cash-generating unit’s value in use and its fair value less costs to sell, and is determined for an individual asset, unless the asset does not generate cash inflows that are largely independent of those from other assets or groups of assets, in which case the recoverable amount is determined for the cash-generating unit to which the asset belongs.

An impairment loss is recognized only if the carrying amount of an asset exceeds its recoverable amount. In assessing value in use, the estimated future cash flows are discounted to their present value using a pre-tax discount rate that reflects current market assessments of the time value of money and the risks specific to the asset. An impairment loss is charged to profit or loss in the period in which it arises in those expense categories consistent with the function of the impaired asset.

An assessment is made at the end of each reporting period as to whether there is any indication that previously recognized impairment losses may no longer exist or may have decreased. If such an indication exists, the recoverable amount is estimated. A previously recognized impairment loss of an asset other than goodwill is reversed only if there has been a change in the estimates used to determine the recoverable amount of that asset, but not to an amount higher than the carrying amount that would have been determined (net of any depreciation/amortization) had no impairment loss been recognized for the asset in prior years. A reversal of such an impairment loss is credited to profit or loss in the period in which it arises.

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CNOOC LIMITED

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

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

3.	SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)

Property, plant and equipment

Property, plant and equipment comprise oil and gas properties, and vehicles and office equipment and others.

(a)

Oil and gas properties

For oil and gas properties, the successful efforts method of accounting is adopted. The Group capitalizes the initial acquisition costs of oil and gas properties. Impairment of initial acquisition costs is recognized based on exploratory experience and management judgment and charged to profit and loss as exploration expense. Upon discovery of commercial reserves, acquisition costs are transferred to proved properties. The costs of drilling and equipping successful exploratory wells, all development expenditures on construction, installation or completion of infrastructure facilities such as platforms, pipelines, processing plants and the drilling of development wells and the building of enhanced recovery facilities, including those renewals and betterments that extend the economic lives of the assets, and the related borrowing costs are capitalized. The costs of unsuccessful exploratory wells and all other exploration costs are expensed as incurred.

The Group carries exploratory well costs as an asset when the well has found a sufficient quantity of reserves to justify its completion as a producing well and where the Group is making sufficient progress assessing the reserves and the economic and operating viability of the project. Exploratory well costs not meeting these criteria are charged to expenses. Exploratory wells that discover potentially economic reserves in areas where major capital expenditure will be required before production would begin and when the major capital expenditure depends upon the successful completion of further exploratory work remain capitalized and are reviewed periodically for impairment.

Producing oil and gas properties are depreciated on a unit-of-production basis over the proved developed reserves. Common facilities that are built specifically to service production directly attributed to designated oil and gas properties are depreciated based on the proved developed reserves of the respective oil and gas properties on a pro-rata basis. Common facilities that are not built specifically to service identified oil and gas properties are depreciated using the straight-line method over their estimated useful lives. Costs associated with significant development projects are not depreciated until commercial production commences and the reserves related to those costs are excluded from the calculation of depreciation.

Capitalized acquisition costs of proved properties are depreciated on a unit-of-production method over the total proved reserves of the relevant oil and gas properties.

(b)

Vehicles, office equipment and others

Vehicles, office equipment and others are stated at cost less accumulated depreciation and impairment losses. The straight-line method is adopted to depreciate the cost less any estimated residual value of these assets over their expected useful lives. The Group estimates the useful lives of vehicles and office equipment to be five years; and the useful lives of other assets are in line with their beneficial periods.

Where parts of an item of property, plant and equipment have different useful lives, the cost of that item is allocated on a recoverable basis among the parts and each part is depreciated separately.

Residual values, useful lives and the depreciation method are reviewed and, adjusted if appropriate, at each reporting date.

Gains and losses on disposals of property, plant and equipment (calculated as the difference between the net disposal proceeds and the carrying amount of the asset) are recognised in profit or loss.

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CNOOC LIMITED

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

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

3.	SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)

Intangible assets (other than goodwill)

Intangible assets with finite lives are carried at cost, less accumulated amortisation and accumulated impairment losses. The cost of intangible assets acquired in a business combination is the fair value as at the date of acquisition. Intangible assets with finite lives except for gas processing rights, are amortised on the straight-line basis over the useful economic life and assessed for impairment whenever there is an indication that the intangible asset may be impaired. The amortisation period and the amortisation method for an intangible asset with a finite useful life are reviewed at least at each financial year end.

The intangible asset regarding the gas processing rights has been amortised upon the commercial production of the liquefied natural gas on a unit-of-production basis over the total proved reserves of the relevant asset. The intangible assets regarding software have been amortised on the straight-line basis over three to five years.

Major maintenance and repairs

Expenditure on major maintenance refits or repairs comprises the cost of replacement assets or parts of assets and overhaul costs. Where an asset or part of an asset that was separately depreciated and is now written off is replaced and it is probable that future economic benefits associated with the item will flow to the Group, the replacement expenditure is capitalized. Where part of the asset was not separately considered as a component, the replacement value is used to estimate the carrying amount of the replaced assets which is immediately written off. All other maintenance costs are expensed as incurred.

Research and development costs

All research costs are expensed as incurred.

Expenditure (other than that relating to oil and gas properties discussed above) incurred on projects to develop new products is capitalised and deferred only when the Group can demonstrate the technical feasibility of completing the intangible asset so that it will be available for use or sale, its intention to complete and its ability to use or sell the asset, how the asset will generate future economic benefits, the availability of resources to complete the project and the ability to measure reliably the expenditure during the development. Product development expenditure which does not meet these criteria is expensed when incurred. No development costs were capitalized during the year.

Investments and other financial assets

Initial recognition and measurement

Financial assets within the scope of IAS 39/HKAS 39 are classified as financial assets at fair value through profit or loss, loans and receivables, held-to-maturity investments, and available-for-sale financial assets, as appropriate. The Group determines the classification of its financial assets at initial recognition. When financial assets are recognized initially, they are measured at fair value plus transaction costs, except in the case of financial assets recorded at fair value through profit or loss.

Purchases or sales of financial assets that require delivery of assets within a time frame established by regulation or convention in the marketplace (regular way purchases or sales) are recognised on the trade date, that is, the date that the Group commits to purchase or sell the asset.

The Group’s financial assets include cash and bank balances, trade and other receivables, quoted and unquoted financial instruments, and derivative financial instruments.

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CNOOC LIMITED

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

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

SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)

Subsequent measurement

The subsequent measurement of financial assets depends on their classifications as follows:

(a)

Financial assets at fair value through profit or loss

Financial assets at fair value through profit or loss are financial assets designated upon initial recognition at fair value through profit or loss. Financial assets at fair value through profit and loss are carried in the statement of financial position at fair value with net changes in fair value recognised in other income and gains or finance costs in profit or loss in the period. These net fair value changes do not include any dividends or interest earned on these financial assets, which are recognized in accordance with the policies set out for “Revenue recognition” below.

(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. After initial measurement, such assets are subsequently carried at amortized cost using the effective interest method less any allowance for impairment. Amortized cost is calculated by taking into account any discount or premium on acquisition and includes fees or costs that are an integral part of the effective interest rate. Gains and losses are recognized in profit or loss when the loans and receivables are derecognized or impaired, as well as through the amortization process.

(c)

Held-to-maturity investments

Non-derivative financial assets with fixed or determinable payments and fixed maturity are classified as held to maturity when the Group has the positive intention and ability to hold them to maturity. Held-to-maturity investments are subsequently measured at amortized cost using the effective interest rate method less any allowance for impairment. Amortized cost is calculated by taking into account any discount or premium on acquisition and fees or costs that are an integral part of the effective interest rate. Gains and losses are recognized in profit or loss when the investments are derecognized or impaired, as well as through the amortization process.

(d)

Available-for-sale financial assets

Available-for-sale financial assets are non-derivative financial assets in listed and unlisted equity investments and debt securities. Equity investments classified as available for sale are those which are neither classified as held for trading nor designated at fair value through profit or loss. Debt securities in this category are those which are intended to be held for an indefinite period of time and which may be sold in response to needs for liquidity or in response to changes in market conditions.

After initial recognition, available-for-sale financial assets are measured at fair value, with unrealized gains or losses recognized as other comprehensive income in the available-for-sale investment revaluation reserve until the investment is derecognized, at which time the cumulative gain or loss is recognized in profit or loss, or until the investment is determined to be impaired, when the cumulative gain or loss is reclassified from the available-for-sale investment revaluation reserve to profit or loss. Interest and dividends earned whilst holding the available-for-sale financial investments are reported as interest income and dividend income, respectively and are recognized in profit or loss in accordance with the policies set out for “Revenue recognition” below.

When the fair value of unlisted equity investments cannot be reliably measured because (a) the variability in the range of reasonable fair value estimates is significant for that investment or (b) the probabilities of the various estimates within the range cannot be reasonably assessed and used in estimating fair value, such investments are stated at cost less any impairment losses.

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CNOOC LIMITED

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

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

SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)

Fair value

An analysis of fair values of financial instruments and further details as to how they are measured are provided in note 34.

Impairment of financial assets

The Group assesses at each reporting date whether there is any objective evidence that a financial asset or a group of financial assets is impaired.

(a)

Assets carried at amortized cost

If there is objective evidence that an impairment loss on loans and receivables or held-to-maturity investments carried at amortized cost has been incurred, the amount of the loss is measured as the difference between the asset’s carrying amount and the present value of estimated future cash flows (excluding future credit losses that have not been incurred) discounted at the financial asset’s original effective interest rate (the effective interest rate computed at initial recognition). The carrying amount of the asset is reduced either directly or through the use of an allowance account. The amount of the impairment loss is recognized in profit or loss.

If, in a subsequent year, the amount of the estimated impairment loss increases or decreases and the decrease can be related objectively to an event occurring after the impairment was recognized, the previously recognized impairment loss is increased or reduced by adjusting the allowance account. Any subsequent reversal of an impairment loss is recognized in profit or loss, to the extent that the carrying value of the asset does not exceed amortized cost at the reversal date.

In relation to trade and other receivables, a provision for impairment is made when there is objective evidence (such as the probability of insolvency or significant financial difficulties of the debtor and significant changes in the technological, market, economic or legal environment that have an adverse effect on the debtor) that the Group will not be able to collect all of the amounts due under the original terms of an invoice.

(b)

Assets carried at cost

If there is objective evidence that an impairment loss has been incurred on an unquoted equity instrument that is not carried at fair value because its fair value cannot be reliably measured, the amount of the loss is measured as the difference between the asset’s carrying amount and the present value of estimated future cash flows discounted at the current market rate of return for a similar financial asset. Impairment losses on these assets are not reversed.

(c)

Available-for-sale financial assets

If an available-for-sale asset is impaired, an amount comprising the difference between its cost (net of any principal payment and amortization) and its current fair value, less any impairment loss previously recognized in the profit or loss, is removed from other comprehensive income and recognized in profit or loss.

Equity investments are impaired if there is a significant or prolonged decline in fair value of the investment below its cost or where other objective evidence of impairment exists. Impairment of debt instruments is assessed based on the same criteria as assets carried at amortised cost. Impairment losses on equity instruments are not reversed through profit or loss; increases in their fair value after impairments are recognised directly in equity. Impairment losses on debt instruments are reversed through profit or loss, if the increase in fair value of the instruments can be objectively related to an event occurring after the impairment loss was recognized in profit or loss.

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CNOOC LIMITED

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

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

SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)

Derecognition of financial assets

A financial asset (or, where applicable a part of a financial asset or part of a group of similar financial assets) is derecognized where:

the rights to receive cash flows from the asset have expired;

ii)

the Group retains the rights to receive cash flows from the asset, but has assumed an obligation to pay the received cash flows in full without material delay to a third party under a “pass-through” arrangement; or

iii)

the Group has transferred its rights to receive cash flows from the asset and either (a) has transferred substantially all the risks and rewards of the asset, or (b) has neither transferred nor retained substantially all the risks and rewards of the asset, but has transferred control of the asset.

Where the Group has transferred its rights to receive cash flows from an asset and has neither transferred nor retained substantially all the risks and rewards of the asset nor transferred control of the asset, the asset is recognized to the extent of the Group’s continuing involvement in the asset. Continuing involvement that takes the form of a guarantee over the transferred asset is measured at the lower of the original carrying amount of the asset and the maximum amount of consideration that the Group could be required to repay.

Financial liabilities at amortized cost (including interest-bearing loans and borrowings)

Financial liabilities including trade and other payables and interest-bearing loans and borrowings are initially stated at fair value less directly attributable transaction costs and are subsequently measured at amortized cost, using the effective interest method. The related interest expense is recognized within “Finance costs” in profit or loss.

Gains and losses are recognized in profit or loss when the liabilities are derecognized as well as through the amortization process.

Financial guarantee contracts

A financial guarantee contract is recognized initially at its fair value including transaction costs that are directly attributable to the issue of the guarantee. Subsequent to initial recognition, the liability is measured at the higher of the best estimate of the expenditure required to settle the present obligation at the reporting date and the amount recognized less cumulative amortization.

Derecognition of financial liabilities

A financial liability is derecognized when the obligation under the liability is discharged, cancelled, or expires.

When an existing financial liability is replaced by another from the same lender on substantially different terms, or the terms of an existing liability are substantially modified, such an exchange or modification is treated as a derecognition of the original liability and a recognition of a new liability, and the difference between the respective carrying amounts is recognized in profit or loss.

Offsetting of financial instruments

Financial assets and liabilities are offset and the net amount reported in the consolidated statement of financial position, if and only if, there is a currently enforceable legal right to offset the recognized amounts and there is an intention to settle on a net basis, or to realize the assets and settle the liabilities simultaneously.

Inventories and supplies

Inventories primarily consist of oil and supplies, including items for repairs and maintenance of oil and gas properties. Inventories are stated at the lower of cost and net unrealizable value. Costs of inventories and supplies represent purchase or production cost of goods and are determined on a weighted average basis.

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CNOOC LIMITED

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

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

3.	SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)

Cash and cash equivalents

Cash and cash equivalents comprise cash at banks and on hand and short term deposits with an original maturity of three months or less.

Provisions

(a)

General

A provision is recognized when a present obligation (legal or constructive) has arisen as a result of a past event and it is probable that a future outflow of resources will be required to settle the obligation, provided that a reliable estimate can be made of the amount of the obligation. When the effect of discounting is material, the amount recognized for a provision is the present value at the reporting date of the future expenditures expected to be required to settle the obligation. The increase in the discounted present value amount arising from the passage of time is included in “Finance costs” in profit or loss.

(b)

Dismantlement liability

Dismantlement liability is recognized when the Group has a present legal or constructive obligation as a result of the past events, and it is probable that an outflow of resources will be required to settle the obligation, and a reliable estimate of the amount of the obligation can be made. A corresponding amount equivalent to the provision is also recognized as part of the cost of the related property, plant and equipment. The amount recognized is the estimated cost of dismantlement, discounted to its present value using a current pre-tax rate that reflects, where appropriate, the risks specific to the liability. Changes in the estimated timing of dismantlement or dismantlement cost estimates are dealt with prospectively by recording an adjustment to the provision, and a corresponding adjustment to property, plant and equipment. The unwinding of the discount on the dismantlement provision is included as a finance cost.

The Group recognizes a deferred tax asset and deferred tax liability regarding the temporary difference on the dismantlement liability and the dismantlement asset respectively.

Income tax

Income tax comprises current and deferred tax. Income tax is recognised in the consolidated statement of comprehensive income, either as an expense as it relates to operating activities or as a component of the applicable categories of other comprehensive income or loss.

Current tax assets and liabilities for the current and prior periods are measured at the amount expected to be recovered from or paid to the taxation authorities. The tax rates and tax laws used to compute the amount are those that are enacted or substantially enacted, by the reporting date, in the countries where the Group operates and generates taxable income.

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

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

in respect of taxable temporary differences associated with investments in subsidiaries, associates and interests in joint ventures, when the timing of the reversal of the temporary differences can be controlled and it is probable that the temporary differences will not reverse in the foreseeable future.

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CNOOC LIMITED

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

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

3.	SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)

Income tax (continued)

As at December 31, 2012, deferred tax liabilities related to undistributed earnings of certain of the Company’s subsidiaries have not been recognized, since the timing of the reversal of the taxable temporary difference can be controlled by the Company and it is probable that the temporary difference would not reverse in the foreseeable future.

Deferred tax assets are recognized for all deductible temporary differences, the carryforward of unused tax credits and any unused tax losses. Deferred tax assets are recognized to the extent that it is probable that taxable profit will be available against which the deductible temporary differences, the carryforward of unused tax credits and unused tax losses can be utilized, except:

when the deferred tax assets relating to the deductible temporary differences arise from the initial recognition of an asset or liability in a transaction that is not a business combination and, at the time of the transaction, affects neither the accounting profit nor taxable profit or loss; and

in respect of deductible temporary differences associated with investments in subsidiaries, associates and interests in joint ventures, deferred tax assets are only recognized to the extent that it is probable that the temporary differences will reverse in the foreseeable future and taxable profit will be available against which the temporary differences can be utilized.

The carrying amount of deferred tax assets is reviewed at each reporting date and reduced to the extent that it is no longer probable that sufficient taxable profit will be available to allow all or part of the deferred tax asset to be utilized. Unrecognized deferred tax assets are reassessed at each reporting date and are recognized to the extent that it is probable that sufficient taxable profit will be available to allow all or part of the deferred tax asset to be utilized.

Deferred tax assets and liabilities are measured at the tax rates that are expected to apply to the period when the asset is realized or the liability is settled, based on tax rates (and tax laws) that have been enacted or substantively enacted at the reporting date.

Deferred tax assets and deferred tax liabilities are offset if a legally enforceable right exists to set off current tax assets against current tax liabilities and the deferred taxes relate to the same taxable entity and the same taxation authority.

Revenue recognition

Revenue is recognized when it is probable that the economic benefits will flow to the Group and when the revenue can be measured reliably, on the following bases:

(a)

Oil and gas sales

Oil and gas sales represent the invoiced value of sales of oil and gas attributable to the interests of the Group, net of royalties and the government share oil that is lifted and sold on behalf of the government. Revenue from the sale of oil is recognized when the significant risks and rewards of ownership have been transferred, which is when title passes to the customer. This generally occurs when product is physically transferred into a vessel, pipe or other delivery mechanism. Revenue from the production of oil in which the Group has an interest with other producers is recognized based on the Group’s working interest and the terms of the relevant production sharing contracts. Differences between production sold and the Group’s share of production are not significant.

Oil and gas lifted and sold by the Group above or below the Group’s participating interests in the production sharing contracts results in overlifts and underlifts. The Group records these transactions in accordance with the entitlement method under which overlifts are recorded as liabilities and underlifts are recorded as assets at year-end oil prices. Settlement will be in kind or in cash when the liftings are equalized or in cash when production ceases.

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CNOOC LIMITED

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

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

3.	SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)

Revenue recognition (continued)

(a)

Oil and gas sales (continued)

The Group has entered into gas sale contracts with customers, which contain take-or-pay clauses. Under these contracts, the Group makes a long term supply commitment in return for a commitment from the buyer to pay for minimum quantities, whether or not it takes delivery. These commitments contain protective (force majeure) and adjustment provisions. If a buyer has a right to get a “make up” delivery at a later date, revenue recognition is deferred. If no such option exists according to the contract terms, revenue is recognized when the take-or-pay penalty is triggered.

(b)

Marketing revenues

Marketing revenues principally represent the sale of oil and gas purchased from the foreign partners under the production sharing contracts and revenues from the trading of oil and gas through the Company’s subsidiaries. The title, together with the risks and rewards of the ownership of such oil purchased from the foreign partners, is transferred to the Group from the foreign partners and other unrelated oil and gas companies before the Group sells such oil to its customers. The cost of the oil and gas sold is included in “Crude oil and product purchases”.

(c)

Other income

Other income mainly represents project management fees charged to foreign partners, handling fees charged to customers and income from disposal of oil and gas properties and is recognized when the services have been rendered or the properties have been disposed of. Reimbursement of insurance claims is recognized when the compensation becomes receivable.

(d)

Dividend income

Dividend income is recognized when the Group’s right to receive payment is established.

(e)

Interest income

Interest income is recognized as it accrues using the effective interest method.

The Group presents taxes collected from customers in the consolidated statement of comprehensive income on a net basis.

Share-based payment transactions

Employees (including directors) of the Group receive remuneration in the form of share-based payment transactions, whereby employees render services as consideration for equity instruments (“equity-settled transactions”).

The cost of equity-settled transactions with employees is measured by reference to the fair value at the date at which they are granted. The fair value is determined by using the Black-Scholes option pricing model, further details of which are given in note 28.

The cost of equity-settled transactions is recognized, together with a corresponding increase in equity, over the period in which the performance and/or service conditions are fulfilled. The cumulative expense recognized for equity-settled transactions at the end of the each reporting period until the vesting date reflects the extent to which the vesting period has expired and the Group’s best estimate of the number of equity instruments that will ultimately vest. The charge or credit to profit or loss for a period represents the movement in the cumulative expense recognized as at the beginning and end of that period.

No expense is recognized for awards that do not ultimately vest for the Group.

No equity-settled award was cancelled or modified during the years ended December 31, 2012 and 2011.

The dilutive effect of outstanding options is reflected as additional share dilution in the computation of earnings per share.

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CNOOC LIMITED

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

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

3.	SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)

Retirement and termination benefits

The Group participates in defined contribution plans in accordance with local laws and regulations for full-time employees in the PRC and other countries in which it operates. The plans provide for contributions ranging from 11% to 22% of the employees’ basic salaries. The Group’s contributions to these defined contribution plans are charged to the profit or loss in the year to which they relate.

Borrowing costs

Borrowing costs consist of interest and other costs that an entity incurs in connection with the borrowing of funds. Borrowing costs directly relating to the acquisition, construction or production of a qualifying asset that necessarily takes a substantial period of time to get ready for its intended use or sale are capitalized as part of the cost of the respective assets. All other borrowing costs are expensed in the period in which they are incurred.

Foreign currencies

These financial statements are presented in Renminbi(“RMB”). Each entity in the Group maintains its books and records in its own functional currency. Foreign currency transactions recorded by the entities of the Group are initially recorded using their respective functional currency rates ruling at the dates of the transactions. Monetary assets and liabilities denominated in foreign currencies are retranslated at the functional currency rates of exchange ruling at the end of the reporting period. All differences arising on settlement or translation of monetary items are taken to profit or loss. Non-monetary items that are measured in terms of historical cost in a foreign currency are translated using the exchange rates at the dates of the initial transactions. Non-monetary items measured at fair value in a foreign currency are translated using the exchange rates at the date when the fair value was determined. The gain or loss arising on retranslation of a non-monetary item is treated in line with the recognition of the gain or loss on change in fair value of the item.

The functional currencies of certain entities within the Group are currencies other than RMB. As at the end of the reporting period, the assets and liabilities of these entities are translated into the presentation currency of the Group at the exchange rates ruling at the reporting date, and their statement of comprehensive income are translated into RMB at the weighted average exchange rates for the year. The resulting exchange differences are included in the cumulative translation reserve. On disposal of a foreign operation, the deferred cumulative amount recognized in equity relating to that particular foreign operation is recognized in profit or loss.

Operating leases

Leases where substantially all the rewards and risks of ownership of assets remain with the lessor are accounted for as operating leases. Where the Group is the lessee, rentals payable under operating leases are charged to profit or loss on the straight-line basis over the lease terms.

Prepaid land lease payments under operating leases are initially stated at cost and subsequently recognized on the straight-line basis over the lease terms.

Contingencies

A contingent liability is disclosed when the existence of an obligation will only be confirmed by future events or when the amount of the obligation cannot be measured reliably.

A contingent asset is not recognized in the financial statements, but is disclosed when an inflow of economic benefits is probable.

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CNOOC LIMITED

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

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

3.	SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)

Significant accounting judgments, estimates and assumptions

The preparation of the consolidated financial statements in conformity with IFRSs and HKFRSs requires management to make estimates and assumptions that affect the reported amounts of assets, liabilities and contingent liabilities at the date of the consolidated financial statements and the reported amounts of revenues and expenses during the reporting period. Estimates and judgments are continuously evaluated and are based on management’s experience and other factors, including expectations of future events that are believed to be reasonable under the circumstances. However, actual outcomes can differ from these estimates.

In the process of applying the Group’s accounting policies, the Directors have made the following judgments, estimates and assumptions, which have the most significant effect on the amounts recognized in the consolidated financial statements:

(a)

Reserve base

Oil and gas properties are depreciated on a unit-of-production basis at a rate calculated by reference to proved reserves. Commercial reserves are determined using estimates of oil in place, recovery factors and future oil prices, the latter having an impact on the proportion of the gross reserves which are attributable to the host government under the terms of the production sharing contracts. The level of estimated commercial reserves is also a key determinant in assessing whether the carrying value of any of the Group’s oil and gas properties has been impaired.

Pursuant to the oil and gas reserve estimation requirements under US Securities and Exchange Commission's rules, the Group uses the average, first-day-of-the-month oil price during the 12-month period before the ending date of the period covered by the consolidated financial statements to estimate its proved oil and gas reserves.

(b)

Carrying value of oil and gas assets

The calculation of the unit-of-production rate for oil and gas properties amortization could be impacted to the extent that actual production in the future is different from current forecast production based on proved reserves. This would generally result from significant changes in any of the factors or assumptions used in estimating reserves. These factors could include changes in proved reserves, the effect on proved reserves of differences between actual commodity prices and commodity price assumptions and unforeseen operational issues.

(c)

Impairment indicators

The recoverable amounts of cash-generating units and individual assets have been determined based on the higher of value in use and fair value less costs to sell. These calculations require the use of estimates and assumptions. It is reasonably possible that the oil price assumption may change which may then impact the estimated life of the field and may then require a material adjustment to the carrying value of tangible assets. The Group monitors internal and external indicators of impairment relating to its tangible and intangible assets.

(d)

Dismantlement costs

Dismantlement costs will be incurred by the Group at the end of the operating life of certain of the Group’s facilities and properties. The ultimate dismantlement costs are uncertain and cost estimates can vary in response to many factors including changes to relevant legal requirements, the emergence of new restoration techniques or experience at other production sites. The expected timing and amount of expenditure can also change, for example, in response to changes in reserves or changes in laws and regulations or their interpretation. As a result, there could be significant adjustments to the provisions established which would affect future financial results.

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CNOOC LIMITED

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

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

3.	SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)

Significant accounting judgments, estimates and assumptions (continued)

(e)

Taxes

Uncertainties exist with respect to the interpretation of complex tax regulations (including those applicable to tax credits) and the amount and timing of future taxable income. Given the wide range of international business relationships and the long term nature and complexity of existing contractual agreements, differences arising between the actual results and the assumptions made, or future changes to such assumptions, could necessitate future adjustments to tax income and expense already recorded. The Group establishes provisions, based on best estimates, for possible consequences of audits by the tax authorities of the respective countries in which it operates. The amount of such provisions is based on various factors, such as the Group’s experience of previous tax audits and differing interpretations of tax regulations by the taxable entity and the responsible tax authority. Such differences of interpretation may arise on a wide variety of issues depending on the conditions prevailing in the respective Group company's domicile.

4.	ACQUISITIONS AND OTHER VENTURES

2012

(i)

On March 29, 2011, CNOOC Uganda Ltd, a wholly-owned subsidiary of CNOOC International Limited, entered into a sales and purchase agreement with Tullow Uganda Limited and Tullow Uganda Operations Pty Ltd., wholly-owned subsidiaries of Tullow Oil Plc., to acquire a one-third working interest in each of Uganda Exploration Areas 1, 2 and 3A (the “Uganda Assets”) at an initial cash consideration of US$1.467 billion. The acquisition of the Uganda Assets was completed on February 21, 2012. Together with the related price adjustment, the cash consideration mentioned above has been recorded as an acquisition cost of oil and gas properties.

(ii)

On July 23, 2012, the Company, CNOOC Canada Holding Ltd. and Nexen Inc. entered into an arrangement agreement in relation to the Company’s acquisition (through its wholly-owned subsidiary, CNOOC Canada Holding Ltd.) of all the Nexen Inc. common shares and preferred shares, pursuant to a plan of arrangement under the Canada Business Corporations Act.

The aggregate consideration of the acquisition was approximately US$15.1 billion (approximately HK$117.2 billion), and was paid in cash. The consideration is related to acquisition of common shares and preferred shares and settlement of share options. The indebtedness of Nexen Inc. at the acquisition date remains outstanding. Details of the acquisition have been set out in the Company’s circular to the shareholders dated December 20, 2012. The acquisition of Nexen Inc. was subsequently completed on February 26, 2013(Beijing time). On February 19, 2013, the Company (through its wholly-owned subsidiary, CNOOC Canada Holding Ltd.) signed a short-term bank loan agreement with the maturity of one year of approximately US$6 billion, for the payment of the consideration related to the acquisition of Nexen Inc.

Due to the timing of the transaction, the Group is still assessing the allocation of fair values of the assets acquired and liabilities assumed. The Group has not yet been able to analyse all books and records of Nexen Inc., and therefore the initial accounting for the business combination is still incomplete. Accordingly, certain disclosures in relation to the business combination as at the date of the acquisition, such as fair values of assets acquired and liabilities assumed, goodwill recognised (if any) and acquisition-related costs, have not been presented.

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CNOOC LIMITED

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

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

4.	ACQUISITIONS AND OTHER VENTURES (continued)

2011

(i)

The Company and Bridas Energy Holdings Ltd. (“BEH”), through Bridas Corporation, a 50% owned joint venture, entered into a share purchase agreement with BP PLC (“BP”) on November 28, 2010, pursuant to which Bridas Corporation would acquire a 60% equity interest in Pan America Energy LLC (“PAE”) from BP for a consideration of approximately US$7.06 billion. On November 5, 2011, Bridas Corporation sent to BP a letter to terminate the above mentioned transaction to acquire a 60% equity interest in PAE from BP.

(ii)

On January 29, 2011, CNOOC International Limited (“CNOOC International”) through its wholly-owned subsidiary, OOGC America, Inc., signed a purchase agreement with Chesapeake Exploration, LLC, a subsidiary of Chesapeake Energy Corporation to purchase a 33.3% undivided interest in the Denver-Julesburg and Powder River Basins in northeast Colorado and southeast Wyoming (the “Niobrara Project”) with a cash consideration of US$570 million. In addition, CNOOC International has agreed to fund 66.7% of Chesapeake’s share of drilling and completion costs in the project until an additional US$697 million has been paid. US$180 million was paid in 2011. The acquisition was closed on February 11, 2011.

(iii)

On July 20, 2011, the Company entered into an arrangement agreement, through its indirect wholly-owned subsidiary, CNOOC Luxembourg S.à r.l, to acquire OPTI Canada Inc. (“OPTI”), a public company listed on the Toronto Stock Exchange (“TSX”), with a total consideration of approximately US$2.1 billion, which included an aggregate cash consideration of US$1.25 billion paid to the OPTI shareholders (US$34 million or approximately RMB214 million) and the Second Lien Noteholders (US$1.216 billion or approximately RMB7.69 billion). In addition, due to a change in control of OPTI as a result of the transaction, OPTI must redeem all of its outstanding First Lien Notes in December 2011 at a price equal to 102% of the principal amount of the First Lien Notes plus accrued interest (totaling US$878 million) pursuant to the indentures thereof. The acquisition was completed on November 28, 2011. In connection with the acquisition, the OPTI shares have been delisted from the TSX. OPTI Canada Inc. subsequently changed its name to CNOOC Canada Inc. on December 15, 2011.

The fair values of the identifiable assets and liabilities of OPTI as at the date of acquisition are as follows:

	Fair value recognized on acquisition

Property, plant and equipment		14,600
Cash and cash equivalents		1,008
Trade receivables		326
Other current assets		105

Trade payables		(560	)
Other current liabilities		(659	)
Loans and borrowings		(14,262	)
Other non-current liabilities		(344	)

Goodwill on acquisition		-

Satisfied by cash		214

An analysis of the net outflow of cash and cash equivalents in respect of the acquisition is as follows:

Cash consideration	214
Purchase of Second Lien Notes	7,690
Cash and cash equivalents acquired	(1,008	)

Net outflow of cash and cash equivalents in respect of the acquisition	6,896

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CNOOC LIMITED

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

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

4.	ACQUISITIONS AND OTHER VENTURES (continued)

2011 (continued)

(iii)

(continued)

Since the acquisition, CNOOC Canada Inc. contributed approximately RMB255 million to the Group’s turnover and approximately RMB15 million to the consolidated profit for 2011.

If the acquisition had taken place at the beginning of 2011, CNOOC Canada Inc. would have contributed approximately RMB2,418 million to the Group’s turnover and reduced the consolidated profit for the year by approximately RMB268 million for the year ended December 31, 2011.

2010

(i)

On March 13, 2010, CNOOC International, a wholly-owned subsidiary of the Company, entered into agreements with BEH to form a 50:50 joint venture in Bridas Corporation, formerly a wholly-owned subsidiary of BEH, for cash consideration of approximately US$3.1 billion. This transaction is aligned with the Company’s growth strategy by expanding its reach into Latin America and establishes a foundation for future growth in the region and other countries. Bridas Corporation, through its affiliates (including a 40% interest in PAE) has oil and gas exploration and production activities in Argentina, Bolivia and Chile. On May 4, 2010, the Company completed its acquisition at a total consideration of US$3.1 billion.

The Group accounts for its investment in Bridas Corporation using the equity method.

(ii)

On April 30, 2010, CNOOC China Limited, a wholly-owned subsidiary of the Company, signed a sales and purchase agreement to acquire an additional 24.5% participating interest in Block 15/34 from Devon Energy Corporation (“Devon”) for a cash consideration of US$515 million. On June 18, 2010, the Company completed its acquisition. Block 15/34 is located in the Pearl River Mouth Basin of South China Sea.

The Company is the operator of the block. Upon completion, the Company increased its participating interest to 75.5%.

(iii)

On May 17, 2010, CNOOC International, Türkiye Petrolleri A.O. (“TPAO”) and Iraqi Drilling Company (“IDC”) (collectively, the “Contractors”) entered into a Technical Service Contract (“TSC”) for the Missan oil fields in Iraq. The Contractors are engaged to achieve stipulated production targets through improved and enhanced recovery measures. The TSC provides for a cost recovery mechanism and remuneration fee on incremental production. The TSC has a contract term of 20 years, with an option to extend for additional five years with relevant approval.

CNOOC International will act as the lead contractor and hold a 63.75% participating interest while TPAO will hold 11.25%. IDC will hold the remaining 25% participating interest. As a state partner, IDC will be entitled to receive a 25% participating interest of remuneration fee without paying any expenditure.

(iv)

On October 10, 2010, CNOOC International through its wholly-owned subsidiary, OOGC America, Inc., signed a purchase agreement with Chesapeake Exploration, LLC, a subsidiary of Chesapeake Energy Corporation (“Chesapeake”), to purchase a 33.3% undivided interest in Chesapeake’s Eagle Ford Shale project in Texas with a cash consideration of US$1.08 billion plus an upward adjustment of US$40 million plaid on closing. In addition, CNOOC International has agreed to fund 75% of Chesapeake’s share of development costs in the project until an additional US$1.08 billion has been paid. The deal was closed on November 15, 2010.

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CNOOC LIMITED

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

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

5.	SEGMENT INFORMATION

(a)

Segment results and other information

In previous years, the Group reported three segments that comprised independent operations, operations under joint arrangements and trading business. The Group is engaged worldwide in the upstream operating activities of the conventional oil and gas, shale oil and gas, oil sands and other unconventional oil and gas business. Segmental reporting has been changed with effect from 2012, in line with the change in the way the Group’s businesses are managed by the chief operating decision makers. The Group now reports the business through three reporting segments: exploration and production (“E&P”), trading business and corporate. Within each segment, geographical segments are presented as well. Segment information for the years ended December 31, 2011 and 2010 has been restated to conform to current year’s presentation.

The following table presents the segment financial information for the Group for the years ended December 31, 2012, 2011 and 2010.

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CNOOC LIMITED

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

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

5.	SEGMENT INFORMATION (continued)

(a)

Segment results and other information (continued)

2012

	E&P															Trading business			Corporate			Eliminations			Consolidated
	PRC			Asia excluding PRC			Oceania			Africa			North America
Sales to external customers:
Oil and gas sales		166,061			6,689			1,857			14,666			5,501			-			-			-			194,774
Marketing revenues		-			-			-			-			-			50,771			-			-			50,771
Intersegment revenues		-			3,345			1,116			9,838			-			-			-			(14,299	)		-
Other income		756			-			-			-			877			-			464			(15	)		2,082

Total		166,817			10,034			2,973			24,504			6,378			50,771			464			(14,314	)		247,627

Segment results
Operating expenses		(15,386	)		(2,352	)		( 520	)		( 1,223	)		(1,964	)		-			-			-			(21,445	)
Taxes other than income tax		(14,513	)		-			( 338	)		( 504	)		(247	)		-			(30	)		-			(15,632	)
Exploration expenses		(5,768	)		(818	)		( 1	)		( 641	)		(1,603	)		-			(227	)		15			(9,043	)
Depreciation, depletion and amortisation		(24,476	)		(1,434	)		( 193	)		( 4,350	)		(2,322	)		-			(128	)		-			(32,903	)
Special oil gain levy		(26,293	)		-			-			-			-			-			-			-			(26,293	)
Impairment and provision		(31	)		-			-			-			-			-			-			-			(31	)
Crude oil and product purchases		-			-			-			-			-			(50,532	)		-			-			(50,532	)
Selling and administrative expenses		(1,799	)		(477	)		( 27	)		( 94	)		(116	)		(9	)		(855	)		-			(3,377	)
Others		(131	)		(164	)		-			2			(837	)		-			(100	)		-			(1,230	)

Interest income		6			-			3			-			-			-			1,441			(448	)		1,002
Finance costs		(1,284	)		(40	)		( 17	)		( 539	)		(13	)		(4	)		(154	)		448			(1,603	)
Exchange gains/(losses), net		2			(38	)		( 2	)		-			427			-			(30	)		-			359
Investment income		-			-			-			-			-			-			2,567			(175	)		2,392
Share of profits of associates		71			-			-			-			-			-			213			-			284
Share of losses of a joint venture		-			-			-			-			-			-			(311	)		-			(311	)
Non-operating income, net		896			-			-			-			-			-			12			-			908
Income tax expense		(19,435	)		(1,213	)		( 228	)		( 5,011	)		1			(2	)		(593	)		-			(26,481	)

Segment profit/(loss) for the year		58,676			3,498			1,650			12,144			(296	)		224			2,269			(14,474	)		63,691


Other segment information
Segment assets		159,269			14,292			4,146			37,443			57,654			3,172			342,616			(186,539	)		432,053
Investments in associates(ii)		1,080			-			-			-			-			-			2,777			-			3,857
Investment in a joint venture(ii)		-			-			-			-			-			-			20,160			-			20,160

Total assets		160,349			14,292			4,146			37,443			57,654			3,172			365,553			(186,539	)		456,070

Non-current assets(i)		151,562			12,630			2,226			36,073			52,311			2			37,542			(14,261	)		278,085

Segment liabilities		(148,650	)		(5,664	)		(2,457	)		(30,621	)		(57,089	)		(3,020	)		(69,866	)		171,077			(146,290	)

Total liabilities		(148,650	)		(5,664	)		(2,457	)		(30,621	)		(57,089	)		(3,020	)		(69,866	)		171,077			(146,290	)

Capital expenditures		41,735			3,062			2			14,266			11,681			2			310			-			71,058

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CNOOC LIMITED

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

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

5.	SEGMENT INFORMATION (continued)

(a)

Segment results and other information (continued)

2011 (Restated)

	E&P															Trading business			Corporate			Eliminations			Consolidated
	PRC			Asia excluding PRC			Oceania			Africa			North America
Sales to external customers:
Oil and gas sales		163,386			7,638			2,096			14,841			1,318			-			-			-			189,279
Marketing revenues		-			-			-			-			-			50,469			-			-			50,469
Intersegment revenues		-			4,972			1,327			14,994			-			-			-			(21,293	)		-
Other income		506			-			-			-			4			-			766			(80	)		1,196
Total		163,892			12,610			3,423			29,835			1,322			50,469			766			(21,373	)		240,944

Segment results
Operating expenses		(13,954	)		(2,459	)		(490	)		(1,036	)		(325	)		-			-			-			(18,264	)
Taxes other than income tax		(9,566	)		-			(418	)		(299	)		(31	)		-			(18	)		-			(10,332	)
Exploration expenses		(4,024	)		(220	)		(1	)		(194	)		(621	)		-			(240	)		80			(5,220	)
Depreciation, depletion and amortisation		(23,716	)		(1,521	)		(229	)		(4,387	)		(562	)		-			(106	)		-			(30,521	)
Special oil gain levy		(31,982	)		-			-			-			-			-			-			-			(31,982	)
Impairment and provision		(22	)		-			-			-			-			-			-			-			( 22	)
Crude oil and product purchases		-			-			-			-			-			(50,307	)		-			-			(50,307	)
Selling and administrative expenses		(1,403	)		(629	)		(24	)		(46	)		(81	)		(10	)		(661	)		-			(2,854	)
Others		(519	)		(266	)		-			(11	)		-			-			(39	)		-			(835	)

Interest income		14			-			3			-			-			-			1,663			(484	)		1,196
Finance costs		(1,120	)		(23	)		(15	)		(642	)		(16	)		(2	)		(373	)		484			(1,707	)
Exchange gains/(losses), net		84			(3	)		(1	)		-			174			-			383			-			637
Investment income		-			-			-			-			-			-			1,853			(25	)		1,828
Share of profits of associates		133			-			-			-			-			-			187			-			320
Share of profits of a joint venture		-			-			-			-			-			-			247			-			247
Non-operating income /(expenses), net		62			(59	)		-			-			-			-			(566	)		-			(563	)
Income tax expense		(19,264	)		(1,666	)		(273	)		(493	)		1			(6	)		(609	)		-			(22,310	)

Segment profit/(loss) for the year		58,615			5,764			1,975			22,727			(139	)		144			2,487			(21,318	)		70,255


Other segment information
Segment assets		142,929			13,921			3,857			28,130			47,254			4,232			277,106			(156,162	)		361,267
Investments in associates(ii)		1,100			-			-			-			-			-			1,722			-			2,822
Investment in a joint venture(ii)		-			-			-			-			-			-			20,175			-			20,175

Total assets		144,029			13,921			3,857			28,130			47,254			4,232			299,003			(156,162	)		384,264

Non-current assets(i)		137,341			11,844			2,423			26,441			44,598			1			29,810			(7,482	)		244,976

Segment liabilities		(138,235	)		(4,653	)		(2,698	)		(23,893	)		(46,780	)		(4,100	)		(52,155	)		151,106			(121,408	)

Total liabilities		(138,235	)		(4,653	)		(2,698	)		(23,893	)		(46,780	)		(4,100	)		(52,155	)		151,106			(121,408	)

Capital expenditures		30,792			2,451			1			2,142			30,503			-			1,139			-			67,028

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CNOOC LIMITED

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

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

5.	SEGMENT INFORMATION (continued)

(a)

Segment results and other information (continued)

2010 (Restated)

	E&P															Trading business			Corporate			Eliminations			Consolidated
	PRC			Asia excluding PRC			Oceania			Africa			North America
Sales to external customers:
Oil and gas sales		125,446			6,246			2,053			12,239			150			-			-			-			146,134
Marketing revenues		-			-			-			-			-			32,446			-			-			32,446
Intersegment revenues		-			4,520			1,193			11,925			-			-			-			(17,638	)		-
Other income		1,273			1			-			119			-			-			166			(103	)		1,456
Total		126,719			10,767			3,246			24,283			150			32,446			166			(17,741	)		180,036

Segment results
Operating expenses		(11,735	)		(2,424	)		(470	)		(983	)		(35	)		-			-			-			(15,647	)
Taxes other than income tax		(6,495	)		(9	)		(332	)		(256	)		-			-			(17	)		-			(7,109	)
Exploration expenses		(4,312	)		(567	)		9			(550	)		-			-			(166	)		103			(5,483	)
Depreciation, depletion and amortisation		(19,823	)		(1,647	)		(247	)		(4,919	)		(23	)		-			(97	)		-			(26,756	)
Special oil gain levy		(17,706	)		-			-			-			-			-			-			-			(17,706	)
Impairment and provision		(27	)		-			-			-			-			-			-			-			(27	)
Crude oil and product purchases		-			-			-			-			-			(32,236	)		-			-			(32,236	)
Selling and administrative expenses		(1,414	)		(589	)		(18	)		(79	)		(61	)		(7	)		(871	)		-			(3,039	)
Others		(746	)		(122	)		-			21			-			-			(41	)		-			(888	)
																	-
Interest income		12			-			21			-			-			-			1,879			(1,294	)		618
Finance costs		(719	)		(26	)		(72	)		(1,264	)		-			(1	)		(334	)		1,294			(1,122	)
Exchange (losses)/ gains, net		(28	)		29			1			-			-			1			992			-			995
Investment income		-			-			-			-			-			-			767			(340	)		427
Share of profits of associates		93			-			-			-			-			-			106			-			199
Share of profits of a joint venture		-			-			-			-			-			-			199			-			199
Non-operating income /(expenses), net		192			-			-			-			-			-			(50	)		-			142
Income tax expense		(15,919	)		(726	)		(62	)		(1,386	)		-			(5	)		(95	)		-			(18,193	)

Segment profit/(loss) for the year		48,092			4,686			2,076			14,867			31			198			2,438			(17,978	)		54,410

Other segment information
Segment assets		130,078			15,355			4,227			32,344			16,570			3,160			265,087			(170,995	)		295,826
Investments in associates(ii)		1,057			-			-			-			-			-			724			-			1,781
Investment in a joint venture(ii)		-			-			-			-			-			-			20,823			-			20,823

Total assets		131,135			15,355			4,227			32,344			16,570			3,160			286,634			(170,995	)		318,430

Non-current assets(i)		125,548			12,779			2,782			30,818			16,528			1			22,897			(923	)		210,430

Segment liabilities		(129,447	)		(6,084	)		(2,875	)		(35,919	)		(16,472	)		(3,063	)		(73,867	)		165,063			(102,664	)

Total liabilities		(129,447	)		(6,084	)		(2,875	)		(35,919	)		(16,472	)		(3,063	)		(73,867	)		165,063			(102,664	)

Capital expenditures		31,845			1,788			-			2,540			15,641			-			93			-			51,907

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CNOOC LIMITED

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

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

5.	SEGMENT INFORMATION (continued)

(a)

Segment results and other information (continued)

(i)

The information on non-current assets above is based on the location of assets and excludes financial instruments and deferred tax assets.

(ii)

Detailed information on investments in associates and investment in a joint venture is disclosed in note 17 and note 18, respectively.

(iii)

In presenting the Group’s geographical information, revenues from external customers are based on the location where the revenues originate. 75% of the Group’s revenues are generated from PRC customers, and revenues generated from customers in other locations are individually less than 10%.

(b)

Information about major customers

The current year’s revenue of approximately RMB44,622 million (2011: RMB52,026 million, 2010: RMB34.384 million) and RMB18,259 million (2011: RMB33,591 million, 2010:RMB13.218 million) was derived from sales by the E&P segment in the PRC and the trading business segment to China Petroleum & Chemical Corporation and PetroChina Company Limited, respectively.

6.	OIL AND GAS SALES

	2010			2011			2012
Gross sales		152,887			195,759			198,428
Less: Royalties		( 3,523	)		( 3,134	)		(1,036	)
PRC government’s share of oil		( 3,230	)		( 3,346	)		(2,618	)

Oil and gas sales		146,134			189,279			194,774

7.	SPECIAL OIL GAIN LEVY

In 2006, a Special Oil Gain Levy (“SOG Levy”) was imposed by the Ministry of Finance of the PRC (“MOF”) at the progressive rates from 20% to 40% on the portion of the monthly weighted average sales price of the crude oil lifted in the PRC exceeding US$40 per barrel. MOF has decided to increase the threshold of the SOG Levy to US$55, with effect from November 1, 2011. Notwithstanding this adjustment, the SOG Levy continues to have five levels and is calculated and charged according to the progressive and valorem rates on the excess amounts. The SOG Levy paid can be claimed as a deductible expense for corporate income tax purposes and is calculated based on the actual volume of the crude oil entitled.

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CNOOC LIMITED

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

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

8.	PROFIT BEFORE TAX

The Group’s profit before tax is arrived at after charging/(crediting):

	2010			2011			2012
Crediting:
Interest income from bank deposits		(618	)		( 1,196	)		(1,002	)
Exchange gains, net		(995	)		( 637	)		(359	)

Investment income:
– Net gain from available-for-sale financial assets		(425	)		( 1,695	)		(1,869	)
– Net gain from held-to-maturity financial assets		(2	)		( 133	)		(523	)

		(427	)		( 1,828	)		(2,392	)

Charging:
Auditors’ remuneration:
– Audit fee		18			19			24
– Other fees		2			3			12

		20			22			36


Employee wages, salaries, allowances and social security costs		1,581			1,527			2,537

Equity-settled share option expenses		218			143			50

Depreciation, depletion and amortization:
– Property, plant and equipment		26,943			30,397			33,098
– Intangible assets		195			204			200
– Less: Net amount capitalized		(382	)		( 80	)		(395	)

		26,756			30,521			32,903

Operating lease rentals:
– Office properties		128			133			158
– Equipment		1,819			1,616			1,383

		1,947			1,749			1,541

Repairs and maintenance		2,867			3,011			4,229
Research and development costs		823			850			1,420
Provision for inventory obsolescence		27			22			31
Loss on disposal of property, plant and equipment		65			187			19
Insurance compensation on disposal of property,plant and equipment		-			( 93	)		(390	)
Gain on disposal of a subsidiary		-			( 372	)		-
Donation to the CNOOC Marine Environmental and Ecological Protection Public Welfare Foundation		-			500			-

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CNOOC LIMITED

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

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

9.	FINANCE COSTS

	2010			2011			2012

Interest on bank loans
which are repayable within five years		264			637			503
Interest on other loans		384			921			1,145
Other borrowing costs		34			30			183

Total borrowing costs		682			1,588			1,831

Less: Amount capitalized in property, plant and equipment (note 15)		(394	)		(1,150	)		(1,549	)

		288			438			282
Other finance costs:
Unwinding of discount on provision for dismantlement (note 27)		754			1,312			1,359
Others		80			(43	)		(38	)

		1,122			1,707			1,603

The interest rates used to determine the amount of related borrowing costs for capitalization varied from 1.06585% to 6.375% (2011: from 0.9455% to 6.375%, 2010: from 4.1% to 6.375%) per annum during the year ended on December 31, 2012.

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CNOOC LIMITED

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

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

10.	KEY MANAGEMENT PERSONNEL’S REMUNERATION

Key management personnel are those persons having authority and responsibility for planning, directing and controlling the activities of the entity, directly or indirectly, including any director (whether executive or otherwise) of the Company.

(i)

Directors’ remuneration

			Salaries,						Total
			allowances		Performance		Pension		paid/payable
			and benefits		related		scheme		during
	Fees (1)		in kind (1)		bonuses (1)		contributions		the year
	RMB’000		RMB’000		RMB’000		RMB’000		RMB’000
2012
Executive directors:

Li Fanrong (2)		773		-		-		81		854
Wu Guangqi		773		-		-		72		845

Subtotal		1,546		-		-		153		1,699

Non-executive directors:

Wang Yilin (3)		848		-		-		-		848
Yang Hua (5)		773		-		-		-		773
Zhou Shouwei(6)		788		-		-		-		788
Wu Zhenfang		773		-		-		-		773

Subtotal		3,182		-		-		-		3,182

Independent non-executive
directors:
Chiu Sung Hong		862		-		-		-		862
Lawrence J. Lau (8)		773		-		-		-		773
Tse Hau Yin, Aloysius		895		-		-		-		895
Wang Tao (9)		773		-		-		-		773
Subtotal		3,303		-		-		-		3,303
Total		8,031		-		-		153		8,184


2011
Executive directors:

Li Fanrong (2)		788		-		-		75		863
Wu Guangqi		788		-		-		73		861

Subtotal		1,576		-		-		148		1,724

Non-executive directors:

Wang Yilin (3)		591		-		-		-		591
Fu Chengyu (4)		197		-		-		-		197
Yang Hua (5)		788		-		-		68		856
Zhou Shouwei(6)		879		-		-		-		879
Wu Zhenfang		788		-		-		-		788

Subtotal		3,243		-		-		68		3,311

Independent non-executive
directors:
Edgar W. K. Cheng (7)		722		-		-		-		722
Chiu Sung Hong		879		-		-		-		879
Lawrence J. Lau(8)		788		-		-		-		788
Tse Hau Yin, Aloysius		913		-		-		-		913
Wang Tao(9)		788		-		-		-		788
Subtotal		4,090		-		-		-		4,090
Total		8,909		-		-		216		9,125

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CNOOC LIMITED

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

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

10.	KEY MANAGEMENT PERSONNEL’S REMUNERATION (Continued)

(i)

Directors’ remuneration(continued)

2010
			Salaries,						Total
			allowances		Performance		Pension		paid/payable
			and benefits		related		scheme		during
	Fees (1)		in kind (1)		bonuses(1)		contributions		the year
	RMB’000		RMB’000		RMB’000		RMB’000		RMB’000

Executive directors:
Yang Hua (5)		828		2,607		2,004		81		5,520
Li Fanrong (2)		483		807		576		26		1,892
Wu Guangqi		828		1,298		663		77		2,866

Subtotal		2,139		4,712		3,243		184		10,278

Non-executive directors:
Fu Chengyu (4)		828		1,988		1,704		58		4,578
Zhou Shouwei (6)		924		-		-		-		924
Cao Xinghe (10)		345		-		-		-		345
Wu Zhenfang		828		-		-		-		828

Subtotal		2,925		1,988		1,704		58		6,675

Independent non-executive
directors:
Edgar W. K. Cheng (7)		-		-		-		-		-
Chiu Sung Hong		924		-		-		-		924
Lawrence J. Lau (8)		414		-		-		-		414
Tse Hau Yin, Aloysius		959		-		-		-		959
Wang Tao (9)		-		-		-		-		-

Subtotal		2,297		-		-		-		2,297

Total		7,361		6,700		4,947		242		19,250

Share options (11)

	2010		2011		2012
	RMB’000		RMB’000		RMB’000
Executive directors:
Yang Hua (5)		4,732		-		-
Li Fanrong (2)		-		-		-
Wu Guangqi		4,011		4,687		2,965
Subtotal		8,743		4,687		2,965
Non-executive directors:
Fu Chengyu(4)		8,728		-		-
Yang Hua (5)		-		5,483		3,762
Zhou Shouwei (6)		5,360		5,503		2,874
Wu Zhenfang		3,969		4,596		2,874
Subtotal		18,057		15,582		9,510
Independent non-executive
directors:
Edgar W. K. Cheng (7)		-		-		-
Chiu Sung Hong		-		-		-
Lawrence J. Lau (8)		-		-		-
Tse Hau Yin, Aloysius		-				-
Wang Tao (9)		-		-		-
Subtotal		-		-		-
Total		26,800		20,269		12,475

F-39

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CNOOC LIMITED

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

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

10.	KEY MANAGEMENT PERSONNEL’S REMUNERATION (continued)

(i)

Directors’ remuneration(continued)

Notes:

(1)

Fees, salaries, allowances, and benefits in kind represent the gross amount (before applicable individual salary tax) paid/payable to individual directors. All the executive directors have voluntarily waived their salaries, allowances, benefits in kind and performance related bonuses in 2012 and 2011.

(2)

Mr. Li Fangrong was appointed as a non-executive director with effect from May 24, 2010 and was re-designated to executive director with effect from September 16, 2010. On November 23, 2011, Mr. Li Fanrong was appointed as the Chief Executive Officer of the Company.

(3)

On April 15, 2011, Mr. Wang Yilin was appointed as the Chairman of the Board of Directors and Non-executive Director of the Company. On March 28, 2012, Mr. Wang Yilin was appointed as the Chairman of the Nomination Committee.

(4)

Mr. Fu Chengyu was re-designated from executive director to non-executive director with effect from September 16, 2010. On April 15, 2011, Mr. Fu Chengyu resigned as the Chairman of the Board of Directors and a Non-executive Director of the Company.

(5)

Mr. Yang Hua was appointed as the Vice Chairman of the Board of Directors and Chief Executive Officer of the Company with effect from September 16, 2010. On November 23, 2011, Mr. Yang Hua resigned as the Chief Executive Officer of the Company and was re-designated from an Executive Director to a Non-executive Director of the Company and continues to serve as the Vice Chairman of the Board of Directors.

(6)

On March 28, 2012, Mr. Zhou Shouwei ceased serving as Chairman and a member of the Nomination Committee.

(7)

On November 3, 2011, Mr. Edgar W. K. Cheng resigned as an Independent Non-Executive Director and a member of the Nomination Committee of the Company. Dr. Edgar W. K. Cheng has voluntarily waived his remuneration as director in 2010.

(8)

Professor Lawrence J. Lau has voluntarily waived his remuneration as director from January to June in 2010.

(9)

Mr. Wang Tao has voluntarily waived his remuneration as director in 2010.

(10)

Mr. Cao Xinghe retired as a non-executive director of the Company with effect from Many 24, 2010.

(11)

This item represents the fair value of share options for the directors measured according to the Group’s accounting policy as set out in note 3. No Directors exercised any share option in 2011 or 2012. During the year, no new share option was granted to Directors in respect of their services to the Group under the applicable share option schemes of the Company. Further details of share option scheme and valuation techniques are set out in note 28 to the financial statements.

Save as disclosed above, there was no arrangement under which a director waived or agreed to waive any remuneration during the year.

(ii)

Other key management personnel’s (excluding Directors’) remuneration

	2010		2011		2012

Short term employee benefits		4		6		6
Pension scheme contributions		1		1		1
Amount paid/payable during the year		5		7		7
Share options *		23		27		21
Total compensation		28		34		28

The bands of the remuneration of other key management personnel (excluding Directors) and the related number of members of other key management personnel (excluding Directors) are as follows:

	Number of employees
	2010		2011		2012

Nil to RMB 2,000,000		2		2		1
RMB 2,000,001 to RMB 5,000,000		6		-		7
RMB 5,000,001 to RMB 6,000,000		-		6		-
RMB 6,000,001 to RMB 7,000,000		-		-		-
		8		8		8

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CNOOC LIMITED

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

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

10.	KEY MANAGEMENT PERSONNEL’S REMUNERATION (continued)

(ii)

Other key management personnel’s (excluding Directors’) remuneration (continued)

This item represents the fair value of share options measured according to the Group’s accounting policy as set out in Note 3. No other key management personnel exercised any share option in 2010, 2011 and 2012.

11.	FIVE HIGHEST PAID EMPLOYEES

During 2012, none (2011:one; 2010: three) of the directors, details of whose remuneration are disclosed in note 10 (i) above, received an amount which falls within the category of the five highest paid emplyees. Details of the remuneration of the five (2011:four; 2010: two) highest paid employees who are not the directors, for the year are as follows:

	2010		2011		2012

Fees*		-		-		-
Basic salaries, allowances and benefits in kind*		3		4		7
Performance-related bonuses		1		2		2
Pension scheme contributions		-		-		-

Amount paid/payable during the year		4		6		9
Share options **		6		17		13

		10		23		22

Fees and salaries, allowances, and benefits in kind represent the gross amount (before applicable individual salary tax) paid/payable to individual employees.

This item represents the fair value of share options measured according to the Group’s accounting policy as set out in Note 3. None of the five highest paid employees exercised any share option in 2012 or 2011.During the year, no new share options was granted to the five highest paid employees in respect of their services to the Group. Further details are included in note 28.

The remuneration of the five (2011: four, 2010: two) highest paid employees, who are not the directors falls within the following bands:


	2010		2011		2012

Nil to RMB5,000,000		1		-		4
RMB5,000,001 to RMB5,500,000		1		1		-
RMB5,500,001 to RMB6,000,000		-		2		-
RMB6,000,001 to RMB6,500,000		-		-		-
RMB6,500,001 to RMB8,000,000		-		1		1

		2		4		5

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CNOOC LIMITED

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

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

12.

TAX

(i)

Income tax

The Company and its subsidiaries are subject, on an entity basis, to income taxes on profits arising in or derived from the tax jurisdictions in which the entities of the Group are domiciled and operate. The Company is subject to profits tax at a rate of 16.5% (2011: 16.5%, 2010:16.5%) on profits arising in or derived from Hong Kong, which is qualified as a foreign tax credit to offset the PRC corporate income tax starting from January 1, 2008.

The Company is regarded as a Chinese Resident Enterprise (as defined in the "Enterprise Income Tax Law of the People's Republic of China") by the State Administration of Taxation of the PRC. As a result, the Company is subject to the PRC corporate income tax at the rate of 25% starting from January 1, 2008.

The Company’s subsidiary in Mainland China, CNOOC China Limited, is a wholly-owned foreign enterprise. It is subject to corporate income tax at the rate of 25% under the prevailing tax rules and regulations.

Subsidiaries of the Group domiciled outside the PRC are subject to income tax at rates ranging from 10% to 56%.

As of December 31, 2012, management of the Company has not provided any deferred tax liabilities related to earnings derived by the Company from its overseas subsidiaries since the timing of the reversal of the taxable temporary differences can be controlled by the Company and it is probable that the temporary differences would not reverse in the foreseeable future.

An analysis of the tax expense in the Group’s consolidated statement of comprehensive income is as follows:

	2010			2011			2012

Overseas
Current income tax		1,202			1,532			8,177
Deferred tax		976			906			(1,722	)
PRC
Current income tax		17,434			21,309			20,662
Deferred tax		(1,419	)		(1,437	)		(636	)

Total tax charge for the year		18,193			22,310			26,481

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CNOOC LIMITED

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

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

12.	TAX (continued)

(i)

Income tax (continued)

A reconciliation of the statutory PRC corporate income tax rate to the effective income tax rate of the Group is as follows:

	2010			2011			2012
	%			%			%

Statutory PRC enterprise income tax rate		25.0			25.0			25.0
Effect of different tax rates for overseas subsidiaries*		0.3			(0.5	)		4.4
Tax credit from the government		(0.1	)		(0.2	)		(0.2	)
Tax reported in equity-accounted entities		(0.1	)		(0.2	)		-
Others		-			-			0.2

Group’s effective income tax rate		25.1			24.1			29.4

The higher effective tax rate for the year ended 31 December 2012 was primarily due to the full utilisation of investment tax credits applicable to Nigeria OML130 Project in 2011.

The movements of deferred tax liabilities are as follows:

	2010			2011			2012

At January 1		7,440			6,841			5,488
Credited to the profit and loss		(443	)		( 531	)		(2,358	)
Disposal of a subsidiary		-			( 549	)		-
Unrecognised gain for available-for-sale assets		-			-			237
Exchange differences		(156	)		( 273	)		(4	)

At December 31		6,841			5,488			3,363

Principal components of deferred tax balances are as follows:

		2011			2012

Deferred tax assets
Provision for retirement and termination benefits			50			29
Provision for dismantlement			3,237			4,149
Impairment of property, plant and equipment			719			717
Losses available for offsetting against future taxable profit			4,002			1,244
Others			299			531

			8,307			6,670

Deferred tax liabilities
Accelerated tax depreciation of oil and gas properties			(13,526	)		(9,315	)
Non-current liabilities			(88	)		(233	)
Unrecognised gain for available-for-sale assets			-			(237	)
Others			(181	)		(248	)

			(13,795	)		(10,033	)

Net deferred tax liabilities			(5,488	)		(3,363	)

Of which –	deferred tax assets		-			40
	deferred tax liabilities		(5,488	)		(3,403	)

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CNOOC LIMITED

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

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

12.	TAX (continued)

(i)

Income tax (continued)

As at December 31, 2012, the Group had approximately RMB15,474 million (2011: RMB25,829 million) of carry-forward tax losses, predominantly in North America, that would be available to offset against future taxable profits of the subsidiaries in which the tax losses arose. The US and Canadian tax losses expire in 14 to 20 years after generation. The Uganda tax losses have no fixed expiry date.

Deferred tax assets in respect of the above tax losses are recognised only to the extent of the anticipated future taxable profits arising from the reversal of existing taxable temporary differences. As at December 31, 2012, the Group's recognized tax losses amounted to RMB3,555 million (2011: RMB10,975 million). Unrecognised tax losses, where recovery is not currently expected, amounted to RMB11,919 million (2011: RMB14,854 million).

(ii)

Other taxes

The Company’s PRC subsidiaries pay the following other taxes and dues:

–

Production taxes at the rate of 5% on independent production and production under production sharing contracts;

–

Resource taxes at the rate of 5% (reduced tax rates may apply to specific products and fields) on the oil and gas sales revenue (excluding production taxes) derived by oil and gas fields under production sharing contracts signed after November 1, 2011 and independent offshore oil and gas fields starting from November 1, 2011, which replaced the royalties for oil and gas fields, except for those under production sharing contracts signed before November 1, 2011 which will be subject to related resource taxes requirement after the expiration of such production sharing contracts;

–

Export tariffs at the rate of 5% on the export value of petroleum oil;

–

Business tax at rates of 3% to 5% or value-added tax at the rate of 6% on other income;

–

City construction tax at the rate of 1% or 7% on the actual paid production taxes and business tax and value-added tax;

–

Educational surcharge at the rate of 3% on the actual paid production taxes, business tax and value-added tax; and

–

Local educational surcharge at the rate of 2% on the actual paid production taxes, business tax and value-added tax.

In addition, other taxes paid and payable by the Company's non-PRC subsidiaries include royalty as well as taxes levied on petroleum-related income, profit, budgeted operating and capital expenditures.

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CNOOC LIMITED

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

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

13.

DIVIDENDS

	2010		2011		2012

Declared and paid during the year:
Interim dividend		8,100		9,106		5,444
Final dividend		7,795		9,287		10,191

Total dividends paid in the year		15,895		18,393		15,635

Weighted average number of ordinary shares		44,669,199,984		44,668,570,359		44,646,305,984
Dividend per ordinary share	RMB0.36		RMB0.41		RMB0.35

Final dividend proposed by the Board of Directors at HK$0.32 per ordinary share (2011: HK$0.28 per ordinary share, 2010: HK$0.25 per ordinary share) - not recognized as a liability as at the end of the reporting period		9,421		10,142		11,563

Pursuant to the Enterprise Income Tax Law of the People's Republic of China and related laws and regulations, the Company is regarded as a Chinese Resident Enterprise, and thus is required to withhold corporate income tax at the rate of 10% when it distributes dividends to its non-resident enterprise (as defined in the “Enterprise Income Tax Law of the People's Republic of China”) shareholders, with effect from the distribution of the 2008 final dividend. In respect of all shareholders whose names appear on the Company’s register of members and who are not individuals (including HKSCC Nominees Limited, corporate nominees or trustees such as securities companies and banks, and other entities or organizations, which are all considered as non-resident enterprise shareholders), the Company will distribute the dividend after deducting corporate income tax of 10%.

14.	EARNINGS PER SHARE

	2010		2011		2012

Earnings
Profit for the year attributable to ordinary equity holders for the basic and diluted earnings per share calculations		54,410		70,255		63,691

Number of shares
Number of ordinary shares issued at the beginning of the year, excluding repurchased but not cancelled shares		44,669,199,984		44,669,199,984		44,646,305,984

Weighted average number of ordinary shares for the basic earnings per share calculation		44,669,199,984		44,668,570,359		44,646,305,984

Effect of dilutive potential ordinary shares under the share option schemes		151,987,482		185,044,651		161,736,346

Weighted average number of ordinary shares for the purpose of diluted earnings per share		44,821,187,466		44,853,615,010		44,808,042,330

Earnings per share:
Basic (RMB Yuan)		1.22		1.57		1.43
Diluted (RMB Yuan)		1.21		1.57		1.42

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CNOOC LIMITED

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

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

15.	PROPERTY, PLANT AND EQUIPMENT

	Oil and gas properties			Vehicles and office equipment and others			Total

Cost:

At January 1, 2011		293,257			673			293,930
Additions		43,772			97			43,869
Acquisitions		25,338			1,083			26,421
Disposals and write-offs		(10,137	)		(9	)		(10,146	)
Exchange differences		(4,500	)		(2	)		(4,502	)

At December 31, 2011		347,730			1,842			349,572

At January 1, 2012		347,730			1,842			349,572
Additions		56,335			267			56,602
Acquisitions		10,781			-			10,781
Disposals and write-offs		(2,465	)		(18	)		(2,483	)
Exchange differences		(351	)		-			(351	)

At December 31, 2012		412,030			2,091			414,121

Accumulated depreciation, depletion and amortization:

At January 1, 2011		(106,900	)		(352	)		(107,252	)
Depreciation charge for the year		(30,336	)		(61	)		( 30,397	)
Disposals and write-offs		7,748			8			7,756
Exchange differences		887			1			888

At December 31, 2011		(128,601	)		(404	)		(129,005	)

At January 1, 2012		(128,601	)		(404	)		(129,005	)
Depreciation charge for the year		(33,034	)		(64	)		( 33,098	)
Disposals and write-offs		26			14			40
Exchange differences		74			-			74

At December 31, 2012		(161,535	)		(454	)		(161,989	)

Net book value:
At January 1, 2012		219,129			1,438			220,567

At December 31, 2012		250,495			1,637			252,132

Included in the current year’s additions was an amount of approximately RMB1,549 million (2011: approximately RMB1,150 million) in respect of interest capitalized in property, plant and equipment (note 9). Included also in the depreciation charge for the year was an amount of approximately RMB2,990 million (2011: approximately RMB3,268 million) in respect of a depreciation charge on dismantlement cost capitalized in oil and gas properties.

Disposals and write-offs include approximately RMB876 million related to unproved properties of Niobrara project located in United States. The write-off of the unproved property was primarily due to the unfavorable exploration drilling results in 2012 in certain blocks.

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CNOOC LIMITED

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

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

16.	INTANGIBLE ASSETS

	Gas processing right under NWS Project			Software			Total

Cost:

At January 1, 2011		1,215			491			1,706
Additions		-			132			132
Disposal		-			-			-
Exchange differences		(59	)		-			(59	)

At December 31, 2011		1,156			623			1,779

At January 1, 2012		1,156			623			1,779
Additions		-			142			142
Disposal		-			-			-
Exchange differences		(3	)		-			(3	)

At December 31, 2012		1,153			765			1,918

Accumulated amortization:

At January 1, 2011		(296	)		(262	)		(558	)
Amortization charge for the year		(79	)		(125	)		(204	)
Disposal		-			-			-
Exchange differences		16			-			16

At December 31, 2011		(359	)		(387	)		(746	)

At January 1, 2012		(359	)		(387	)		(746	)
Amortization charge for the year		(64	)		(136	)		(200	)
Disposal		-			-			-
Exchange differences		1			-			1

At December 31, 2012		(422	)		(523	)		(945	)

Net book value:
At January 1, 2012		797			236			1,033

At December 31, 2012		731			242			973

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CNOOC LIMITED

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

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

17.	INVESTMENTS IN ASSOCIATES

Name of associates	Place and date of establishment	Nominal value of ordinary shares issued and paid up/ registered capital	Percentage of equity attributable to the Group	Principal activities
Shanghai Petroleum	Shanghai, PRC	RMB900 million	30%	Offshore petroleum exploration,
Corporation Limited	7 September, 1992			development, production
				and sales in the PRC
CNOOC Finance	Beijing, PRC	RMB4 billion	31.8%	Provision of deposit, transfer,
Corporation Limited*	14 June , 2002			settlement, loan, discounting
				and other financing services to
				CNOOC and its member entities

Northern Cross (Yukon) Limited	Yukon, Canada 19 September, 1994	22,691,705 common shares without a par value	60%	Petroleum exploration, development and production in Canada

The registered capital of CNOOC Finance Corporation Limited was increased to RMB4 billion on 1 November 2012, and the percentage of equity attributable to the Group remains unchanged.

None of the associates is audited by Ernst & Young Hong Kong or other member firm of the Ernst & Young global network.

The Group’s investments in associates represent:

		2011				2012
Share of net assets			2,822				3,857

None of the Group’s associates are considered to be individually material. The following table illustrates the summarised financial information of the Group’s associates:

	2010		2011			2012

Profit for the year		199		320			284
Other comprehensive income		3		( 20	)		21
Total comprehensive income		202		300			305

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CNOOC LIMITED

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

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

18.	INVESTMENT IN A JOINT VENTURE

Particulars of the principal joint venture entities are as follows:

Name of entity	Place and date of establishment	Nominal value of ordinary share issued and paid-up/ registered capital	Percentage of equity attributable to the Group	Principal activities
Bridas Corporation	British Virgin Islands September 15, 1993	US$ 102,325,582	50%	Investment holding

The joint venture is not audited by Ernst & Young Hong Kong or other member firm of the Ernst & Young global network.

Summarized financial information of the joint venture is disclosed below:

	2011			2012
Cash and cash equivalents		2,410			2,457
Other current assets		1,585			4,994
Total current assets		3,995			7,451

Non-current assets, excluding goodwill		51,855			50,666
Goodwill		3,566			3,557
Total assets		59,416			61,674

Current financial liabilities (excluding trade and other payables and provisions)		( 1,139	)		(2,252	)
Other current liabilities		( 2,254	)		(2,840	)
Total current liabilities		( 3,393	)		(5,092	)

Non-current financial liabilities		( 3,361	)		(3,119	)
Other non-current liabilities		(12,312	)		(13,144	)
Total non-current liabilities		(15,673	)		(16,263	)
Total liabilities		(19,066	)		(21,355	)

Net assets		40,350			40,319

Net assets, excluding goodwill		36,784			36,762

Revenue		9,882			31,650
Depreciation, depletion and amortization		( 2,940	)		(2,922	)
Interest income		50			47
Finance costs		( 355	)		(599	)

Profit/(Loss) before tax		1,062			(967	)
Income tax expense		( 568	)		345
Profit/(Loss) after tax		494			(622	)
Other comprehensive income		-			-
Total comprehensive income/(loss)		494			(622	)

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CNOOC LIMITED

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

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

18.	INVESTMENT IN A JOINT VENTURE (continued)

Reconciliation of the summarized financial information of the joint venture to the carrying amount of the Group’s investment in the joint venture is disclosed below:

	2011		2012

Group share of net assets of joint venture, excluding goodwill		18,392		18,381
Goodwill on acquisition less cumulative impairment		1,783		1,779
Impairment of investment in a joint venture		-		-
Carrying amount of investment in joint venture		20,175		20,160

No dividend was received from the joint venture in 2011 and 2012.

19.	AVAILABLE-FOR-SALE FINANCIAL ASSETS

	2011		2012
Current:
Non-publicly traded investments, at fair value:
Private equity funds		15		15
Corporate wealth management products (1)		18,500		52,310
Liquidity funds (2)		9,061		9,470

		27,576		61,795

Non-current:
Publicly traded investments, at fair value:
Equity investment in MEG (3)		7,365		5,516
Non-publicly traded investments, at cost:
Private equity fund in Kerogen Energy Fund (4)		-		1,535

		7,365		7,051

The fair values of publicly traded investments are based on quoted market prices. The fair values of non-publicly traded investments are based on fund managers’ quotations. The directors believe that the estimated fair values quoted by fund managers are reasonable, and that they are the most appropriate values at the reporting date.

(1)

The corporate wealth management products matured from January 5, 2013 to October 22, 2013.

(2)

The liquidity funds have no fixed maturity date and no coupon rate.

(3)

The equity investment represents an investment in the equity securities of MEG Energy Corporation (“MEG”). As at December 31, 2012, the investment in MEG was stated at the quoted market price. MEG is principally engaged in the exploitation and production of oil sands.

(4)

The private equity fund represents an investment in Kerogen Energy Fund and is stated at cost less any impairment, as there is no market price available. Kerogen Energy Fund is principally engaged in the investment in the oil and gas industry.

During the year, the net loss on the Group’s available-for-sale investments, net of tax, recognised directly in other comprehensive loss amounted to RMB1,128 million (2011: other comprehensive income RMB800 million).

In addition, there were no realised gains of the Group transferred from other comprehensive income to the profit and loss for the year (2011: nil) upon the disposal of the related available-for-sale financial assets.

None of the financial assets above is either past due or impaired.

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CNOOC LIMITED

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

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

20.	OTHER NON-CURRENT ASSETS

Included in the other non-current assets were pledged deposits for future dismantlement. Pursuant to the Provisional Regulations on the Dismantlement of Offshore Oil and Gas Production Facilities of the People’s Republic of China, the Group accrues dismantlement cost for all the oil and gas fields under production sharing contracts in the PRC, and makes monthly cash contributions to the specific dismantlement fund accounts supervised by the PRC government. The deposit cannot be withdrawn or utilised for any other purposes but the dismantlement of oil and gas production facilities in the future. As of December 31, 2012, the balance of the specified dismantlement fund accounts was RMB547 million (December 31, 2011: nil).

21.	INVENTORIES AND SUPPLIES

	2011			2012

Materials and supplies		3,510			4,023
Oil in tanks		986			1,371
Less: Provision for inventory obsolescence		(116	)		(147	)

		4,380			5,247

The provision for inventory obsolescence during the year was approximately RMB31 million (2011: approximately RMB22 million).

22.	TRADE RECEIVABLES

The Group’s trading terms with its customers are mainly on credit, except for new customers, where payment in advance is normally required. The credit terms of the Group are generally within 30 days after the delivery of oil and gas. Trade receivables are non-interest-bearing.

As at December 31, 2012 and 2011, substantially all the trade receivables were aged within 30 days. All customers have a good repayment history and no receivables are past due.

23.	CASH AND CASH EQUIVALENTS AND TIME DEPOSITS WITH MATURITY OVER THREE MONTHS

The Group’s cash and cash equivalents mainly consist of current deposits and time deposits with maturity within seven days. The bank balances are deposited with creditworthy banks with no recent history of default.

The weighted average effective interest rates of the Group’s bank deposits were 1.7% per annum (2011: 2.7% per annum) and 0.38% per annum (2011: 1.1% per annum), respectively,for the year ended December 31, 2012.

24.	TRADE AND ACCRUED PAYABLES

As at December 31, 2012 and 2011, substantially all the trade and accrued payables were aged within six months. The trade and accrued payables are non-interest-bearing and are normally settled within six months.

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CNOOC LIMITED

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

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

25.	OTHER PAYABLES AND ACCRUED LIABILITIES

	2011		2012

Accrued payroll and welfare payable		888		1,118
Provision for retirement and termination benefits		280		273
Accrued expenses		65		69
Advances from customers		96		177
Royalties payable		376		461
Special oil gain levy payable		14,989		8,755
Provision for dismantlement (note 27)		31		-
Other payables*		5,492		6,582

		22,217		17,435

* Other payables are non-interest-bearing and have an average term of less than one year.

26.	LOANS AND BORROWINGS

Current

		2011			2012
	Effective interest rate and final maturity	Bank loan	Notes/ Bonds	Total	Bank loan	Notes/ Bonds	Total
Short-term loans and borrowings
General loans	LIBOR+0.85% to 1.85% per annum with maturity within one year	16,193	-	16,193	27,343	-	27,343
		16,193	-	16,193	27,343	-	27,343
Loans and borrowings due within one year
For Tangguh LNG Project*****	LIBOR+0.23% to 0.38% per annum with maturity within one year	207	-	207	231	-	231
For Nigeria OML130 Project	LIBOR+4% per annum with maturity within one year	369	-	369	-	-	-
Finance(2002)*			3,150	3,150		-	-
Finance (2003)**		-	-	-	-	1,256	1,256
		576	3,150	3,726	231	1,256	1,487
		16,769	3,150	19,919	27,574	1,256	28,830

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CNOOC LIMITED

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

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

26.	LOANS AND BORROWINGS (continued)

Non-current

		2011			2012
	Effective interest rate and final maturity	Bank loan	Notes/ Bonds	Total	Bank loan	Notes/ Bonds	Total
For Tangguh LNG Project*****	LIBOR+0.23% to 0.38% per annum with maturity through 2021	2,562	-	2,562	2,326	-	2,326
Finance (2003)**		-	3,102	3,102	-	1,843	1,843
Finance (2011)***		-	12,412	12,412	-	12,396	12,396
Finance (2012)****		-	-	-	-	12,491	12,491
		2,562	15,514	18,076	2,326	26,730	29,056

The principal amount of US$500 million of 6.375% guaranteed notes due in 2012 was 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, and the notes were repaid in March 2012.

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 were issued by CNOOC Finance (2003) Limited, a wholly-owned subsidiary of the Company. The obligations of CNOOC Finance (2003) Limited in respect of the notes are unconditionally and irrevocably guaranteed by the Company.

***

The principal amount of US$1,500 million of 4.25% guaranteed notes due in 2021 and the principal amount of US$500 million of 5.75% guaranteed notes due in 2041 were issued by CNOOC Finance (2011) Limited, a wholly-owned subsidiary of the Company. The obligations of CNOOC Finance (2011) Limited in respect of the notes are unconditionally and irrevocably guaranteed by the Company.

****

The principal amount of US$1,500 million of 3.875% guaranteed notes due in 2022 and the principal amount of US$500 million of 5.000% guaranteed notes due in 2042 were issued by CNOOC Finance (2012) Limited, a wholly-owned subsidiary of the Company. The obligations of CNOOC Finance (2012) Limited in respect of the notes are unconditionally and irrevocably guaranteed by the Company.

*****

The amount represented the Group share of utilized bank loans in Tangguh Liquified Natural Gas Project (the “Tangguh LNG Project”).

The Company delivered a guarantee dated October 29, 2007 in favour of Mizuho Corporate Bank, Ltd., which acts as the facility agent for and on behalf of various international commercial banks under a US$884 million commercial loan agreement dated October 29, 2007 in connection with the Tangguh LNG Project in Indonesia. The Company guarantees the payment obligations of the trustee borrower under the subject loan agreement and is subject to a maximum cap of approximately US$164,888,000. Together with the loan agreement dated July 31, 2006 with a maximum cap of approximately US$487,862,000, the total maximum guarantee cap is US$652,750,000.

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CNOOC LIMITED

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

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

26.	LOANS AND BORROWINGS (continued)

Non-current (continued)

An agreement in respect of the sale of a 3.05691% interest of the Company in the Tangguh LNG Project to Talisman Energy Inc. (“Talisman”) for a consideration of US$212.5 million became effective on January 1, 2008. The transaction was completed through the equity transfer of an indirect subsidiary of the Company. The Company through its subsidiary continues to hold a 13.89997% interest in the Tangguh LNG Project after the sale.

In addition, a letter of credit agreement was signed between the Company and Talisman with the execution of the aforesaid agreement. Accordingly, Talisman has delivered valid and unexpired standby letters of credit with the amount of US$120 million to the Company (as the beneficiary) as a counter-guarantee to offset the exposure of the Company’s guarantee for the aforesaid interest of 3.05691% in respect of the Tangguh LNG Project financing.

As at December 31, 2012, all the bank loans of the Group were unsecured, and none of the outstanding borrowings were guaranteed by CNOOC.

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CNOOC LIMITED

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

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

26.	LOANS AND BORROWINGS (continued)

The maturities of the long term bank loans are as follows:

	2011			2012

Repayable:
Within one year		576			231
After one year but within two years		221			249
After two years but within three years		251			279
After three years but within four years		281			309
After four years but within five years		312			332
After five years		1,497			1,157
		3,138			2,557

Amount due within one year shown under current liabilities		(576	)		(231	)

		2,562			2,326

Supplemental information with respect to the long term bank loans:

			Maximum	Average	Weighted
		Weighted	amount	amount	average
		average	outstanding	outstanding	interest rate
For the year ended	Balance	interest rate	during the	during the	during the
December 31	at year end	at year end	year	year*	year**
2011	3,138	1.35%	8,134	5,636	2.19%
2012	2,557	0.76%	3,138	2,847	1.06%

The average amount outstanding is computed by averaging the outstanding principal balances as at January 1 and December 31 of each year.

The weighted average interest rate is computed by averaging the interest rates as at January 1 and December 31 of each year.

There was no default of principal, interest or redemption terms of the loans and borrowings during the year.

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CNOOC LIMITED

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

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

27.	PROVISION FOR DISMANTLEMENT

	2011			2012

At January 1		16,012			24,995
Capitalized in oil and gas properties*		7,718			3,057
Acquisition of a subsidiary		151			-
Utilized		(156	)		-
Unwinding of discount** (note 9)		1,312			1,359
Exchange differences		(42	)		(5	)

At December 31		24,995			29,406

Current portion of dismantlement included in other payables and accrued liabilities (note 25)		(31	)		-

At December 31		24,964			29,406

The amount is included in the additions of oil and gas properties in note 15.

The discount rate used for calculating the amount of unwinding of the discount are within the range of 4% to 5% (2011: 5%).

28.	SHARE CAPITAL

				Share capital		Issued share capital equivalent of
Share	Number of shares			HK$ million		RMB million

Authorized:
Ordinary shares of HK$0.02 each
as at December 31, 2012 and December 31, 2011		75,000,000,000			1,500

Issued and fully paid:
Ordinary shares of HK$0.02 each as at January 1,2011		44,669,199,984			893		949

As at December 31,2011		44,659,180,984			893		949

Shares repurchased and cancelled*		( 12,875,000	)		-		-
As at December 31, 2012		44,646,305,984			893		949

During the year of 2011, the Company purchased 22,894,000 of its shares with an aggregate cash payment of HK$315,016,715 on the Stock Exchange of Hong Kong Limited (“HKSE”). 10,019,000 shares were cancelled by the Company in 2011 and the remaining 12,875,000 shares were cancelled on January 10, 2012.

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CNOOC LIMITED

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

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

28.	SHARE CAPITAL (continued)

Share option schemes

The Company has adopted the following share option schemes for the grant of options to the Company’s directors, senior management and other eligible grantees:

Pre-Global Offering Share Option Scheme (as defined below);

2001 Share Option Scheme (as defined below);

2002 Share Option Scheme (as defined below); and

2005 Share Option Scheme (as defined below).

Under these share option schemes, the Remuneration Committee of the Board will from time to time propose for the Board’s approval the grant of share options and the number of share options to be granted to the relevant grantees. The maximum aggregate number of shares (including those that could be subscribed for under the Pre-Global Offering Share Option Scheme, the 2001 Share Option Scheme, the 2002 Share Option Scheme and the 2005 Share Option Scheme) which may be issued upon exercise of all options granted shall not exceed 10% of the total issued share capital of the Company as at December 31, 2005, being the date on which the shareholders of the Company approved the 2005 Share Option Scheme, excluding shares under options which have lapsed.

Pre-Global Offering Share Option Scheme

On February 4, 2001, the Company adopted a pre-global offering share option scheme (the “Pre-Global Offering Share Option Scheme”). Pursuant to the Pre-Global Offering Share Option Scheme:

options to subscribe for an aggregate of 23,100,000 shares have been granted; and

the exercise price for such options is HK$1.19 per share.

The exercise periods for the options granted under the Pre-Global Offering Share Option Scheme shall end not later than 10 years from March 12, 2001. No further options may be granted under the Pre-Global Offering Share Option Scheme.

2001 Share Option Scheme

On February 4, 2001, the Company adopted a share option scheme (the “2001 Share Option Scheme”) for the purposes of recognising the contribution that certain individuals had made to the Company and for attracting and retaining the best available personnel to the Company. Pursuant to the 2001 Share Option Scheme:

options to subscribe for an aggregate of 44,100,000 shares have been granted; and

the exercise price for such options price is HK$1.232 per share.

The exercise periods for the options granted under the 2001 Share Option Scheme shall end not later than 10 years from August 27, 2001. No further options may be granted under the 2001 Share Option Scheme.

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CNOOC LIMITED

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

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

28.	SHARE CAPITAL (continued)

Share option schemes (continued)

2002 Share Option Scheme

In June 2002, the Company adopted a new share option scheme (the “2002 Share Option Scheme”) for the purpose of recognizing the contribution that certain individuals had made to the Company and for attracting and retaining the best available personnel to the Company.

Under the 2002 Share Option Scheme, the Board may, at its discretion, offer to grant to the directors and employees of the Company or any of its subsidiaries options to subscribe for shares of the Company. The maximum number of shares in respect of which options may be granted under the 2002 Share Option Scheme to any individual in any 12-month period up to the date of the latest grant shall not exceed 1% of the total issued share capital of the Company from time to time.

According to the 2002 Share Option Scheme, the consideration payable by a grantee for the grant of options will be HK$1.00. The exercise price for such options will be determined by the Board at its discretion at the date of grant, except that such price shall be not less than the higher of:

the nominal value of a share of the Company on the date of grant;

the average closing price of the shares on the Stock Exchange of Hong Kong Limited (“HKSE”) as stated in the HKSE’s quotation sheets for the five trading days immediately preceding the date of grant; and

the closing price of the shares on the HKSE as stated in the HKSE’s quotation sheet on the date of grant.

The exercise periods for the options granted under the 2002 Share Option Scheme shall end not later than 10 years from the date of grant.

On December 31, 2005, the Company terminated the 2002 Share Option Scheme. Upon termination of the 2002 Share Option Scheme, no further options may be granted under the 2002 Share Option Scheme, but in all other respects the provisions of the 2002 Share Option Scheme shall remain in force. The outstanding options under the 2002 Share Option Scheme shall continue to be subject to the provisions of the 2002 Share Option Scheme.

2005 Share Option Scheme

On December 31, 2005, the Company adopted a new share option scheme (the “2005 Share Option Scheme”). Under the 2005 Share Option Scheme, the Board has the authority to grant options to subscribe for shares to the directors, officers and employees of the Company and its subsidiaries, and any other persons who in the sole discretion of the Board, have contributed or will contribute to the Group. Unless approved by the shareholders, the total number of shares issued and to be issued upon exercise of the options granted to each individual (including exercised and unexercised options) under the 2005 Share Option Scheme or any other share option scheme adopted by the Company, in any 12-month period, must not exceed 1% of the shares in issue of the Company.

According to the 2005 Share Option Scheme, the consideration payable by a grantee for the grant of options will be HK$1.00. The exercise price for such options will be determined by the Board at its discretion at the date of grant, except that such price shall be at least the higher of:

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CNOOC LIMITED

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

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

28.	SHARE CAPITAL (continued)

Share option schemes (continued)

2005 Share Option Scheme (continued)

the nominal value of a share of the Company on the date of grant;

the average closing price of the shares as stated in the HKSE’s daily quotation sheets for the five trading days immediately preceding the date of grant; and

the closing price of the shares as stated in the HKSE’s daily quotation sheet on the date of grant.

The period within which the options must be exercised, as well as any minimum holding period or performance targets which apply to the options, will be specified by the Board of the Company at the time of grant. The exercise periods for options granted under the 2005 Share Option Scheme shall end not later than 10 years from the date of grant. No options may be granted under the 2005 Share Option Scheme after the date of the 10th anniversary of the adoption of the 2005 Share Option Scheme.

No new share option was granted during the year (2011: nil) and the Group recognised an equity-settled share option expense of approximately RMB50 million (2011: RMB143 million) during the year.

The fair value of equity-settled share options granted was estimated as at the date of grant if any, using the Black-Scholes option pricing model, taking into account the terms and conditions upon which the options were granted.

Details of the share options outstanding are as follows:

	2011					2012
	Number of share options			Weighted average exercise price HK$		Number of share options			Weighted average exercise price HK$
Outstanding at the beginning of the year		474,054,900			9.14		420,960,900			9.56
Granted during the year		-			-		-			-
Forfeited during the year		(53,094,000	)		5.87		(9,806,000	)		11.48
Exercised during the year		-			-		-			-

Outstanding at end of year		420,960,900			9.56		411,154,900			9.51

Exercisable at the end of the year		328,525,000			8.91		380,171,000			9.25

No share options had been cancelled or modified during the years ended December 31, 2011 and 2012.

At the date of approval of these financial statements, the share options outstanding under these share option schemes represented approximately 0.92% of the Company’s shares in issue as at that date (2011: 0.94%). The weighted average remaining contractual life of share options outstanding at the end of the year was 5.06 years (2011: 6.09 years). The exercise in full of the outstanding share options would, under the present capital structure of the Company, result in the issue of 411,154,900 additional ordinary shares of the Company and additional share capital of RMB6,667,699 and share premium of RMB3,164,432,651.

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CNOOC LIMITED

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

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

29.

RESERVES

According to the laws and regulations of the PRC and the articles of association of CNOOC China Limited, CNOOC China Limited is required to provide for certain statutory funds, namely, the general reserve fund and the staff and workers’ bonus and welfare fund, which are appropriated from net profit (after making good losses from previous years), but before dividend distribution.

CNOOC China Limited is required to allocate at least 10% of its net profit as reported in accordance with the generally accepted accounting principles in the PRC (“PRC GAAP”) to the general reserve fund until the balance of such fund reaches 50% of its registered capital. The general reserve fund can only be used, upon approval by the relevant authority, to offset against accumulated losses or to increase capital.

Appropriation to the staff and workers’ bonus and welfare fund, which is determined at the discretion of the board of directors of CNOOC China Limited, is expensed as incurred under IFRSs/HKFRSs. The staff and workers’ bonus and welfare fund can only be used for special bonuses or collective welfare of employees.

As at December 31, 2012, the general reserve fund amounted to RMB10,000 million (2011: RMB10,000 million), representing 50% (2011: 50%) of the total registered capital of CNOOC China Limited.

In accordance with the "Temporary Regulation for Safety Expense Financial Management of Higher Risk Industry" and the implementation guidance issued by the Ministry of Finance of the PRC, the Group is required to accrue a safety fund for its oil and gas exploration and production activities within the PRC by appropriating a portion of its net profit to other reserves based on its annual production from offshore China. Such reserve is reduced for expenses incurred to improve the safety conditions of oil and gas production. When the safety fund is fully utilized, additional expenses incurred for safety production purpose are charged directly to the profit or loss for the year. As of December 31, 2012, the Group’s safety fund reserve accrued but not utilised under the PRC regulations amounted to nil (2011: nil).

In accordance with the relevant accounting principles required by the local authorities, as at December 31, 2012, the aggregate amount of the Group’s retained earnings available for distribution to the Company’s shareholders amounted to approximately RMB253,196 million (2011: RMB205,055 million).

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CNOOC LIMITED

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

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

30.	RELATED PARTY TRANSACTIONS

As disclosed in note 1, the Company is a subsidiary of CNOOC, which is a state-owned enterprise subject to the control of the State Council of the PRC. The State Council of the PRC directly and indirectly controls a significant number of state-owned entities and organisations.

Comprehensive framework agreement with CNOOC in respect of a range of products and services

As the Group is controlled by CNOOC, transactions with CNOOC, its subsidiaries and associates (the “CNOOC Group”) are disclosed as related party transactions. The Company entered into a comprehensive framework agreement with CNOOC on November 1, 2010 for the provision (1) by the Group to the CNOOC Group and (2) by the CNOOC Group to the Group, of a range of products and services which may be required and requested from time to time by either party and/or its associates in respect of the continuing connected transactions. The term of the comprehensive framework agreement is for a period of three years from January 1, 2011. The continuing connected transactions and relevant annual caps were approved by the independent shareholders of the Company on November 24, 2010. The annual caps of the “sales of petroleum and natural gas products (other than long term sales of natural gas and liquefied natural gas)” and “provision of exploration and support services” categories for the years 2012 and 2013 were revised in 2012. The approved related party/continuing connected transactions are as follows:

Provision of exploration, oil and gas development, oil and gas production as well as marketing, management and ancillary services by the CNOOC Group to the Group:

a) Provision of exploration and support services

b) Provision of oil and gas development and support services

c) Provision of oil and gas production and support services

d) Provision of marketing, management and ancillary services

e) FPSO vessel leases

Provision of management, technical, facilities and ancillary services, including the supply of materials by the Group to the CNOOC Group; and

Sales of petroleum and natural gas products by the Group to the CNOOC Group:

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

Long term sales of natural gas and liquefied natural gas

Pricing principles

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

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CNOOC LIMITED

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

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

30.	RELATED PARTY TRANSACTIONS (continued)

Comprehensive framework agreement with CNOOC in respect of a range of products and services (continued)

For services provided by the CNOOC Group to the Group as described above, on the basis of the above pricing principle, such services must be charged in accordance with the following pricing mechanism and in the following sequential order:

(i)

state-prescribed prices; or

(ii)

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

(iii)

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

The related party/continuing connected transactions referred to in paragraph 1(e) above provided by the CNOOC Group to the Group are at market prices on normal commercial terms which are calculated on a daily basis.

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

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

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CNOOC LIMITED

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

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

30.	RELATED PARTY TRANSACTIONS (continued)

Pricing principles (continued)

The following is a summary of significant related party transactions entered into in the ordinary course of business between the Group and its related parties during the period and the balances arising from related party transactions at the end of the year:

(i)

Provision of exploration, oil and gas development, oil and gas production as well as marketing, management and ancillary services by the CNOOC Group to the Group

	2010		2011		2012

Provision of exploration and support services		5,462		6,625		8,349
- Inclusive of amounts capitalized under property, plant and equipment		2,359		3,480		4,060
Provision of oil and gas development and support services		14,190		13,544		23,857
Provision of oil and gas production and support services (note a)		5,229		6,675		7,523
Provision of marketing, management and ancillary services (note b)		759		521		770
FPSO vessel leases (note c)		1,452		1,253		1,127

		27,092		28,618		41,626

(ii)

Provision of management, technical, facilities and ancillary services, including the supply of materials by the Group to CNOOC Group

The Group did not enter into any transactions in this category for the years ended December 31, 2010, 2011 and 2012.

(iii)

Sales of petroleum and natural gas products by the Group to the CNOOC Group

	2010		2011		2012

Sales of petroleum and natural gas products (other than long term sales of natural gas and liquefied natural gas) (note d)		90,869		127,270		157,441
Long term sales of natural gas and liquefied natural gas (note e)		4,434		5,896		5,937

		95,303		133,166		163,378

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CNOOC LIMITED

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

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

30.	RELATED PARTY TRANSACTIONS (continued)

(iv)

Transactions with CNOOC Finance Corporation Limited (“CNOOC Finance”)

(a)

Interest income received by the Group

	2010		2011		2012

Interest income from deposits in CNOOC Finance (note f)		72		124		323

(b)

Deposits made by the Group

	2011		2012

Deposits in CNOOC Finance (note f)		9,800		18,227

(v)

Balances with the CNOOC Group

	2011		2012

Amount due to CNOOC
- included in other payables and accrued liabilities		456		337
Amount due to other related parties
- included in trade and accrued payables		11,075		11,975
		11,531		12,312
Amounts due from other related parties
– included in trade receivables		10,058		15,362
– included in other current assets		254		431
		10,312		15,793

(vi)

Balances with a joint venture

	2011		2012

Amounts due from a joint venture
- included in held-to-maturity financial assets		44		-
- included in other current assets		-		88
		44		88

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CNOOC LIMITED

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

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

30.	RELATED PARTY TRANSACTIONS (continued)

(vii)

Transactions and balances with other state owned enterprises

The Group enters into extensive transactions covering purchases or sales of crude oil, natural gas, property, plant and equipment and other assets, receiving of services, and making deposits and borrowings with state owned enterprises, other than the CNOOC Group, in the normal course of business on terms comparable to those with other non state owned enterprises. The purchases of property, plant and equipment and other assets, and receipt of services from these state owned enterprises are individually not significant. The individually significant sales transactions with these state owned enterprises are disclosed in note 35. In addition, the Group had certain of its cash and time deposits and outstanding short-term bank loans with certain state-owned banks in the PRC as at December 31, 2012, as summarized below:

	2011		2012

Cash and cash equivalents		12,524		41,833
Time deposits with financial institutions		14,976		1,077
Specific dismantlement fund accounts (note 20)		-		547
		27,500		43,457

Short-term loans		11,153		10,057

Interest rates for the above time deposits, dismantlement fund and short term loans are at prevailing market rates.

(viii)

Key management personnel’s remuneration

Key management personnel’s remuneration is disclosed in note 10.

Notes:

These represent the services for production operations, the provision of various facilities and ancillary services, such as provision of different types of materials, medical and employee welfare services, maintenance and repair of major equipment and supply of water, electricity and heat to the Group, some of which may not be available from independent third parties or available on comparable terms.

These include marketing, administration and management, management of oil and gas operations and integrated research services as well as other ancillary services relating to exploration, development, production and research activities of the Group. In addition, CNOOC and/or its associates leased certain premises to the Group for use as office premises and staff quarters out of which they provided management services to certain properties.

CNOOC Energy Technology & Services Limited leased floating production, storage and offloading (FPSO) vessels to the Group for use in oil production operations.

The sales include crude oil, condensate oil, liquefied petroleum gas, natural gas and liquefied natural gas to the CNOOC Group. Individual sales contracts were entered into from time to time between the Group and the CNOOC Group.

It is the market practice for sales terms to be determined based on the estimated reserves and production profile of the relevant gas fields. The long term sales contracts usually last for 15 to 20 years.

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CNOOC LIMITED

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

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

30.	RELATED PARTY TRANSACTIONS (continued)

Notes: (continued)

CNOOC Finance is a 31.8% owned associate of the Company and also a subsidiary of CNOOC. Under the renewed financial services framework agreement with CNOOC Finance dated August 20, 2010, CNOOC Finance continues to provide to the Group settlement, depository, discounting, loans and entrustment loans services. The renewal agreement is effective from January 1, 2011 to December 31, 2013. The depository services were exempted from independent shareholders’ approval requirements under the Rules Governing the Listing of Securities on The Stock Exchange of Hong Kong Limited (the “Listing Rules”). The stated deposits in (iv) (b) above represent the maximum daily outstanding balance for deposits (including accrued interest, excluding funds placed for the purpose of extending entrustment loan services) during the period.

Coalbed Methane Resources Exploration and Development Cooperation Agreement with China United Coalbed Methane Corporation Limited

On August 3, 2012, CNOOC China Limited, a wholly-owned subsidiary of the Company, entered into the Coalbed Methane Resources Exploration and Development Cooperation Agreement (the “Cooperation Agreement”) with China United Coalbed Methane Corporation Limited (“CUCBM”) in connection with the exploration, development, production and sale of Coalbed Methane (“CBM”) and CBM products within the contract areas (as defined in the Cooperation Agreement). The term of the Cooperation Agreement commences on the effective date and expires on the later of (i) 30 years from the effective date of the Cooperation Agreement, and (ii) the end of the production period of the last CBM field (as defined in the Cooperation Agreement) in the contract areas, unless otherwise agreed by CNOOC China Limited and CUCBM. The Cooperation Agreement and the transactions contemplated thereunder were approved by independent shareholders of the Company on August 21, 2012. As at the date of the Cooperation Agreement, CNOOC China Limited expected to incur total expenses of RMB9,933.3 million (being (1) RMB9,713.3 million for the initial three years of the five years’ exploration period, plus (2) the minimum exploration costs of RMB220 million as required under the applicable PRC laws and regulations for the remaining two years of the exploration period).

CUCBM is a connected person of the Company, hence the Cooperation Agreement constitutes a connected transaction of the Company under the Listing Rules. As of December 31, 2012, the accumulated investment incurred was RMB211 million.

Capital injection into CNOOC Finance

For the purpose of meeting external regulatory requirements as well as enhancing risk resilience and developmental strength, CNOOC China Limited, China Offshore Oil & Gas Development & Utilisation Company (“CNOOC Oil & Gas”), an enterprise in the PRC and a wholly-owned subsidiary of CNOOC, CNOOC, the controlling shareholder of the Company, and Offshore Oil Engineering Co., Ltd. (“COOEC”), a company limited by shares incorporated in the PRC with its shares listed on the Shanghai Stock Exchange and with CNOOC as its controlling shareholder, entered into a Capital Injection Agreement (the “Capital Injection Agreement”) on August 27, 2012 with CNOOC Finance, which is a subsidiary of CNOOC and therefore a connected person of the Company by virtue of being an associate of CNOOC as defined by the Listing Rules. Pursuant to the Capital Injection Agreement, CNOOC China Limited, CNOOC, CNOOC Oil & Gas and COOEC agreed to inject further capital into CNOOC Finance according to their respective holding of equity interests in CNOOC Finance as at the date of the Capital Injection Agreement (the “Capital Injection”). Under the Capital Injection Agreement, CNOOC China Limited subscribed for CNOOC Finance's increased registered capital according to its holding of equity interests therein, which was RMB822,084,806 at the date of the Capital Injection Agreement. Upon completion of the Capital Injection, the respective holding of equity interests of CNOOC China Limited, CNOOC, CNOOC Oil & Gas and COOEC in CNOOC Finance will remain unchanged, being approximately 31.80%, 62.90%, 3.53% and 1.77% respectively.

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CNOOC LIMITED

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

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

30.	RELATED PARTY TRANSACTIONS (continued)

Capital injection into CNOOC Finance (continued)

The related party transactions in respect of items listed above also constitute connected transactions or continuing connected transactions as defined in Chapter 14A of the Listing Rules.

The amount due to the parent company and amounts due from/to related parties are unsecured, interest-free and are repayable on demand, unless otherwise disclosed.

31.	RETIREMENT AND TERMINATION BENEFITS

All the Group’s full-time employees in the PRC are covered by a state-managed retirement benefit plan operated by the government of the PRC, and are entitled to an annual pension. The PRC government is responsible for the pension liabilities to these retired employees. The Group is required to make annual contributions to the state-managed retirement benefit plan at rates ranging from 11% to 22% of the employees’ basic salaries.

The Company is required to make contributions to a defined contribution mandatory provident fund at a rate of 5% of the basic salaries of all full-time employees in Hong Kong. The related pension costs are expensed as incurred.

The Group provides retirement and termination benefits for all local employees in Indonesia in accordance with Indonesian labour law, and provides employee benefits to expatriate staff in accordance with the relevant employment contract.

During the year, the Group’s pension costs charged to the consolidated financial statement of comprehensive income amounted to RMB178 million (2011: RMB123 million, 2010: RMB118 million).

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CNOOC LIMITED

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

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

32.	NOTES TO THE CONSOLIDATED STATEMENTS OF CASH FLOWS

Reconciliation of profit before tax to cash generated from operations

	2010			2011			2012

Profit before tax		72,603			92,565			90,172

Adjustments for:
Interest income on bank deposits		(618	)		(1,196	)		(1,002	)
Finance costs		1,109			1,682			1,579
Exchange gains, net		(995	)		(637	)		(359	)
Share of profits of associates		(199	)		(320	)		(284	)
Share of (profits)/losses of a joint venture		(199	)		(247	)		311
Investment income		(427	)		(1,828	)		(2,392	)
Impairment & Provision		27			22			31
Depreciation, depletion and amortization		26,756			30,521			32,903
Loss on disposal and write-off of property, plant and equipment		1,175			706			2,270
Unwinding of discount on long term guaranteed notes		13			25			24
Equity-settled share option expense		218			143			50
Gain from disposal of a subsidiary		-			(372	)		-
Others		-			(13	)		-
		99,463			121,051			123,303


Increase in trade receivables		(6,689	)		(982	)		(2,962	)
Increase in inventories and supplies		(475	)		(319	)		(496	)
(Increase)/decrease in other current assets		(11,880	)		9,840			(975	)
Increase in trade and accrued payables, other payables and accrued liabilities		2,252			1,404			4,173
(Decrease)/increase in other taxes payable		3,250			9,815			(5,307	)

Cash generated from operations		85,921			140,809			117,736

33.	COMMITMENTS AND CONTINGENCIES

(i)

Capital commitments

As at December 31, 2012, the Group had the following capital commitments*, principally for the construction and purchase of property, plant and equipment:

	2011		2012
Contracted, but not provided for **		15,219		27,502
Authorized, but not contracted for		59,584		80,682

The capital commitments do not include investment commitments for acquisitions of equity interest or working interest, which have been disclosed in note 4.

The capital commitments contracted, but not provided for, include the estimated payments to the Ministry of Land and Resources of the PRC for the next five years with respect to the Group’s exploration and production licenses.

The above table includes a commitment of approximately RMB11,375 million (2011: RMB3,221 million) contracted with the CNOOC Group.

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CNOOC LIMITED

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

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

33.	COMMITMENTS AND CONTINGENCIES (continued)

(i)

Capital commitments (continued)

Capital commitments of a joint venture:

	2011		2012
Contracted, but not provided for		-		350
Authorized, but not contracted for		1,384		187

As at December 31, 2012, the Group had unutilised banking facilities amounting to approximately RMB57,662 million (2011: RMB160,580 million).

(ii)

Operating lease commitments

(a)

Office properties

The Group leases certain of its office properties under operating lease arrangements. Leases for properties are negotiated for terms ranging from 3 month to 10 years.

As at December 31, 2012, the Group had total minimum lease payments under non-cancellable operating leases falling due as follows:

	2011		2012

Commitments due:
Within one year		191		334
In the first to second years, inclusive		30		55
After the second but before the fifth years, inclusive		18		31
After the fifth year		2		-

		241		420

The above table includes minimum lease payments of approximately RMB202 million (2011: RMB145 million) to the CNOOC Group.

Office properties commitments of a joint venture:

	2011		2012

Commitments due:
Within one year		7		7
In the first to second years, inclusive		6		6
After the second but before the fifth years, inclusive		11		7

		24		20

(b)

Plant and equipment

The Group leases certain of its plant and equipment under operating lease arrangements for a term from 9 months to 25 years.

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CNOOC LIMITED

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

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

33.	COMMITMENTS AND CONTINGENCIES (continued)

(ii)

Operating lease commitments (continued)

(b)

Plant and equipment (continued)

As at December 31, 2012, the Group had total minimum lease payments under non-cancellable operating leases falling due as follows:

	2011		2012

Commitments due:
Within one year		783		585
In the first to second years, inclusive		444		292
After the second but before the fifth years, inclusive		606		666
After five years		313		1,173

		2,146		2,716

The above table includes a commitment of approximately RMB1,379 million (2011: RMB1,783 million) to the CNOOC Group.

(iii)

Contingencies

(a)

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

In 2007, a local tax office in Nigeria (the “Nigerian Local Tax Office”) conducted a tax audit on SAPETRO. Accordingto the preliminary tax audit results, the Nigerian Local Tax Office has raised a disagreement with the tax filings made for the OML130 Transaction.

The tax audit assessment made by the Nigerian Local Tax Office has been contested by the Company in accordance with Nigerian laws. The Company then filed a suit in the Nigerian Federal High Court (“FHC”). In March 2011, the FHC delivered a binding judgement in favour of the Company, agreeing that the Company is not subject to Value Added Tax for the OML130 Transaction. The judgement was appealed by counterparties to the High Court. After seeking legal advice, the Company’s management believes that the Company has reasonable grounds in defending for such an appeal. Consequently, no provision has been made for any expenses which might arise as a result of the dispute.

(b)

On October 26, 2011, the Company received a notice of assessment from Federal Inland Revenue Service of Nigeria (“FIRS”), confirming that the effective Petroleum Profit Tax (“PPT”) and related tax in the year of 2010 for the Company’s investment in OML130 project, shall be calculated and payable on the basis of the PPT Tax Return prepared by Nigerian National Petroleum Corporation. The Company contested the notice of assessment. On January 13, 2012, the Company, together with SAPETRO (collectively referred to as the “PSC Partners”), has filed an appeal in relation thereto to the local Tax Appeal Tribunal (“TAT”).

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CNOOC LIMITED

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

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

33.	COMMITMENTS AND CONTINGENCIES (continued)

(iii)

Contingencies (continued)

The Company received a notice of assessment issued by FIRS on June 13, 2012, stating that the investment tax allowance (“ITA”), instead of investment tax credit (“ITC”) should be applied for the PPT calculation of the Company’s investment in OML130 project. In July 2012, the PSC Partners filed an appeal in relation thereto to the TAT. However, whether TAT has jurisdiction over this dispute is uncertain under the Nigerian Law. In order to protect the right of action, the PSC Partners filed an application to the FHC on September 13, 2012, seeking the permission to file a lawsuit over the application of ITA/ITC dispute at the FHC. The appeal over ITA/ITC dispute at TAT was withdrawn on November 9, 2012.

No verdict has been issued to date, and the results of the appeals are still uncertain.

(c)

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

(d)

Two oil spill accidents occurred on June 4 and June 17, 2011 respectively at Platforms B and C of Penglai 19-3 oilfield, which is being operated under a production sharing contract (“PSC”) among CNOOC China Limited, the subsidiary of the Company, and two subsidiaries of ConocoPhillips (“ConocoPhillips”), a US based oil company, among which ConocoPhillips China Inc. (“COPC”) is the operator and responsible for the daily operations of the oilfield.

On June 21, 2012, the State Oceanic Administration of the PRC (the “SOA”) announced the Accident Investigation and Settlement Report by a Joint Investigation Team on the Penglai 19-3 Oilfield Oil Spill Accidents, pointing out that “the Joint Investigation Team has concluded that COPC violated the oilfield Overall Development Program, had defects in its operation procedures and management, and failed to take necessary precautionary measures against foreseen risks, all of which eventually resulted in the oil spills. The Penglai 19-3 Oilfield Oil Spill Accidents were accidents involving liabilities, causing significant marine pollution by oil spill. Pursuant to the PSC, COPC (the operator of the oilfield) shall bear full responsibility for the oil spill accidents.” On February 16, 2013, the SOA announced through its official website, that following a series of rectification measures, COPC was permitted to gradually resume the production of the Penglai 19-3 oilfield.

The Company is of the view that the Company’s obligations, if any, arising from the above mentioned accidents shall be determined in accordance with relevant laws and regulations, the PSC and related agreements, among others. Based on evaluations performed as of the date of these financial statements, the Company believes that it is not possible to determine provisions, if any, for the above mentioned accidents in these financial statements. The financial impact of such oil spill accidents on the Company is still uncertain, and the Company has not made any provision for the accidents in these financial statements.

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CNOOC LIMITED

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

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

33.	COMMITMENTS AND CONTINGENCIES (continued)

(iii)

Contingencies (continued)

(e)

On October 11, 2012, the Company was served with a purported class action complaint filed by Sam Sinay, individually and on behalf of all others similarly situated in the Unites States District Court for the Southern District of New York (the “Complaint”). The Complaint is lodged against the Company and certain of its officers, which alleges that during the period between January 27, 2011 and September 16, 2011, the Company made materially false and misleading statements regarding its business and financial results and the oil spill accidents occurred at the Penglai 19-3oilfield.

The Company believes that the allegations and the claims in the Complaint are without merit and intends to defend itself vigorously against such claims and no provision has been made in these financial statements. On December 21, 2012, the Company filed a motion to dismiss the Complaint in the same court.

34.	FINANCIAL INSTRUMENTS

Fair value of financial instruments

The carrying values of the Group’s cash and cash equivalents, time deposits, trade receivables, other current assets, trade and accrued payables and other payables approximated to their fair values at the reporting date due to the short maturity of these instruments.

The fair value of the Group’s long term bank loans with floating interest rates approximated to the carrying amount of RMB3,533 million as at December 31, 2012 (2011: RMB4,063 million).

The estimated fair value of the Group’s long term guaranteed notes based on current market interest rates was approximately RMB31,577 million as at December 31, 2012 (2011: RMB20,097 million), which was determined by reference to the market price as at December 31, 2012.

Fair value hierarchy

The Group uses the following hierarchy that reflects the significance of the inputs used in making the measurement:

Level 1:

quoted prices (unadjusted) in active markets for identical assets or liabilities;

Level 2:

inputs other than quoted prices included within Level 1 that are observable for the asset or liability, either directly or indirectly; and

Level 3:

inputs for the asset or liability that are not based on observable market data (unobservable inputs).

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CNOOC LIMITED

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

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

34.	FINANCIAL INSTRUMENTS (continued)

Fair value hierarchy (continued)

As at December 31, 2012 and 2011, the Group held the following financial instruments measured at fair value for each hierarchy respectively:

	December 31 2012		Level 1		Level 2		Level 3
Assets measured at fair value
Available-for-sale financial assets-current
Private equity funds*		15		-		15		-
Corporate wealth management products*		52,310		-		52,310		-
Liquidity funds**		9,470		9,470		-		-
		61,795		9,470		52,325		-
Available-for-sale financial assets-non current
Equity investment in MEG**		5,516		5,516		-		-
		5,516		5,516		-		-

Liabilities measured at fair value
Foreign exchange forward contracts***		-		-		-		-

	December 31 2011		Level 1		Level 2		Level 3
Assets measured at fair value
Available-for-sale financial assets-current
Private equity funds*		15		-		15		-
Corporate wealth management products*		18,500		-		18,500		-
Liquidity funds**		9,061		9,061		-		-
		27,576		9,061		18,515		-
Available-for-sale financial assets-non current
Equity investment in MEG**		7,365		7,365		-		-
		7,365		7,365		-		-

Liabilities measured at fair value
Foreign exchange forward contracts***		38		-		38		-

The fair values of the private equity funds and corporate wealth management products are based on the fund managers’ quotations.

The fair values of the liquidity funds and equity investment in MEG are based on quoted market prices.

***

The fair value of the foreign exchange forward contracts was determined using forward exchange rates as at December 31, 2012 and 2011 respectively.

These contracts are entered into for a 12-month period consistent with the US dollars payment exposures, which are not designated as cash flows, fair value or net investment hedge. These foreign exchange forward contracts are categorised as financial liabilities at fair value through profit or loss. Changes in fair value of these contracts were recognised in the statement of comprehensive income in other finance costs (note 9).

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CNOOC LIMITED

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

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

35.	CONCENTRATION OF CUSTOMERS

A substantial portion of the oil and gas sales of the Group is made to a small number of third parties on credit. Details of the gross sales to these top five customers are as follows:

	2010		2011		2012
China Petroleum & Chemical Corporation*		34,384		52,026		44,622
PetroChina Company Limited*		13,218		33,591		18,259
Chesapeake Exploration, LLC		3,574		110		3,574
Shandong Changyi Petrochemical Ltd.*		2,347		2,607		3,363
Nexen Inc		2,527		270		2,527

* These transactions are with other state owned enterprises

36.	FINANCIAL RISK MANAGEMENT OBJECTIVES AND POLICIES

The Group’s principal financial instruments comprise bank loans, long term guaranteed notes, available-for-sale financial assets, cash and short term deposits. The Group has various other financial assets and liabilities such as trade receivables and trade payables, which arise directly from its operations.

The Group is exposed to credit risk, oil and gas price risk, currency risk, interest rate risk, business risk and liquidity risk.

The Group’s senior management oversees the management of these risks. The Group’s senior management is supported by various departments that advise on financial risks and the appropriate financial risks governance framework for the Group. Those departments provide assurance to the Group’s senior management that the Group’s financial risk-taking activities are governed by appropriate policies and procedures and that financial risks are identified, measured and managed in accordance with group policies and group risk appetite.

(i)

Credit risk

The carrying amounts of the Group’s cash and cash equivalents, time deposits and liquidity funds investments, trade receivables and other receivables, and other current assets except for prepayments represent the Group’s maximum exposure to credit risk in relation to its financial assets.

The significant portion of the Group’s trade receivables is related to the sale of oil and natural gas to third party customers. The Group performs ongoing credit evaluations of the customers’ financial condition and generally does not require collateral on trade receivables. The Group made an impairment allowance on doubtful receivables and actual losses have been within management’s expectation.

Since the Group trades only with recognized and creditworthy third parties, there is no requirement for collateral. Concentrations of credit risk are managed by customer/counterparty and by geographical region. At the reporting date, the Group has certain concentrations of credit risk as 12% (2011: 22%) and 24% (2011: 36%) of the Group’s trade receivables were due from the Group’s largest customer and the five largest customers, respectively.

No other financial assets carry a significant exposure to credit risk.

(ii)

Oil and gas price risk

Since the Company makes reference to international oil prices to determine its realised oil price, fluctuations in international oil price would have a significant impact on the Company’s sales revenue and profit. In addition, the Company’s natural gas sales contracts are incorporated with price adjustment provisions. Any changes in international oil price, inflation rate and domestic natural gas price policies may result in changes in natural gas prices, which will affect the Company's profitability.

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CNOOC LIMITED

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

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

36.	FINANCIAL RISK MANAGEMENT OBJECTIVES AND POLICIES (continued)

(iii)

Currency risk

Substantially all of the Group’s oil and gas sales are denominated in Renminbi and United States dollars (“US dollars”). Starting from July 21, 2005, China reformed the exchange rate regime by moving into a managed floating exchange rate regime based on market supply and demand with reference to a basket of currencies. Renminbi would no longer be pegged to the US dollars. From January 1, 2012 to December 31, 2012 (the last working day in 2012), Renminbi has appreciated by approximately 0.25% against the US dollars. At the reporting date, approximately 92.2% (2011: 86.0%) of the Group’s cash and cash equivalents and time deposits with maturity over three months were denominated in Renminbi, and the remaining amounts were denominated in US dolloars and Hong Kong dollars.

Management has assessed the Group's exposure to foreign currency risk by using a sensitivity analysis on the change in foreign exchange rate of the US dollars, to which the Group is mainly exposed to as at December 31, 2011 and 2012. Based on management's assessment, a 5% change in the foreign exchange rate of the US dollars at December 31, 2012 would have impacted the profit for the year of the Group by 0.84% and the equity of the Group by 1.20%. This analysis has been determined assuming that the change in foreign exchange rates had occurred at the balance sheet date and had been applied to the foreign currency balances to which the Group has significant exposure with all other variables held constant. The analysis is performed on the same basis for 2011.

Senior management are closely monitoring the Group’s net exposure to foreign currency risk. The appreciation of Renminbi against the US dollars may have the following impact on the Group. On one hand, since the benchmark oil and gas prices are usually in US dollars against Renminbi, the Group’s oil and gas sales may decrease due to the depreciation of the US dollars against Renminbi. On the other hand, the depreciation of the US dollars against Renminbi will also decrease the Group’s costs for imported equipment and materials, most of which are denominated in the US dollars. In addition, the debt repayment by the Group will decrease since all of the Group’s debts are also denominated in the US dollars.

(iv)

Interest rate risk

The interest rate risk is closely monitored by the Group’s senior management. As at the end of 2012, the interest rates for 48.6% of the Group’s debts were fixed. The weighted average term of the company’s debt balance outstanding was approximately 7.11 years. The fixed interest rates can reduce the volatility of finance costs under uncertain environments and the Group’s exposure to changes in interest rates is not expected to be material.

(v)

Business risk

The operations of the Group are conducted in the PRC and many other countries and accordingly are subject to special considerations and significant risks not typically associated with investments in equity securities of the United States of America and Western European companies. These include risks associated with, among others, the oil and gas industry, the political, economic and legal environments, influence of the national authorities over price setting and competition in the industry.

(vi)

Liquidity risk

The Group manages its liquidity risk by regularly monitoring its liquidity requirements and its compliance with debt covenants to ensure that it maintains sufficient cash and cash equivalents, and readily realizable available-for-sale financial assets, and adequate time deposits to meet its liquidity requirements in the short and long term. In addition, bank facilities have been put in place for contingency purposes.

The Group’s trade and accrued payables, other payables and accrued liabilities are all due for settlement within six months after the reporting date.

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CNOOC LIMITED

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

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

36.	FINANCIAL RISK MANAGEMENT OBJECTIVES AND POLICIES (continued)

(vii)

Capital management

The primary objectives of the Group’s capital management are to safeguard the Group’s ability to continue as a going concern and to maintain healthy capital ratios in order to support its business and maximize shareholders’ value.

The Group manages its capital structure and makes adjustments to it in light of changes in economic conditions. To maintain or adjust the capital structure, the Group may return capital to shareholders, raise new debt or issue new shares. No changes were made in the objectives, policies or processes for managing capital during the years end December 31, 2012 and December 31, 2011.

The Group monitors capital on the basis of the debt to capital ratio, which is calculated as interest-bearing debts divided by total capital (equity attributable to owners of the parent plus interest-bearing debts).

	2010			2011			2012

Interest-bearing debts		31,053			37,995			57,886

Equity attributable to owners of the parent		215,766			262,856			309,780

Total capital		246,819			300,851			367,666

Gearing ratio		12.6	%		12.6	%		15.7	%

37.	CHARGE OF ASSETS

CNOOC NWS Private Limited, a wholly-owned subsidiary of the Group, together with the other joint venture partners and the operator of the NWS Project, signed a Deed of Cross Charge and an Extended Deed of Cross Charge whereby certain liabilities incurred or to be incurred, if any, by the Company in respect of the NWS Project are secured by its interest in the NWS Project.

38.	SUBSEQUENT EVENTS

The Group has no other subsequent events needed to be disclosed in the consolidated financial statements, except that disclosed in note 4(ii) and note 33(iii)(d).

39.	COMPARATIVE AMOUNTS

Certain comparative amounts have been reclassified to conform to the current period’s presentation, and those reclassifications are not significant.

40.	APPROVAL OF THE FINANCIAL STATEMENTS

The financial statements were approved and authorized for issue by the Board of Directors on March 22, 2013.

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CNOOC LIMITED

SUPPLEMENTAL INFORMATION ON OIL AND GAS PRODUCING ACTIVITIES
(UNAUDITED)

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

The following disclosures are included in accordance with the FASB Accounting Standard Codification 932 “Extractive Activities-Oil and Gas (the “ASC 932”).

The regional analysis presented below is on a continent basis, with separate disclosure for countries that contain 15% or more of the total proved reserve, in accordance with SEC and FASB requirements.

(a)

Reserve quantity information

Crude oil and natural gas reserve estimates are determined through analysis of geological and engineering data which appear, with reasonable certainty, to be economically producable in the future from known oil and natural gas reservoirs under existing economic and operating conditions. The reserve data that we disclosed were all based on the definitions and disclosure guidelines contained in the US Securities and Exchange Commission’s final rules on “Modernization of oil and Gas Reporting” (the “SEC Final Rule”).

For the years 2010, 2011 and 2012, approximately11%, 23% and 36%, respectively, of our total proved reserves were evaluated by us, and the remaining were evaluated by independent third party.

We implemented rigorous internal control system that monitors the entire reserves estimation procedure and certain key metrics in order to ensure that the process and results of reserves estimates fully comply with the relevant SEC rules.

For the year ended December 31, 2012, the reserves evaluated independently by CNOOC were implemented rigorous in-house technical scrutiny and compliance audit, while third party consulting firms (Ryder Scott Company) were engaged to perform annual procedural audit of all the independently evaluated reserves that monitors the entire reserves estimation procedure and certain key metrics in order to ensure market transparency and compliance.

We established the Reserve Management Group, or RMG, which is led by our Executive Vice Presidents and comprises the general managers of the relevant departments.

The RMG’s main responsibilities are to:

· review our reserves policies;

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

· select our reserves estimators and auditors.

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

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

The RMG delegates its daily operation to our Reserves Office, which is led by our Chief Reserve Supervisor. The Reserves Office is mainly responsible for supervising reserves estimates and auditing. It reports to the RMG periodically and is independent from operating divisions such as the exploration, development and production departments. Our Chief Reserve Supervisor has 31 years’ experience in oil and gas industry.

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CNOOC LIMITED

SUPPLEMENTAL INFORMATION ON OIL AND GAS PRODUCING ACTIVITIES
(UNAUDITED)

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

(a)

Reserve quantity information (continued)

The Group’s net proved reserves consist of its percentage interest in reserves, comprised of a 100% interest in its independent oil and gas properties and its participating interest in the properties covered under the production sharing contracts in the PRC, less (i) an adjustment for the Group’s share of royalties payable by the Group to the PRC government and the Group’s participating interest in share oil payable to the PRC government under the production sharing contracts, and less (ii) an adjustment for production allocable to foreign partners under the PRC production sharing contracts as reimbursement for exploration expenses attributable to the Group’s participating interest, and plus the participating interest in the properties covered under the production sharing contracts in oversea countries, less adjustments, if any, of share oil attributable to the host government and the domestic market obligation.

Pursuant to SEC Final Rule, the Group uses the average, first-day-of-the-month oil price during the 12-month period before the ending date of the period covered by the consolidated financial statements to estimate its proved oil and gas reserves.

The Company determines its net entitlement oil and gas reserves under production sharing contracts using the economic interest method.

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CNOOC LIMITED

SUPPLEMENTAL INFORMATION ON OIL AND GAS PRODUCING ACTIVITIES
(UNAUDITED)

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

(a)	Reserve quantity information (continued)

Proved developed and undeveloped reserves:

	PRC				Asia (excluding PRC)				Oceania				Africa			North America								South America				Total
	Oil		Natural gas		Oil		Natural gas		Oil		Natural gas		Oil		Natural gas	Oil		Natural gas			Synthetic oil		Bitumen	Oil		Natural gas		Oil		Natural gas		Synthetic oil		Bitumen
	(mmbls)		(bcf)		(mmbls)		(bcf)		(mmbls)		(bcf)		(mmbls)		(bcf)	(mmbls)		(bcf)			(mmbls)		(mmbls)	(mmbls)		(bcf)		(mmbls)		(bcf)		(mmbls)		(mmbls)
Consoli -dated entities
31 December 2009	1,495		4,166		54		1,083		26		649		91		-	2			46		-		-	-		-		1,668		5,944		-		-
Purchase/(Disposal) of reserves	22		-		-		-		-		-		-		-	-			-		-		-	-		-		22		-		-		-
Discoveries and extensions	178		828		3		120		-		-		75		-	-			-		-		-	-		-		256		948		-		-
Production	(224	)	(226	)	(8	)	(82	)	(2	)	(46	)	(23	)	-	-			-		-		-	-		-		(257	)	(354	)	-		-
Revisions of prior estimates	30		(381	)	1		(104	)	(3	)	(105	)	3		-	(1	)		(3	)	-		-	-		-		30		(593	)	-		-

31 December 2010	1,501		4,387		50		1,017		21		498		146		-	1			43		-		-	-		-		1,719		5,945		-		-
Purchase/(Disposal) of reserves	-		-		43		(46	)	-		-		-		-	54			141		87		9	-		-		97		95		87		9
Discoveries and extensions	238		310		-		1		-		-		-		-	-			-		-		-	-		-		238		311		-		-
Improved Recovery	1		9		-		-		-		-		-		-	-			-		-		-	-		-		1		9		-		-
Production	(219	)	(252	)	(6	)	(79	)	(2	)	(37	)	(21	)	-	(1	)		(9	)	-		-	-		-		(249	)	(377	)	-		-
Revisions of prior estimates	63		(315	)	(5	)	(44	)	-		7		9		-	-			(4	)	-		-	-		-		67		(356	)	-		-
31 December 2011	1,584		4,139		82		849		19		468		134		-	54			171		87		9	-		-		1,873		5,627		87		9

Purchase/(Disposal) of reserves	-		-		-		-		-		-		-		-	-			-		-		-	-		-		-		-		-		-
Discoveries and extensions	207		911		-		-		-		-		-		-	101			176		52		4	-		-		308		1,087		52		4
Improved Recovery	-		-		-		-		-		-		-		-	-			-		-		-	-		-		-		-		-		-
Production	(226	)	(243	)	(5	)	(58	)	(1	)	(37	)	(21	)	-	(7	)		(18	)	(2	)	-	-		-		(260	)	(356	)	(2	)	-
Revisions of prior estimates	101		(347	)	(12	)	9		(1	)	(22	)	23		-	-			7		-		-	-		-		111		(353	)	-		-
31 December 2012	1,666		4,460		65		800		17		409		136			148			336		137		13	-		-		2,032		6,005		137		13
Enterprise’s share of equity method investees:
31 December 2010	1		14		-		-		-		-		-		-	-			-		-		-	196		513		197		527		-		-
Purchase/(Disposal) of reserves	-		-		-		-		-		-		-		-	-			-		-		-	-		-		-		-		-		-
Discoveries and extensions	-		-		-		-		-		-		-		-	-			-		-		-	-		-		-		-		-		-
Improved Recovery	-		-		-		-		-		-		-		-	-			-		-		-	-		-		-		-		-		-
Production	-		(3	)	-		-		-		-		-		-	-			-		-		-	(9	)	(47	)	(9	)	(50	)	-		-
Revisions of prior estimates	-		(2	)	-		-		-		-		-		-	-			-		-		-	8		(53	)	8		(55	)	-		-
31 December 2011	1		9		-		-		-		-		-		-	-			-		-		-	195		413		196		422		-		-

Purchase/(Disposal) of reserves	-		-		-		-		-		-		-		-	-			-		-		-	-		-		-		-		-		-
Discoveries and extensions	-		-		-		-		-		-		-		-	-			-		-		-	-		-		-		-		-		-
Improved Recovery	-		-		-		-		-		-		-		-	-			-		-		-	-		-		-		-		-		-
Production	-		(3	)	-		-		-		-		-		-	-			-		-		-	(8	)	(47	)	(8	)	(50	)	-		-
Revisions of prior estimates	-		(1	)	-		-		-		-		-		-	-			-		-		-	13		143		13		142		-		-
31 December 2012	1		5		-		-		-		-		-		-	-			-		-		-	200		509		201		514		-		-
Total consolidated and equity Interests in reserves
31 December 2010	1,502		4,401		50		1,017		21		498		146		-	1			43		-		-	196		513		1,916		6,472		-		-
31 December 2011	1,585		4,148		82		849		19		468		134		-	54			171		87		9	195		413		2,069		6,049		87		9
31 December 2012	1,667		4,465		65		800		17		409		136		-	148			336		137		13	200		509		2,233		6,519		137		13

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CNOOC LIMITED

SUPPLEMENTAL INFORMATION ON OIL AND GAS PRODUCING ACTIVITIES
(UNAUDITED)

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

(a)	Reserve quantity information (continued)

Proved developed reserves:

	PRC		Asia(excluding PRC)		Oceania		Africa		North America				South America		Total
	Oil	Natural gas	Oil	Natural gas	Oil	Natural gas	Oil	Natural gas	Oil	Natural gas	Synthetic oil	Bitumen	Oil	Natural gas	Oil	Natural gas	Synthetic oil	Bitumen
	(mmbls)	(bcf)	(mmbls)	(bcf)	(mmbls)	(bcf)	(mmbls)	(bcf)	(mmbls)	(bcf)	(mmbls)	(mmbls)	(mmbls)	(bcf)	(mmbls)	(bcf)	(mmbls)	(mmbls)

Consolidated entities
31 December 2010	848	1,848	45	397	9	173	57	-	1	43	-	-	-	-	960	2,461	-	-
31 December 2011	806	1,675	24	264	7	143	46	-	11	56	25	1	-	-	894	2,138	25	1
31 December 2012	754	1,500	22	460	6	124	45	-	51	129	32	1	-	-	878	2,213	32	1

Enterprise’s share of equity method investees
31 December 2010	1	14	-	-	-	-	-	-	-	-	-	-	108	268	109	282	-	-
31 December 2011	1	9	-	-	-	-	-	-	-	-	-	-	105	263	106	272	-	-
31 December 2012	1	5	-	-	-	-	-	-	-	-	-	-	104	324	105	329	-	-

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CNOOC LIMITED

SUPPLEMENTAL INFORMATION ON OIL AND GAS PRODUCING ACTIVITIES
(UNAUDITED)

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

(a)	Reserve quantity information (continued)

Proved undeveloped reserves:

	PRC		Asia(excluding PRC)		Oceania		Africa		North America				South America		Total
	Oil	Natural gas	Oil	Natural gas	Oil	Natural gas	Oil	Natural gas	Oil	Natural gas	Synthetic oil	Bitumen	Oil	Natural gas	Oil	Natural gas	Synthetic oil	Bitumen
	(mmbls)	(bcf)	(mmbls)	(bcf)	(mmbls)	(bcf)	(mmbls)	(bcf)	(mmbls)	(bcf)	(mmbls)	(mmbls)	(mmbls)	(bcf)	(mmbls)	(bcf)	(mmbls)	(mmbls)

Consolidated entities
31 December 2010	653	2,539	5	620	12	325	89	-	-	-	-	-	-	-	759	3,484	-	-
31 December 2011	779	2,464	58	585	12	325	87	-	43	115	62	8	-	-	979	3,489	62	8
31 December 2012	912	2,960	43	340	11	285	91	-	97	207	105	12	-	-	1,154	3,792	105	12

Enterprise’s share of equity method investees
31 December 2010	–	–	–	–	–	–	–	–	–	–	–	–	88	245	88	245	–	–
31 December 2011	–	–	–	–	–	–	–	–	–	–	–	–	90	150	90	150	–	–
31 December 2012	-	-	-	-	-	-	-	-	-	-	-	-	96	185	96	185	-	-

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CNOOC LIMITED

SUPPLEMENTAL INFORMATION ON OIL AND GAS PRODUCING ACTIVITIES
(UNAUDITED)

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

(b)	Results of operations

	2010
	Consolidated entities

	PRC			Asia(excluding PRC)			Oceania			Africa			North America			South America		Total

Net sales to customers		125,445			6,233			2,054			12,252			150			-		146,134
Operating expenses		(11,735	)		(2,424	)		(470	)		(983	)		(35	)		-		(15,647	)
Taxes other than income tax		(6,513	)		(7	)		(332	)		(257	)		-			-		(7,109	)
Exploration expense		(4,450	)		(565	)		-			(468	)		-			-		(5,483	)
Accretion expense		(719	)		(2	)		-			(33	)		-			-		(754	)
Depreciation, depletion and amortization																	-
(including dismantlement)		(19,920	)		(1,648	)		(247	)		(4,919	)		(22	)		-		(26,756	)
Special oil gain levy		(17,706	)		-			-			-			-			-		(17,706	)
		64,402			1,587			1,005			5,592			93			-		72,679

Income tax expense		(16,100	)		(963	)		(302	)		(1,384	)		(47	)		-		(18,796	)

Result of operations		48,302			624			703			4,208			46			-		53,883

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CNOOC LIMITED

SUPPLEMENTAL INFORMATION ON OIL AND GAS PRODUCING ACTIVITIES
(UNAUDITED)

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

(b)	Results of operations (continued)

	2010
	Enterprise’s share of equity method investees

	PRC			Asia(excluding PRC)		Oceania		Africa		North America		South America			Total

Net sales to customers		354			-		-		-		-		2,985			3,339
Operating expenses		(107	)		-		-		-		-		(557	)		(664	)
Taxes other than income tax		(21	)		-		-		-		-		(1,095	)		(1,116	)
Exploration expense		(83	)		-		-		-		-		(97	)		(180	)
Accretion expense		(3	)		-		-		-		-		(8	)		(11	)
Depreciation, depletion and amortization
(including dismantlement)		(54	)		-		-		-		-		(931	)		(985	)
Special oil gain levy		-			-		-		-		-		-			-
		86			-		-		-		-		297			383

Income tax expense		(13	)		-		-		-		-		(104	)		(117	)

Result of operations		73			-		-		-		-		193			266

Total result of operations for producing activities		48,375			624		703		4,208		46		193			54,149

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CNOOC LIMITED

SUPPLEMENTAL INFORMATION ON OIL AND GAS PRODUCING ACTIVITIES
(UNAUDITED)

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

(b)	Results of operations (continued)

	2011
	Consolidated entities

	PRC			Asia(excluding PRC)			Oceania			Africa			North America			South America		Total

Net sales to customers		163,384			7,639			2,097			14,841			1,318			-		189,279
Operating expenses		(13,954	)		(2,460	)		(490	)		(1,036	)		(324	)		-		(18,264	)
Taxes other than income tax		(9,584	)		-			(418	)		(299	)		(31	)		-		(10,332	)
Exploration expense		(4,204	)		(211	)		(1	)		(183	)		(621	)		-		(5,220	)
Accretion expense		(1,124	)		(2	)		-			(176	)		(10	)		-		(1,312	)
Depreciation, depletion and amortization
(including dismantlement)		(23,821	)		(1,521	)		(229	)		(4,388	)		(562	)		-		(30,521	)
Special oil gain levy		(31,982	)		-			-			-			-			-		(31,982	)
		78,715			3,445			959			8,759			(230	)		-		91,648

Income tax expense		(19,679	)		(1,716	)		(288	)		(500	)		(122	)		-		(22,305	)

Result of operations		59,036			1,729			671			8,259			(352	)		-		69,343

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CNOOC LIMITED

SUPPLEMENTAL INFORMATION ON OIL AND GAS PRODUCING ACTIVITIES
(UNAUDITED)

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

(b)	Results of operations (continued)

	2011
	Enterprise’s share of equity method investees

	PRC			Asia(excluding PRC)		Oceania		Africa		North America			South America			Total

Net sales to customers		352			-		-		-		-			4,941			5,293
Operating expenses		(115	)		-		-		-		-			(1,031	)		(1,146	)
Taxes other than income tax		(34	)		-		-		-		-			(1,330	)		(1,364	)
Exploration expense		(42	)		-		-		-		-			(205	)		(247	)
Accretion expense		16			-		-		-		-			(21	)		(5	)
Depreciation, depletion and amortization
(including dismantlement)		(39	)		-		-		-		-			(1,470	)		(1,509	)
Special oil gain levy		-			-		-		-		-			-			-
		138			-		-		-		-			884			1,022

Income tax expense		(21	)		-		-		-		-			(309	)		(330	)

Result of operations		117			-		-		-		-			575			692

Total result of operations for producing activities		59,153			1,729		671		8,259		(352	)		575			70,035

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CNOOC LIMITED

SUPPLEMENTAL INFORMATION ON OIL AND GAS PRODUCING ACTIVITIES
(UNAUDITED)

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

(b)	Results of operations (continued)

	2012
	Consolidated entities
	PRC			Asia (excluding PRC)			Oceania			Africa			North America			South America		Total

Net sales to customers		166,060			6,689			1,857			14,666			5,502			–		194,774
Operating expenses		(15,386	)		(2,352	)		(520	)		(1,223	)		(1,964	)		–		(21,445	)
Taxes other than income tax		(14,543	)		–			(338	)		(504	)		(247	)		–		(15,632	)
Exploration expense		(5,954	)		(847	)		(1	)		(637	)		(1,604	)		–		(9,043	)
Accretion expense		(1,280	)		(12	)		–			(54	)		(13	)		–		(1,359	)
Depreciation, depletion and amortisation		(24,599	)		(1,439	)		(193	)		(4,350	)		(2,322	)		–		(32,903	)
Special oil gain levy		(26,293	)		–			–			–			–			–		(26,293	)
		78,005			2,039			805			7,898			(648	)		–		88,099

Income tax expense		(19,501	)		(1,287	)		(242	)		(4,289	)		(65	)		–		(25,384	)

Result of operations		58,504			752			563			3,609			(713	)		–		62,715

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CNOOC LIMITED

SUPPLEMENTAL INFORMATION ON OIL AND GAS PRODUCING ACTIVITIES
(UNAUDITED)

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

(b)	Results of operations (continued)

	2012
	Enterprise’s share of equity method investees:
	PRC			Asia (excluding PRC)		Oceania		Africa		North America			South America			Total

Net sales to customers		321			-		-		-		-			2,952			3,273
Operating expenses		(141	)		-		-		-		-			(1,235	)		(1,376	)
Taxes other than income tax		(34	)		-		-		-		-			(1,740	)		(1,774	)
Exploration expense		(29	)		-		-		-		-			(41	)		(70	)
Accretion expense		12			-		-		-		-			(38	)		(26	)
Depreciation, depletion and amortisation		(34	)											(1,363	)		(1,397	)
Special oil gain levy		-			-		-		-		-			-			-
		95			-		-		-		-			(1,465	)		(1,370	)

Income tax expense		(14	)		-		-		-		-			-			(14	)

Result of operations		81			-		-		-		-			(1,465	)		(1,384	)

Total result of operations for producing activities		58,585			752		563		3,609		(713	)		(1,465	)		61,331

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CNOOC LIMITED

SUPPLEMENTAL INFORMATION ON OIL AND GAS PRODUCING ACTIVITIES
(UNAUDITED)

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

(c)	Capitalized costs

	2010
	Consolidated entities

	PRC			Asia(excluding PRC)			Oceania			Africa			North America			South America		Total

Proved oil and gas properties		209,915			22,735			2,465			34,672			1,315			-		271,102
Unproved oil and gas properties		2,961			1,457			-			2,478			15,259			-		22,155
Accumulated depreciation, depletionand amortization		(88,039	)		(10,695	)		(601	)		(7,518	)		(47	)		-		(106,900	)
Net capitalized costs		124,837			13,497			1,864			29,632			16,527			-		186,357

	2010
	Enterprise’s share of equity method investees

	PRC			Asia(excluding PRC)		Oceania		Africa		North America		South America			Total

Proved oil and gas properties		1,848			-		-		-		-		20,221			22,069
Unproved oil and gas properties		-			-		-		-		-		6,355			6,355
Accumulated depreciation, depletion and amortization		(1,419	)		-		-		-		-		(923	)		(2,342	)
Net capitalized costs		429			-		-		-		-		25,653			26,082

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CNOOC LIMITED

SUPPLEMENTAL INFORMATION ON OIL AND GAS PRODUCING ACTIVITIES
(UNAUDITED)

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

(c)	Capitalized costs (continued)

	2011
	Consolidated entities

	PRC			Asia(excluding PRC)			Oceania			Africa			North America			South America		Total

Proved oil and gas properties		242,432			14,851			2,345			34,811			8,915			-		303,354
Unproved oil and gas properties		4,375			1,271			-			2,446			36,284			-		44,376
Accumulated depreciation, depletion and amortization		(111,674	)		(4,173	)		(719	)		(11,433	)		(602	)		-		(128,601	)
Net capitalized costs		135,133			11,949			1,626			25,824			44,597			-		219,129

	2011
	Enterprise’s share of equity method investees

	PRC			Asia(excluding PRC)		Oceania		Africa		North America		South America			Total

Proved oil and gas properties		1,859			-		-		-		-		18,912			20,771
Unproved oil and gas properties		-			-		-		-		-		7,714			7,714
Accumulated depreciation, depletion and amortization		(1,461	)		-		-		-		-		(2,312	)		(3,773	)
Net capitalized costs		398			-		-		-		-		24,314			24,712

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CNOOC LIMITED

SUPPLEMENTAL INFORMATION ON OIL AND GAS PRODUCING ACTIVITIES
(UNAUDITED)

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

(c)	Capitalized costs (continued)

				2012
				Consolidated entities
	PRC			Asia (excluding PRC)			Oceania			Africa			North America			South America		Total

Proved oil and gas properties		278,777			16,685			2,339			37,469			24,756			-		360,026
Unproved oil and gas properties		6,226			1,429			2			13,725			30,621			-		52,003
Accumulated depreciation, depletion and amortisation		(136,435	)		(5,591	)		(845	)		(15,739	)		(2,925	)		-		(161,535	)
Net capitalised costs		148,568			12,523			1,496			35,455			52,452			-		250,494

				2012
				Enterprise’s share of equity method investees
	PRC			Asia (excluding PRC)		Oceania		Africa		North America		South America			Total

Proved oil and gas properties		1,881			-		-		-		-		20,441			22,322
Unproved oil and gas properties		-			-		-		-		-		8,055			8,055
Accumulated depreciation, depletion and amortisation		(1,497	)		-		-		-		-		(3,664	)		(5,161	)
Net capitalised costs		384			-		-		-		-		24,832			25,216

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CNOOC LIMITED

SUPPLEMENTAL INFORMATION ON OIL AND GAS PRODUCING ACTIVITIES
(UNAUDITED)

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

(d)	Costs incurred in oil and gas property acquisition, exploration and development

	2010
	Consolidated entities

	PRC		Asia(excluding PRC)		Oceania		Africa		North America		South America		Total
Acquisition costs:
–Proved		3,546		-		-		-		-		-		3,546
–Unproved		-		576		-		-		14,906		-		15,482
Exploration costs		6,539		217		-		327		320		-		7,403
Development costs*		25,573		994		-		2,213		414		-		29,194
Total costs incurred		35,658		1,787		-		2,540		15,640		-		55,625

	2010
	Enterprise’s share of equity method investees

	PRC		Asia(excluding PRC)		Oceania		Africa		North America		South America		Total
Acquisition costs:
–Proved		-		-		-		-		-		20,063		20,063
–Unproved		-		-		-		-		-		6,335		6,335
Exploration costs		83		-		-		-		-		118		201
Development costs*		-		-		-		-		-		849		849
Total costs incurred		83		-		-		-		-		27,365		27,448

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CNOOC LIMITED

SUPPLEMENTAL INFORMATION ON OIL AND GAS PRODUCING ACTIVITIES
(UNAUDITED)

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

(d)	Costs incurred in oil and gas property acquisition, exploration and development (continued)

	2011
	Consolidated entities

	PRC		Asia(excluding PRC)		Oceania		Africa		North America		South America		Total
Acquisition costs:
–Proved		-		-		-		-		894		-		894
–Unproved		-		97		-		-		24,347		-		24,444
Exploration costs		8,011		805		-		274		273		-		9,363
Development costs*		30,379		1,511		-		1,868		5,258		-		39,016
Total costs incurred		38,390		2,413		-		2,142		30,772		-		73,717

	2011
	Enterprise’s share of equity method investees

	PRC		Asia(excluding PRC)		Oceania		Africa		North America		South America		Total
Acquisition costs:
–Proved		-		-		-		-		-		-		-
–Unproved		-		-		-		-		-		-		-
Exploration costs		42		-		-		-		-		328		370
Development costs*		11		-		-		-		-		1,253		1,264
Total costs incurred		53		-		-		-		-		1,581		1,634

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CNOOC LIMITED

SUPPLEMENTAL INFORMATION ON OIL AND GAS PRODUCING ACTIVITIES
(UNAUDITED)

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

(d)	Costs incurred in oil and gas property acquisition, exploration and development (continued)

			2012
			Consolidated entities
	PRC		Asia (excluding PRC)		Oceania		Africa		North America		South America		Total
Acquisition costs:
–Proved		-		-		-		-		-		-		-
–Unproved		-		-		2		10,780		-		-		10,782
Exploration costs		10,572		930		-		1,274		418		-		13,194
Development costs*		33,676		2,099		-		2,752		11,378		-		49,905
Total costs incurred		44,248		3,029		2		14,806		11,796		-		73,881

			2012
			Enterprise’s share of equity method investees
	PRC		Asia (excluding PRC)		Oceania		Africa		North America		South America		Total
Acquisition costs:
–Proved		-		-		-		-		-		-		-
–Unproved		-		-		-		-		-		-		-
Exploration costs		29		-		-		-		-		84		113
Development costs*		22		-		-		-		-		1,218		1,240
Total costs incurred		51		-		-		-		-		1,302		1,353

* The development costs include estimated future dismantlement costs of dismantling offshore oil platforms and gas properties.

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CNOOC LIMITED

SUPPLEMENTAL INFORMATION ON OIL AND GAS PRODUCING ACTIVITIES
(UNAUDITED)

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

(e)	Standardized measure of discounted future net cash flows and changes therein

Pursuant to FASB Topic 932, the average of first-day-of-the-month oil price during the 12-month period before the year end, were used to estimate annual future production from proved reserves to determine future cash inflows.

Future development costs are estimated based upon constant price assumptions and the assumption of the continuation of existing economic, operating and regulatory conditions. Future income taxes are calculated by applying the year-end statutory rate to estimate future pre-tax cash flows after provision for the tax cost of the oil and natural gas properties based upon existing laws and regulations. The discount was computed by the application of a 10% discount factor to the estimated future net cash flows.

Management believes that this information does not represent the fair market value of the oil and natural gas reserves or the present value of estimated cash flows since no economic value is attributed to potential reserves, the use of a 10% discount rate is arbitrary, and prices change constantly.

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CNOOC LIMITED

SUPPLEMENTAL INFORMATION ON OIL AND GAS PRODUCING ACTIVITIES
(UNAUDITED)

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

(e)	Standardized measure of discounted future net cash flows and changes therein (continued)

Present value of estimated future net cash flows:

			2010
			Consolidated entities

	Notes		PRC			Asia(excluding PRC)			Oceania			Africa			North America			South America		Total

Future cash inflows		(1)		934,724			51,455			21,427			75,599			1,074			-		1,084,279
Future production costs				(315,975	)		(19,399	)		(6,900	)		(25,577	)		(368	)		-		(368,219	)
Future development costs		(2)		(146,787	)		(14,609	)		(3,184	)		(14,084	)		(82	)		-		(178,746	)
Future income taxes				(91,552	)		(4,880	)		(2,499	)		(3,168	)		-			-		(102,099	)

Future net cash flows		(3)		380,410			12,567			8,844			32,770			624			-		435,215
10% discount factor				(131,876	)		(4,818	)		(3,438	)		(11,787	)		(149	)		-		(152,068	)

Standardized measure of
discounted future net cash flows				248,534			7,749			5,406			20,983			475			-		283,147

			2010
			Enterprise’s share of equity method investees

	Notes		PRC			Asia(excluding PRC)		Oceania		Africa		North America		South America			Total

Future cash inflows		(1)		1,339			-		-		-		-		54,034			55,373
Future production costs				(545	)		-		-		-		-		(24,224	)		(24,769	)
Future development costs		(2)		(167	)		-		-		-		-		(671	)		(838	)
Future income taxes				(82	)		-		-		-		-		(7,229	)		(7,311	)

Future net cash flows		(3)		545			-		-		-		-		21,910			22,455
10% discount factor				(38	)		-		-		-		-		(11,796	)		(11,834	)

Standardized measure of
discounted future net cash flows				507			-		-		-		-		10,114			10,621

Total standardized measure of discounted future net cash flow				249,041			7,749		5,406		20,983		475		10,114			293,768

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CNOOC LIMITED

SUPPLEMENTAL INFORMATION ON OIL AND GAS PRODUCING ACTIVITIES
(UNAUDITED)

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

(e)	Standardized measure of discounted future net cash flows and changes therein (continued)

Present value of estimated future net cash flows:

			2011
			Consolidated entities

	Notes		PRC			Asia(excluding PRC)			Oceania			Africa			North America			South America		Total

Future cash inflows		(1)		1,198,429			88,650			21,924			92,924			84,411			-		1,486,338
Future production costs				(448,720	)		(27,984	)		(10,976	)		(27,224	)		(34,567	)		-		(549,471	)
Future development costs		(2)		(194,869	)		(36,450	)		(2,980	)		(11,721	)		(13,214	)		-		(259,234	)
Future income taxes				(111,828	)		(8,651	)		(1,607	)		(24,715	)		(11,769	)		-		(158,570	)

Future net cash flows		(3)		443,012			15,565			6,361			29,264			24,861			-		519,063
10% discount factor				(157,334	)		(7,182	)		(1,784	)		(10,055	)		(13,940	)		-		(190,295	)

Standardized measure of
discounted future net cash flows				285,678			8,383			4,577			19,209			10,921			-		328,768

			2011
			Enterprise’s share of equity method investees

	Notes		PRC			Asia(excluding PRC)		Oceania		Africa		North America		South America			Total

Future cash inflows		(1)		1,088			-		-		-		-		61,698			62,786
Future production costs				(486	)		-		-		-		-		(29,443	)		(29,929	)
Future development costs		(2)		(226	)		-		-		-		-		(916	)		(1,142	)
Future income taxes				(32	)		-		-		-		-		(8,138	)		(8,170	)

Future net cash flows		(3)		344			-		-		-		-		23,201			23,545
10% discount factor				7			-		-		-		-		(13,087	)		(13,080	)

Standardized measure of
discounted future net cash flows				351			-		-		-		-		10,114			10,465

Total standardized measure of discounted future net cash flow				286,029			8,383		4,577		19,209		10,921		10,114			339,233

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CNOOC LIMITED

SUPPLEMENTAL INFORMATION ON OIL AND GAS PRODUCING ACTIVITIES
(UNAUDITED)

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

(e)	Standardized measure of discounted future net cash flows and changes therein (continued)

Present value of estimated future net cash flows:

			2012
			Consolidated entities
	Notes		PRC			Asia (excluding PRC)			Oceania			Africa			North America			South America		Total

Future cash inflows		(1)		1,369,398			86,795			19,737			94,102			153,614			-		1,723,646
Future production costs				(530,402	)		(30,405	)		(8,085	)		(35,927	)		(50,682	)		-		(655,501	)
Future development costs		(2)		(256,030	)		(34,653	)		(2,541	)		(26,521	)		(28,803	)		-		(348,548	)
Future income taxes				(112,428	)		(8,740	)		(2,409	)		(9,765	)		(16,797	)		-		(150,139	)

Future net cash flows		(3)		470,538			12,997			6,702			21,889			57,332			-		569,458
10% discount factor				(171,739	)		(5,706	)		(2,363	)		(10,356	)		(31,834	)		-		(221,998	)

Standardised measure of
discounted future net cash flows				298,799			7,291			4,339			11,533			25,498			-		347,460

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CNOOC LIMITED

SUPPLEMENTAL INFORMATION ON OIL AND GAS PRODUCING ACTIVITIES
(UNAUDITED)

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

(e)	Standardized measure of discounted future net cash flows and changes therein (continued)

Present value of estimated future net cash flows:

						2012
						Enterprise’s share of equity method investees
	Notes		PRC			Asia (excluding PRC)		Oceania		Africa		North America		South America			Total

Future cash inflows		(1)		655			-		-		-		-		68,740			69,395
Future production costs				(396	)		-		-		-		-		(38,262	)		(38,658	)
Future development costs		(2)		(209	)		-		-		-		-		(833	)		(1,042	)
Future income taxes				-			-		-		-		-		(7,592	)		(7,592	)

Future net cash flows		(3)		50			-		-		-		-		22,053			22,103
10% discount factor				38			-		-		-		-		(12,603	)		(12,565	)

Standardised measure of															-
discounted future net cash flows				88			-		-		-		-		9,450			9,538

Total standardised measure of discounted future net cash flow				298,887			7,291		4,339		11,533		25,498		9,450			356,998

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CNOOC LIMITED

SUPPLEMENTAL INFORMATION ON OIL AND GAS PRODUCING ACTIVITIES
(UNAUDITED)

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

(e)	Standardized measure of discounted future net cash flows and changes therein (continued)

(1)

Future cash flows consist of the Group’s 100% interest in the independent oil and gas properties and the Group’s participating interest in the properties under production sharing contracts in the PRC less (i) an adjustment for the royalties payable to the PRC government and share oil payable to the PRC government under production sharing contracts and (ii) an adjustment for production allocable to foreign partners under the PRC production sharing contracts for exploration costs attributable to the Group’s participating interest, and plus the participating interest in the properties covered under the production sharing contracts in oversea countries, less adjustments, if any, of share oil attributable to the host government and the domestic market obligation.

(2)

Future development costs include the estimated costs of drilling future development wells and building the production platforms.

(3)

Future net cash flows have been prepared taking into consideration estimated future dismantlement costs of dismantling offshore oil platforms and gas properties.

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CNOOC LIMITED

SUPPLEMENTAL INFORMATION ON OIL AND GAS PRODUCING ACTIVITIES
(UNAUDITED)

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

(e)	Standardized measure of discounted future net cash flows and changes therein (continued)

Changes in the standardized measure of discounted future net cash flows:

							2010
							Consolidated and
							equity share of
				Equity share of			equity
	Consolidated			equity method			method
	Total			investee			investee

Standardized measure, beginning of year		226,250			413			226,663
Sales of production, net of royalties and production costs		(123,359	)		(1,585	)		(124,944	)
Net change in prices, net of royalties and production costs		115,551			410			115,961
Extensions discoveries and improved recovery, net of related future costs		75,809			-			75,809
Change in estimated future development costs		(45,414	)		(977	)		(46,391	)
Development costs incurred during the year		25,007			830			25,837
Revisions in quantity estimates		(8,599	)		66			(8,533	)
Accretion of discount		26,512			657			27,169
Net change in income taxes		(14,572	)		(3,375	)		(17,947	)
Purchase of properties		3,963			14,319			18,282
Changes in timing and other		1,999			(137	)		1,862

Standardized measure, end of year		283,147			10,621			293,768

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CNOOC LIMITED

SUPPLEMENTAL INFORMATION ON OIL AND GAS PRODUCING ACTIVITIES
(UNAUDITED)

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

(e)	Standardized measure of discounted future net cash flows and changes therein (continued)


							2011
							Consolidated
							and
							equity share
				Equity share of			of equity
	Consolidated			equity method			method
	Total			investee			investee

Standardized measure, beginning of year		283,147			10,621			293,768
Sales of production, net of royalties and production costs		(160,683	)		(2,817	)		(163,500	)
Net change in prices, net of royalties and production costs		194,704			2,979			197,683
Extensions discoveries and improved recovery, net of related future costs		61,990			-			61,990
Change in estimated future development costs		(75,465	)		(711	)		(76,176	)
Development costs incurred during the year		30,272			1,185			31,457
Revisions in quantity estimates		3,405			(115	)		3,290
Accretion of discount		33,254			1,335			34,589
Net change in income taxes		(36,191	)		(332	)		(36,523	)
Purchase of properties		19,310			-			19,310
Changes in timing and other		(24,974	)		(1,680	)		(26,654	)

Standardized measure, end of year		328,769			10,465			339,234


							2012
							Consolidated
							and equity
							share of
				Equity share of			equity
	Consolidated			equity method			method
	Total			investee			investee

Standardised measure, beginning of year		328,768			10,465			339,233
Sales of production, net of royalties and production costs		(157,697	)		(94	)		(157,791	)
Net change in prices, net of royalties and production costs		49,470			(2,626	)		46,844
Extensions discoveries and improved recovery, net of related future costs		79,416			-			79,416
Change in estimated future development costs		(82,776	)		(396	)		(83,172	)
Development costs incurred during the year		45,923			1,017			46,940
Revisions in quantity estimates		13,044			1,679			14,723
Accretion of discount		42,707			1,401			44,108
Net change in income taxes		8,191			317			8,508
Purchase of properties		-			-			-
Changes in timing and other		20,414			(2,225	)		18,189

Standardised measure, end of year		347,460			9,538			356,998

F-101