Laws of the People's Republic of China

    Article 1  These Provisions are formulated in order to promote the
development of national economy, to expand international economic and
technological cooperation, and to encourage the exploitation of China's
petroleum resources on land.

    Article 2  All Chinese and foreign enterprises, which are engaged in the
cooperative exploitation of petroleum resources on land within the territory
of the People's Republic of China, shall pay royalties in accordance with
these Provisions.

    Article 3  Royalties shall be computed and imposed on the basis of the
gross output or crude oil or natural gas produced every calendar year from
each oil-and-gas field. The rates of the royalties are as follows:

    1. Crude oil

    the portion of annual gross output of crude oil not exceeding 50,000 tons,
shall not be subject to the payment of royalties;

    for the portion of annual gross output of crude oil from 50,000 to
100,000 tons, the rate shall be 1%;

    for the portion of annual gross output of crude oil from 100,000 to
150,000 tons, the rate shall be 2%;

    for the portion of annual gross output of crude oil from 150,000 to
200,000 tons, the rate shall be 3%;

    for the portion of annual gross output of crude oil from 200,000 to
300,000 tons, the rate shall be 4%;

    for the portion of annual gross output of crude oil from 300,000 to
500,000 tons, the rate shall be 6%;

    for the portion of annual gross output of crude oil from 500,000 to
750,000 tons, the rate shall be 8%;

    for the port~on of annual gross output of crude oil from 750,000 to 1
million tons, the rate shall be 10%;

    for the portion of annual gross output of crude oil exceeding 1 million
tons, the rate shall be 12.5%.

    2. Natural gas

    the portion of annual gross output of natural gas not exceeding 100
million standard cubic meters, shall not be subject to the payment of
royalties:

    for the portion of annual gross output of natural gas from 100 million
to 200 million standard cubic meters, the rate shall be 1%;

    for the portion of annual gross output of natural gas from 200 million
to 300 million standard cubic meters, the rate shall be 2%;

    for the portion of annual gross output of natural gas from 300 million
to 400 million standard cubic meters, the rate shall be 3%;

    for the portion of annual gross output of natural gas from 400 million
to 600 million standard cubic meters, the rate shall be 4%;

    for the portion of annual gross output of natural gas from 600 million
to 1 billion standard cubic meters, the rate shall be 6%;

    for the portion of annual gross output of natural gas from 1 billion to
1.5 billion standard cubic meters, the rate shall be 8%;

    for the portion of annual gross output of natural gas from 1.5 billion
to 2 billion standard cubic meters, the rate shall be 10%;

    for the portion of annual gross output of natural gas exceeding 2 billion
standard cubic meters, the rate shall be 12.5%.

    Article 4  The Royalties for crude oil and natural gas shall be paid
in kind.

    Article 5  The Royalties for crude oil and natural gas shall be levied
and administered by the tax authorities.

    With respect to Chinese-foreign cooperative oil or gas fields, the
operators shall act as agents for withholding the royalties, and shall
hand over the royalties withheld to China National Petroleum Expoitation
Corporation, which, in turn, shall act as an agent for making the payment
of the royalties.

    Article 6  The royalties shall be computed annually and paid in advance
in installments either based on times or on terms; and the final settlement
shall be made after the end of tax year. The time limits for advance payment
and final settlement shall be set by the tax authorities.

    Article 7  The oil or gas fields operators shall, within 10 days after
the end of each quarter, submit to the tax authorities a report on the
output of oil or gas fields and any other related materials required by the
tax authorities.

    Article 8  The withholding agents and paying agents with regard to the
royalties must, in accordance with the time limits set by the tax authorities,
pay the royalties. In case of failure to pay the royalties within the time
limits, the tax authorities shall impose a surcharge for overdue payment equal
to 1% of the overdue royalties for everyday in arrears, starting from the
first day the payment becomes overdue.

    Article 9  In the case that the oil or gas fields operators, in violation
of the provisions in Article 7, fail to submit on time to the tax authorities
the reports on output of oil or gas fields and other related materials
required by the tax authorities, the tax authorities may impose a fine, in
light of the circumstances, up to but not exceeding RMB 5,000 yuan; in dealing
with those who conceal the actual output, the tax authorities, in addition to
pursuing the royalties payment, may impose a fine, in light of the
circumstances, up to but not exceeding five times of the amount of royalties
that shall be made up.

    Article 10  The following terms, used in these Provisions, are defined
below:

    (1) Crude oil: refers to solid and liquid hydrocarbon in the natural
state as well as any liquid hydrocarbon extracted from natural gas, except
for methane (CH4).

    (2) Natural gas: refers to non-associated natural gas and associated
natural gas in the natural state.

    Non-associated natural gas: refers to all gaseous hydrocarbon extracted
from gas deposits, including wet gas, dry gas, and residual gas remaining
after the extraction of liquid hydrocarbon from wet gas.

    Associated natural gas: refers to all gaseous hydrocarbon extracted from
oil deposits simultaneously with crude oil, including residual gas remaining
after the extraction of liquid hydrocarbon.

    (3) Annual gross output of crude oil: refers to total amount of crude oil
produced by each oil or gas field in the same contracted area, in one
calendar year, less the quantity of oil used for petroleum operations and
that of wasted.

    (4) Annual gross output of natural gas: refers to total amount of natural
gas produced by each oil or gas field in the same contracted area, in one
calendar year, less the quantity of natural gas used for petroleum operations
and that of wasted.

    Article 11  The State Taxation Bureau shall be responsible for the
interpretation of those Provisions.

    Article 12  These Provisions shall become effective as of January 1, 1990.