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 2016
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 o |
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 o No x |
If "Yes" is marked, indicate below the file number assigned to the registrant in connection with Rule 12g3-2(b): Not applicable
CNOOC Limited
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By:
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/s/
Jiewen Li
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Name:
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Jiewen Li | |||
Title:
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Joint Company Secretary
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EXHIBIT INDEX
Exhibit No. | Description | |
99.1 | Announcement entitled “2015 Annual Report” | |
99.2 | Announcement entitled "Notice of Annual General Meeting" | |
99.3 | Announcement entitled "Explanatory Statement Relating to the Proposed General Mandates to Issue Shares and Buy Back Shares and Proposed Re-Election of Directors" | |
99.4 | Announcement entitled "Form of proxy for the Annual General Meeting to be held on 26 May 2016" | |
99.5 | Announcement 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 2015, the Group owned net proved reserves of approximately 4.32 billion BOE, and its average daily net production was 1,358,022 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 RMB664.4 billion.
Content
2 | Financial Summary |
3 | Operating Summary |
6 | Chairman’s Statement |
8 | Business Overview |
9 | Overview |
10 | Exploration |
11 | Engineering Construction, Development |
and Production | |
12 | Regional Overview |
17 | Sales and Marketing |
17 | Research and Development |
18 | Risk Management and Internal Control |
System | |
19 | Risk Factors |
23 | Health, Safety and Environmental Protection |
24 | Corporate Citizen |
25 | Human Resources |
27 | Corporate Governance Report |
44 | Directors and Senior Management |
51 | Report of the Directors |
61 | Management’s Discussion and Analysis |
66 | Independent Auditors’ Report |
67 | Consolidated Statement of Profit or Loss and |
Other Comprehensive Income | |
68 | Consolidated Statement of Financial Position |
69 | Consolidated Statement of Changes in Equity |
70 | Consolidated Statement of Cash Flows |
71 | Notes to Consolidated Financial Statements |
132 | Supplementary Information on Oil and Gas |
Producing Activities (Unaudited) | |
145 | Notice of Annual General Meeting |
151 | Glossary |
152 | Company Information |
Financial Summary
(Amounts expressed in millions of RMB)
Consolidated Statement of Profit or Loss and Other Comprehensive Income (Audited)
Year ended 31 December
2011 | 2012 | 2013 | 2014 | 2015 | ||||||||||||||||
Total revenues | 240,944 | 247,627 | 285,857 | 274,634 | 171,437 | |||||||||||||||
Total expenses | (150,337 | ) | (160,486 | ) | (207,354 | ) | (193,719 | ) | (153,981 | ) | ||||||||||
Interest income/(finance costs), net | (511 | ) | (601 | ) | (2,365 | ) | (3,701 | ) | (5,245 | ) | ||||||||||
Share of profits/(losses) of | ||||||||||||||||||||
associates and a joint venture | 567 | (27 | ) | 895 | 1,006 | 1,903 | ||||||||||||||
Investment income | 1,828 | 2,392 | 2,611 | 2,684 | 2,398 | |||||||||||||||
Profit before tax | 92,565 | 90,172 | 80,851 | 82,513 | 17,130 | |||||||||||||||
Income tax (expense)/credit | (22,310 | ) | (26,481 | ) | (24,390 | ) | (22,314 | ) | 3,116 | |||||||||||
Profit for the year | 70,255 | 63,691 | 56,461 | 60,199 | 20,246 | |||||||||||||||
Consolidated Statement of Financial Position (Audited) | ||||||||||||||||||||
As at 31 December | ||||||||||||||||||||
2011 | 2012 | 2013 | 2014 | 2015 | ||||||||||||||||
Current assets | 131,923 | 170,894 | 146,552 | 140,708 | 140,211 | |||||||||||||||
Property, plant and equipment | 220,567 | 252,132 | 419,102 | 463,222 | 454,141 | |||||||||||||||
Investments in associates/ | ||||||||||||||||||||
a joint venture | 22,997 | 24,017 | 24,397 | 25,250 | 28,413 | |||||||||||||||
Intangible assets | 1,033 | 973 | 17,000 | 16,491 | 16,423 | |||||||||||||||
Total assets | 384,264 | 456,070 | 621,473 | 662,859 | 664,362 | |||||||||||||||
Current liabilities | (70,216 | ) | (82,437 | ) | (128,948 | ) | (103,498 | ) | (84,380 | ) | ||||||||||
Non-current liabilities | (51,192 | ) | (63,853 | ) | (150,905 | ) | (179,751 | ) | (193,941 | ) | ||||||||||
Total liabilities | (121,408 | ) | (146,290 | ) | (279,853 | ) | (283,249 | ) | (278,321 | ) | ||||||||||
Equity | 262,856 | 309,780 | 341,620 | 379,610 | 386,041 | |||||||||||||||
CNOOC LIMITED Annual Report 2015 2
Operating Summary
Year ended 31 December
2011 | 2012 | 2013 | 2014 | 2015 | ||||||||||||||||
Production | ||||||||||||||||||||
Net production of crude | ||||||||||||||||||||
and liquids (barrels/day) | ||||||||||||||||||||
China | 598,590 | 615,122 | 610,435 | 626,791 | 761,019 | |||||||||||||||
Bohai | 405,682 | 411,642 | 392,413 | 403,927 | 477,904 | |||||||||||||||
Western South China Sea | 72,006 | 72,672 | 75,606 | 80,493 | 89,958 | |||||||||||||||
Eastern South China Sea | 120,563 | 130,266 | 141,545 | 141,166 | 190,525 | |||||||||||||||
East China Sea | 339 | 543 | 872 | 1,206 | 2,632 | |||||||||||||||
Overseas | 83,993 | 104,623 | 279,409 | 305,345 | 338,440 | |||||||||||||||
Asia (excluding China) | 17,427 | 14,883 | 28,997 | 37,237 | 45,640 | |||||||||||||||
Oceania | 5,382 | 4,846 | 4,533 | 4,297 | 3,350 | |||||||||||||||
Africa | 56,348 | 56,998 | 77,343 | 76,838 | 83,677 | |||||||||||||||
North America (excluding Canada)** | 4,836 | 27,896 | 44,245 | 49,814 | 54,692 | |||||||||||||||
Canada | – | – | 39,872 | 48,183 | 46,712 | |||||||||||||||
Europe | – | – | 83,460 | 87,918 | 103,258 | |||||||||||||||
South America | – | – | 960 | 1,058 | 1,110 | |||||||||||||||
Subtotal | 682,583 | 719,745 | 889,845 | 932,137 | 1,099,459 | |||||||||||||||
Net production of | ||||||||||||||||||||
natural gas (mmcf/day) | ||||||||||||||||||||
China | 689.9 | 663.1 | 634.5 | 643.3 | 731.9 | |||||||||||||||
Bohai | 123.0 | 123.9 | 127.4 | 137.9 | 136.9 | |||||||||||||||
Western South China Sea | 390.4 | 364.1 | 330.5 | 341.7 | 314.3 | |||||||||||||||
Eastern South China Sea | 157.8 | 148.8 | 151.4 | 136.8 | 234.9 | |||||||||||||||
East China Sea | 18.7 | 26.3 | 25.2 | 26.8 | 45.8 | |||||||||||||||
Overseas | 345.3 | 308.6 | 482.7 | 546.6 | 482.1 | |||||||||||||||
Asia (excluding China) | 218.7 | 157.8 | 140.3 | 154.4 | 140.0 | |||||||||||||||
Oceania | 101.1 | 101.1 | 98.2 | 111.2 | 93.5 | |||||||||||||||
North America (excluding Canada)** | 25.6 | 49.7 | 109.5 | 112.7 | 134.6 | |||||||||||||||
Canada | – | – | 106.0 | 117.5 | 68.4 | |||||||||||||||
Europe | – | – | 28.7 | 50.7 | 45.5 | |||||||||||||||
Subtotal | 1,035.2 | 971.7 | 1,117.1 | 1,189.9 | 1,214.0 | |||||||||||||||
Total net production (BOE/day) | ||||||||||||||||||||
China | 715,219 | 727,287 | 717,784 | 735,533 | 884,346 | |||||||||||||||
Bohai | 426,190 | 432,285 | 413,650 | 426,913 | 500,719 | |||||||||||||||
Western South China Sea | 138,712 | 135,007 | 132,284 | 138,972 | 143,676 | |||||||||||||||
Eastern South China Sea | 146,864 | 155,070 | 166,778 | 163,970 | 229,679 | |||||||||||||||
East China Sea | 3,453 | 4,925 | 5,072 | 5,678 | 10,271 | |||||||||||||||
Overseas | 144,511 | 161,561 | 365,010 | 401,804 | 423,319 | |||||||||||||||
Asia (excluding China) | 53,872 | 43,752 | 54,529 | 65,280 | 70,987 | |||||||||||||||
Oceania | 25,195 | 24,628 | 23,909 | 26,092 | 21,673 | |||||||||||||||
Africa | 56,348 | 56,998 | 77,343 | 76,838 | 83,677 | |||||||||||||||
North America (excluding Canada)** | 9,096 | 36,183 | 62,496 | 68,396 | 76,915 | |||||||||||||||
Canada | – | – | 57,534 | 67,770 | 58,115 | |||||||||||||||
Europe | – | – | 88,241 | 96,370 | 110,842 | |||||||||||||||
South America | – | – | 960 | 1,058 | 1,110 | |||||||||||||||
Total | 859,730 | 888,848 | 1,082,795 | 1,137,337 | 1,307,664 | |||||||||||||||
Net production in equity | ||||||||||||||||||||
method investees | ||||||||||||||||||||
Crude and liquids (barrels/day) | 25,704 | 23,020 | 22,758 | 23,510 | 24,588 | |||||||||||||||
Natural gas (mmcf/day) | 136.5 | 138.0 | 130.2 | 140.2 | 149.6 | |||||||||||||||
Subtotal (BOE/day) | 49,270 | 46,767 | 45,173 | 47,640 | 50,357 | |||||||||||||||
Total (BOE/day) | 909,000 | 935,615 | 1,127,967 | 1,184,977 | 1,358,022 | |||||||||||||||
CNOOC LIMITED Annual Report 2015 3
2011 | 2012 | 2013 | 2014 | 2015 | ||||||||||||||||
Reserves at year end* | ||||||||||||||||||||
Net proved crude and liquids | ||||||||||||||||||||
reserves (million barrels) | ||||||||||||||||||||
China | 1,584.7 | 1,665.7 | 1,692.6 | 1,691.6 | 1,430.6 | |||||||||||||||
Bohai | 1,000.4 | 1,067.2 | 1,087.6 | 1,111.7 | 908.3 | |||||||||||||||
Western South China Sea | 250.5 | 224.8 | 228.3 | 210.0 | 149.3 | |||||||||||||||
Eastern South China Sea | 316.1 | 354.0 | 357.0 | 351.9 | 357.0 | |||||||||||||||
East China Sea | 17.7 | 19.8 | 19.8 | 18.0 | 16.1 | |||||||||||||||
Overseas | 384.6 | 515.0 | 1,367.8 | *** | 1,348.2 | *** | 1,399.6 | *** | ||||||||||||
Asia (excluding China) | 81.8 | 65.0 | 83.6 | 47.4 | 59.8 | |||||||||||||||
Oceania | 19.0 | 16.7 | 15.9 | 16.6 | 14.5 | |||||||||||||||
Africa | 133.7 | 135.7 | 155.4 | 142.5 | 166.6 | |||||||||||||||
North America (excluding Canada)** | 150.1 | 297.6 | 175.0 | 209.3 | 239.5 | |||||||||||||||
Canada | – | – | 770.3 | 781.4 | 815.3 | |||||||||||||||
Europe | – | – | 166.0 | 149.1 | 102.3 | |||||||||||||||
South America | – | – | 1.7 | 1.8 | 1.6 | |||||||||||||||
Subtotal | 1,969.3 | 2,180.7 | 3,060.4 | 3,039.8 | 2,830.2 | |||||||||||||||
Net proved natural | ||||||||||||||||||||
gas reserves (bcf) | ||||||||||||||||||||
China | 4,139.5 | 4,459.1 | 4,475.6 | 4,756.8 | 5,354.6 | |||||||||||||||
Bohai | 596.2 | 592.5 | 552.9 | 480.8 | 381.4 | |||||||||||||||
Western South China Sea | 2,017.2 | 2,384.9 | 2,505.4 | 2,318.1 | 3,132.6 | |||||||||||||||
Eastern South China Sea | 1,222.4 | 1,175.7 | 1,114.2 | 1,029.6 | 951.6 | |||||||||||||||
East China Sea | 303.7 | 305.9 | 303.1 | 928.3 | 889.0 | |||||||||||||||
Overseas | 1,487.9 | 1,546.3 | 1,847.7 | 1,974.0 | 1,638.3 | |||||||||||||||
Asia (excluding China) | 848.7 | 800.4 | 889.4 | 861.2 | 845.8 | |||||||||||||||
Oceania | 467.8 | 409.5 | 386.0 | 455.7 | 389.2 | |||||||||||||||
North America (excluding Canada)** | 171.4 | 336.4 | 349.6 | 403.9 | 275.2 | |||||||||||||||
Canada | – | – | 195.0 | 233.0 | 119.3 | |||||||||||||||
Europe | – | – | 27.8 | 20.2 | 8.8 | |||||||||||||||
Subtotal | 5,627.4 | 6,005.3 | 6,323.3 | 6,730.8 | 6,992.9 | |||||||||||||||
Total net proved reserves | ||||||||||||||||||||
(million BOE) | ||||||||||||||||||||
China | 2,274.8 | 2,408.9 | 2,442.3 | 2,486.8 | 2,324.3 | |||||||||||||||
Bohai | 1,099.8 | 1,165.9 | 1,179.7 | 1,191.8 | 971.8 | |||||||||||||||
Western South China Sea | 586.7 | 622.2 | 649.6 | 598.7 | 672.6 | |||||||||||||||
Eastern South China Sea | 519.9 | 550.0 | 542.7 | 523.5 | 515.6 | |||||||||||||||
East China Sea | 68.4 | 70.7 | 70.4 | 172.7 | 164.2 | |||||||||||||||
Overseas | 646.3 | 793.7 | 1,696.4 | 1,698.3 | 1,691.7 | |||||||||||||||
Asia (excluding China) | 223.2 | 207.5 | 240.6 | 199.4 | 208.9 | |||||||||||||||
Oceania | 110.7 | 96.8 | 92.0 | 106.0 | 90.8 | |||||||||||||||
Africa | 133.7 | 135.7 | 155.4 | 142.5 | 166.6 | |||||||||||||||
North America (excluding Canada)** | 178.7 | 353.7 | 233.2 | 275.9 | 284.8 | |||||||||||||||
Canada | – | – | 802.8 | 820.2 | 835.2 | |||||||||||||||
Europe | – | – | 170.6 | 152.5 | 103.8 | |||||||||||||||
South America | – | – | 1.7 | 1.8 | 1.6 | |||||||||||||||
Total | 2,921.1 | 3,202.6 | 4,138.7 | 4,185.0 | 4,016.0 | |||||||||||||||
Net proved reserves in equity | ||||||||||||||||||||
method investees | ||||||||||||||||||||
Crude and liquids (million barrels) | 196.3 | 200.7 | 199.3 | 200.4 | 200.1 | |||||||||||||||
Natural gas (bcf) | 442.0 | 513.7 | 519.9 | 537.3 | 576.9 | |||||||||||||||
Subtotal (million BOE) | 269.0 | 289.3 | 288.9 | 293.0 | 299.5 | |||||||||||||||
Total* | 3,190 | 3,492 | 4,428 | 4,478 | 4,315.5 | |||||||||||||||
CNOOC LIMITED Annual Report 2015 4
2011 | 2012 | 2013 | 2014 | 2015 | ||||||||||||||||
Others | ||||||||||||||||||||
Reserve life (years) | 9.3 | 9.8 | 10.5 | 10.1 | 8.4 | |||||||||||||||
Reserve life (years) (including | ||||||||||||||||||||
equity method investees) | 9.6 | 10.2 | 10.8 | 10.4 | 8.7 | |||||||||||||||
Reserve replacement ratio (%) | 167 | 187 | 337 | 111 | 65 | |||||||||||||||
Reserve replacement ratio (%, | ||||||||||||||||||||
including equity method investees) | 158 | 188 | 327 | 112 | 67 | |||||||||||||||
Average realized price | ||||||||||||||||||||
Crude oil (US$/barrel) | 109.75 | 110.48 | 104.60 | 96.04 | 51.27 | |||||||||||||||
Natural gas (US$/mcf) | 5.15 | 5.77 | 5.78 | 6.44 | 6.39 | |||||||||||||||
* | Approximately 23%, 36%, 52%, 52% and 62%, respectively, of our net proved reserve estimates in 2011, 2012, 2013, 2014 and 2015 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 749.9 million barrels of synthetic oil and 31.4 million barrels of bitumen in 2014; 815.3 million barrels of synthetic oil in 2015. |
CNOOC LIMITED Annual Report 2015 5
Chairman’s Statement
Dear Shareholders,
In 2015, the steep downward adjustment of the global economy has continued unabated with little signs of recovery. International oil prices have continued to hover at low levels due to concerns over the prospects of global economic growth and oversupply of crude oil. With oil prices once again plummeting towards the end of the year, worldwide oil and gas industry is experiencing a “cold winter”.
We have proactively adjusted our approach and strategy for our future development, continued to focus on quality and efficiency, so as not only strive for survival, but also seek for future development. In 2015, the Company significantly reduced capital expenditures by 38% compared to 2014 and achieved favorable results in different areas of business.
First, we successfully achieved oil and gas production target for the year. Net oil and gas production reached 495.7 million BOE, representing a 14.6% growth over the prior year. The seven new projects planned for 2015 also commenced production smoothly, many of which were ahead of schedule, demonstrating once again our strong capability in project management.
Second, we maintained an intensive exploration program while lowering our exploration capital expenditures. With remarkable achievements in our oil and gas exploration, we have built a solid foundation for the Company’s sustainable development. We once again achieved excellent results from our independent exploration offshore China, with new discoveries including mid-to-large discoveries such as Liuhua 20-2 and the successful appraisal of a number of mid-to-large size oil and gas structures such as Caofeidian 6-4. We also continued to maintain a relatively high exploration success rate and opened up new frontier areas for future exploration. Breakthroughs were also made in overseas exploration. We obtained new discoveries in Algeria and Nigeria, and successfully appraised three oil and gas structures including Libra in Brazil.
The Company continued to benchmark against first-class international peers in terms of business performance and management criteria to improve the profitability of international business and continuously enhance its ability in operating overseas assets. Under the low oil price environment, we closely monitored and strictly controlled the decision-making and execution process of major overseas investment projects. We also conducted comprehensive analysis on costs and returns of these projects. At the same time, we adopted measures to further strengthen risk management of our overseas operations.
In 2015, the Company continued to carry out the “Year of Quality and Efficiency” program. Ensuring stable and safe operations of oil and gas fields and increasing the production efficiency have been the paramount mission for the Company. We have stimulated the momentum of our operations through innovation in management and effectively reduced operating costs through market mechanism. Through innovation in technology, we have embarked on the path for future growth, and we have established a system to streamline our cost structure in the long-term, laying a solid foundation to deal with the risk of continuing low oil prices. During the year, the Company’s all-in cost decreased to US$39.82 per BOE, representing a decline for the second consecutive year. The importance of quality and efficiency has been deeply embedded in the heart of every employee of the Company.
Benefitting from the excellent corporate governance and healthy operations, the Company has been selected as one of the forerunners in the Platts 2015 “Top 250 Global Energy Company Ranking”, ranking the fourth in the overall ranking chart and named the first place in the “oil and gas exploration and production” sector as well as in the “Asia/Pacific Rim” sector.
In view of the solid financial condition of the Company, the Board has recommended a final dividend of HK$0.25 per share (tax inclusive) for the year of 2015.
The downward cycle of oil prices has been deeper and longer than the industry’s expectation. The supply and demand pattern of international oil and gas is undergoing profound transformation. Going forward, oil prices may continue to be at low levels. Accordingly, the Company may face an even more complicated and difficult operating environment.
CNOOC LIMITED Annual Report 2015 6
With the challenging external environment, both the management and staff are well prepared for the long-term confrontation with the “cold winter” and will pull our strengths together to manage through this difficult period. We will continue to adjust our operating strategies, intensify the activities for the “Year of Quality and Efficiency”, make further room for growth through reform and innovation, and consolidate our results through improved systems and policies.
We will maintain our prudent financial policies, be more stringent on investment decisions and strengthen cost control. We will also closely monitor our cash-flow management so as to maintain a more competitive financial condition.
We will ensure a balance between short-term benefits and long-term development. In the area of exploration, we will prioritize exploration work offshore China, striking a balance between mature areas, rolling areas and frontier areas. Overseas, we will focus on high-quality blocks and conventional oil and gas exploration. At the same time, we will strengthen value-driven exploration philosophy to accumulate a strong resource base for future development. In the area of development and production, we will proceed cautiously with our investment decisions and place emphasis on returns. We will continue the development of our nearly 20 existing projects at a steady pace, ensuring the sustainable growth of the company.
We will persist with green and sustainable development. We will continue to maintain the standards for safety and environmental protection, enhance our capability of risk management and emergency response, to ensure safe and reliable production operations. Meanwhile, we will actively develop clean energy and increase the supply of natural gas and its competitiveness in the market.
In 2015, Mr. Wang Yilin resigned as Chairman of the Company, and Mr. Wang Jiaxiang retired as Non-Executive Director. On behalf of the Board of Directors, I wish to extend my appreciation to Mr. Wang Yilin and Mr. Wang Jiaxiang for their contributions to the Company.
Despite the changing industry environment and the challenges resulting from low oil prices, I remain confident in the future of the Company. After steady growth in the past decades, CNOOC Limited is already equipped with a solid foundation to deal with external risks. The Company has a forward-looking vision and extensive experience to face periodic industry cycles. The enormous potential in Chinese energy industry and market has brought ample opportunities for future development of the Company. CNOOC Limited is committed to working hand in hand with all shareholders and welcome the arrival of spring.
Yang Hua
Chairman
Hong Kong, 24 March 2016
CNOOC LIMITED Annual Report 2015 7
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. As of the end of 2015, the Company had net proved reserves of 4.32 billion BOE (including approximately 0.3 billion BOE in its equity method investees). In 2015, the Company had total net oil and gas production of 1,358,022 BOE per day (including net oil and gas production of approximately 50,357 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”). As of the end of 2015, approximately 53.9% of the Company’s net proved reserves and approximately 65.2% 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. As of the end of 2015, approximately 85.7% of the Company’s net proved reserves and approximately 73.8% of its net production in offshore China were derived from independent projects.
In its PSC operations, China National Offshore Oil Corporation (“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 layout of its global portfolio. Overseas assets account for 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 2015, growth momentum of the world economy was sluggish. The downward pressure of the Chinese economy continued while international oil prices remained low. The Company and the entire oil and gas industry faced severe market situation and difficult business environment.
For this reason, the Company continued to implement the “Year of Quality and Efficiency” program and carried out effective measures to maintain healthy and sustainable development.
In 2015, the Company persisted with strategies formulated at the beginning of the year, which includes, maintaining prudent financial policy and investment decision; strengthening cost control and continuing to improve quality and efficiency; ensuring safe operation of producing projects; keeping sanctioned projects on schedule with stringent quality control.
In 2015, the Company significantly reduced its capital expenditure. However, the Company still reached its production and business targets in spite of all difficulties. The Company managed to maintain appropriate exploration expenditures and intensive exploration activities, and achieved successful results. Seven new projects planned in early 2015 all came on stream. The high end of production target was met with a total volume of 495.7 million BOE. To ensure sustainable development in the future, the Company steadily pushed ahead the construction of more than 20 projects. All in cost per BOE was US$39.82, representing a decline for the second consecutive year. The Company has maintained a healthy financial position with a net profit of RMB20.25 billion for the year. Meanwhile, health, safety and environmental protection performance remained stable.
CNOOC LIMITED Annual Report 2015 8
Looking forward to 2016, the recovery of the global economy is expected to remain weak; low international oil prices will prevail, and the external operating environment is likely to remain tough. In spite of this, the Company remains confident and persistent. We will further strengthen our operating strategies under a low-oil-price environment, which include: maintaining prudent financial policy; continuing to lower costs and increase efficiency through technology and management innovation; ensuring safe operation and strict compliance with regulations; focusing on return by balancing short-term benefit and long-term development.
In 2016, the capital expenditure of the Company will be no more than RMB 60 billion. To maintain its competitive financial position, the Company will continue to strengthen cost controls and focus more on cash flow management. Our production target for 2016 is 470-485 million BOE with four new projects to come on stream. Meanwhile, the Company will maintain its high standards in health, safety and environmental protection.
EXPLORATION
In 2015, the Company ensured its exploration spending in its core area, offshore China, and prioritized mature areas and rolling areas, and made appropriate adjustment on the number of high cost wells such as deepwater wells; overseas, the Company collaborated with its partners to optimize exploration program and focused on areas with high success rates. During the year, breakthroughs were made in both offshore China and overseas exploration. Due to significant decrease in international oil prices, the reserve replacement ratio for the Company is 67% for 2015.
The Company’s major exploration areas as at the end of 2015 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 | 10,885 | |
Africa | 5,797 | |
Oceania | 33,333 | |
Overseas | North America | 6,801 |
South America | 795 | |
Europe | 7,674 | |
Subtotal | 65,285 | |
Total | 322,577 | |
In offshore China, the exploration activities of the Company remained at a high level. In 2015, a total of approximately 13.0 thousand kilometers of 2D Seismic Data was acquired independently; a total of approximately 16.5 thousand square kilometers of 3D Seismic Data was acquired independently and through PSC, and 123 exploration wells were drilled. In addition, the Company completed 19 unconventional wells onshore China. 14 new discoveries were made and 20 oil and gas structures were successfully appraised. The success rate of independent exploration wells in offshore China is 45-67%.
CNOOC LIMITED Annual Report 2015 9
In 2015, the Company continued to implement a proactive exploration strategy in offshore China, resulting in successful achievements including the following:
Firstly, effectively completed the appraisal of three mid-to-large sized oil fields. The oil and gas structures of Caofeidian 6-4, Luda 16-3/Luda 16-3 South and Bozhong 34-9 in Bohai were successfully appraised, most of which being light oil.
Secondly, remarkable achievements were made in rolling and expanding exploration in the North Slope of East Sag in Baiyun Trough in Eastern South China Sea. Two discoveries of Liuhua 20-2 and Liuhua 21-2 were made which significantly enhanced the overall efficiency of exploration and development in the region.
Thirdly, breakthroughs were made in the expansion and new layer exploration in the central valley channels in Western South China Sea, with the discovery of Lingshui 18-1, and successful appraisal of the oil and gas structure of Lingshui 25-1.
Fourthly, with existing production facilities, the rolling exploration in Bohai has led to remarkable results, with the successful appraisal of Bozhong 34-1N oil and gas structure. Aiming at high-abundance and high-quality reserves, the Company strengthened the integrated exploration and development in Wushi Trough in Western South China Sea, and successfully appraised a number of oil fields around Wushi 17-2, which enhanced the development efficiency of the region.
Such achievements have further consolidated the position of offshore China as the core area of the Company and demonstrated the Company’s unique strength in offshore China.
For overseas exploration, the Company continued to focus on key areas and optimized its investment portfolio strategies for sustainable development. New discoveries included REZ in Algeria and Ukot South in Nigeria. In addition, three oil and gas structures were successfully appraised, including MAS and OGB in Algeria and Libra in Brazil, demonstrating the Company’s favorable exploration progress overseas.
Furthermore, the Company has enhanced its management through optimizing exploration portfolio and projects, improving management processes and operational organization and reinforcing on-site operation management, integration of development and exploration and overseas management. Specific measures carried out included: communicating actively with contractors to lower service prices; reinforcing the refined management of exploration wells and reducing costs by focusing on details; enhancing operational efficiency through technological innovation; and reinforcing the integration of exploration and development to enhance the overall benefits for the Company through effective control of exploration costs.
In 2015, the Company utilized technological innovation to break through bottlenecks in exploration. The Company also increased operational efficiency through technological innovations such as Single Trip Triple Large Coring. Breakthroughs were made in the sampling process of heavy oil in Bohai. The well logging and testing for high-pressure-high-temperature wells also made progress.
CNOOC LIMITED Annual Report 2015 10
The Company’s major exploration activities in 2015 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 | 18 | 32 | 3 | 0 | 7 | 0 | 28 | 0 | 0 | 0 | 1,780 | 0 |
Eastern South China Sea | 20 | 7 | 1 | 0 | 2 | 0 | 2 | 0 | 5,368 | 0 | 4,014 | 0 |
Western South China Sea | 16 | 15 | 3 | 0 | 5 | 0 | 7 | 0 | 6,611 | 0 | 7,984 | 1,441 |
East China Sea | 1 | 5 | 2 | 0 | 0 | 0 | 4 | 0 | 1,017 | 0 | 1,294 | 0 |
Subtotal | 55 | 59 | 9 | 0 | 14 | 0 | 41 | 0 | 12,996 | 0 | 15,072 | 1,441 |
Overseas | 0 | 0 | 8 | 5 | 0 | 2 | 0 | 5 | 0 | 3,792 | 0 | 0 |
Total | 55 | 59 | 17 | 5 | 14 | 2 | 41 | 5 | 12,996 | 3,792 | 15,072 | 1,441 |
In 2016, the Company will prioritize offshore China, and balance among mature areas, rolling areas and new areas. We will focus on high-quality blocks and conventional oil and gas exploration overseas. The Company will continue to maintain heavy exploration workload to ensure mid-to long-term sustainable development.
Engineering Construction, Development and Production
In 2015, the Company successfully completed its production target and reached the high end of the target set early this year. The Company carefully organized its operational resources and made smooth progress in engineering construction. There were more than 20 projects under construction in 2015. Currently, seven projects planned for 2015 came on stream.
In 2015, the Company’s net oil and gas production reached 495.7 million BOE, representing an increase of 14.6% year over year and hit the high end of the production target of 475-495 million BOE. To date, new projects planned for 2015, Jinzhou 9-3 comprehensive adjustment, Bozhong 28/34 comprehensive adjustment, Kenli 10-1 oil field, Dongfang 1-1 phase I adjustment and Luda 10-1 comprehensive adjustment, commenced production in the year; Weizhou 11-4N oilfield phase II and Weizhou 12-2 oilfield joint development project were announced to commence production early 2016.
In 2015, the Company’s development and production faced tremendous pressure due to the continuous slump in international oil prices. Therefore, while ensuring production safety, the Company focused on enhancing efficiency and lowering costs in its development and production operations, and was able to achieve its annual development and production targets during the year.
Firstly, we focused on return in feasibility study projects and significantly reduced development investments. We achieved this mainly by optimizing designs and investment.
Secondly, we strictly controlled the quality of geology and reservoirs designs and promoted the risk-resistance capacity of new projects. This will help us ensure that various development indicators are achieved for infill drilling, comprehensive adjustment projects and new oil and gas fields.
Thirdly, we conducted special programs to lower operating expenses and established a long-term mechanism to solidify the achievements, which resulted in the successful control of operating costs. By utilizing market mechanisms, service and supply costs have also been lowered.
Fourthly, the number of projects and production expenditures were effectively controlled through project screening, budget controls and process management. Meanwhile, through changes in the performance review system of business units, their motivation of cost control was strengthened.
CNOOC LIMITED Annual Report 2015 11
Looking forward to 2016, the workload of onshore construction and offshore installation will remain stable. A total of four new projects are expected to commence production, including Kenli 10-4 oilfield, Panyu 11-5 oilfield, Weizhou 6-9/6-10 oilfield comprehensive adjustment project and Enping 18-1 oilfield. Among them, Kenli 10-4 oilfield already commenced production in January 2016. In addition, it is expected that nearly 20 new projects will be under construction in 2016 and support the Company’s sustainable growth in the future.
In 2016, the Company’s development and production are expected to face a harsh external environment due to pressure from international oil prices. The Company will undertake its various tasks with emphasis on the following areas:
Firstly, we will drive the feasibility study for major early-stage projects to further lower cost and enhance efficiency. We will strictly control the quality of geological reservoir designs of early-stage projects and strengthen the study on the producing reserves and recoverable reserves.
Secondly, we will further develop the potential of mature oil fields and slow down its production decline. With oil reservoirs as the focus, we’ll intensify the basic work of improving water injection and liquid production structures through the meticulous study of mature oil fields and reformation of management concepts.
Thirdly, we will strengthen the post evaluation of the ODP project, infill drilling and workover, establish scientific assessment criteria, and explore the potential to further reduce costs and enhance efficiency.
Through the above key measures, the Company will prioritize return, strive to achieve its annual production 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. As of the end of 2015, the reserve and daily production volume in Bohai were 971.8 million BOE and 500,719 BOE/day, respectively, representing approximately 22.5% and 36.9% 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 2015, the Company made seven successful discoveries in Bohai, namely Penglai 7-6, Luda 16-3, Caofeidian 6-1, Penglai 31-3 South, Bozhong 29-4 West, Nanbao 35-2 South and West Bozhong 34-1 North. Successful results were made in frontier exploration in Miaoxinan Uplift; light crude oil discovery was made in Guantao Group in Southeast Ring of Dabozhong and contributed to the sustainable development of the Company. In addition, the Company also successfully appraised 13 oil and gas structures, including Caofeidian 6-4, Bozhong 34-9, Luda 16-3, Luda16-3 South, Bozhong 34-1 North, Bozhong 29-1, Qinhuangdao 27-3, Kenli 10-1, Caofeidian 6-1, Bozhong 26-3, Jinzhou 20-5, Bozhong 26-3 and Bozhong 19-4. Among which, Caofeidian 6-4, Luda 16-3/Luda 16-3 South and Bozhong 34-9 structures were proved to be mid-to-large sized oilfields after appraisals. Bozhong 34-1 North represents the fruitful results that arose from the concept of integration of exploration and development, which helped enhance the value of regional development.
These new discoveries and successful appraisals further demonstrated Bohai’s potential as a core production region for the Company.
For development and production, new projects including Jinzhou 9-3 comprehensive adjustment, Qinhuangdao 32-6 comprehensive adjustment, Kenli 10-1 oilfield, Bozhong 28/34 oilfields comprehensive adjustment and Luda 10-1 oilfield comprehensive adjustment commenced production during the year, adding impetus to the Company’s production growth.
CNOOC LIMITED Annual Report 2015 12
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. As of the end of 2015, the reserves and daily production volume in Western South China Sea reached 672.6 million BOE and 143,676 BOE/day, respectively, representing approximately 15.6% and 10.6% of the Company’s total reserves and daily production, respectively.
In 2015, the Company made 5 new independent discoveries in Western South China Sea, namely Wushi 16-1 West, Wushi 17-5, Wushi 16-9, Lingshui 18-1 and Lingshui 18-2. Of which, Lingshui 18-2 is a new natural gas discovery obtained from the new layer of the central valley channels and was tested with high production capacity. Five successful appraisals were made, namely Wushi 16-9, Wushi 16-1 West, Weizhou 6-8, Wushi 17-5 and Lingshui 25-1. Of which, Lingshui 25-1 was confirmed to be a mid-to-large sized natural gas structure after appraisal; Integration of exploration and development was promoted in Wushi Trough, with Wushi 16-9, Wushi 16-1 West and Wushi 17-5 being successfully appraised, enhancing the value of regional development.
For development, Dongfang 1-1 gas field phase I adjustment came on stream in 2015, Weizhou 12-2 oilfield joint development project and Weizhou 11-4 North oilfield phrase II were announced to start production at the beginning of 2016.
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. As of the end of 2015, the reserves and daily production volume in Eastern South China Sea reached 515.6 million BOE and 229,679 BOE/day, respectively, representing approximately 11.9% and 16.9% of the Company’s total reserves and daily production, respectively.
In 2015, the Company made favourable results in rolling and expanding exploration in the North Slope of East Sag in Baiyun Trough. Two independent discoveries were made, namely Liuhua 20-2 and Liuhua 21-2, improving the overall efficiency of exploration and development in the region. In addition, two successful appraisals were made, namely Liuhua 28-2 and Lufeng 14-4.
Benefitting from the contribution of a few new projects such as Liwan 3-1 gas field which commenced production in 2014, the production output in Eastern South China Sea increased significantly.
East China Sea
The typical water depth of the Company’s operation area in the East China Sea region is approximately 90 meters. As of the end of 2015, approximately 3.8% of the Company’s reserves and 0.9% of the Company’s production were derived from East China Sea.
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. As of the end of 2015, the reserves and daily production volume derived from Asia (excluding China) reached 208.9 million BOE and 70,987 BOE/day, respectively, representing approximately 4.8% and 5.2% of the Company’s total reserves and daily production, respectively.
Indonesia
As of the end of 2015, the Company’s asset portfolio in Indonesia consisted of three development and production blocks and a block under construction, among which, the Company acted as the operator for the Southeast Sumatra block, while the Madura Strait PSC was a joint operation block. In addition, the Company, as a non-operator, also holds working interests in the production sharing contracts in Malacca PSC.
The Company owns approximately 13.90% interest in the Tangguh LNG Project in Indonesia. In 2015, production volume of phase I of the Project remained stable. Currently, we are preparing for the development of the third LNG train of phase II, which is expected to be completed and commence production in 2019.
CNOOC LIMITED Annual Report 2015 13
Iraq
The Company holds 63.75% participating interest in the technical service contract of Missan oilfields in Iraq and acts as the lead contractor of these oilfields.
In 2015, faced with the severe security conditions in Iraq, as well as declining production of mature oilfields and other difficulties, the Company coordinated the development and production operations, strengthened its oil reservoir study, and adopted effective measures to increase production volume of mature wells. The newly drilled wells also achieved expected production levels. In 2015, the production of Missan oilfields increased steadily and averaged approximately 28,000 barrels per day.
Oceania
Currently, the Company’s oil and gas assets in Oceania are mainly located in Australia and Papua New Guinea. As of the end of 2015, the reserves and daily production volume derived from Oceania reached 90.8 million BOE and 21,673 BOE/day, respectively, representing approximately 2.1% and 1.6% of the Company’s total reserves and daily production, respectively.
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 2015, the North West Shelf LNG Project generated stable production and achieved favorable economic returns.
The Company also owns one exploration block in Australia, which is currently under appraisal.
Other Regions in Oceania
The Company owns interests in four blocks which are still under exploration in Papua New Guinea and a joint research block in New Zealand.
Africa
Africa is one of the 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. As of the end of 2015, the reserves and daily production volume derived from Africa reached 166.6 million BOE and 83,677 BOE/day, respectively, representing approximately 3.9% and 6.2% of the Company’s total reserves and daily production, respectively.
Nigeria
The Company owns 45% interest in the OML130 block in Nigeria. OML130 is a deepwater project comprised of four oilfields, namely, Akpo, Egina, Egina South and Preowei.
In 2015, the Akpo oilfield maintained stable production and its net production averaged approximately 64,000 barrels per day. The Egina project is currently at the construction stage, with construction of production facilities such as Christmas trees and FPSO undergoing.
In addition, Nexen Petroleum Nigeria Limited holds a 20% non-operating interest in Usan oilfield in the OML138 block in offshore Nigeria, together with a number of other discoveries and exploration targets. Nexen Petroleum Nigeria Limited made a new discovery in the area in 2015, namely Ukot South. Also, Nexen Petroleum Exploration & Production Nigeria Limited and Nexen Petroleum Deepwater Nigeria Limited hold an 18% non-operating interest in the OPL 223 and OML 139 PSC, respectively.
We plan to utilize the synergy of Usan and OML130 projects to establish an oil and gas production base in west Africa.
CNOOC LIMITED Annual Report 2015 14
Uganda
The Company owns one-third of the interest in each of EA 1, EA 2 and EA 3A in Uganda. EA 1, EA 2 and EA 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 2015, the Company, as the operator of EA 3A, took great efforts to promote the development of the Kingfisher oilfield. The field is still under research at the preliminary development stage, and has currently completed the Pre-FEED of the crude oil pipeline.
In 2015, the FDP/PRR preparation for all oil and gas fields (excluding Kingfisher) in the reserved areas in the EA1 and EA2 blocks, in accordance with the government’s review requirements, were completed and submitted to the government of Uganda for the application of production licenses, and is currently awaiting government’s approval.
Other Regions in Africa
Apart from Nigeria and Uganda, the Company also owns interests in several blocks in Equatorial Guinea, the Republic of The Congo, Algeria and the Gabonese Republic. In 2015, the Company made a new discovery in REZ structure in Algeria.
North America
North America has become the biggest overseas reserves and production region of the Company. The Company holds interests in oil and gas assets in the U.S., Canada and Trinidad and Tobago, as well as part of the shares of MEG Energy Corporation in Canada. As of the end of 2015, the Company’s reserves and daily production volume derived from North America reached 1,120.0 million BOE and 135,030 BOE/day, respectively, representing approximately 26.0% and 10.0% of the Company’s total reserves and daily production, respectively.
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 2015, along with the increasing number of wells drilled, the net production of the Eagle Ford project continued to increase and averaged approximately 60,000 BOE/day. At the same time, upon the identification of the core region of the Powder River Basin for the Niobrara project, the project began to make contribution to the Company. Under the current low oil price environment, our operators have slowed down asset development, which will impact our near-term production due to natural decline.
In addition, the Company owns interest in two major deep-water developments, Stampede and Appomattox, and a number of other exploration blocks in the U.S. Gulf of Mexico, through its wholly-owned subsidiary, Nexen Energy ULC (“Nexen”). The Company also owns interests in several exploration blocks in offshore Alaska.
Canada
Canada is one of the world’s major regions with rich oil sands resources, participation in oil sands development will be favorable to the sustainable growth of the Company. In Canada, the Company, through its subsidiary, Nexen, owns 100% working interest in the oil sands project located at the Long Lake as well as three other oil sands leases in the Athabasca region in northeastern Alberta. We also hold a 7.23% interest in the Syncrude project and a 25% interest in several other non-operated exploration and development leases.
In 2015, the Company continued the development of the Long Lake project. Its net production averaged approximately 30,000 BOE/day. For the oil sands project in Canada, under the low oil price environment, the Company will leverage on its overall advantages, lower cost and enhance efficiency, and control the pace of investment to provide a solid resource safeguard for its long-term development.
In addition, the Company holds approximately 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 Province in Canada.
CNOOC LIMITED Annual Report 2015 15
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, respectively, of which the 2C block is in production. The engineering construction of phase III of the natural gas project progressed smoothly, and is expected to come on stream in the second half of 2016.
South America
In South America, the Company mainly holds a 50% interest in Bridas Corporation (“Bridas”) 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 equity methods. As of the end of 2015, the Company’s reserves and daily production volume derived from South America reached 299.4 million BOE and 49,884 BOE/day, respectively, representing approximately 6.9% and 3.7% of the Company’s total reserves and daily production, respectively.
Argentina
The Company holds a 50% interest in Bridas and makes joint management decisions. Bridas holds 40% interest in Pan American Energy (“PAE”) in Argentina and 100% interest in AXION Refinery. Bridas engages in upstream oil and gas exploration and production activities as well as downstream refining activities in Argentina and other countries. The strength of upstream and downstream integration is gradually realized.
In 2015, the Company made considerable efforts 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 49,000 BOE/day. The downstream refinery maintains a high level of operation capacity and research on facilities upgrade and expansion is currently conducting.
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 water depth of about 2,000 meters.
In 2015, a successful appraisal was made in the Libra project, which further reinforced the confidence in 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 on the development opportunities of the Libra project in Brazil to seek a new growth point for production growth.
Other Regions 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 North Sea. As of the end of 2015, the Company’s reserves and daily production volume derived from Europe reached 103.8 million BOE and 110,842 BOE/day, respectively, representing approximately 2.4% and 8.2% of the Company’s total reserves and daily production, respectively.
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, and a 36.5% interest in the Golden Eagle oilfield, making the Company the largest crude oil operator in the North Sea.
The United Kingdom is one of the Company’s key overseas areas, as several key projects such as Buzzard and Golden Eagle have contributed considerably to the Company’s production. In 2015, the net production of Buzzard oilfield averaged approximately 72,000 barrels per day. In the future, we will continue to intensify our efforts in 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.
CNOOC LIMITED Annual Report 2015 16
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, Northeast Iceland. The project is at exploration and appraisal stage and completed offshore 2D seismic data acquisition and related appraisal work.
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, 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 by 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.
The world economy lost its growth momentum and varied for different areas in 2015. The diversity in monetary policies in different countries led to a strong US dollar. While the global demand for oil increased moderately, international oil prices continued to plummet affected by oversupply of crude oil, which was mainly driven by increased production of US shale oil as well as from OPEC member states. As a result, the Company’s realized oil prices declined significantly. In 2015, the Company’s average realized oil price was US$51.27/barrel, representing a decline of 46.6% year over 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 include 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 2015, the Company’s average realized natural gas price was US$6.39/mcf, representing a 0.8% decrease year over year, primarily due to two reasons: on one hand, production from new gas fields in offshore China commanded higher prices; on the other hand, realized gas price overseas decreased year over year as a result of significant decrease in natural gas prices in North America market, which offset the price increase in offshore China.
In China, the current oversupply of natural gas will adversely affect the development, operation and income of the Company’s natural gas business. To cope with the current shortage of natural gas demand from downstream users, the Company will coordinate related designs, approvals and gas price negotiations with downstream customers, with the aim of promoting a stable production of producing oil and gas fields and the development of oil and gas fields under construction.
CNOOC LIMITED Annual Report 2015 17
Research and Development
In 2015, the Company continued to implement its “technology-driven” strategy through further reforms in the scientific and technological systems, coordinated research resources and promoted research and production works in an orderly and effective manner. During the year, the Company continued to streamline the positions of different research institutes and to identify their respective responsibilities. In addition, measures were taken to coordinate the functions and systems of different institutes. The Company also established an unconventional oil and gas research institute. Pilot platforms such as the platform for the development of high temperature and high pressure reservoirs were put into use, providing basic requirements and protection for the Company’s independent technological innovations. Through such innovations, the Company was able to protect its increased reserves and production as well as to lower cost and enhance efficiency for its development projects. A series of research findings have been applied to increase production efficiency. In recognition of its achievements, a second prize was awarded to the Company for “Key Technological Application in Enhancing Oil Recovery of Offshore Heavy Polymer Flooding” from the National Technological Invention Award in 2015.
Major Scientific Project Development
In 2015, in order to provide key technological support for its sustainable development, the Company strengthened the management of technological projects and focused its efforts on areas such as exploration and development technology for deep water oil and gas fields, offshore heavy oil fields and fields with low porosity and permeability, onshore coalbed methane exploration technology, tapping technology of oil gas fields, offshore oil gas fields, development of high-temperature and high-pressure gas fields in South China Sea, etc.
In addition, the Company undertook a number of national and CNOOC’s science and technology projects such as the “Development of Large-scale Oil and Gas Fields and Coalbed Methane” and achieved know-how and new theories for geological explorations regarding the differences in oil and gas accumulation in active fault zones in Bohai as well as high-temperature and high-pressure natural gas accumulation. New exploration techniques were acquired, involving “low porosity, low permeability and low pressure” oil and gas reservoirs and deep oil and gas exploration as well as key developments of oil gas fields concerning improvements and comprehensive adjustments of maritime cluster well pattern and offshore heavy oil chemical flooding.
Innovative Development of Key Technologies
Following the successful well logging in Lingshui 18-1-1 well, the Company made its first commercial discovery in Central Canyon Yinggehai in 2015 through technological innovation. Results from the mathematical modeling and physical modeling research of thermal recovery of heavy oil reservoirs offshore, which were developed in-house, were used in Nanbao 35-2 and Luda 27-2 oilfields. We have successfully developed the first comprehensive assessment system of log interpretation which helped reduce the cost of comprehensive assessment considerably. The Company developed for its own 7 series and 5 processing techniques for sand prevention, including the complete series of cased well and open well. The Company is at the forefront of technological development in the country.
CNOOC LIMITED Annual Report 2015 18
RISK MANAGEMENT AND INTERNAL CONTROL SYSTEM
Since its establishment, the Company has treated risk management and internal control as a top priority. The Company recognizes that it is the duty and obligation of its management to establish and maintain a risk management and internal control system, which serves the Company’s strategic objectives and meets the Company’s business practice.
The Company’s Risk Management Committee is directly managed by the Chief Executive Officer and has been authorized by the Board to be in charge with the organization and implementation of the overall risk management and internal control, on-going monitor of the risk management and internal control systems of the Company, and makes periodic reports to the Board regarding the status of the risk management and internal control systems of the Company.
• | With respect to risk management, the Company has chosen and adopted the risk management framework issued by COSO (“Committee of Sponsoring Organizations of the Tread way Commission”) of the U.S., established a risk management system covering design, implementation, monitoring, assessment and continuous improvement based on the ISO 31000:2009 “Risk Management-Principles and Guidelines”. The Risk Management Committee established the overall targets and policies of the risk management system which are in line with the strategic objectives of the Company, and identified, analysed and assessed the overall risk of the Company, including the Company’s key risks in making major decisions, important events and key business processes. The Risk Management Committee is also responsible for reviewing and approving the response plans to major risks, as well as following-up and periodically reviewing the implementation of such response plans, in order to make sure that sufficient attention, monitor and responses will be paid to all key risks of the Company. |
• | With respect to internal control, the Company has chosen and adopted the internal control framework issued by COSO of the U.S., established an internal control system and mechanism over financial, operational and compliance controls and has conducted continuing review and evaluation of the internal control of the Company to ensure the timeliness, accuracy and completeness of all information reported. |
In 2015, the Company continued to strengthen the organization construction of risk management and internal control, carried out the anti-fraud status investigation and assessment and improved the decision-making related policies. The management conclude that as of 31 December 2015, the Company’ internal control over financial reporting was effective.
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 risk management and internal control system, and maintain a high standard of corporate governance to ensure the Company’s healthy development.
Risk factors
Although we have established the risk management system to identify, analyze, evaluate and respond to risks, our business activities are subject to the following risks, which could have material effects on our strategy, operations, compliance and financial condition. We urge you to carefully consider the risks described below.
Our business, cash flows and profits fluctuate with changes in oil and gas prices.
Prices for crude oil, natural gas and oil products may fluctuate widely in response to relative changes in the supply and demand for oil and natural gas, market uncertainty and various other factors beyond our control, including, but not limited to overall economic conditions, political instability, armed conflict and acts of terrorism, economic conditions and actions by major oil-producing countries, the price and availability of other energy sources, domestic and foreign government regulations, natural disasters and weather conditions. Changes in oil and gas prices could have a material effect on our business, cash flows and earnings.
Low oil and natural gas prices may adversely affect our business, revenue and earnings. Lower oil and natural gas prices may result in the write-off of higher cost reserves and other assets, reduction of the amount of oil and natural gas we can produce economically and termination of existing contracts that have become uneconomic. The prolonged slump in oil and natural gas prices may also impact our long-term investment strategy and operation capability for our projects.
CNOOC LIMITED Annual Report 2015 19
Our business and strategy may be substantially affected by complex macro economy, politically instability, war and terrorism and changes in policy and fiscal and tax regimes.
Economic conditions, energy costs, geopolitical issues and the availability and cost of credit resulted in a severe and prolonged global economic downturn period. The complex economic outlook may materially and adversely affect our business and financial conditions.
Some of the countries in which we operate may be considered politically and economically unstable. As a result, our financial condition and operating results could be adversely affected by associated international activities, domestic civil unrest and general strikes, political instability, war and acts of terrorism. Any changes in regime or social instability, or other political, economic or diplomatic developments, or changes in fiscal and tax regime are not within our control. Our operations, existing assets or future investments may be materially and adversely affected by these changes as well as potential trade and economic sanctions due to deteriorated relations between different countries.
Our financial performance is subject to the tax and fiscal regime of host countries in which we operate. Any changes in the tax and fiscal regime in these countries may increase our tax burden and have an adverse effect on our financial performance. For example, in October 2015, Organization for Economic Co-operation and Development (OECD) published the “Base Erosion and Profit Shifting Project” (BEPS Project) final report with 15 action items, to enhance multilateral cooperation, pursuant to which the participating countries will amend their tax laws and tax treaties, and strengthen their supervision on the corporate tax planning and transfer pricing activities, which may cause risks to the Company on global transfer pricing activities.
Oil and natural gas industry are very competitive.
We compete in the PRC and international markets with national oil companies, major integrated oil and gas companies and various other independent oil and gas companies for access to oil and gas resources, products, alternative energy, customers, capital financing, technology and equipment, personnel and business opportunities. Competition may result in shortage of these resources or over-supply of oil and gas, which could increase our cost or reduce our earnings, and adversely impact our business, financial condition and results of operations. For example, the over-supply of natural gas in China may negatively impact our development, operation and revenue of natural gas projects.
In addition to competition, as we need to obtain various approvals from governmental and other regulatory authorities in order to maintain our operations, we may face unfavorable results such as project delays and cost overruns, which may further impact the realization of our strategies and adversely impact our financial condition.
Our ability to deliver competitive returns and pursue commercial opportunities depends in part on the robustness and the long-lasting accuracy of our price assumptions.
We review the oil and natural gas price assumptions on a periodic basis when evaluating project decisions and business opportunities. We generally test projects and other business opportunities against a long-term price range. While we believe our current long-term price assumptions are prudent, if such assumptions proved to be incorrect, it could have a material adverse effect. For short-term planning purposes, we stress test the project feasibility against a wider range of prices.
Rising climate change concerns could lead to additional regulatory measures that may result in project delays and higher costs.
It is expected that the CO2 emissions will increase as our production grows. CO2 emissions from flaring will increase as long as there are no gas gathering systems in place. Over time, we expect that a growing share of our CO2 emissions will be subject to supervision and result in an increase in our costs. Furthermore, the public’s continued and increased attention to climate changes, including activities organized by non-governmental and political organizations, is likely to lead to implementation of additional regulations on reducing greenhouse gas emissions. If we are unable to find economically viable and publicly acceptable solutions that could reduce our CO2 emissions for new and existing projects, we may experience additional costs, project delays, reduced production and reduced demand for hydrocarbons.
CNOOC LIMITED Annual Report 2015 20
Mergers, acquisitions and divestments may expose us to additional risks and uncertainties, and we may not be able to realize the anticipated benefits from acquisitions and divestments.
Mergers and acquisitions may not succeed due to various reasons, such as difficulties in integrating activities and realising synergies, outcomes differing from key assumptions, host governments reacting or responding in a different manner from that envisaged, or liabilities and costs being underestimated. Any of these would reduce our ability to realise the anticipated benefits. We may not be able to successfully divest non-core assets at acceptable prices, resulting in increased pressure on our cash position. In the case of divestments, we may be held liable for past acts, or failures to act or perform responsibilities. We may also be subject to liabilities if a purchaser fails to fulfil all of its commitments. These risks may result in an increase in our costs and inability to achieve our business goals.
The nature of our operations exposes us and the communities in which we work to a wide range of health, safety, security and environment risks.
Every aspect of our daily operations exposes us to health, safety, security and environmental (HSSE) risks given the geographical area, operational diversity and technical complexity of our operations. Our operations include productions and transportations of oil and gas in difficult geographic or climate zones, as well as environmentally sensitive regions, such as Canada, the basins in Uganda or offshore, especially in deep water area. Our operations expose us and the areas in which we operate to a number of risks, including major process safety incidents, natural disasters, earthquakes, social unrest, health and safety lapses and crimes. If a major HSSE risk materialises, such as an explosion or hydrocarbon spill, this could result in casualties, environmental damage disruption of business activities and, depending on their cause and severity, material damage to our reputation, exclusion from bidding on mineral rights and eventually loss of our licence to operate. In certain circumstances, liabilities could be imposed without regard to our fault in the matter. Regulatory requirements for HSSE change constantly and may become more stringent over time. In the future, we may incur significant additional costs in complying with such requirements or bear liabilities such as fines, penalties, clean-up costs and third-party claims, as a result of breach of laws and regulations relating to HSSE matter. Our reputation may be adversely affected.
We maintain various insurance policies for our operations against potential losses. However, our ability to insure against our risks is subject to the availability of relevant insurance products in the market. In addition, we cannot ensure you that our insurance coverage is sufficient to cover any losses that we may incur, or that we will be able to successfully claim our losses under our existing insurance policies on a timely basis, or at all. If any of our losses are not covered by our insurance coverage, or if the insurance compensation is less than our losses or the claim is not paid on a timely basis, our business, financial condition and results of operations could be materially and adversely affected.
Violations of anti-fraud, corruption and corporate governance laws may expose us to various risks.
Laws and regulations of the host countries or regions in which we operate, such as laws on anti-corruption, anti-fraud and corporate governance, are constantly changing and strengthening, especially in the United States, United Kingdom, Canada and China. The compliance with these laws and regulations may increase our cost. If the Company, our employees, executives or directors fail to comply with any of such laws and regulations, it may expose us to prosecution or punishment, damage to our brand and reputations, the ability to obtain new resources and/or access to the capital markets, and it may even expose us to civil or criminal liabilities.
The current or future activities of our controlling shareholder, CNOOC, or its affiliates in certain countries that are the subject of U.S. sanctions could result in negative media and investor attention and possible imposition of sanctions on CNOOC, which could materially and adversely affect our shareholders.
We cannot predict the interpretation or implementation of government policies at the U.S. federal, state or local levels with respect to any current or future activities by CNOOC or its affiliates in countries or with individuals or entities that are the subject of U.S. sanctions. As a result of such activities by CNOOC, we could be prohibited from engaging in business activities in the U.S. or with U.S. individuals or entities, and U.S. transactions in our securities and distributions to U.S. individuals and entities with respect to our securities could also be prohibited. Pension or endowment funds of certain U.S. State and local governments or universities may sell our securities due to certain restrictions on investments in companies that engage in activities in sanctioned countries, such as Iran and Sudan. We may also be subject to negative media or investor attention, which may distract management, consume internal resources and affect investors’ perception of our company and investment in our company.
CNOOC LIMITED Annual Report 2015 21
As required by the Iran Threat Reduction and Syria Human Rights Act of 2012, which added a disclosure requirement to the Securities Exchange Act of 1934, we are providing certain information regarding our non-controlled affiliates’ activities. To our knowledge, in 2015, China Oilfield Services Limited (COSL), one of our non-controlled affiliates, continued to provide certain drilling and other related services in Iran under renewed subcontracting agreements entered into in 2009, as it did in 2014. We cannot predict at this time whether U.S. sanctions will be imposed on any of our affiliates.
Any failure to replace reserves and develop our proved undeveloped reserves could adversely affect our business and our financial position.
Our exploration and development activities involve inherent risks, including the risk of not discovering commercially productive oil or gas reservoirs and that the wells we drill may not be able to commence production or may not be sufficiently productive to generate a return of our partial or full investments. In addition, approximately 55.0% of our proved reserves were undeveloped as of 31 December 2015. Our future success depends on our ability to develop these reserves in a timely and cost-effective manner. There are various risks in developing reserves, mainly including construction, operational, geophysical, geological and regulatory risks.
The reliability of reserve estimates depends on a number of factors, including the quality and quantity of technical and economic data, the market prices of our oil and gas products, the production performance of reservoirs, extensive engineering judgments, comprehensive judgement of engineers and the fiscal and tax regime in the countries where we have operations or assets.
Many of the factors, assumptions and variables involved in estimating reserves are beyond our control and may prove be incorrect over time. Consequently, the results of drilling, testing, production and changes in the price of oil and gas may require substantial upward or downward revisions to our initial reserve data.
If we fail to develop or gain access to appropriate technologies, or to deploy them effectively, the realization of our strategies as well as our competitiveness and ability to operate may be adversely affected.
Technology and innovation are vital for us in meeting the global energy demands in a competitive environment.For example, we strive to rely on technologies and innovations to enhance our competiveness in the development of unconventional oil and gas resources, including oil sands, shale oil and gas and coalbed methane, and deep water exploration and development. In the context of an operating environment with stricter environmental compliance standards and requirements, although current knowledge recognise these newly developed technologies as safe to the environment, there still exists unknown or unpredictable elements that may have an impact on the environment. This may in turn harm our reputation and operation, increase our costs or even result in litigations and sanctions. We may face risks in failing to meet the required environmental standards if our technologies in unconventional oil and gas operations are not sophisticated.
Breach of our cyber security or break down of our IT infrastructure could damage our operations and our reputation.
Intentional attacks on our cyber system, negligent management of our cyber security and IT system management and other factors may cause damage or break down to our IT infrastructure, which may disrupt our operations, result in loss or misuse of data or sensitive information, cause injuries, environmental harm or damages in assets, violate laws or regulations and result in potential legal liability. These actions could result in significant costs or damage to our reputational.
CNOOC largely controls us and we regularly enter into connected party transactions with CNOOC and its affiliates.
Currently, CNOOC indirectly owns or controls 64.44% of our shares. As a result, CNOOC is able to control our board composition, or our Board, determine the time and amount in dividend payments, and controls us in various aspects. Under current PRC laws, CNOOC has the exclusive right to enter into PSCs with foreign enterprises for the petroleum resources exploitation in offshore China. Although CNOOC has undertaken to transfer all of its rights and obligations under any new PSCs to us (except for those relating to administrative functions as a state-owned company), our strategies, results of operations and financial position may be adversely affected in the event CNOOC takes actions that favour its own interests over ours.
In addition, we regularly enter into connected transactions with CNOOC and its affiliates. Certain connected transactions require a review by the Hong Kong Stock Exchange and are subject to prior approvals by the independent shareholders. If these transactions are not approved, the Company may not be able to proceed as planned and it may adversely affect our business and financial condition.
CNOOC LIMITED Annual Report 2015 22
Oil and natural gas transportation may expose us to financial loss and reputation harm.
Our oil and gas transportation involves marine, land and pipeline transportation, which are subject to hazards such as capsizing, collision, acts of piracy and damage or loss from severe weather conditions, explosions, oil and gas spills and leakages. These hazards could result in serious personal injury or loss of human life, significant damage to property and equipment, environmental pollution, impairment of operations, risk of financial loss and reputation harm. We may not be insured against all of these risks and uninsured losses and liabilities arising from these hazards could reduce the funds available to us for financing, exploration and investment, which may have a material adverse effect on our business, financial condition and results of operations.
We face various risks with regard to our business and operations in North America.
Transportation and export infrastructure in North America is limited, and without the construction of new transportation and export infrastructure, our oil and natural gas production capacity may be affected. In addition, we may be required to sell our products into the North American markets at lower prices than in other markets, which could materially and adversely affect our financial performance.
Aboriginal people in Canada have claimed aboriginal title and rights to the lands and mineral resources in substantial portion of western Canada. As a result, negotiations with aboriginal people on surface activities are required and may result in timing uncertainties or delays of future development activities. Declaration by aboriginal people, if successful, could have a significant adverse effect on our business in Canada.
We may have limited control over our investments in joint ventures and our operations with partners.
A portion of our operations are conducted in the forms of partnerships or in joint ventures in which we may have limited ability to influence and control their operation or future development. Our limited ability to influence and control the operation or future development of such joint ventures could materially and adversely affect the realization of our target returns on capital investment and lead to unexpected future costs.
If we depend heavily on key customers or suppliers, our business, results of operations and financial condition could be adversely affected.
Key sales customers – if any of our key customers reduced their crude oil purchases from us significantly, our results of operation could be adversely affected. In order to reduce reliance on a single customer, we adopt measures including signing annual sales contracts, developing sales plans, and participating in market competition so as to maintain a stable cooperation with customers.
Key suppliers – we have strengthened our communication in business with our key suppliers in order to maintain a good working relationship. We have also established strategic partnerships through communications and a consensus in corporate cultures and win-win cooperation Further, we actively explore new suppliers to ensure adequacy and foster competition.
We face currency risks and liquidity risks.
Currency risks – The Company’s oil and gas sales are substantially denominated in Renminbi and U.S. dollars. The depreciation of the Renminbi against the U.S. dollar may result in double effects. The appreciation of the U.S. dollar against the Renminbi may increase the Company’s revenue in the sales of oil and gas, but it may increase our costs of equipment and import of raw materials in the meantime.
Liquidity risks – Certain restrictions on dividend distribution imposed by the laws of the host countries in which we operate may adversely and materially affect our cash flows. For instance, as the dividend of our wholly owned subsidiaries in the PRC shall be distributed pursuant to the laws of the PRC and the articles and association, and we may face risks of not obtaining adequate cash flows from such subsidiaries. In addition, a ratings downgrade could potentially increase financing costs and adversely impact our ability to access financing, which could put pressure on the Company’s liquidity.
CNOOC LIMITED Annual Report 2015 23
health, safety and environmental protection (“Hse”)
The Company always places great emphasis on health, safety and environmental protection (HSE). “Safety and environmental protection come first, people oriented and well-equipped facilities” have been regarded as the core values of quality, health, safety and environmental protection (QHSE). To promote the culture of HSE, the Company strives to establish a comprehensive management system to improve employees’ awareness of HSE during operations, to strengthen their ability to identify safety risks as well as improve their risk management skills.
Since the end of 2014, the Work Safety Law of the People’s Republic of China (as amended) and the Environmental Protection Law of the People’s Republic of China (as amended) have imposed stricter supervision and management of work safety on enterprises, which brings about additional challenges for the Company in work safety, clean production and development. For this reason, the Company further reinforced its basic work of production safety through system improvement and management innovation. The Company’s key responsibilities were effectively put in place and its safety culture was clearly demonstrated. All in all, the operation of the health, safety and environmental protection system remained stable.
Offshore China, in view of new regulations recently implemented, the Company has carried out safety hazards investigations and employed third-party agencies to carry out safety and environmental compliance management and operational assessments in 2015 to identify management’s weaknesses and to provide recommendations for improvement. We reinforced the system of QHSE work, adhered to the mode of system management, coordinated and prepared annual audit inspections, organized system reviews for the 7 units under the Company, and strengthened management reviews of highly specialized contractors by external experts. During the year, the Company carried out a review on 35 contract helicopters and 11 diving contractors in 12 helicopter bases to obtain detailed management findings and effectively avoid HSE risks. During the year, the Company also conducted special safety inspections of offshore oil and gas, dangerous chemicals and inflammable and explosive materials, and full coverage inspections of “Five No-drillings” to track potential problems and to remediate potential risks.
In 2015, the Company advocated the implementation of “China National Offshore Oil Safety Signs behavior” actions and enacted rules relating to safety signs behavior in three levels of daily working lives, including leaders, employees and organization in order to arouse the safety awareness of employees in their everyday life and to promote security management.
Apart from this, the Company further strengthened its energy saving technological reforms to reinforce energy discharge management and achieved 129,000 tons of standard coal energy savings in 2015.
In 2015, the Company continued to strengthen overseas HSE management and enacted individual management plans for all highlighted overseas projects. We have now finished all HSE management plans for branches in Iraq, Indonesia, Uganda and we continued to integrate the HSE management within Nexen, gradually improved the HSE management and facilitated the implementation of corporate management requirements effectively by the following measures: competing focused reviews, organizing joint exercises, enhancing communication, and strengthening incident management.
The Company’s emergency response system were undergoing serious testing. On 15 July 2015, an emulsion leak from a pipeline was discovered within Nexen’s Long Lake operations, located in the south of Fort McMurray, Alberta, Canada. The estimated size of the leak was 5,000 m3 over an area of approximately 21,900 m2 mostly within a compacted pipeline corridor. There were no injuries due to this incident. The affected wells were suspended and Nexen’s emergency response plan was activated. The Company places great emphasis on production safety and has taken measures to minimize the spill’s impact to the environment and wildlife. Since the incident, the Company has been working together with relevant regulatory agencies in its conduct of clean-up and remediation work at the spill site. Nexen is cooperating with the investigation of the regulatory agencies.
The majority of the released bitumen in the spill area has been safely removed. Further continued remediation and clean-up work is underway and will be carried out in compliance with applicable regulatory requirements.
HSE regulatory standards were further enhanced with the help of information technology. Our Environmental Information System is able to monitor real-time pollutant emission while safety inspection systems are available for continuing investigation and management of safety risks.
CNOOC LIMITED Annual Report 2015 24
In 2015, the Company’s OSHA (Occupation Safety and Health Administration) statistics on work safety maintained at a good level and performance is expected to continue to improve.
Number | Rate | |||||
Gross | Number of | Rate of | of Lost | of Lost | ||
Man-hours | Recordable | Recordable | Workdays | Workdays | Fatal | |
Scope | (million) | Cases | Cases | Cases | Cases | Cases |
Company staff | 44 | 20 | 0.09 | 3 | 0.01 | 0 |
Staff of the Company and | ||||||
direct contractors | 124 | 68 | 0.11 | 15 | 0.02 | 0 |
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 continued to use the concepts mentioned above as guidelines and place great emphasis on the following three areas to fulfill its social responsibility:
First, a driving force for sustainable energy supply
In 2015, the Company achieved significant progress in the areas of exploration, development and production, with stable growth in oil and gas reserves and production. In offshore China, 14 new discoveries were made and successful appraisals of 20 oil and gas structures were achieved. The Company achieved fruitful results in overseas exploration with new discoveries in Algeria and Nigeria, and the successful appraisal of three oil and gas structures. In addition, the Company overcame a number of difficulties to ensure stability in oil and gas production through promoting production of new oil and gas fields and new wells and successfully achieved its annual production target.
With sustainable growth in the Company’s reserves and production volume, the Company has gradually increased its energy supply to China and the world, becoming a driving force for sustainable energy supply. We regard this as the most important aspect of the fulfillment of our social responsibility.
Second, a leading force for clean, healthy and green energy development
The development and expansion of our natural gas business is one of the three major developmental strategies of the Company. In 2015, the Company continued to develop its conventional natural gas business. In Eastern South China Sea, China’s first large-scale deepwater gas field, Liwan 3-1, came on stream in 2014. Currently, the project is supplying gas to our customers in Hainan province and Hong Kong. Looking ahead, we will continue to develop clean energy to create a better environment.
Third, a motivating force for mutual progress with stakeholders and the society
The Company continued to actively participate in poverty alleviation, disaster relief, education loan and other social welfare activities. The Company provided electricity at a reduced tariff for the people in Weizhou Island helping them to solve the long-term problem of insufficient electricity and high electricity bills. In Overseas, we provided CNOOC scholarships for students in Uganda to encourage students from all regions to attain better academic results. In Iraq, in view of the difficulties in using water and electricity, the Company installed pipes and cables connecting to the village to solve the problem of water and electricity shortage. We also helped a local elementary school in its renovation and refurbishment.
CNOOC LIMITED Annual Report 2015 25
In 2015, our ships continued to participate in sea rescue work in various regions, totaling 44 times for emergency sea rescues and 60 times for the use of ships and aircrafts.
In 2016, the Company will publish and upload on its website its “2015 Corporate Social Responsibility Report” to conclude and reflect upon its social responsibility performance in 2015.
Human resources
The Company strives to create an open, transparent and fair working environment. We adhere to the people-oriented spirit and staff caring concept, placing high emphasis on safeguarding the legal rights and rights of our staff. The Company has built a professional and highly efficient workforce capable of overcoming challenges, which has been essential to the success of the Company.
In 2015, faced with the tough challenge of low oil price, the Company continued to motivate staff and inspire their creativity through improving institutional mechanisms systems, enhancing organizational efficiency, continuing to strengthen the teams’ ability and to stimulate their talent. We had built up adequate human resources support amid the suppressed oil price environment.
Labor Policy underpinned by Objectivity, Openness and Fairness
The Company respects the basic human rights that all employees are legally entitled to, and also respects the values, identity and privacy of employees with different cultural background. In Mainland China, the Company is in strict compliance with “Labour Law of the People’s Republic of China”, “Labour Contract Law of the People’s Republic of China” and other labor policies to safeguard all the legal rights and interests of our employees. Overseas, the Company abides by relevant local laws and regulations and diligently implements the relevant international conventions ratified by the Chinese government to ensure that we respect the legal rights of all our employees.
The Company upholds the principle of objectivity, openness and fairness in the recruitment, training, promotion and compensation systems regardless of race, nationality, religion, gender, age, marital status and employees with special legal status.
All employees entered into employment contracts with the Company based on the principles of equality and voluntariness.
The Company adheres to gender equality in the workplace, and makes an active effort to increase the number of female employees and to offer training for management positions for women. In addition, the Company also organizes a variety of leisure activities for female employees through different means and encourages them to participate in a variety of activities.
Sufficient Safeguard of Employees’ Rights
The Company also strives to create an open, transparent and fair working environment. Adhering to the people-oriented spirit and staff caring concept, we place high emphasis on safeguarding the legal rights of our staff.
We offer employees with competitive compensation packages amongst industry peers and establish a salary growth mechanism, gradually implementing an allocation system that is consistent with the market. The Company’s remuneration system, which fully takes field employees into account, is closely associated with employees’ performance and contributions. A pay mechanism that links employee incomes with the Company’s profits growth has also been adopted to ensure that our employees fully benefit from the growth and development of the Company.
A comprehensive and effective social security system has also been built and a series of measures have been adopted to help employees maintain better work-life balances.
CNOOC LIMITED Annual Report 2015 26
Staff Development
We focus on providing opportunities and career development path for the advancement and personal growth of our staffs. Based on different professional groups and job characteristics, the Company has built respective paths for promotions. In 2015, the title management system was further improved to strengthen appraisal work.
For staff training, the Company offered a variety of training courses to ensure comprehensive coverage. In 2015, 61 core training programs and projects involving approximately 800 attendees and 5,700 days were completed for key professionals and positions.
The Company continued to encourage professional skills certification and further increased the proportion of experienced professionals. In 2015, a total of approximately 3,000 employees received certifications. Currently there are approximately 3,500 employees with titles of senior worker or above, and approximately 500 technicians and senior technicians, accounting for 55% and 7% of the total technical workforce, respectively.
Cultivation of International Talents
The Company has always placed strong focus on the cultivation of international talents with an established system of strata training through a variety of ways to enhance international talent cultivation, promoting business integration within and outside the Company.
In 2015, through short-term and long-term exchange programs held in coordination with Nexen, involving professional areas such as exploration, development, oil reservoir, oil sand, shale gas, project engineering and management, cost control, procurement, planning, HSE, etc, which effectively facilitated business integration with Nexen and played a dominant role as an international talent cultivation base.
In addition, through the overseas management training course, the development history, organizational structure, the scope of business and corporate culture of the Company were introduced to the senior management overseas. Together with site visits to the Company, this has deepened senior management’s sense of belonging to the corporate culture of the Company, enhanced mutual understanding and promoted business exchange and integration.
CNOOC LIMITED Annual Report 2015 27
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 2015, the Company was awarded the “2015 Best CSR” and “2015 Best Investor Relations Company” by Corporate Governance Asia Magazine and the “2015 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 2015, 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 2015 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 eight members, including two Executive Directors, two Non-executive Directors and four Independent Non-executive Directors, as of 31 December 2015. |
• | The list of Directors, their respective biographies, and their respective roles in the Committees and the management are set out on pages 44 to 50 and 152, 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. Seven Board meetings were held in 2015. 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. |
CNOOC LIMITED Annual Report 2015 28
Attendance of full Board meetings held in 2015:
No. of meetings attended | ||
(7 meetings in total) | ||
by Director by proxy | ||
Executive Directors | ||
Li Fanrong | 7 | 0 |
Wu Guangqi | 7 | 0 |
Non-executive Directors | ||
Wang Yilin (Note 1) | 2 | 0 |
Yang Hua (Chairman) | 7 | 0 |
Lv Bo (Note 2) | 6 | 1 |
Wang Jiaxiang (Note 3) | 5 | 0 |
Independent Non-executive Directors | ||
Chiu Sung Hong | 7 | 0 |
Lawrence J. Lau | 7 | 0 |
Tse Hau Yin, Aloysius | 7 | 0 |
Kevin G. Lynch | 7 | 0 |
Note 1: Mr. Wang Yilin resigned as Non-executive Director with effect from 19 May 2015.
Note 2: Mr. Lv Bo appointed Mr. Yang Hua as his proxy to attend the Board meeting held on 19 November 2015 and to vote on his behalf.
Note 3: Mr. Wang Jiaxiang retired as Non-executive Director with effect from 23 September 2015.
• | 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. |
• | 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 in performing their duties to the Company at the Company’s expense. |
• | 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. |
CNOOC LIMITED Annual Report 2015 29
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. Yang Hua 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 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. |
CNOOC LIMITED Annual Report 2015 30
• | As of 31 December 2015, the Board consisted of eight members: two of them were Executive Directors, two 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 roles and functions 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 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. |
• | 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 & Appointments, re-election and removal & Nomination Committee
A.5 | 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.” |
• | The Nomination Committee comprises two Independent Non-executive Directors (Mr. Lawrence J. Lau and Mr. Kevin G. Lynch) and a Non-executive Director (Mr. Wang Yilin (whose resignation became effective on 19 May 2015) and Mr. Yang Hua (whose appointment as a member of the Nomination Committee became effective on 19 May 2015)) with Mr. Yang Hua 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 152 of this annual report. With effect from 19 May 2015, Mr. Yang Hua served as a member of the Nomination Committee, and Mr. Wang Yilin resigned 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 (including the skills, knowledge and experience), and to evaluate the leadership abilities of Executive Directors, so as to ensure the competitiveness of the Company. |
CNOOC LIMITED Annual Report 2015 31
• | When nominating a particular candidate for director, 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. Chiu Sung Hong who has served as an Independent Non-executive Director of the Company 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 26 May 2016. Mr. Chiu has thorough understanding of the Company’s operations and business. As an Independent Non-executive Director, Mr. Chiu has expressed objective views and given valuable independent guidance to the Company over the years. He is currently the chairman of the remuneration committee and a member of the audit committee, and has served as the chairman of the independent board committee in connection with the connected transactions entered into by the Company and its subsidiaries. Mr. Chiu has continued to demonstrate firm commitments to his role. Mr. Chiu has provided confirmation of his independence according to Rule 3.13 of the Listing Rules. The Board considers that Mr. Chiu 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 annual general meeting to be held in 2016 and the circular of the Company the reasons why the Board still considers Mr. Chiu 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 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 page 42. |
• | 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; |
CNOOC LIMITED Annual Report 2015 32
— | 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 2015, Mr. Yang Hua, an existing Non-executive Director, was appointed as Chairman of the Board and Chairman of the Nomination Committee with effect from 19 May 2015. Mr. Wang Yilin resigned as Chairman of the Board, Chairman of the Nomination Committee and Non-executive Director with effect on the same day. Mr. Wang Jiaxiang retired as Non-executive Director with effect from 23 September 2015. 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 the Board’s composition, board diversity shall be considered 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 2015
No. of meetings attended | ||||||
(2 meetings in total) | ||||||
by committee | ||||||
Directors | member | by proxy | ||||
Wang Yilin (Note 1) | 1 | 0 | ||||
Yang Hua (Chairman) (Note 2) | 1 | 0 | ||||
Lawrence J. Lau | 2 | 0 | ||||
Kevin G. Lynch | 2 | 0 |
Note 1: Mr. Wang Yilin resigned as Non-executive Director with effect from 19 May 2015.
Note 2: Mr. Yang Hua was appointed as Chairman of the Nomination Committee with effect from 19 May 2015.
CNOOC LIMITED Annual Report 2015 33
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. 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. |
– | 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 disclosure of share interests of directors, new amendments to the CG Code, Hong Kong inside information disclosure and recent profit warning practice, 2015 Report on Review of Disclosure in Issuer’s Annual Report issued by the Hong Kong Stock Exchange and US Foreign Corrupt Practices Act. |
– | 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. The Directors provided their regular training records to the Company. |
– | 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 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 2015, 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. |
CNOOC LIMITED Annual Report 2015 34
• | Mr. Yang Hua, Chairman of the Board, together with Independent Non-executive Directors attended the Annual General Meeting held in 2015 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 2015:
No. of meetings attended | |
(1 meeting in total) | |
Executive Directors | |
Li Fanrong | 1 |
Wu Guangqi | 1 |
Non-executive Directors | |
Wang Yilin (Note 1) | 0 |
Yang Hua (Chairman) | 1 |
Lv Bo | 1 |
Wang Jiaxiang (Note 2) | 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. Wang Yilin resigned as Non-executive Director with effect from 19 May 2015.
Note 2: Mr. Wang Jiaxiang retired as Non-executive Director with effect from 23 September 2015.
• | 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 44 to 50 for the 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 the Board papers, minutes and related materials upon reasonable notice. |
CNOOC LIMITED Annual Report 2015 35
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. Lv Bo) 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 salaries, bonuses, share option packages, performance appraisal systems and retirement plans for all Executive Directors and Senior Management. A list of members of the Remuneration Committee is set out in “Company Information” on page 152 of this annual report. |
• | 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 and reviewing 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 may comprise 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 2015, are set out on pages 93 to 94 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 9 to 10 to the financial statements on pages 93 to 95 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. |
CNOOC LIMITED Annual Report 2015 36
• | 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; |
— | 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 2015
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 61 to 65 for details. |
CNOOC LIMITED Annual Report 2015 37
• | 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. |
• | 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 132 to 144). |
• | 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 66. |
C.2 | Risk Management and internal controls |
Principle: “The board is responsible for evaluating and determining the nature and extent of the risks it is willing to take in achieving the issuer’s strategic objectives, and ensuring that the issuer establishes and maintains appropriate and effective risk management and internal control systems. The board should oversee management in the design, implementation and monitoring of the risk management and internal control systems, and management should provide a confirmation to the board on the effectiveness of these systems.”
• | 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, internal audit and financial reporting functions. |
• | The Company’s Risk Management Committee is directly managed by the Chief Executive Officer and has been authorized by the Board to be in charge with the organization and implementation of the overall risk management and internal control. The Risk Management Committee is responsible for establishing the risk management and internal control systems, implementing standardized organization, authorization, responsibilities, procedures and methods for the risk management and internal control systems. The Risk Management Committee is also responsible for ongoing monitoring of the risk management and internal control systems of the Company, and makes periodic reports to the Board regarding the status of the risk management and internal control systems of the Company. Such systems are designed to manage rather than eliminate the risk of failure to achieve business objectives, and can only provide reasonable and not absolute assurance against material misstatement or loss. |
CNOOC LIMITED Annual Report 2015 38
• | With respect to risk management, the Company has chosen and adopted the risk management framework issued by COSO in the United States of America (“COSO”), established a risk management system covering design, implementation, monitoring, assessment and continuous improvement based on the ISO 31000:2009 “Risk Management – Principles and Guidelines”. The Risk Management Committee established the overall targets and policies of the risk management system which are in line with the strategic objectives of the Company, and identified, analysed and assessed the overall risk of the Company, including the Company’s key risks in making major decisions, important events and key business processes. The Risk Management Committee is also responsible for reviewing and approving the response plans to major risks, as well as periodically following-up and reviewing the implementation of such response plans, in order to make sure that sufficient attention, monitor and responses will be paid to all key risks of the Company. The risk management reports are submitted to the Board periodically. |
• | With respect to internal control, the Company has chosen and adopted the internal control framework issued by COSO, established an internal control system and mechanism over financial, operational and compliance controls and has conducted continuing review and evaluation of the internal control of the Company to ensure the timeliness, accuracy and completeness of all information reported. |
• | The management has evaluated the design and operating effectiveness of its internal control regarding the financial report as of 31 December 2015, and has not discovered any material weakness as a result of the evaluation. On the basis of such evaluation, the Directors consider that as of 31 December 2015, internal control system of the Company in relation to financial reporting was effective. |
• | Meanwhile, the Company has established a mechanism for rectifying internal control defects under which the leading officials of all units have clear responsibilities of rectifying internal control defects in their own units. Those responsibilities are also included in the internal performance indicators of the Company. |
• | The Company has established an open channel to handle and discuss internal reports concerning finance, internal control and embezzlement to ensure that all reports will receive sufficient attention and any significant internal control weaknesses or reports will directly reach the chairman of the Audit Committee. |
C.3 | Audit Committee |
Principle: “The board should establish formal and transparent arrangements to consider how it will apply financial reporting, risk management and internal control principles and maintain an appropriate relationship with the issuer’s auditors. The audit committee established under the Listing Rules should have clear terms of reference.”
• | The Audit Committee consists of three Independent Non-executive Directors (Mr. Tse Hau Yin, Aloysius, Mr. Chiu Sung Hong and Mr. Lawrence J. Lau), with Mr. Tse Hau Yin, Aloysius as the Audit Committee financial expert for the purposes of U.S. securities laws and Chairman of the Audit Committee. A list of members of the Audit Committee is set out under the section headed “Company Information” on page 152 of this annual report. |
• | The Audit Committee meets at least twice a year and is responsible for reviewing the completeness, accuracy and fairness of the Company’s accounts, evaluating the Company’s auditing scope (both internal and external) and procedures as well as its risk management and internal control systems. The Audit Committee, together with senior management and the external auditors, review the accounting principles and practices adopted by the Group and discuss the risk management and internal control and financial reporting matters. The Board also assesses the effectiveness of risk management and internal control systems by considering reviews performed by the Audit Committee, senior management and both internal and external auditors. |
• | The Audit Committee is also responsible for overseeing the operation of the internal monitoring systems so as to ensure that the Board is able to monitor the Company’s overall financial position, to protect the Company’s assets, and to prevent major errors or omissions resulting from financial reporting. The Audit Committee also meets at least twice a year with our external auditors. |
CNOOC LIMITED Annual Report 2015 39
• | The Audit Committee is also responsible for overseeing and monitoring the risk management and internal control systems of the Company on an ongoing basis and review with our external auditors and management periodically, not less than annually, the scope, adequacy and effectiveness of the Company’s corporate accounting and financial controls, risk management and internal control systems, and any related significant findings regarding risks or exposures and consider recommendations for improvement of such controls. The review should cover all material controls, including financial, operational and compliance controls. In conducting annual review, the Audit Committee should, in particular, consider the factors including (a) the changes, since the last annual review, in the nature and extent of significant risks, and the Company’s ability to respond to changes in its business and the external environment; (b) the scope and quality of management’s ongoing monitoring of risks and of the internal control systems, and where applicable, the work of its internal audit function and other assurance providers; (c) the extent and frequency of communication of monitoring results to the Board which enables it to assess control of the Company and the effectiveness of risk management; (d) significant control failings or weaknesses that have been identified during the period. Also, the extent to which they have resulted in unforeseen outcomes or contingencies that have had, could have had, or may in the future have, a material impact on the Company’s financial performance or condition; (e) and the effectiveness of the Company’s processes for financial reporting and Listing Rule compliance. |
• | The Audit Committee is also responsible for reviewing the Company’s internal audit function, ensuring co-ordination within the Group and between the Company’s internal and external auditors, and ensuring that the internal audit function is adequately resourced and has appropriate standing within the Company and to review and monitor its effectiveness. |
• | The following is a summary of the work performed by the Audit Committee under its charter during the year: |
— | Reviewed the Company’s audited accounts and results announcements before they are tabled to the Board for approval, and discussed with senior management and the external auditors over such accounts; |
— | The Audit Committee held formal meetings with the external auditors and senior management of the Company at least twice a year to discuss the following matters: |
(i) | the external auditors’ engagement letter and general scope of their audit work, including planning and staffing of the audit; |
(ii) | the Company’s management discussion and analysis disclosures in the interim report and annual report of the Company; and |
(iii) | the applicable accounting standards relating to the audit of the Company’s financial statements, including any recent changes; |
— | In addition to formal meetings arranged by the Company, members of the Audit Committee were also given direct access to the external auditors and have frequent contacts with the external auditors to discuss issues from time to time; |
— | Conducted a review of the effectiveness of the risk management and internal control systems of the Company and its subsidiaries, including financial, operational and compliance controls and made recommendations to the Board based on the review; |
— | Discussed with senior management of the Company the adequacy of resources, staff qualifications and experience, training programmes, and budget of the Company’s accounting, internal audit and financial reporting functions to ensure that management has performed its duty to have effective risk management and internal control systems, both under the Listing Rules as well as under relevant U.S. requirements; |
— | Made recommendations to senior management and the Board on the scope and quality of management’s ongoing monitoring of risks and issues relevant to internal controls; |
CNOOC LIMITED Annual Report 2015 40
— | Conducted a review of the effectiveness of the Company’s internal audit function to ensure co-ordination within the Group and between the Company’s internal and external auditors, and to ensure that the internal audit function is adequately resourced and has appropriate standing within the Company, and made recommendations to the Board in relation to ways of improving the internal audit function; |
— | Reviewed the work performed by the Company’s external auditors and their relationship with the Company’s senior management, and made recommendations to the Board in relation to the appointment of external auditors, as well as the proposed auditors’ fees; |
— | Reviewed and approved the Company’s audit and non-audit pre-approval policy to ensure auditors’ independence; |
— | Members of the Audit Committee received materials from the Company’s external auditors from time to time in order to keep abreast of changes in financial reporting principles and practices, as well as issues relating to financial reporting, risk management and internal controls relevant to the Company; |
— | Considered and approved the non-audit services provided by the external auditors during the year; |
— | Reported on its findings and suggestions to the Board following its review of different aspects of the Company’s financial reporting and risk management and internal control systems, and made appropriate recommendations where necessary; |
— | Reviewed the arrangements by which employees of the Company can use, in confidence, to raise concerns about possible improprieties in financial reporting, risk management and internal control or other matters and ensure that proper arrangements are in place for fair and independent investigation and for appropriate follow-up actions; |
— | Reviewed the Company’s business ethics and compliance policies, related reports and training programs as appropriate and performed certain corporate governance duties delegated by the Board set out in Board Committees & Corporate Governance Functions section on page 40; and |
— | Evaluated and assessed the effectiveness of the Audit Committee and the adequacy of the charter of the Audit Committee, and considered and recommended the proposed amendments to the charter which reflect the new requirements in relation to risk management and internal control systems as set out in the amended CG Code and presented to the Board for approval. |
• | Full minutes of the Audit Committee meetings are kept by the Joint Company Secretaries. Draft and final versions of minutes of the Audit Committee meetings are sent to all members of the Audit Committee for their comments and records respectively, in both cases within a reasonable time after the meetings. |
• | The Audit Committee is provided with sufficient resources, including independent access to and advice from external auditors. |
Attendance of individual members at Audit Committee meetings in 2015
No. of meetings attended | ||
Independent | (4 meetings in total) | |
Non-executive | by committee | |
Directors | member | by proxy |
Tse Hau Yin, Aloysius | ||
(Chairman and Financial Expert) | 4 | 0 |
Chiu Sung Hong | 4 | 0 |
Lawrence J. Lau | 4 | 0 |
CNOOC LIMITED Annual Report 2015 41
D. | DELEGATION BY THE BOARD |
D.1 | Management functions |
Principle: “An issuer should have a formal schedule of matters specifically reserved for board approval. The board should give clear directions to management on the matters that must be approved by it before decisions are made on the issuer’s behalf.”
• | The Board is the ultimate decision-making body of the Company, other than those matters reserved to shareholders of the Company. The Board oversees and provides strategic guidance to senior management in order to enhance the long-term value of the Company for its shareholders. The Board delegates its management and administration functions to management and gives clear directions as to the powers of management at the same time, in particular, with respect to the circumstances where management should report back and obtain prior approval from the Board before making decisions or entering into any commitments on the Company’s behalf. |
• | The day-to-day management is conducted by senior management and employees of the Company, under the direction of the CEO and the oversight of the Board. In addition to its general oversight of the management, the Board also performs a number of specific functions. The Company formalises the functions reserved to the Board and those delegated to management and reviews those arrangements periodically to ensure that they remain appropriate to the Company’s needs. |
• | The primary functions performed by the Board include: |
(i) | Reviewing and approving long-term strategic plans and annual operating plans, and monitoring the implementation and execution of these plans; |
(ii) | Reviewing and approving significant financial and business transactions and other major corporate actions; and |
(iii) | Reviewing and approving financial statements and reports, and overseeing the establishment and maintenance of controls, processes and procedures to ensure accuracy, integrity and clarity in financial and other disclosures. |
• | The Board and the senior management have respective responsibilities, accountabilities and contributions. The primary functions performed by the senior management are to conduct the daily business and implement the abovementioned affairs approved and delegated by the Board and other matters as the Board may from time to time request. |
• | The Directors review such delegation arrangements periodically to ensure they remain appropriate to our needs. |
• | Directors clearly understand delegation arrangements in place. The Company has entered into service agreements with the Executive Directors and Non-executive Directors and has formal letters of appointment for Independent Non-executive Directors setting out the key terms and conditions of their engagements and appointments. |
D.2 & Board Committees & Corporate Governance Functions
D.3 | Principle: “Board committees should be formed with specific written terms of reference which deal clearly with their authority and duties.” |
• | The Company has established an Audit Committee, a Remuneration Committee and a Nomination Committee (each a “Committee”) and has established a specific written committee charter (the “Charter”) which deal clearly with its authority and duties. The Charters of the Committees are published on the websites of the Hong Kong Stock Exchange and the Company. These Committees will report to the Board on their decisions and recommendations. |
• | The Board has delegated the responsibility for performing certain corporate governance related duties and functions to the Audit Committee and the Nomination Committee. |
CNOOC LIMITED Annual Report 2015 42
• | The Audit Committee shall be responsible for performing the corporate governance duties set out below: |
(i) | Developing and reviewing the Company’s policies and practices on corporate governance and making recommendations to the Board; |
(ii) | Reviewing and monitoring the Company’s policies and practices on compliance with legal and regulatory requirements and making recommendations to the Board in that regard; |
(iii) | Developing, reviewing and monitoring the Code of Ethics for Directors and Senior Officers (“Code of Ethics”) and making recommendations to the Board in that regard; and |
(iv) | Reviewing the Company’s compliance with the CG Code and disclosure in the Corporate Governance Report and making recommendations to the Board in that regard. |
• | The Nomination Committee shall be responsible for reviewing and monitoring the training and continuous professional development of Directors and senior management and making recommendations to the Board in that regard. |
E. | COMMUNICATION WITH SHAREHOLDERS |
E.1 | Effective communication |
Principle: “The board should be responsible for maintaining an on-going dialogue with shareholders and in particular, use annual general meetings or other general meetings to communicate with them and encourage their participation.”
• | The Board recognizes the importance of good and effective communication with all shareholders. With a policy of being transparent, strengthening investor relations, and providing consistent and stable returns to shareholders, the Company seeks to ensure transparency through establishing and maintaining different communication channels with shareholders. |
• | The Company has a professionally-run investor relations department to serve as an important communication channel between the Company and its shareholders and other investors. |
• | A key element of effective communication with shareholders and investors is prompt and timely dissemination of information in relation to the Company. In addition to announcing its interim and annual results to shareholders and investors, the Company also publicises its major business developments and activities through press releases, announcements and the Company’s website in accordance with relevant rules and regulations. Press conferences and analyst briefings are held from time to time on financial performance and major transactions. |
• | The general meetings also provide a useful forum for shareholders to exchange views with the Board. The Chairman of the Board, as well as Chairmen of the Audit Committee, Nomination Committee and Remuneration Committee, or in their absence, members of the respective Committees, and the external auditors of the Company, are available to answer questions from shareholders at annual general meetings and extraordinary general meetings of the Company. |
• | The Chairmen of the Board and all Committees, or in his absence, an alternate appointed by him will, whenever possible, propose separate resolutions for each substantially separate issue at general meetings of the Company. |
• | The Company’s management ensures the external auditors attend the annual general meeting to answer questions about the conduct of the audit, the preparation and content of the auditors’ report, the accounting policies and auditors’ independence. |
• | The Board established a shareholders’ communication policy and review it on a regular basis to ensure its effectiveness. |
CNOOC LIMITED Annual Report 2015 43
E.2 | Voting by Poll |
Principle: “The issuer should ensure that shareholders are familiar with the detailed procedures for conducting a poll.”
• | In 2015, all votes of shareholders at the general meetings of the Company were taken by poll or otherwise in accordance with the Listing Rules. The Chairman of a meeting ensured that shareholders were familiar with the procedures of voting by poll at the general meetings of the Company. |
• | The results of the poll are published on the Hong Kong Stock Exchange’s website and the Company’s website. |
F. | Company Secretary |
Principle: “The company secretary plays an important role in supporting the board by ensuring good information flow within the board and that board policy and procedures are followed. The company secretary is responsible for advising the board through the chairman and/or the chief executive on governance matters and should also facilitate induction and professional development of directors.”
• | Mr. Zhong Hua (whose resignation became effective on 27 November 2015), Ms. Li Jiewen (whose appointment became effective on the same day) and Ms. Tsue Sik Yu, May are the Joint Company Secretaries of the Company. Their biographies are set out on pages 49 to 50 of this report. The Nomination Committee of the Company has the responsibility to make recommendation for suitable candidates for the appointment of company secretary to the Board and the Board has the responsibility to approve their selection, appointment or dismissal by physical meeting of the Board. |
• | The Joint Company Secretaries will report to the Chairman of the Board and/or the CEO. |
• | Each of the Joint Company Secretaries has taken no less than 15 hours of relevant professional training every year. |
• | All Directors have access to the advice and services of the Joint Company Secretaries to ensure that Board procedures as well as all applicable rules and regulations are followed. |
SHAREHOLDERS’ COMMUNICATION AND RIGHTS TO CONVENE AN EXTRAORDINARY GENERAL MEETING
The procedures for shareholders to convene an Extraordinary General Meeting of the Company (“EGM”) are governed by Article 60 of the Articles and sections 566 to 568 of the Companies Ordinance (Cap. 622 of the Laws of Hong Kong). On the request of shareholders of the Company, representing at least 5% of the total voting rights of all shareholders having a right to vote at general meetings, the Directors are required to call a general meeting.
The request must state the general nature of the business to be dealt with at the EGM and may include the text of a resolution that may properly be moved and is intended to be moved at the EGM, be authenticated by the shareholder(s) making the request, and sent to the Company in hard copy form or in electronic form. The Directors must call an EGM within 21 days after the date on which they become subject to the requirement and such EGM must be held on a date not more than 28 days after the date of the notice convening the meeting is given.
Whilst giving the above request, shareholders are recommended to provide written explanation of the reasons and material implications relating to the proposed resolutions to enable all of the shareholders to properly consider and determine the proposed resolutions.
The Company will, upon receipt of a request referred to above, issue a notice of extraordinary general meeting of the proposed resolutions and (if applicable) circulars containing further information relating to the proposed resolutions in accordance with the Listing Rules.
Further enquiries relating to the above or enquiries that Shareholders wish to be put to the Board may be addressed to the Joint Company Secretaries of the Company at 65/F, Bank of China Tower, 1 Garden Road, Hong Kong.
CNOOC LIMITED Annual Report 2015 44
PROCEDURES FOR PUTTING FORWARD PROPOSALS AT GENERAL MEETINGS BY SHAREHOLDERS
Shareholders are requested to follow sections 615 and 616 of the Companies Ordinance (Cap. 622 of the laws of Hong Kong) if they wish to request the Company to give to other shareholders, who are entitled to receive notice of the annual general meeting, notice of a resolution that may properly be moved and is intended to be moved at the annual general meeting.
Shareholders are requested to follow sections 580 to 583 of the Companies Ordinance (Cap. 622 of the laws of Hong Kong) if they wish to request the Company to circulate to other shareholders, who are entitled to receive notice of a general meeting, a statement with respect to a matter mentioned in a proposed resolution or other business to be dealt with at the general meeting.
COMPLIANCE WITH THE CORPORATE GOVERNANCE CODE
For the year ended 31 December 2015, the Company has complied with the provisions of the CG Code as set out in Appendix 14 of the Listing Rules, except for the deviation from the code provision A.4.1 of the CG Code. The following summarises the requirement under the above-mentioned code provision A.4.1 and the reason for such deviation.
CG Code Provision A.4.1
Under CG Code provision A.4.1, non-executive directors should be appointed for a specific term and be subject to re-election.
None of the existing Independent Non-executive Directors of the Company is appointed for a specific term. This constitutes a deviation from the CG Code provision A.4.1. However, all the Directors are subject to the retirement provisions under article 97 of the Articles (“Article 97”). According to Article 97, one-third of the Directors for the time being must retire from the office by rotation at each annual general meeting. The Company has observed the need for good corporate governance practices. All Independent Non-executive Directors of the Company have retired from the office by rotation and have been re-elected in the past three years. The Company considers that sufficient measures have been taken to ensure that the Company’s corporate governance practices are no less exacting than those in the CG Code.
CHANGES IN DIRECTORS
During the year ended 31 December 2015, there was the following change in Directors.
With effect from 19 May 2015, Mr. Yang Hua, an existing Non-executive Director, was appointed as Chairman of the Board and Chairman of the Nomination Committee, and Mr. Wang Yilin resigned as Chairman of the Board, Chairman of the Nomination Committee and Non-executive Director.
With effect from 23 September 2015, Mr. Wang Jiaxiang retired as Non-executive Director.
CHANGES IN INFORMATION OF DIRECTORS
Pursuant to Rule 13.51(B) of the Listing Rules, there is no other change in the information of Directors of the Company except as disclosed in this annual report.
CODE OF ETHICS
The Board adopted a Code of Ethics in 2003 to provide guidelines to the senior management and Directors in legal and ethical matters as well as the sensitivity involved in reporting illegal and unethical matters. The Code of Ethics covers areas such as supervisory rules, insider dealing, market malpractices, conflict of interests, company opportunities, protection and proper use of the Company’s assets as well as reporting requirements. As part of its continued efforts to improve its corporate governance standards, the Board conducted an annual review to the Code of Ethics since 2009, and the current version of the Code of Ethics was reviewed and adopted in August 2015.
CNOOC LIMITED Annual Report 2015 45
The Company has provided all its Directors and senior officers with a copy of the Code of Ethics and requires them to comply with the Code of Ethics, so as to ensure the Company’s operation is proper and lawful. The Company will take disciplinary actions towards any act which is in breach of the Code of Ethics. All the senior management members and Directors are required to familiarise themselves with and follow the Code of Ethics to ensure that the Company’s operations are honest and legal. Violations of the rules will be penalized and serious breaches will result in dismissal.
MODEL CODE FOR SECURITIES TRANSACTIONS BY DIRECTORS OF LISTED ISSUERS
The Company has adopted the abovementioned Code of Ethics which has incorporated the Model Code for Securities Transactions by Directors of Listed Issuers (the “Model Code”) as set out in Appendix 10 to the Listing Rules. The Company has made specific enquiries to all of the Directors, and all Directors have confirmed that they complied, during the year ended 31 December 2015, with the required standards set out in the Model Code.
SERVICES AND REMUNERATION OF AUDITORS
Deloitte Touche Tohmatsu, appointed as the independent auditors of the Company on 24 May 2013 (before 24 May 2013, Ernst & Young was the independent auditors of the Company), was re-appointed and engaged as the Company and its subsidiaries’ auditors (“Auditors”) for the financial year ended 31 December 2015. Services provided by the auditors and fees charged by the auditors for the services for the year ended 31 December 2015 are as follows:
Audit Fees
The aggregate fees billed for professional services rendered by the Auditors for the audit of the Company’s annual financial statements or services that are normally provided by the Auditors in connection with statutory and regulatory filings or engagements were RMB46.7 million for the financial year ended 31 December 2014 and RMB45.2 million for the financial year ended 31 December 2015.
Audit-related Fees
The aggregate fees billed for assurance and related services by the Auditors that are reasonably related to the performance of the audit or review of the Company’s financial statements and are not reported under “Audit Fees” were RMB8.7 million for the financial year ended 31 December 2014 and RMB8.5 million for the financial year ended 31 December 2015.
Tax Fees
The aggregate fees billed for professional service rendered by the Auditors for tax compliance, tax advice and tax planning were RMB2.1 million for the financial year ended 31 December 2014 and RMB0.6 million for the financial year ended 31 December 2015.
All Other Fees
The aggregate fees billed for professional service rendered by the Auditors for risk management advisory services, and information systems reviews were RMB7.0 million for the financial year ended 31 December 2014 and RMB2.5 million for the financial year ended 31 December 2015.
There are no other fees payable to the Auditors for products and/or services provided by the Auditors, other than the services reported above, for the financial year ended 31 December 2014 and for the financial year ended 31 December 2015.
CNOOC LIMITED Annual Report 2015 46
STATEMENT ON CORPORATE GOVERNANCE AS REQUIRED BY SECTION 303A.11 OF THE NEW YORK STOCK EXCHANGE LISTED COMPANY MANUAL
The Company is incorporated under the laws of Hong Kong and the principal trading market for the ordinary shares of the Company is The Stock Exchange of Hong Kong Limited. In addition, because the Company’s ordinary shares are registered with the United Sates Securities and Exchange Commission and are listed on the New York Stock Exchange (the “NYSE”), the Company is subject to certain corporate governance requirements of NYSE. However, many of the corporate governance rules in the NYSE Listed Company Manual (the “NYSE Standards”) do not apply to the Company as a “foreign private issuer” and the Company is permitted to follow its home country corporate governance practices in lieu of most corporate governance standards contained in the NYSE Standards. Section 303A.11 of the NYSE Listed Company Manual requires NYSE listed foreign private issuers to describe the significant differences between their corporate governance practices and the corporate governance standards applicable to U.S. companies listed on the NYSE. The Company has posted a brief summary of such significant differences on its website, which may be accessed through the following web page:
http://www.cnoocltd.com/encnoocltd/gsgz/socg
CNOOC LIMITED Annual Report 2015 47
Directors and Senior Management
Executive Directors
Li Fanrong
Born in 1963, Mr. Li is a professor-level senior engineer. He obtained a B.S. degree majoring in oil production from Yangtze University in China, and received an MBA degree from the Business School of Cardiff University in United Kingdom. Mr. Li has been working in the oil and gas industry in China over 30 years. He joined CNOOC in 1984, and worked as Petroleum Engineer, later as Offshore Platform Supervisor, Operation Manager of CNOOC/AMOCO Joint Operating Group, Managing Director of CNOOC/STATOIL Joint Operating Group, Chief Representative of Joint Management Committee in CACT Operators Group, General Manager of Development and Production Department of the Company and President of CNOOC China Limited Shenzhen Branch. He served as an Assistant President of CNOOC from January 2009 to April 2010 and worked as President of CNOOC Energy Technology & Services Limited from February 2009 to April 2010. Mr, Li also served as Chairman and Director of CNOOC Southeast Asia Limited, being a subsidiary of the Company. He has served as Vice President of CNOOC since April 2010. He was appointed as President of the Company with effect from 16 September 2010, and was appointed as Chief Executive Officer of the Company with effect from 23 November 2011.He also serves as a Director of CNOOC China Limited and Chairman and Director of CNOOC International Limited, all being subsidiaries of the Company. He was appointed as the chairman of the board of Nexen Energy ULC with effect from 26 February 2013. Mr. Li was appointed as a Non-executive Director of the Company with effect from 24 May 2010 and was re-designated from Non-executive Director to Executive Director with effect from 16 September 2010.
Wu Guangqi
Born in 1957, Mr. Wu is a geologist, professor-level senior economist, Certified Senior Enterprise Risk Manager and Certified Internal Auditor and graduated with a B.S. degree from the Ocean University of China, majoring in Marine Geology. He also holds a master degree in Management from China University of Petroleum and a doctor degree in Management from Huazhong University of Science and Technology. Mr. Wu joined CNOOC in 1982. From 1994 to 2001, he served as the Deputy General Manager of CNOOC Oil Technical Services Company, a subsidiary of CNOOC, the Director of the Administration Department of CNOOC and the Director of the Ideology Affairs Department of CNOOC successively. Mr. Wu was appointed as an Assistant President of CNOOC in 2003, and has been the Vice President of CNOOC since 2004. Mr. Wu also serves as the Vice Chairman of China Association of Risk Professionals, the Vice Chairman of China Association of Oceanic Engineering, the Director-General of National Energy Deepwater Oil & Gas Engineering Technology Research Centre Council and the Chairman of CNOOC Marine Environment and Ecology Protection Foundation. Mr. Wu served as an Independent Non-executive Director of China Yangtze Power Limited, a company listed on the Shanghai Stock Exchange, from May 2003 to July 2010. Mr. Wu has served as the Compliance Officer of the Company since 1 June 2005 and he also serves as a Director of CNOOC China Limited and CNOOC International Limited, all being the subsidiaries of the Company. Mr. Wu was appointed as an Executive Director of the Company with effect from 1 June 2005.
Non-executive Directors
Wang Yilin
Born in 1956, Mr Wang is a professor-level senior engineer. He graduated from China University of Petroleum majoring in petroleum geology and exploration and received a doctorate degree. He has over 30 years of working experience in China’s oil and gas industry. From June 1996 to September 1999, Mr. Wang served as the deputy director and chief exploration geologist of Xinjiang Petroleum Administration Bureau. From September 1999 to May 2004, he served as the general manager of PetroChina Xinjiang Oilfield Company. From June 2001 to May 2004, he served as the senior executive of Xinjiang Petroleum Administration Bureau and the general manager of PetroChina Xinjiang Oilfield Company. From July to December 2003, he served as the Assistant to General Manager of China National Petroleum Corporation (“CNPC”). From December 2003 to April 2011, he served as the Deputy General Manager of CNPC. From July 2004 to July 2007, he also served as the safety director of CNPC. From November 2005 to April 2011, he served as a Director of PetroChina Company Limited, a company listed on the New York Stock Exchange, The Stock Exchange of Hong Kong Limited and Shanghai Stock Exchange respectively. Since 8 April 2011, Mr. Wang serves as Chairman of CNOOC. Mr. Wang was appointed as Chairman and Non-executive Director of the Company with effect from 15 April 2011. Mr. Wang resigned as Chairman of the Board, Chairman of the Nomination Committee and Non-executive Director of the Company with effect from 19 May 2015.
CNOOC LIMITED Annual Report 2015 48
Yang Hua
Born in 1961, Mr. Yang is a professor-level senior economist and graduated from China University of Petroleum with a B.S. degree in petroleum engineering. He also received an MBA degree from the Sloan School of Management at MIT as a Sloan Fellow. Mr. Yang joined CNOOC in 1982 and has over 30 years of experience in petroleum exploration and production. From 1982 to 1992, Mr. Yang served in a number of positions in CNOOC Research Center including the Director of Field Development Department, the Manager of Reservoir Engineering Department and the Project Manager. Thereafter, Mr. Yang was mainly involved in international business, M&A, corporate finance and capital market operations. From 1993 to 1999, he served as the Deputy Chief Geologist, the Deputy Director and the Acting Director for Overseas Development Department of CNOOC and the Vice President of CNOOC International Limited. From 1999 to 2011, Mr. Yang served in a number of positions in the Company including Senior Vice President, Chief Financial Officer, Executive Vice President, President and Chief Executive Officer. Mr. Yang also served as an Assistant President of CNOOC from November 2006 to April 2010 and as Vice President of CNOOC from April 2010 to August 2011. Mr. Yang served as Director and President of CNOOC from August 2011 to April 2015. He was appointed as Chairman of CNOOC in April 2015. In addition, he serves as Chairman and Director of CNOOC China Limited, being a subsidiary of the Company. He also served as Chairman, Director and President of CNOOC Southeast Asia Limited, General Manager of CNOOC China Limited and Chairman and Director of CNOOC International Limited, all being subsidiaries of the Company. He also served as Director of CNOOC Finance Corporation Limited, a subsidiary of CNOOC. Mr. Yang was appointed as an Executive Director of the Company with effect from 31 August 2005 and was the Vice Chairman of the Board of the Company from 16 September 2010 to 19 May 2015, and was re-designated from an Executive Director to a Non-Executive Director of the Company with effect from 23 November 2011. Mr. Yang has been appointed as Chairman of the Board and Chairman of the Nomination Committee of the Company with effect from 19 May 2015.
Lv Bo
Born in 1962, Mr. Lv is a senior economist and received a Bachelor of Science degree in Management from China University of Mining and Technology and an MBA degree from China Europe International Business School. Since 1985, he worked in the Ministry of Coal Industry, the Ministry of Energy and the Organization Department of the Communist Party of China Central Committee and served in a number of positions, including a Vice-Director-level official in the Personnel and Labor Department of the Ministry of Energy, Vice Director and Director of Economic and Technology Cadre Bureau of the Organization Department of the Communist Party of China Central Committee, Directors of the Fourth and Fifth Cadre Bureaus of the Organization Department of the Communist Party of China Central Committee. Mr. Lv joined CNOOC in 2002 and served as the Director of the Human Resources Department of CNOOC. In November 2006, Mr. Lv became the Assistant President of CNOOC. In April 2010, Mr. Lv was appointed as the Vice President of CNOOC. Since December 2012, he has also served as Chairman of the Board of CNOOC Energy Technology and Services Limited, a subsidiary of CNOOC. Mr. Lv was appointed as a Non-executive Director of the Company on 27 November 2013, and such appointment took effect from 1 January 2014.
Wang Jiaxiang
Born in 1955, Mr. Wang is a professor-level senior engineer. He graduated from China University of Petroleum, major in Drilling Engineering, and later received a Doctorate degree from Tianjin University in Management Science and Engineering. Mr. Wang joined CNOOC in 1982. He served as Production Section Director, Chief Engineer, Deputy Director and Director of the Drilling Department of CNOOC Bohai Corporation and Deputy General Manager of CNOOC Bohai Corporation. From 2001 to 2003, he served as the Deputy General Manager of CNOOC China Limited Tianjin Branch. From June 2003 to December 2003, he served as the Deputy General Manager of CNOOC Bohai Corporation. From December 2003 to April 2005, Mr. Wang served as the General Manager of CNOOC Bohai Corporation. In November 2004, he was appointed as the General Manager of CNOOC Oil Base Group Limited. In January 2007, Mr. Wang was appointed as the Assistant President of CNOOC. Since December 2007, he has also served as the General Manager of CNOOC Gas & Power Group. In January 2013, Mr. Wang was appointed as a Vice President of CNOOC. Mr. Wang was appointed as a Non-executive Director of the Company on 27 November 2013, and such appointment took effect from 1 January 2014. Mr. Wang Jiaxiang retired as a Non-executive Director of the Company with effect from 23 September 2015.
CNOOC LIMITED Annual Report 2015 49
Independent Non-executive Directors
Chiu Sung Hong
Born in 1947, Mr. Chiu received an LL.B. degree from the University of Sydney. He was admitted as a solicitor of the Supreme Court of New South Wales and the High Court of Australia. He has over 30 years’ experience in legal practice and had been a director of a listed company in Australia. Mr. Chiu was the founding member of the Board of Trustees of the Australian Nursing Home Foundation and served as the General Secretary of the Australian Chinese Community Association of New South Wales. Mr. Chiu is also an Independent Non-executive Director of Tianda Pharmaceuticals Limited (formerly Yunnan Enterprises Holdings Limited, Tianda Holdings Limited) since April 2008, a company listed on The Stock Exchange of Hong Kong Limited. Mr. Chiu is also an Independent Non-executive Director of Bank of China (Australia) Limited (a wholly subsidiary of Bank of China Limited). Mr. Chiu was appointed as an Independent Non-executive Director of the Company with effect from 7 September 1999.
Lawrence J. Lau
Born in 1944, Professor Lau graduated with a B.S. (with Great Distinction) in Physics from Stanford University in 1964, and received his M.A. and Ph.D. degrees in Economics from the University of California at Berkeley in 1966 and 1969 respectively. He joined the faculty of the Department of Economics at Stanford University in 1966, becoming Professor of Economics in 1976, the first Kwoh-Ting Li Professor in Economic Development in 1992, and Kwoh-Ting Li Professor in Economic Development, Emeritus in 2006. From 2004 to 2010, Professor Lau served as Vice-chancellor (President) of The Chinese University of Hong Kong. From September 2010 to September 2014, Professor Lau served as Chairman of CIC International (Hong Kong) Co., Limited. Professor Lau specializes in economic development, economic growth, and the economies of East Asia, including that of China. He has authored, co-authored, or edited six books and published more than 170 articles and notes in professional journals. Professor Lau is a member of the 12th National Committee of the Chinese People’s Political Consultative Conference and a Vice-Chairman of its Economics Subcommittee, the Vice-Chairman of the Advisory Committee of the Qianhai Shenzhen-Hong Kong Modern Service Industry Cooperation Zone of Shenzhen and a Director of the Chinese Association of Hong Kong and Macau Studies. Professor Lau also serves as a member of the Hong Kong Special Administrative Region Exchange Fund Advisory Committee and Chairman of its Governance Sub-Committee, and member of its Currency Board Sub-committee and Investment Sub-Committee. In addition, he also serves as a Member and Chairman of the Prize Recommendation Committee, LUI Che Woo Prize Company, as well as a Vice-Chairman of Our Hong Kong Foundation. He was appointed a Justice of the Peace in Hong Kong in July 2007. He currently serves as the Ralph and Claire Landau Professor of Economics at the Institute of Global Economics and Finance, The Chinese University of Hong Kong, an Independent Non-executive Director of AIA Group Limited and Hysan Development Company Limited, which are listed on the Hong Kong Stock Exchange, and an Independent Non-executive Director of Far EasTone Telecommunications Company Limited, Taipei, which is listed on the Taiwan Stock Exchange. Professor Lau was appointed as an Independent Non-executive Director of the Company with effect from 31 August 2005.
Tse Hau Yin, Aloysius
Born in 1948, Mr. Tse is a fellow of The Institute of Chartered Accountants in England and Wales, and the Hong Kong Institute of Certified Public Accountants (“HKICPA”). Mr. Tse is a past president and a former member of the Audit Committee of the HKICPA. He joined KPMG in 1976, became a partner in 1984 and retired in March 2003. Mr. Tse was a non-executive Chairman of KPMG’s operations in the PRC and a member of the KPMG China advisory board from 1997 to 2000. Mr. Tse is currently an independent non-executive director of China Telecom Corporation Limited, Wing Hang Bank Limited (whose shares were delisted from The Stock Exchange of Hong Kong Limited with effect from 16 October 2014 and was renamed as OCBC Wing Hang Bank Limited), Daohe Global Group Limited (formerly known as Linmark Group Limited), SJM Holdings Limited, Sinofert Holdings Limited and China Huarong Asset Management Company, Limited, companies listed on The Stock Exchange of Hong Kong Limited. He was an independent non-executive director of China Construction Bank Corporation, which is listed on the HKSE Main Board from 2004 to 2010. Mr.Tse was appointed as an independent non-executive director of CCB International (Holdings) Limited, a wholly owned subsidiary of China Construction Bank Corporation in March 2013. Mr. Tse is also a member of the International Advisory Council of the People’s Municipal Government of Wuhan. Mr. Tse was appointed as an Independent Non-executive Director of the Company with effect from 8 June 2005.
CNOOC LIMITED Annual Report 2015 50
Kevin G. Lynch
Born in 1951, Mr. Lynch obtained a B.A. degree from Mount Allison University, a M.A. degree in Economics from the University of Manchester, and a doctorate degree in Economics from McMaster University. He also holds eight honorary degrees. Mr. Lynch was made a life Member of the Privy Council for Canada, and an Officer of the Order of Canada. He is the Vice Chairman of BMO Financial Group and also a distinguished former public servant with 33 years of service with the Government of Canada. Mr. Lynch served as Deputy Minister of Industry of Canada from 1995 to 2000, Deputy Minister of Finance of Canada from 2000 to 2004, Executive Director at the International Monetary Fund from 2004 to 2006 and was appointed as Clerk of the Privy Council for Canada, Secretary to the Cabinet and Head of the Public Service from 2006 to 2009. Mr. Lynch is the Chancellor of the University of King’s College, Past Chair of the Board of Governors of the University of Waterloo, Chair of the Canadian Ditchley Foundation, member and past Chair of the World Economic Forum’s Global Policy Council on the Global Financial System and former Vice Chair of the Jobs and Prosperity Council of Ontario. He also serves on other boards including the Killam Trusts, Communitech, the Governor General’s Rideau Hall Foundation and the Asia Pacific Foundation of Canada. Mr. Lynch is currently a director of Empire Company Limited (Sobey’s) listed on the Toronto Stock Exchange, a director of Canadian National Railway Company listed on the Toronto Stock Exchange and New York Stock Exchange. Mr. Lynch was appointed as an Independent Non-executive Director of the Company on 27 November 2013, and such appointment took effect from 1 March 2014.
Other Members of Senior Management
Yuan Guangyu
Born in 1959, Mr. Yuan is an Executive Vice President of the Company, responsible for the drilling and completion. Mr. Yuan is a professor-level senior engineer. He graduated from East China Petroleum Institute (now China University of Petroleum) with a bachelor’s degree in drilling engineering. He graduated from the EMBA program of China Europe International Business School in 2007 with an MBA degree. With over 30 years of experience in the oil and gas industry, Mr. Yuan joined CNOOC in 1982, having served as Deputy Manager of CNOOC Bohai Drilling Company, Deputy General Manager of CNOOC China Offshore Oil Northern Drilling Company, Deputy General Manager of Operational Department of CNOOC, General Manager of CNOOC China Offshore Oil Northern Drilling Company, President of CNOOC Services, and Chairman of the Board of Directors, Chief Executive Officer and President of China Oilfield Services Limited. Mr. Yuan also serves as the Director of CNOOC China Limited and CNOOC International Limited, both all being the subsidiaries of the Company. In November 2006, Mr. Yuan was appointed as the Assistant President of CNOOC. In February 2009, Mr. Yuan was appointed as the Executive Vice President of the Company. In April 2013, Mr. Yuan was appointed as Director of Bohai Petroleum Administrative Bureau of CNOOC and General Manager of CNOOC China Limited Tianjian Branch.
Zhu Weilin
Born in 1956, Mr. Zhu is the Chief Geologist of CNOOC and Executive Vice President of the Company. Mr. Zhu is a professor-level senior engineer. He graduated from Tongji University with a Ph.D. degree. Mr. Zhu joined CNOOC in 1982. Prior to 1999, he conducted researches in CNOOC Research Center and served as the Deputy Manager of the Exploration Department, Manager of Science Management Department, and Deputy Chief Geologist and Chief Geologist of the Research Center. From 1999 to 2007, Mr. Zhu served as the Deputy Manager of Exploration Department of CNOOC, Deputy General Manager and General Manager of Exploration Department of the Company, General Manager of CNOOC China Limited Zhanjiang Branch and Vice President of the Company. Mr. Zhu also serves as the Director of CNOOC China Limited and CNOOC International Limited, the subsidiaries of the Company. Mr. Zhu has spent a long time in exploration research and management of oil and natural gas in offshore China. He was granted the Special Subsidies from the government, nominated as candidate for the “National Hundred, Thousand, and Ten Thousand Talent Project”, named as an Excellent Science and Technology Worker of the Nation and awarded the Li Siguang Award for Geosciences, the highest tribute in geosciences awards level. In August 2007, Mr. Zhu was appointed as the Chief Geologist of CNOOC, Executive Vice President of the Company and the General Manager of the Exploration Department of the Company, responsible for the Company’s oil and gas exploration operations. In July 2015, Mr. Zhu was appointed as the Chief Geologist of CNOOC and Executive Vice President of the Company.
CNOOC LIMITED Annual Report 2015 51
Zhao Liguo
Born in 1953, Mr. Zhao is the General Counsel of the Company. He is a professor-level senior economist. He graduated from the Faculty of Law, Peking University in 1983 with a bachelor of laws’ degree. In 1988, he studied at the Law School of Niigata University in Japan for a year. Mr. Zhao joined CNOOC in 1983. He served as Head of Contract Division and Deputy General Manager of Contract Law Department, and General Manager of Legal Department of CNOOC. He also served as the General Counsel of CNOOC and the Company. Mr. Zhao was granted PRC lawyer qualification in 1987 and corporate counsel qualification in 1998. Mr. Zhao was appointed as the General Counsel of CNOOC with effect from June 2008. He was appointed as the General Counsel of the Company with effect from November 2009. In June 2015, Mr. Zhao retired as the General Counsel of the Company.
Chen Bi
Born in 1961, Mr. Chen is an Executive Vice President of the Company and is responsible for development, production and international affairs of the Company. Mr. Chen is a professor-level senior engineer. He graduated from the Southwest Petroleum Institution (now Southwest Petroleum University) and received a bachelor degree in oil production. He received a master degree of petroleum engineering from Edinburgh Heriot-Watt University in 1989 and an MBA degree from Tsinghua University in 2001. Mr. Chen joined CNOOC in 1982 and has over 30 years of experience in the oil and natural gas industry. He served as the Deputy Manager of CNOOC Nanhai West Corporation Oil Production Company, Director of Production Section, Deputy General Manager of Development and Production Department of CNOOC, Deputy General Manager and General Manager of Development and Production Department of the Company, and General Manager of CNOOC China Limited Tianjin Branch. Mr. Chen also serves as the Director of CNOOC China Limited and CNOOC International Limited, both being the subsidiaries of the Company. In October 2005, Mr. Chen was appointed as Vice President of the Company and General Manager of CNOOC China Limited Tianjin Branch. In January 2009, Mr. Chen was appointed as the Executive Vice President of the Company.
Chen Wei
Born in 1958, Mr. Chen is the Worker’s Director and an Assistant President of CNOOC, an Executive Vice President of the Company and the General Director of CNOOC Research Institute (formerly CNOOC Research Center). He is a professor-level senior engineer. He received his B.S. degree from East China Petroleum Institute (now China University of Petroleum) and MBA from Tsinghua University. He has over 30 years of experience in the oil and gas industry. Mr. Chen joined CNOOC in 1984 and previously served as the Deputy Manager for the Development Department, the Deputy Manager of the Overseas Research Department, the Manager of the Information Department, and the Deputy Director of CNOOC Research Center. He has also served as General Manager of Human Resources Department and General Manager of Science and Technology Development of CNOOC, and the Senior Vice President of the Company and General Manager of Administration Department of the Company. In July 2003, Mr. Chen was appointed as the Director of CNOOC Research Center (later became President of CNOOC Research Institute). In February 2012, Mr. Chen was appointed as the Worker’s Director of CNOOC. In March 2013, Mr. Chen was appointed as the Assistant President of CNOOC and the Executive Vice President of the Company.
Zhang Guohua
Born in 1960, Mr. Zhang is a Senior Vice President of the Company and the General Manager of CNOOC China Limited Zhanjiang Branch. He is a professor-level senior engineer. He graduated from Shandong Oceanographic Institute (now Ocean University of China) with a bachelor degree. He studied in the Business Institute of University of Alberta in Canada in 2001. He joined CNOOC in 1982 and served as Deputy Chief Geologist and Manager of Exploration Department of CNOOC Naihai West Corporation, a subsidiary of CNOOC, Chief Geologist of CNOOC Research Center, Assistant to General Manager of CNOOC China Limited and the General Manager of Exploration Department of the Company. In March 2003, he was appointed as Senior Vice President of the Company. In October 2005, Mr. Zhang was appointed as Senior Vice President of the Company and General Manager of CNOOC China Limited Shanghai Branch. In July 2009, he was appointed as Director of Donghai Petroleum Administrative Bureau of CNOOC. In July 2015, he was appointed as Director of Nanhaixibu Petroleum Administrative Bureau of CNOOC and General Manager of CNOOC China Limited Zhanjiang Branch.
CNOOC LIMITED Annual Report 2015 52
Zhong Hua
Born in 1960, Mr. Zhong is Chief Financial Officer of the Company. Mr. Zhong is a professor-level senior economist and senior engineer and graduated from Southwest Petroleum Institute (now Southwest Petroleum University) with a bachelor’s degree in Oil Exploitation. He received a master’s degree in Petroleum Engineering from Heriot-Watt University in the United Kingdom. He joined CNOOC in 1982, and has been working in the oil and gas industry for over 30 years. From 1982 to 1999, Mr. Zhong served as Petroleum Engineer of China Offshore Oil Nanhai West Corporation (“COONWC”), Expro Northsea Staff in UK, Deputy Manager of Downhole Services Company of Oil Production Company of COONWC, Manager of Wei 10-3 Oilfield, Oilfield Superintendent of CNOOC Indonesia Project, Supervisor of Ya 2-1-3 HTHP Well Testing Project, Deputy Manager of Drilling and Exploitation Institute, Manager of Science and Technology Development Department and Manager of Administration Department of COONWC. From September 1999 to October 2005, Mr. Zhong was General Manager of Administration Department and General Manager and Director of Development and Planning Department of the Company. From August 2005 to September 2010, Mr. Zhong served as Vice President, Executive Vice President and Chief Financial Officer of China Oilfield Services Limited, a company listed on The Stock Exchange of Hong Kong Limited and Shanghai Stock Exchange, a subsidiary of CNOOC. On 16 September 2010, Mr. Zhong was appointed as Chief Financial Officer of the Company. From March 2012 to November 2015, Mr. Zhong served as Joint Company Secretary of the Company.
Deng Yunhua
Born in 1963, Mr. Deng is an academician of the Chinese Academy of Engineering and the Deputy Chief Exploration Engineer of the Company. Mr. Deng graduated from the Scientific Research Institute of Petroleum Exploration and Development with a major in Petroleum Geology and Exploration and received a master’s degree in Engineering in 1988. He was assistant geologist and then geologist in the Exploration Department of CNOOC Bohai Corporation Institute from 1988 to 1989; and served as the Team Leader of the Comprehensive Petroleum Geological Research Team, Project Manager, Deputy Principal of Geologist, Deputy Principal Geologist and Director of the Exploration Department and Deputy Chief Geologist in the CNOOC Bohai Corporation Institute. Mr. Deng became Vice Chief Geology Engineer and Deputy General Manager of CNOOC China Limited Tianjian Branch from 1999 to 2005. He was Deputy Director of CNOOC Research Center from 2005 to 2006. He served as the Deputy Chief Exploration Engineer of the Company and the Deputy Director of CNOOC Research Center from 2006 to 2007. Mr. Deng was appointed Vice Chief Geology Engineer of CNOOC, Deputy Chief Exploration Engineer of the Company and Deputy Director of CNOOC Research Center from 2007 to 2009; and has been Vice Chief Geology Engineer of CNOOC, Deputy Chief Exploration Engineer of the Company and Deputy General Director of CNOOC Research Institute since 2009.
Song Lisong
Born in 1957, Mr. Song is the Chief Safety Official and General Manager of the Quality, Health, Safety & Environmental Protection (QHSE) Department of the Company. He graduated in 1982 with a bachelor’s degree from the Department of Petroleum Development of East China Petroleum Institute (now China University of Petroleum), majoring in Drilling Engineering. In 1999, he graduated with a master’s degree of management from Department of Economic Management of School of Management, TianJin University. From 1982 to 1994, he served as Supervisor and Platform Manager for Bohai Oil Corporation, and a staff member of the offshore division of the Technology Safety Department and the head of the offshore safety division of the Technical Safety and Environmental Protection Department respectively. From 1994 to 1999, Mr. Song served as Director of the Safety Production Division and head of the Safety Office of the HSE Department of CNOOC. From 1999 to 2001, he served as Vice Manager of the HSE Department of the Company. From 2001 to 2003, he served as Director of operational safety of the HSE Department of CNOOC. From 2003 to 2013, he served as the General Manager of the HSE Department of CNOOC and the Company. From March 2013 to now, he has been serving as the Deputy Chief Safety Official of CNOOC, the Chief Safety Official and General Manager of the QHSE Department of the Company.
CNOOC LIMITED Annual Report 2015 53
Xie Yuhong
Born in 1961, Mr. Xie is the Deputy Chief Geologist and General Manager of Exploration Department of the Company as well as a professor-level senior engineer. Mr. Xie obtained a Ph.D. Degree from China University of Geosciences in 2005. From 1982 to 1995, Mr. Xie served as an engineer of Research Institute and Exploration Department of CNOOC Naihai West Corporation. From 1995 to 1996, he served as the Deputy Manager of Exploration Department of CNOOC Naihai West Corporation. From 1996 to 1999, he served as Manager of Tepu Company of CNOOC Naihai West Corporation, Deputy Chief Earth Physicist and Manager of Exploration Department of Naihai West Corporation. From 2001 to 2005, he was Deputy Chief Manager of CNOOC China Limited Zhanjiang Branch. From 2005 to 2013, he served as the Chief Manager of CNOOC China Limited Zhanjiang Branch. From 2013 to 2015, he was appointed as the Director of Naihai West Petroleum Administrative Bureau of CNOOC. From July 2015 to now, he has been serving as Deputy Chief Geologist of CNOOC, Deputy Chief Geologist and General Manager of Exploration Department of the Company.
JOINT COMPANY SECRETARIES
Zhong Hua
Please refer to the biography of Mr. Zhong on page 49 for details.
Li Jiewen
Born in 1965, Ms. Li Jiewen is currently the General Manager (Director) of the Investor Relations Department (Office for the Board of Directors) and the General Manager of the Controllers Department of the Company. Ms. Li is a senior economist and Certified Senior Enterprise Risk Manager and a member of CPA Australia. Ms. Li graduated from Shanghai Jiao Tong University with a bachelor’s degree in Naval Architecture and Ocean Engineering in 1987. She received a master’s degree in Management from Zhejiang University in 2001. Ms. Li joined CNOOC in 1987 and has been working in the oil and gas industry for over 28 years. From 1987 to 1989, Ms. Li was a Structure Engineer in Nanhai East Oil Corporation of CNOOC. From 1989 to 2004, she worked as the Structure Engineer, Budget and Planning Engineer, Budget Supervisor, Assistant Finance Manager of CACT Operators Group. From January 2004 to October 2006, she served as the Finance Manager of CNOOC China Limited Shenzhen Branch. From October 2006 to November 2010, Ms. Li was the Deputy General Manager of the Controllers Department of the Company. Ms. Li has been appointed as the General Manager of the Controllers Department of the Company in November 2010. Ms. Li has been also appointed as the General Manager (Director) of the Investor Relations Department (Office for the Board of Directors) of the Company since October 2015. Ms. Li is also the Director of Nexen Energy ULC, a subsidiary of the Company. Ms. Li was appointed as Joint Company Secretary of the Company with effect from 27 November 2015.
Tsue Sik Yu, May
Born in 1973, Ms. Tsue Sik Yu, May is the Joint Company Secretary of the Company. She graduated from Curtin University of Technology in Australia with a bachelor of commerce in accounting. Ms. Tsue furthered her education at The Hong Kong Polytechnic University in Master of Corporate Governance from 2004 to 2006. She is a fellow member of both the Institute of Chartered Secretaries and Administrators and the Hong Kong Institute of Chartered Secretaries since 2012 and became a member of Company Secretaries Panel and Advisor for Academy of Professional Certification in the same year. Furthermore, she is also a fellow member and certified risk trainer of the Institute of Crisis and Risk Management and an associate member of CPA Australia. From August 1998 to March 1999, Ms. Tsue worked in LG International (HK) Ltd. as a senior accounts clerk. Ms. Tsue joined China Ocean Oilfield Services (HK) Limited in 1999 as an accountant. She helped to manage the finance of the CNOOC Insurance Limited since 2000 and became its employee in 2004 as a manager of finance department. She serves as company secretary of CNOOC Insurance Limited since March 2007. Ms. Tsue was appointed as Joint Company Secretary of the Company with effect from 25 November 2008.
CNOOC LIMITED Annual Report 2015 54
Report of the Directors
The directors (the “Directors”) of the Company are pleased to present their report together with the audited financial statements of the Company for the year ended 31 December 2015.
PRINCIPAL ACTIVITIES
The principal activity of the Company is investment holding of its subsidiaries. These subsidiaries are principally engaged in the exploration, development, production and sales of crude oil and natural gas and other petroleum products.
SUMMARY OF FINANCIAL INFORMATION AND OPERATING RESULTS
Please refer to the financial summary on page 2 for a summary of the assets and liabilities of the Group as at 31 December 2015 and the operating results of the Group for the year then ended.
BUSINESS REVIEW
Overview and Performance of the Year
A review of the business of the Group and analysis of the Group’s performance using financial key performance indicators is provided in the Business Overview and Management’s Discussion and Analysis section on pages 8 to 26 and pages 61 to 65 of this annual report.
Environmental Policies and Performance
During the process of oilfield development, the Company highly values the protection of natural and ecological environment and its comprehensive environmental protection measures ensure the Company to comply with the applicable laws and regulations on the environmental protection.
The Company’s environmental protection management system emphasizes the management of the whole process. During the process of construction and production of oilfields, we place Environment Impact Assessment (EIA), compliance with set standards or targets on pollutant emissions, control on total discharge amount and reduction on emissions as our priorities. During the period of ODP (Overall Development Plan), EIA report will be drafted and its approval from the government is a necessity for the launch of a project. During the construction stage, environmental protection supervision and management are strictly performed and tightened in order to reduce the impact on natural and social environment. During the production stage, pollutant emission monitor program is carried out, which analyzes the scope and extent of impact of the production process on the environment such that relevant environmental measures could be adopted. The environmental protection information system covers all information from EIA documents from all levels of the Group, information in relation to the report, statistics, monitoring and pre-warning system regarding pollutant emissions. The system enables us to achieve information management on environment.
For the year ended 31 December 2015, the Company has carried out the laws and regulations of the PRC on energy saving and reduction in emission, viewing energy saving and reduction in emission as important works for the transformation of the mode of development and optimization of the industrial structure. We keep on strictly carrying out energy-saving assessment and examination on new oilfield investment projects, ensuring this work can be integrated from the initial stage of projects. We also strengthen the efforts in technical reformation, which is the key to improve energy efficiency and reduce carbon emissions.
Regarding the environmental issues that have material impacts on the Company’s business performance and future development, please refer to the social responsibility report of 2015 prepared by the Company (the “2015 CSR report”) to be available on the Company’s website.
CNOOC LIMITED Annual Report 2015 55
Compliance with Relevant Laws and Regulations
For the year ended 31 December 2015, compliance procedures were in place to ensure adherence to applicable laws, rules and regulations, in particular those have significant impact on the Group. The Board and senior management within their respective duties in conjunction with internal and external professional advisors monitored the Group’s policies and practices on compliance with legal and regulatory requirements. Changes in the applicable laws, rules and regulations which have significant impact on the Group were brought to the attention of relevant employees and relevant operation units from time to time. During the reporting period, the various work of the Board and senior management were in compliance with the relevant laws and regulations, the articles of association of the Company, charters of the board committees, internal policies and the relevant provisions of various internal control systems. Decision making process was legitimate and effective. Directors and senior management performed in a diligent and responsible manner and the resolutions of the general meetings and board meetings were implemented faithfully. Meanwhile, the Company has timely performed its disclosure obligations which were in strict compliance with the requirements of the listing rules or manuals of the Hong Kong Stock Exchange, New York Stock Exchange and Toronto Stock Exchange.
In accordance with the requirements of the laws, regulations and related policies in Hong Kong, PRC and relevant other jurisdictions in which the Company operates, the Company provides and maintains statutory benefits for its staff, including but not limited to pension schemes, mandatory provident fund, basic medical insurance, work injury insurance, etc. Further, the Group has been committed in complying relevant laws and regulations on work and occupational safety of employees of the Group.
Key Relationships with Stakeholders
The support and trust of our stakeholders is integral to the Company’s growth and success. Our stakeholders include shareholders and creditors, employees and employee organizations, governments and regulatory authorities, business partners and service providers, the public and communities, charities and non-government organizations (NGOs) and clients. We place emphasis on communications with our stakeholders and have established an open and transparent communication channel for each category of stakeholders to understand their expectations and requests.
Through specified communication methods, we looked into and sorted out the focuses and concerns of the stakeholders, and responded with corresponding actions and measures. We continued to strengthen the quality and effectiveness of information disclosure, comply with applicable laws and regulations and actively participate in public welfare activities, with the purpose of achieving mutual development and value sharing with our stakeholders. We have also formulated key indicators based on the focuses and concerns of different stakeholders to reflect our management performance on the above subject matters. Some of our key indicators include return on equity and payout ratio for shareholders and creditors; employee training frequency, turnover rate and OSHA statistics for employees and employee organizations; violations of laws and regulations and safety and environment performance concerned by the government; partners’ feedback and contracts’ execution capability for business partners and service providers; public opinion and corporate image concerned by the public; community evaluations for communities; response rate on enquiries for charities and NGOs; satisfactory reports for clients and etc. Going forward, we will endeavor to improve our current policies, strive to maximize our stakeholders’ value and achieve a mutually beneficial outcome.
For more details on Company’s key relationships with stakeholders, please refer to the 2015 CSR report.
Key Risks and Uncertainties
A description of principal risks and uncertainties that the Group may be facing is provided in the Business Overview on pages 8 to 26 of this annual report.
Prospects
A description of the likely future development in the Company’s future business is provided in the Chairman’s statement on pages 6 to 7 and Business Overview on pages 8 to 26 of this annual report.
Subsequent Event
Please refer to note 38 to the consolidated financial statements for details of the significant events after the reporting period of the Group.
CNOOC LIMITED Annual Report 2015 56
LOANS
Please refer to note 26 to the consolidated financial statements on pages 109 to 111 for details of the loans and borrowings of the Group as at 31 December 2015.
PROPERTY, PLANT AND EQUIPMENT
Please refer to note 14 to the consolidated financial statements on pages 100 to 101 for the movements in property, plant and equipment of the Group for the year ended 31 December 2015.
RESERVES
The distributable reserves of the Company as at 31 December 2015 amounted to RMB78,368 million.
Please refer to the consolidated statement of changes in equity on page 69 and note 39 to the consolidated financial statements on pages 130 to 131 for movements in the reserves of the Group and the Company, respectively, for the year ended 31 December 2015.
SUBSIDIARIES, ASSOCIATES AND JOINT VENTURES
Particulars of the Company’s subsidiaries, associates and joint ventures as at 31 December 2015 are set out in notes 16, 17 and 18 to the consolidated financial statements on pages 102 to 106.
DIVIDENDS
An interim dividend of HK$0.25 (tax inclusive) per share was declared on 26 August 2015, and paid to the shareholders of the Company on 13 October 2015.
The Board recommended a payment of a final dividend of HK$0.25 (tax inclusive) per share for the year ended 31 December 2015, payable on 19 July 2016 to all shareholders on the register of members of the Company on 17 June 2016 subject to shareholders’ approval.
RETIREMENT BENEFITS
Please refer to note 31 to the consolidated financial statements on page 120 for details of the retirement benefits of the Group for the year ended 31 December 2015.
MAJOR SUPPLIERS AND CUSTOMERS
Purchases from the largest supplier of the Group for the year ended 31 December 2015 represented approximately 15% of the Group’s total purchases. The total purchases attributable to the five largest suppliers of the Group accounted for approximately 42% of the total purchases of the Group for the year ended 31 December 2015.
Sales to the largest third party customer for the year ended 31 December 2015 represented approximately 9% of the Group’s total revenue. The total sales attributable to the five largest third party customers of the Group accounted for approximately 21% of the Group’s total revenue for the year ended 31 December 2015.
For the year ended 31 December 2015, except for the continuing connected transactions with its indirect controlling shareholder CNOOC and its associates, as disclosed in the section entitled “Connected Transactions” below, none of the Directors or their respective close associates or any shareholder of the Company (which to the knowledge of the Directors owns more than 5% of the Company’s share capital) had any interests in the five largest suppliers or customers of the Group.
CNOOC LIMITED Annual Report 2015 57
CHARITABLE DONATIONS
The donations by the Group for the year ended 31 December 2015 amounted to RMB47 million.
CONNECTED TRANSACTIONS
The Independent Non-executive Directors have confirmed that the following continuing connected transactions for the year ended 31 December 2015 to which any member of the Group was a party were entered into by the Group:
1. | in the ordinary and usual course of its business; |
2. | on normal commercial terms or better; and |
3. | in accordance with the relevant agreements (including pricing principles and guidelines set out therein) governing the transactions on terms that were fair and reasonable and in the interests of the Company and the shareholders as a whole. |
Comprehensive framework agreement with CNOOC in respect of the provision of a range of products and services
The Company entered into a comprehensive framework agreement on 6 November 2013 with CNOOC, controlling shareholder of the Company, for the provision (1) by the Group to CNOOC and/or its associates and (2) by CNOOC and/or its associates to the Group of a range of products and services which may be required and requested from time to time by either party and/or its associates in respect of the continuing connected transactions. The comprehensive framework agreement is substantially on the same terms as the terms contained in the comprehensive framework agreements entered into by the Company on 1 November 2010. The term of the comprehensive framework agreement is for a period of three years from 1 January 2014. The continuing connected transactions under the comprehensive framework agreement and the relevant annual caps for the three years from 1 January 2014 were approved by the independent shareholders of the Company on 27 November 2013. The continuing connected transactions under the comprehensive framework agreement and the relevant annual caps are set out below:
Categories of continuing connected transactions |
Annual caps for 2014 to 2016 | |
Provision of exploration, oil and gas development, oil and gas production as well as marketing, management and ancillary services by CNOOC and/or its associates to the Group | ||
(a)
|
Provision of exploration and support services
|
For the three years ended 31 December 2016, RMB15,000 million, RMB16,100 million and RMB17,200 million, respectively |
(b)
|
Provision of oil and gas development and support services
|
For the three years ended 31 December 2016, RMB47,200 million, RMB49,600 million and RMB52,100 million, respectively
|
CNOOC LIMITED Annual Report 2015 58
(c)
|
Provision of oil and gas production and support services
|
For the three years ended 31 December 2016, RMB10,500 million, RMB11,600 million and RMB12,800 million, respectively |
(d)
|
Provision of marketing, management and ancillary services
|
For the three years ended 31 December 2016, RMB1,408 million, RMB1,875 million and RMB2,075 million, respectively |
(e)
|
FPSO vessel leases
|
For the three years ended 31 December 2016, RMB1,450 million, RMB2,180 million and RMB2,350 million, respectively |
Provision of management, technical, facilities and ancillary services, including the supply of materials by the Group to CNOOC and/or its associates
Provision of management, technical, facilities and ancillary services, including the supply of materials to CNOOC and/or its Associates |
For the three years ended 31 December 2016, RMB100 million, RMB100 million and RMB100 million, respectively |
Sales of petroleum and natural gas products by the Group to CNOOC and/or its associates
(a)
|
Sales of petroleum and natural gas products (other than long term sales of natural gas and liquefied natural gas) |
For the three years ended 31 December 2016, RMB346,700 million, RMB438,600 million and RMB504,400 million, respectively |
(b)
|
Long term sales of natural gas and liquefied natural gas
|
For the three years ended 31 December 2016, RMB30,700 million, RMB38,900 million and RMB44,700 million, respectively
|
Financial services provided by CNOOC Finance Corporation Limited to the Group
On 14 October 2008, the Company entered into a financial services framework agreement with CNOOC Finance Corporation Limited, an associate of CNOOC (“CNOOC Finance”), pursuant to which CNOOC Finance provides the Group a range of financial services. On 20 August 2010, the Company entered into a renewal agreement with CNOOC Finance to renew such financial services framework agreement.
CNOOC LIMITED Annual Report 2015 59
As the financial services framework agreement (as renewed on 20 August 2010) expired on 31 December 2013, the Company entered into a new renewal agreement with CNOOC Finance on 27 November 2013 to renew the financial services framework agreement for a term of another three years from 1 January 2014 to 31 December 2016. The new renewal agreement is substantially on the same terms as the terms contained in the renewal agreement entered into by the Company on 20 August 2010. The continuing connected transactions in respect of the depositary services under the new renewal agreement are exempted from independent shareholders’ approval requirements, but subject to the annual reporting, annual review and announcement requirements.
The maximum daily outstanding balance of deposits (including accrued interest) (excluding funds placed for the purpose of extending entrustment loans pursuant to the entrustment loan services) placed by the Group with CNOOC Finance should not exceed RMB22 billion for the period from 1 January 2014 to 31 December 2016.
The Independent Non-executive Directors have further confirmed that for the year ended 31 December 2015:
(i) | Provision of exploration, oil and gas development, oil and gas production as well as marketing, management and ancillary services by CNOOC and/or its associates to the Group: |
(a) | The aggregate annual volume of transactions for the provision of exploration and support services did not exceed RMB16,100 million. |
(b) | The aggregate annual volume of transactions for the provision of oil and gas development and support services did not exceed RMB49,600 million. |
(c) | The aggregate annual volume of transactions for the provision of oil and gas production and support services did not exceed RMB11,600 million. |
(d) | The aggregate annual volume of transactions for the provision of marketing, management and ancillary services did not exceed RMB1,875 million. |
(e) | The aggregate annual volume of transactions for FPSO vessel leases did not exceed RMB2,180 million. |
(ii) | The aggregate annual volume of transactions for the provision of management, technical, facilities and ancillary services, including the supply of materials by the Group to CNOOC and/or its associates did not exceed RMB100 million; |
(iii) | Sales of petroleum and natural gas products by the Group to CNOOC and/or its associates: |
(a) | The aggregate annual volume of transactions for the sales of petroleum and natural gas products (other than long term sales of natural gas and liquefied natural gas) did not exceed RMB438,600 million. |
(b) | The aggregate annual volume of the transactions for the long term sales of natural gas and liquefied natural gas did not exceed RMB38,900 million. |
(iv) | The maximum daily outstanding balance of deposits (including accrued interest) (excluding funds placed for the purpose of extending entrustment loans pursuant to the entrustment loan services) placed by the Group with CNOOC Finance did not exceed RMB22 billion. |
The independent auditors of the Group have reviewed the continuing connected transactions referred to above and confirmed to the Board of Directors that the continuing connected transactions:
1. | have received the approval of the Board; |
2. | were in accordance with the pricing policies involving provision of goods or services by the Company as stated in the Company’s financial statements; |
CNOOC LIMITED Annual Report 2015 60
3. | were entered into in accordance with the relevant agreements governing the transactions; and |
4. | have not exceeded the applicable caps. |
Please also refer to note 30 to the consolidated financial statements on pages 115 to 119 for a summary of the related party transactions which include the Group’s continuing connected transactions.
SHARE CAPITAL
Please refer to note 28 to the consolidated financial statements on page 112 for details of movements in the Company’s total issued shares for the year ended 31 December 2015.
SHARE OPTION SCHEMES
The Company has adopted the following share option schemes for the grant of options to the Company’s Directors, senior management and other eligible grantees:
1. | Pre-Global Offering Share Option Scheme; |
2. | 2001 Share Option Scheme; |
3. | 2002 Share Option Scheme; and |
4. | 2005 Share Option Scheme. |
Under these share option schemes, the Remuneration Committee of the Board will from time to time propose for the Board’s approval for grant of and the number of share options to be granted to the relevant grantees. The maximum aggregate number of shares (including those that could be subscribed for under the Pre-Global Offering Share Option Scheme, the 2001 Share Option Scheme, the 2002 Share Option Scheme and the 2005 Share Option Scheme) which may be issued upon exercise of all options to be granted shall not exceed 10% of the total issued shares of the Company as at 31 December 2005, being the date on which the shareholders of the Company approved the 2005 Share Option Scheme, excluding share options which have lapsed in accordance with the terms of the share option schemes.
Please refer to the note 28 to the consolidated financial statements on pages 113 to 114 for details regarding each of these share option schemes of the Company. Save as those disclosed in the annual report, no right to subscribe for equity or debt securities of the Company has been granted by the Company to, nor have any such rights been exercised by, any other person during the year ended 31 December 2015.
CNOOC LIMITED Annual Report 2015 61
During the year ended 31 December 2015, the movements in the options granted under all of the above share option schemes were as follows:
Price of the | Weighted average | ||||||||||||
Company’s | price of the | ||||||||||||
Number of share options | shares | Company’s shares | |||||||||||
Exercise | Immediately | Immediately | |||||||||||
Granted | Exercised | Forfeited | Expired | As at 31 | price | before the | before the | At exercise | |||||
Name of category | As at 1 January | during | during | during | during | December | Date of grant of | Exercise period of | of share | grant date | exercise | date of | |
of grantee | 2015 | the year | the year | the year | the year | 2015 | share options | share options* | options | of options | date | options | |
HK$ | HK$ | HK$ | HK$ | ||||||||||
per share | per share | per share | per share | ||||||||||
Executive Directors | |||||||||||||
Wu Guangqi | 1,610,000 | – | – | – | (1,610,000) | – | 31 August 2005 | 31 August 2005 to
31 August 2015 |
5.62 | 5.75 | – | – | |
1,770,000 | – | – | – | – | 1,770,000 | 14 June 2006 | 14 June 2006 to 14 June 2016 |
5.56 | 5.30 | – | – | ||
1,857,000 | – | – | – | – | 1,857,000 | 25 May 2007 | 25 May 2007 to 25 May 2017 |
7.29 | 7.43 | – | – | ||
1,857,000 | – | – | – | – | 1,857,000 | 29 May 2008 | 29 May 2008 to 29 May 2018 |
14.828 | 14.20 | – | – | ||
1,857,000 | – | – | – | – | 1,857,000 | 27 May 2009 | 27 May 2009 to 27 May 2019 |
9.93 | 9.33 | – | – | ||
1,857,000 | – | – | – | – | 1,857,000 | 20 May 2010 | 20 May 2010 to 20 May 2020 |
12.696 | 12.22 | – | – | ||
Non-executive Directors | |||||||||||||
Yang Hua | 1,610,000 | – | – | – | (1,610,000) | – | 31 August 2005 | 31 August 2005 to 31 August 2015 | 5.62 | 5.75 | – | – | |
1,770,000 | – | – | – | – | 1,770,000 | 14 June 2006 | 14 June 2006 to 14 June 2016 | 5.56 | 5.30 | – | – | ||
1,857,000 | – | – | – | – | 1,857,000 | 25 May 2007 | 25 May 2007 to 25 May 2017 | 7.29 | 7.43 | – | – | ||
1,857,000 | – | – | – | – | 1,857,000 | 29 May 2008 | 29 May 2008 to 29 May 2018 | 14.828 | 14.20 | – | – | ||
2,835,000 | – | – | – | – | 2,835,000 | 27 May 2009 | 27 May 2009 to 27 May 2019 | 9.93 | 9.33 | – | – | ||
2,000,000 | – | – | – | – | 2,000,000 | 20 May 2010 | 20 May 2010 to 20 May 2020 | 12.696 | 12.22 | – | – |
CNOOC LIMITED Annual Report 2015 62
Price of the | Weighted average | ||||||||||||
Company’s | price of the | ||||||||||||
Number of share options | shares | Company’s shares | |||||||||||
Exercise | Immediately | Immediately | |||||||||||
Granted | Exercised | Forfeited | Expired | As at 31 | price | before the | before the | At exercise | |||||
Name of category | As at 1 January | during | during | during | during | December | Date of grant of | Exercise period of | of share | grant date | exercise | date of | |
of grantee | 2015 | the year | the year | the year | the year | 2015 | share options | share options* | options | of options | date | options | |
HK$ | HK$ | HK$ | HK$ | ||||||||||
per share | per share | per share | per share | ||||||||||
Other Employees** | |||||||||||||
in aggregate | 24,850,000 | – | – | – | (24,850,000) | – | 31 August 2005 | 31 August 2005 to 31 August 2015 |
5.62 | 5.75 | – | – | |
34,940,000 | – | – | (1,310,000) | – | 33,630,000 | 14 June 2006 | 14 June 2006 to 14 June 2016 |
5.56 | 5.30 | – | – | ||
40,576,000 | – | – | (1,374,000) | – | 39,202,000 | 25 May 2007 | 25 May 2007 to 25 May 2017 |
7.29 | 7.43 | – | – | ||
49,875,000 | – | – | (3,471,000) | – | 46,404,000 | 29 May 2008 | 29 May 2008 to 29 May 2018 |
14.828 | 14.20 | – | – | ||
62,865,000 | – | – | (6,006,000) | – | 56,859,000 | 27 May 2009 | 27 May 2009 to 27 May 2019 |
9.93 | 9.33 | – | – | ||
75,341,000 | – | – | (8,361,000) | – | 66,980,000 | 20 May 2010 | 20 May 2010 to 20 May 2020 |
12.696 | 12.22 | – | – | ||
Total | 311,184,000 | – | – | (20,522,000) | (28,070,000) | 262,592,000 |
* | Except for share options granted under the Pre-Global Offering Share Option Scheme, all share options granted are subject to a vesting schedule pursuant to which one third of the options granted vest on the first, second and third anniversaries of the date of grant, respectively, such that the options granted are fully vested on the third anniversary of the date of grant. |
CNOOC LIMITED Annual Report 2015 63
EQUITY-LINKED AGREEMENT
Save as disclosed in this annual report, there was no equity-linked agreement entered into by the Company during the year ended 31 December 2015.
PURCHASE, SALE OR REDEMPTION OF Listed securities
Save as disclosed in this annual report, there was no purchase, sale or redemption by the Company, or any of its subsidiaries, of its listed securities during the year ended 31 December 2015.
NAME OF DIRECTOR
The Directors of the Company during the year and up to the date of this annual report are:
Executive Directors
Li Fanrong
Wu Guangqi
Non-executive Directors
Wang Yilin (Note 1)
Yang Hua (Chairman)
Lv Bo
Wang Jiaxiang (Note 2)
Independent Non-executive Directors
Chiu Sung Hong
Lawrence J. Lau
Tse Hau Yin, Aloysius
Kevin G. Lynch
Note 1: With effect from 19 May 2015, Mr. Wang Yilin resigned as Chairman of the Board and Non-executive Director of the Company.
Note 2: With effect from 23 September 2015, Mr. Wang Jiaxiang retired as Non-executive Director of the Company.
In accordance with the Company’s Articles of Association and pursuant to Appendix 14 to Listing Rules, Mr. Li Fanrong, Mr. Lv Bo and Mr. Chiu Sung Hong will retire at the forthcoming Annual General Meeting and, who being eligible, will offer themselves for re-election.
The list of directors who have served on the boards of the subsidiaries of the Company included in the annual consolidated financial statements for the financial year ended 31 December 2015 during the year and up to the date of this report is disclosed as following:
Chen Bi, Chen Ming, Chen Yan, Chen Zhaoguang, Chen Zhiyong, Cheng Chi, Cui Hanyun, Deng Jinhui, Ding Fang, Duan Chenggang, Fang Zhi, Gong Shaobo, Han Mei, Hua Chenggang, Jing Fengjiang, Kuang Likun, Li Bo, Li Fanrong, Li Jiewen, Li Qijun, Li Rongguang, Lin Yaosheng, Liu Kuang, Liu Mingquan, Liu Song, Liu Xiangdong, Liu Xiaoxiang, Liu Zaisheng, Lu Yongfeng, Ma Qiangui, Mi Lijun, Pang Jian, Qiu Zongjie, Ren Qi, Shen Yiming, Sheng Jianbo, Shi Hesheng, Wang Xin, Wang Yaohui, Wang Zhizhong, Wu Guangqi, Wu Peikang, Xiang Hua, Xiao Zongwei, Xie Wensheng, Xie Yuhong, Yang Hua, Yuan Guangyu, Zhang Bing, Zhang Fengjiu, Zhang Guohua, Zhao Hong, Zhao Liguo, Zhao Shunqiang, CNOOC Limited, Zhong Hua, Zhou Hongbo, Zhu Weilin
CNOOC LIMITED Annual Report 2015 64
A. Jeremy Arnold, Admiral Timothy J. Keating, USN (Ret.), Alan O’Brien, Alan W. Brindley, Anita R. Koval, Archibald W. Kennedy, Bastiaan Spaargaren, Caroline Hoogsteyns, Cathleen A.L. Ward, Christine M. O’Connor, Colin T. O. Brewer, Corey D. Riley, Daniel J Dengis, Danny R. Carefoot, Darren C. Jones, Darren Craig Jones, David O. Tudor, Deanna L Zumwalt, EQ Management and Consultancy Limited, Eva A. Törzsök, Frances Ward, Gina A. Barber, Glenn R Christie, Grant W. Dreger, Gregg E. Radetsky, Ian M. Smale, Ildiko G. B. Ugrai, Jacqueline J. Loke Mun-Tze, James T. Arnold, Jamie D. Doyle, Jerome A. van Zuijlen, Jessica Lanzillotta, John A. Pritchett, John F.M. Abbott, John Michael Killip, Joseph M. B’Oris, Karen Burgess, Katarzyna Kopaczewska, Kenneth J. Krieg, Kurt Rohner, Lawson A.W. Hunter, Lester C. Jager, Lewis T. Harvey, Marilyn J. Schonberner, Marjorie Allo, Paul Harris, Peter D. Addy, Quinn E. Wilson, Ray C. J. Riddoch, Rick C. Beingessner, Robert H. Henkhuzens, Robert N. Fennell, Ronald W. Bailey, Rosalind L. Bynoe, Roy L. Swystun, Sei Tange, SGG Management (Netherlands) B.V., Shakila Kaul, Shoji Sorimachi, Simon R. Perchard, Theresa A. Roessel, Tiara Ltd., Trevor L. Norman, Una M. Power, W. Mark Simpson, Wilhelmus G. Reiff, Yehuda Cohen
DIRECTORS’ INTERESTS
As at 31 December 2015, apart from holding personal interests in options to subscribe for shares in the Company granted under the share option schemes of the Company as disclosed in this annual report, the interests of each Director and chief executive of the Company in the equity or debt securities of the Company or any associated corporations (within the meaning of the Securities and Futures Ordinance (“SFO”)) which were required (i) to be notified to the Company and the Hong Kong Stock Exchange pursuant to Divisions 7 and 8 of Part XV of the SFO (including interests and short positions which they are taken or deemed to have under such provisions of the SFO); (ii) pursuant to section 352 of the SFO, to be entered in the register referred to therein; or (iii) pursuant to the Model Code for Securities Transactions by Directors of Listed Issuers (the “Model Code”), to be notified to the Company and the Hong Kong Stock Exchange are as follows:
Approximate | |||
percentage of | |||
Ordinary | total issued | ||
Name of Director | Nature of interest | shares held | shares |
Chiu Sung Hong | Beneficial interest | 1,150,000 | 0.003% |
Save as disclosed above, as at 31 December 2015, none of the Directors and chief executive of the Company was interested in the equity or debt securities of the Company or any associated corporations (within the meaning of the SFO) which were required (i) to be notified to the Company and the Hong Kong Stock Exchange pursuant to Divisions 7 and 8 of Part XV of the SFO (including interests and short positions which they were taken or deemed to have under such provisions of the SFO); (ii) pursuant to section 352 of the SFO, to be entered in the register referred to therein; or (iii) pursuant to the Model Code, to be notified to the Company and the Hong Kong Stock Exchange. All the interests held by the Directors and chief executive represent long positions.
SUBSTANTIAL SHAREHOLDERS’ INTERESTS
As at 31 December 2015, so far as was known to the Directors and chief executive of the Company, the persons, other than a Director or chief executive of the Company, who had an interest or a short position in the Shares and underlying Shares which would fall to be disclosed to the Company under the provisions of Divisions 2 and 3 of Part XV of the SFO were as follows:
Approximate | |||
percentage of | |||
Ordinary | total issued | ||
shares held | shares | ||
(i) | CNOOC (BVI) Limited | 28,772,727,268 | 64.44% |
(ii) | Overseas Oil & Gas Corporation, Ltd. (“OOGC”) | 28,772,727,273 | 64.44% |
(iii) | CNOOC | 28,772,727,273 | 64.44% |
Note: | CNOOC (BVI) Limited is a direct wholly owned subsidiary of OOGC, which is a direct wholly owned subsidiary of CNOOC. Accordingly, CNOOC (BVI) Limited’s interests are recorded as the interests of OOGC and CNOOC. |
CNOOC LIMITED Annual Report 2015 65
All the interests stated above represent long positions. As at 31 December 2015, save as disclosed above, the Directors and chief executive of the Company are not aware of any other person having interests or short positions (other than the Directors and chief executives of the Company) in the Shares and underlying Shares which would fall to be disclosed to the Company under the provisions of Divisions 2 and 3 of Part XV of the SFO, or who is, directly or indirectly, interested in 10% or more of the nominal value of any class of share capital carrying rights to vote in all circumstances at general meetings of any other member of the Group.
DIRECTORS AND SENIOR MANAGEMENT OF THE COMPANY
Please refer to pages 44 to 50 for information concerning the Directors and senior management of the Company.
DIRECTORS’ SERVICE CONTRACTS AND INTERESTS IN transaction, arrangement and contract OF SIGNIFICANCE
No Director (including those to be re-elected) has an unexpired service contract with the Company which is not determinable by the Company within one year without payment of compensation (other than normal statutory obligations).
Save as disclosed in this annual report, as at 31 December 2015 or during the year, none of the Directors or entities connected with the Directors was materially interested, either directly or indirectly, in any transaction, arrangement or contract which is significant in relation to the business of the Group to which the Company or any of its subsidiaries was a party.
DIRECTORS’ PERMITTED INDEMNITY PROVISION
Pursuant to the Company’s Articles of Association, every Director or other officer of the Company shall be entitled to be indemnified out of the assets of the Company against all costs, charges, expenses, losses and liabilities which he/she may sustain or incur in or about the execution of the duties of his/her office or otherwise in relation thereto. The Company has arranged appropriate directors’ and officers’ liability insurance coverage for the Directors and officers of the Group during the year ended 31 December 2015.
MANAGEMENT CONTRACTS
Other than the service contracts of the Directors, the Company has not entered into any contract with any individual, firm or body corporate to manage or administer the whole or any substantial part of any business of the Company during the year.
EMOLUMENTS OF THE DIRECTORS, Senior Management AND THE FIVE HIGHEST PAID INDIVIDUALS
Please refer to notes 9 and 10 to the consolidated financial statements on pages 93 to 95 for details of the emoluments of the Directors, senior management and the five highest paid individuals of the Company.
MATERIAL LEGAL PROCEEDINGS
As at 31 December 2015, the Company was not involved in any material litigation or arbitration and no material litigation or arbitration were pending or threatened or made against the Company so far as the Company is aware.
COMPLIANCE WITH THE CORPORATE GOVERNANCE CODE
Except deviation from the CG Code provisions A.4.1, the Company has complied with the code provisions of the CG Code as set out in Appendix 14 of the Listing Rules throughout the year ended 31 December 2015.
Please refer to the Corporate Governance Report on pages 27 to 43 for details.
CNOOC LIMITED Annual Report 2015 66
AUDITORS
Deloitte Touche Tohmatsu was appointed as the auditors of the Company for the year ended 31 December 2015 and has audited the accompanying financial statements. A resolution to re-appoint Deloitte Touche Tohmatsu as auditors of the Company will be proposed at the forthcoming Annual General Meeting to be held on 26 May 2016.
SUFFICIENCY OF PUBLIC FLOAT
As at the date of this report, the Directors confirmed that based on information that is publicly available to the Company and within the knowledge of the Directors, the Company had maintained sufficient amount of public float as required under the Listing Rules. As at the date of this report, based on publicly available information and within the Directors’ knowledge, approximately 35.56% of the Company’s total issued shares were held by the public. The total number of total issued shares of the Company is 44,647,455,984. The closing price of the share of the Company as at 31 December 2015 is HK$8.07 per share.
VOTING BY POLL
In 2015, all votes of shareholders were taken by poll in the annual general meeting and extraordinary general meetings of the Company. Pursuant to the Rule 13.39(4), all votes of shareholders will be taken by poll except where the chairman, in good faith, decides to allow a resolution which relates purely to a procedural or administrative matter to be voted on by a show of hands.
By Order of the Board
YANG Hua
Chairman
Hong Kong, 24 March 2016
CNOOC LIMITED Annual Report 2015 67
Management’s Discussion and Analysis
The following discussion and analysis should be read in conjunction with the Chairman’s Statement and the Business Overview section, as well as the Group’s audited financial statements and the related notes.
Development Strategy
As one of the largest independent oil and gas exploration and production companies, we mainly engage in the exploration, development, production and sales of oil and natural gas. The principal components of our strategy are as follows:
Focus on reserve and production growth
As an upstream company specializing in the exploration, development, production and sales of oil and natural gas, we consider reserve and production growth as our top priorities. We plan to increase our reserves and production through drill bits and value-driven acquisitions. We will continue to concentrate our independent exploration efforts on major operating areas, especially offshore China. In the meantime, we will continue to cooperate with our partners through production sharing contracts to lower capital requirements and exploration risks.
We increase our production primarily through the development of proved undeveloped reserves. As of 31 December 2015, approximately 55.0% of our proved reserves were classified as proved undeveloped, which provides a solid resource base for maintaining stable production in the future.
Develop natural gas business
We will continue to develop the natural gas market, and continue to explore and develop natural gas fields. In the event that we invest in businesses and geographic areas where we have limited experience and expertise, we plan to structure our investments in the form of alliances or partnerships with partners possessing the relevant experience and expertise.
Maintain a prudent financial policy
We will continue to maintain our prudent financial policy. As an essential part of our corporate culture, we continue to promote cost consciousness among both our management team and employees. Also, in our performance evaluation system, cost control has been one of the most important key performance indicators.
Aiming to reduce operating cost, we plan to actively promote the regional development of oil and gas fields and apply cutting-edge offshore engineering, drilling and production technologies to our operations. In 2015, we emphasized the “Year of Quality and Efficiency” program, with efforts to control costs and increase efficiency. Operating expense per BOE lowered for the second consecutive year.
Currently, we have a healthy financial position. Under low oil price environment, we attached more importance to cash flow management and continued to balance Capex, dividend payment and debt financing.
2015 Overview
In 2015, the global economy continued to adjust, the overall recovery had been weak. The US economy rebounded moderately while the economic recovery in the eurozone was slow; and emerging countries experienced a slowdown in economic growth. For China, the economy was resilient yet under a downward pressure. In 2015, China’s GDP increased 6.9%, the first time in 25 years to achieve a GDP that falls below 7%.
During 2015, due to market concerns over global economic prospects and excess in global supply of crude oil, international oil prices remained at a low level. In 2015, WTI crude oil price averaged US$48.68 per barrel, representing a decrease of 47.7% over the previous year; brent crude oil price averaged US$53.60 per barrel, representing a decrease of 46.1% year over year.
CNOOC LIMITED Annual Report 2015 68
In light of the harsh external environment, the Company intensified its “Year of Quality and Efficiency” program. While making efforts to improve cost efficiency, we also focused our efforts on developing a solid foundation for long term sustainable growth.
During the year, the Company realized a net production of 495.7 million BOE, representing an increase of 14.6% over the previous year, which was at the high-end of the annual production target. For exploration, the Company made breakthroughs domestically and overseas, consolidating our resources for sustainable development. New project construction progressed smoothly. All the seven new projects planned for 2015 have commenced production. HSE maintained a stable performance.
The Company maintained a solid financial condition in 2015. Oil and gas sales were RMB146,597 million (US$23,551.6 million, with the exchange rates applicable for 2015 at 6.2245), representing a decrease of 32.8% over the previous year. Net profit was RMB20,246 million (US$3,252.6 million), representing a decrease of 66.4% over the previous year.
As at 31 December 2015, the Company’s basic and diluted earnings per share were RMB0.45 and RMB0.45, respectively. The board of directors has recommended the payment of a final dividend of HK$0.25 per share (tax inclusive).
Looking into 2016, the global economy still lacks the momentum for recovery; international oil prices will stay at a low level and the external operating environment will remain tough. Despite this, we are confident in the Company’s future and will persevere through to further strengthen our operational strategies under a low oil price environment, and to promote the “Year of Quality and Efficiency” program in order to meet our production and operation targets.
BUSINESS REVIEW
For details, please refer to “Business Overview” on page 8 to 26 of the annual report.
FINANCIAL RESULTS
Consolidated net profit
Our consolidated net profit decreased 66.4% to RMB20,246 million (US$3,252.6 million) in 2015 from RMB60,199 million in 2014, primarily as a result of the decrease in profitability under the low international oil price environment.
Revenues
Our oil and gas sales, realized prices and sales volume in 2015 are as follows:
2015 | 2014 | Change | Change (%) | |||||||||||||
Oil and gas sales (RMB million) | 146,597 | 218,210 | (71,613 | ) | (32.8 | %) | ||||||||||
Crude and liquids | 128,929 | 200,991 | (72,062 | ) | (35.9 | %) | ||||||||||
Natural gas | 17,668 | 17,219 | 449 | 2.6 | % | |||||||||||
Sales volume (million BOE) | 480.1 | 415.6 | 64.5 | 15.5 | % | |||||||||||
Crude and liquids (million barrels) | 404.0 | 340.6 | 63.4 | 18.6 | % | |||||||||||
Natural gas (bcf) | 444 | 435 | 9 | 2.1 | % | |||||||||||
Realized prices | ||||||||||||||||
Crude and liquids (US$/barrel) | 51.27 | 96.04 | (44.77 | ) | (46.6 | %) | ||||||||||
Natural gas (US$/mcf) | 6.39 | 6.44 | (0.05 | ) | (0.8 | %) | ||||||||||
Net production (million BOE) | 495.7 | 432.5 | 63.2 | 14.6 | % | |||||||||||
China | 323.4 | 269.1 | 54.3 | 20.2 | % | |||||||||||
Overseas | 172.3 | 163.4 | 8.9 | 5.4 | % |
In 2015, our net production was 495.7 million BOE (including our interest in equity-accounted investees), representing an increase of 14.6% from 432.5 million BOE in 2014, benefitting from the commencement of production of new oil and gas fields in offshore China. The decrease in crude and liquids sales was primarily due to significantly lower realised oil prices in 2015, which was partially offset by the increase in sales volume.
CNOOC LIMITED Annual Report 2015 69
Operating expenses
Our operating expenses decreased 9.0% to RMB28,372 million (US$4,558.1 million) in 2015 from RMB31,180 million in 2014, and the operating expenses per BOE decreased 20.9% to RMB59.4 (US$9.55) per BOE in 2015 from RMB75.1 (US$12.22) per BOE in 2014, attributable from effective cost control and large increase in production. Operating expenses per BOE offshore China decreased 18.0% to RMB49.5 (US$7.96) per BOE in 2015 from RMB60.4 (US$9.83) per BOE in 2014. Overseas operating expenses per BOE decreased 21.4% to RMB80.2 (US$12.88) per BOE in 2014 from RMB102.1 (US$16.61) per BOE in 2014.
Taxes other than income tax
Our taxes other than income tax decreased 9.1% to RMB10,770 million (US$1,730.3million) in 2015 from RMB11,842 million in 2014. The decrease was mainly due to the decrease in oil and gas revenue.
Exploration expenses
Our exploration expenses decreased 14.1% to RMB9,900 million (US$1,590.5 million) in 2015 from RMB11,525 million in 2014, among which dry hole expense decreased 16.7% to RMB4,740million (US$761.5 million) in 2015 from RMB5,686 million in 2014, due to the decrease of exploration expenditure, less high-cost wells and less wells expenses which were written off according to subsequent reserve evaluation. Meanwhile, the seismic expense decreased as compared to 2014, resulting from the continuing efforts in lowering costs and enhancing efficiency under the circumstance of decreasing exploration expenditure budget.
Depreciation, depletion and amortization
Our depreciation, depletion and amortization increased 26.0% to RMB73,439 million (US$11,798.4 million) in 2015 from RMB58,286 million in 2014. Our average depreciation, depletion and amortization per BOE, excluding the dismantlement-related depreciation, depletion and amortization, increased 11.8% to RMB146.4 (US$23.53) per BOE in 2015 from RMB130.9 (US$21.30) per BOE in 2014, primarily as a result of the increased proportion of production of new oil and gas fields and adjustment projects in offshore China and North Sea in UK in recent years, which were developed under the environment of increasing prices of raw materials and services over the past few years. Meanwhile, the commencement of production of new development wells of shale oil and gas in the U.S. further increased the amortization rate per BOE.
The dismantlement-related depreciation, depletion and amortization costs decreased 10.3 % to RMB3,545 million (US$569.5 million) in 2015 from RMB3,951 million in 2014. Our average dismantling costs per BOE decreased 22.0% to RMB7.43 (US$1.19) per BOE in 2015 from RMB RMB9.52 (US$1.55) per BOE in 2014, primarily due to the decrease of the expected value of asset retirement obligations of producing oil and gas fields, which was estimated based on current services price. Under the environment of reducing capital expenditure in upstream industry, the service price of projects constructions and drilling wells decreased.
Special Oil Gain Levy
Our Special Oil Gain (SOG) Levy decreased 99.7% to RMB59 million (US$9.5 million) in 2015 from RMB19,072 million in 2014, primarily as a result of our decreased realised oil price in offshore China and the Chinese government increased the threshold of the SOG levy to US$65 with effect from 1 January 2015.
Impairment, provision and write off
Our impairment and provision decreased 33.3% to RMB2,746 million (US$441.2million) in 2015 from RMB 4,120 million in 2014. In 2015, certain oil and gas properties located in China, North America, South America and Africa were impaired, which was reflected by the impact of near term lower price. In addition, the Company wrote off some shale oil and gas assets in North America and certain unproved properties in Canada. Approximately RMB1,400 million was included in the depreciation, depletion and amortization charge of the year, and approximately RMB461 million was included in the exploration expenses, respectively. The reason is that the leasehold contracts of these blocks were overdue, and the Company withdraw from these blocks by considering lower economy of the project and falling short of expectation of the exploration result. Please refer to Note 14 to the Consolidated Financial Statement of this annual report.
CNOOC LIMITED Annual Report 2015 70
Selling and administrative expenses
Our selling and administrative expenses decreased 13.7% to RMB5,705 million (US$916.5 million) in 2015 from RMB6,613 million in 2014. Our selling and administrative expenses per BOE decreased 24.9% to RMB 11.95 (US$ 1.92) per BOE in 2015 from RMB15.93 (US$ 2.59) per BOE in 2014. Such decreases were primarily due to lower expense resulting from the Company’s partial marketing business restructuring and Company’s vigorous efforts in lowering costs and enhancing efficiency in this year.
Finance costs/Interest income
Our finance costs increased 28.2% to RMB6,118 million (US$982.9 million) in 2015 from RMB4,774 million in 2014, primarily due to the increased interest expense from new issuance of guaranteed notes. Our interest income decreased 18.6% to RMB873 million (US$140.3 million) in 2015 from RMB1,073 million in 2014, primarily due to the reduced deposit scale under the decling market interest rate environment.
Exchange gains, net
Our net exchange losses changed 113.6% to RMB143 million (US$23.0 million) in 2015, compared with exchange gains RMB1,049 million in 2014, primarily as a result of the increase in exchange loss as a result of RMB, GBP and CAD fluctuation against the US dollars.
Investment income
Our investment income decreased 10.7% to RMB2,398 million (US$385.3 million) in 2015 from RMB2,684 million in 2014, primarily attributable to the decline in market rate of return on investment which was caused by the continuously decline interest rates promulgated by the People’s Bank of China.
Share of profits of associates/a joint venture
Our share of profits of associates/a joint venture increased 89.2% to RMB1,903 million (US$305.7 million) in 2015 from RMB1,006 million in 2014, primarily attributable to the increase in profitability of joint venture resulting from local finance and tax benefit.
Income tax expense
Our income tax credit changed 114.0% to RMB3,116 million (US$500.6 million) in 2015, compared with income tax expense of RMB22,314 million in 2014, mainly because the UK government decreased the combined income tax rate on North Sea oil and gas activities from 62% to 50% and resulted in a one-time reversal of net deferred tax liability. In addition, the lower profitability of overseas operations due to decreased oil prices resulted in a further decline in income tax expense. The effective tax rate changed to (18.2%) in 2015 from 27.0% in 2014.
Capital Resources and Liquidity
Overview
Our primary source of cash during 2015 was cash flows from operating activities. We used cash primarily to fund capital expenditure and dividends. The changes are as follows:
2015 | 2014 | Change | ||||||||||||||||||
RMB million | US$ million | RMB million | RMB million | % | ||||||||||||||||
Generated from operating activities | 80,095 | 12,867.7 | 110,508 | (30,413 | ) | (27.5 | %) | |||||||||||||
Used in investing activities | (76,495 | ) | (12,289.3 | ) | (90,177 | ) | 13,682 | (15.2 | %) | |||||||||||
Used in financing activities | (6,893 | ) | (1,107.4 | ) | (19,486 | ) | 12,593 | (64.6 | %) |
Cash generated from operating activities
The cash inflow from operating activities decreased 27.5% to RMB80,095 million (US$12,867.7 million) in 2015 from RMB110,508 million in 2014, primarily attributable to the decrease in oil and gas sales cash inflows caused by the decline in international oil price.
CNOOC LIMITED Annual Report 2015 71
Cash used in investing activities
In 2015, our capital expenditure (excluding acquisition) decreased 29.3% to RMB67,674 million (US$10,872.2 million) from 2014, because the Company reduced its capital expenditure on the basis improving quality and efficiency in response to the challenges of low oil prices. Our development expenditures in 2015 were primarily related to the capital expenditure of OML130 project, Iraq technical service contract project, deep-water Gulf of Mexico and U.S. shale oil and gas, as well as the expenses incurred for improving recovery factors of the oilfields in production. The Company had no significant acquisition during the year.
In addition, our cash used in investing activities was also attributable to the purchase of other financial assets of RMB122,030 million (US$19,604.8 million) this year. Our cash generated from investing activities was mainly from the proceeds from the sales of other financial assets in the amount of RMB104,900 million (US$16,852.8 million), and the decrease in our time deposits with maturity over three months in the amount of RMB4,825 million (US$775.2 million).
Cash used in financing activities
In 2015, the increase in net cash inflow from financing activities was mainly due to the proceeds of bank borrowings of RMB20,541 million (US$3,300.0 million) and RMB23,184 million (US$3,800.0 million) from the issuance of guaranteed notes, partially offset by the cash outflow of the distribution of dividends of RMB20,419 million (US$3,280.4 million), and the repayment of bank loans of RMB24,127 million (US$3,876.1 million).
At the end of 2015, our total interest-bearing outstanding debt was RMB164,645 million (US$26,451.1 million), compared to RMB136,563 million at the end of 2014. The increase in debt in 2015 was primarily attributable to the issuance of guaranteed notes of US$3.8 billion. Our gearing ratio, which is defined as interest-bearing debts divided by the sum of interest-bearing debts plus equity, was 29.9%, higher than that of 26.5% in 2014. The main reason for the increase was the increased scale of interest-bearing debts.
Capital Expenditure
The following table sets forth the Company’s actual capital expenditure on an accrual basis for the periods indicated.
Year ended 31 December | |||||||||
2013 | 2014 | 2015 | |||||||
(RMB million) | |||||||||
China | |||||||||
Development | 42,839 | 49,128 | 25,187 | ||||||
Exploration | 12,012 | 13,718 | 9,515 | ||||||
Subtotal | 54,851 | 62,845 | 34,702 | ||||||
Overseas | |||||||||
Development | 28,315 | 33,403 | 25,957 | ||||||
Exploration | 6,216 | 9,455 | 5,201 | ||||||
Subtotal | 34,531 | 42,858 | 31,158 | ||||||
Total | 89,383 | 105,704 | 65,860 |
Note: | Capitalized interests for 2013, 2014 and 2015 were RMB2,049 million, RMB1,842 million and RMB1,385 million, respectively. |
CNOOC LIMITED Annual Report 2015 72
Others
Employees
As of 31 December 2015, the Company had 14,956 employees in China, 5,131 employees overseas and 498 contracted employees.
Since 4 February 2001, the Company has adopted 4 stock option plans that were applicable to directors, senior management members and other qualified beneficiaries and has granted options thereafter in accordance with each stock option plan.
The Company has set up a recruitment system that is primarily market driven, and has adopted an appropriate remuneration structure.
For more information on employees and human resources, please refer to “Human Resources” in “Business Overview” section of this annual report.
CHARGES ON ASSETS
Please refer to Note 37 to the Consolidated Financial Statements of this annual report.
CONTINGENCIES
Please refer to Note 33 to the Consolidated Financial Statements of this annual report.
CNOOC LIMITED Annual Report 2015 73
Independent Auditor’s Report
TO THE SHAREHOLDERS OF CNOOC LIMITED
(Incorporated in Hong Kong with limited liability)
We have audited the consolidated financial statements of CNOOC Limited (the “Company”) and its subsidiaries (collectively referred to as the “Group”) set out on pages 67 to 131, which comprise the consolidated statement of financial position as at 31 December 2015, and the consolidated statement of profit or loss and other comprehensive income, consolidated statement of changes in equity and consolidated statement of cash flows for the year then ended, and a summary of significant accounting policies and other explanatory information.
Directors’ Responsibility for the Consolidated Financial Statements
The directors of the Company are responsible for the preparation of consolidated financial statements that give a true and fair view in accordance with International Financial Reporting Standards issued by the International Accounting Standards Board, Hong Kong Financial Reporting Standards issued by the Hong Kong Institute of Certified Public Accountants and the Hong Kong Companies Ordinance, and for such internal control as the directors determine is necessary to enable the preparation of consolidated financial statements that are free from material misstatement, whether due to fraud or error.
Auditor’s Responsibility
Our responsibility is to express an opinion on these consolidated financial statements based on our audit and to report our opinion solely to you, as a body, in accordance with Section 405 of the Hong Kong Companies Ordinance, and for no other purpose. We do not assume responsibility towards or accept liability to any other person for the contents of this report. We conducted our audit in accordance with Hong Kong Standards on Auditing issued by the Hong Kong Institute of Certified Public Accountants. Those standards require that we comply with ethical requirements and plan and perform the audit to obtain reasonable assurance about whether the consolidated financial statements are free from material misstatement.
An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the consolidated financial statements. The procedures selected depend on the auditor’s judgement, including the assessment of the risks of material misstatement of the consolidated financial statements, whether due to fraud or error. In making those risk assessments, the auditor considers internal control relevant to the entity’s preparation of consolidated financial statements that give a true and fair view in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the entity’s internal control. An audit also includes evaluating the appropriateness of accounting policies used and the reasonableness of accounting estimates made by the directors, as well as evaluating the overall presentation of the consolidated financial statements.
We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our audit opinion.
Opinion
In our opinion, the consolidated financial statements give a true and fair view of the financial position of the Group as at 31 December 2015, and of its financial performance and cash flows for the year then ended in accordance with International Financial Reporting Standards and Hong Kong Financial Reporting Standards and have been properly prepared in compliance with the Hong Kong Companies Ordinance.
Deloitte Touche Tohmatsu
Certified Public Accountants
Hong Kong
24 March 2016
CNOOC LIMITED Annual Report 2015 74
Consolidated Statement of Profit or Loss and other Comprehensive Income
Year ended 31 December 2015
(All amounts expressed in millions of Renminbi, except per share data)
Notes | 2015 | 2014 | ||||||||||
REVENUE | ||||||||||||
Oil and gas sales | 5 | 146,597 | 218,210 | |||||||||
Marketing revenues | 34 | 21,422 | 50,263 | |||||||||
Other income | 3,418 | 6,161 | ||||||||||
171,437 | 274,634 | |||||||||||
EXPENSES | ||||||||||||
Operating expenses | (28,372 | ) | (31,180 | ) | ||||||||
Taxes other than income tax | 11(ii) | (10,770 | ) | (11,842 | ) | |||||||
Exploration expenses | (9,900 | ) | (11,525 | ) | ||||||||
Depreciation, depletion and amortisation | 7 | (73,439 | ) | (58,286 | ) | |||||||
Special oil gain levy | 6 | (59 | ) | (19,072 | ) | |||||||
Impairment and provision | 14 | (2,746 | ) | (4,120 | ) | |||||||
Crude oil and product purchases | (19,840 | ) | (47,912 | ) | ||||||||
Selling and administrative expenses | (5,705 | ) | (6,613 | ) | ||||||||
Others | (3,150 | ) | (3,169 | ) | ||||||||
(153,981 | ) | (193,719 | ) | |||||||||
PROFIT FROM OPERATING ACTIVITIES | 17,456 | 80,915 | ||||||||||
Interest income | 7 | 873 | 1,073 | |||||||||
Finance costs | 8 | (6,118 | ) | (4,774 | ) | |||||||
Exchange (losses)/gains, net | (143 | ) | 1,049 | |||||||||
Investment income | 7 | 2,398 | 2,684 | |||||||||
Share of profits of associates | 256 | 232 | ||||||||||
Share of profit of a joint venture | 1,647 | 774 | ||||||||||
Non-operating income, net | 761 | 560 | ||||||||||
PROFIT BEFORE TAX | 7 | 17,130 | 82,513 | |||||||||
Income tax credit/(expense) | 11(i) | 3,116 | (22,314 | ) | ||||||||
PROFIT FOR THE YEAR ATTRIBUTABLE TO | ||||||||||||
OWNERS OF THE PARENT | 20,246 | 60,199 | ||||||||||
OTHER COMPREHENSIVE INCOME/(EXPENSE) | ||||||||||||
Items that may be subsequently reclassified to profit or loss: | ||||||||||||
Net loss on available-for-sale financial assets, net of tax | 19 | – | (2,301 | ) | ||||||||
Exchange differences on translation of foreign operations | 7,979 | 454 | ||||||||||
Share of other comprehensive income of associates | 74 | 92 | ||||||||||
Other items that will not be reclassified to profit or loss | ||||||||||||
Fair value change on equity investments designated | ||||||||||||
as at fair value through other comprehensive income | 19 | (1,573 | ) | – | ||||||||
Others | 134 | (268 | ) | |||||||||
OTHER COMPREHENSIVE INCOME/(EXPENSE) | ||||||||||||
FOR THE YEAR, NET OF TAX | 6,614 | (2,023 | ) | |||||||||
TOTAL COMPREHENSIVE INCOME FOR THE YEAR | ||||||||||||
ATTRIBUTABLE TO OWNERS OF THE PARENT | 26,860 | 58,176 | ||||||||||
EARNINGS PER SHARE ATTRIBUTABLE TO | ||||||||||||
OWNERS OF THE PARENT | ||||||||||||
Basic (RMB Yuan) | 13 | 0.45 | 1.35 | |||||||||
Diluted (RMB Yuan) | 13 | 0.45 | 1.35 |
Details of the dividends proposed and paid for the year are disclosed in note 12 to the consolidated financial statements.
CNOOC LIMITED Annual Report 2015 75
Consolidated Statement of Financial Position
31 December 2015
(All amounts expressed in millions of Renminbi)
Notes | 2015 | 2014 | ||||||||||
NON-CURRENT ASSETS | ||||||||||||
Property, plant and equipment | 14 | 454,141 | 463,222 | |||||||||
Intangible assets | 15 | 16,423 | 16,491 | |||||||||
Investments in associates | 17 | 4,324 | 4,100 | |||||||||
Investment in a joint venture | 18 | 24,089 | 21,150 | |||||||||
Available-for-sale financial assets | 19, 34 | – | 5,337 | |||||||||
Equity investments | 19, 34 | 3,771 | – | |||||||||
Deferred tax assets | 11(i) | 13,575 | 5,877 | |||||||||
Other non-current assets | 20 | 7,828 | 5,974 | |||||||||
Total non-current assets | 524,151 | 522,151 | ||||||||||
CURRENT ASSETS | ||||||||||||
Inventories and supplies | 21 | 9,263 | 10,608 | |||||||||
Trade receivables | 22 | 21,829 | 29,441 | |||||||||
Derivative financial assets | 34 | 7 | 303 | |||||||||
Available-for-sale financial assets | 19, 34 | – | 54,030 | |||||||||
Equity investments | 19, 34 | 14 | – | |||||||||
Other financial assets | 19, 34 | 71,806 | – | |||||||||
Other current assets | 7,415 | 8,573 | ||||||||||
Time deposits with maturity over three months | 23 | 18,010 | 22,835 | |||||||||
Cash and cash equivalents | 23 | 11,867 | 14,918 | |||||||||
Total current assets | 140,211 | 140,708 | ||||||||||
CURRENT LIABILITIES | ||||||||||||
Loans and borrowings | 26 | 33,585 | 31,180 | |||||||||
Trade and accrued payables | 24 | 32,614 | 52,192 | |||||||||
Derivative financial liabilities | 34 | – | 316 | |||||||||
Other payables and accrued liabilities | 25 | 13,534 | 11,499 | |||||||||
Taxes payable | 4,647 | 8,311 | ||||||||||
Total current liabilities | 84,380 | 103,498 | ||||||||||
NET CURRENT ASSETS | 55,831 | 37,210 | ||||||||||
TOTAL ASSETS LESS CURRENT LIABILITIES | 579,982 | 559,361 | ||||||||||
NON-CURRENT LIABILITIES | ||||||||||||
Loans and borrowings | 26 | 131,060 | 105,383 | |||||||||
Provision for dismantlement | 27 | 49,503 | 52,433 | |||||||||
Deferred tax liabilities | 11(i) | 11,627 | 20,189 | |||||||||
Other non-current liabilities | 1,751 | 1,746 | ||||||||||
Total non-current liabilities | 193,941 | 179,751 | ||||||||||
NET ASSETS | 386,041 | 379,610 | ||||||||||
EQUITY | ||||||||||||
Equity attributable to owners of the parent | ||||||||||||
Issued capital | 28 | 43,081 | 43,081 | |||||||||
Reserves | 29 | 342,960 | 336,529 | |||||||||
TOTAL EQUITY | 386,041 | 379,610 | ||||||||||
LI Fanrong | Wu Guangqi |
Director | Director |
CNOOC LIMITED Annual Report 2015 76
Consolidated Statement of Changes in Equity
Year ended 31 December 2015
(All amounts expressed in millions of Renminbi)
Attributable to owners of the parent | ||||||||||||||||||||||||||||||||
Share premium | Statutory | |||||||||||||||||||||||||||||||
and capital | Cumulative | and non- | Proposed | |||||||||||||||||||||||||||||
Issued | redemption | translation | distributable | Other | Retained | final | ||||||||||||||||||||||||||
capital | reserve | reserve | reserves | reserves | earnings | dividend | Total | |||||||||||||||||||||||||
At 1 January 2014 | 949 | 42,132 | (21,372 | ) | 20,000 | 8,974 | 279,668 | 11,269 | 341,620 | |||||||||||||||||||||||
Profit for the year | – | – | – | – | – | 60,199 | – | 60,199 | ||||||||||||||||||||||||
Other comprehensive income/(expense), net of tax | – | – | 454 | – | (2,477 | ) | – | – | (2,023 | ) | ||||||||||||||||||||||
Total comprehensive income/(expense) | – | – | 454 | – | (2,477 | ) | 60,199 | – | 58,176 | |||||||||||||||||||||||
Transfer upon abolition of par value under the Hong Kong Companies Ordinance ** | 42,132 | (42,132 | ) | – | – | – | – | – | – | |||||||||||||||||||||||
2013 final dividend | – | – | – | – | – | (71 | ) | (11,269 | ) | (11,340 | ) | |||||||||||||||||||||
2014 interim dividend | – | – | – | – | – | (8,846 | ) | – | (8,846 | ) | ||||||||||||||||||||||
Proposed 2014 final dividend | – | – | – | – | – | (11,325 | ) | 11,325 | – | |||||||||||||||||||||||
At 31 December 2014 | 43,081 | – | * | (20,918 | )* | 20,000 | * | 6,497 | * | 319,625 | * | 11,325 | * | 379,610 | ||||||||||||||||||
At 1 January 2015 | 43,081 | – | (20,918 | ) | 20,000 | 6,497 | 319,625 | 11,325 | 379,610 | |||||||||||||||||||||||
Profit for the year | – | – | – | – | – | 20,246 | – | 20,246 | ||||||||||||||||||||||||
Other comprehensive income/(expense), net of tax | – | – | 7,979 | – | (1,365 | ) | – | – | 6,614 | |||||||||||||||||||||||
Total comprehensive income/(expense) | – | – | 7,979 | – | (1,365 | ) | 20,246 | – | 26,860 | |||||||||||||||||||||||
2014 final dividend | – | – | – | – | – | 58 | (11,325 | ) | (11,267 | ) | ||||||||||||||||||||||
2015 interim dividend | – | – | – | – | – | (9,162 | ) | – | (9,162 | ) | ||||||||||||||||||||||
Proposed 2015 final dividend | – | – | – | – | – | (9,397 | ) | 9,397 | – | |||||||||||||||||||||||
At 31 December 2015 | 43,081 | – | * | (12,939 | )* | 20,000 | * | 5,132 | * | 321,370 | * | 9,397 | * | 386,041 |
* | These reserve accounts comprise the consolidated reserves of approximately RMB342,960 million (2014: RMB336,529 million) in the consolidated statement of financial position. |
** | The Hong Kong Companies Ordinance (Cap. 622), becoming effective on 3 March 2014, abolishes the concept of nominal value and requirements for authorised share capital. |
CNOOC LIMITED Annual Report 2015 77
Consolidated Statement of Cash Flows
Year ended 31 December 2015
(All amounts expressed in millions of Renminbi)
Notes | 2015 | 2014 | ||||||||||
CASH FLOWS FROM OPERATING ACTIVITIES | ||||||||||||
Cash generated from operations | 32 | 96,095 | 142,682 | |||||||||
Income taxes paid | (16,000 | ) | (32,174 | ) | ||||||||
Net cash flows from operating activities | 80,095 | 110,508 | ||||||||||
CASH FLOWS FROM INVESTING ACTIVITIES | ||||||||||||
Capital expenditure | (67,674 | ) | (95,673 | ) | ||||||||
Additions in associates interest | (9 | ) | – | |||||||||
Decrease in time deposits with maturity over three months | 4,825 | 3,383 | ||||||||||
Dividends received from associates | 164 | 153 | ||||||||||
Dividends received from a joint venture | 32 | – | ||||||||||
Interest received | 812 | 1,041 | ||||||||||
Investment income received | 2,177 | 2,331 | ||||||||||
Purchase of current available-for-sale financial assets | – | (105,718 | ) | |||||||||
Purchase of other financial assets | (122,030 | ) | – | |||||||||
Purchase of equity investments | (236 | ) | – | |||||||||
Proceeds from sale of current available-for-sale financial assets | – | 102,587 | ||||||||||
Proceeds from sale of other financial assets | 104,900 | – | ||||||||||
Proceeds from disposal of property, plant and equipment | 544 | 1,719 | ||||||||||
Net cash flows used in investing activities | (76,495 | ) | (90,177 | ) | ||||||||
CASH FLOWS FROM FINANCING ACTIVITIES | ||||||||||||
Proceeds from issuance of guaranteed notes | 23,184 | 24,578 | ||||||||||
Repayment of guaranteed notes | (789 | ) | – | |||||||||
Proceeds from bank loans | 20,541 | 12,789 | ||||||||||
Repayment of bank loans | (24,127 | ) | (32,523 | ) | ||||||||
Dividends paid | (20,419 | ) | (20,216 | ) | ||||||||
Interest paid | (5,283 | ) | (4,114 | ) | ||||||||
Net cash flows used in financing activities | (6,893 | ) | (19,486 | ) | ||||||||
NET (DECREASE)/INCREASE IN CASH | ||||||||||||
AND CASH EQUIVALENTS | (3,293 | ) | 845 | |||||||||
Cash and cash equivalents at beginning of year | 14,918 | 14,318 | ||||||||||
Effect of foreign exchange rate changes, net | 242 | (245 | ) | |||||||||
CASH AND CASH EQUIVALENTS AT END OF YEAR | 23 | 11,867 | 14,918 |
CNOOC LIMITED Annual Report 2015 78
Notes to Consolidated Financial Statements
31 December 2015
(All amounts expressed in millions of Renminbi unless otherwise stated)
1. | CORPORATE INFORMATION |
CNOOC Limited (the “Company”) was incorporated in the Hong Kong Special Administrative Region (“Hong Kong”) of the People’s Republic of China (the “PRC”) on 20 August 1999 to hold the interests in certain entities thereby creating a group comprising the Company and its subsidiaries (hereinafter collectively referred to as the “Group”). During the year, the Group was principally engaged in the exploration, development, production and sale of crude oil, natural gas and other petroleum products.
The registered office address of the Company is 65/F, Bank of China Tower, 1 Garden Road, Hong Kong.
In the opinion of the directors of the Company (the “Directors”), the parent and the ultimate holding company of the Company is China National Offshore Oil Corporation (“CNOOC”), a company established in the PRC.
2.1 | STATEMENT OF COMPLIANCE |
These financial statements have been prepared in accordance with International Financial Reporting Standards (“IFRSs”) issued by the International Accounting Standards Board (the “IASB”), Hong Kong Financial Reporting Standards (“HKFRSs”) issued by the Hong Kong Institute of Certified Public Accountants (the “HKICPA”), the Rules Governing the Listing of Securities on The Stock Exchange of Hong Kong Limited (the “Listing Rules”) and the Hong Kong Companies Ordinance (Cap. 622) which came into effect on 3 March 2014. A summary of the significant accounting policies adopted by the Group is set out below.
The provisions of the Hong Kong Companies Ordinance (Cap.622) regarding preparation of accounts and directors’ report and audits became effective, and has been adopted by the Company for the financial year ended 31 December 2015. Further, the disclosure requirements set out in the Listing Rules regarding annual accounts have been amended with reference to the Hong Kong Companies Ordinance (Cap.622). Accordingly the presentation and disclosure of information in the consolidated financial statements for the financial year ended 31 December 2015 have been changed to comply with these new requirements. Comparative information in respect of the financial year ended 31 December 2014 are presented or disclosed in the consolidated financial statements based on the new requirements. Information previously required to be disclosed under the predecessor Hong Kong Companies Ordinance (Cap. 32) or Listing Rules but not under the Hong Kong Companies Ordinance (Cap.622) or amended Listing Rules are not disclosed in these consolidated financial statements.
2.2 | CHANGES IN ACCOUNTING POLICY AND DISCLOSURES |
The IASB has issued a number of new and revised IFRSs that are first effective for the current accounting year commencing 1 January 2015 or later but available for early adoption. The equivalent new and revised HKFRSs consequently issued by the HKICPA have the same effective dates as those issued by the IASB and are in all material aspects identical to the pronouncements issued by the IASB.
The accounting policies adopted are consistent with those of the year ended 31 December 2014, except for the first time adoption of the amendments to IFRSs/HKFRSs effective for the Group’s financial year beginning on 1 January 2015 (the “Amendments”) and early adoption of IFRS/HKFRS 9 (2009) Financial Instruments. The adoption of the Amendments had no material impact on the accounting policies, the disclosures or the amounts recognised in the consolidated financial statements of the Group. Impact of early adoption of IFRS/HKFRS 9 (2009) Financial Instruments is described as below.
Early adopted before mandatory effective dates
IFRS/HKFRS 9 (2009) – Financial Instruments
In the current year, the Group has applied IFRS/HKFRS 9 (2009). The Group has chosen 1 January 2015 as its date of initial application (i.e. the date on which the Group has reassessed the classification of its financial assets in accordance with requirements of IFRS/HKFRS 9 (2009)). The classification is based on the facts and circumstances as at 1 January 2015. In accordance with transition provisions set out in IFRS/HKFRS 9 (2009), the Group has chosen not to restate comparative information and has provided additional disclosures in accordance with IFRS/HKFRS 7 Financial Instruments – Disclosures in these consolidated financial statements for the year ended 31 December 2015, and any difference between the measurement under IAS/HKAS 39 Financial Instruments: Recognition and Measurement and IFRS/HKFRS 9 (2009) as at 1 January 2015 is recognised in the opening retained earnings and other reserves at the date of initial application, if any. IFRS/HKFRS 9 (2009) does not apply to financial assets that have already been derecognised at date of initial application. Other than the changes in classification of certain financial assets, the changes in accounting policies had no material financial impact on the amounts recognised on the consolidated statement of financial position of the Group as at 1 January 2015.
CNOOC LIMITED Annual Report 2015 79
2.2 | CHANGES IN ACCOUNTING POLICY AND DISCLOSURES (continued) |
Early adopted before mandatory effective dates (continued)
IFRS/HKFRS 9 (2009)-Financial Instruments (continued)
IFRS/HKFRS 9 (2009) introduces new classification and measurement requirements for financial assets that are within the scope of IAS/HKAS 39. Specifically, IFRS/HKFRS 9 (2009) requires all financial assets to be classified and subsequently measured at either amortised cost or fair value on the basis of the Group’s business model for managing the financial assets and the contractual cash flow characteristics of the financial assets.
As required by IFRS/HKFRS 9 (2009), debt instruments and hybrid contracts are subsequently measured at amortised cost only if (i) the asset is held within a business model whose objective is to hold assets in order to collect contractual cash flows and (ii) the contractual terms of the financial asset give rise on specified dates to cash flows that are solely payments of principal and interest on the principal amount outstanding (collectively referred to as the “amortised cost criteria”). If either of the two criteria is not met, the debt instruments are classified as at fair value through profit or loss (“FVTPL”).
However, the Group may choose at initial recognition to designate a debt instrument that meets the amortised cost criteria as at FVTPL if doing so eliminates or significantly reduces an accounting mismatch. Debt instruments that are subsequently measured at amortised cost are subject to impairment.
Investments in equity instruments are classified and measured as at FVTPL except when the equity investment is not held for trading and is designated by the Group as at fair value through other comprehensive income (“FVTOCI”). If the equity investment is designated as at FVTOCI, all gains and losses are recognised in other comprehensive income and are not subsequently reclassified to profit or loss, except for dividend income that is generally recognised in profit or loss in accordance with IAS/HKAS 18 Revenue.
The directors have reviewed and reassessed the Group’s existing financial assets at 1 January 2015 based on the Group’s business model for managing the financial assets and the contractual cash flow characteristics of the financial assets and concluded that the Group’s financial assets, previously classified as “loans and receivables” under IAS/HKAS 39 are held within a business model whose objective is to hold these financial assets in order to collect contractual cash flows that are solely payments of principal and interest. In addition, the directors concluded that the Group’s investments in certain equity securities that previously classified as available-for-sale investments under IAS/HKAS 39 are not held for trading, but held for medium or long-term strategic purpose. Therefore, those investments in equity securities are designated as at FVTOCI under IFRS/HKFRS 9 (2009) as the directors believe that this provides a more meaningful presentation than reflecting changes in fair value in profit or loss. Other equity investments are classified as FVTPL.
The initial application of IFRS/HKFRS 9 (2009) has affected the classification of financial assets of the Group, its joint venture/associates and the Group’s other reserves and retained earnings as at 1 January 2015 as follows:
(i) | the Group’s publicly traded equity investments (not held for trading) of RMB 2,958 million that were previously classified as available-for-sale investments and measured at fair value at each reporting date under IAS/HKAS 39 have been designated as at FVTOCI; |
(ii) | the Group’s non-publicly traded equity investments (not held for trading) of RMB 2,258 million previously classified as available-for-sale investments and measured at fair value at each reporting date or at cost less impairment under IAS/HKAS 39 have been designated as at FVTOCI. The carrying amounts of the investments previously measured at cost less impairment represent an appropriate estimate of their fair values as at 1 January 2015, as insufficient more recent information is available to measure their fair values; |
(iii) | the Group’s equity investments of RMB 134 million previously classified as available-for-sale investments and measured at fair value at each reporting date under IAS/HKAS 39 have been classified as at FVTPL; |
(iv) | the Group’s investment in liquidity funds of RMB5,453 million and corporate wealth management products of RMB48,564 million that were previously classified as available-for-sale investments and measured at fair value at each reporting date under IAS/HKAS 39 have been classified as FVTPL; |
CNOOC LIMITED Annual Report 2015 80
2.2 | CHANGES IN ACCOUNTING POLICY AND DISCLOSURES (continued) |
Early adopted before mandatory effective dates (continued)
IFRS/HKFRS 9 (2009)-Financial Instruments (continued)
(v) | The investment in publicly traded investments (not held for trading) of the Group’s joint venture/associates that were previously classified as available-for-sale investments and measured at fair value at each reporting date under IAS/HKAS 39 have been designated as at FVTOCI; and |
(vi) | The investment in non-publicly traded investments (not held for trading) of the Group’s joint venture/associates previously classified as available-for-sale investments and measured at fair value at each reporting date or at cost less impairment under IAS/HKAS 39 have been designated as at FVTOCI. |
The list below illustrates the classification and measurement of the financial assets under IAS/HKAS 39 and IFRS/HKFRS 9 (2009) at 1 January 2015, the date of initial application.
Original
measurement category under IAS/HKAS 39 |
New
measurement IFRS/HKFRS 9 (2009) |
Original
carrying IAS/HKAS 39 |
New
carrying amount under IFRS/HKFRS 9 (2009) | |
Publicly traded equity investments – MEG Energy Corporation (“MEG”) (Note 19) | Available-for-sale investments
|
Financial assets designated as at FVTOCI
|
2,958
|
2,958
|
Publicly traded equity investments – others (Note 19)
|
Available-for-sale investments
|
Financial assets at FVTPL
|
134
|
134
|
Non-publicly traded equity investments (Note 19)
|
Available-for-sale investments
|
Financial assets designated as at FVTOCI
|
2,258
|
2,258
|
Derivative Financial assets (Note 34)
|
Financial assets at FVTPL
|
Financial assets at FVTPL
|
303
|
303
|
Other financial assets: liquidity funds (Note 19)
|
Available-for-sale investments
|
Financial assets at FVTPL
|
5,453
|
5,453
|
Other financial assets: corporate wealth management products (Note 19)
|
Available-for-sale investments
|
Financial assets at FVTPL
|
48,564
|
48,564
|
Trade receivables (Note 22)
|
Loans and receivables
|
Financial assets at amortised cost
|
29,411
|
29,411
|
Time deposits with maturity over three months (Note 23)
|
Loans and receivables
|
Financial assets at amortised cost
|
22,835
|
22,835
|
Cash and cash equivalent (Note 23)
|
Loans and receivables
|
Financial assets at amortised cost
|
14,918
|
14,918
|
Other non-current assets – dismantlement fund deposits (Note 20)
|
Loans and receivables
|
Financial assets at amortised cost
|
3,981
|
3,981
|
Other current assets
|
Loans and receivables
|
Financial assets at amortised cost
|
8,573
|
8,573
|
CNOOC LIMITED Annual Report 2015 81
2.2 | CHANGES IN ACCOUNTING POLICY AND DISCLOSURES (continued) |
Early adopted before mandatory effective dates (continued)
IFRS/HKFRS 9 (2009)-Financial Instruments (continued)
In relation to the equity investments (not held for trading), the Group has made an irrevocable election to present subsequent changes in their fair value in other comprehensive income under IFRS/HKFRS 9 (2009), which will not be reclassified to profit or loss on disposal or impairment of the relevant investments. Under IAS/HKAS 39, when an available-for-sales equity investment is disposed of or impaire