SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
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FORM 6-K
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REPORT OF FOREIGN PRIVATE ISSUER
PURSUANT TO RULE 13a-16 OR 15d-16 OF
THE SECURITIES EXCHANGE ACT OF 1934
For March 27, 2006
CNOOC Limited
(Translation of registrant's name into English)
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65th Floor
Bank of China Tower
One Garden Road
Central, Hong Kong
(Address of principal executive offices)
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(Indicate by check mark whether the registrant files or will file annual
reports under cover Form 20-F or Form 40-F)
Form 20-F X Form 40-F
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(Indicate by check mark whether the registrant by furnishing the
information contained in this Form is also thereby furnishing
the information to the Commission pursuant to Rule 12g3-2(b)
under the Securities Exchange Act of 1934.)
Yes No X
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(If "Yes" is marked, indicate below the file number assigned to the registrant
in connection with Rule 12g3-2(b): N/A.)
Company Announcement
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[GRAPHIC OMITTED][GRAPHIC OMITTED]
(Translation of registrant's name into English)
(Incorporated in Hong Kong with limited liability
under the Companies Ordinance)
(Stock Code: 883)
2005 Annual Results Announcement
CHAIRMAN'S STATEMENT
Dear Shareholders,
We, CNOOC Limited, a company listed in New York and Hong Kong, have been in the
capital market for five years.
We believe that we have achieved good financial and operational performance
over the past five years. Thanks to the satisfactory growth in our assets,
revenues and net profits, we have been able to show continuing progress in
creating value and delivering good return to our shareholders.
First, let us look at the outstanding performance of CNOOC Limited in 2005. Our
growth momentum was successfully maintained in 2005 as evidenced by our annual
results. In addition to the detailed financial statements and other information
set out hereafter, I am pleased to share with you a few highlights of our
performance in 2005:
For the year ended 31 December 2005, our total revenue rose by 25.8% to
RMB69,455.7 million, while the net profit reached yet another record high of
RMB25,323.1 million, the highest ever since we were first listed in 2001.
There was a steady growth in our oil and gas production. In 2005, we produced a
total of 130 million barrels of oil and 142 billion cubic feet of natural gas,
achieving a total production of 155 million barrels of oil equivalent ("BOE"),
representing a year-on-year increase of 10.6%.
Our production growth mainly came from the development projects offshore China
coming on stream during the year. In 2005, seven new projects commenced
production, which have contributed significantly to production growth during
the year. Additionally, sixteen projects were under way.
In 2005, the achievements of our exploration initiatives were just as
remarkable. Altogether, we made fourteen new oil and gas discoveries and eight
structures were successfully appraised offshore China. During the year, we
realized a reserve replacement ratio of 186% and our net proved reserves
increased by 288 million BOE.
- 1 -
During the year, our basic and diluted earnings per share were RMB0.62 and
RMB0.61 respectively. To reward our shareholders for their support, the board
of directors (the "Board") proposed a final dividend of HK$0.10 per share.
Together with the interim dividend of HK$0.05 per share and the special interim
dividend of HK$0.05 per share, we will distribute a total of HK$0.20 per share
to our shareholders for the year ended 31 December 2005.
Looking back at the year 2005 as well as the previous four years of listing, we
have been committed to deliver, and have delivered, the best return to our
shareholders. As a responsible company, we will continue to strive to create
and add value to our business to share the fruits of our success with our
shareholders, to allow employees and the Company to grow together and to be
responsible to the society, community and environment. We also believe that our
shareholders will continue to be able to reap satisfactory return from our
business growth, our dividend payouts and the excellent performance of our
stock price.
In light of the above, we would like to show you our key initiatives.
As a resource-based corporation, our enterprise value depends on the scale of
our resources and production. Therefore we have always been seeking more areas
for exploration, development and production and to extend our developemnt
potentials.
Within China, we intend to further step up our efforts in exploration in
offshore China in 2006. We will initiate more exploration activities, acquire
more seismic data and drill more exploration wells in various exploration
areas. We will also extend the reach of our exploration initiatives to the
deep-water areas for more reserves to support the sustainable rapid growth of
our business. As far as production is concerned, we plan to bring 10 oil and
gas fields on stream this year.
In respect of our overseas business efforts, we made a friendly offer to
acquire the US-based Unocal Corporation in 2005. However, the desired outcome
did not materialize due to a host of factors. During the process, from bidding
to the final voluntary withdrawal, our overriding principles remain focused on
the Company's future growth and our commitment to increasing shareholders'
value.
As ever, our priority was on shareholders' interests and the Company's future
growth, whether at the time of making the C$150 million acquisition of a 16.69%
stake in Canadian MEG Energy Corporation in March 2005, or when we acquired a
45% stake in the license covering the OML 130 in Nigeria for a cash
consideration of US$2.268 billion in January 2006.
We are dedicated to develop a path to overseas expansion to sustain the
long-term growth of the Company. Our management team has been working hard
towards this objective.
- 2 -
Of course, we never forget our social responsibilities in the course of value
creation. We are a socially responsible company well aware of the importance of
our staff, the environment and our society as a whole. We grow healthily
together with our staff. At the same time, we also made determined efforts to
undertake responsibilities for the community, the environment and the society.
"Win-Win for All" has been one of our essential ideologies. Indeed, in pursuit
of our corporate development, we constantly seek win-win situation for our
staff, the community and the environment. We believe that our long-term
viability and success, and our ability to continue to create and deliver value
for our shareholders and the communities we serve, very much depends on
conducting our business in a socially responsible manner.
In 2005, we continued to enhance our health, safety and environment (HSE)
protection system by strengthening the implementation of safety management
policies. The safety management standards were also improved further with the
development of the HSE system, employees' safety education program and the
establishment of its accountability system. Throughout the year, the Company
was neither involved in any material spillage or pollution incident, nor
subject to any liability claim for loss of over RMB1 million.
Currently, all oil and gas fields of the Company are equipped with
anti-pollution facilities and have achieved stable discharge standards. They
all have in place environment monitoring system combining both manual and
automatic monitors. Besides, contingency plan for safety protection have been
established for every offshore oil and gas fields and safety drills are also
conducted on regular basis.
As far as staff welfare is concerned, we not only provide a safe and healthy
working environment, but we also offer our staff reasonable packages and ample
training opportunities in order to provide our staff with sufficient room for
career development and added incentives. The section headed "Human Resources"
in the annual report will explain more about the initiatives undertaken in
fulfilling our responsibilities towards our staff.
We are happy to take up our social responsibility in different areas and
contribute to the advancement of the community and the society. As a
responsible corporate citizen, we actively participate in various charity
events and have long been involved in poverty relief and education endowments.
We also give our whole-hearted support and donations to victims of natural
disasters. In 2005, the Company made donations to several Chinese regions
affected by Typhoons Talim and Damrey. Besides, donations were also made to the
regions wreaked by Hurricane Katrina. These efforts clearly reflect our
heightened awareness of our social responsibility as a corporate citizen.
Last but not least, I would like to take this opportunity to welcome on board
Mr. Tse Hau Yin, Aloysius and Mr. Lawrence J. Lau joining us as our independent
non-executive directors; and Mr. Cao Xinghe, Mr. Wu Zhenfang and Mr. Wu Guangqi
and Mr. Yang Hua joining us as our executive directors. Given their extensive
experience and valuable insights, I strongly believe that they will make great
contributions for the benefit of the Company.
- 3 -
Our success today is the result of dedicated efforts and devotion of our
management and staff. Therefore I would also like to express my sincere
gratitude for their support and hard work.
We clearly know, for a high quality public company, the horizons are boundless
when it comes to growth, innovation and the pursuit of excellence. Being
mindful of these opportunities, we will for sure exercise extra prudence and
yet at the same time make more aggressive efforts to take the Company to a new
height.
Fu Chengyu
Chairman and Chief Executive Officer
Hong Kong, 24 March 2006
- 4 -
CONSOLIDATED INCOME STATEMENT (AUDITED)
Year ended 31 December 2005
(All amounts expressed in thousands of Renminbi, except per share data)
Notes 2005 2004
(Restated)
REVENUE
Oil and gas sales 5 53,417,669 36,886,019
Marketing revenues 6 15,901,325 18,191,353
Other income 136,749 144,691
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69,455,743 55,222,063
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EXPENSES
Operating expenses (5,934,598) (5,070,344)
Production taxes (2,596,543) (1,725,674)
Exploration expenses (1,293,687) (1,316,160)
Depreciation, depletion and amortisation (5,964,740) (5,455,062)
Dismantlement (252,857) (201,637)
Impairment losses related to property, plant and equipment (90,190) -
Crude oil and product purchases 6 (15,704,100) (17,963,461)
Selling and administrative expenses 8 (1,370,368) (1,104,348)
Others (77,062) (45,844)
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(33,284,145) (32,882,530)
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PROFIT FROM OPERATING ACTIVITIES 36,171,598 22,339,533
Interest income 359,294 206,872
Finance costs 9 (1,100,532) (441,825)
Exchange gains, net 287,027 29,269
Investment income 247,893 72,438
Share of profits of associates 307,075 344,469
Non-operating income/(expenses), net 28,579 519,206
------------- ------------
PROFIT BEFORE TAX 7 36,300,934 23,069,962
Tax 10 (10,977,812) (6,930,826)
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NET PROFIT 25,323,122 16,139,136
============= =============
DIVIDENDS
Special interim dividend declared in place of 2003 final
dividend - 2,617,526
Interim dividend 2,138,128 1,306,451
Special interim dividend 2,138,128 2,177,418
Proposed final dividend 4,250,391 1,310,022
Proposed special final dividend - 2,183,371
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8,526,647 9,594,788
============= =============
- 5 -
Notes 2005 2004
(Restated)
EARNINGS PER SHARE
Basic 11 RMB0.62 RMB0.39
Diluted 11 RMB0.61 RMB0.39
DIVIDEND PER SHARE
Special interim dividend declared in place of 2003 final RMB - RMB0.06
dividend
Interim dividend RMB0.05 RMB0.03
Special interim dividend RMB0.05 RMB0.05
Proposed final dividend RMB0.10 RMB0.03
Proposed special final dividend RMB - RMB0.05
- 6 -
CONSOLIDATED BALANCE SHEET (AUDITED)
31 December 2005
(All amounts expressed in thousands of Renminbi)
Group
Notes 2005 2004
(Restated)
NON-CURRENT ASSETS
Property, plant and equipment, net 66,625,167 57,182,026
Intangible assets 1,299,643 -
Investments in associates 1,401,839 1,327,109
Available-for-sale financial assets 1,017,000 -
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Total non-current assets 70,343,649 58,509,135
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CURRENT ASSETS
Accounts receivable, net 5,277,784 4,276,489
Inventories and supplies 1,199,626 1,147,294
Due from related companies 2,099,197 1,173,374
Other current assets 806,115 556,931
Available-for-sale financial assets/short term investments 13,846,935 5,444,113
Time deposits with maturities over three months 12,200,000 8,603,000
Cash and cash equivalents 8,991,758 14,091,524
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Total current assets 44,421,415 35,292,725
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CURRENT LIABILITIES
Accounts payable 2,867,678 3,102,024
Other payables and accrued liabilities 5,206,943 4,191,024
Current portion of long term bank loans 825,674 24,364
Due to the parent company 488,482 370,060
Due to related companies 759,934 211,425
Tax payable 3,467,505 2,503,466
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Total current liabilities 13,616,216 10,402,363
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NET CURRENT ASSETS 30,805,199 24,890,362
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TOTAL ASSETS LESS CURRENT LIABILITIES 101,148,848 83,399,497
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NON-CURRENT LIABILITIES
Long term bank loans 24,392 865,211
Long term guaranteed notes 12 16,531,780 16,313,550
Provision for dismantlement 4,161,663 3,089,448
Deferred tax liabilities 6,827,916 6,688,498
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Total non-current liabilities 27,545,751 26,956,707
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Net assets 73,603,097 56,442,790
=========== ===========
CAPITAL AND RESERVES
Issued capital 13 876,635 876,586
Reserves 72,726,462 55,566,204
----------- -----------
Total equity 73,603,097 56,442,790
=========== ===========
- 7 -
NOTES TO FINANCIAL STATEMENTS
31 December 2005
(All amounts expressed in Renminbi unless otherwise stated)
1. CORPORATE INFORMATION
CNOOC Limited (the "Company") was incorporated in the Hong Kong Special
Administrative Region ("Hong Kong"), the People's Republic of China (the
"PRC") on 20 August 1999 to hold the interests in certain entities whereby
creating a group comprising the Company and its subsidiaries. During the
year, the Company and its subsidiaries (hereinafter collectively referred
to as the "Group") were principally engaged in the exploration,
development, production and sale of crude oil, natural gas and other
petroleum products.
The registered office address is 65/F, Bank of China Tower, 1 Garden Road,
Hong Kong.
In the opinion of the directors, the parent and the ultimate holding
company is China National Offshore Oil Corporation ("CNOOC"), a company
established in the PRC.
2.1 BASIS OF PREPARATION
These financial statements have been prepared in accordance with 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 ("HKICPA"), accounting
principles generally accepted in Hong Kong ("Hong Kong GAAP") and the
disclosure requirements of the Hong Kong Companies Ordinance. They have
been prepared under the historical cost convention except for
available-for-sale investments 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 thousand
(RMB'000) 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 31 December 2005. 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. All significant
intercompany transactions and balances within the Group are eliminated on
consolidation.
The acquisition of subsidiaries or an interest in a joint venture or
associate during the year has been accounted for using the purchase method
of accounting. This method involves allocating the cost of the business
combinations to the fair value of the assets acquired, and liabilities and
contingent liabilities assumed at the date of acquisition. The cost of the
acquisition is measured at the aggregate of the fair value of the assets
given, equity instruments issued (if any) and liabilities incurred or
assumed at the date of exchange, plus costs directly attributable to the
acquisition.
2.2 IMPACT OF NEW AND REVISED HONG KONG FINANCIAL REPORTING STANDARDS
("HKFRSs")
The Hong Kong Institute of Certified Public Accountants has issued a
number of new Hong Kong Financial Reporting Standards, Hong Kong
Accounting Standards and interpretations, herein collectively referred to
as the new HKFRSs, which are generally effective for accounting periods
beginning on or after 1 January 2005. The following new and revised HKFRSs
affect the Group and are adopted for the first time for the current year's
financial statements:
HKAS 1 Presentation of Financial Statements
HKAS 2 Inventories
HKAS 7 Cash Flow Statements
- 8 -
HKAS 8 Accounting Policies, Changes in Accounting
Estimates and Errors
HKAS 10 Events after the Balance Sheet Date
HKAS 12 Income Taxes
HKAS 14 Segment Reporting
HKAS 16 Property, Plant and Equipment
HKAS 17 Leases
HKAS 18 Revenue
HKAS 19 Employee Benefits
HKAS 21 The Effects of Changes in Foreign Exchange Rates
HKAS 23 Borrowing Costs
HKAS 24 Related Party Disclosures
HKAS 27 Consolidated and Separate Financial Statements
HKAS 28 Investments in Associates
HKAS 31 Interests in Joint Ventures
HKAS 32 Financial Instruments: Disclosure and Presentation
HKAS 33 Earnings per Share
HKAS 36 Impairment of Assets
HKAS 37 Provisions, Contingent Liabilities and Contingent
Assets
HKAS 38 Intangible Assets
HKAS 39 Financial Instruments: Recognition and Measurement
HKAS 39 Amendment Transition and Initial Recognition of Financial
Assets and Financial Liabilities
HKFRS 2 Share-based Payment
HKFRS 3 Business Combinations
The adoption of HKASs 1, 2, 7, 8, 10, 12, 14, 17, 18, 19, 21, 23, 24, 27,
28, 31, 33, 36, 37, 38 and HKFRS 3 has no material impact on the
accounting policies of the Group and the methods of computation in the
Group's financial statements. The impacts of adopting other HKFRSs are
detailed as follows:
(a) HKAS 16 - Property, Plant and Equipment
In prior years, the Group's property, plant and equipment were
classified into three categories: oil and gas properties, land and
buildings (representing the onshore terminals for oil and gas
processing), and vehicles and office equipment. Land and buildings
were stated at valuation less accumulated depreciation. Depreciation
for land and buildings is calculated on the straight-line basis at an
annual rate estimated to write off the valuation of each asset over
its expected useful life, ranging from 30 to 50 years.
According to HKAS 16, property, plant and equipment are required to
be categorised by major component and different useful lives, if any,
should be applied in calculating the depreciation.
Upon the adoption of HKAS 16, the Group has classified its property,
plant and equipment into two categories: oil and gas properties and
vehicles and office equipment. The Group has reclassified the onshore
terminals previously classified as land and buildings to oil and gas
properties as they will be used in similar operations and are
expected to have similar economic useful lives.
The Group has also decided to change its accounting policy to state
the onshore terminals at cost instead of valuation and to amortise
those terminals by the unit-of-production method on a
property-by-property basis computed based on the total estimated
units of proved developed reserves instead of the straight line
method. Management believes the new policy will provide more relevant
information and consistent accounting approach for oil and gas
related assets.
The effect of this change in accounting policy is to decrease both
property, plant and equipment and the revaluation reserve as at 1
January 2005 by RMB274,671,000. No adjustment was made to the prior
years' amounts as the impact on the prior years' financial statements
was not material. The effects of the above changes are summarized in
note 2.3 below.
- 9 -
(b) HKASs 32 and 39 - Financial Instruments
(i) Investments in equity and debt securities
In prior periods, the Group classified its investments in short
term debt and equity securities as short term investments which
were not intended to be held on a continuing basis and those
investments were stated at fair value at the balance sheet date,
on an individual investment basis. The gains or losses arising
from changes in the fair value of such securities were credited
or charged to the income statement in the period in which they
arose.
Upon the adoption of HKAS 39, these securities held by the Group
at 1 January 2005 in the amount of RMB5,444,113,000 were
designated as available-for-sale investments under the
transitional provisions of HKAS 39 and accordingly are stated at
fair value with gains or losses being recognised as a separate
component of equity until subsequent derecognition or
impairment.
(ii) Convertible bonds
In prior periods, convertible bonds were stated at amortised
cost.
Upon the adoption of HKAS 32 and HKAS 39, the Group's
convertible bonds issued with a cash settlement option and other
derivative features are split into liability and derivative
components based on their fair values. The effects of the above
changes are summarised in note 2.3 below. In accordance with
HKAS 32, comparative amounts have been restated.
(c) HKFRS 2 - Share-based Payment
In prior periods, no recognition and measurement of share-based
transactions in which employees (including directors) were granted
share options over shares in the Company were required until such
options were exercised by employees, at which time the share capital
and share premium were credited with the proceeds received.
Upon the adoption of HKFRS 2, when employees (including directors)
render services as consideration for equity instruments
("equity-settled transactions"), the cost of equity-settled
transactions with employees is measured by reference to the fair
value at the date at which the instruments are granted.
The main impact of HKFRS 2 on the Group is the recognition of the
cost of these transactions and a corresponding entry to equity for
employee share options.
- 10 -
The Group has adopted the provisions of HKFRS 2 retrospectively to
all stock options granted from the date of its incorporation. The
effects of adopting HKFRS 2 are summarized in note 2.3 below.
2.3 SUMMARY OF THE IMPACT OF CHANGES IN ACCOUNTING POLICIES
(a) Effect on the consolidated balance sheet
Effect of adopting
---------------------------
At 1 January 2005 HKAS 16# HKFRS 2#
Property, Recognition of
Effect of new policies plant and share-based
Increase/(decrease) equipment payment Total
RMB'000 RMB'000 RMB'000
Assets
Property, plant and equipment, net (274,671) - (274,671)
=============
Liabilities/equity
Asset revaluation reserve (274,671) - (274,671)
Other reserves - 110,144 110,144
Retained earnings - (110,144) (110,144)
-------------
(274,671)
=============
Effect of adopting
-----------------------------------------------------
HKAs
At 31 December 2005 HKAS 16# HKASs 32 HKAS 39* HKFRS 2#
and 39* Change in Recognition
Property, classification of share-
Effect of new policies plant and Convertible of equity based
Increase/(decrease) equipment bonds investments payment Total
RMB'000 RMB'000 RMB'000 RMB'000 RMB'000
Assets
Property, plant and equipment, net (274,671) - - - (274,671)
==========
Liabilities/equity
Long term guaranteed notes - 373,060 - - 373,060
Asset revaluation reserve (274,671) - - - (274,671)
Other reserves - - 69,069 139,267 208,336
Retained earnings - (373,060) (69,069) (139,267) (581,396)
---------
(274,671)
=========
- 11 -
(b) Effects on the balances of equity at 1 January 2004 and at 1 January 2005
Effect of adopting
---------------------------
HKAS 16# HKFRS 2#
Property, Recognition of
Effect of new policies plant and share-based
Increase/(decrease) equipment payment Total
RMB'000 RMB'000 RMB'000
1 January 2004
Asset revaluation reserve (274,671) - (274,671)
Other reserves - 63,502 63,502
Retained earnings - (63,502) (63,502)
----------
(274,671)
==========
1 January 2005
Asset revaluation reserve (274,671) - (274,671)
Other reserves - 110,144 110,144
Retained earnings - (110,144) (110,144)
----------
(274,671)
==========
* Adjustments taken effect prospectively from 1 January 2005.
# Adjustments taken effect retrospectively.
(c) Effect on the consolidated income statement for the years ended 31
December 2005 and 2004
Effect of adopting
------------------------------------------
HKAS 16 HKAS 39 HKFRS 2
Recognition
Property, of
plant and Convertible share-based
Effect of new policies equipment bonds payment Total
RMB'000 RMB'000 RMB'000 RMB'000
Year ended 31 December 2005
Increase in depreciation, depletion and amortisation 19,269 - - 19,269
Increase in a loss on embedded derivatives in - 373,060 - 373,060
convertible bonds
Increase in selling and administrative expenses - - 29,123 29,123
-------- -------- -------- --------
Total decrease in profit 19,269 373,060 29,123 421,452
======== ======== ======== ========
Year ended 31 December 2004
Increase in selling and administrative expenses - - 46,642 46,642
-------- -------- -------- --------
Total decrease in profit - - 46,642 46,642
======== ======== ======== ========
There was no material impact on basic earnings per share and diluted
earnings per share for the years ended 31 December 2005 and 2004 for the
adoption of the above new policies.
- 12 -
3. ACQUISITIONS
During the year, the Group completed the acquisition of the North West
Shelf Project ("NWS Project"), including an interest of approximately 5.3%
in the NWS Project and a 25% interest in the China LNG Joint Venture, a
new joint venture established within the NWS Project. The Group acquired
the NWS Project to expand its oil and gas reserves and production. The
Group's participation in the NWS Project has not started commercial
operations.
Details of the net assets acquired are as follows:
Purchase consideration: RMB'000
Consideration paid 4,341,783
Direct costs relating to the acquisition 87,522
----------
Total purchase consideration 4,429,305
==========
The assets and liabilities arising from the acquisition are as follows:
RMB'000
Oil and gas properties 3,129,662
Intangible assets - gas processing rights 1,299,643
----------
Net assets acquired 4,429,305
==========
Purchase consideration settled in cash 4,429,305
==========
The purchase price allocation set out above is still preliminary, pending
the confirmation of the tax basis of the underlying assets.
The interest of the Group in the NWS Project has been charged to the other
partners of the Project as security for certain of the Group's liabilities
relating to the Project.
In addition, the Company, through its wholly-owned subsidiary, has signed
an agreement with a Canadian based company, MEG Energy Corporation
("MEG"), to acquire a 16.69% equity interest in MEG. The Company completed
the transaction and paid C$150 million (equivalent of approximately
RMB1,017 million) for the acquisition of 13,636,364 common shares of MEG
in March 2005. MEG is principally engaged in the exploitation and
production of oil sands. The investment in the unlisted shares of this
company is accounted for as a non-current available-for-sale asset and is
stated at cost less any impairment.
4. PRODUCTION SHARING CONTRACTS
PRC
For production sharing contracts in the PRC, the foreign parties to the
contracts ("foreign partners") are normally required to bear all
exploration costs during the exploration period and such exploration costs
can be recovered according to the production sharing formula after
commercial discoveries are made and production begins.
After the initial exploration stage, the development and operating costs
are funded by the Group and the foreign partners according to their
respective participating interests.
In general, the Group has the option to take up to 51% participating
interest in a production sharing contract and may exercise such option
after the foreign partners have independently undertaken all the
exploration risks and costs and made viable commercial discoveries.
- 13 -
After the Group exercises its option to take a participating interest in a
production sharing contract, the Group accounts for the oil and gas
properties using the proportional method under which the Group recognises
its share of development costs, revenues and expenses from such operations
according to its participating interest in the production sharing
contract. The Group does not account for either the exploration costs
incurred by its foreign partners or the foreign partners' share of
development costs and revenues and expenses from such operations.
Part of the annual gross production of oil and gas in the PRC is
distributed to the PRC government as settlement of royalties which are
payable pursuant to a sliding scale. The Group and the foreign partners
also pay a value-added tax to the tax bureau at a pre-determined rate. In
addition, there is a pre-agreed portion of oil and gas designated to
recover all exploration costs, development costs, operating costs incurred
and related interest according to the participating interests between the
Group and the foreign partners. Any remaining oil after the foregoing
priority allocations is first distributed to the PRC government as
government share oil on a pre-determined ratio pursuant to a sliding
scale, and then distributed to the Group and the foreign partners
according to their respective participating interests. As the government
share is not included in the Group's interest in the annual production,
the net sales of the Group do not include the sales revenue of the
government share oil.
The foreign partners have the right either to take possession of their
allocable remainder oil for sale in the international market, or to
negotiate with the Group to sell their allocable remainder oil to the
Group for sale in the PRC market.
Overseas
The Group and the other partners to the overseas production sharing
contracts are required to bear all exploration, development and operating
costs according to their 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.
The Group's net interest in the production sharing contracts in overseas
consists of its participating interest in the properties covered under the
relevant production sharing contracts, less oil and gas distributed to the
local government and the domestic market obligation.
5. OIL AND GAS SALES
2005 2004
RMB'000 RMB'000
Gross sales 57,988,465 39,955,702
Royalties (708,537) (610,055)
PRC government share oil (3,862,259) (2,459,628)
------------ ------------
53,417,669 36,886,019
============ ============
6. MARKETING PROFIT
2005 2004
RMB'000 RMB'000
Marketing revenuesq 15,901,325 18,191,353
Crude oil and product purchases (15,704,100) (17,963,461)
------------ ------------
197,225 227,892
============ ============
- 14 -
7. PROFIT BEFORE TAX
The Group's profit before tax is arrived at after charging/(crediting):
2005 2004
RMB'000 RMB'000
(Restated)
Crediting:
Interest income on bank deposits (359,294) (206,872)
Exchange gains, net (287,027) (29,269)
Interest income on available-for-sale financial assets (9,757) (1,654)
Dividend income on available-for-sale financial assets (175,416) (93,040)
Realised gains on available-for-sale financial assets (62,720) (2,972)
Unrealised losses on short-term investments - 25,228
------------ ------------
Investment income (247,893) (72,438)
------------ ------------
Charging:
Auditors' remuneration 7,961 6,750
Employee benefit expense (including directors' remuneration):
- Wages, salaries and allowances 363,668 265,007
- Labour costs paid to contractors 750,651 666,599
- Equity-settled share option expense 29,123 46,642
------------ ------------
1,143,442 978,248
------------ ------------
Depreciation, depletion and amortisation 5,941,755 5,410,413
Add: Oil-in tank adjustments 22,985 44,649
------------ ------------
5,964,740 5,455,062
------------ ------------
Operating lease rentals
- Office buildings 87,440 107,803
- Equipment 641,846 494,264
------------ ------------
729,286 602,067
------------ ------------
Loss on disposal of property, plant and equipment 9,629 173
Repairs and maintenance 1,047,979 1,193,700
Research and development costs 401,640 268,477
Provision for/(reversal of) inventory obsolescence 33,088 (2,710)
8. SELLING AND ADMINISTRATIVE EXPENSES
2005 2004
RMB'000 RMB'000
(Restated)
Salary and staff benefits 392,791 311,649
Utility and office expenses 143,204 115,817
Travel and entertainment 94,590 75,675
Rentals and maintenance 111,426 128,579
Management fees 243,730 218,087
Selling expenses 32,983 36,015
Provision for/(reversal of) for inventory obsolescence 33,088 (2,710)
Other 318,556 221,236
------------ ------------
1,370,368 1,104,348
============ ============
9. FINANCE COSTS
- 15 -
2005 2004
RMB'000 RMB'000
Interest on bank loans which are
- wholly repayable within five years 98,892 80,829
Interest on other loan (including convertible bonds) 671,849 485,812
Other borrowing costs 3,773 163
------------ ------------
Total interest 774,514 566,804
Less: Amount capitalised in property, plant and equipment (245,987) (244,686)
------------ ------------
528,527 322,118
Other finance costs:
Increase in discounted amount of provisions arising from the passage of time 198,945 119,707
Loss on embedded derivative component in convertible bonds 373,060 -
------------ ------------
1,100,532 441,825
============ ============
The interest rates used for interest capitalisation represented the cost
of capital from raising the related borrowings and varied from 4.1% to
9.2% per annum for the year ended 31 December 2005.
10. Income tax
2005 2004
RMB'000 RMB'000
Overseas income taxes
- Current 845,390 755,568
- Deferred 14,907 (170,118)
PRC enterprise income tax
- Current 9,912,426 6,411,417
- Deferred 205,089 (66,041)
------------ ------------
Total tax charge for the year 10,977,812 6,930,826
============ ============
- 16 -
11. EARNINGS PER SHARE
2005 2004
(Restated)
Earnings:
Net profit from ordinary activities attributable to shareholders for the
year for the purpose of basic earnings per share RMB 25,323,122,000 RMB 16,139,136,000
Interest expense and losses recognised on the derivative component of
convertible bonds RMB 537,468,873 -
------------------ ------------------
Net profit from ordinary activities attributable to shareholders for the
year for the purpose of diluted earnings per share RMB 25,860,590,873 RMB 16,139,136,000
================== ==================
Number of shares:
Weighted average number of ordinary shares for the purpose of basic
earnings per share before effects of
shares repurchased and share options exercised 41,052,375,275 41,070,828,275
Effect of shares repurchased - (10,587,616)
Effect of share options exercised 2,124,707 -
------------------ ------------------
Weighted average number of ordinary shares for the purpose of basic
earnings per share 41,054,499,982 41,060,240,659
------------------ ------------------
Effect of dilutive potential ordinary shares under the share option 38,861,432 66,720,503
schemes
Effect of dilutive potential ordinary shares for convertible bonds 1,292,694,352 52,552,274
------------------ ------------------
Weighted average numberof ordinary shares for the purpose of diluted 42,386,055,766 41,179,513,436
earnings per share
================== =================
Earnings per share - Basic RMB 0.62 RMB 0.39
- Diluted RMB 0.61 RMB 0.39
12. LONG TERM GUARANTEED NOTES
Long term guaranteed notes comprised the following:
(i) The principal amount of US$500 million of 6.375% guaranteed notes due
in 2012 issued by CNOOC Finance (2002) Limited, a wholly-owned
subsidiary of the Company. The obligations of CNOOC Finance (2002)
Limited in respect of the notes are unconditionally and irrevocably
guaranteed by the Company.
(ii) The principal amount of US$200 million of 4.125% guaranteed notes due
in 2013 and the principal amount of US$300 million of 5.500%
guaranteed notes due in 2033 issued by CNOOC Finance (2003) Limited,
a wholly-owned subsidiary of the Company. The obligations of CNOOC
Finance (2003) Limited in respect of the notes are unconditionally
and irrevocably guaranteed by the Company.
(iii) The principal amount of US$1 billion zero coupon guaranteed
convertible bonds due 2009, unconditionally and irrevocably
guaranteed by, and convertible into shares of the Company issued by
CNOOC Finance (2004) Limited, a wholly-owned subsidiary of the
Company, on 15 December 2004. The bonds are convertible from 15
January 2005 onwards at a price of HK$6.075 per share, subject to
adjustment for, among other things, the subdivision or consolidation
of shares, bond issues, rights issues, capital distribution and other
dilutive events. The conversion price was adjusted to HK$5.97 per
share on 7 June 2005 as a result of the declaration of the final and
special final dividends for 2004 by the Company. Unless previously
redeemed, converted or purchased and cancelled, the bonds will be
redeemed on the maturity date at 105.114% of the principal amount.
CNOOC Finance (2004) Limited has a cash settlement option when the
holders exercise their conversion right.
- 17 -
13. SHARE CAPITAL
Issued share
Number of Share capital
shares capital equivalent of
Shares HK$'000 RMB'000
Authorised:
Ordinary shares of HK$0.02 each
As at 31 December 2005 and 31 December 2004 75,000,000,000 1,500,000
============= =============
Issued and fully paid:
Ordinary shares of HK$0.02 each
As at 1 January 2004* 41,070,828,275 821,417 876,978
Repurchased and cancelled (18,453,000) (369) (392)
-------------- ------------- -------------
As at 31 December 2004 41,052,375,275 821,048 876,586
Exercise of options 2,300,100 46 49
-------------- ------------- -------------
As at 31 December 2005 41,054,675,375 821,094 876,635
============= ============= =============
* Adjustment has been made to take account of the subdivision of
issued and unissued shares of HK$0.10 each into five shares of
HK$0.02 each effective from 17 March 2004.
14. SEGMENT INFORMATION
Segment information is presented by way of two segment formats: (i) on a
primary segment reporting basis, by business segment; and (ii) on a
secondary segment reporting basis, by geographical segment.
Intersegment transactions: segment revenue, segment expenses and segment
performance include transfers between business segments and between
geographical segments. Such transfers are accounted for at cost. Those
transfers are eliminated on consolidation.
(a) Business segments
The Group is organised on a worldwide basis into three major
operating segments. The Group is involved in the upstream operating
activities of the petroleum industry that comprise independent
operations, production sharing contracts with foreign partners and
trading business. These segments are determined primarily because the
senior management makes key operating decisions and assesses
performance of the segments separately. The Group evaluates the
performance of each segment based on profit or loss from operations
before income taxes.
- 18 -
The following table presents revenue, profit and certain assets,
liabilities and expenditures information for the Group's business segments
for the years ended 31 December 2005 and 2004.
Independent Production
operations sharing contracts Trading business Unallocated
Segment revenue 2005 2004 2005 2004 2005 2004 2005 2004
RMB'000 RMB'000 RMB'000 RMB'000 RMB'000 RMB'000 RMB'000 RMB'000
Sales to external
customers: (Restated) (Restated) (Restated) (Restated)
Oil and gas sales 22,808,733 15,177,621 30,608,936 21,708,398 - - - -
Marketing revenues - - - - 15,901,325 18,191,353 - -
Intersegment
revenues 1,598,171 920,669 7,467,429 2,551,181 - - - -
Other income 13,093 6,139 103,047 136,942 - - 20,609 1,610
---------- ---------- ---------- ----------- ----------- ----------- ---------- ---------
Total 24,419,997 16,104,429 38,179,412 24,396,521 15,901,325 18,191,353 20,609 1,610
---------- ---------- ---------- ----------- ----------- ----------- ---------- ---------
Segment results
Operating expenses (2,095,273) (1,828,614) (3,839,325) (3,241,730) - - - -
Production taxes (1,154,771) (775,210) (1,441,772) (950,464) - - - -
Exploration costs (1,025,993) (1,136,055) (267,694) (180,105) - - - -
Depreciation,
depletion and
amortisation (2,554,896) (2,235,064) (3,409,844) (3,219,998) - - - -
Dismantlement (152,796) (117,310) (100,061) (84,327) - - - -
Impairment losses
related to
property, plant and
equipment (39,494) - (50,696) - - - - -
Crude oil and
product purchases (1,598,171) (920,669) (7,467,429) (2,551,181) (15,704,100) (17,963,461) - -
Selling and
administrative
expenses (39,486) (50,721) (676,062) (557,521) - - (654,820) (496,106)
Others - - (77,062) (45,844) - - - -
Interest income - - 7,328 2,077 - - 351,966 204,795
Finance costs (183,325) (135,119) (94,885) (64,956) - - (822,322) (241,750)
Exchange - - (5,119) (15,308) - - 292,146 44,577
gains/(losses), net
Investment income - - - - - - 247,893 72,438
Share of profits of
associates - - - - - - 307,075 344,469
Non-operarting
income/expenses),
net - - - - - - 28,579 519,206
Tax - - - - - - (10,977,812) (6,930,826)
---------- ---------- ---------- ----------- ----------- ----------- ---------- ---------
Net profit 15,575,792 8,905,667 20,756,791 13,487,164 197,225 227,892 (11,206,686) (6,481,587)
---------- ---------- ---------- ----------- ----------- ----------- ---------- ---------
Other segment information
Segment assets 25,054,275 21,120,584 51,125,491 37,851,716 2,413,195 1,712,212 34,770,264 31,790,239
Investments in
associates - - - - - - 1,401,839 1,327,109
---------- ---------- ---------- ----------- ----------- ----------- ---------- ---------
Total assets 25,054,275 21,120,584 51,125,491 37,851,716 2,413,195 1,712,212 36,172,103 33,117,348
Segment liabilities (5,187,124) (3,913,905) (12,876,516) (11,453,307) (667,336) (809,663) (22,430,991) (21,182,195)
Capital expenditure 7,806,927 6,309,397 8,914,306 13,145,839 - - 144,442 164,775
========== ========== =========== ============ =========== =========== =========== ===========
Eliminations Consolidated
Segment revenue 2005 2004 2005 2004
RMB'000 RMB'000 RMB'000 RMB'000
Sales to external
customers: (Restated) (Restated)
Oil and gas sales - - 53,417,669 36,886,019
Marketing revenues - - 15,901,325 18,191,353
Intersegment
revenues (9,065,600) (3,471,850) - -
Other income - - 136,749 144,691
----------- ----------- ------------ ----------
Total (9,065,600) (3,471,850) 69,455,743 55,222,063
----------- ----------- ------------ ----------
Segment results
Operating expenses - - (5,934,598) (5,070,344)
Production taxes - - (2,596,543) (1,725,674)
Exploration costs - - (1,293,687) (1,316,160)
Depreciation,
depletion and
amortisation - - (5,964,740) (5,455,062)
Dismantlement - - - (252,857) (201,637)
Impairment losses
related to
property, plant and
equipment - - (90,190) -
Crude oil and
product purchases 9,065,600 3,471,850 (15,704,100) (17,963,461)
Selling and
administrative
expenses - - (1,370,368) (1,104,348)
Others - - (77,062) (45,844)
Interest income - - 359,294 206,872
Finance costs - - (1,100,532) (441,825)
Exchange - - 287,027 29,269
gains/(losses), net
Investment income - - 247,893 72,438
Share of profits of
associates - - 307,075 344,469
Non-operarting
income/expenses),
net - - 28,579 519,206
Tax - - (10,977,812) (6,930,826)
----------- ----------- ------------ ----------
Net profit - - 25,323,122 16,139,136
----------- ----------- ------------ ----------
Other segment informati
Segment assets - - 113,363,225 92,474,751
Investments in
associates - - 1,401,839 1,327,109
----------- ----------- ------------ ----------
Total assets - - 114,765,064 93,801,860
Segment liabilities - - (41,161,967) (37,359,070)
Capital expenditure - - 16,865,675 19,620,011
========== =========== ============= ===========
- 19 -
(b) Geographical segments
In determining the Group's geographical segments, revenues and
results are attributed to the segments based on the location of the
Group's customers, and assets are attributed to the segments based on
the location of the Group's assets.
The Group is mainly engaged in the exploration, development and
production of crude oil and natural gas in offshore China. Any
activities outside the PRC are mainly conducted in Indonesia,
Australia, Canada and Singapore. The following table presents revenue
and certain asset and expenditure information for the Group's
geographical segments for the years ended 31 December 2005 and 2004.
PRC Outside PRC Total
2005 2004 2005 2004 2005 2004
RMB'000 RMB'000 RMB'000 RMB'000 RMB'000 RMB'000
(Restated) (Restated)
Total revenue 38,992,740 30,453,453 30,463,003 24,768,610 69,455,743 55,222,063
Segment assets 92,845,974 75,023,500 21,919,090 18,778,360 114,765,064 93,801,860
Capital expenditure 14,496,690 12,014,894 2,368,985 7,605,117 16,865,675 19,620,011
MANAGEMENT DISCUSSION AND ANALYSIS
BUSINESS REVIEW AND PROSPECTS
As at 31 December 2005, our total revenue amounted to RMB69,455.7 million
(US$8,470.4 million), representing a year-on-year increase of 25.8%. Net profit
amounted to RMB25,323.1 million (US$3,088.3 million), representing a
year-on-year increase of 56.9%. The profit growth was attributable to the
following reasons: due to the increased international oil price and high market
demand, we seized favorable opportunities from such optimism and strengthened
our exploration and development to actively expand our production capacity of
oil and gas. Given our increased development of heavy oil and the rise in crude
oil price, we continued to implement effective cost control measures and
maintained our leadership position in production cost per barrel among our
international peers.
As at 31 December 2005, the Company's basic and diluted earnings per share were
RMB0.62 and RMB0.61 respectively.
Looking ahead, it is expected that the global economy will maintain positive
development and the demand for power will continue to rise. It will be
difficult for the international oil price to drop substantially. We will
increase our capital expenditure and strengthen exploration activities. More
work will be done on the collection of seismic data as well as exploration and
drilling. The development projects will also be conducted in a continual and
highly efficient manner. There will be sixteen new projects in progress in
2006, of which ten of them are expected to commence operation during the year.
The vast number of oil and gas fields put into development are also expected to
contribute positively to achieve the Company's production target.
In 2006, we will consistently maintain a healthy financial position and
continue to expand our overseas development and pursuit of opportunities for
acquisition. At the same time, our exploration work will be extended to
deepwater area.
- 20 -
The management remains confident in the development potential of the Company.
CONSOLIDATED NET PROFIT
Our consolidated net income after tax was RMB25,323.1 million (US$3,088.3
million) in 2005, an increase of RMB9,184.0 million (US$1,120.0 million), or
56.9% from RMB 16,139.1 million in 2004.
REVENUE
Income from our oil and gas sales for 2005 was RMB53,417.7 million (US$6,514.5
million), respesenting an increase of RMB16,531.7 million (US$2,016.1 million),
or 44.8% from RMB 36,886.0 million in 2004. The increase was attributable to
the high oil price, whilst growth in production also attributed to higher
profits in the Company. The average realised price for our crude oil was
US$47.31 per barrel in 2005, respesenting an increase of US$11.9, or 33.6% from
US$35.41 per barrel in 2004. Sale of crude oil amounted to 129.8 million
barrels, respesenting an increase of 11.6% over 2004. The average realised
price for our natural gas was US$2.82 per thousand cubic feet in 2005,
respesenting an increase of US$0.07, or 2.6% from US$2.75 per thousand cubic
feet in 2004. At the same time, sales volume of our natural gas increased by
6.8% from 21.9 million BOE in 2004 to 23.4 million BOE in 2005.
In 2005, our net marketing profit, which was derived from marketing revenue
less purchase cost of crude oil and oil products, was RMB197.2 million (US$24.1
million), respesenting a decrease of RMB30.7 million (US$3.7 million), or
13.5%, from RMB227.9 million in 2004. Marketing revenue from the Company's
wholly-owned subsidiary, CNOOC China Limited, was RMB9,430.8 million
(US$1,150.1 million), respesenting an increase of RMB1,688.2 million (US$205.9
million) from RMB 7,742.6 million in 2004. The net marketing profit was RMB85.0
million (US$10.4 million), however, 45.7% decreased from the same period last
year due to the significant reduction in sales margin which was mainly
influenced by market price in local market. Marketing revenue from the
Company's wholly-owned subsidiary, China Offshore Oil (Singapore) International
Pte Ltd., was RMB6,470.5 million (US$789.1 million). Netting off purchase cost
of crude oil and oil production, the net marketing profit was RMB112.2 million
(US$13.7 million), or 57.4% increased from the same period last year.
Our other income, reported on a net basis, was derived from our other income
less corresponding costs. In 2005, our other net income was RMB59.7 million
(US$7.3 million), respesenting a decrease of RMB39.1 million (US$4.8 million)
from RMB98.8 million in 2004. The decrease mainly came from the fluctuation of
income from service fee relating to PSC projects.
EXPENSES
Operating expenses
Our operating expenses in 2005 were RMB5,934.6 million (US$723.7 million),
respesenting an increase of RMB864.3 million (US$105.4 million), or 17.0% from
RMB 5,070.3 million in 2004. The increase was mainly attributable to the
commencement of production of seven
- 21 -
new oil and gas fields in China in the year. Operating expenses in 2005 were
RMB38.8 (US$4.73) per BOE, an increase of 5.7% from RMB 36.7 (US$4.43) per BOE
in 2004. Operating expenses offshore China in 2005 were RMB32.5 (US$3.96) per
BOE, respesenting an increase of 8.7% from 2004. The increase was mainly
attributable to the higher service fees, supply vessels, equipment lease,
maintenance materials, chemicals and fuel, resulting from the higher
international crude oil price. Operating expenses offshore Indonesia in 2005
were RMB100.2 (US$12.22) per BOE, respesenting an increase of 13.0% from 2004.
The increase in operating expenses per barrel for our Indonesian oil fields was
due to lower net production volume based on their profit sharing models. Based
on working interest production, operating expenses in offshore Indonesia in
2005 were RMB48.7 (US$5.94) per BOE.
Production taxes
Our production taxes for 2005 were RMB2,596.5 million (US$316.7 million),
respesenting an increase of RMB870.8 million (US$106.2 million), or 50.5% from
RMB1,725.7 million in 2004. The increase was mainly due to the increased income
from oil and gas sales.
Exploration costs
Our exploration costs for 2005 were RMB1,293.7 million (US$157.8 million), a
slight decrease of RMB22.5 million (US$2.7 million), or 1.7% from RMB 1,316.2
million in 2004, as a result of increase in capitalisation of investment in
exploration.
Depreciation, depletion and amortisation
Our depreciation, depletion and amortisation were RMB5,964.7 million (US$727.4
million) for 2005, respesenting an increase of RMB509.6 million (US$62.1
million), or 9.3% from RMB 5,455.1 million in 2004. Our average depreciation,
depletion and amortisation per barrel were RMB39.0 (US$4.75 ) per BOE which
were more or less the same as those in 2004.
Dismantlement
Our dismantling costs for 2005 were RMB252.9 million (US$30.8 million), an
increase of RMB51.3 million (US$6.3 million) from RMB201.6 million in 2004. The
increase was primarily due to the increased dismantling costs resulting from
the commencement of production at new oil and gas fields and a revision of the
dismantlement liabilities for certain existing oil and gas fields. Our average
dismantling costs were RMB1.7 (US$0.20) per BOE, a corresponding increase from
RMB1.5 (US$0.18) per BOE in 2004.
Impairment losses related to property, plant and equipment
Our impairment losses for 2005 were RMB90.2 million (US$11.0 million). The
impairment was due to the downward revision of the reserve of BZ34-2/4 and
HZ19-3 oil and gas fields. The average impairment costs were RMB0.6 (US$0.07)
per BOE.
- 22 -
Selling and administrative expenses
Our selling and administrative expenses for 2005 were RMB1,370.4 million
(US$167.1 million), respesenting an increase of RMB266.1 million (US$32.5
million), or 24.1% from RMB 1,104.3 million in 2004. Of which, the selling and
administrative expenses of companies in China were RMB6.3 (US$0.77) per BOE,
respesenting an increase of 14.5% from the previous year. Compared with last
year, the increase was mainly attributable to the increase in management fees
related to more PSC projects in production, labor costs and general research
expenditures occurred in 2005.
Finance costs, net of interest income
Our net finance costs for 2005 were RMB741.2 million (US$90.4 million), an
increase of 215.5% from the net interest expenses of RMB235.0 million in 2004.
On one hand, our interest income increased RMB152.4 million from RMB206.9
million in 2004 to RMB359.3 million in 2005. On the other hand, the finance
costs increased significantly mainly due to the interest expenses on our US$1
billion bonds issued in December 2004, the losses on fair value changes of the
embedded derivative component of the convertible bonds and the effect of
increased amount of provision of dismantlement arising from the passage of
time. The increases due to the factors mentioned above were RMB164.4 million
(US$20.1 million), RMB373.1 million (US$45.5) and RMB79.2 million (US$9.7
million) respectively.
Exchange gains/losses, net
Our net exchange gains incurred in 2005 were RMB287.0 million (US$35.0
million), an increase of RMB257.7 million (US$31.4 million) from net exchange
gains of RMB 29.3 million in 2004. Compared with 2004, the increased exchange
gains mainly came from the Chinese government's efforts on the improvement of
rate-forming mechanism and the following appreciation of RMB in the second half
of the year.
Investment income
Our investment income for 2005 was RMB247.9 million (US$30.2 million), a
significant increase of RMB175.5 million (US$21.4 million), or 242.4% from RMB
72.4 million in 2004. For the purpose of improving performance of current
assets portfolio, we increased the investment in financial instruments such as
money market funds. Benefiting from the structural changes in the investment
portfolio and the influence from the market, we obtained a favorable return in
this year.
Share of profits of associates
In 2005, there were gains from our investments in Shanghai Petroleum and
Natural Gas Company Limited and CNOOC Finance Corporation Limited. Of them,
share of profit from Shanghai Petroleum and Natural Gas Company Limited was
RMB261.8 million (US$31.9 million), respesenting a decrease of 12.1% from 2004,
which was mainly due to the change
- 23 -
in tax rate from favorable rate of 16.5% to normal rate of 33.0% and resulting
from the increased income tax payment of 2005. Share of profit from CNOOC
Finance Corporation Limited was RMB45.3 million (US$5.5 million) during the
period, relatively comparable to that from 2004.
Non-operating income/expenses, net
Our net non-operating income for 2005 was RMB28.6 million (US$3.5 million), and
our net non-operating income for 2004 was RMB 519.2 million. The non-operating
income in 2004 represented the tax refund from re-investment in China.
Income tax
Our income tax for the year 2005 was RMB10,977.8 million (US$1,338.8 million),
respesenting an increase of RMB4,047.0 million (US$493.5 million), or 58.4%
from RMB6,930.8 million in 2004. The primary reason for the increase was the
increase in profit before tax. The effective tax rate for 2005 was 30.2%,
slightly higher than the effective rate of 30.0% in 2004.
Cash generated from operating activities
Net cash generated from operating activities in 2005 amounted to RMB32,153.8
million (US$3,921.3 million), respesenting an increase of RMB9,825.9 million
(US$1,198.3 million), or 44.0% from RMB22,327.9 million in 2004.
The increase in cash was mainly due to an increase in profit before tax of
RMB13,231.0 million (US$1,613.6 million), an increase in depreciation,
depletion and amortization expenses of RMB509.7 million (US$62.2 million), an
increase in finance costs of RMB658.7 million (US$80.3 million), an increase in
provision for inventory of RMB35.8 million (US$4.4 million), an increase in
dismantlement costs of RMB51.2 million (US$6.2 million), a decrease in share of
profits of associates of RMB37.4 million (US$4.6 million), an increase in
amortisation of discount of long term guaranteed notes of RMB 26.3 million
(US$3.2 million), and an increase in impairment losses related to property,
plant and equipment of RMB90.2 million (US$11.0 million).
Increase of cash flow was also partially offset by an increase of income tax
paid of RMB2,447.2 million (US$298.4 million), an increase in our finance
exchange gain and loss of RMB257.8 million (US$31.4 million), an increase in
investment income received of RMB175.5 million (US$21.4 million), a decrease in
the loss on disposal and write off of property, plant and equipment of RMB14.3
million (US$1.7 million), an increase in interest income of RMB152.4 million
(US$18.6 million) and a decrease in compensation cost for share based payment
of RMB17.5 million (US$2.1 million).
In another aspect, compared with 2004, the increase in operating cash flow was
partially attributable to the increase in changes of working capital, mainly
due to the increase in changes of current assets from operating activities
excluding cash and bank balances of RMB2,103.9 million (US$256.6 million), and
a simultaneous increase in changes of current liabilities from operating
activities of RMB71.0 million (US$8.7 million).
- 24 -
Capital expenditures and investments
Net cash outflow from investing activities in 2005 was RMB29,349.2 million
(US$3,579.3 million), representing an increase of RMB4,742.0 million (US$578.3
million) from RMB24,607.2 million in 2004.
In line with our use of "successful efforts" method of accounting, total
capital expenditures and investments primarily include successful exploration
and development expenditures and purchases of oil and gas properties. Total
capital expenditures were RMB17,469.5 million (US$2,130.5 million) in 2005,
representing a decrease of RMB1,152.5 million (US$140.6 million), or 6.2%, from
RMB18,622.0 million in 2004. Capital expenditures in 2005 mainly comprised of
RMB875.8 million (US$106.7 million) for capitalised exploration activities,
RMB15,729.7 million (US$1,918.4 million) for development investments, and
RMB1,017.0 million (US$124.0 million) for acquisition of 16.69% equity interest
of MEG, neting off a tax refund of RMB153.0 million (US$18.7 million) from NWS
Project. Our development expenditures in 2005 related principally to the
development of PanYu 30-1, Bozhong 25-1/25-1S, PL19-3 phase II, NanPu 35-2 oil
and gas fields.
In addition, cash outflow was attributable to the increase in time deposits
with maturities over three months of RMB3,597 million (US$438.7 million), and
the net purchase of available-for-sale financial assets of RMB8,282.7 million
(US$1,010.1 million).
Financing activities
The net cash flow arising from financing activities in 2005 was an outflow of
RMB7,786.4 million (US$ 949.6 million) while that in 2004 was an inflow of
RMB1,970.5 million. Compared with 2004, there was no issuance of debt financing
instruments or bank loan increase in 2005. The distribution of dividends of
RMB7,772.2 million (US$947.9 million) and the repayment of bank loans of
RMB18.7 million (US$2.3 million) by the Company generated a total cash outflow
of RMB 7,790.9 million (US$950.1 million). Some cash inflow was generated by
the proceeds from the exercise of share options of RMB4.5 million (US$0.5
million) in 2005.
Repayment arrangements of our total debts as at 31 December 2005 were as
follows:
Debt maturities principal only
Original currency
Due by Total RMB Total US$
31 December US$ JPY RMB equivalent equivalent
(in millions, except percentages)
2006 100.0 271.5 - 825.7 102.3
2007-2009 1,000.0 271.4 - 8,088.9 1,002.3
2010-2011 - - - - -
2011 and beyond 1,000.0 - - 8,070.2 1,000.0
Total 2,100.0 542.9 - 16,984.8 2,104.6
Percentage of total debt 99.8% 0.2% - 100.0% 100.0%
- 25 -
The gearing ratio of the Company was 19.1%. Gearing ratio is (Total
Debt)/(Total Debt + Equity).
Market risks
Our market risk exposures primarily consist of fluctuations in oil and gas
prices, exchange rates and interest rates.
Oil and gas price risk
As our oil and gas prices are mainly determined by reference to the oil and gas
prices in international markets, changes in international oil and gas prices
have a large impact on us. International oil and gas prices are volatile, and
this volatility has a significant effect on our net sales and net profits.
Currency risk
Substantially all of the Group's oil and gas sales are denominated in Renminbi
and US dollars. In the past decade, the PRC government's policies of
maintaining a stable exchange rate and China's ample foreign reserves have
contributed to the stability of the Renminbi. Starting from 21 July 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 US dollar. From that day to
31 December 2005, Renminbi has appreciated by approximately 2.5% against US
dollars.
The appreciation of Renminbi against US dollars may have certain impact on the
Group. On one hand, since the benchmark oil and gas prices are usually in US
dollars, the Group's oil and gas sales may decrease due to the depreciation of
US dollars against Renminbi. On the other hand, the depreciation of US dollars
against Remminbi will also decrease the Group's costs for imported equipment
and materials, most of which are denominated in US dollars. In addition, the
debt repayment by the Group will decrease since more than 99% of the Group's
debts are also denominated in U.S. dollars.
As of the end of 2005, the balance of our yen-denominated loans was only
RMB37.3 million. Since the Group has hedged our yen loans against foreign
currency swaps, the Group does not expect any exchange risk relating to
Japanese yen in the future.
Interest rate risk
As of the end of 2005, the interest rates for all balance of our debts were
fixed. The term of the weighted average balance was approximately eight years,
with very low weighted average interest rates. The weighted average interest
rate of our debts was only 3.6%, which is very favorable under the environment
of interest rate hike.
Significant investments and material acquisitions
i) On 11 March 2005, CNOOC reached agreement with Canadian MEG Energy
Corporation, on the acquisition of 18.5% (16.69% on a diluted basis) of
the issued shares of MEG Energy Corp., for a consideration of C$150
million. The Company thereby acquired an interest in the oil sand project
in Canada, which has a huge development potential.
- 26 -
ii) On 23 June 2005, the Company made a merger proposal to Unocal Corporation
to acquire all the shares of Unocal Corporation at US$67 per share, or a
total consideration of approximately US$18.5 billion. However, in light of
huge uncertainties and unbearable risks associated with the political
environment in the US, the Company finally withdrew its offer on 2 August
2005.
iii) On 9 January 2006, the Company signed a definitive agreement with South
Atlantic Petroleum Limited ("SAPETRO') to acquire a 45% working interest
in an offshore oil mining license 130 "OML 130" in Nigeria for a cash
consideration of US$2.268 billion, subject to adjustment. Conditional on,
among other things, the approval of the Nigerian National Petroleum
Corporation ("NNPC") and the PRC government, the transaction is expected
to be completed in the first half of 2006.
iv) On 27 January 2006, the Company acquired a 35% working interest in the
Nigeria OPL229 Oil Contract for a consideration of US$60 million.
SUPPLEMENTAL INFORMATION FOR NORTH AMERICAN SHAREHOLDERS
SIGNIFICANT DIFFERENCES BETWEEN HONG KONG GAAP AND GENERALLY ACCEPTED
ACCOUNTING PRINCIPLES IN THE UNITED STATES OF AMERICA ("US GAAP")
Net profit and net equity
(a) Impairment of long-lived assets
Under Hong Kong GAAP, impairment charges are recognised when a long-lived
asset's carrying amount exceeds the higher of an asset's fair value less
costs to sell and value in use, which incorporates discounting the asset's
estimated future cash flows.
Under US GAAP, long-lived assets are assessed for possible impairment in
accordance with SFAS No.144, "Accounting for the impairment or disposal of
long-lived assets". SFAS No. 144 requires the Group to (a) recognise an
impairment loss only if the carrying amount of a long-lived asset is not
recoverable from its undiscounted cash flows and (b) measure an impairment
loss as the difference between the carrying amount and fair value of the
asset. SFAS No. 144 requires that a long-lived asset to be abandoned,
exchanged for a similar productive asset, or distributed to owners in a
spin-off be considered as held and used until it is disposed of.
SFAS No. 144 also requires the Group to assess the need for an impairment
of capitalised costs of proved oil and gas properties and the costs of
wells and related equipment and facilities on a property-by-property
basis. If an impairment is indicated based on undiscounted expected future
cash flows, then an impairment is recognised to the extent that net
capitalised costs exceed the estimated fair value of the property. Fair
value of the property is estimated by the Group using the present value of
future cash flows. The impairment was determined based on the difference
between the carrying value of the assets and the present value of future
cash flows. It is reasonably possible that a change in reserve or price
estimates could occur in the near term and adversely impact management's
estimate of future cash flows and consequently the carrying value of
properties.
- 27 -
In addition, under Hong Kong GAAP, a subsequent increase in the
recoverable amount of an asset (other than goodwill and available-for-sale
equity investments) is reversed to the income statement to the extent that
an impairment loss on the same asset was previously recognised as an
expense when the circumstances and events that led to the write-down or
write-off cease to exist. The reversal is reduced by the amount that would
have been recognised as depreciation had the write-down or write-off not
occurred. Under US GAAP, an impairment loss establishes a new cost basis
for the impaired asset and the new cost basis should not be adjusted
subsequently other than for further impairment losses.
For the year ended 31 December 2005, an impairment of approximately
RMB90,190,000 was recognised under Hong Kong GAAP and US GAAP.
(b) Accounting for convertible bonds
With effect from 1 January 2005, under HKAS 32 Financial Instruments:
Disclosure and Presentation, financial instruments with cash settlement
options and other derivative components will need to be bifurcated into a
debt component and a derivative component. The derivative component is
marked to market at each balance sheet date and the differences will be
charged/credited to the income statement. The debt component is stated at
amortised cost. The requirements of HKAS 32 have been applied
retrospectively with comparative
Under US GAAP, convertible bonds are subject to different rules on the
bifurcation of the debt and derivative components. However, there is no
significant difference on the accounting treatment adopted under HK GAAP
and US GAAP for the Group's convertible bonds.
(c) Comprehensive income
According to SFAS No. 130, "Reporting comprehensive income", the Group is
required to include a statement of other comprehensive income for revenues
and expenses, gains and losses which under US GAAP are included in
comprehensive income and excluded from net income.
2005 2004
RMB'000 RMB'000
Net income under US GAAP 25,343,158 16,176,492
Other comprehensive income:
Foreign currency translation adjustments (493,289) (42,301)
Unrealised gains /(losses) on available-for-sale investments 69,069 (25,228)
Less: Reclassification adjustment for gains included in net income (20,036) (2,972)
----------- ----------
Comprehensive income under US GAAP 24,898,902 16,105,991
=========== ==========
- 28 -
Roll forward of accumulated other comprehensive income components are as
follows:
Foreign Unrealised Accumulated
currency gains on other
translation short term comprehensive
adjustments investments income
RMB'000 RMB'000 RMB'000
Balance at 1 January 2004 22,647 48,236 70,883
Reversal of current year's realised gains - (2,972) (2,972)
Current year's change (42,301) (25,228) (67,529)
--------- -------- ---------
Balance at 31 December 2004 (19,654) 20,036 382
Reversal of current year realised gains - (20,036) (20,036)
Current year's change (493,289) 69,069 (424,220)
Balance at 31 December 2005 (512,943) 69,069 (443,874)
========= ======== =========
(d) Use of estimates in the preparation of financial statements
The preparation of financial statements in conformity with accounting
principles generally accepted in the United States of America requires
management to make estimates and assumptions that affect the reported
amounts of assets and liabilities and disclosure of contingent assets and
liabilities at the date of the financial statements, and the reported
amounts of revenues and expenses during the reporting period. The most
significant estimates pertain to proved oil and gas reserve volumes and
the future development, provision for dismantlement as well as estimates
relating to certain oil and gas revenues and expenses. Actual amounts
could differ from those estimates and assumptions.
(e) Segment reporting
The Group's segment information is based on the segmental operating
results regularly reviewed by the Group's chief operating decision maker.
The accounting policies used are the same as those used in the preparation
of the Group's consolidated Hong Kong GAAP financial statements.
There are no significant differences between Hong Kong GAAP and US GAAPs on the
consolidated balance sheet as at 31 December 2005 and 2004 and the consolidated
income statement for the years ended 31 December 2005 and 2004. As such, no
reconciliation tables have been presented.
- 29 -
Employees
We had 2,696 employees as at 31 December 2005.
We have adopted share option schemes for directors, senior management officers
and other eligible grantees of the Company since 4 February 2001. The Board has
granted options to eligible grantees pursuant to the terms of the relevant
schemes in effect from time to time.
In 2005, we further improved the implementation and utilization of
performance-based assessment system and continued implementing the "target
management" and "balance bonus card" effectively. We also upgraded our
remuneration systems and various incentive systems and formulated "Proposal for
employees' remuneration and its adjustments". At the same time, we accomplished
the task of standardising our internal remuneration and awarded a number of
prizes and awards. We effectively awarded employees who made contribution to
our development while further standardised the existing remuneration and
benefits system.
We put great emphasis on the cultivation and development of our staff and
increased our efforts and strength on training. By continuously improving the
training and management system of the Company, formulating the standard for
training as well as establishing and amending on-line training, we provide our
staff with all kinds of management and business training, which is beneficial
to both our staff and the development of the enterprise.We strive to create a
double-win situation for our staff and the enterprise.
Furthermore, we continue implementing and refining our competitive remuneration
and benefits packages for overseas employees. We have also started establishing
a pool of talented staff which will guarantee the provision of the necessary
resources to cater for our strategic opportunities for continuous fast growth.
Charges on Assets
Except for the charge on the interest of the Group in the NWS Project as
discussed in note 3 above, the Group had no charge on assets as at 31 December
2005.
Contingent Liabilities
The Group had no contingent liabilities as at 31 December 2005.
DIVIDENDS
The Board of Directors recommends the payment of a final dividend of HK$0.10
per share for the year ended 31 December 2005 to shareholders whose names
appear on the Register of Members of the Company on 24 May 2006. These,
together with the interim dividend of HK$0.05 per share and special interim
dividend of HK$0.05 per share, give a total of HK$0.20 per share for the year.
The proposed final dividends are expected to be paid on 7 June 2006 following
the approval at the Annual General Meeting of the Company.
- 30 -
AUDIT COMMITTEE
The audit committee has reviewed, together with the management, the Group's
consolidated financial statements for the year ended 31 December 2005,
including the accounting principles and practices adopted by the Group and has
discussed the internal control and financial reporting matters. The audit
committee of the Board of Directors of the Company has reviewed the annual
results of the Company for the year ended 31 December 2005.
PURCHASE, DISPOSAL AND REDEMPTION OF THE COMPANY'S LISTED SECURITIES
The Company and its subsidiaries did not purchase, dispose of or redeem any of
the listed securities of the Company during the year ended 31 December 2005.
ADJUSTMENTS TO CONVERSION PRICE OF CONVERTIBLE BONDS
The Company issued convertible bonds (the "Convertible Bonds") in the principal
amount of US$1 billion in December 2004. The current conversion price of the
Convertible Bonds is HK$5.97 per share. In accordance with the terms and
conditions of the Convertible Bonds, the payment of the proposed final dividend
may result in an adjustment to the conversion price of the Convertible Bonds.
The exact amount of the adjustment, if any, can only be determined after the
record date for the proposed final dividend. A separate announcement will be
made as and when appropriate.
CLOSURE OF REGISTER OF MEMBERS
The Register of Members will be closed from 17 May 2006 (Wednesday) to 24 May
2006 (Wednesday) (both dates inclusive). In order to qualify for the dividends
and to attend the annual general meeting of the Company, all transfers,
accompanied by the relevant share certificates, must be lodged with the
Company's share registrar, Hong Kong Registrars Limited, at Rooms 1712-16, 17th
Floor, Hopewell Centre, 183 Queen's Road East, Wanchai, Hong Kong, not later
than 4:00 p.m. on 16 May 2006 (Tuesday).
COMPLIANCE WITH THE CODE ON CORPORATE GOVERNANCE PRACTICES
The Company has complied with the Code Provisions of the Code on Corporate
Governance Practices (the "CG Code") as set out in Appendix 14 of the Rules
Governing the Listing of Securities on the Stock Exchange of Hong Kong Limited
("Stock Exchange") (the "Listing Rules") throughout the year ended 31 December
2005, except for deviations from Code Provisions A.2.1, A.4.1, A.4.2 and B.1.3
only. The following summaries the Company's deviations from the CG Code and the
reasons for such deviations.
Code Provision A.2.1
Under Code Provision A.2.1, the roles of the chairman and chief executive
officer are required to be separated and not to be performed by the same
individual.
- 31 -
Mr. Fu Chengyu ("Mr. Fu") is the Chairman of the Company. In addition to the
role of the Chairman, the role of Chief Executive Officer is also designated to
Mr. Fu. This constitutes a deviation from Code Provision A.2.1. The reason for
such deviation is set out below.
The Company is engaged in the pure oil exploration and production business
which is different from integrated oil companies engaging in both upstream and
downstream operations. In light of this, the Board considers that the interest
of the Company's oil exploration and production business is best served when
strategic planning decisions are made and implemented by the same person. The
Company's Nomination Committee also agreed that it is in the best interest of
the Company that the roles of the Chairman of the Board and Chief Executive
Officer be performed by the same individual.
In light of the above, the Company does not currently propose to designate
another person as the Chief Executive Officer of the Company.
Code Provision A.4.1
Under Code Provision A.4.1, non-executive directors should be appointed for a
specific term and be subject to re-election.
None of the existing Independent Non-executive Directors of the Company is
appointed for a specific term. This constitutes a deviation from Code Provision
A.4.1. However, all the Directors of the Company (executive and non-executive)
are subject to the retirement provisions under article 97 of the articles of
association of the Company ("Article 97"). According to Article 97, one-third
of the Directors for the time being must retire from the office by rotation at
each annual general meeting. The Company has observed the need for good
corporate governance practices and all the existing Independent Non-executive
Directors of the Company have been re-elected in past three years, except Mr.
Lawrence J. Lau, who was appointed as an Independent Non-executive Director of
the Company with effect from 31 August 2005. Therefore, the Company considers
that sufficient measures have been taken to ensure that the Company's corporate
governance practices are no less exacting than those in the CG Code.
Code Provision A.4.2
Under Code Provision A.4.2, every Director, including those appointed for a
specific term, should be subject to retirement by rotation at least once every
three years. Mr. Fu, the Chairman of the Company, was re-elected as a Director
on 6 June 2002. Although he did not retire by rotation at the annual general
meeting held on 25 May 2005 as under Article 97 a Director who is also a
chairman or chief executive officer of the Company is exempted from the
requirement to retire by rotation, he was re-elected as a Director at the
extraordinary general meeting held on 31 December 2005 to comply with Code
Provision A.4.2.
Code Provision B.1.3
Code Provision B.1.3 requires the terms of reference of the remuneration
committee of the Company to include, as a minimum, certain specific duties set
out in such Code Provision.
- 32 -
Previously, the Company's Remuneration Committee charter did not mirror the
exact wording of the terms of reference in Code Provision B.1.3. The Company
has therefore revised its Remuneration Committee charter to comply with the
provisions in Code Provision B.1.3.
Further information on the CG Code can be found in the Corporate Governance
Report contained in the annual report.
MODEL CODE FOR SECURITIES TRANSACTIONS BY DIRECTORS OF LISTED ISSUERS
The Company has adopted a code of ethics ("Code of Ethics") incorporating the
Model Code for Securities Transactions by Directors of Listed Issuers (the
"Model Code") as set out in Appendix 10 to the Listing Rules. All directors
have confirmed that they complied, during the year ended 31 December 2005, with
the required standards set out in the Model Code.
DISCLOSURE OF INFORMATION ON THE STOCK EXCHANGE'S WEBSITE
The electronic version of this announcement will be published on the website of
The Stock Exchange of Hong Kong Limited (the "Stock Exchange")
(http://www.hkex.com.hk). The annual report for the year ended 31 December
2005, containing all the information required by Appendix 16 to the Listing
Rules, will be dispatched to shareholders of the Company and published on the
Stock Exchange's website in due course.
GENERAL
For the purpose of this announcement, unless otherwise indicated, translations
of Renminbi into US dollars have been made at the rate of RMB8.1998 to US$1.
These translations are for the purposes of illustration only and no
representation is made by the Company that any amounts in Renminbi and US
dollars can be or could have been converted at the above rate or any other
rates or at all.
Please also refer to the published version of this announcement in the South
China Morning Post, Economic Times, and Wen Wei Po published on 27 March 2006.
As at the date of this announcement, the Board comprises:
Executive Directors:
Fu Chengyu (Chairman)
Luo Han
Zhou Shouwei
Cao Xinghe
Wu Zhenfang
Wu Guangqi
Yang Hua
- 33 -
Independent Non-Executive Directors:
Chiu Sung Hong
Kenneth S. Courtis
Evert Henkes
Hau Yin Tse, Aloysius
Lawrence J. Lau
By Order of the Board
CNOOC Limited
Fu Chengyu
Chairman and Chief Executive Officer
Hong Kong, 24 March 2006
This announcement contains statements that are not historical facts, including
statements about beliefs and expectations of the directors of the Company on
the Company and its development and future plans. These forward-looking
statements reflect the directors' current views with respect to future events
and are not a guarantee of future performance, and therefore shareholders and
potential investors should not place undue reliance on them. The directors of
the Company undertake no obligation to update or revise publicly any of these
forward-looking statements, whether in light of new information, future events
or otherwise. Forward-looking statements involve inherent risks and
uncertainties. Shareholders and potential investors are cautioned that a number
of factors could cause actual results to differ materially from those contained
in any forward-looking statement. Such factors include, but are not limited to,
changes in the Chinese economic, political and social conditions and government
policies and in the oil and gas industry.
- 34 -
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, as
amended, the registrant has duly caused this report on Form 6-K to be signed on
its behalf by the undersigned, thereunto duly authorized.
CNOOC Limited
By: /s/ Cao Yunshi
-----------------------------
Name: Cao Yunshi
Title: Company Secretary
Dated: March 27, 2006