Laws of the People's Republic of China

No.318

The Decision of the State Council on Revising the Regulations of the People's Republic of China Concerning the Exploitation of Offshore Petroleum Resources in Cooperation with Foreign Enterprises is hereby promulgated and shall go into effect as of its promulgation date. Premier of the State Council: Zhu Rongji

September23, 2001

Regulations of the People's Republic of China Concerning the Exploitation of Offshore Petroleum Resources in Cooperation with Foreign Enterprises

(Promulgated by the State Council on January 30, 1982, and revised in accordance with the Decision of the State Council on Revising the Regulations of the People's Republic of China Concerning the Exploitation of Offshore Petroleum Resources in Cooperation with Foreign Enterprises on September 23, 2001)

Chapter I General Rules

Article 1

For the purpose of promoting the development of the national economy and enlarging international economic and technological cooperation, the present Regulations are formulated to permit foreign enterprises to participate in the cooperative exploitation of offshore petroleum resources of the People's Republic of China on the premise of safeguarding national sovereignty and economic interests.

Article 2

All petroleum resources in the internal waters, territorial sea and continental shelf of the People's Republic of China and other petroleum resources in all sea areas falling within the national jurisdiction over the maritime resources of the People's Republic of China belong to the People's Republic of China.

In the sea areas mentioned in the preceding paragraph, all established buildings and structures and operating vessels for exploiting petroleum, as well as the corresponding onshore oil (gas) terminals and bases, shall be governed by the People's Republic of China.

Article 3

The Chinese Government shall protect, according to law, the investments of foreign enterprises taking part in the cooperative exploitation of offshore petroleum resources, their profits and their other lawful rights and interests, and shall protect, the cooperative exploitation activities of foreign enterprises in accordance with law.

All activities for cooperatively exploiting offshore petroleum resources within the scope of the present Regulations shall be conducted in accordance with the laws and decrees of the People's Republic of China and related provisions of the State; any individual and enterprise participating in petroleum operations shall be subject to the laws of China and shall accept inspection and supervision by the competent authorities concerned under the Chinese Government.

Article 4

The State shall not requisition the investments and income of the foreign enterprises taking part in the cooperative exploitation of offshore petroleum resources. Under special circumstances, the State may, in light of the needs of public interests, requisition a part or all of the petroleum belonging to the foreign enterprises in the cooperative exploitation in accordance with legal procedures and shall compensate appropriately.

Article 5

The department appointed by the State Council shall determine the cooperation forms and demarcate the cooperation areas according to the zones and the surface areas of cooperation as designated by the State; it shall prepare a plan for exploiting offshore petroleum resources in cooperation with the foreign enterprises according to long-term state economic plans, formulate policies for operating and managing the cooperative exploitation of offshore petroleum resources as well as examine and approve the overall development scheme for offshore oil (gas) fields.

Article 6

The China National Offshore Oil Corporation (the CNOOC) shall take overall charge of the work of the exploitation of offshore petroleum resources in the People's Republic of China in cooperation with foreign enterprises.

The CNOOC shall be a state corporation with the a legal person status and shall have the exclusive right to explore for, exploit, produce and market the petroleum within the zones of foreign cooperation.

The CNOOC may, in light of requires of the work, set up regional corporations, special corporations and overseas representative offices to execute the tasks that are delegated by the head office.

Article 7

The CNOOC shall, through calling for bids and signing petroleum contracts, cooperate with foreign enterprises to exploit petroleum resources with respect to the zones, surface areas and areas of cooperation with foreign enterprises for the exploiting petroleum resources.

The petroleum contracts as mentioned in the preceding paragraph shall go into effect upon approval by the Ministry of Foreign Trade and Economic Cooperation under the People's Republic of China.

Each document signed by the CNOOC for cooperative exploitation of petroleum resources in other forms by using technology and funds provided by foreign enterprises shall also be approved by the Ministry of Foreign Trade and Economic Cooperation under the People's Republic of China.

Chapter II Rights and Obligations of each Party to Petroleum Contracts

Article 8

The CNOOC shall cooperate with foreign enterprises to exploit offshore petroleum resources by means of concluding petroleum contracts, and, unless otherwise prescribed by laws and regulations or stipulated in a petroleum contract, the foreign enterprise as one party to the petroleum contract (hereafter "foreign contractor") shall provide the investment to carry out exploration, exploration operations and assume all risks of exploration; after a commercial oil (gas) field is discovered, both the foreign contractor and the CNOOC shall provide the investment for its cooperative development, and the foreign contractor shall take charge of the exploitation operations and production operations until the CNOOC takes over the production operations when conditions is mature as stipulated in the petroleum contract. The foreign contractor, according to the provisions of the petroleum contract, may recover its investment and expenses and receive remuneration out of the petroleum produced.

Article 9

The foreign contractor may export the petroleum belonging to it and the petroleum it purchases, and may also remit abroad the investment it recovers, its profits and its other lawful income according to the law.

Article 10

All Chinese enterprises and foreign enterprises taking part in the cooperative exploitation of offshore petroleum resources shall pay taxes according to the law and shall pay mining royalties.

All employees of the enterprises as mentioned in the preceding paragraph shall pay individual income tax according to the law.

Article 11

The equipment and material that are imported for fulfilling the petroleum contract shall be subject to tax at a reduced rate, or exempted from tax, or given other preferential tax treatment according to provisions of the State.

Article 12

When opening the bank account and transacting other foreign exchange matters, the foreign contractor shall conform to the Regulations on Foreign Exchange Control of the People's Republic of China and other provisions of the State in relation to foreign exchange control.

Article 13

The petroleum contract may stipulate the personnel needed for the petroleum operations, and Chinese citizens may be given preference in the employment of operators.

Article 14

The foreign contractor must, when conducting development and production operations for fulfilling the petroleum contract, report the situation of petroleum operations to the CNOOC in a timely and accurate way; and it must acquire complete and accurate date, records, samples, vouchers and other original data in terms of various aspects of the petroleum operations, and report the CNOOC necessary data and samples as well as various technological, economic, financial and accounting, and administrative reports on a regular basis.

Article 15

The foreign contractor shall, when conducting development and production operations for fulfilling the petroleum contract, set up a branch or subsidiary or representative office within the territory of the People's Republic of China and go through registration formalities according to the law.

The domiciles of the offices as mentioned in the preceding paragraph shall be decided by consulting with the CNOOC.

Article 16

The provisions of Articles 3, 9, 10, 11 and 15 of the present Regulations shall be applicable to foreign subcontractors that provide services to the petroleum operations by analogy.

Chapter III Petroleum Operations

Article 17

The operator must, according to the present Regulations and the related provisions on exploiting petroleum resources of the State and by considering international practice, formulate an overall development program for the oil (gas) field and implement production operations so as to achieve the highest possible oil recovery factor.

Article 18

The foreign contractor shall, when conducting development and production operations for fulfilling the petroleum contract, utilize the existing bases within the territory of the People's Republic of China, and new bases must be set up within the territory of the People's Republic of China if necessary.

The specific locations of the new bases as mentioned in the preceding paragraph, and other arrangements necessary under special circumstances, must all be approved by the CNOOC in written form.

Article 19

The CNOOC shall be entitle to appoint personnel to join the foreign operator in making general designs and engineering designs for fulfilling the petroleum contract.

Article 20

The ownership of all assets purchased or built by the foreign contractor to fulfill the petroleum contract according to the plan and budget, except for equipment leased from a third party, shall be granted to the CNOOC after the foreign contractor's investment has been recovered as stipulated, and, within the contract term, the foreign contractor may go on using those assets according to the stipulations of the contract.

Article 21

The ownership of all of the data, records, samples, vouchers and other original data in terms of the petroleum operations for fulfilling the petroleum contract shall belong to the CNOOC.

The utilization and transfer, donation, exchange, sale and publication of the data, records, samples, vouchers and other original data as mentioned in the preceding Paragraph and their export and transmission from the People's Republic of China all must be carried out according to the related provisions of the State.

Article 22

In the course of conducting petroleum operations, the operator and subcontractors shall abide by the related laws and provisions on the protection pf environment and safety of the People's Republic of China, and shall, by considering international practice when conducting operations, protect fishery resources and other natural resources and preserve air, sea, rivers, lakes, land and other aspects of environment from being polluted or damaged.

Article 23

The petroleum as produced within the petroleum contract zone shall be landed in the People's Republic of China or may be exported through oil (gas) metering points on offshore terminals. If such petroleum needs to be landed outside the territory of People's Republic of China, it must be approved by the department designated by the State Council.

Chapter IV Supplementary Rules

Article 24

In case any dispute occurs between foreign and Chinese enterprises during the cooperative exploitation of offshore petroleum resources, it shall be settled through friendly negotiation. If such negotiation fails, it shall be settled through mediation and arbitration by an arbitration body of the People's Republic of China, or in other arbitrations as agreed upon by the parties to the contract.

Article 25

If an operator or subcontractor violates the provisions of the present Regulations in conducting petroleum operations, the department designated by the State Council shall, in light of its powers, order it to make corrections in a certain time limit and issue a warning. If it fails to do so, it may be ordered to suspend the petroleum operations. All economic losses resulted from this shall be assumed by the liable party.

Article 26

For the purposes of the present Regulations,

(1)

"Petroleum" refers to crude oil or natural gas deposited underground, currently being extracted or already extracted.

(2)

"Exploitation" refers to activities of exploring for and developing, producing and marketing petroleum, as well as other relevant acts in general

(3)

"Petroleum contract" refers to a contract concluded, according to the law, between the CNOOC and foreign enterprises for the cooperative exploitation of offshore petroleum resources of the People's Republic of China, including the contracts for exploring for, developing and producing of petroleum.

(4)

"Contract area" refers to a surface area designated within a sea area demarcated by geographical coordinates in the petroleum contract for the cooperative exploitation of petroleum resources.

(5)

"Petroleum operations" refers to all activities of exploration, development and production operations and other related acts carried out for fulfilling the petroleum contract.

(6)

"Exploration operations" refer to all work done to locate the petroleum-bearing traps by means of geological, geophysical and geochemical methods and even drilling exploratory wells, etc., and all work done to determine the commercial value of discovered petroleum traps, which include appraisal drilling, feasibility studies and preparation of the overall development program for an oil (gas) field.

(7)

"Development operations" refers to work of designation, construction, installation and drilling, as well as corresponding research work, which are carried out for bringing about petroleum production as of the date of the approval of the overall development scheme for an oil (gas) field by the department appointed by the State Council, and production activities conducted before the commencement of commercial production.

(8)

"Production operations" refers to all operations for producing petroleum carried out as of the date of commencement of the commercial production of an oil (gas) field and relevant activities, such as extraction, injection, production stimulation, processing, storage and transportation and lifting of petroleum and other operations.

(9)

"Foreign contractor" refers o a foreign enterprise that signs a petroleum contract with the CNOOC. The foreign enterprise may be a corporation or a group of corporations.

(10)

"Operator" refers to an entity in charge of conducting the operations in accordance with the stipulations the petroleum contract.

(11)

"Subcontractor" refers to an entity providing services to the operator.

Article 27

The present Regulations shall go into effect as of the date of promulgation.