Laws of the People's Republic of China

CHAPTER ONE GENERAL PROVISIONS

   Article 1. The regulations are formulated to safeguard the development of the petroleum industry and promote international economic cooperation and technical exchange.

   Article 2. Cooperative development of continental oil resources by Chinese and foreign partners within the territory of the People's Republic of China shall abide by the provisions of this set of regulations.

   Article 3. The petroleum resources within the territory of the People's Republic of China are owned by the State of the People's Republic of China.

   Article 4. The Chinese government protects the activities, investment, profits and other legitimate rights and interests of foreign enterprises participating in the cooperative development of continental petroleum resources.

Foreign partners participating in the cooperative development of continental oil resources within the territory of the People's Republic of China shall observe the relevant laws, decrees and regulations of the People's Republic of China and accept the supervision and management of the relevant departments of the Chinese government.

   Article 5. The State shall not requisition the investment and gains of foreign partners participation in the cooperative development of oil resources. In special circumstances, it may requisition part or all the petroleum due to foreign partners according to the legal procedures to meet the demand of the public interests and shall give a corresponding amount of compensation.

   Article 6. The departments or units authorized by the State Council are responsible for demarcating cooperative blocks, determining the forms of cooperation, organizing the drafting of relevant plans and policies, examining and approving the master development plans for cooperative development of oil and gas resources within the cooperative areas approved by the State Council.

   Article 7. The China National Oil and Gas Exploration and Development Corporation (CNOGEDC) is responsible for the operations of the cooperative development of continental oil resources, including holding talks, signing and executing contracts on cooperative development of oil resources with foreign enterprises. It has the exclusive right in exploration, development and production of oil resources in cooperation with foreign enterprises within the regions for cooperative development of oil resources approved by the State Council.

   Article 8. CNOGEDC is responsible for signing contracts with foreign enterprises on cooperative development of continental oil resources by way of inviting tenders or holding talks according to the cooperative blocks within the areas for cooperative development of continental oil resources approved by the State Council. The contracts shall become valid after they are approved by the Ministry of Foreign Trade and Economic Cooperation (MFTEC) of the People's Republic of China.

CNOGEDC can also sign other contracts with foreign enterprises for cooperation on projects other than those provided for in the preceding paragraph within the areas for cooperative development of continental oil resouces approved by the State Council and submit the contracts for the record to MFTEC.

   Article 9. After the cooperative blocks are made public, no other enterprises are allowed to enter the blocks to engage in oil exploration and development except CNOGEDC, nor are they allowed to sign agreements with foreign enterprises on economic and technical cooperation in oil development within the areas.

Enterprises which enter the blocks for oil exploration (at the stage of assessment exploration stage) before the cooperative blocks are made public shall withdraw from the blocks after CNOGEDC has signed contracts with foreign enterprises. The data obtained from the initial exploration by the enterprises shall be sold by CNOGEDC and the proceeds shall be made compensation for the investment of the enterprises. If the enterprises have discovered oil (gas) of commercial value, they may participate in the development by way of investment in the blocks from which they withdraw.

The departments or units authorized by the State Council shall make regular adjustment of the cooperative blocks according to the contracts signed and the execution of the contracts.

   Article 10. The cooperative development of continental oil resources shall follow the principle of taking into consideration both the interests of the central government and the localities concerned, allowing the localities within the blocks to invest in the development of oil (gas) resources of commercial value.

The people's governments concerned shall protect the normal production and business activities within the cooperative blocks according to law and provide effective assistance in terms of the use of land, road and logistic services.

   Article 11. Partners in cooperative development of continental oil resources shall pay taxes and royalties according to law.

   Article 12. Tax reduction, exemption or other favorable treatments shall be granted with regard to importing equipment and materials for the purpose of performing the contracts. The specific measures shall be formulated by the Ministry of Finance together with the State General Administration of Customs.

Chapter Two Rights and Obligations of Foreign Contractors

   Article 13. CNOGEDC must sign contracts with foreign enterprises (hereinafter referred to as "foreign contractors") for cooperative development of continental oil resources and, except otherwise provided for by law, regulations or contracts, the foreign contractors shall alone provide the investment to carry out exploration, be responsible for exploration operations and bear all exploration risks. After a commercial oil (gas) field is discovered, both the foreign contractor and the CNOGEDC shall provide the investment for its cooperative development and the foreign contractor shall be responsible for the development operations and production operations until CNOGEDC takes over the production operations as according to the contracts.

   Article 14. The foreign contractor may, in accordance with the provisions of the contract, recover its investment and expenses and receive remuneration out of the petroleum (gas) produced.

   Article 15. Foreign contractors may export the petroleum due to them and the petroleum they purchase according to the relevant State regulations and the provisions of the contracts and may also remit abroad the investment they recover, profits and other legitimate income according to law.

The shares of petroleum due to foreign contractors if to be sold within the territory of China, shall be unifiedly bought up by CNOGEDC.

   Article 16. Foreign contractors shall open accounts with the banks approved by the State to handle foreign exchange businesses within the territory of China and observe the State regulations on foreign exchange control.

   Article 17. Foreign contractors shall open branches or representative offices in China according to law.

   Article 18. In carrying out the petroleum contracts, foreign contractors shall use advanced technology and managerial experience and shall be obliged to transfer the technology and pass on the experience to the Chinese side and undertake the training of Chinese personnel.

In petroleum operations, foreign contractors must gradually increase the proportions of Chinese personnel.

   Article 19. In the process of performing the contracts, foreign contractors must promptly and accurately report to CNOGEDC on the situation of petroleum operation, and must acquire complete and accurate numerical data, records, samples, vouchers and other original data with respect to various aspects of the petroleum operation and regularly submit to CNOGEDC the necessary data and samples as well as various technological, economic, financial and accounting and administrative reports.

   Article 20. All the assets procured or built by foreign contractors in performing contracts, except those leased from a third party, shall be owned by CNOGEDC after investment by the foreign contractors has been compensated for or after the expiration of the production period of the oil (gas) fields. But foreign contractors may use these assets according to the provisions of the contract during the contract period.

CHAPTER THREE PETROLEUM OPERATIONS

   Article 21. Operator must formulate overall development programmes for the oil (gas) fields according to the regulations on the development of petroleum resources of the State and submit to the departments or units concerned authorized by the State Council for approval and can start development and production only after the programmes are approved.

   Article 22. In purchase of machinery and equipment, raw materials, accessories, means of transport and office supplies necessary for oil development operations, preference should be given to those of China made provided that these are competitive.

In employment of personnel or sub-contractors needed in oil development operations, preference should be given to Chinese citizens and sub- contractors according to the provisions of the contracts.

   Article 23. Operators and sub-contractors shall abide by the State laws, regulations and standards in environmental protection and safe operations in carrying out oil development operations and shall follow the commonly accepted international practices in operation to protect the farmland, aquatic products, forests and other natural resources and prevent polluting or damaging the air, sea, rivers, lakes, underground water and other land environment.

   Article 24. In cases where land is used in oil operations, the provisions of the "Land Management Law of the People's Republic of China" and other relevant provisions shall be observed.

   Article 25. CNOGEDC shall have the ownership of all the data, records, samples, vouchers and other original data obtained from the petroleum operations as stipulated in Article 19 of these regulations.

The use, transfer, donation, exchange, sales, publication or shipping out of the territory of the People's Republic of China of the data, records, samples, vouchers and other original data listed in the preceding paragraph must be conducted in accordance with the relevant regulations of the State.

CHAPTER FOUR SETTLEMENT OF DISPUTES

   Article 26. Any disputes arising between the parties to a contract on cooperative development of continental oil resources shall be settled through consultation or mediation. If the parties concerned refuse consultation or mediation or consultation and mediation fail to settle the disputes, the case shall be referred to the Chinese arbitration organizations or other arbitration organizations according to the arbitration clauses of the contracts or the written arbitration agreements reached after the contracts are signed.

In absence of such arbitration clauses in the contracts or the written arbitration agreements reached afterwards, the parties concerned may bring the case before the Chinese people's court.

CHAPTER FIVE LEGAL RESPONSIBILITIES

   Article 27. If there is one of the following cases that violate the provisions of this set of regulations, the departments or units authorized by the State Council shall give a warning for correction within a prescribed time limit; if a correction is not made within the time limit, an order may be given to stop oil operations. If the case is serious enough to constitute a crime, the criminal responsibilities shall be affixed.

1. Violate the provisions of the first paragraph of Article 9 of this set of regulations by entering the Sinoforeign cooperative blocks to carry out oil exploration or signed oil development cooperation agreements with foreign enterprises;

2. Violate the provisions of Article 19 of this set of regulations by failing to make timely and accurate reports about the oil operations to CNOGEDC or failing to submit data and samples or technological, economic, financial and accounting and administrative reports concerning the oil operations to CNOGEDC.

3. Violate the provisions of Article 21 of this set of regulations by starting oil development and production before the overall development programme is approved.

4. Violate the provisions of paragraph 2 of Article 25 by using the data, records, samples, vouchers and other original data or transfer, donate, exchange, sell and publish such records, samples, vouchers and other original data or ship or deliver them out of the territory of the People's Republic of China without approval.

   Article 28. Cases that violate the provisions of Article 11, Article 16, Article 23 and Article 24 shall be punished according to law and other regulations by the departments in charge under the State Council. If the cases are serious enough to constitute crimes, criminal responsibilities shall be affixed.

CHAPTER SIX SUPPLEMENTARY PROVISIONS

   Article 29. The terms used in these Regulations shall have the following definitions:

1. "Petroleum" means crude oil and natural gas deposited underground, currently being extracted or already extracted.

2. "Continental oil resources" means all the petroleum resources deposited underground of the land (including sea polders, islands and the territory sea waters outreaching five meters).

3. "Exploitation" means, in general, the exploration for, and development, production, and marketing of petroleum and other related activities.

4. "Petroleum operation" means all exploration, development, production operations and other related activities conducted in carrying out the petroleum contracts.

5. "Exploration operations" means all work done to locate the petroleum- bearing traps by means of geological, geophysical and geochemical methods including drilling exploratory wells, etc. and all work done to determine the commerciality of discovered petroleum traps, including appraisal drilling, feasibility studies and preparation of the overall development programme for an oil (gas) field.

6. "Development operations" means all the work of designing, construction, installation, drilling etc., and the related research work carried out for petroleum oil production from the date of the approval of the overall development programme for an oil (gas) field, including production activities carried out before the commencement of commercial production.

7. "Production operations" means all operations and related activities for producing petroleum conducted after the date of commencement of commercial production of an oil (gas) field.

   Article 30. The provisions of Article 4, Article 11, Article 12, Article 15, Article 16, Article 17 and Article 22 apply to foreign contractors.

   Article 31. The Regulations come into force as of the date of promulgation.