UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
 
FORM 6-K
 
Report of Foreign Private Issuer
Pursuant to Rule 13a-16 or 15d-16
of the Securities Exchange Act of 1934

For the month of April 2015

Commission File Number 1-14966
 
 
CNOOC Limited
(Translation of registrant’s name into English)
 
65th Floor
Bank of China Tower
One Garden Road
Central, Hong Kong
(Address of principal executive offices)
 
Indicate by check mark whether the registrant files or will file annual reports under cover of Form 20-F or Form 40-F.

Form 20-F      X        Form 40-F             

Indicate by check mark if the registrant is submitting the Form 6-K in paper as permitted by Regulation S-T Rule 101(b)(1): ____

Indicate by check mark if the registrant is submitting the Form 6-K in paper as permitted by Regulation S-T Rule 101(b)(7): ____

Indicate by check mark whether by furnishing the information contained in this Form, the registrant 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     

If "Yes" is marked, indicate below the file number assigned to the registrant in connection with Rule 12g3-2(b): Not applicable
 
 

 
 
Signature

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

 
     
CNOOC Limited
 
         
         
 
By:
 
/s/ Hua Zhong
 
 
Name:
 
Hua Zhong
 
 
Title:
 
Joint Company Secretary
 

Dated: April 10, 2015

 
 

 
EXHIBIT INDEX
 
Exhibit No.
Description
Exhibit 99.1
Announcement dated April 9, 2015, entitled "2014 Annual Report".
Exhibit 99.2
Announcement dated April 9, 2015, entitled "Notice of Annual General Meeting".
Exhibit 99.3
Announcement dated April 9, 2015, entitled "Explanatory Statement Relating to the Proposed General Mandates to Issue Shares and Buy Back Shares and Proposed Re-Election of Directors".
Exhibit 99.4
Announcement dated April 9, 2015, entitled "Form of proxy for the Annual General Meeting to be held on 21 May 2015".
Exhibit 99.5
Announcement dated April 9, 2015, entitled "Notification Letter and Request Form For Non-Registered Holders".
 
 
 

 
 
Exhibit 99.1
 
Company Profile


CNOOC Limited (the “Company”, together with its subsidiaries, the “Group” or “we”), incorporated in the Hong Kong Special Administration Region (“Hong Kong”) in August 1999, was listed on the New York Stock Exchange (code: CEO) and The Stock Exchange of Hong Kong Limited (code: 00883) on 27 and 28 February 2001, respectively. The Company was admitted as a constituent stock of the Hang Seng Index in July 2001. The Company’s American Depositary Receipts (“ADRs”) was listed on the Toronto Stock Exchange (code: CNU) on 18 September 2013.

The Group is the largest producer of offshore crude oil and natural gas in China and one of the largest independent oil and gas exploration and production companies in the world. The Group mainly engages in exploration, development, production and sale of crude oil and natural gas.

The Group’s core operation areas are Bohai, Western South China Sea, Eastern South China Sea and East China Sea in offshore China. Overseas, the Group has oil and gas assets in Asia, Africa, North America, South America, Oceania and Europe.

As at 31 December 2014, the Group owned net proved reserves of approximately 4.48 billion BOE, and its average daily net production was 1,184,977 BOE (unless otherwise stated, all amounts of reserve and production in this report include our interests in equity method investees). The Group had total assets of approximately RMB662.86 billion.


 
1

 

Content

2
Financial Summary
3
Operating Summary
6
Milestone Events 2014
8
Chairman’s Statement
10
CEO’s Statement
12
Business Overview
13
 Overview
13
 Exploration
15
 Engineering Construction, Development and Production
16
 Regional Overview
20
 Sales and Marketing
21
 Research and Development
21
 Internal Control and Risk Management System
22
 Health, Safety and Environmental Protection
23
 Corporate Citizen
24
 Human Resources
25
Corporate Governance Report
42
Directors and Senior Management
49
Report of the Directors
57
Management’s Discussion and Analysis
63
Independent Auditors’ Report
64
Consolidated Statement of Profit or Loss and Other Comprehensive Income
65
Consolidated Statement of Financial Position
66
Consolidated Statement of Changes in Equity
67
Consolidated Statement of Cash Flows
68
Statement of Financial Position
69
Notes to Consolidated Financial Statements
128
Supplementary Information on Oil and Gas Producing Activities (Unaudited)
141
Notice of Annual General Meeting
147
Glossary
148
Company Information



 
2

 
 
Financial Summary*
(Amounts expressed in millions of RMB)

Consolidated Statement of Profit or Loss and Other Comprehensive Income (Audited)
Year ended 31 December
 
   
2010
   
2011
   
2012
   
2013
   
2014
 
                               
Total revenues
    180,036       240,944       247,627       285,857       274,634  
Total expenses
    (108,891 )     (150,337 )     (160,486 )     (207,354 )     (193,719 )
Interest income/(finance costs), net
    (504 )     (511 )     (601 )     (2,365 )     (3,701 )
Share of profits/(losses) of associates and a joint venture
    398       567       (27 )     895       1,006  
Investment income
    427       1,828       2,392       2,611       2,684  
Profit before tax
    72,603       92,565       90,172       80,851       82,513  
Income tax expense
    (18,193 )     (22,310 )     (26,481 )     (24,390 )     (22,314 )
Profit for the year
    54,410       70,255       63,691       56,461       60,199  
 
Consolidated Statement of Financial Position (Audited)
As at 31 December
 
      2010       2011       2012       2013       2014  
                                         
Current assets
    99,384       131,923       170,894       146,552       140,708  
Property, plant and equipment
    186,678       220,567       252,132       419,102       463,222  
Investments in associates/a joint venture
    22,604       22,997       24,017       24,397       25,250  
Intangible assets
    1,148       1,033       973       17,000       16,491  
Total assets
    318,430       384,264       456,070       621,473       662,859  
Current liabilities
    (68,423 )     (70,216 )     (82,437 )     (128,948 )     (103,498 )
Non-current liabilities
    (34,241 )     (51,192 )     (63,853 )     (150,905 )     (179,751 )
Total liabilities
    (102,664 )     (121,408 )     (146,290 )     (279,853 )     (283,249 )
Equity
    215,766       262,856       309,780       341,620       379,610  
 
*
After the early adoption of IFRS 10 – Consolidated Financial Statements, IFRS 11 – Joint Arrangements, IFRS 12 – Disclosure of Interest in Other Entities, IAS 27 (Revised) – Separated Financial Statements, and IAS 28 (Revised) – Investments in Associate and Joint Venture from 1 January 2011, certain comparative figures have been adjusted to conform with the current period’s presentation.
 
 
 
3

 
 
Operating Summary*
Year ended 31 December
 
   
2010
   
2011
   
2012
   
2013
   
2014
 
                               
Production
                             
Net production of crude and liquids (barrels/day)
                             
China
    614,569       598,590       615,122       610,435       626,791  
 Bohai
    408,946       405,682       411,642       392,413       403,927  
 Western South China Sea
    84,116       72,006       72,672       75,606       80,493  
 Eastern South China Sea
    121,454       120,563       130,266       141,545       141,166  
 East China Sea
    53       339       543       872       1,206  
Overseas
    90,419       83,993       104,623       279,409       305,345  
 Asia (excluding China)
    20,892       17,427       14,883       28,997       37,237  
 Oceania
    6,210       5,382       4,846       4,533       4,297  
 Africa
    62,609       56,348       56,998       77,343       76,838  
 North America (excluding Canada) ***
    709       4,836       27,896       44,245       49,814  
 Canada
                      39,872       48,183  
 Europe
                      83,460       87,918  
 South America
                      960       1,058  
                                         
Subtotal
    704,988       682,583       719,745       889,845       932,137  
                                         
Net production of natural gas (mmcf/day)
                                       
China
    619.4       689.9       663.1       634.5       643.3  
 Bohai
    120.4       123.0       123.9       127.4       137.9  
 Western South China Sea
    354.0       390.4       364.1       330.5       341.7  
 Eastern South China Sea
    139.5       157.8       148.8       151.4       136.8  
 East China Sea
    5.5       18.7       26.3       25.2       26.8  
Overseas
    332.2       345.3       308.6       482.7       546.6  
 Asia (excluding China)
    225.2       218.7       157.8       140.3       154.4  
 Oceania
    107.0       101.1       101.1       98.2       111.2  
 North America (excluding Canada) ***
          25.6       49.7       109.5       112.7  
 Canada
                      106.0       117.5  
 Europe
                      28.7       50.7  
                                         
Subtotal
    951.6       1,035.2       971.7       1,117.1       1,189.9  
                                         
Total net production (BOE/day)
                                       
China
    719,966       715,219       727,287       717,784       735,533  
 Bohai
    429,008       426,190       432,285       413,650       426,913  
 Western South China Sea
    145,274       138,712       135,007       132,284       138,972  
 Eastern South China Sea
    144,712       146,864       155,070       166,778       163,970  
 East China Sea
    972       3,453       4,925       5,072       5,678  
Overseas
    148,956       144,511       161,561       365,010       401,804  
 Asia (excluding China)
    58,421       53,872       43,752       54,529       65,280  
 Oceania
    27,217       25,195       24,628       23,909       26,092  

 
4

 
 
 Africa
    62,608       56,348       56,998       77,343       76,838  
 North America (excluding Canada) ***
    709       9,096       36,183       62,496       68,396  
 Canada
                      57,534       67,770  
 Europe
                      88,241       96,370  
 South America
                      960       1,058  
                                         
Total
    868,922       859,730       888,848       1,082,795       1,137,337  
                                         
Net production in equity method investees
                                       
Crude and liquids (barrels/day)
    17,097       25,704       23,020       22,758       23,510  
Natural gas (mmcf/day)
    98.4       136.5       138.0       130.2       140.2  
                                         
Subtotal (BOE/day)
    34,010       49,270       46,767       45,173       47,640  
                                         
Total (BOE/day)
    902,932       909,000       935,615       1,127,967       1,184,977  
                                         
Reserves at year end**
                                       
Net proved crude and liquids reserves (million barrels)
                                       
China
    1,501.6       1,584.7       1,665.7       1,692.6       1,691.6  
 Bohai
    997.7       1,000.4       1,067.2       1,087.6       1,111.7  
 Western South China Sea
    260.0       250.5       224.8       228.3       210.0  
 Eastern South China Sea
    225.0       316.1       354.0       357.0       351.9  
 East China Sea
    18.9       17.7       19.8       19.8       18.0  
Overseas
    217.5       384.6       515.0       1,367.8****       1,348.2****  
 Asia (excluding China)
    49.9       81.8       65.0       83.6       47.4  
 Oceania
    20.7       19.0       16.7       15.9       16.6  
 Africa
    145.7       133.7       135.7       155.4       142.5  
 North America (excluding Canada) ***
    1.2       150.1       297.6       175.0       209.3  
 Canada
                      770.3       781.4  
 Europe
                      166.0       149.1  
 South America
                      1.7       1.8  
                                         
Subtotal
    1,719.1       1,969.3       2,180.7       3,060.4       3,039.8  
                                         
Net proved natural gas reserves (bcf)
                                       
China
    4,387.3       4,139.5       4,459.1       4,475.6       4,756.8  
 Bohai
    728.3       596.2       592.5       552.9       480.8  
 Western South China Sea
    2,034.1       2,017.2       2,384.9       2,505.4       2,318.1  
 Eastern South China Sea
    1,254.3       1,222.4       1,175.7       1,114.2       1,029.6  
 East China Sea
    370.6       303.7       305.9       303.1       928.3  
Overseas
    1,557.6       1,487.9       1,546.3       1,847.7       1,974.0  
 Asia (excluding China)
    1,016.7       848.7       800.4       889.4       861.2  
 Oceania
    498.0       467.8       409.5       386.0       455.7  
 North America (excluding Canada) ***
    42.9       171.4       336.4       349.6       403.9  
 Canada
                      195.0       233.0  
 Europe
                      27.8       20.2  
                                         
Subtotal
    5,944.9       5,627.4       6,005.3       6,323.3       6,730.8  

 
 
5

 
 
Total net proved reserves
 (million BOE)
 
China
    2,232.9       2,274.8       2,408.9       2,442.3       2,486.8  
 Bohai
    1,119.1       1,099.8       1,165.9       1,179.7       1,191.8  
 Western South China Sea
    599.0       586.7       622.2       649.6       598.7  
 Eastern South China Sea
    434.1       519.9       550.0       542.7       523.5  
 East China Sea
    80.7       68.4       70.7       70.4       172.7  
Overseas
    477.1       646.3       793.7       1,696.4       1,698.3  
 Asia (excluding China)
    219.4       223.2       207.5       240.6       199.4  
 Oceania
    103.7       110.7       96.8       92.0       106.0  
 Africa
    145.7       133.7       135.7       155.4       142.5  
 North America (excluding Canada) ***
    8.3       178.7       353.7       233.2       275.9  
 Canada
                      802.8       820.2  
 Europe
                      170.6       152.5  
 South America
                      1.7       1.8  
                                         
Total
    2,710.0       2,921.1       3,202.6       4,138.7       4,185.0  
                                         
Net proved reserves in equity method investees
                                       
Crude and liquids (million barrels)
    197.4       196.3       200.7       199.3       200.4  
Natural gas (bcf)
    527.8       442.0       513.7       519.9       537.3  
                                         
Subtotal (million BOE)
    288.3       269.0       289.3       288.9       293.0  
                                         
Total**
    2,998       3,190       3,492       4,428       4,478  
                                         
Others
                                       
Reserve life (years)
    8.5       9.3       9.8       10.5       10.1  
Reserve life (years) (including equity method investees)
    9.1       9.6       10.2       10.8       10.4  
Reserve replacement ratio (%)
    116       167       187       337       111  
Reserve replacement ratio (%, including equity method investees)
    202       158       188       327       112  
                                         
Average realized price
                                       
Crude oil (US$/barrel)
    77.93       109.75       110.48       104.60       96.04  
Natural gas (US$/mcf)
    4.49       5.15       5.77       5.78       6.44  
 
After the early adoption of IFRS10 – Consolidated and Financial Statements, IFRS 11 – Joint Arrangements, IFRS 12 – Disclosure of Interest in Other Entities, IAS 27 (Revised) – Separated Financial Statements, and IAS 28 (Revised) – Investments in Associate and Joint Venture from 1 January 2011, certain comparative figures have been adjusted to conform with the current period’s presentation.
**
Approximately 11%, 23%, 36%, 52% and 52%, respectively, of our net proved reserve estimates in 2010, 2011, 2012, 2013 and 2014 were made by the Company’s internal evaluation staff and the remaining were made by the independent consultants. Our reserve data was prepared in accordance with the SEC’s final rules on “Modernization of Oil and Gas Reporting”, which became effective as of 1 January 2010.
***
As Canada’s proved reserves were over 15% of the Group’s total proved reserves since the end of 2013, the Group’s proved reserves and production data in Canada are disclosed separately for year 2013 and after. For year 2012 and before, Canada’s numbers are included in North America (if applicable) and disclosed on a combined basis.
****
Includes synthetic oil 736.4 million barrels and bitumen 33.8 million barrels in 2013; synthetic oil 749.9 million barrels and bitumen 31.4 million barrels in 2014.
 
 
6

 

Milestone Events 2014

EXPLORATION

     
     
19
 
March
 
Announced the natural gas discovery of Lingshui 17-2 in Qiongdongnan Basin in South China Sea, which was the first breakthrough of independent deepwater exploration.
 
24
 
March
 
Announced the mid-sized natural gas discovery of Bozhong 22-1 in Bohai.
 
28
 
March
 
Announced the important natural gas discovery of Ningbo 22-1 in East China Sea.
 
24
 
October
 
Announced the mid-to-large-sized discovery of Jinzhou 23-2 in Bohai.
 
19
 
November
 
Announced the mid-sized discovery of Lufeng 14-4 in Eastern South China Sea.
 


DEVELOPMENT AND PRODUCTION

     
14
 
January
 
Announced the production commencement of Liuhua 19-5 gas field.
 
30
 
March
 
Announced the production commencement of the large-scale deepwater gas field of Liwan 3-1 by our partner.
 
12
 
May
 
Announced the production commencement of Kenli 3-2 oilfields.
 
29
 
July
 
Announced the production commencement of Lishui 36-1 gas field.
 
31
 
July
 
Announced the production commencement of Panyu 10-2/5/8 project.
 
25
 
August
 
Announced the production commencement of Wenchang 13-6 oilfield.
 
13
 
October
 
Announced the production commencement of Enping 24-2 oilfield.
 
3
 
November
 
Announced the production commencement of Golden Eagle regional development project in the UK North Sea.


 
7

 


24
 
November
 
Announced the production commencement of Huizhou 25-8 oilfield/Xijiang 24-3 oilfield Xijiang 24-1 district joint development project.
 
1
 
December
 
Announced the production commencement of Panyu 34-1/35-1/35-2 project.
 
8
 
December
 
Announced the production commencement of Kinosis 1A (K1A) oil sands project in Canada.
 
15
 
December
 
Announced the production commencement of Liuhua 34-2 gas field.
 


OTHERS

   
June
 
Announced the signing of a production sharing contract by China National Offshore Oil Corporation (“CNOOC”) and Eni China B.V. in relation to Block 50/34 in South China Sea.
 
September
 
Awarded “Best Borrower – China” by Finance Asia.
 
October
 
Awarded “Asia’s Icon on Corporate Governance” by Corporate Governance Asia.
 
November
 
Nexen*, a wholly-owned subsidiary of the Company, was recognized as one of the “Canada’s Top 100 Employers 2015”.
 
December
 
Awarded “Best Listed Company – Investor Relations” in China Securities Golden Bauhinia Awards by Takungpao.
 
December
 
Awarded “2014 Excellence in Management and Corporate Governance Platinum Award” by The Asset.
 
December
 
Announced the signing of three production sharing contracts by CNOOC and KUFPEC (China) Inc. in relation to Blocks 52/22, 52/26 and 63/13 in South China Sea.
 

*
The Company completed its acquisition of Nexen Inc. in February 2013, and started the integration. Unless otherwise expressly provided or the context of this annual report otherwise requires, Nexen refers to Nexen Energy ULC and the companies under its management.


 
8

 

Chairman’s Statement

Dear Shareholders,

2014 was an unusual year for the Company. The world economic recovery has hardly moved forward and China’s economy has shifted gear to the “New Normal” medium-to-high growth rate. Since the second half of the year, international oil prices have plunged, reaching a hefty 50% decrease by the end of the year. This plummet strongly affected the oil industry all over the world, bringing with it a “cold winter”. The Company, whose business is primarily oil and gas exploration and development, has sensed the pinch of the “cold winter”.

The “cold winter” struck a serious blow against the Company’s development, investment strategy, as well as its operational management. Facing the challenges, we continued to follow the “New Leap Forward” blueprint and determined to build our competitive edge in order to achieve sustainable development. We have strengthened our confidence, worked hand in hand to map out our long-term strategy and tackled the immediate problems, and achieved solid progress in different areas of our business.

First, to solidify our business foundation and continue to focus our effort on exploration and development. The volatility of oil prices is an inherent risk for the oil industry. We did not expand recklessly when oil prices are high, nor did we bring ourselves to a standstill simply because oil prices temporarily plummeted. In 2014, the Company’s overall production and operations have remained stable. We were able to meet our operational targets and further enhanced our overall competitiveness.

The Company achieved a number of breakthroughs in the area of exploration. We made our first major independent deepwater oil and gas discovery – Lingshui 17-2, a hundred-billion cubic meters large-sized gas field, and confirmed the enormous exploration potential for Qiongdongnan Basin. Within our core area – Bohai, we also achieved a number of medium-to-large-sized crude oil discoveries. At the end of 2014, the Company’s net proved reserves increased to 4.48 billion BOE, providing a solid resource base for our medium to long-term development.

In 2014, more than 10 new projects commenced production, including Liwan 3-1, the first major deepwater gas field in offshore China. The Company’s net oil and gas production reached approximately 432.5 million BOE. With this result, we successfully met our production target established earlier in the year and reinforced our leading position among the world’s oil and gas exploration and development companies.

Following years of overseas development, the Company has essentially completed its global portfolio allocation. 2014 was the second year since we welcomed Nexen to the family. During the year, the integration with Nexen was the focus of our overseas development. We are dedicated to integration of production and operations as well as corporate culture. The production and operations of Nexen have moved ahead steadily and the integration has progressed smoothly. At the same time, the performance of the Company’s other overseas assets also improved.

Second, strengthen our overall cost control and adhere to prudent operations. Cost control is a core element of the Company’s competitiveness and is crucial in determining the Company’s resilience against external risks. Over the years, the Company has always adhered to a prudent financial policy, emphasizing cost control and prudent operations. To combat the trend of escalating costs, the Company decided to launch a program in early 2014 called “the Year of Quality and Efficiency” to review and strengthen cost-control measures. Under this program, the Company continued to streamline the management flow in exploration, development and production and made considerable efforts to lower the costs for projects under construction. The Company also further promoted integration of exploration and development, improved efficiencies for oil and gas fields, and yielded favorable results.

Third, focus on safety and environmental protection work, which is essential to the Company’s development. In 2014, the Company’s overall safety and environmental protection performance remained stable, forming a solid foundation for our operations and production.

 
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In 2015, we may face even more severe environment for our exploration and development, the Board of Directors and management worked hand in hand, gathered their knowledge, and formulated the strategies and measures to address the low oil price environment and promote the “New Leap Forward” plan.

First, we will prioritize our exploration capital expenditures in our core area – offshore China and strengthen our growth potential; continue to improve the quality and efficiency of our development and production work and maintain a balance between production volume and efficiency; and focus on optimizing our overseas portfolio and continue to strengthen and streamline our overseas business.

Second, we will consolidate the results of “the Year of Quality and Efficiency”, and develop a long-term system for lowering cost and increasing efficiency; continue to strengthen our prudent investment decisions and carefully assess various risks; raise efficiency for our resource allocation and optimize our portfolio; and establish long-term strategies while at the same time capturing the present reserve potential for future development.

Third, we will continue to improve our environmental protection system, strengthen the production safety alert mechanism and enhance our overseas safety and environmental protection management.

On top of maintaining stable and healthy production growth, the Board approved the capital expenditures decrease by 26% to 35% for the year 2015 compared to 2014 through stringent cost control and increased efficiency. This will help us to maintain a healthy cash flow in a low oil price environment. In view of the healthy financial condition of the Company, the Board has recommended a final dividend of HK$0.32 per share (tax inclusive) for the year 2014.

At this moment, spring has just arrived in the Bohai area, the Company’s key battlefield for oil and gas exploration and development, thawing the ocean surface and bringing our employees on the offshore platforms a new wind; in Hong Kong, where the Company is listed, spring has further enlivened the vibrant city. Although the oil industry is still under a  “cold winter” of low oil prices, we are confident that spring will arrive. Therefore, we will proactively carry out innovative measures, enhance quality and efficiency, and lay a solid foundation for future growth. We deeply believe that the Company will take the “New Leap Forward” plan towards future successes and long term, sustainable development.

WANG Yilin
Chairman

Hong Kong, 27 March 2015


 
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CEO’s Statement


Dear Shareholders,

2014 was a crucial year for the continued progress of the Company’s “New Leap Forward” development blueprint. The company’s management and staff focused on cost control, effectively enhanced our operational efficiency, and successfully accomplished various targets set at the beginning of the year. Through these efforts, the Company is well prepared to confront the impact of low oil prices and build up the solid foundation for our future sustainable development.

OVERCOMING DIFFICULTIES TO ACHIEVE OUR TARGETS

The Company’s production and operational activities progressed steadily in 2014. Successful exploration results were achieved both offshore China and overseas. With various projects commencing production, the Company successfully met its production targets for the year. Overseas development progressed steadily. The financial position of the Company remained stable and its health, safety and environmental protection (HSE) maintained excellent performance.

First, a number of breakthroughs were achieved in exploration. Applying new knowledge, technologies and innovative management, the Company achieved exploration breakthroughs in both offshore China and overseas, with 20 new commercial discoveries and successfully appraised 18 oil and gas structures. In Western South China Sea, the Company made a major deepwater natural gas discovery – Lingshui 17-2, representing a breakthrough in our independent deepwater exploration. In Bohai, we made several mid-to-large size oil discoveries including Luda 21-2 and Jinzhou 23-2, consolidating the dominant position of Bohai. We also made an important natural gas discovery in East China Sea, namely Ningbo 22-1. We achieved several exploration successes overseas, with new discoveries in the U.S. Gulf of Mexico, Uganda and the UK North Sea. In 2014, the Company’s reserve replacement ratio reached 112%, and at the end of 2014, the Company had net proved reserves of approximately 4.48 billion BOE, further solidifying the resource base for our sustainable development.

Second, we have seen remarkable results in development and production. 2014 was an important year for the Company’s new oil and gas projects, with 13 projects commencing production. Early this year, the first large-scale deepwater gas field – Liwan 3-1, successfully commenced production, signifying a breakthrough for the Company’s deepwater oil and gas field development. Other projects that commenced production during the year included Kenli 3-2 oilfields, Panyu 10-2/5/8, Enping 24-2 and Panyu 34-1/35-1/35-2, injecting new vigor into the Company’s production growth. We brought most projects on-stream sooner than originally scheduled and below budget. In 2014, the Company’s net production reached 432.5 million BOE, achieving the production target set early this year.

At the same time, the Company strengthened its research on oil reservior. With meticulous organization, the comprehensive decline rate was under control and the production efficiency was further increased. Considerable efforts were made to promote integration of exploration and development, with cost control beginning at the start of projects. We also established long-term and effective systems in different areas including management, production and expenditure, and achieved our goal of increasing production while controlling costs.

Third, our financial performance remained solid with significant results achieved in “cost management stewardship and operational efficiency”. In 2014, the Company actively promoted “the Year of Quality and Efficiency” emphasizing cost control and increases in efficiency. The Company continued to streamline the development plans of oil and gas fields, control the development cost from the beginning, and adjust specific expenditures for major production items. In 2014, the Company’s cost per BOE was US$42.30, representing a decrease of 6.0% year over year. Realized net profit was approximately RMB60.2 billion and earnings per share was RMB1.35. The Company has maintained a healthy financial position and a stable credit rating.


 
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Fourth, our overseas development progressed smoothly. In 2014, the Company continued to promote integration with Nexen and achieved exceptional results. The production of the Buzzard oilfield in the North Sea exceeded budget for the second year in a row with high production efficiency. The efficiency of the Long Lake oil sands project in Canada also improved. The Golden Eagle project in the North Sea and the Kinosis 1A oil sands project in Canada, both operated by Nexen, commenced production earlier than planned.

The operation for the Company’s other overseas assets also progressed in a stable and orderly manner. Production from both the Eagle Ford shale oil and gas project in the U.S. and the Missan oilfields in Iraq continued to increase. The exploration and appraisal work at the Libra oilfield in Brazil progressed smoothly. At the same time, we have actively explored new management models for our overseas projects, increased the level of participation in non-operating projects, strengthened our operational management, cost control and risk control, resulting in significant increases in the operational efficiency of our overseas projects.

In 2014, we continued to treat health, safety and environmental protection work as our top priority. We focused on identifying and resolving potential problems in our production facilities in order to strengthen the management of HSE overseas. The OSHA statistics for Nexen also achieved a record high.

MEETING CHALLENGES AND PLANNING FOR OUR LONG-TERM DEVELOPMENT

In the second half of 2014, international oil prices fell sharply and the world economy recovery has been slow. In view of this complex and changing business environment, we have adjusted our operating strategy to align with the current environment while maintaining our focus on HSE.

Maintaining prudent financial policies and investment decisions. The Company will strictly follow the capital expenditure principles, being prudent when making investment decisions, monitoring cash flow positions closely, balancing short-term benefits and long-term development, and optimizing asset portfolio and capital allocation. Following the plummet in international oil prices since the second half of 2014, the Company has made substantial adjustments to its work plans and budgets for 2015. Capital expenditures for exploration, development and production have been significantly reduced compared to 2014. These adjustments will help to ensure the healthy operation of the Company without sacrificing medium and long-term development.

Strengthening cost control and continuing to increase quality and efficiency. At the beginning 2014, the Company had designated 2014 as “the Year of Quality and Efficiency”, placing high emphasis on cost management, and achieved considerable success. In the area of exploration, our focus was directed to increasing the success rate of exploration and optimizing projects. At the same time, we focused on streamlining the management of exploration programs and enhancing efficiency. In the area of development and production, the Company strengthened the concept of “Efficiency First”, expanded the achievements for technology advancement, cost management and efficiency enhancement, lowering operational expenditure on the premise of safety operation. Other measures included advanced planning, meticulously organizing development and production plans and making arrangements to ensure the safe and stable operation of oil and gas fields.

The effective measures mentioned above laid a solid foundation for the Company to cope with the low oil price environment. In 2015, based on the foundation of the success achieved in 2014, the Company will further increase its efforts to establish a long-term system for controlling costs and increasing productivity through innovative changes in management and technology and new development models.

Ensuring the safe and lawful operation of producing projects and building projects already under development while preserving quality and quantity. In 2015, the Company will strengthen the integration of exploration and development and engage in the rolling development adjacent to existing oil and gas fields, with a target reserve replacement rate of over 100%. At the same time, the Company will continue to adopt various measures to enhance the recovery of oil and gas fields, maintain stable production from mature oil and gas fields, and ensure that new gas and oil fields commence production on schedule to meet the annual net production target of 475 to 495 million BOE.

 
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The Company currently has a number of projects under construction, and 7 new projects are expected to commence production in 2015, including the mid-to-large sized oil and gas fields Bozhong 28/34 comprehensive adjustment project and Kenli 10-1 oilfield.

Striving to raise the operational efficiency of overseas projects. In 2015, the Company will enhance the operational efficiency and profitability of projects in overseas regions, continue to promote further integration of Nexen’s assets, streamline the management of overseas business, focus on major overseas projects management and optimize resource allocation.

The development of the energy industry is currently facing dramatic changes and the operating environment of the Company is becoming increasingly complicated. Faced with such challenges, CNOOC Limited will remain steadfast in its resolve and forge ahead based on solid efforts to fulfill various targets set for 2015.



LI Fanrong
Chief Executive Officer

Hong Kong, 27 March 2015
 

 
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Business Overview


OVERVIEW

CNOOC Limited is an upstream company specializing in the exploration, development and production of oil and natural gas. It is the dominant oil and natural gas producer in offshore China and, in terms of reserves and production, is also one of the largest independent oil and natural gas exploration and production companies in the world. At the end of 2014, the Company had net proved reserves of 4.48 billion BOE (including approximately 0.29 billion BOE in its equity method investees). In 2014, the Company had total net oil and gas production of 1,184,977 BOE per day (including net oil and gas production of approximately 47,640 BOE per day in its equity method investees).

In offshore China, the Company engages in oil and natural gas exploration, development and production in Bohai, Western South China Sea, Eastern South China Sea and East China Sea, either independently or in cooperation with foreign partners through production sharing contracts (“PSCs”). At the end of 2014, approximately 55.6% of the Company’s net proved reserves and approximately 62.2% of its net production were derived from offshore China.

In its independent operations, the Company has been adding more reserves and production mainly through independent exploration and development in offshore China. At the end of 2014, approximately 84% of the Company’s net proved reserves and approximately 74% of its net production in offshore China were derived from independent projects.

In its PSC operations, CNOOC, the Company’s controlling shareholder, has the exclusive right to explore and develop oil and natural gas in offshore China in cooperation with foreign partners through PSCs. CNOOC has transferred to the Company all of its rights and obligations under all the PSCs (except those relating to its management and regulatory function as a state-owned company), including new PSCs that will be signed in the future.

Overseas, following years of overseas development, the Company has essentially completed the allocation of its global portfolio. Overseas assets represent over 50% of the Company’s total assets. Currently, the Company holds interests in oil and natural gas blocks in Indonesia, Australia, Nigeria, Uganda, Argentina, the U.S., Canada, the United Kingdom, Brazil and various other countries.

In 2014, the Company continued to promote integration with Nexen and achieved exceptional results. The operation for the Company’s other overseas assets has also progressed in a stable and orderly manner. At the same time, the Company strengthened the overseas operational management, cost control and risk management, with a significant increase in operational efficiency of overseas assets.

EXPLORATION

Exploration is a top priority for the Company. In 2014, the Company advanced steadily in its exploration work, achieving new breakthroughs in both shallow and deepwater  exploration in offshore China and overseas. The Company’s reserve replacement ratio reached 112% in 2014.


 
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The Company’s major exploration areas as at the end of 2014 are shown in the table below:
 
     
Major Exploration
 
     
Areas
 
 
Areas
 
(Net) (km²)
 
         
 
Bohai
    43,068  
           
 
Western South China Sea
    73,388  
           
Offshore China
Eastern South China Sea
    55,424  
           
 
East China Sea
    85,413  
           
 
Subtotal
    257,292  
           
 
Asia
    15,121  
           
 
Africa
    6,514  
           
 
Oceania
    33,333  
           
Overseas
North America
    1,920  
           
 
South America
    795  
           
 
Europe
    7,954  
           
 
Subtotal
    65,637  
           
Total
      322,929  

The Company’s exploration investments and activities  offshore China remained at a high level. Approximately 20,500 km of 2D seismic data was acquired by independent exploration and approximately 22,800 km² of 3D seismic data was acquired by independent and PSC exploration, coupled with the completion of the drilling of 117 exploration wells. The Company also completed 31 unconventional wells onshore China. A total of 15 new discoveries were made and 17 oil and gas structures were successfully appraised, resulting in a success rate of 50-70% in independent exploration wells offshore China.

In 2014, the Company implemented a proactive exploration strategy offshore China and had successful achievements in exploration, mainly including the following:

 
1.
We discovered and summarized a new model of hydrocarbon accumulation for guidance of deepwater exploration. The first major independent deepwater natural gas discovery offshore China, Lingshui 17-2, was achieved. The same model was applied in the exploration in Ledong Trough, leading to the new discovery of Lingshui 25-1.

 
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2. 
Breakthroughs were obtained in Bohai by adopting new exploration knowledge. Exploration in new strata in Liaodong Bay led to the new discovery of Jinzhou 23-2. The discovery of Bozhong 22-1 demonstrated the huge potential of Bohai’s deep zone natural gas resource. Large-sized Luda 21-2 oilfield and Bozhong 8-4 oilfield were successfully appraised.

 
3.
Through technological advancement and knowledge breakthrough, we promoted integration of exploration and development, and achieved the successful appraisal of Wushi 17-2 oilfield, increasing its high quality reserves of crude oil.

 
4.
Progress was made in the exploration of the Paleogene zone in the Pearl River Mouth Basin. The discovery of the Lufeng 14-4 structure made it possible to “jointly develop various smaller fields together with a big field” in the region.


The above achievements further consolidated the position of offshore China as the Company’s core region and demonstrated the Company’s unique advantage in offshore China.

In overseas exploration, the Company implemented an optimized investment portfolio strategy focusing on key regions, and made substantial progress in major projects. A total of five new discoveries, including Rydberg in the U.S Gulf of Mexico, Rii-B in Uganda, Blackjack and Ravel in the UK North Sea and a discovery in OML138, Usan area in Nigeria, as well as a successful appraisal of one oil and gas structure, were achieved. The NW1 well-drilling in the Libra project in Brazil further reinforced the confidence for exploration and appraisal in the block. These achievements presented a broad prospect of the Company’s overseas exploration.

In addition, the Company obtained significant progress in unconventional gas exploration onshore China, where reservoirs were discovered in a number of exploration wells completed in 2014.

In 2014, the Company strengthened its technology advancements on exploration work and continued to overcome the bottleneck in exploration technology, and achieved successes in technological innovation such as the modularization of ground equipment for deepwater testing. In addition, the Company proactively enhanced its exploration portfolio to improve the success rate of exploration; focused on the discovery of economically valuable reserves through optimization of exploration projects and structural adjustments; and streamlined operation organization to strengthen execution. At the same time, the Company not only enhanced the management of operation sites, but also the integration of exploration and development and overseas exploration management, enabling more effective control on exploration costs while improving exploration efficiency.

 
 
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The Company’s major exploration activities in 2014 are set out in the table below:

 
Exploration Wells
New Discoveries Successful Appraisal Wells
Seismic Data
 
Independent
PSC
        2D (km) 3D (km2)
 
Wildcat
Appraisal
Wildcat
Appraisal
Independent
PSC
Independent
PSC
Independent
PSC
Independent
PSC
                         
Offshore China
                       
                         
Bohai
14
33
1
5
24
1,765
                         
                         
Eastern South China Sea
10
3
1
3
2
11,730
5,088
1,648
                         
                         
Western South China Sea
21
21
1
1
5
1
12
1
4,650
7,723
2,613
                         
                         
East China Sea
5
6
1
5
4,098
3,377
612
                         
                         
Subtotal
50
63
3
1
14
1
43
1
20,477
17,953
4,873
                         
                         
Overseas
16
5
5
4
500
3,475
                         
                         
Total
50
63
19
6
14
6
43
5
20,477
500
17,953
8,348
 

 
Engineering Construction, Development and Production
In 2014, the Company, by carefully allocating its operational resources, made successful progress in engineering construction and achieved impressive results in engineering construction, development and production operations.

In 2014, the Company’s net oil and gas production reached 432.5 million BOE, representing a year-on-year increase of 5.1%, achieving the production target of 422-435 million BOE set at the beginning of the year. Currently, the new projects planned to commence production in 2014, including Kenli 3-2 oilfields, Wenchang 13-6, Panyu 10-2/5/8, Panyu 34-1/35-1/35-2 and Enping 24-2, all came on stream. The Golden Eagle regional development project in the UK North Sea also started production. Most projects came on stream ahead of schedule. In addition, New projects planned in 2015 including Huizhou 25-8/Xijiang 24-3 oilfield Xijiang 24-1 district joint development project, Liuhua 34-2 gas field and K1A oil sands project in Canada came on stream ahead of schedule in 2014.

In 2014, the Company’s development and production operations were subject to various pressures, including restrained production capacity of Eastern South China Sea gas fields due to weak downstream market demand, uncertainty of a few new projects in meeting the production target, typhoons and significant increases in operating costs of mature oilfields. To address these challenges, the Company implemented the following measures and achieved its annual development and production targets:

First, ensuring the integrity of our production facilities and equipment in oil and gas fields and the safe and stable production, which included: strengthening risk identification systems to achieve record-low number of equipment accidents; optimizing maintenance plans to reduce the impacts on production; and standardizing engineering design to solidify the foundation for reliable set up of equipment and facilities at the design and construction stage.

 
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Second, implementing a number of measures simultaneously to stabilize production volume. Through our efforts, new oil and gas fields including the Suizhong 36-1 Phase II Adjustment project, Wenchang 8-3 East and Weizhou 6-12 came on stream during the year, contributing to the Company’s production growth. Through scientific planning and proactive promotion, the workload and production volume contribution of oil, gas and water wells achieved our expectation. Through replacing large pumps, acidifying, workovers and a number of other measures, the decline rate was effectively lowered, thereby maintaining the basic production volume.

Third, actively tracking progress to ensure more infill drilling wells were put into production. In 2014, the number of domestic infill drilling wells put into production and their overall initial production volume exceeded expectations.

Fourth, promoting the integration of exploration and development, as well as speeding up the construction and production of oil and gas fields. Through collaborative efforts, most development projects commenced production one to two months ahead of schedule.

Fifth, refining the study of reservoirs and improving the development of oilfields to promote stable production. The Company strengthened refined studies on geological reservoirs to ensure the production measures were based on the reservoirs. The increase in infill drilling wells in oilfields such as Bozhong 28-2 South and Bozhong 29-4 contributed to the production growth.

Sixth, strengthening the management of specialized cost items and enhancing efficiency to reduce costs from the roots. In accordance with the requirements of “the Year of Quality and Efficiency”, the Company implemented specialized cost control measures targeting the major subjects of development investment and operating costs, which included: ODP design optimization to control cost from the roots; specialized management of the operating costs of oil wells to improve efficiency and control costs; and specialized management on maintenance costs to fully realize cost control potential.

In 2015, the Company will utilize its full capacity in onshore construction and offshore installation. A total of seven new projects are expected to commence production, including Jinzhou 9-3 oilfield comprehensive adjustment, Bozhong 28/34 oilfields comprehensive adjustment and Kenli 10-1 oilfield. Other oil and gas fileds are expected to commence production in the coming years and will inject new impetus into the Company’s production growth in the medium-to-long term.

In 2015, the Company’s development and production is expected to face a relatively harsh external environment, including low oil prices and a weak demand in the natural gas market. The Company will implement its various tasks with emphasis on the following areas:

First, the Company will focus on meeting its annual production target. The Company has set its net production target at 475-495 million BOE in 2015. To achieve this target, we will carefully coordinate our resources to facilitate the timely commencement of production of new projects; control production decline rate and maintain baseline production at existing oil and gas fields; develop natural gas downstream market to release production capacity; optimize planned maintenance of projects; enhance the deployment of measures such as infill drilling wells to increase production; improve the effectiveness of standard measures.

Second, the Company will continue to focus on cost control and efficiency. In 2015, the Company will continue to implement various measures for “the Year of Quality and Efficiency”. The focus of our cost-saving measures with respect to development and production will be directed to the following aspects: adjusting the management model according to better governance; tightening the management of operating costs; optimizing production capital expenditure investment; and introducing innovative management mechanisms to control costs effectively.

 
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Third, the Company will plan in advance the realization of production output in 2016 and 2017. We will strengthen the preliminary research on new projects and review of reservoir plans, accelerate the development of China’s natural gas market, and promote the construction of new projects in order to fulfill our medium-to-long term production growth target.

With the above initiatives, the Company will strive to achieve its annual production growth target and lay a solid foundation for its long-term sustainable growth.

REGIONAL OVERVIEW

OFFSHORE CHINA

Bohai
Bohai is the most important crude oil producing area for the Company. The crude oil produced in this region is mainly heavy oil. At the end of 2014, the reserves and daily production volume in Bohai were 1,191.8 million BOE and 426,913 BOE/day, respectively, representing approximately 26.6% and 36.0% of the Company’s total reserves and daily production, respectively. The operation area in Bohai is mainly shallow water with a depth of 10 to 30 meters.

Bohai has rich oil and gas resources and has been one of the Company’s primary areas for exploration and development. In 2014, the Company made five successful discoveries in Bohai, namely Bozhong 22-1, Luda 16-3 South, Kenli 16-1, Jinzhou 23-2 and Caofeidian 6-4. In addition, the Company also successfully appraised eight oil and gas structures, including Bozhong 8-4, Bozhong 34-9, Kenli 10-4, Kenli 10-2, Luda 21-2, Jinzhou 23-2, Penglai 15-2 and Penglai 13-2. The Company’s major accomplishments in Bohai included:

First, we advocated innovation and encouraged new concepts for exploration. Major breakthroughs were achieved in the exploration of the Neogene zone of Jinzhou 23-2 structure following a transition from medium-to-deep oil and gas to shallow oil and gas exploration.

Second, two major successful appraisals were completed, which included: refined appraisal of Luda 21-2 oilfield of complex fault blocks and high abundance, and efficient appraisal of Bozhong 8-4 oilfield of complex fault blocks.

Third, the discovery of Bozhong 22-1 demonstrated the huge potential of deep zone natural gas resources in Bohai.

Benefiting from these new discoveries and successful appraisals, the reserve replacement ratio in Bohai reached 108% in 2014, further reflecting Bohai’s potential as a core production region for the Company.

For development and production, the production commencement of Kenli 3-2 oilfields was another accomplishment brought by the efficiency enhancement of oil and gas fields under the Company’s joint development of oil and gas fields in accordance with the regional development concept.

Western South China Sea
Western South China Sea is one of the most important natural gas production areas for the Company. Currently, the typical water depth of the Company’s operation area in this region ranges from 40 to 120 meters. At the end of 2014, the reserves and daily production volume in Western South China Sea reached 598.7 million BOE and 138,972 BOE/day, respectively, representing approximately 13.4% and 11.7%, respectively, of the Company’s total reserves and daily production.

In 2014, the Company made five new independent discoveries in Western South China Sea, namely Weizhou 6-13, Lingshui 17-2, Lingshui 13-2, Lingshui 25-1 and Wenchang 19-6. We also made a new discovery under PSC, namely Weizhou 12-10. Among these, Lingshui 17-2 was the first major natural gas discovery in independent deepwater exploration offshore China. In addition, the high quality reservoir discovered in Wushi 17-2 laid the foundation for establishing the second oil producing region in the Beibu Gulf. A total of five successful appraisals were obtained, namely Weizhou 12-11, Wushi 17-2, Lingshui 17-2, Lingshui 13-2 and Wenchang 19-6.

 
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In 2014, commencement of the production of Wenchang 13-6 in Western South China Sea contributed to the production growth of the region.

Eastern South China Sea
Eastern South China Sea is one of the Company’s most important crude oil producing areas. Currently, the typical water depth of the Company’s operation area in this region ranges from 100 to 300 meters. The crude oil produced is mostly of light to medium gravity. At the end of 2014, the reserves and daily production volume in Eastern South China Sea reached 523.5 million BOE and 163,970 BOE/day, respectively, representing approximately 11.7% and 13.8%, respectively, of the Company’s total reserves and daily production.

In 2014, the Company made three independent discoveries in Eastern South China Sea, namely Liuhua 27-1, Liuhua 28-2 and Lufeng 14-4. In addition, two successful appraisals of oil and gas structures were completed, namely Liuhua 28-2 and Lufeng 14-4.

In 2014, the construction of the Company’s new projects in Eastern South China Sea proceeded efficiently and safely. New oil and gas fields including Liwan 3-1 gas field, Panyu 10-2/5/8, Enping 24-2, Huizhou 25-8 oilfields/Xijiang 24-3 oilfield Xijiang 24-1 district joint development project, Panyu 34-1/35-1/35-2 projects, Lufeng 7-2 and Liuhua 34-2 gas fields came on stream.

East China Sea
The typical water depth of the Company’s operation area in the East China Sea region is approximately 90 meters. At the end of 2014, approximately 3.9% of the Company’s reserves and 0.6% of the Company’s production were derived from the East China Sea.

In 2014, the Company made an important new natural gas discovery of Ningbo 22-1 in the East China Sea, which consolidated the resource base for sustainable development in the region.

OVERSEAS

Asia (excluding China)
Asia (excluding China) was the first overseas region that the Company entered into and has become one of its major overseas oil and gas producing areas. Currently, the Company holds oil and gas assets mainly in Indonesia and Iraq. At the end of 2014, the reserves and daily production volume derived from Asia (excluding China) reached 199.4 million BOE and 65,280 BOE/day, respectively, representing approximately 4.5% and 5.5%, respectively, of the Company’s total reserves and daily production.

Indonesia
As of the end of 2014, the Company’s asset portfolio in Indonesia consisted of three development and production blocks and one block under construction, among which, the Company acted as the operator for the PSC block in Southeast Sumatra while the Madura Strait PSC was a joint operation block. Meanwhile, the Company also holds non-operating working interests in Malacca PSC.

The Company owns approximately 13.90% interest in the Tangguh LNG Project in Indonesia. Phase I of the Tangguh Project was completed and commenced production by the end of 2009, and has maintained a stable production volume with exceptional results. Currently, the Tangguh Project is preparing for the development of the third LNG train in Phase II, which is expected to be completed and commence production in 2019.

In 2014, faced with many challenges such as aging production facilities and typhoons in the Southeast Sumatra Project, the Company deeply studied reservoirs delineation and residue oil distribution, further explored the potential of oilfields, reperforated in old wells and applied new technology, achieving desirable results.

 
20

 


Iraq
In 2010, the Company entered into a technical service contract in relation to the development and production of the Missan oilfields in Iraq. Under the contract, CNOOC Limited acts as the lead contractor of these oilfields and owns a 63.75% participating interest. The project entered the cost recovery period in 2012 and began to contribute to the Company’s production growth.

In 2014, faced with the grim security condition in Iraq, declining production of mature oilfields and other difficulties, the Company coordinated the development and production operations, strengthened technical support, optimized the operating mechanism and operation of oil wells, and strove to increase the production of mature wells. The newly drilled horizontal wells in Missan oilfields achieved the expected production level. In 2014, the production of Missan oilfields increased steadily and reached approximately 22,000 barrels per day.

Other Regions in Asia
In addition, the Company owns interests in several exploration blocks in Qatar.

 
21

 

Oceania
Currently, the Company’s oil and gas assets in Oceania are located in Australia and Papua New Guinea. At the end of 2014, the reserves and daily production volume derived from Oceania reached 106.0 million BOE and 26,092 BOE/day, respectively, representing approximately 2.4% and 2.2%, respectively, of the Company’s total reserves and daily production.

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

In 2014, the North West Shelf LNG Project generated a stable production and healthy returns.

The Company also owns exploration blocks in Australia, which are currently under appraisal.

Other Regions in Oceania
The Company owns interests in several blocks in Papua New Guinea. These blocks are still under exploration.

Africa
Africa is a relatively large oil and gas reserves and production base for the Company. The Company’s assets in Africa are primarily located in Nigeria and Uganda. At the end of 2014, the reserves and daily production volume derived from Africa reached 142.5 million BOE and 76,838 BOE/day, respectively, representing approximately 3.2% and 6.5%, respectively, of the Company’s total reserves and daily production.

Nigeria
The Company owns 45% interest in the OML130 block in Nigeria, which is a deepwater project comprised of four oilfields, namely, Akpo, Egina, Egina South and Preowei. The Akpo oilfield commenced production in March 2009. In 2014, the Akpo oilfield maintained a stable production and its net production reached approximately 56,000 barrels per day.

In 2013, TOTAL S.A., the operator of the Egina project, announced that the final investment decision for the Egina field had been approved and the project entered into the engineering construction phase.

In addition, Nexen Petroleum Nigeria Limited holds a 20% non-operating interest in each of the two offshore oilfields, namely, Usan and Usan West in the OML138 block, together with a number of other discoveries and exploration targets. The Usan oilfield commenced production in early 2012 and its production continued to increase. Nexen Petroleum Nigeria Limited made a new discovery in the Usan area in 2014.

We plan to utilize the synergy of Usan, Usan West and the OML130 Project to establish an oil and gas production base in West Africa.

Uganda
The Company owns one-third of the interest in each of EA 1, 2 and 3A in Uganda. EA 1, 2 and 3A are located at Lake Albert Basin in Uganda, which is one of the most promising basins for oil and gas resources in Africa.

In 2014, we made a new discovery of Rii-B in Uganda. In addition, as the operator of EA 3A, the Company took great efforts to promote the development of the Kingfisher oilfield. The field is still under research in the preliminary development stage, and has currently completed the Pre-FEED of the crude oil pipeline.

In 2014, the FDP/PRR preparation for all oil and gas fields (excluding Kingfisher) in the reserved region in the EA1 and EA2 blocks were completed and submitted to the government of Uganda for the application of the production licenses, and is currently awaiting the government’s approval.

 
22

 


Other Regions in Africa
Apart from Nigeria and Uganda, the Company also owns interests in several blocks in Equatorial Guinea, the Republic of Congo, Algeria and the Gabonese Republic.

North America
North America made the biggest overseas reserves and production contribution for the Company. The Company holds interests in oil and gas assets in the U.S., Canada and Trinidad and Tobago in North America, as well as part of the shares of MEG Energy Corporation in Canada. At the end of 2014, the Company’s reserves and daily production volume derived from North America reached 1,096.1 million BOE and 136,166 BOE/day, respectively, representing approximately 24.5% and 11.5%, respectively, of the Company’s total reserves and daily production.

The U.S.
The Company currently holds 33.3% interest in two shale oil and gas projects in the U.S., namely the Eagle Ford and Niobrara shale oil and gas projects.

In 2014, along with the increasing number of wells drilled in the Eagle Ford project, we gained a clearer understanding of the underground resources. The Company has worked closely with the operator, and divided the Eagle Ford project into primary production area, secondary production area and potential area according to single-well economics and implemented different operating strategies. By accelerating the development of high-quality assets, production has grown for three consecutive years and its net production reached approximately 53,000 BOE/day. At the same time, the identification of the core region of the Powder River Basin for the Niobrara project began to make contribution to the Company.

Development of shale oil and gas resources has become an important area in upstream oil and gas development, and will support the sustainable growth of the Company.

In addition, the Company owns a number of exploration blocks in the U.S. Gulf of Mexico through its wholly-owned subsidiary, Nexen. In 2014, Nexen made the new discovery of Rydberg in the Gulf of Mexico. The Company also owns interests in several exploration blocks offshore Alaska.

Canada
Canada is one of the world’s major regions with rich oil sands resources. As oil sands are one of the new growth areas of oil and gas exploration and development in the future, participation in oil sands development will be favorable to the sustainable growth of the Company.

In 2013, the Company completed the acquisition of the entire interest of Nexen in Canada. The assets of Nexen are mainly distributed in Canada, the UK North Sea, offshore Nigeria and the U.S. Gulf of Mexico. In Canada, the Company owns the entire working interest in the oil sands project located at Long Lake as well as three other oil sands projects in the Athabasca region in northeastern Alberta.

In 2014, the Company continued the development of the Long Lake project and improved its performance. Its net production increased to approximately 31,000 BOE/day. For the oil sands project in Canada, the Company will leverage its overall advantages, improve cost efficiency and control the pace of investment to provide a solid resource safeguard for its long-term development.

In addition, the Company holds 12.39% of the shares of MEG Energy Corporation in Canada, which is listed on the Toronto Stock Exchange. The Company also owns a 60% interest in Northern Cross (Yukon) Limited, which owns oil and gas exploration blocks in the Yukon area in Canada.


 
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Other Regions in North America
The Company owns 12.5% interest in the 2C block and a 12.75% interest in the 3A block in Trinidad and Tobago, of which the 2C block is in production. In 2014, with the region’s crude oil entering the post development stage, the Company reduced accidental shutdowns and increased the production efficiency by optimizing gas injection, facilities and equipment integration management, maintenance and other measures, resulting in production volume that exceeded the Company’s expectation.

South America
In South America, the Company mainly holds a 50% interest in Bridas Corporation (“Bridas”) in Argentina and a 10% interest in the PSC of the Libra oilfield in Brazil, among which, the Company’s 50% interest in Bridas is accounted for by the equity method. At the end of 2014, the Company’s reserves and daily production volume derived from South America reached 293.5 million BOE and 46,963 BOE/day, respectively, representing approximately 6.6% and 4.0%, respectively, of the Company’s total reserves and daily production.

Argentina
The Company and Bridas Energy Holding each hold 50% shareholding interest in Bridas and make joint management decisions. Bridas holds 40% interest in Pan American Energy (“PAE”) in Argentina. Bridas is engaged in oil and gas exploration and production activities in Argentina mainly through its affiliates (including the interest in PAE).

In 2014, the Company strove to maintain normal operations and production in the operating areas, and endeavored to overcome the bottleneck of operational resources, coordinate resources and improve operational efficiency. The production of Bridas increased slightly to approximately 46,000 BOE/day.

Brazil
The Company holds a 10% interest in the Libra PSC, a deepwater pre-salt project in Brazil. The oilfield is located in the Santos Basin, with a block area of about 1,550 km2 and a water depth of about 2,000 meters.

In 2014, the exploration and appraisal work on the Libra project progressed smoothly. The drilling of the NW1 well further reinforced the confidence for exploration and appraisal in the block.

Brazil is one of the world’s most important deepwater oil and gas development regions. The Company will fully leverage the development opportunities in Libra, Brazil to establish a new production growth point.

Other Regions in South America
In South America, the Company also holds interests in several exploration and production blocks in Colombia.

Europe
The Company holds interests in several oil and gas fields such as Buzzard and Golden Eagle in the UK North Sea. At the end of 2014, the Company’s reserves and daily production volume derived from Europe reached 152.5 million BOE and 96,370 BOE/day, respectively, representing approximately 3.4% and 8.1%, respectively, of the Company’s total reserves and daily production.

United Kingdom
The Company’s asset portfolio in the North Sea consists of projects under production, development and exploration, mainly including: a 43.2% interest in the Buzzard oilfield, one of the largest oilfield in the North Sea, making the Company the second largest crude oil producer in the North Sea, and a 36.5% interest in the Golden Eagle block which commenced production in 2014.

In 2014, the Company made two new discoveries in the North Sea, namely, Blackjack and Ravel.

The United Kingdom is one of the Company’s key overseas development areas as several key projects such as Buzzard and Golden Eagle contributed considerably to the Company’s production. In 2014, the net production of Buzzard oilfields reached approximately 68,000 barrels per day. In the future, we will continue to intensify our efforts on the oil and gas development in the UK, and actively look for potential exploration and development blocks in order to achieve a stable and sustainable development in the region.

 
24

 


Other Regions in Europe
The Company holds a license issued by the government of Iceland for carrying out oil exploration operations in the Norwegian Sea in Northeastern Iceland.

SALES AND MARKETING

Sales of Crude Oil
The Company sells its crude oil produced offshore China to the PRC market mainly through CNOOC China Limited, its wholly-owned subsidiary. The Company sells its crude oil produced overseas to international and domestic markets mainly through another wholly-owned subsidiary, China Offshore Oil (Singapore) International Pte Ltd. Nexen Energy ULC, a wholly-owned subsidiary of the Company, located in Canada, sells its crude oil and synthetic oil to international markets separately.

The Company’s crude oil sales prices are mainly determined by the prices of international benchmark crude oil of similar quality, with certain premiums or discounts subject to prevailing market conditions. Although the prices are quoted in U.S. dollars, customers in China usually pay Renminbi. The Company currently sells three types of crude oil in China, namely, heavy crude, medium crude and light crude, which are benchmarked by Duri, Daqing, and Tapis, respectively, all of which are the benchmarking crude oil prices in the Far East. The Company’s major customers in China are Sinopec, Petrochina and CNOOC. The crude oil produced overseas and sold in the international markets is benchmarked at the Brent and WTI oil prices.

In 2014, the world economy has lost its growth momentum, and global oil supply became relatively sufficient. Affected by the U.S. shale gas production, geopolitical and market factors, the international oil prices began to fall sharply from the second half of the year. The overall fuel oil market in Asia was negatively affected by its weak supply and demand ratio and the movement of international crude oil futures, resulting in a relatively weak growth trend.

Due to the sharp decline in international oil prices as well as the weaker economic fundamentals and demand for oil products in the Asia-Pacific region as compared to the previous year, there was a relatively high pressure on the selling price of the Company’s crude oil. In 2014, the Company’s average realized oil price was US$96.04/barrel, representing a decrease of 8.2% from the previous year.

Sales of Natural Gas
The Company’s natural gas sales prices are mainly determined by the Company’s negotiations with its customers. The Company’s natural gas sales agreements are generally long-term contracts, which normally provide a periodic price adjustment mechanism. The Company’s natural gas customers are primarily located in the Southeastern coast of China and mainly include Hong Kong Castle Peak Power Company Limited, CNOOC Gas and Power Group, China BlueChemical Ltd, etc.

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

In 2014, the natural gas sales of the Company were under pressure due to the weak demand of coastal Southern China. The Company’s average realized natural gas price was US$6.44/mcf, representing a 11.4% increase over the previous year, primarily due to: on the one hand, benefiting from the Chinese government’s gradual onshore natural gas price reform, the Company adjusted its sales price to major natural gas customers through negotiation; on the other hand, the production from new gas fields recorded higher prices; there was also an increase in the sales price of natural gas in certain regions overseas.


 
25

 

To cope with the current shortage of natural gas demand by downstream users, the Company will coordinate related designs, approvals and gas price negotiations with downstream customers, with an aim to promote a stable production of oil and gas fields in production and the development of oil and gas fields under construction.

Apart from the above sales activities, Nexen, a wholly-owned subsidiary of the Company, is engaged in the purchase and sales of oil and gas products from third parties, as well as trading derivatives to mitigate risks arising from oil and gas price fluctuations.

RESEARCH AND DEVELOPMENT

In 2014, the Company continued to implement its “Technology-driven Strategy” through further reform in science and technology systems as well as improving its technological innovation system. The Company set up scientific research platform construction projects, such as the “National Engineering Laboratory Phase I Project for Offshore Oil Exploration”, to improve the capability of its proprietary innovation. The Company increased reserves and production and enhanced cost efficiency through technological innovation, with certain research findings being applied to operations and generating positive results. “The Development and Application of Ultra-deepwater Semi-submersible Drilling Platform” and “The Critical Technology and Industrial Application of Offshore Drilling Riser pipe” were honored with the Special National Technological Progress Award of China and Second prize of National Technological Invention Award, respectively, in 2014.

Major Scientific Project Development
In 2014, with a view to strengthen key technologies and to provide support for sustainable development, the Company focused on major directions and technologies which included: exploration and development technology for deepwater oil and gas fields, offshore heavy oil fields and fields with low porosity and permeability, production enhancement at producing fields, offshore oil and gas fields regional development and marginal fields development, and development of high-temperature/ultra-pressure and high-temperature/low-pressure gas fields in South China Sea.

In addition, the Company undertook a number of national science and technology projects such as “Development of Large-scale Oil and Gas Fields and Coalbed Methane” and obtained various achievements such as geological understanding of and exploration breakthrough in offshore large-scale oil and gas fields, establishing a demonstration base for efficient development technology of offshore heavy oilfields, and completing the development of the Liwan 3-1 deepwater gas field in South China Sea.

Innovative Development of Key Technologies
In 2014, major technological innovations and developments achieved by the Company included:

First, relying on the national research and internal research, Lingshui 17-2-1 was tested to flow the highest daily rate in the independent gas fields offshore China and the first major natural gas discovery was made in the independent deepwater exploration for the Company.

Second, the efficient development of offshore heavy oilfield achieved remarkable results, representing research, production and service capabilities of full range of sands control and well completion tools, and the representative thermal recovery test sites at Nanbao 35-2 and Luda 27-2 were built.

Third, the Company successfully developed a high-temperature low-free water drilling fluid system and ancillary chemical products, with their successful application at a high temperature of 164oC.
The Company also successfully developed China’s first submerged umbilical production system. Both of the above developments filled the technology gap in China.

In addition, the Company also made breakthroughs in key technologies including the large-scale long-distance flexible HVDC for offshore oilfields, and completed an integrated intelligent monitoring system along with project demonstration.

 
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INTERNAL CONTROL AND RISK MANAGEMENT SYSTEM

Since its establishment, the Company has treated internal control and risk management as a top priority. The Company recognizes that it is the duty and obligation of its management to establish and maintain an internal control and risk management system, which serves the Company’s strategic objectives and meets the Company’s business practice.

The Risk Management Committee established by the Company is directly managed by the Company’s Chief Executive Officer, and has the authority to assess, analyze and identify major risks to the Company. The Risk Management Committee is responsible for the organization and implementation of Enterprise Risk Management, the establishment of the objectives of risk management based on the Company’s strategies, the assessment of key risks in major decision, important events and key business processes, the review and approval of the response plan to major risks, and also the periodic submission of the risk management report to the Board.

The “Sarbanes-Oxley Act” promulgated in the U.S. in 2002 and the “Code on Corporate Governance Practices” issued by The Stock Exchange of Hong Kong Limited in 2004 (as amended from time to time and now known as the Corporate Governance Code and Corporate Governance Report) imposed stricter regulatory requirements on corporate governance and internal control. The Company’s management believes that such regulations not only represent regulatory requirements imposed by the market, but also motivate the Company to improve its management system and create value for its shareholders.

In respect to internal control, the Company introduced the internal control framework developed by the COSO Committee (“Committee of Sponsoring Organizations of the Treadway Commission”) of the U.S., which established an internal control system and mechanism over finance and accounting, business operation and compliance. Such internal control system has been continuously reviewed and evaluated to ensure timely, accurate and complete information disclosure. The Company’s management highly values its duty and obligation to establish and maintain an effective internal control and risk management system. In 2013, COSO updated the original internal control framework and required the companies listed in the United States of America to formally adopt the framework from their 2014 annual reports onwards. As such, to comply with requirement, the Company complied with the updated COSO’s internal control framework in 2014 by implementing the 17 principles throughout the Company and its subsidiary units’ internal control infrastructure and operations. The Company consolidated the results of its annual risk assessment to improve control and ensure the Company’s internal control system remains effective.

The management has evaluated the design and operating effectiveness of the Company’s internal control over financial reporting as of 31 December 2014, and has not discovered any material weakness as a result of the evaluation. On the basis of such evaluation, the Directors concluded that as of 31 December 2014, the Company’s internal control over financial reporting was effective.

In respect of risk management, the Company officially adopted the COSO-ERM framework in 2007 as the guidance for its risk management. The Company is continuously following new requirements and best practices of risk management and internal control areas in its countries of operation. In recent years, the Company has made an important reference to the “Basic Standard for Enterprise Internal Control” and its ancillary guidelines issued by PRC regulatory authorities, and ISO 31000:2009 “Risk Management – Principles and Guidelines” in order to ensure that all key risks of the Company are sufficiently attended to, monitored and responded.

In 2014, the Company reviewed the overall effectiveness of Nexen’s internal control in accordance with the Company’s mid to long term integrated risk management and internal control management plan and the updated COSO internal control framework requirements in 2013. This is to promote the implementation of internal control in relation to financial reporting and relevant disclosure procedures, identify significant risks and devise a subsequent work plan in order to ensure that Nexen’s internal control meets the Company and market standards.

As a company listed in Hong Kong, the U.S. and Canada, the Company will continue to strictly comply with all regulatory requirements, strengthen its internal control and risk management system, and maintain a high standard of corporate governance to ensure the Company’s healthy development.

 
27

 


HEALTH, SAFETY AND ENVIRONMENTAL PROTECTION (“HSE”)

As an offshore exploration and production company, we face considerable operational safety and environmental protection risks. Therefore, the Company has been placing a great deal of emphasis on health, safety and environmental protection (HSE) issues. Promoting a philosophy and culture of HSE among its employees, the Company strives to establish a comprehensive management system to improve employees’ awareness of HSE during operations and to strengthen their ability to identify potential risks as well as their risk management skills.

In 2014, along with the rapid growth of the Company’s business, the scope of management in health, safety and environmental protection also expanded accordingly and the Company faced greater challenges. For these reasons, the Company continued to improve its management system, promoted intrinsic safety management and strengthened supervision, inspection and training in these areas. As a result, the Company achieved stable performance in the areas of health, safety and environmental protection and met the respective yearly targets. No oil spill accidents above a small size were recorded throughout the year. In production activities, the operation of the health, safety and environmental protection system was effective.

Offshore China, the Company carried out special inspections of offshore oil and gas projects and implemented measures to prevent potential accidents. Considering the work allocation for the year’s key tasks and the actual operations of the relevant organizations, the Company’s headquarter organized an inspection team, which consisted of relevant experts from various functional departments, their affiliated units and intermediary institutions in charge of safety technologies, to conduct random inspections of four branches according to the inspection list. Based on the issues discovered, we were able to make solid progress in detecting and managing potential risks.

In addition, the Company further strengthened its management of pollutant discharge to promote energy savings and emission reductions.

For overseas projects, in accordance with the characteristics of different countries, regions, cultures, cooperation models, local legal environments as well as project durations and nature of operations, the Company enhanced its study on the countries and regions of operation and conducted dynamic evaluations on potential risks. The Company has been closely tracking and making scientific judgments on the safety situations of such countries and regions, which increased its risk identification ability and facilitated the formulation of targeted HSE management plans for overseas projects. In 2014, the Company completed HSE management plans for three overseas subsidiaries and conducted one senior audit. During the year, the Occupational Safety and Health Administration (“OSHA”) statistics of Nexen reached the best standard on record.

To obtain health, safety and environmental protection information, the Company utilized an environmental management information system to realize immediate pollutants tracking in offshore China, and adopted categorized management on operational risks with the risk identification system.


 
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In 2014, there were no accidents causing critical casualties. The Company’s OSHA statistics were maintained at a good level, and the Company’s performance continued to improve.

 
 
          Rate  
       
Number
Rate
Number
of Lost
 
 
Gross
Number of
Rate of
of Lost
of Lost
of days
Workdays &
 
 
Man-hours
Recordable
Recordable
Workdays
Workdays
Away &
Restricted
Fatal
Scope
(million)
Cases
Cases
Cases
Cases
Working shift
Days
Cases
                 
Company staff
39
14
0.07
7
0.04
239
1.23
0
Staff of the Company and direct contractors
140
89
0.13
26
0.04
623
0.89
1

CORPORATE CITIZEN

The Company has been pursuing good social responsibility and the development of harmony between enterprise and society, and between people and nature, and has regarded its social responsibility as an undeniable obligation. While being committed to achieving sustainable development and creating value for its shareholders, the Company strives to provide clean and reliable energy supply for society and meeting needs of stakeholders.

Our social responsibilities are: to build CNOOC Limited into a driving force for sustainable energy supply, a leading force for clean, healthy and green energy development, and a motivating force for the mutual progress of stakeholders and society.

In 2015, the Company will publish its “Corporate Social Responsibility Report 2014” to conclude and reflect upon its social responsibility performance in 2014.

HUMAN RESOURCES

The Company has always considered human resources as its treasure. Throughout the years, the Company has built a professional and highly efficient workforce capable of tackling challenges, which has been essential to the Company’s success. In 2014, the Company focused on improving organizational core competencies through perfecting organizational systems, enhancing efficiency, continued strengthening of teams’ ability and encouraging talent. Remarkable success was achieved across the board, providing practical and effective human resources development for the Company’s “New Leap Forward” plan.

Successfully optimizing the functions of various departments in the headquarter and improving the organizational efficiency
In 2014, based on the findings of extensive research, in-depth interviews, questionnaires and standard analysis and after repeated deliberations and systematic research, the Company formulated and successfully implemented the organizational function optimization plan, which clarified the role of the headquarter, the objectives, principles and specific contents of the optimization of departmental functions.

Through this optimization plan, unclear delineation, overlaps, vacancies, misplacements and other functional problems among departments were solved. The Company decentralized its management power and realized the optimization objectives of more streamlined teams and rational structure, thus improving organizational efficiency and the governance standard of the headquarter.


 
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Accelerating the management integration of Nexen and establishing mechanisms for personnel rotation and training
In 2014, according to the plan that Nexen would serve as the international talent cultivation platform of CNOOC Limited, the Company developed a short-term and long-term talent training rotation program with Nexen. Personnel rotation and training promoted the integration of the CNOOC Limited and Nexen teams. In addition, the CEO of Nexen was replaced in accordance with the Company’s development objectives.

Promoting broader and more in-depth training development
In 2014, the Company’s training work continued to focus on key professional positions. The total number of training participants for the year was approximately 273,000 man-days in approximately 20,800 training sessions.

The focused training programs strengthened the training of key professionals and personnel, critical technologies and cutting-edge technologies, which effectively alleviated the shortage in management personnel and deepwater engineering talents. These programs also provided ideas and solutions for technical problems which had limited the Company’s development, such as the issues of heavy oil, low porosity and permeability, shale oil and gas, and high temperature and high pressure, thereby giving strong support for the Company’s development and growth of talents.

Conducting investigations on overseas human resources management system
In 2014, the Company conducted investigations on its overseas human resources management system in Uganda. By inviting opinions and suggestions from Ugandan employees on the overseas human resources management system, we laid the foundation for the system’s modification and improvement.
 

 
30

 

Corporate Governance Report

GOVERNANCE STANDARDS

The Company has always upheld and attained high standard of business ethics, for which its transparency and standard of governance have been recognized by the public and its shareholders. In 2014, the Company was awarded the “ICON on Corporate Governance” by Corporate Governance Asia Magazine and the “2014 Excellence in Management and Corporate Governance awards-Platinum” by The Asset. High and strict standard of corporate governance enables the Company to operate steadily and efficiently and is in the long-term interests of the Company and its shareholders.

Since its listing, the Company has endeavoured to maximize its shareholders’ value. In 2014, the Company executed its corporate governance policies strictly and sought to comply with the relevant provisions in the “Corporate Governance Code and Corporate Governance Report” set out in Appendix 14 to the Listing Rules (the “CG Code”), ensuring that all decisions were made on the principles of trust and fairness and in an open and transparent manner so as to protect the interests of all shareholders. The Company values the importance of corporate governance and in light of the CG Code, the Company set out a summary of the Company’s key corporate governance practices during 2014 below.

KEY CORPORATE GOVERNANCE PRINCIPLES AND THE COMPANY’S PRACTICES

A.
DIRECTORS

A.1
The Board
Principle: “An issuer should be headed by an effective board which should assume responsibility for its leadership and control and be collectively responsible for promoting its success by directing and supervising its affairs. Directors should take decisions objectively in the best interests of the issuer.

The board should regularly review the contribution required from a director to perform his responsibilities to the issuer, and whether he is spending sufficient time performing them.”

 
The Board consisted of ten members, including two Executive Directors, four Non-executive Directors and four Independent Non-executive Directors, as of 31 December 2014.

 
The list of Directors, their respective biographies, and their respective roles in the Committees and the management are set out on pages 42 to 48 and 148 respectively. The relevant information has also been disclosed on the Company’s website.

 
The Board and Committee members of the Company are dedicated, professional and accountable.

 
The Company holds Board meetings at least four times a year at approximately quarterly intervals. Five Board meetings were held in 2014. Members of the Board have also actively participated in the discussions on the business and operation of the Company, either in person or through other electronic means of communication such as emails, when necessary.

 
There exists an open atmosphere for Directors to contribute alternative views. All decisions of the Board are made on the principles of trust and fairness in an open and transparent manner, so as to protect the interests of all shareholders.

 
The Board has regularly reviewed the contribution required from a Director to perform his responsibilities to the Company, and whether he is spending sufficient time performing them in accordance with the CG Code.

 
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Attendance of full Board meetings held in 2014:

  No. of meetings attended
 
(5 meetings in total)
 
by Director by proxy
     
Executive Directors
   
Li Fanrong
5
0
Wu Guangqi (Note 1)
2
3
     
Non-executive Directors
   
Wang Yilin (Chairman)
5
0
Yang Hua (Vice Chairman)
5
0
Lv Bo (Note 2)
4
1
Zhang Jianwei (Note 3)
3
1
Wang Jiaxiang
5
0
     
Independent
   
 Non-executive Directors
   
Chiu Sung Hong
5
0
Lawrence J. Lau
5
0
Tse Hau Yin, Aloysius
5
0
Kevin G. Lynch
5
0

 
Note 1:
Mr. Wu Guangqi appointed Mr. Li Fanrong to attend the Board meetings held on 28 March 2014 at 9:00 am and 12:30 am and 23 May 2014 respectively and to vote on his behalf.

Note 2:
Mr. Lv Bo appointed Mr. Yang Hua to attend the Board meeting held on 23 May 2014 and to vote on his behalf.

Note 3:
Mr. Zhang Jianwei appointed Mr. Yang Hua to attend the Board meeting held on 28 August 2014 and to vote on his behalf. Mr. Zhang Jianwei resigned as Non-executive Director with effect from 17 November 2014.

 
The Joint Company Secretaries consulted the Directors on matters to be included in the agenda for regular Board meetings.

 
Dates of regular Board meetings have been scheduled at least two months before the meeting to provide sufficient notice to all Directors so that they can have an opportunity to attend. For non-regular Board meetings, reasonable advance notices have been given.

 
Minutes of the meetings of the Board and Committees are kept by the Joint Company Secretaries and open for inspection at any reasonable time upon reasonable request by any Director.

 
Minutes of the meetings of the Board and Committees recorded sufficient details of the matters considered by the Board and Committees and decisions reached, including any concerns raised by Directors or dissenting views expressed. Draft and final versions of the minutes of the Board meetings and Committee meetings are sent to all Directors and all Committee members respectively within a reasonable time after the Board meetings and Committee meetings for their comments and records respectively.

 
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Committees may, upon reasonable request, seek independent professional advice in appropriate circumstances, at the Company’s expense. The Board would resolve to provide separate independent professional advice to Directors to assist them perform their duties to the Company.

 
If a substantial shareholder or a Director has a conflict of interest in a matter to be considered by the Board and such interest has been considered to be material by the Board, the matter will not be dealt with by a written resolution but a Board meeting will be convened for that matter. Independent Non-executive Directors who do not (and whose close associates also do not) have material interest in the transaction will be present at such Board meeting.

 
The Company has arranged appropriate insurance cover in respect of legal action against its Directors.

A.2
Chairman and Chief Executive
Principle: “There are two key aspects of the management of every issuer — the management of the board and the day-to-day management of business. There should be a clear division of these responsibilities to ensure a balance of power and authority, so that power is not concentrated in any one individual.”

 
The roles of the Chairman and CEO of the Company are separate and are not performed by the same individual. Mr. Wang Yilin serves as the Chairman of the Board and Mr. Li Fanrong serves as the CEO of the Company.

 
The Chairman ensures all Directors are properly briefed on issues arising at Board meetings and is responsible for ensuring that Directors receive, in a timely manner, adequate information, which must be accurate, clear, complete and reliable.

 
One of the important roles of the Chairman is to provide leadership for the Board. The Chairman ensures that the Board works effectively and performs its responsibilities, and that all key and appropriate issues are discussed by the Board in a timely manner. The Chairman delegates the responsibility of drawing up the agenda for each Board meeting and Committee meeting to the Joint Company Secretaries who will take into account, where appropriate, any matters proposed by the other Directors for inclusion in the agenda, and the Chairman is primarily responsible for approving the agenda.

 
The Chairman takes primary responsibility for ensuring that good corporate governance practices and procedures are established.

 
The Chairman encourages all Directors to make full and active contribution to the Board’s affairs and takes the lead to ensure that the Board acts in the best interests of the Company. The Chairman encourages Directors with different views to voice their concerns, allows sufficient time for discussion of issues and ensures that Board decisions fairly reflect Board consensus.

 
The Chairman holds meetings with the Independent Non-executive Directors and Non-executive Directors without the presence of the Executive Directors at least annually.

 
The Chairman ensures that appropriate steps are taken to provide effective communication with shareholders and that their views are communicated to the Board as a whole.

 
The Chairman promotes a culture of openness and debate by facilitating the effective contribution of Non-executive Directors and Independent Non-executive Directors in particular and ensuring constructive relations between Executive and Non-executive Directors.

 
The CEO is responsible for conducting the Company’s business and affairs consistent with the principles and directions

 
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established by the Board. The clear division of responsibilities between the Chairman and the CEO ensures a balance of power and authority, as well as efficient management and operation of the Company, which contribute to the success of the Company.

A.3
Board composition
Principle: “The board should have a balance of skills, experience and diversity of perspectives appropriate to the requirements of the issuer’s business. It should ensure that changes to its composition can be managed without undue disruption. It should include a balanced composition of executive and non-executive directors (including independent non-executive directors) so that there is a strong independent element on the board, which can effectively exercise independent judgment. Non-executive directors should be of sufficient calibre and number for their views to carry weight.”

 
The Board, as representatives of the shareholders of the Company, is committed to the achievement of business success and the enhancement of long-term shareholder’s value with the highest standards of integrity and ethics. The role of the Board is to direct, guide and oversee the conduct of the Company’s business and to ensure that the interests of the shareholders are being served.

 
As of 31 December 2014, the Board consisted of ten members: two of them were Executive Directors, four of them were Non-executive Directors and four of them were Independent Non-executive Directors. All Directors were identified by categories of Executive Directors, Non-executive Directors and Independent Non-executive Directors in all corporate communications that set out the names of the Directors of the Company. A list of the Directors identifying their role and function was maintained on the Company’s website and on the Hong Kong Stock Exchange’s website during the reporting period.

 
The Executive Directors of the Company are all individuals with extensive experience in the Company’s respective fields of operation. Both of them are engineers who are familiar with the Company’s businesses and have cooperated with leading global players in the oil and gas industry. Both Mr. Wu Guangqi and Mr. Li Fanrong have over 30 years of experience in petroleum exploration and operation.

 
The Non-executive Directors of the Company are all individuals with extensive experience in the parent company’s respective fields of operation. Most of them have over 30 years of experience in petroleum exploration and operation.

 
The Independent Non-executive Directors of the Company are all professionals or scholars with backgrounds in the legal, economic, financial and investment fields. They have extensive experience and knowledge of corporate management and make significant contributions to the Company’s strategic decisions.

 
The Company believes that the active involvement of the Non-executive Directors and Independent Non-executive Directors in the management and decision making of the Board and its Committees strengthens the objectivity and independence of the Board.

 
The diverse backgrounds of the Board members ensure that they can fully represent the interests of all shareholders of the Company and to enhance the effectiveness of the Board and corporate governance.

 
The Company has received annual confirmations from all of its Independent Non-executive Directors acknowledging full compliance with the relevant requirements in respect of their independence pursuant to Rule 3.13 of the Listing Rules. The Company is therefore of the view that all of the Independent Non-executive Directors are independent.

A.4 & A.5 Appointments, re-election and removal & Nomination Committee
Principle: “There should be a formal, considered and transparent procedure for the appointment of new directors. There should be plans in place for orderly succession for appointments. All directors should be subject to re-election at regular intervals. An issuer must explain the reasons for the resignation or removal of any director.”

 
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The Nomination Committee comprises two Independent Non-executive Directors (Mr. Lawrence J. Lau, Mr. Wang Tao (whose retirement became effective on 1 March 2014) and Mr. Kevin G. Lynch (whose appointment has become effective on 1 March 2014)) and a Non-executive Director (Mr. Wang Yilin) with Mr. Wang Yilin serves as the Chairman of the Nomination Committee. A list of members of the Nomination Committee is set out under the section headed “Company Information” on page 148 of this annual report. With effect from 1 March 2014, Mr. Kevin G. Lynch served as a member of the Nomination Committee, and Mr. Wang Tao retired as a member of the Nomination Committee on the same day.

 
The role of the Nomination Committee is to determine the policy and establish proper procedures for the selection of the Company’s leadership positions, upgrade the quality of Board members and perfect the Company’s corporate governance structure.

 
The main authorities and responsibilities of the Nomination Committee are to make recommendations to the Board for suitable candidates to serve as Directors and senior management of the Company for approval by the Board, to review the structure, size and composition of the Board, and to evaluate the leadership abilities of Executive Directors, so as to ensure the competitiveness of the Company.

 
When nominating a particular candidate, the Nomination Committee will consider (1) the breadth and depth of the management and/or leadership experience of the candidate; (2) financial literacy or other professional or business experience of the candidate that are relevant to the Company and its business; and (3) the experience or knowledge of the candidate in international operations. All candidates must be able to meet the standards set out in Rules 3.08 and 3.09 of the Listing Rules. When nominating an Independent Non-executive Director who has served the Company for more than nine years, the Board will propose shareholders’ vote by way of a separate resolution on any decision to re-elect such Independent Non-executive Director and include in the circular and/or explanatory statement accompanying the notice of the relevant general meeting to shareholders the reasons why the Board still considers such Director as independent and shall be re-elected. Mr. Tse Hau Yin, Aloysius, an Independent Non-executive Director who has served the Board for over nine years, will retire from office and being eligible for re-election at the forthcoming annual general meeting of the Company to be held on 21 May 2015. Given Mr. Tse’s thorough understanding of the Company’s business and operations, his valuable independent guidance to the Company in his capacity as Independent Non-executive Director over the past years, his continuous demonstrations of his firm commitments to his role, his guidance and focus on high standards of corporate governance of the Company, his contribution to the financial reporting and disclosures of the Company, and Mr. Tse’s confirmation of his independence according to Rule 3.13 of the Listing Rules, the Board considers that Mr. Tse remains independent for the purpose of the Listing Rules despite the fact that he has served the Board for over nine years. In accordance with Code Provision A.4.3 of the CG Code, the Company will include in the Notice of the 2015 annual general meeting and the circular of the Company the reasons why the Board still considers Mr. Tse as independent and shall be re-elected.

 
The Nomination Committee is also responsible for evaluating the contributions and independence of incumbent Directors so as to determine whether they should be recommended for re-election. Based on such evaluation, the Nomination Committee will recommend to the Board candidates for re-election at general meetings and appropriate replacements (if necessary). The Board, based on the recommendations of the Nomination Committee, will propose to the shareholders the candidates for re-election at the relevant general meetings.

 
A Director appointed by the Board to fill a casual vacancy or as an addition shall hold office until the next extraordinary general meeting and/or annual general meeting (as appropriate).

 
Our Non-executive Directors are appointed for a term of one year. However, none of our existing Independent

 
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Non-executive Directors are appointed for a specific term, which constitutes a deviation from the CG Code. Further explanation is set out under the section headed “Compliance with the Corporate Governance Code” on pages 39 to 40.

 
All Directors, including those appointed for a specific term are subject to retirement by rotation once every three years and are subject to re-election in accordance with the Articles of Association of the Company (as amended and adopted by special resolution of the Company on 27 May 2009) (the “Articles”) and the CG Code.

 
The following is a summary of the work performed by the Nomination Committee under its charter during the year:

 
Reviewed the structure, size and composition (including the skills, knowledge and experience) of the Board and its committees and made recommendations on any proposed changes to the Board to complement the Company’s corporate strategy;

 
Assessed the independence of Independent Non-executive Directors;

 
Identified individuals suitably qualified to become Board members and made recommendations to the Board on the selection of individuals nominated for directorships;

 
Made recommendations to the Board on the re-election of Directors and reviewed succession planning for Directors, in particular the Chairman and CEO, according to the nomination procedure and process and criteria adopted by the Company;

 
Reviewed and monitored the training and continuous professional development of Directors and senior management and made recommendations to the Board in that regard; and

 
Evaluated and assessed the effectiveness of the Nomination Committee and the adequacy of the charter of the Nomination Committee and recommended the proposed changes to the charter to the Board (if necessary).

 
During the year ended 31 December 2014, Mr. Lv Bo, Mr. Zhang Jianwei and Mr. Wang Jiaxiang were appointed as Non-executive Directors with effect from 1 January 2014, and Mr. Kevin G. Lynch was appointed as Independent Non-executive Director with effect from 1 March 2014. Mr. Zhou Shouwei and Mr. Wu Zhenfang retired as Non-executive Directors with effect from 1 January 2014, Mr. Wang Tao retired as Independent Non-executive Director with effect from 1 March 2014, and Mr. Zhang Jianwei resigned as Non-executive Director with effect from 17 November 2014. Other than the above, the Nomination Committee considered that any other change to the composition of the Board was not necessary. It will keep assessing whether any such change is required going forward and will recommend to the Board qualified candidates as Directors according to the nomination policy and procedure of the Nomination Committee.

 
In accordance with Code Provision A.5.6 of the CG Code and to demonstrate the Company’s continued commitment to high standards of corporate governance, the Board adopted a board diversity policy (the “Policy”) on 20 August 2013 prior to the implementation date as required by the Listing Rules. The Policy aims to continue to improve corporate governance and ensure the diversity of Board members. A summary of the Policy is set out below:

Purpose:
The Policy aims to continue to improve corporate governance and ensure the diversity on the Board.
   
Policy statement:
 
With a view to leading its leap-forward development, the Company sees increasing diversity at the Board level as an essential element in supporting the attainment of its strategic objectives and sustainable development. In designing Board’s composition, board diversity shall be considered


 
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from a number of aspects, including but not limited to gender, age, cultural and educational background, professional experience, skills, knowledge and length of service. All Board appointments will be based on meritocracy, and candidates will be considered against objective criteria, having due regard to the benefits of diversity on the Board.
   
Selection criterion:
 
Selection of candidates will be based on diversity of perspectives, including but not limited to gender, age, cultural and educational background, professional experience, skills, knowledge and diversified vision.

Since the adoption of the Policy in August 2013, the Board has observed the Policy and took into account the objectives set out in the Policy in reviewing its Board composition. In particular, in selecting the candidates for Independent Non-executive Director, not only the Board considered the knowledge, experience and industry-specific exposures of the candidates, the Board also took into account other factor such as cultural background and diversified vision of the candidates. As a result, the Nomination Committee considered that there is sufficient diversity at the Board level.

Attendance of individual members at Nomination Committee meetings in 2014

 
  No. of meetings attended
 
(1 meeting in total)
 
by committee
     
Directors
member
 
by proxy
 
         
Wang Yilin (Chairman) (Note 1)
0
 
1
 
Lawrence J. Lau
1
 
0
 
Kevin G. Lynch
1
 
0
 
 
Note 1:
Mr. Wang Yilin appointed Mr. Lawrence J. Lau to chair and attend the Nomination Committee meeting held on 27 March 2014 and to vote on his behalf.

A.6
Responsibilities of Directors
Principle: “Every director must always know his responsibilities as a director of an issuer and its conduct, business activities and development. Given the essential unitary nature of the board, non-executive directors have the same duties of care and skill and fiduciary duties as executive directors.”

 
The Company regularly updates its Directors with changes in laws and regulations relevant to their roles as Directors of the Company.

 
Directors’ training and professional development:

 
All Directors newly appointed to the Board receive a comprehensive, formal and tailored induction on appointment for the purpose of giving an overview of the business and operations of the Group and appropriate briefings and trainings from the Company covering the statutory and regulatory obligations of Directors, organizational structure, policies, procedures and codes of the Company and terms of reference of Committees. According to the characteristics of new Directors, the Company arranged the internal briefing of relevant business sectors for the new Directors. The senior management and the Joint Company Secretaries will also conduct subsequent briefings as and when necessary to ensure that the Directors are kept appraised of the latest developments relevant to the operations and business of the Company, and their responsibilities under statutes and common law, the Listing Rules, legal and other regulatory requirements as well as the Company’s business and governance policies, so that they are able to discharge their responsibilities properly.

 
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The Company also recognizes the importance of continuous professional development of the Directors. Directors are encouraged to participate in continuous professional development to develop and refresh their knowledge and skills. During the year, the Company arranged a training conducted by its external professional advisers on the updates on Listing Rules, applicable laws, rules and regulations relating to Directors’ duties and responsibilities. The training covered a broad range of topics including Directors’ duties under the common law, Listing Rules and other relevant laws and regulations, Corporate Governance Code, new statutory regime for disclosure of inside information, updates on connected transaction rules and market misconducts, and updates on the Companies Ordinance which came into effect in March 2014.

 
Certain Directors also attended trainings organized by the Company or external professional bodies on other regulatory updates as well as obligations of directors. In addition, Directors also read materials/publications which they thought appropriate and necessary for the fulfillment of their roles.

 
In addition, the Company also provided regular updates to Directors in respect of continuing obligations of listed issuers and their directors as well as monthly updates on the business and operations of the Group. The Directors provided their regular training records to the Company.

 
The Non-executive Directors and the Independent Non-executive Directors actively participate in Board meetings and Committees meetings to exercise their independent judgement on issues of strategy, policy, performance, accountability, resources, key appointments and standards of conduct of the Company. They are responsible for taking the lead where potential conflicts of interests arise.

 
The Non-executive Directors and the Independent Non-executive Directors are invited to serve on the Audit, Remuneration and Nomination Committees of the Company.

 
During 2014, each Non-executive Director or Independent Non-executive Director attended or otherwise appointed an alternate to attend all regularly scheduled meetings of the Board and Committees on which such Non-executive Director or Independent Non-executive Director sat in, and reviewed the meeting materials distributed in advance for such meetings and shared their experience, skills and expertise with the Board or the relevant Committee. All of the Non-executive Directors and Independent Non-executive Directors of the Company made positive contributions to the development of the Company’s strategy and policies through independent, constructive and informed comments. The Non-executive Directors and the Independent Non-executive Directors have been responsible for scrutinising our performance in achieving agreed corporate goals and objectives and monitoring our performance reporting.

 
Mr. Wang Yilin, Chairman of the Board, Mr. Yang Hua, Vice Chairman of the Board, together with Independent Non-executive Directors attended the Annual General Meeting in 2014 and responded to questions raised by the shareholders in order to develop a balanced understanding of the views of shareholders.

Attendance at general meeting in 2014:

 
No. of meetings attended  
 
(1 meeting in total)
 
     
Executive Directors
   
Li Fanrong
1
 
Wu Guangqi
0
 

Non-executive Directors

 
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Wang Yilin (Chairman)
1
 
Yang Hua (Vice Chairman)
1
 
Lv Bo
0
 
Zhang Jianwei (Note 1)
1
 
Wang Jiaxiang
1
 

Independent Non-executive Directors
Chiu Sung Hong
1
 
Lawrence J. Lau
1
 
Tse Hau Yin, Aloysius
1
 
Kevin G. Lynch
1
 

Note 1:
Mr. Zhang Jianwei resigned as Non-executive Director with effect from 17 November 2014.

 
The Directors are required to inform the Company in case of any change in the number and nature of offices held in public companies or organizations and other significant commitments. Please refer to “Directors and Senior Management” on pages 42 to 48 for biographies of the Directors.

A.7
Supply of and access to information
Principle: “Directors should be provided in a timely manner with appropriate information in the form and quality to enable them to make an informed decision and perform their duties and responsibilities.”

 
The Company’s senior management regularly provides the Board and its Committees with adequate information in a timely manner to enable them to make informed decisions. Senior management also organises presentations to the Board conducted by professional advisers on specific transactions as appropriate.

 
For regular Board meetings and Committee meetings, the agenda and accompanying Board papers are sent in full to all Directors at least three days before the intended date of the Board meetings or Committee meetings.

 
The Board and each Director have separate and independent access to the Company’s senior management and also the Joint Company Secretaries, who will provide full and prompt responses to queries raised by the Directors. All Directors are entitled to have access to Board papers, minutes and related materials upon reasonable notice.

B.
REMUNERATION OF DIRECTORS AND SENIOR MANAGEMENT AND BOARD EVALUATION

B.1
The level and make-up of remuneration and disclosure
Principle: “An issuer should disclose its directors’ remuneration policy and other remuneration related matters. The procedure for setting policy on executive directors’ remuneration and all directors’ remuneration packages should be formal and transparent. Remuneration levels should be sufficient to attract and retain directors to run the company successfully without paying more than necessary. No director should be involved in deciding his own remuneration.”

 
The Remuneration Committee comprises two Independent Non-executive Directors (Mr. Chiu Sung Hong and Mr. Tse Hau Yin, Aloysius) and one Non-executive Director (Mr. Wu Zhenfang (whose retirement became effective on 1 January 2014) and Mr. Lv Bo (whose appointment has become effective on 1 January 2014)) with Mr. Chiu Sung Hong served as the Chairman of the Remuneration Committee. The Remuneration Committee is delegated with the authority of determining and approving all Executive Directors’ salaries, bonuses, share option packages, performance appraisal systems and retirement plans. A list of members of the Remuneration Committee is set out in “Company Information” on page 148 of this annual report.

 
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The major responsibilities and authorities of the Remuneration Committee include making recommendations to the Board on the Company’s policy and structure of the remuneration of Directors and senior management of the Company and on the establishment of a formal and transparent procedure for developing remuneration policy, determining the service contracts and specific remuneration packages for all Executive Directors and senior management, such as benefits in kind, pension rights and compensation payments, including any compensation payable for loss or termination of their office or appointment, and making recommendations to the Board on the remuneration of Non-executive Directors and Independent Non-executive Directors.

 
The Company’s emolument policy is to maintain fair and competitive packages with reference to industry standards and prevailing market conditions. The Remuneration Committee is mindful that levels of remuneration must be sufficient to attract and retain the Directors and senior management in order to run the Company successfully, but at the same time, the Company should avoid setting remunerations which are in excess of those necessary for this purpose. The Directors’ emolument package comprises the Director’s fees, basic salaries and allowances, bonuses, share options and others. The following factors are considered in determining the Directors’ remuneration package:

 
Business needs, company goals and objectives;

 
Responsibilities of the Directors and their individual contribution; and

 
Changes in relevant markets, for example, supply/demand fluctuations and changes in competitive conditions.

Details of the remuneration, as well as the share option benefits of Directors for the year ended 31 December 2014, are set out on pages 87 to 88 of this annual report.

No individual Director or senior management of the Company is permitted to determine his/her own remuneration.

The Company seeks to apply similar principles when determining the remuneration packages for senior management with reference to the Board’s corporate goals and objectives. Other general staff, and employees are rewarded on a performance-rated basis with other fringe benefits such as social insurance, pension funds and medical cover.

Please refer to notes 10 to 11 to the financial statements on pages 87 to 90 of this annual report for details of Directors’ remuneration and senior management’s remuneration by band and the five highest paid individuals in the Company.

 
The remuneration of Non-executive Directors and Independent Non-executive Directors recommended by the Remuneration Committee is determined by the Board where the vote of the Directors concerned will not be counted in relation to their remuneration.

 
The Remuneration Committee also administers the Company’s share option schemes and all other employee equity-based compensation plans, with full authority to make all other determinations in the administration thereof, but subject to the limitations prescribed by laws and the rules of such plans and programs.

 
The Remuneration Committee consults the Chairman and CEO about its proposal relating to the remuneration of other Executive Directors and have access to independent professional advice if necessary.

 
The following is a summary of the work performed by the Remuneration Committee under its charter during the year:

 
Reviewed and approved the remuneration packages of the Company’s individual Executive Directors and senior management of the Company;

 
40

 

 
Made recommendations to the Board on the Company’s policy and structure for Directors and senior management remuneration and on the establishment of a formal and transparent procedure for developing remuneration policy;

 
Assessed performance of Executive Directors and approved the terms of their service contracts;

 
Made recommendations to the Board on the remuneration of the Company’s Non-executive Directors; and

 
Evaluated and assessed the effectiveness of the Remuneration Committee and the adequacy of the charter of the Remuneration Committee and recommended the proposed changes to the charter to the Board (if necessary).

Attendance of individual members at Remuneration Committee meetings in 2014

 
No. of meetings attended
 
(2 meetings in total)
 
by committee
     
Directors
member
 
by proxy
 
         
Chiu Sung Hong (Chairman)
2
 
0
 
Tse Hau Yin, Aloysius
2
 
0
 
Lv Bo
2
 
0
 

C. 
ACCOUNTABILITY AND AUDIT

C.1
Financial reporting
Principle: “The board should present a balanced, clear and comprehensible assessment of the company’s performance, position and prospects.”

 
The Company has established a mechanism for reporting to the Board by providing a monthly management report in order to ensure that the Board fully understands the operating conditions and the relevant financial position of the Company. The Board is responsible for preparing accounts that give a true and fair view of the Group’s financial position on a going-concern basis and other financial disclosures. Management provides the Board with the relevant information it needs to fulfill these responsibilities.

 
Directors will discuss the operating budget for the next year and approve the operating budget at the end of each year and will review the execution of the operating budget for the whole year. Management will also provide sufficient explanations and information to the Board. All significant changes in the operating conditions and investment decisions will be discussed in sufficient details by the Board.

 
Directors will also discuss and analyse the performance of the Group, the long term business model and corporate strategies of the Company for achieving the Company’s objectives and generating or preserving value over the longer term. Please refer to the relevant section in Management’s Discussion and Analysis on pages 57 to 62 for details.

 
If necessary, the Directors will also engage professional independent consultants so that the Directors can gain an in-depth and comprehensive understanding and assessment of the relevant matters, in order to make well-grounded assessments.

 
In response to Section 404 of the Sarbanes-Oxley Act promulgated by the U.S. Congress in 2002 to safeguard the interests of investors, increase the accuracy and effectiveness of financial reporting and financial information disclosure, the management has issued a statement on the responsibility and effectiveness of internal control based on financial reporting, and the auditors of the Company have also audited the effectiveness of internal control over financial reporting.

 
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The Company regularly updates investors with progress of development and performance of the Company through formal channels such as annual reports, interim reports and announcements made through the Hong Kong Stock Exchange’s website and the Company’s website, as well as through press releases. The Company also issues quarterly operational statistics and announces its strategy at the beginning of the year to enhance transparency about its performance and to give details of the latest development of the Company in a timely manner.

 
The Company provides a balanced, clear and understandable assessment in its interim and annual reports, other financial disclosures required by the Listing Rules, reports to the regulators and information disclosed under statutory requirements to enable investors to appraise its development over the period and its financial position.

 
The Company has also engaged independent technical consultant firms to conduct a review of its oil and gas business and discloses details of its oil and gas properties in its annual report (as set out on pages 128 to 140).

 
The Directors are not aware of any material uncertainties relating to events or conditions that may cast significant doubt upon the Company’s ability to continue as a going concern as referred to in Code Provision C.1.3 of the CG Code.

 
The statement by the auditor of the Company regarding its reporting responsibilities on the financial statements of the Group is set out in the Independent Auditors’ Report on page 63.

C.2
Internal controls
Principle: “The board should ensure that the issuer maintains sound and effective internal controls to safeguard shareholders’ investment and the issuer’s assets.”

 
The Directors regularly, and at least annually, receive reports from the management of the Company regarding the establishment, review and evaluation of the Company’s financial, operational and compliance control, internal control and risk management. All major risks are reported to the Board. The Board will also evaluate the corresponding risks and the response plan. The Company would review, among other things, adequacy of resources, staff qualifications and experience, training programmes and budget of our accounting and financial reporting functions.

 
The Company has established and maintains an internal control and risk management system that is in line with the strategic objectives of the Company and fits the actual needs of the Company. A Risk Management Committee, which is directly managed by the Chief Executive Officer, has been established and authorized to assess, analyse and identify key risks of the Company. The Risk Management Committee is responsible for the Company’s organization and implementation of overall risk management. The Risk Management Committee devises risk management objectives in accordance with the Company’s strategies, and assesses the Company’s key risks in making major decisions, important events and key business processes. The Risk Management Committ