UNITED STATES 

SECURITIES AND EXCHANGE COMMISSION

 

Washington, D.C. 20549

 

 

FORM 20-F/A

 

(Amendment No. 1)

 

(Mark One)

 

¨REGISTRATION STATEMENT PURSUANT TO SECTION 12(b) OR (g) OF THE SECURITIES EXCHANGE ACT OF 1934

 

OR

 

ýANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 2017

 

OR

 

¨TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

 

OR

 

¨SHELL COMPANY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

 

Date of event requiring this shell company report ________________

 

Commission File Number 1-14966

 

CNOOC LIMITED 

中國海洋石油有限公司 

(Exact name of Registrant as specified in its charter) 

N/A

 (Translation of Registrant’s name into English)

 

 

Hong Kong

(Jurisdiction of incorporation or organization)

 

 

65th Floor, Bank of China Tower

One Garden Road, Central

Hong Kong

(Address of principal executive offices)

 

 

Jiewen Li

65th Floor, Bank of China Tower

One Garden Road, Central

Hong Kong

Tel +852 2213 2500

Fax +852 2525 9322 

(Name, telephone, e-mail and/or facsimile number and address of company contact person)

 

 

Securities registered or to be registered pursuant to Section 12(b) of the Act.

 

Title of each class Name of each exchange on which registered

American depositary shares, each representing 100 shares

Shares  

New York Stock Exchange, Inc. 

New York Stock Exchange, Inc.(1) 

 

Securities registered or to be registered pursuant to Section 12(g) of the Act. None 

(Title of Class)

 

 

 

 

Securities for which there is a reporting obligation pursuant to Section 15(d) of the Act. None 

(Title of Class)

 

Indicate the number of outstanding shares of each of the issuer’s classes of capital or common stock as of the close of the period covered by the annual report.

 

Shares 44,647,455,984

 

Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act.

 

Yes ý No ¨

 

If this report is an annual or transition report, indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934.

 

Yes ¨ No ý

 

Note – Checking the box above will not relieve any registrant required to file reports pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 from their obligations under those Sections.

 

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.

 

Yes ý No ¨

 

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).

 

Yes ¨ No ý

 

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or an emerging growth company. See definition of “large accelerated filer, “accelerated filer,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

 

Large accelerated filer    ý   Accelerated filer    ¨    Non-accelerated filer    ¨
    Emerging growth company ¨

 

If an emerging growth company that prepares its financial statements in accordance with U.S. GAAP, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards† provided pursuant to Section 13(a) of the Exchange Act. ¨

 

† The term “new or revised financial accounting standard” refers to any update issued by the Financial Accounting Standards Board to its Accounting Standards Codification after April 5, 2012.

 

Indicate by check mark which basis of accounting the registrant has used to prepare the financial statements included in this filing:

 

U.S. GAAP ¨

 

International Financial Reporting Standards as issued by the International Accounting Standards Board ý

 

Other ¨

 

If “Other” has been checked in response to the previous question, indicate by check mark which financial statement item the registrant has elected to follow.

 

Item 17 ¨ Item 18 ¨

 

If this is an annual report, indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).

 

Yes ¨ No ý

 

(1)       Not for trading, but only in connection with the registration of American depositary shares.

 

 

 

TABLE OF CONTENTS

 

  Page
EXPLANATORY NOTE 1
ITEM 18. FINANCIAL STATEMENTS 2
ITEM 19. EXHIBITS 2

 

 

Explanatory Note

 

This Amendment No.1 to our annual report on Form 20-F for the fiscal year ended December 31, 2017, previously filed on April 19, 2018, is being filed solely for the purpose of (i) adding the section of Supplementary Information on Oil and Gas Producing Activities in the Report of Independent Registered Public Accounting Firm in the 2017 Form 20-F; and (ii) making the following corrections to certain typographical errors in the Report of Independent Registered Public Accounting Firm in the 2017 Form 20-F: adding the total amount on “Impairment” of “(10,768)” and the total amount on “Depreciation charge for the year” of “(60,802)” with respect to Item 13 (Property, Plant and Equipment) on page F-46. As required by Rule 12b-15 of the Securities and Exchange Act of 1934, as amended, the Company is also filing and furnishing as exhibits to this Amendment No.1 the certifications required under Section 302 and Section 906 of the Sarbanes-Oxley Act of 2002, respectively.

 

This Amendment No.1 speaks as of the filing date of the 2017 Form 20-F on April 19, 2018. Other than as set forth above, this Amendment No.1 does not, and does not purport to, amend, update or restate any other information or disclosure included in the 2017 Form 20-F.

 

1 

 

ITEM 18. FINANCIAL STATEMENTS

 

See pages beginning on page F-1 following Item 19.

 

ITEM 19. EXHIBITS

 

The following documents are filed as part of this annual report:

 

Exhibit
Number

Document
   
1.1 Articles of Association of the Registrant, as amended in 2009, incorporated by reference to Exhibit 1.1 to our Annual Report on Form 20-F for fiscal year 2010 filed with the Securities and Exchange Commission (File number: 1-14966) and Exhibit 99.1 to Form 6-K furnished with the Securities and Exchange Commission on March 30, 2012 (File number: 1-14966).
1.2 Memorandum of Association of the Registrant, incorporated by reference to Exhibit 3.2 to our Registration Statement on Form F-1 filed with the Securities and Exchange Commission (File Number: 333-10862) and Exhibit 99.1 to Form 6-K furnished with the Securities and Exchange Commission on March 30, 2012 (File number: 1-14966).
2.1 Form of Indenture, incorporated by reference to Exhibit 2.1 to our annual report on Form 20-F for fiscal year 2002 filed with the Securities and Exchange Commission (File Number: 1-14966).
2.2 Trust Deed dated December 15, 2004 among CNOOC Limited, CNOOC Finance (2004) Limited and J.P. Morgan Corporate Trustee Services Limited, incorporated by reference to Exhibit 2.2 to our annual report on Form 20-F for fiscal year 2004 filed with the Securities and Exchange Commission (File Number: 1-14966).
2.3 Indentures dated January 26, 2011 among CNOOC Finance (2011) Limited, as Issuer, CNOOC Limited, as Guarantor, and The Bank of New York Mellon, as Trustee*.
2.4 Indentures dated May 2, 2012 among CNOOC Finance (2012) Limited, as Issuer, CNOOC Limited, as Guarantor, Citicorp International Limited, as Trustee, Citibank, N.A., London Brach, as Paying Agent, and Citigroup Global Markets Deutschland AG, as Registrar*.
2.5 Fourth Supplemental Indenture dated March 22, 2013 to the Senior Debt Indenture dated May 4, 2007 among CNOOC Limited, Deutsche Bank Trust Company Americas and Nexen Inc., incorporated by reference to Exhibit 4.1 to Form 6-K furnished with the Securities and Exchange Commission on March 22, 2013 (File number: 1-14966).
2.6 Seventh Supplemental Indenture dated March 22, 2013 to the Trust Indenture dated April 28, 1998 among CNOOC Limited, CIBC Mellon Trust Company, The Bank of New York Mellon and Nexen Inc., incorporated by reference to Exhibit 4.2 to Form 6-K furnished with the Securities and Exchange Commission on March 22, 2013 (File number: 1-14966).
2.7 Form of Indenture among CNOOC Finance (2013) Limited, CNOOC Limited and The Bank of New York Mellon, incorporated by reference to Exhibit 4.1 to Form F-3 filed with the Securities and Exchange Commission on May 1, 2013 (File number: 333-188261)

  

 

_______________________

 

* Pursuant to Instruction 2(b)(i) to Item 19 of Form 20-F, we undertake to furnish this document upon request of the Securities and Exchange Commission.

 

* Pursuant to Instruction 2(b)(i) to Item 19 of Form 20-F, we undertake to furnish this document upon request of the Securities and Exchange Commission.

 

2 

 

2.8 Form of 1.125% Guaranteed Note due 2016, incorporated by reference to Exhibit 4.2 to Form 6-K furnished with the Securities and Exchange Commission on May 9, 2013 (File number: 1-14966)
2.9 Form of 1.750% Guaranteed Note due 2018, incorporated by reference to Exhibit 4.3 to Form 6-K furnished with the Securities and Exchange Commission on May 9, 2013 (File number: 1-14966)
2.10 Form of 3.000% Guaranteed Note due 2023, incorporated by reference to Exhibit 4.4 to Form 6-K furnished with the Securities and Exchange Commission on May 9, 2013 (File number: 1-14966)
2.11 Form of 4.250% Guaranteed Note due 2043, incorporated by reference to Exhibit 4.5 to Form 6-K furnished with the Securities and Exchange Commission on May 9, 2013 (File number: 1-14966)
2.12 Form of Indenture among CNOOC Nexen Finance (2014) ULC, CNOOC Limited and The Bank of New York Mellon, incorporated by reference to Exhibit 4.3 to Post-Effective Amendment No. 1  to Form F-3 filed with the Securities and Exchange Commission on April 22, 2014 (File number: 333-188261)
2.13 Form of 1.625% Guaranteed Note due 2017, incorporated by reference to Exhibit 4.2 to Form 6-K furnished with the Securities and Exchange Commission on May 1, 2014 (File number: 1-14966)
2.14 Form of 4.250% Guaranteed Note due 2024, incorporated by reference to Exhibit 4.3 to Form 6-K furnished with the Securities and Exchange Commission on May 1, 2014 (File number: 1-14966)
2.15 Form of 4.875% Guaranteed Note due 2044, incorporated by reference to Exhibit 4.4 to Form 6-K furnished with the Securities and Exchange Commission on May 1, 2014 (File number: 1-14966)
2.16 Form of Indenture among CNOOC Finance (2015) Australia Pty Ltd, CNOOC Limited and The Bank of New York Mellon, incorporated by reference to Exhibit 4.5 to Post-Effective Amendment No.2  to Form F-3 filed with the Securities and Exchange Commission on April 27, 2015(File number: 333-188261)
2.17 Form of Indenture among CNOOC Finance (2015) U.S.A. LLC, CNOOC Limited and The Bank of New York Mellon, incorporated by reference to Exhibit 4.7 to Post-Effective Amendment No. 2 to Form F-3 filed with the Securities and Exchange Commission on April 27, 2015 (File number: 333-188261)
2.18 Form of 2.625% Guaranteed Note due 2020, incorporated by reference to Exhibit 4.1 to Form 6-K furnished with the Securities and Exchange Commission on May 5, 2015 (File number: 1-14966)
2.19 Form of 3.500% Guaranteed Note due 2025, incorporated by reference to Exhibit 4.2 to Form 6-K furnished with the Securities and Exchange Commission on May 5, 2015 (File number: 1-14966)
2.20 Form of 4.200% Guaranteed Note due 2045, incorporated by reference to Exhibit 4.3 to Form 6-K furnished with the Securities and Exchange Commission on May 5, 2015 (File number: 1-14966)
4.1 The Asset Swap Agreement dated July 20, 1999 between CNOOC and Offshore Oil Company Limited, incorporated by reference to Exhibit 10.1 to our Registration Statement on Form F-1 filed with the Securities and Exchange Commission (File Number: 333-10862).
4.2 The Asset Allocation Agreement dated July 20, 1999 between CNOOC and Offshore Oil Company Limited, incorporated by reference to Exhibit 10.2 to our Registration Statement on Form F-1 filed with the Securities and Exchange Commission (File Number: 333-10862).
4.3 The Reorganization Agreement dated September 13, 1999 between CNOOC, Offshore Oil Company Limited and CNOOC Limited, incorporated by reference to Exhibit 10.3 to our Registration Statement on Form F-1 filed with the Securities and Exchange Commission (File Number: 333-10862).
4.4 Form of the Equity Transfer Agreement between CNOOC and CNOOC Limited, incorporated by reference to Exhibit 10.4 to our Registration Statement on Form F-1 filed with the Securities and Exchange Commission (File Number: 333-10862).

  

 

3 

 

4.5 Form of the Transfer Agreement dated October 1, 1999 between CNOOC and Offshore Oil Company Limited regarding the transfer of the rights and obligations of CNOOC under the 37 PSCs and one geophysical exploration agreement, incorporated by reference to Exhibit 10.5 to our Registration Statement on Form F-1 filed with the Securities and Exchange Commission (File Number: 333-10862).
4.6 Form of Equity Transfer Agreement between China Offshore Oil East China Sea Corporation and Offshore Oil Company Limited regarding the transfer of the rights and obligations under Joint Venture Contract of Shanghai Petroleum and Natural Gas Company Limited dated July 28, 1992 to Offshore Oil Company Limited, incorporated by reference to Exhibit 10.6 to our Registration Statement on Form F-1 filed with the Securities and Exchange Commission (File Number: 333-10862).
4.7 Transfer Agreement dated September 9, 1999 between CNOOC and Offshore Oil Company Limited regarding the transfer of the rights and obligations of CNOOC under the Natural Gas Sale and Purchase Contract dated December 22, 1992 to Offshore Oil Company Limited, incorporated by reference to Exhibit 10.7 to our Registration Statement on Form F-1 filed with the Securities and Exchange Commission (File Number: 333-10862).
4.8 Transfer Agreement dated September 9, 1999 between CNOOC and Offshore Oil Company Limited regarding the transfer of the rights and obligations of CNOOC under the Natural Gas Sale and Purchase Contract dated November 7, 1992 to Offshore Oil Company Limited, incorporated by reference to Exhibit 10.8 to our Registration Statement on Form F-1 filed with the Securities and Exchange Commission (File Number: 333-10862).
4.9 Transfer Agreement dated September 9, 1999 among CNOOC, Offshore Oil Company Limited, the four PRC subsidiaries and CNOOC’s affiliates regarding the transfer of the rights and obligations of the technical services agreements to Offshore Oil Company Limited, incorporated by reference to Exhibit 10.9 to our Registration Statement on Form F-1 filed with the Securities and Exchange Commission (File Number: 333-10862).
4.10 Nanshan Terminal Leasing Agreement dated September 9, 1999 between CNOOC, Hainan China Oil and Offshore Natural Gas Company and Offshore Oil Company Limited, incorporated by reference to Exhibit 10.10 to our Registration Statement on Form F-1 filed with the Securities and Exchange Commission (File Number: 333-10862).
4.11 Trademark License Agreement dated September 9, 1999 between CNOOC, Offshore Oil Company Limited and CNOOC Limited, incorporated by reference to Exhibit 10.11 to our Registration Statement on Form F-1 filed with the Securities and Exchange Commission (File Number: 333-10862).
4.12 Trademark License Agreement dated September 9, 1999 between China Offshore Oil Marketing Company, CNOOC Limited and Offshore Oil Company Limited, incorporated by reference to Exhibit 10.12 to our Registration Statement on Form F-1 filed with the Securities and Exchange Commission (File Number: 333-10862).
4.13 Trademark License Agreement between CNOOC, CNOOC Limited and CNOOC China Limited, incorporated by reference to Exhibit 4.13 to our Annual Report on Form 20-F for fiscal year 2008 filed with the Securities and Exchange Commission (File Number: 1-14966).
4.14 Trademark License Agreement between CNOOC, CNOOC Limited and CNOOC China Limited, incorporated by reference to Exhibit 4.14 to our Annual Report on Form 20-F for fiscal year 2008 filed with the Securities and Exchange Commission (File Number: 1-14966).
4.15

Property Leasing Agreement dated September 9, 1999 between Wui Hai Enterprise Company Limited and Offshore Oil Company Limited in respect of the office premises at 6th, 7th and 8th Floors, CNOOC Plaza, No. 6 Dong Zhi Men Wai Xiao Jie, Beijing, incorporated by reference to Exhibit 10.18 to our Registration Statement on Form F-1 filed with the Securities and Exchange Commission (File Number: 333-10862).

 

  

 

4 

 

4.16 Property Leasing Agreement dated September 9, 1999 between China Offshore Oil Western South China Sea Corporation and Offshore Oil Company Limited in respect of the office premises at 1st to 9th Floors, Nantiao Road, Potou District Zhangjiang, Guangdong, incorporated by reference to Exhibit 10.19 to our Registration Statement on Form F-1 filed with the Securities and Exchange Commission (File Number: 333-10862).
4.17 Property Leasing Agreement dated September 9, 1999 between China Offshore Oil Bohai Corporation and Offshore Oil Company Limited in respect of the office premises at 1st to 7th Floors and 9th Floor, 2-37 He Kou Jie, Tanggu District, Tianjin, incorporated by reference to Exhibit 10.20 to our Registration Statement on Form F-1 filed with the Securities and Exchange Commission (File Number: 333-10862).
4.18 Property Leasing Agreement dated September 9, 1999 between China Offshore Oil East China Sea Corporation and Offshore Oil Company Limited in respect of the office premises at 20th, 22nd and 23rd Floors, 583 Ling Ling Road, Shanghai, the PRC, incorporated by reference to Exhibit 10.21 to our Registration Statement on Form F-1 filed with the Securities and Exchange Commission (File Number: 333-10862).
4.19 Property Leasing Agreement dated September 9, 1999 between China Offshore Oil Eastern South China Sea Corporation and Offshore Oil Company Limited in respect of the office premises at 3rd Floor and 6th to 11th Floors, 1 Second Industrial Road, Shekou, Shenzhen, the PRC, incorporated by reference to Exhibit 10.22 to our Registration Statement on Form F-1 filed with the Securities and Exchange Commission (File Number: 333-10862).
4.20 Property Leasing Agreement dated September 9, 1999 between China Offshore Oil Bohai Corporation and Offshore Oil Company Limited in respect of the Chengbei Warehouse, Chengbei Road, Tanggu District, Tianjin City, the PRC, incorporated by reference to Exhibit 10.23 to our Registration Statement on Form F-1 filed with the Securities and Exchange Commission (File Number: 333-10862).
4.21 Property Leasing Agreement dated September 9, 1999 between Overseas Oil & Gas Corporation, Ltd. and China Offshore Oil (Singapore) International Pte Ltd in respect of the residential premises at 10-01 and 17-002 Aquamarine Tower, 50 Bayshore Road, 13-05 Jade Tower, 60 Bayshore Road, Singapore, incorporated by reference to Exhibit 10.24 to our Registration Statement on Form F-1 filed with the Securities and Exchange Commission (File Number: 333-10862).
4.22 Suizhong Pier Agreement dated September 9, 1999 between Offshore Oil Company Limited and China Offshore Bohai Corporation, incorporated by reference to Exhibit 10.25 to our Registration Statement on Form F-1 filed with the Securities and Exchange Commission (File Number: 333-10862).
4.23 Form of Novation Agreement among CNOOC, CNOOC China Limited, the Banks and other financial institution and the Fuji Bank Limited Hong Kong Branch, as agent, in respect of the transfer of the US$110 million syndicated loan, incorporated by reference to Exhibit 10.26 to our Registration Statement on Form F-1 filed with the Securities and Exchange Commission (File Number: 333-10862).
4.24 Form of the Undertaking Agreement between CNOOC and CNOOC Limited, incorporated by reference to Exhibit 10.27 to our Registration Statement on Form F-1 filed with the Securities and Exchange Commission (File Number: 333-10862).
4.25 Form of Pre-Global Offering Share Option Scheme for the Senior Management of CNOOC Limited, incorporated by reference to Exhibit 10.31 to our Registration Statement on Form F-1 filed with the Securities and Exchange Commission (File Number: 333-10862).
4.26 Form of Share Option Scheme for the Senior Management of CNOOC Limited, incorporated by reference to Exhibit 10.32 to our Registration Statement on Form F-1 filed with the Securities and Exchange Commission (File Number: 333-10862).

  

 

5 

 

4.27 CNOOC Limited Share Option Scheme adopted on December 31, 2005, incorporated by reference to Exhibit 4.37 to our Annual Report on Form 20-F for fiscal year 2005 filed with the Securities and Exchange Commission (File Number: 1-14966).
4.28 Subscription Agreement dated March 17, 2000 among CNOOC Limited, CNOOC (BVI) Limited, Overseas Oil & Gas Corporation, Ltd., et al., incorporated by reference to Exhibit 10.33 to our Registration Statement on Form F-1 filed with the Securities and Exchange Commission (File Number: 333-10862).
4.29 Subscription Agreement dated May 31, 2000 among CNOOC Limited, CNOOC (BVI) Limited, Overseas Oil & Gas Corporation, Ltd. and Hutchison International Limited, incorporated by reference to Exhibit 10.34 to our Registration Statement on Form F-1 filed with the Securities and Exchange Commission (File Number: 333-10862).
4.30 Subscription Agreement dated May 31, 2000 among CNOOC Limited, CNOOC (BVI) Limited, Overseas Oil & Gas Corporation, Ltd. and Hong Kong Electric Holdings Limited, incorporated by reference to Exhibit 10.35 to our Registration Statement on Form F-1 filed with the Securities and Exchange Commission (File Number: 333-10862).
4.31 Subscription Agreement dated June 28, 2000 among CNOOC Limited, CNOOC (BVI) Limited, Overseas Oil & Gas Corporation, Ltd., et al., incorporated by reference to Exhibit 10.36 to our Registration Statement on Form F-1 filed with the Securities and Exchange Commission (File Number: 333-10862).
4.32 Corporation Placing Agreement dated February 6, 2001 among CNOOC Limited, China National Offshore Oil Corporation, Shell Eastern Petroleum (Pte) Limited and Merrill Lynch Far East Limited, incorporated by reference to Exhibit 10.37 to our Registration Statement on Form F-1 filed with the Securities and Exchange Commission (File Number: 333-10862).
4.33 Equity Transfer Agreement dated September 5, 2003 between CNOOC China Limited and CNOOC (Summary Translation), incorporated by reference to Exhibit 4.38 to our annual report on Form 20-F for fiscal year 2003 filed with the Securities and Exchange Commission (File Number: 1-14966).
4.34 Framework Agreement dated April 8, 2004 with CNOOC Finance Corporation Limited (Summary Translation), incorporated by reference to Exhibit 4.39 to our annual report on Form 20-F for fiscal year 2003 filed with the Securities and Exchange Commission (File Number: 1-14966).
4.35 Framework Agreement dated December 8, 2005 with CNOOC (Summary Translation), incorporated by reference to Exhibit 4.45 to our Annual Report on Form 20-F for fiscal year 2005 filed with the Securities and Exchange Commission (File number: 1-14966).
4.36 Framework Agreement dated December 8, 2005 with China Oilfield Services Limited (Summary Translation), incorporated by reference to Exhibit 4.46 to our Annual Report on Form 20-F for fiscal year 2005 filed with the Securities and Exchange Commission (File number: 1-14966).
4.37 Framework Agreement dated December 8, 2005 with Offshore Oil Engineering Co., Ltd. (Summary Translation), incorporated by reference to Exhibit 4.47 to our Annual Report on Form 20-F for fiscal year 2005 filed with the Securities and Exchange Commission (File number: 1-14966).
4.38 Sale and Purchase Agreement, dated January 8, 2006 between CNOOC Exploration & Production Limited and South Atlantic Petroleum Limited (certain statements, marked with an asterisk in brackets [*], have been omitted from this agreement pursuant to a request for confidential treatment pursuant to Rule 24b-2 under the Securities Exchange Act of 1934, as amended, and the omitted materials have been filed separately in paper form with the Securities and Exchange Commission), incorporated by reference to Exhibit 4.49 to our Annual Report on Form 20-F for fiscal year 2005 filed with the Securities and Exchange Commission (File number: 1-14966).

  

 

6 

 

4.39 Framework Agreement dated November 8, 2007 with China BlueChemical Ltd. (Summary Translation), incorporated by reference to Exhibit 4.37 to our Annual Report on Form 20-F for fiscal year 2007 filed with the Securities and Exchange Commission (File number: 1-14966).
4.40 Framework Agreement dated November 8, 2007 with CNOOC (Summary Translation), incorporated by reference to Exhibit 4.38 to our Annual Report on Form 20-F for fiscal year 2007 filed with the Securities and Exchange Commission (File number: 1-14966).
4.41 Framework Agreement dated November 8, 2007 with China Oilfield Services Limited (Summary Translation), incorporated by reference to Exhibit 4.39 to our Annual Report on Form 20-F for fiscal year 2007 filed with the Securities and Exchange Commission (File number: 1-14966).
4.42 Framework Agreement dated November 8, 2007 with Offshore Oil Engineering Co., Ltd. (Summary Translation), incorporated by reference to Exhibit 4.40 to our Annual Report on Form 20-F for fiscal year 2007 filed with the Securities and Exchange Commission (File number: 1-14966).
4.43 Framework Agreement dated November 1, 2010 with CNOOC (Summary Translation), incorporated by reference to Exhibit 4.43 to our Annual Report on Form 20-F for fiscal year 2010 filed with the Securities and Exchange Commission (File number: 1-14966).
4.44 Arrangement Agreement dated July 23, 2012 among CNOOC Limited, CNOOC Canada Holding Ltd. and Nexen Inc., incorporated by reference to Exhibit 4.44 to our Annual Report on Form 20-F for fiscal year 2012 filed with the Securities and Exchange Commission (File number: 1-14966).
4.45 Framework Agreement dated November 6, 2013 with CNOOC (Summary Translation), incorporated by reference to Exhibit 4.45 to our Annual Report on Form 20-F for fiscal year 2014 filed with the Securities and Exchange Commission (File number: 1-14966).
4.46 Framework Agreement dated November 15, 2016 with CNOOC (Summary Translation), incorporated by reference to Exhibit 4.46 to our Annual Report on Form 20-F for fiscal year 2016 filed with the Securities and Exchange Commission (File number: 1-14966).
4.47 Framework Agreement dated December 1, 2016 with CNOOC Finance (Summary Translation), incorporated by reference to Exhibit 4.47 to our Annual Report on Form 20-F for fiscal year 2016 filed with the Securities and Exchange Commission (File number: 1-14966).
8.1 List of Subsidiaries.*
10.1 Letter from CNOOC Limited dated May 23, 2002 regarding receipt of certain representations from Arthur Andersen & Co pursuant to the requirements of the Securities and Exchange Commission, incorporated by reference to Exhibit 10 to our annual report on Form 20-F for fiscal year 2001 filed with the Securities and Exchange Commission (File Number: 1-14966).
11.1 Code of Ethics for Directors and Senior Officers, as amended in 2017.*
12.1 Certification by the Chief Executive Officer in accordance with Section 302 of the Sarbanes-Oxley Act of 2002.
12.2 Certification by the Chief Financial Officer in accordance with Section 302 of the Sarbanes-Oxley Act of 2002.
13.1 Sarbanes-Oxley Act of 2002 Section 906 Certification furnished to (not filed with) the Securities and Exchange Commission.
15.1 2017 Reserves Reports of Ryder Scott Company, L.P.*
15.2 2017 Reserves Reports of Gaffney, Cline & Associates (Consultants) Pte Ltd.*
15.3 2017 Reserves Report of RPS*
15.4 2017 Reserves Audit Report of Ryder Scott Company, L.P.*

  

7 

 

15.5 2017 Reserves Audit Report of McDaniel & Associates Consultants Ltd.*
15.6 2017 Reserves Audit Report of DeGolyer and MacNaughton*
15.7 Letter from Ernst & Young (incorporated by reference to Exhibit 15.7 of our Annual Report on Form 20-F (file No. 001-14966) filed with the Securities and Exchange Commission on April 17, 2014).
15.8 Consent from Ryder Scott Company, L.P.*
15.9 Consent from Gaffney, Cline & Associates (Consultants) Pte Ltd.*
15.10 Consent from RPS*
15.11 Consent from McDaniel & Associates Consultants Ltd.*
15.12 Consent from DeGolyer and MacNaughton*

 

*Previously filed.

 

8 

 

 

Signature

 

The registrant hereby certifies that it meets all of the requirements for filing on Form 20-F/A and that it has duly caused and authorized the undersigned to sign this Amendment No.1 to this annual report on its behalf.

 

CNOOC Limited
     
     
By:  /s/ Jiewen Li
  Name: Jiewen Li
  Title: Joint Company Secretary

 

Date: April 19, 2018 

 

 

 

CNOOC LIMITED

 

CONSOLIDATED FINANCIAL STATEMENTS

FOR THE YEARS ENDED DECEMBER 31, 2015, 2016 AND 2017

TOGETHER WITH REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

F-1

 

INDEX TO FINANCIAL STATEMENTS

 

  Page
   
CNOOC LIMITED  
   
Report of independent registered public accounting firm on financial statements for the years ended December 31, 2015, 2016 and 2017 F-3
   
Report of independent registered public accounting firm on internal control over financial reporting as of Decmeber 31, 2017 F-4
   
Consolidated statements of profit or loss and other comprehensive income for the years ended December 31, 2015, 2016 and 2017 F-5
   
Consolidated statements of financial position as of December 31, 2016 and 2017 F-6
   
Consolidated statements of changes in equity for the years ended December 31, 2015, 2016 and 2017 F-7
   
Consolidated statements of cash flows for the years ended December 31, 2015, 2016 and 2017 F-9
   
Notes to the consolidated financial statements F-10

 

 

 

 

F-2

 

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

 

To Shareholders and the Board of Directors of CNOOC Limited

 

Opinion on the Financial Statements

 

We have audited the accompanying consolidated statements of financial position of CNOOC Limited (the "Company") and subsidiaries (collectively referred to as "the Group") as of December 31, 2017 and 2016, the related consolidated statements of profit or loss and other comprehensive income, consolidated statements of changes in equity, and consolidated statements of cash flows, for each of the three years in the period ended December 31, 2017, and the related notes (collectively referred to as the "financial statements"). In our opinion, the financial statements present fairly, in all material respects, the financial position of the Company as of December 31, 2017 and 2016, and the results of its operations and its cash flows for each of the three years in the period ended December 31, 2017, in conformity with International Financial Reporting Standards issued by the International Accounting Standards Board and Hong Kong Financial Reporting Standards issued by the Hong Kong Institute of Certified Public Accountants.

 

We have also audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the Group's internal control over financial reporting as of December 31, 2017, based on criteria established in Internal Control — Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission and our report dated March 29, 2018 expressed an unqualified opinion on the Group's internal control over financial reporting.

 

Basis for Opinion

 

These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on the Company's financial statements based on our audits. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.

 

We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. Our audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that our audits provide a reasonable basis for our opinion.

 

/s/ Deloitte Touche Tohmatsu

Certified Public Accountants

Hong Kong

March 29, 2018

 

We have served as the Company's auditor since 2013.

 

F-3

 

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

 

To Shareholders and the Board of Directors of CNOOC Limited

 

Opinion on Internal Control over Financial Reporting

 

We have audited the internal control over financial reporting of CNOOC Limited (the "Company") and its subsidiaries (collectively referred to as the "Group") as of December 31, 2017, based on criteria established in Internal Control — Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO). In our opinion, the Group maintained, in all material respects, effective internal control over financial reporting as of December 31, 2017, based on criteria established in Internal Control —Integrated Framework (2013) issued by COSO.

 

We have also audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the consolidated financial statements as of and for the year ended December 31, 2017 of the Group and our report dated March 29, 2018 expressed an unqualified opinion on those financial statements.

 

Basis for Opinion

 

The Company’s management is responsible for maintaining effective internal control over financial reporting and for its assessment of the effectiveness of internal control over financial reporting, included in the accompanying "Management’s annual report on internal control over financial reporting". Our responsibility is to express an opinion on the Group’s internal control over financial reporting based on our audit. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Group in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.

 

We conducted our audit in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether effective internal control over financial reporting was maintained in all material respects. Our audit included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, testing and evaluating the design and operating effectiveness of internal control based on the assessed risk, and performing such other procedures as we considered necessary in the circumstances. We believe that our audit provides a reasonable basis for our opinion.

 

Definition and Limitations of Internal Control over Financial Reporting

 

A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company’s internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements.

 

Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.

 

/s/ Deloitte Touche Tohmatsu

Certified Public Accountants

Hong Kong

March 29, 2018

 

F-4

 

CNOOC LIMITED

CONSOLIDATED STATEMENTS OF PROFIT OR LOSS AND OTHER COMPREHENSIVE INCOME

FOR THE YEARS ENDED DECEMBER 31, 2015, 2016 AND 2017

(All amounts expressed in millions of Renminbi/US$, except per share data)

 

   Notes  2015
RMB
  2016
RMB
  2017
RMB
  2017
US$
      million
REVENUE               
Oil and gas sales    4    146,597    121,325    151,888    23,345 
Marketing revenues         21,422    20,310    28,907    4,443 
Other income         3,418    4,855    5,595    860 
         171,437    146,490    186,390    28,648 
                          
EXPENSES                         
Operating expenses         (28,372)   (23,211)   (24,282)   (3,732)
Taxes other than income tax    10(ii)   (10,770)   (6,941)   (7,210)   (1,108)
Exploration expenses         (9,900)   (7,359)   (6,881)   (1,058)
Depreciation, depletion and amortization    6    (73,439)   (68,907)   (61,257)   (9,415)
Special oil gain levy    10 (iii)    (59)   -      (55)   (8)
Impairment and provision    6, 13    (2,746)   (12,171)   (9,130)   (1,403)
Crude oil and product purchases         (19,840)   (19,018)   (27,643)   (4,249)
Selling and administrative expense         (5,705)   (6,493)   (6,861)   (1,055)
Others         (3,150)   (4,802)   (6,021)   (925)
         (153,981)   (148,902)   (149,340)   (22,953)
                          
PROFIT/(LOSS) FROM OPERATING ACTIVITIES        17,456    (2,412)   37,050    5,695 
                          
Interest income    6    873    901    653    100 
Finance costs    7    (6,118)   (6,246)   (5,044)   (775)
Exchange (losses)/gains, net         (143)   (790)   356    55 
Investment income    6    2,398    2,774    2,409    370 
Share of profits/(losses) of associates    15    256    (609)   302    46 
Share of profit of a joint venture         1,647    533    553    85 
Non-operating income, net         761    574    78    12 
PROFIT/(LOSS) BEFORE TAX    6    17,130    (5,275)   36,357    5,588 
Income tax credit/(expense)    10(i)   3,116    5,912    (11,680)   (1,795)
PROFIT FOR THE YEAR ATTRIBUTABLE TO OWNERS OF THE PARENT         20,246    637    24,677    3,793 
                          
OTHER COMPREHENSIVE INCOME/(EXPENSE)                         
Items that may be subsequently reclassified to profit or loss                         
Exchange differences on translation of foreign operations         7,979    10,422    (10,121)   (1,556)
Share of other comprehensive income/(expense) of  associates         74    (127)   36    6 
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    17(ii)   (1,573)   (461)   (542)   (83)
Others         134    12    54    8 
                          
OTHER COMPREHENSIVE INCOME/(EXPENSE) FOR THE YEAR, NET OF TAX         6,614    9,846    (10,573)   (1,625)
TOTAL COMPREHENSIVE INCOME FOR THE YEAR ATTRIBUTABLE TO OWNERS OF THE PARENT         26,860    10,483    14,104    2,168 
                          
EARNINGS PER SHARE ATTRIBUTABLE TO OWNERS OF THE PARENT                         
Basic (RMB Yuan)    11    0.45    0.01    0.55    US$0.09 
Diluted (RMB Yuan)    11    0.45    0.01    0.55    US$0.09 

 

The accompanying notes are an integral part of these financial statements.

 

F-5

 

CNOOC LIMITED

CONSOLIDATED STATEMENTS OF FINANCIAL POSITION

AS OF DECEMBER 31, 2016 AND 2017

(All amounts expressed in millions of Renminbi/US$)

 

      2016  2017  2017
   Notes  RMB  RMB  US$
      million
NON-CURRENT ASSETS            
Property, plant and equipment    13    432,465    395,868    60,844 
Intangible assets    14    16,644    15,070    2,316 
Investments in associates    15    3,695    4,067    625 
Investment in a joint venture    16    26,300    25,079    3,855 
Equity investments    17, 32    4,266    3,540    544 
Deferred tax assets    10(i)   24,844    25,509    3,921 
Other non-current assets    18    7,422    9,248    1,421 
Total non-current assets         515,636    478,381    73,526 
CURRENT ASSETS                    
Inventories and supplies    19    8,709    7,354    1,130 
Trade receivables    20    10,199    8,386    1,289 
Due from related companies         13,263    12,914    1,985 
Derivative financial assets    32    428    -      -   
Equity investments    17, 32    15    14    2 
Other financial assets    17, 32    52,889    74,344    11,426 
Other current asset         5,977    7,874    1,211 
Time deposits with maturity over three month    21    16,830    15,380    2,364 
Cash and cash equivalent    21    13,735    12,572    1,932 
Total current assets         122,045    138,838    21,339 
CURRENT LIABILITIES                    
Loans and borrowings    24    14,867    9,360    1,439 
Borrowings from the parent company    28    4,811    4,532    697 
Trade and accrued payables    22    10,254    10,062    1,547 
Due to the parent company    28    215    193    30 
Due to related companies    28    15,091    16,651    2,559 
Derivative financial liabilities    32    426    -      -   
Other payables and accrued liabilities    23    14,651    13,913    2,137 
Taxes payable         6,775    6,701    1,030 
                     
Total current liabilities         67,090    61,412    9,439 
NET CURRENT ASSETS         54,955    77,426    11,900 
TOTAL ASSETS LESS CURRENT LIABILITIES         570,591    555,807    85,426 
NON-CURRENT LIABILITIES                    
Loans and borrowings    24    130,798    118,358    18,191 
Provision for dismantlement    25    50,426    52,893    8,130 
Deferred tax liabilities    10(i)   5,670    3,303    508 
Other non-current liabilities         1,326    1,278    196 
Total non-current liabilities         188,220    175,832    27,025 
Net assets         382,371    379,975    58,401 
EQUITY                    
Equity attributable to owners of the parent                     
Issued capital    26    43,081    43,081    6,621 
Reserves    27    339,290    336,894    51,780 
Total equity         382,371    379,975    58,401 

The accompanying notes are an integral part of these financial statements.

 

F-6

 

CNOOC LIMITED

CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY

FOR THE YEARS ENDED DECEMBER 31, 2015, 2016 AND 2017

(All amounts expressed in millions of Renminbi)

 

   Issued
capital
  Cumulative translation reserve  Statutory and non-
distributable reserves
  Other reserves  Retained earnings  Proposed final
dividend
  Total
                      
Balance at January 1, 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 income 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    -   
                                    
Balance at December 31, 2015    43,081    (12,939)*   20,000*   5,132*   321,370*   9,397*   386,041 
                                    
Balance at January 1, 2016    43,081    (12,939)   20,000    5,132    321,370    9,397    386,041 
                                    
Profit for the year    -      -      -      -      637    -      637 
Other comprehensive income/(expense), netof income tax    -      10,422    -      (576)   -      -      9,846 
Total comprehensive income/(expense)    -      10,422    -      (576)   637    -      10,483 
2015 final dividend    -      -      -      -      (143)   (9,397)   (9,540)
2016 interim dividend    -      -      -      -      (4,613)   -      (4,613)
Proposed 2016 final dividend    -      -      -      -      (9,096)   9,096    -   
                                    
Balance at December 31, 2016    43,081    (2,517)*   20,000*   4,556*   308,155*   9,096*   382,371 

F-7

 

CNOOC LIMITED

CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY

FOR THE YEARS ENDED DECEMBER 31, 2015, 2016 AND 2017 (continued)

(All amounts expressed in millions of Renminbi)

 

   Issued
capital
  Cumulative translation reserve  Statutory and non-distributable reserves  Other reserves  Retained earnings  Proposed final dividend  Total
                      
Balance at January 1, 2017    43,081    (2,517)   20,000    4,556    308,155    9,096    382,371 
                                    
Profit for the year    -      -      -      -      24,677    -      24,677 
Other comprehensive expense, net of income tax    -      (10,121)   -      (452)   -      -      (10,573)
Total comprehensive (expense)/income    -      (10,121)   -      (452)   24,677    -      14,104 
2016 final dividend    -      -      -      -      183    (9,096)   (8,913)
2017 interim dividend    -      -      -      -      (7,587)   -      (7,587)
Proposed 2017 final dividend    -      -      -      -      (10,830)   10,830    -   
Appropriation to reserve**    -      -      50,000    -      (50,000)   -      -   
                                    
Balance at December 31, 2017    43,081    (12,638)*   70,000*   4,104*   264,598*   10,830*   379,975 

 

 

 

*These reserve accounts constitute the consolidated reserves of approximately RMB336,894 million (December 31, 2016: RMB339,290 million ) in the consolidated statement of financial position.

 

**During the year ended December 31, 2017 , CNOOC China Limited (the "CNOOC China"), the Company’s wholly-owned subsidiary, appropriated RMB50,000 million of the general reserve fund.

 

The accompanying notes are an integral part of these financial statements.

 

F-8

 

CNOOC LIMITED

CONSOLIDATED STATEMENTS OF CASH FLOWS

FOR THE YEARS ENDED DECEMBER 31, 2015, 2016 AND 2017

(All amounts expressed in millions of Renminbi/US$)

 

   Notes  2015
RMB
  2016
RMB
  2017
RMB
  2017
US$
   million
CASH FLOWS FROM OPERATING ACTIVITIES               
Cash generated from operations    30    96,095    82,137    110,625    17,003 
Income taxes paid         (16,000)   (9,274)   (15,891)   (2,442)
                          
Net cash flows from operating activities         80,095    72,863    94,734    14,561 
                          
CASH FLOWS FROM INVESTING ACTIVITIES                         
Capital expenditure         (67,674)   (51,347)   (47,734)   (7,337)
Additions to investments in associates         (9)   (221)   (161)   (25)
Decrease in time deposits with maturity over three months         4,825    1,180    1,450    223 
Dividends received from an associate         164    135    116    18 
Dividends received from a joint venture         32    -      243    37 
Interest received         812    1,010    666    102 
Investment income received         2,177    2,013    1,821    280 
Purchase of other financial assets         (122,030)   (62,900)   (122,267)   (18,792)
Purchase of equity investments         (236)   (63)   (51)   (8)
Proceeds from sale of other financial assets         104,900    81,675    101,396    15,584 
Proceeds from disposal of property, plant and equipment         544    532    110    17 
Proceeds from disposal of an associate         -      33    -      -   
Net cash flows used in investing activities         (76,495)   (27,953)   (64,411)   (9,901)
                          
CASH FLOWS FROM FINANCING ACTIVITIES                         
Proceeds from issuance of guaranteed notes         23,184    -      -      -   
Repayment of guaranteed notes         (789)   (4,866)   (8,869)   (1,363)
Proceeds from bank loans         20,541    4,293    12,252    1,883 
Repayment of bank loans         (24,127)   (23,412)   (13,052)   (2,006)
Dividends paid         (20,419)   (14,153)   (16,448)   (2,528)
Interest paid         (5,283)   (5,102)   (5,154)   (792)
                          
Net cash flows used in financing activities         (6,893)   (43,240)   (31,271)   (4,806)
                          
NET (DECREASE)/INCREASE IN CASH AND CASH EQUIVALENTS         (3,293)   1,670    (948)   (146)
Cash and cash equivalents at beginning of year         14,918    11,867    13,735    2,111 
Effect of foreign exchange rate changes, net         242    198    (215)   (33)
                          
CASH AND CASH EQUIVALENTS AT END OF YEAR    21    11,867    13,735    12,572    1,932 

 

The accompanying notes are an integral part of these financial statements.

 

F-9

 

CNOOC LIMITED

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(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 August 20, 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. In November 2017, CNOOC changed its registered company name which is registered in Chinese pursuant to relevant laws and regulations of China to "中國海洋石油集團有限公司".

 

Particulars of the principal subsidiaries at the end of the reporting period are as follows:

 

Name of entity 

Place of
establishment

Nominal value of ordinary shares
issued and paid-up/
registered capital

Percentage
of equity
attributable
to the Group

Principal activities

Directly held subsidiaries:        
CNOOC China Limited Tianjin, PRC RMB20 billion 100% Offshore petroleum exploration, development, production and sales, and shale gas exploration in the PRC
China Offshore Oil (Singapore) International Pte Ltd Singapore SG$3 million 100% Sales and marketing of petroleum products outside the PRC
CNOOC International Limited British Virgin Islands US$20,000,000,002 100% Investment holding
CNOOC Finance (2003) Limited British Virgin Islands US$1,000 100% Bond issuance
CNOOC Finance (2011) Limited British Virgin Islands US$1,000 100% Bond issuance
CNOOC Finance (2012) Limited British Virgin Islands US$1,000 100% Bond issuance
CNOOC Finance (2013) Limited British Virgin Islands US$1,000 100% Bond issuance
         
Indirectly held subsidiaries(1):        
CNOOC Deepwater Development Limited Zhuhai, PRC RMB20.3 billion 100% Deepwater and low-grade oil and gas fields exploitation in the PRC and exploration, development, production and sales of oil and gas in the oil and gas fields of South China Sea
CNOOC Southeast Asia Limited Bermuda US$12,000 100% Investment holding  
CNOOC SES Ltd. Malaysia US$1 100% Petroleum exploration, development and production in Indonesia
CNOOC Muturi Limited Isle of Man US$7,780,770 100% Petroleum exploration, development and production in Indonesia
CNOOC NWS Private Limited Singapore SG$2 100% Offshore petroleum exploration,  development and production in Australia
CNOOC Exploration & Production Nigeria Limited Nigeria NGN10 million 100% Petroleum exploration, development and production in Africa

F-10

 

CNOOC LIMITED

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(All amounts expressed in millions of Renminbi unless otherwise stated)

 

 1.

CORPORATE INFORMATION (continued)

 

Name of entity

Place of
establishment

Nominal value of ordinary shares
issued and paid-up/
registered capital

Percentage
of equity
attributable
to the Group

Principal activities

Indirectly held subsidiaries (continued)(1):        
CNOOC Iraq Limited British Virgin Islands US$1 100% Providing services of petroleum exploration and development in the Republic of Iraq
CNOOC Canada Energy Ltd. Canada 100 common shares without a par value 103,000 preferred shares without a par value 100% Oil sands exploration,   development and production in Canada
CNOOC Uganda Ltd Uganda 1 million Uganda Shilling 100% Petroleum exploration, development and production in Africa
Nexen Energy ULC Canada 13,671,421,700 common shares without a par value 100% Petroleum exploration, development and production in Canada
Nexen Petroleum U.K. Limited England and Wales GBP98,009,131 100% Petroleum exploration, development and production in the UK
Nexen Petroleum Nigeria Limited Nigeria NGN30 million 100% Petroleum exploration, development and production in Nigeria
OOGC America LLC USA N/A 100% Petroleum exploration, development and production in the USA
Nexen Petroleum Offshore U.S.A. Inc. USA US$15,830 100% Petroleum exploration, development and production in the USA
Nexen Oil Sands Partnership Canada N/A 100% Petroleum exploration, development and production in Canada
CNOOC PETROLEUM BRASIL LTDA(2) Brazil R$2,965,600,000 100% Petroleum exploration, development and production in Brazil
CNOOC Nexen Finance (2014) ULC Canada 100 common shares without a par value 100% Bond issuance
CNOOC Finance (2015) U.S.A. LLC USA N/A 100% Bond Issuance
CNOOC Finance (2015) Australia Pty Ltd Australia US$1 100% Bond Issuance

 

 

 

(1)All subsidiaries are indirectly held through CNOOC International Limited, except CNOOC Deepwater Development Limited which is indirectly held through CNOOC China Limited.

 

(2)The registered capital of CNOOC PETROLEUM BRASIL LTDA increased from R$2,436,000,000 to R$2,965,600,000 on 20 June 2017.

 

The above table lists the subsidiaries of the Company which, in the opinion of the Directors, principally affected the results for the year or formed a substantial portion of the total assets of the Group. To give details of other subsidiaries would, in the opinion of the Directors, result in particulars of excessive length.

 

F-11

 

CNOOC LIMITED

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(All amounts expressed in millions of Renminbi unless otherwise stated)

 

2.1STATEMENT 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). A summary of the significant accounting policies adopted by the Group is set out below.

 

2.2CHANGES 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 January 1, 2017 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 December 31, 2016, except for the first time adoption of the amendments to IFRSs/HKFRSs effective for the Group’s financial year beginning on January 1, 2017. The adoption of the amendments had no material impact on the accounting policies, the disclosures or the amounts recognized in the consolidated financial statements of the Group. IFRS 9/HKFRS 9 (2009) Financial Instruments has been early adopted by the Company from year 2015.

 

The Group has not applied the following new and revised IFRSs/HKFRSs, which may be relevant to the Group and have been issued but are not yet effective, in these consolidated financial statements:

 

IFRS 9/HKFRS 9 Financial Instruments1
IFRS 15/ HKFRS 15 Revenue from Contracts with Customers and the
    related Amendments 1
IFRS 16/HKFRS 16 Leases2
IFRS 17/HKFRS 17 Insurance Contracts4
IFRIC 22/HK(IFRIC)-Int 22 Foreign Currency Transactions and Advance
    Consideration1
IFRIC 23/HK(IFRIC)-Int 23 Uncertainty over Income Tax Treatments2
Amendments to IFRS 2/HKFRS 2 Classification and Measurement of Share-based
    Payment Transactions1
Amendments to IFRS 4/HKFRS 4 Applying IFRS 9/HKFRS 9 Financial Instruments
    with IFRS 4/HKFRS 4 Insurance Contracts1
Amendments to IFRS 9/HKFRS 9 Prepayment Features with Negative Compensation2
Amendments to IFRS 10/HKFRS 10 Sale or Contribution of Assets between an
  and IAS 28/HKAS 28   Investor and its Associate or Joint Venture3
Amendments to IAS 19 Plan Amendment, Curtailment or Settlement2
Amendments to IAS 28/HKAS 28 Long-term Interests in Associates and Joint
    Ventures2
Amendments to IAS 28/HKAS 28 As part of the Annual Improvements to IFRS
    Standards/HKFRSs 2014-2016 Cycle1
Amendments to IAS 40/HKAS 40 Transfers of Investment Property1
Amendments to IFRSs/HKFRSs Annual Improvements to IFRS Standards/
    HKFRSs 2015-2017 Cycle2

 

1.Effective for annual periods beginning on or after 1 January 2018, except for the 2009 version of IFRS 9/HKFRS 9, which the Group adopted in advance

2.Effective for annual periods beginning on or after 1 January 2019

3.Effective for annual periods beginning on or after a date to be determined

4.Effective for annual periods beginning on or after 1 January 2021

 

F-12

 

CNOOC LIMITED

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(All amounts expressed in millions of Renminbi unless otherwise stated)

 

2.2CHANGES IN ACCOUNTING POLICY AND DISCLOSURES (continued)

 

IFRS 15/HKFRS 15 Revenue from Contracts with Customers

 

IFRS 15/HKFRS 15 Revenue from Contracts with Customers provides a single model for accounting for revenue arising from contracts with customers, focusing on the identification and satisfaction of performance obligations, and is effective for annual periods beginning on or after 1 January 2018. IFRS 15/HKFRS 15 will supersede IAS 18/HKAS 18 Revenue.

 

The Company expects to adopt the new revenue standard as of 1 January 2018 using the modified retrospective transition method. Based on our assessment, the Company does not expect the implementation of the standard to have a material effect on its consolidated financial statements.

 

IFRS 16/HKFRS 16 Leases

 

IFRS 16/HKFRS 16, which upon the effective date will supersede IAS 17/HKAS 17 Leases, introduces a single lessee accounting model and requires a lessee to recognize assets and liabilities for all leases with a term of more than 12 months, unless the underlying asset is of low value. Specifically, under IFRS 16/HKFRS 16, a lessee is required to recognize a right-of-use asset representing its right to use the underlying leased asset and a lease liability representing its obligation to make lease payments. Accordingly, a lessee should recognize depreciation of the right-of-use asset and interest on the lease liability, and also classify cash payments of the lease liability into a principal portion and an interest portion and present them in the consolidated statement of cash flows. Also, the right-of-use asset and the lease liability are initially measured on a present value basis. The measurement includes non-cancellable lease payments and also includes payments to be made in optional periods if the lessee is reasonably certain to exercise an option to extend the lease, or not to exercise an option to terminate the lease. This accounting treatment is significantly different from the lessee accounting for leases that are classified as operating leases under IAS 17/HKAS 17.

 

In respect of the lessor accounting, IFRS 16/HKFRS 16 substantially carries forward the lessor accounting requirements in IAS 17/HKAS 17. Accordingly, a lessor continues to classify its leases as operating leases or finance leases, and to account for these two types of leases differently.

 

The Group is in the process of assessing the impact of application of IFRS 16/HKFRS 16. For the moment, it is not practicable to provide a reasonable estimate of the effect of the application of IFRS 16/HKFRS 16 until the Group completes a detail review.

 

The Group anticipates that the application of other new and revised IFRSs/HKFRSs that have been issued but are not yet effective will have no material effect on the Group’s consolidated financial statements.

 

F-13

 

CNOOC LIMITED

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(All amounts expressed in millions of Renminbi unless otherwise stated)

 

3.SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

 

Basis of preparation

 

These consolidated financial statements have been prepared under the historical cost convention, except for as detailed in the accounting policies notes hereafter. These consolidated financial statements are presented in Renminbi ("RMB") and all values are rounded to the nearest million except when otherwise indicated.

 

Basis of consolidation

 

The consolidated financial statements include the financial statements of the Company and its subsidiaries for the year ended December 31, 2017.

 

The results of subsidiaries are consolidated from the date of acquisition, being the date on which the Group obtains control, and continue to be consolidated until the date that such control ceases. The financial statements of the subsidiaries are prepared for the same reporting period as the parent company, using consistent accounting policies.

 

The results of subsidiaries are included in the Company's statement of profit or loss and other comprehensive income to the extent of dividends received and receivable. The Company's interests in subsidiaries are stated at cost less any impairment losses.

 

All intra-group balances, income and expenses and unrealized gains and losses and dividends resulting from intra-group transactions are eliminated in full.

 

F-14

 

CNOOC LIMITED

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(All amounts expressed in millions of Renminbi unless otherwise stated)

 

3.SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)

 

Business combinations and goodwill

 

Business combinations are accounted for using the acquisition method. The consideration transferred is measured at acquisition date fair value which is the sum of the acquisition date fair values of assets transferred by the Group, liabilities assumed by the Group to the former owners of the acquiree and the equity interests issued by the Group in exchange for control of the acquiree. For each business combination, the Group elects whether it measures the non-controlling interests in the acquiree either at fair value or at the proportionate share of the acquiree's identifiable net assets. All other components of non-controlling interests are measured at fair value. Acquisition related costs incurred are included in profit or loss.

 

When the Group acquires a business, it assesses the financial assets acquired and liabilities assumed for appropriate classification and designation in accordance with the contractual terms, economic circumstances and pertinent conditions as at the acquisition date. This includes the separation of embedded derivatives in host contracts by the acquiree.

 

If the business combination is achieved in stages, the Group's previously held equity interest in the acquiree is remeasured to fair value at the acquisition date through profit or loss.

 

Any contingent consideration to be transferred by the acquirer is recognized at fair value at the acquisition date. Contingent consideration classified as an asset or liability is measured at subsequent reporting dates in accordance with IFRS 9/HKFRS 9 (2009) or IAS 39/HKAS 39, with the corresponding gain or loss being recognized in profit or loss. Contingent consideration that is classified as equity is not remeasured and subsequent settlement is accounted for within equity.

 

Goodwill is initially measured at cost, being the excess of the aggregate of the consideration transferred, the amount recognized for non-controlling interests and any fair value of the Group's previously held equity interests in the acquiree over the identifiable net assets acquired and liabilities assumed. If the sum of this consideration and other items is lower than the fair value of the net assets of the business acquired, the difference is recognized in profit or loss as a gain on bargain purchase.

 

F-15

 

CNOOC LIMITED

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(All amounts expressed in millions of Renminbi unless otherwise stated)

 

3.SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)

 

Business combinations and goodwill (continued)

 

After initial recognition, goodwill is measured at cost less any accumulated impairment losses. Goodwill is tested for impairment annually or more frequently if events or changes in circumstances indicate that the carrying value may be impaired. For the purpose of impairment testing, goodwill acquired in a business combination is, from the acquisition date, allocated to each of the Group's cash-generating units, or groups of cash-generating units, that are expected to benefit from the synergies of the combination, irrespective of whether other assets or liabilities of the Group are assigned to those units or groups of units.

 

Impairment is determined by assessing the recoverable amount of the exploration and production ("E&P") segment, using value in use, to which the goodwill relates. Where the recoverable amount of the cash-generating unit (group of cash-generating units) is less than the carrying amount, an impairment loss on goodwill is recognized. An impairment loss recognized for goodwill is not reversed in a subsequent period.

 

Where goodwill has been allocated to a cash-generating unit (or group of cash-generating units) and part of the operation within that unit is disposed of, the goodwill associated with the operation disposed of is included in the carrying amount of the operation when determining the gain or loss on the disposal. Goodwill disposed of in these circumstances is measured based on the relative value of the operation disposed of and the portion of the cash-generating unit retained.

 

Subsidiaries

 

Subsidiaries are all those entities over which the Group has power over the investee such that the Group is able to direct the relevant activities, has exposure or rights to variable returns from its involvement with the investee and has the ability to use its power over the investee to affect the amount of the investor's returns.

 

Associates

 

Based on the Group's ownership percentage (considering its direct ownership as well as potentially exercisable or convertible shares) and other contractual rights, the Group has significant influence over its associates, rather than the power to control.

 

The Group's investments in associates are stated in the consolidated statement of financial position at the Group's share of net assets under the equity method of accounting, less any impairment losses. Adjustments are made to bring into line any dissimilar accounting policies that may exist. Under the equity method, an investment in an associate is initially recognized in the consolidated statement of financial position at cost and adjusted thereafter to recognize the Group's share of the profit or loss and other comprehensive income of the associate. Unrealized gains and losses resulting from transactions between the Group and its associates are eliminated to the extent of the Group's investments in the associates, except where unrealized losses provide evidence of an impairment of the asset transferred. Goodwill arising from the acquisition of associates is included as part of the Group's investments in associates and is not individually tested for impairment.

 

Joint arrangements

 

Certain of the Group's activities are conducted through joint arrangements. Joint arrangements are classified as either a joint operation or joint venture, based on the rights and obligations arising from the contractual obligations between the parties to the arrangement.

 

Joint control

 

Joint control is the contractually agreed sharing of control of an arrangement, which exists only when decisions about the relevant activities require unanimous consent of the parties sharing control.

 

F-16

 

CNOOC LIMITED

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(All amounts expressed in millions of Renminbi unless otherwise stated)

 

3.SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)

 

Joint arrangements (continued)

 

Joint operations

 

Some arrangements have been assessed by the Group as joint operations as both parties to the contract are responsible for the assets and obligations in proportion to their respective interest, whether or not the arrangement is structured through a separate vehicle. This evaluation applies to both the Group's interests in production sharing arrangements and certain joint operation.

 

The Group entered into numerous production sharing arrangements or similar agreements in China and overseas countries. The Group's participating interest may vary in each arrangement. The Group, as one of the title owners under certain exploration and/or production licenses or permits, is required to bear exploration (with some exceptions in China), development and operating costs together with other co-owners based on each owner's participating interest. Once production occurs, a certain percentage of the annual production or revenue is first distributed to the local government, which, in most cases, with the nature of royalty and other taxes or expenses, and the rest of the annual production or revenue is allocated among the co-owners.

 

The Group accounts for the assets, liabilities, revenues and expenses relating to its interest in a joint operation in accordance with the IFRSs/HKFRSs applicable to the particular assets, liabilities, revenues and expenses.

 

Joint venture

 

A joint venture is a joint arrangement whereby the parties that have joint control of the arrangement have rights to the net assets of the arrangement.

 

The Group's investments in joint ventures are stated in the consolidated statement of financial position at the Group's share of net assets under the equity method of accounting, less any impairment losses. Adjustments are made to bring into line any dissimilar accounting policies that may exist. Under the equity method, an investment in a joint venture is initially recognized in the consolidated statement of financial position at cost and adjusted thereafter to recognize the Group's share of the profit or loss and other comprehensive income of the joint venture. Where the profit sharing ratios are different to the Group's equity interest, the share of post-acquisition results of the joint ventures is determined based on the agreed profit sharing ratio. Unrealized gains and losses resulting from transactions between the Group and its joint ventures are eliminated to the extent of the Group's investments in the joint ventures, except where unrealized losses provide evidence of an impairment of the asset transferred. Goodwill arising from the acquisition of joint ventures is included as part of the Group's investments in joint ventures and is not individually tested for impairment.

 

Related parties

 

A party is considered to be related to the Group if:

 

(a)the party is a person or a close member of that person's family and that person

 

(i)has control or joint control of the Group;

 

(ii)has significant influence over the Group; or

 

(iii)is a member of the key management personnel of the Group or of a parent of the Group;

 

F-17

 

CNOOC LIMITED

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(All amounts expressed in millions of Renminbi unless otherwise stated)

 

3.SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)

 

Related parties (continued)

 

(b)the party is an entity where any of the following conditions applies:

 

(i)the entity and the Group are members of the same group;

 

(ii)one entity is an associate or joint venture of the other entity (or of a parent, subsidiary or fellow subsidiary of the other entity);

 

(iii)the entity and the Group are joint ventures of the same third party;

 

(iv)one entity is a joint venture of a third entity and the other entity is an associate of the third entity;

 

(v)the entity is a post-employment benefit plan for the benefit of employees of either the Group or an entity related to the Group;

 

(vi)the entity is controlled or jointly controlled by a person identified in (a); and

 

(vii)a person identified in (a)(i) has significant influence over the entity or is a member of the key management personnel of the entity (or of a parent of the entity).

 

Impairment of non-financial assets other than goodwill

 

Where an indication of impairment exists, or when annual impairment testing for an asset is required (other than inventories, deferred tax assets, financial assets and goodwill), the asset's recoverable amount is estimated. An asset's recoverable amount is the higher of the asset's or cash-generating unit's value in use and its fair value less costs of disposal, and is determined for an individual asset, unless the asset does not generate cash inflows that are largely independent of those from other assets or groups of assets, in which case the recoverable amount is determined for the cash-generating unit to which the asset belongs.

 

An impairment loss is recognized only if the carrying amount of an asset exceeds its recoverable amount. In assessing value in use, the estimated future cash flows are discounted to their present value using a pre-tax discount rate that reflects current market assessments of the time value of money and the risks specific to the asset. An impairment loss is charged to profit or loss in the period in which it arises in those expense categories consistent with the function of the impaired asset.

 

An assessment is made at the end of each reporting period as to whether there is any indication that previously recognized impairment losses may no longer exist or may have decreased. If such an indication exists, the recoverable amount is estimated. A previously recognized impairment loss of an asset other than goodwill is reversed only if there has been a change in the estimates used to determine the recoverable amount of that asset, but not to an amount higher than the carrying amount that would have been determined (net of any depreciation/amortization) had no impairment loss been recognized for the asset in prior years. A reversal of such an impairment loss is credited to profit or loss in the period in which it arises.

 

Property, plant and equipment

 

Property, plant and equipment comprise oil and gas properties, and vehicles and office equipment and others.

 

(a)Oil and gas properties

 

For oil and gas properties, the successful efforts method of accounting is adopted. The Group capitalizes the initial acquisition costs of oil and gas properties. Impairment of initial acquisition costs is recognized based on exploratory experience and management judgement and charged to profit and loss as exploration expenses. Upon discovery of commercial reserves, acquisition costs are transferred to proved properties. The costs of drilling and equipping successful exploratory wells, all development expenditures on construction, installation or completion of infrastructure facilities such as platforms, pipelines, processing plants and the drilling of development wells and the building of enhanced recovery facilities, including those renewals and betterments that extend the economic lives of the assets, and the related borrowing costs are capitalized. The costs of unsuccessful exploratory wells and all other exploration costs are expensed as incurred.

 

F-18

 

CNOOC LIMITED

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(All amounts expressed in millions of Renminbi unless otherwise stated)

 

3.SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)

 

Property, plant and equipment (continued)

 

(a)Oil and gas properties (continued)

 

The Group carries exploratory well costs as an asset when the well has found a sufficient quantity of reserves to justify its completion as a producing well and where the Group is making sufficient progress assessing the reserves and the economic and operating viability of the project. Exploratory well costs not meeting these criteria are charged to expenses. Exploratory wells that discover potentially economic reserves in areas where major capital expenditure will be required before production would begin and when the major capital expenditure depends upon the successful completion of further exploratory work remain capitalized and are reviewed periodically for impairment.

 

Producing oil and gas properties are depreciated on a unit-of-production basis over the proved developed reserves. Common facilities that are built specifically to service production directly attributed to designated oil and gas properties are depreciated based on the proved developed reserves of the respective oil and gas properties on a pro-rata basis. Common facilities that are not built specifically to service identified oil and gas properties are depreciated using the straight-line method over their estimated useful lives. Costs associated with significant development projects are not depreciated until commercial production commences and the reserves related to those costs are excluded from the calculation of depreciation.

 

Capitalized acquisition costs of proved properties are depreciated on a unit-of-production method over the total proved reserves of the relevant oil and gas properties.

 

(b)Vehicles, office equipment and others

 

Vehicles, office equipment and others are stated at cost less accumulated depreciation and impairment losses. The straight-line method is adopted to depreciate the cost less any estimated residual value of these assets over their expected useful lives. The useful lives of vehicles, office equipment and other assets are in line with their beneficial periods.

 

Where parts of an item of property, plant and equipment have different useful lives, the cost of that item is allocated on a recoverable basis among the parts and each part is depreciated separately.

 

Residual values, useful lives and the depreciation method are reviewed and, adjusted if appropriate, at each reporting date.

 

Any gains and losses on disposals of property, plant and equipment (calculated as the difference between the net disposal proceeds and the carrying amount of the asset) are recognized in profit or loss.

 

Intangible assets (other than goodwill)

 

The intangible assets of the Group comprise software, gas processing rights of the NWS Project, marketing transportation and storage contracts, drilling rig contracts and seismic data usage rights. Intangible assets with finite lives are carried at cost, less accumulated amortization and accumulated impairment losses. The cost of intangible assets acquired in a business combination is the fair value as at the date of acquisition. Intangible assets with finite lives except for gas processing rights, are amortized on the straight-line basis over the useful economic life and assessed for impairment whenever there is an indication that the intangible asset may be impaired. The amortization period and the amortization method for an intangible asset with a finite useful life are reviewed at least at each financial year end.

 

F-19

 

CNOOC LIMITED

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(All amounts expressed in millions of Renminbi unless otherwise stated)

 

3.SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)

 

Intangible assets (other than goodwill) (continued)

 

The intangible assets regarding software have been amortized on the straight-line basis over their respective useful lives. The intangible asset regarding the gas processing rights has been amortized upon the commercial production of the liquefied natural gas on a unit-of-production basis over the total proved reserves of the relevant asset. The intangible assets regarding the marketing transportation and storage contracts and drilling rig contracts are amortized over the life of the contracts on the straight-line basis. The intangible assets related to the seismic data usage rights are amortized over the estimated useful life of the seismic data.

 

Major maintenance and repairs

 

Expenditure on major maintenance refits or repairs comprises the cost of replacement assets or parts of assets and overhaul costs. Where an asset or part of an asset that was separately depreciated and is replaced, and it is probable that future economic benefits associated with the item will flow to the Group, the replacement expenditure is capitalized. Where part of the asset was not separately considered as a component, the replacement value is used to estimate the carrying amount of the replaced assets which is immediately written off. All other maintenance costs are expensed as incurred.

 

Research and development costs

 

All research costs are expensed as incurred.

 

Expenditure (other than that relating to oil and gas properties discussed above) incurred on projects to develop new products is capitalized and deferred only when the Group can demonstrate the technical feasibility of completing the intangible asset so that it will be available for use or sale, its intention to complete and its ability to use or sell the asset, how the asset will generate future economic benefits, the availability of resources to complete the project and the ability to measure reliably the expenditure during the development. Product development expenditure which does not meet these criteria is expensed when incurred.

 

Financial assets

 

All recognized financial assets are subsequently measured in their entirety at either amortized cost or fair value, depending on the classification of the financial assets.

 

(a)Financial assets at amortized cost

 

Debt instruments and hybrid contracts that meet the following conditions are subsequently measured at amortized cost less impairment loss:

 

• the asset is held within a business model whose objective is to hold assets in order to collect contractual cash flows; and

 

• the contractual terms of the instrument give rise on specified dates to cash flows that are solely payments of principal and interest on the principal amount outstanding.

 

All other financial assets are subsequently measured at fair value.

 

F-20

 

CNOOC LIMITED

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(All amounts expressed in millions of Renminbi unless otherwise stated)

 

3.SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)

 

Financial assets (continued)

 

(a)Financial assets at amortized cost (continued)

 

The effective interest method is a method of calculating the amortized cost of a debt instrument and of allocating interest income over the relevant period. The effective interest rate is the rate that exactly discounts estimated future cash receipts (including all fees and points paid or received that form an integral part of the effective interest rate, transaction costs and other premiums or discounts) through the expected life of the debt instrument, or, where appropriate, a shorter period, to the net carrying amount on initial recognition. Interest income for debt instruments measured subsequently at amortized cost is recognized in profit or loss in accordance with the policies set out for "Revenue Recognition" below.

 

(b)Financial assets at fair value through profit or loss (FVTPL)

 

Investments in equity instruments are classified as at FVTPL, unless the Group designates such investment that is not held for trading as at FVTOCI on initial recognition.

 

A financial asset is held for trading if it has been acquired principally for the purpose of selling it in the near term or it is a derivative that is not designated and effective as a hedging instrument.

 

Debt instruments that do not meet the amortized cost criteria (see (a) above) are measured at FVTPL. In addition, debt instruments that meet the amortized cost criteria but are designated as at FVTPL are measured at FVTPL. A debt instrument may be designated as at FVTPL upon initial recognition if such designation eliminates or significantly reduces a measurement or recognition inconsistency that would arise from measuring assets or liabilities or recognizing the gains and losses on them on different bases.

 

Financial assets at FVTPL are measured at fair value at the end of each reporting period, with any gains or losses arising on remeasurement recognized in profit or loss.

 

(c)Financial assets at fair value through other comprehensive income (FVTOCI)

 

On initial recognition, the Group can make an irrevocable election (on an instrument-by-instrument basis) to designate investments in equity instruments as at FVTOCI. The Group has investments in certain equity instruments (publicly traded or non-publicly traded), the purpose of which 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.

 

Investments in equity instruments at FVTOCI are initially measured at fair value plus transaction costs. Subsequently, they are measured at fair value with gains and losses arising from changes in fair value recognized in other comprehensive income and accumulated in the other reserves. The cumulative gain or loss will not be reclassified to profit or loss on disposal of the investments.

 

Dividends on these investments in equity instruments are recognized in profit or loss when the Group’s right to receive the dividends is established in accordance with IAS 18/HKAS 18 Revenue, unless the dividends clearly represent a recovery of part of the cost of the investment.

 

F-21

 

CNOOC LIMITED

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(All amounts expressed in millions of Renminbi unless otherwise stated)

 

3.SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)

 

Fair value

 

The fair value of financial instruments that are traded in active markets at each reporting date is determined by reference to quoted market prices or dealer price quotations, without any deduction for transaction costs.

 

For financial instruments not traded in an active market, the fair value is determined using appropriate valuation techniques. Such techniques may include using recent arm's length market transactions; reference to the current fair value of another instrument that is substantially the same; a discounted cash flow analysis or other valuation models.

 

An analysis of fair values of financial instruments and further details as to how they are measured are provided in note 32.

 

Impairment of financial assets

 

The Group assesses at each reporting date whether there is any objective evidence that a financial asset, other than those at FVTPL and FVTOCI, or a group of financial assets may be impaired.

 

In relation to trade and other receivables, a provision for impairment is made when there is objective evidence (such as the probability of insolvency or significant financial difficulties of the debtor and significant changes in the technological, market, economic or legal environment that have an adverse effect on the debtor) that the Group will not be able to collect all of the amounts due under the original terms of an invoice.

 

If there is objective evidence that an impairment loss on financial assets measured at amortized cost has been incurred, the amount of the loss is measured as the difference between the asset's carrying amount and the present value of estimated future cash flows (excluding future credit losses that have not been incurred) discounted at the financial asset's original effective interest rate (the effective interest rate computed at initial recognition). The carrying amount of the asset is reduced either directly or through the use of an allowance account. The amount of the impairment loss is recognized in profit or loss.

 

If, in a subsequent year, the amount of the estimated impairment loss decreases and the decrease can be related objectively to an event occurring after the impairment was recognized, the previously recognized impairment loss is reduced either directly or by adjusting the allowance account. Any subsequent reversal of an impairment loss is recognized in profit or loss, to the extent that the carrying value of the asset does not exceed amortized cost at the reversal date.

 

Derecognition of financial assets

 

A financial asset (or, where applicable a part of a financial asset or part of a group of similar financial assets) is derecognized when:

 

(i)The contractual rights to receive cash flows from the asset have expired; or

 

(ii)the Group has transferred its rights to receive cash flows from the asset, or the Group retains the contractual rights to receive the cash flows from the asset, but has assumed an obligation to pay the received cash flows in full without material delay to a third party under a "pass-through" arrangement; and either (a) has transferred substantially all the risks and rewards of the asset, or (b) has neither transferred nor retained substantially all the risks and rewards of the asset, but has no control of the asset.

 

F-22

 

CNOOC LIMITED

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(All amounts expressed in millions of Renminbi unless otherwise stated)

 

3.SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)

 

Derecognition of financial assets (continued)

 

When the Group has transferred its rights to receive cash flows from an asset or has entered into a pass-through arrangement, it evaluates if and to what extent it has retained the risk and rewards of ownership of the asset. When it has neither transferred nor retained substantially all the risks and rewards of the asset nor transferred control of the asset, the Group continues to recognize the transferred asset to the extent of the Group's continuing involvement. In that case, the Group also recognizes an associated liability. The transferred asset and the associated liability are measured on a basis that reflects the rights and obligations that the Group has retained.

 

Financial liabilities at amortized cost (including interest-bearing loans and borrowings)

 

Financial liabilities including trade and accrued payables, other payables and accrued liabilities, and interest-bearing loans and borrowings are initially stated at fair value less directly attributable transaction costs and are subsequently measured at amortized cost, using the effective interest method. The related interest expense is recognized in profit or loss.

 

Gains and losses are recognized in profit or loss when the liabilities are derecognized as well as through the amortization process.

 

Financial guarantee contracts

 

A financial guarantee contract is recognized initially at its fair value including transaction costs that are directly attributable to the issue of the guarantee. Subsequent to initial recognition, the liability is measured at the higher of the best estimate of the expenditure required to settle the present obligation at the reporting date and the amount recognized less cumulative amortization.

 

Derecognition of financial liabilities

 

Financial liabilities are derecognized when the obligations under the liabilities are discharged, cancelled, or have expired.

 

When an existing financial liability is replaced by another from the same lender on substantially different terms, or the terms of an existing liability are substantially modified, such an exchange or modification is treated as a derecognition of the original liability and a recognition of a new liability, and the difference between the respective carrying amounts is recognized in profit or loss.

 

Offsetting of financial instruments

 

Financial assets and liabilities are offset and the net amount reported in the consolidated statement of financial position, if and only if, there is a currently enforceable legal right to offset the recognized amounts and there is an intention to settle on a net basis, or to realize the assets and settle the liabilities simultaneously.

 

Inventories and supplies

 

Inventories primarily consist of oil and supplies, including items for repairs and maintenance of oil and gas properties. Inventories are stated at the lower of cost and net realizable value. Costs of inventories and supplies represent purchase or production cost of goods and are determined on a weighted average basis.

 

Cash and cash equivalents

 

Cash and cash equivalents comprise cash at banks and on hand and short term deposits with an original maturity of three months or less.

 

F-23

 

CNOOC LIMITED

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(All amounts expressed in millions of Renminbi unless otherwise stated)

 

3.SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)

 

Provisions

 

(a)General

 

A provision is recognized when a present obligation (legal or constructive) has arisen as a result of a past event and it is probable that a future outflow of resources will be required to settle the obligation, provided that a reliable estimate can be made of the amount of the obligation. When the effect of discounting is material, the amount recognized for a provision is the present value at the reporting date of the future expenditures expected to be required to settle the obligation. The increase in the discounted present value amount arising from the passage of time is included in profit or loss.

 

(b)Dismantlement liability

 

Dismantlement liability is recognized when the Group has a present legal or constructive obligation as a result of the past events, and it is probable that an outflow of resources will be required to settle the obligation, and a reliable estimate of the amount of the obligation can be made. A corresponding amount equivalent to the provision is also recognized as part of the cost of the related property, plant and equipment. The amount recognized is the estimated cost of dismantlement, discounted to its present value using a current pre-tax rate that reflects, where appropriate, the risks specific to the liability. Changes in the estimated timing of dismantlement or dismantlement cost estimates are dealt with prospectively by recording an adjustment to the provision, and a corresponding adjustment to property, plant and equipment. The unwinding of the discount on the dismantlement provision is included as a finance cost.

 

Income tax

 

Income tax comprises current and deferred tax. Income tax is recognized in the consolidated statement of profit or loss and other comprehensive income, either as an expense as it relates to operating activities or as a component of the applicable categories of other comprehensive income or expense.

 

Current tax assets and liabilities for the current and prior periods are measured at the amount expected to be recovered from or paid to the taxation authorities. The tax rates and tax laws used to compute the amount are those that are enacted or substantially enacted, by the reporting date, in the countries where the Group operates and generates taxable income.

 

Deferred tax is provided, using the balance sheet liability method, on all temporary differences at the reporting date between the tax bases of assets and liabilities and their carrying amounts for financial reporting purposes.

 

Deferred tax liabilities are recognized for all taxable temporary differences, except:

 

·when the deferred tax liability arises from the initial recognition of an asset or liability in a transaction that is not a business combination and, at the time of the transaction, affects neither the accounting profit nor taxable profit or loss; and

 

·in respect of taxable temporary differences associated with investments in subsidiaries, associates and interests in joint ventures, when the timing of the reversal of the temporary differences can be controlled and it is probable that the temporary differences will not reverse in the foreseeable future.

 

F-24

 

CNOOC LIMITED

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(All amounts expressed in millions of Renminbi unless otherwise stated)

 

3.SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)

 

Income tax (continued)

 

Deferred tax assets are recognized for all deductible temporary differences, the carryforward of unused tax credits and any unused tax losses to the extent that it is probable that taxable profit and taxable temporary differences will be available against which the deductible temporary differences, the carryforward of unused tax credits and unused tax losses can be utilized, except:

 

·when the deferred tax assets relating to the deductible temporary differences arise from the initial recognition of an asset or liability in a transaction that is not a business combination and, at the time of the transaction, affects neither the accounting profit nor taxable profit or loss; and

 

·in respect of deductible temporary differences associated with investments in subsidiaries, associates and interests in joint ventures, deferred tax assets are only recognized to the extent that it is probable that the temporary differences will reverse in the foreseeable future and taxable profit will be available against which the temporary differences can be utilized.

 

The carrying amount of deferred tax assets is reviewed at each reporting date and reduced to the extent that it is no longer probable that sufficient taxable profit will be available to allow all or part of the deferred tax asset to be utilized. Unrecognized deferred tax assets are reassessed at each reporting date and are recognized to the extent that it is probable that sufficient taxable profit and taxable temporary differences will be available to allow all or part of the deferred tax asset to be utilized.

 

Deferred tax assets and liabilities are measured at the tax rates that are expected to apply to the period when the asset is realized or the liability is settled, based on tax rates (and tax laws) that have been enacted or substantively enacted at the reporting date.

 

Deferred tax assets and deferred tax liabilities are offset if a legally enforceable right exists to set off current tax assets against current tax liabilities and the deferred taxes relate to the same taxable entity and the same taxation authority.

 

Revenue recognition

 

Revenue is recognized when it is probable that the economic benefits will flow to the Group and when the revenue can be measured reliably, on the following bases:

 

(a)Oil and gas sales

 

Oil and gas sales represent the invoiced value of sales of oil and gas attributable to the interests of the Group, net of royalties, obligations to governments and other mineral interest owners. Revenue from the sale of oil and gas is recognized when the significant risks and rewards of ownership have been transferred, which is when title passes to the customer. Revenue from the production of oil and gas in which the Group has a joint interest with other producers is recognized based on the Group’s working interest and the terms of the relevant production sharing contracts. Differences between production sold and the Group’s share of production are not significant.

 

F-25

 

CNOOC LIMITED

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(All amounts expressed in millions of Renminbi unless otherwise stated)

 

3.SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)

 

Revenue recognition (continued)

 

(a)Oil and gas sales (continued)

 

Oil and gas lifted and sold by the Group above or below the Group's participating interests in the production sharing contracts results in overlifts and underlifts. The Group records these transactions in accordance with the entitlement method under which overlifts are recorded as liabilities and underlifts are recorded as assets at year-end oil prices. Settlement will be in kind or in cash when the liftings are equalised or in cash when production ceases.

 

The Group has entered into gas sale contracts with customers, which contain take-or-pay clauses. Under these contracts, the Group makes a long term supply commitment in return for a commitment from the buyer to pay for minimum quantities, whether or not it takes delivery. These commitments contain protective (force majeure) and adjustment provisions. If a buyer has a right to get a "make up" delivery at a later date, revenue recognition is deferred. If no such option exists according to the contract terms, revenue is recognized when the take-or-pay penalty is triggered.

 

(b)Marketing revenues

 

Marketing revenues principally represent the sales of oil and gas from the foreign partners under the production sharing contracts and revenues from the trading of oil and gas through the Company’s subsidiaries. The cost of the oil and gas sold is included in “Crude oil and product purchases” in the consolidated statement of profit or loss and other comprehensive income. In addition, the Group’s marketing activities in North America involves entering into contracts to purchase and sell crude oil, natural gas and other energy commodities, and use derivative contracts, including futures, forwards, swaps and options for hedging and trading purposes (collectively derivative contracts). Any change in the fair value is also included in marketing revenue.

 

(c)Other income

 

Other income mainly represents project management fees charged to foreign partners, handling fees charged to customers, the sales of diluents to third parties and gains from disposal of oil and gas properties and is recognized when the services have been rendered or the properties have been disposed of. Reimbursement of insurance claims is recognized when the compensation becomes receivable.

 

(d)Dividend income

 

Dividend income is recognized when the Group's right to receive payment is established.

 

(e)Interest income

 

Interest income is recognized as it accrues using the effective interest method.

 

The Group presents taxes collected from customers in the consolidated statement of profit or loss and other comprehensive income on a net basis.

 

F-26

 

CNOOC LIMITED

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(All amounts expressed in millions of Renminbi unless otherwise stated)

 

3.SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)

 

Share-based payment transactions

 

Employees (including directors) of the Group receive remuneration in the form of share-based payment transactions, whereby employees render services as consideration for equity instruments ("equity-settled transactions").

 

The cost of equity-settled transactions with employees is measured by reference to the fair value at the date at which they are granted. The fair value is determined by using the Black-Scholes option pricing model, further details of which are given in note 26.

 

The cost of equity-settled transactions is recognized, together with a corresponding increase in equity, over the period in which the performance and/or service conditions are fulfilled. The cumulative expense recognized for equity-settled transactions at the end of the each reporting period until the vesting date reflects the extent to which the vesting period has expired and the Group's best estimate of the number of equity instruments that will ultimately vest. The charge or credit to profit or loss for a period represents the movement in the cumulative expense recognized as at the beginning and end of that period.

 

No expense is recognized for awards that do not ultimately vest for the Group.

 

No equity-settled award was cancelled or modified during the years ended December 31, 2015, 2016 and 2017.

 

The dilutive effect of outstanding options is reflected as additional share dilution in the computation of earnings per share.

 

Retirement and termination benefits

 

The Group participates in defined contribution plans in accordance with local laws and regulations for full-time employees in the PRC and other countries in which it operates. The Group's contributions to these defined contribution plans are charged to profit or loss in the year to which they relate.

 

Borrowing costs

 

Borrowing costs consist of interest and other costs that an entity incurs in connection with the borrowing of funds. Borrowing costs directly relating to the acquisition, construction or production of a qualifying asset that necessarily takes a substantial period of time to get ready for its intended use or sale are capitalized as part of the cost of the respective assets. All other borrowing costs are expensed in the period in which they are incurred.

 

Foreign currencies

 

These consolidated financial statements are presented in RMB. Each entity in the Group maintains its books and records in its own functional currency. Foreign currency transactions recorded by the entities of the Group are initially recorded using their respective exchange rates ruling at the dates of the transactions. Monetary assets and liabilities denominated in foreign currencies are retranslated at the exchange rates ruling at the end of the reporting period. All differences arising on settlement or translation of monetary items are taken to profit or loss. Non-monetary items that are measured in terms of historical cost in a foreign currency are translated using the exchange rates at the dates of the initial transactions. Non-monetary items measured at fair value in a foreign currency are translated using the exchange rates at the date when the fair value was determined. The gain or loss arising on retranslation of a non-monetary item is treated consistently with the recognition of the gain or loss on change in fair value of the item.

 

F-27

 

CNOOC LIMITED

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(All amounts expressed in millions of Renminbi unless otherwise stated)

 

3.SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)

 

Foreign currencies (continued)

 

The functional currencies of certain entities within the Group are currencies other than RMB. As at the end of the reporting period, the assets and liabilities of these entities are translated into the presentation currency of the Group at the exchange rates ruling at the reporting date, and their statement of profit or loss and other comprehensive income are translated into RMB at the weighted average exchange rates for the year. The resulting exchange differences are included in the cumulative translation reserve. On disposal of a foreign operation, the deferred cumulative amount recognized in equity relating to that particular foreign operation is recognized in profit or loss.

 

Operating leases

 

Leases where substantially all the rewards and risks of ownership of assets remain with the lessor are accounted for as operating leases. Where the Group is the lessee, rentals payable under operating leases are charged to profit or loss on the straight-line basis over the lease terms.

 

Prepaid land lease payments under operating leases in China are initially stated at cost and subsequently amortized on the straight-line basis over the lease terms.

 

Contingencies

 

A contingent liability is disclosed when the existence of an obligation will only be confirmed by future events or when the amount of the obligation cannot be measured reliably.

 

A contingent asset is not recognized in the financial statements, but is disclosed when an inflow of economic benefits is probable.

 

Significant accounting judgements, estimates and assumptions

 

The preparation of the consolidated financial statements in accordance with IFRSs and HKFRSs requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities at the date of the consolidated financial statements and the reported amounts of revenues and expenses during the reporting period. Estimates and judgements are continuously evaluated and are based on management's experience and other factors, including expectations of future events that are believed to be reasonable under the circumstances. However, actual outcomes can differ from these estimates.

 

In the process of applying the Group's accounting policies, the Directors have made the following judgements, estimates and assumptions, which have the most significant effect on the amounts recognized in the consolidated financial statements.

 

(a)Reserve base

 

Oil and gas properties are depreciated on a unit-of-production basis at a rate calculated by reference to proved reserves. Commercial reserves are determined using estimates of oil in place, recovery factors and future oil prices, the latter having an impact on the proportion of the gross reserves which are attributable to the host government under the terms of the production sharing contracts. The level of estimated commercial reserves is also a key determinant in assessing whether the carrying value of any of the Group's oil and gas properties has been impaired.

 

Pursuant to the oil and gas reserve estimation requirements under US Securities and Exchange Commission's rules, the Group uses the average, first-day-of-the-month oil price during the 12-month period before the ending date of the period covered by the consolidated financial statements to estimate its proved oil and gas reserves.

 

F-28

 

CNOOC LIMITED

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(All amounts expressed in millions of Renminbi unless otherwise stated)

 

3.SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)

 

Significant accounting judgements, estimates and assumptions (continued)

 

(b)Carrying value of oil and gas properties

 

The calculation of the unit-of-production rate for oil and gas properties amortization could be impacted to the extent that actual production in the future is different from current forecast production based on proved reserves. This would generally result from significant changes in any of the factors or assumptions used in estimating reserves. These factors could include changes in proved reserves, the effect on proved reserves of differences between actual oil and gas prices and oil and gas price assumptions and unforeseen operational issues.

 

(c)Recoverable amount of oil and gas properties

 

The Company makes an assessment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable, or when there is any indication that an impairment loss previously recognized for an asset in prior years may no longer exist or may have decreased. In any event, the Company would make an estimate of the asset’s recoverable amount, which is calculated at the higher of the asset’s value in use and its fair value less costs of disposal. The Company recognizes an impairment loss only if the carrying amount of an asset exceeds its recoverable amount. The Company charges an impairment loss to the profit or loss in the period in which it arises. A reversal of an impairment loss is credited to the profit or loss in the period in which it arises.

 

The calculations of the recoverable amount of assets require the use of estimates and assumptions. The key assumptions include, but are not limited to, future oil and gas prices, future production estimates, estimated future capital expenditures, estimated future operating expenses and the discount rate.

 

Changes in the key assumptions used, which could be significant, include updates to future pricing estimates, updates to future production estimates to align with the Company's anticipated drilling plan, changes in the Company's capital costs and operating expense assumptions, and discount rate. There is a significant degree of uncertainty with the assumptions used to estimate future cash flows due to various risk factors. The complex economic outlook may also materially and adversely affect the Company’s key assumptions. Changes in economic conditions can also affect the discount rates applied in assessments of impairment.

 

Actual cash flows are likely to be different from those estimated or forecast since anticipated events frequently do not occur as expected and unforeseen events may arise. The Company's results of operations could be materially and adversely affected for the period in which future impairment charges are incurred.

 

The sensitivity analysis for the impairment testing involves estimates and judgments to consider numerous assumptions comprehensively. Those assumptions interact on each other and interrelate with each other complexly and do not have fixed patterns along with the changes in price. Accordingly, the Company believes that the preparation of the sensitivity analysis for the impairment testing will be impracticable. Changes in assumptions could affect impairment charges and reversals in the consolidated statement of profit or loss and other comprehensive income, and the carrying amounts of assets in the consolidated statement of financial position.

 

F-29

 

CNOOC LIMITED

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(All amounts expressed in millions of Renminbi unless otherwise stated)

 

3.SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)

 

Significant accounting judgements, estimates and assumptions (continued)

 

(d)Dismantlement costs

 

Dismantlement costs will be incurred by the Group at the end of the operating life of certain of the Group's facilities and properties. The ultimate dismantlement costs are uncertain and cost estimates can vary in response to many factors including changes to relevant legal requirements, the emergence of new restoration techniques or experience at other production sites. The expected timing and amount of expenditure can also change, for example, in response to changes in reserves or changes in laws and regulations or their interpretation. As a result, there could be significant adjustments to the provisions established which would affect future financial results.

 

(e)Taxes

 

Uncertainties exist with respect to the interpretation of complex tax regulations (including those applicable to tax credits) and the amount and timing of future taxable income. Given the wide range of international business relationships and the long term nature and complexity of existing contractual agreements, differences arising between the actual results and the assumptions made, or future changes to such assumptions, could necessitate future adjustments to tax income and expense already recorded. The Group establishes provisions, based on best estimates, for possible consequences of audits by the tax authorities of the respective countries in which it operates. The amount of such provisions is based on various factors, such as the Group's experience of previous tax audits and differing interpretations of tax regulations by the taxable entity and the responsible tax authority. Such differences of interpretation may arise on a wide variety of issues depending on the conditions prevailing in the respective group company's domicile.

 

F-30

 

CNOOC LIMITED

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(All amounts expressed in millions of Renminbi unless otherwise stated)

 

4.OIL AND GAS SALES

 

   2015  2016  2017
Gross sales    150,618    124,648    156,304 
Less: Royalties    (2,646)   (2,398)   (3,226)
PRC government’s share of oil    (1,375)   (925)   (1,190)
                
Oil and gas sales    146,597    121,325    151,888 

 

5.SEGMENT INFORMATION

 

(a)Segment results

 

The Group is engaged worldwide in the upstream operating activities of the conventional oil and gas, shale oil and gas, oil sands and other unconventional oil and gas business. The Group reports the business through three operating and reporting segments: E&P, trading business and corporate. These segments are operating segments whose financial information are reviewed by the Group’s chief operating decision marker when making decisions regarding allocating resources and assessing performance. The geographical information is separately disclosed in (b).

 

F-31

 

CNOOC LIMITED

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(All amounts expressed in millions of Renminbi unless otherwise stated)

 

5SEGMENT INFORMATION (continued)

 

(a)Segment results (continued)

 

The following table presents the segment financial information for the Group for the years ended December 31, 2015, 2016 and 2017.

 

   E&P  Trading business  Corporate  Eliminations  Consolidated
   2015  2016  2017  2015  2016  2017  2015  2016  2017  2015  2016  2017  2015  2016  2017
External revenue    137,243    114,935    142,429    33,777    30,986    43,618    417    569    343    -      -      -      171,437    146,490    186,390 
Intersegment revenue*    12,339    10,676    14,737    (12,339)   (10,676)   (14,737)   85    113    84    (85)   (113)   (84)   -      -      -   
Total revenue    149,582    125,611    157,166    21,438    20,310    28,881    502    682    427    (85)   (113)   (84)   171,437    146,490    186,390 
Segment profit/(loss) for the year    15,695    (346)   23,863    879    656    808    6,048    30,701    6,391    (2,376)   (30,374)   (6,385)   20,246    637    24,677 
Amounts included in the measure of segment profit or loss                                                                           
Operating expenses    (28,372)   (23,220)   (24,282)   -      -      -      -      -      -      -      9    -      (28,372)   (23,211)   (24,282)
Taxes other than income tax    (10,748)   (6,901)   (7,169)   7    -      -      (29)   (40)   (41)   -      -      -      (10,770)   (6,941)   (7,210)
Exploration expenses    (9,973)   (7,393)   (6,896)   -      -      -      -      -      -      73    34    15    (9,900)   (7,359)   (6,881)
Depreciation, depletion and amortization    (72,665)   (68,333)   (60,834)   (324)   (144)   (67)   (509)   (470)   (423)   59    40    67    (73,439)   (68,907)   (61,257)
Impairment and provision    (2,690)   (12,180)   (9,161)   (56)   9    -      -      -      31    -      -      -      (2,746)   (12,171)   (9,130)
Selling and administrative expenses    (3,644)   (4,920)   (4,966)   (340)   (296)   (269)   (1,733)   (1,307)   (1,654)   12    30    28    (5,705)   (6,493)   (6,861)
Interest income    147    217    315    -      1    -      1,028    1,805    1,571    (302)   (1,122)   (1,233)   873    901    653 
Finance costs    (3,407)   (3,384)   (3,274)   (1)   (1)   (1)   (3,369)   (4,183)   (3,011)   659    1,322    1,242    (6,118)   (6,246)   (5,044)
Share of profits/(losses) of associates and a joint venture    (117)   (63)   (88)   -      -      -      2,020    (13)   943    -      -      -      1,903    (76)   855 
Income tax (expense)/credit    44    3,811    (11,236)   (8)   (24)   (3)   3,080    2,125    (441)   -      -      -      3,116    5,912    (11,680)
                                                                            
Other segment information                                                                            
Investments in associates and a joint venture    800    737    655    -      -      -      27,613    29,258    28,491    -      -      -      28,413    29,995    29,146 
Others    532,765    497,413    457,780    3,336    1,898    3,588    344,037    342,810    340,329    (244,189)   (234,435)   (213,624)   635,949    607,686    588,073 
Segment assets    533,565    498,150    458,435    3,336    1,898    3,588    371,650    372,068    368,820    (244,189)   (234,435)   (213,624)   664,362    637,681    617,219 
Segment liabilities    (364,056)   (331,339)   (301,167)   (2,243)   (947)   (2,375)   (145,475)   (138,352)   (124,794)   233,453    215,328    191,092    (278,321)   (255,310)   (237,244)
Capital expenditure    66,122    49,122    52,790    11    -      -      386    395    421    -      -      -      66,519    49,517    53,211 

 

 

 

* Certain oil and gas produced by the E&P segment are sold via the trading business segment. For the Group's chief operating decision maker's assessment of segment performance, these revenues are reclassified back to E&P segment.

 

F-32

 

CNOOC LIMITED

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(All amounts expressed in millions of Renminbi unless otherwise stated)

 

5.SEGMENT INFORMATION (continued)

 

(b)Geographical information

 

The Group mainly engages in the exploration, development, production and sale of crude oil, natural gas and other petroleum products in offshore China. Activities outside the PRC are mainly conducted in Canada, the United States of America, the United Kingdom, Nigeria, Argentina, Indonesia, Uganda, Iraq, Brazil and Australia etc.

 

In presenting the Group’s geographical information, revenues from external customers are based on the location of the Group’s customers, and non-current assets are attributed to the segments based on the location of the Group’s assets. 65% (2016: 70%, 2015: 73%) of the Group’s revenues are generated from PRC customers, and revenues generated from customers in other locations are individually less than 10%.

 

The following table presents certain non-current assets information for the Group’s geographical information for the years ended December 31, 2015, 2016 and 2017.

 

   PRC  Canada  Others  Consolidated
                                     
   2015  2016  2017  2015  2016  2017  2015  2016  2017  2015  2016  2017
                                     
Property, plant and equipment    193,359    174,853    162,027    105,383    103,173    95,552    155,399    154,439    138,289    454,141    432,465    395,868 
Investments in associates  and a joint venture    3,499    3,451    3,680    816    -      -      24,098    26,544    25,466    28,413    29,995    29,146 
Other non-current assets    7,087    6,593    8,502    694    731    605    47    98    141    7,828    7,422    9,248 

 

(c)Information about major customers

 

The current year's revenue of approximately RMB15,488 million (2016: approximately RMB9,659 million, 2015: approximately RMB14,692 million ) was derived from sales by the E&P segment and the trading business segment to China Petroleum & Chemical Corporation. Sales to CNOOC Group are included in Note 28 (iii).

 

F-33

 

CNOOC LIMITED

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(All amounts expressed in millions of Renminbi unless otherwise stated)

 

6.PROFIT/(LOSS) BEFORE TAX

 

The Group’s profit/(loss) before tax is arrived at after charging/(crediting):

 

   2015  2016  2017
          
Crediting:         
Interest income from bank deposits    (873)   (901)   (653)
                
Investment income:               
– Fair value changes on other financial assets    (2,398)   (2,774)   (2,409)
                
Insurance compensation on disposal of property, plant and equipment    (560)   (520)   (110)
                
Charging:               
Auditors’ remuneration:               
– Audit fee    45    47    51 
– Other fees    12    6    5 
                
    57    53    56 
                
Employee wages, salaries, allowances and social security costs    6,924    6,403    6,517 
                
Impairment and provision:               
  - Property, plant and equipment    2,358    10,768    8,639 
  - Trade receivables    4    1,439    212 
  - Others    384    (36)   279 
    2,746    12,171    9,130 
                
Depreciation, depletion and amortization:               
– Property, plant and equipment    72,293    68,303    60,802 
– Intangible assets    1,306    1,020    854 
– Less: Net amount capitalized    (160)   (416)   (399)
                
    73,439    68,907    61,257 
                
Operating lease rentals:               
– Office properties    438    485    639 
– Plant and equipment    2,448    1,747    1,560 
                
    2,886    2,232    2,199 
                
Repairs and maintenance    5,034    4,052    4,800 
Research and development costs
   1,629    1,424    1,739 
Loss on disposal of property, plant and equipment
   718    78    116 

F-34

 

CNOOC LIMITED

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(All amounts expressed in millions of Renminbi unless otherwise stated)

 

7.FINANCE COSTS

 

   2015  2016  2017
          
Interest on bank loans    291    217    169 
Interest on other loans    4,701    5,249    5,207 
Other borrowing costs    76    25    18 
                
Total borrowing costs    5,068    5,491    5,394 
                
Less: Amount capitalized in property, plant and equipment (note 13)    (1,385)   (1,430)   (2,495)
                
    3,683    4,061    2,899 
Other finance costs:               
Unwinding of discount on provision for dismantlement (note 25)    2,435    2,185    2,145 
                
    6,118    6,246    5,044 

 

The effective interest rates used to determine the amount of related borrowing costs for capitalization varied from 0.95% to 7.875% (2016: from 0.7566% to 7.875% , 2015: from 0.735% to 7.875%) per annum during the year ended at December 31, 2017.

 

8.KEY MANAGEMENT PERSONNEL’S REMUNERATION

 

Key management personnel are those persons having authority and responsibility for planning, directing and controlling the activities of the entity, directly or indirectly, including any director (whether executive or otherwise) of the Company.

 

(i)Directors’ remuneration

 

   Fees (1)
RMB’000
  Salaries
allowances
and benefits
in kind (1)
RMB’000
  Performance
related
bonuses (1)
RMB’000
  Pension
scheme
contributions
RMB’000
  Total
paid/payable
during
the year
RMB’000
2015               
Executive directors:               
                
Li Fanrong(4)    -      170    470    117    757 
Wu Guangqi(5)(7)    -      170    470    117    757 
Subtotal    -      340    940    234    1,514 
Non-executive directors:                         
Wang Yilin(2)    -      -      -      -      -   
Yang Hua(2)(4)(10)    -      -      -      -      -   
Lv Bo(7)    -      -      -      -      -   
Wang Jiaxiang(3)    -      -      -      -      -   
Subtotal    -      -      -      -      -   
Independent non-executive directors:                          
Chiu Sung Hong    899    -      -      -      899 
Lawrence J. Lau    763    -      -      -      763 
Tse Hau Yin, Aloysius    899    -      -      -      899 
Kevin G. Lynch    763    -      -      -      763 
Subtotal    3,324    -      -      -      3,324 
Total    3,324    340    940    234    4,838 

 

F-35

 

CNOOC LIMITED

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(All amounts expressed in millions of Renminbi unless otherwise stated)

 

8.KEY MANAGEMENT PERSONNEL’S REMUNERATION (continued)

 

(i)Directors’ remuneration (continued)

 

   Fees (1)
RMB’000
  Salaries
allowances
and benefits
in kind (1)
RMB’000
  Performance
related
bonuses (1)
RMB’000
  Pension
scheme
contributions
RMB’000
  Total
paid/payable
during
the year
RMB’000
                
2016               
Executive directors:               
                
Yang Hua(2)(4)(10)    -      -      -      -      -   
Yuan Guagnyu(4)(8)    -      94    78    70    242 
Li Fanrong(4)    -      92    454    59    605 
                          
Subtotal    -      186    532    129    847 
                          
Non-executive directors:                         
                          
Liu Jian(6)    -      -      -      -      -   
Wu Guangqi(5)(7)    -      92    454    59    605 
Lv Bo(7)    -      -      -      -      -   
                          
Subtotal    -      92    454    59    605 
                          
Independent non-executive                         
directors:                         
Chiu Sung Hong    957    -      -      -      957 
Lawrence J. Lau    812    -      -      -      812 
Tse Hau Yin, Aloysius    957    -      -      -      957 
Kevin G. Lynch    812    -      -      -      812 
Subtotal
   3,538    -      -      -      3,538 
Total    3,538    278    986    188    4,990 

 

2017

 

               
Executive directors:               
                
Yuan Guangyu(4)(8)    -      197    455    134    786 
Xu Keqiang(9)    -      146    162    94    402 
                          
Subtotal    -      343    617    228    1,188 
                          
Non-executive directors:                         
                          
Yang Hua(2)(4)(10)    -      -      -      -      -   
Liu Jian(6)    -      -      -      -      -   
Wu Guangqi(5)(7)    -      -      -      -      -   
                          
Subtotal    -      -      -      -      -   
                          
Independent non-executive                         
directors:                         
Chiu Sung Hong    972    -      -      -      972 
Lawrence J. Lau    824    -      -      -      824 
Tse Hau Yin, Aloysius    972    -      -      -      972 
Kevin G. Lynch    824    -      -      -      824 
Subtotal    3,592    -      -      -      3,592 
Total    3,592    343    617    228    4,780 

F-36

 

CNOOC LIMITED

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(All amounts expressed in millions of Renminbi unless otherwise stated)

 

8.KEY MANAGEMENT PERSONNEL’S REMUNERATION (continued)

 

(i)Directors’ remuneration (continued)

 

Notes:

 

(1)Fees, salaries, allowances, benefits in kind and performance related bonuses represent the gross amount (before applicable individual salary tax) paid/payable to individual directors.

 

(2)On May 19, 2015, Mr. Yang Hua was appointed as Chairman of the Board and Chairman of the Nomination Committee of the Company and has no longer served as Vice-chairman of the Board. Mr. Wang Yilin resigned as Chairman of the Board, Chairman of the Nomination Committee and non-executive director of the Company.

 

(3)On September 23, 2015, Mr. Wang Jiaxiang retired as a non-executive director of the Company.

 

(4)On 15 June 2016, Mr. Yang Hua was re-designated as an Executive Director and appointed as the Chief Executive Officer of the Company. Mr. Yuan Guangyu was appointed as an Executive Director and the President of the Company. Mr. Li Fanrong resigned as an Executive Director, the Chief Executive Officer and the President of the Company.

 

(5)On 15 June 2016, Mr. Wu Guangqi was re-designated as a Non-executive Director of the Company and resigned as the Compliance Officer of the Company.

 

(6)On 20 December 2016, Mr. Liu Jian was appointed as the Vice Chairman and a Non-executive Director of the Company.

 

(7)On 20 December 2016, Mr. Wu Guangqi was appointed as a member of the Remuneration Committee of the Company. Mr. Lv Bo resigned as a Non-executive Director and a member of the Remuneration Committee of the Company.

 

(8)On 18 April 2017, Mr. Yuan Guangyu was appointed as the Chief Executive Officer of the Company. Mr. Yuan Guangyu resigned as the President of the Company.

 

(9)On 18 April 2017, Mr. Xu Keqiang was appointed as an Executive Director and the President of the Company.

 

(10)On 18 April 2017, Mr. Yang Hua was re-designated as a Non-executive Director of the Company. Mr. Yang Hua resigned as the Chief Executive Officer of the Company and he remains as the Chairman of the Board.

 

The Company has adopted the share option schemes for the grant of options to the Company's directors. The fair value of share options for the directors measured according to the Group's accounting policy as set out in note 3. No Directors exercised any share option in 2015, 2016 or 2017. No new share option was granted to Directors in respect of their services to the Group under the applicable share option schemes of the Company in 2015, 2016 or 2017. Further details of share option scheme and valuation techniques are set out in note 26.

 

Save as disclosed above, there was no arrangement under which a director waived or agreed to waive any remuneration during the year. In 2017, the executive directors' remuneration shown above were for their services in connection with the management of the affairs of the Company. The other directors' remuneration shown above were for their services as directors of the Company.

 

F-37

 

CNOOC LIMITED

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(All amounts expressed in millions of Renminbi unless otherwise stated)

 

8.KEY MANAGEMENT PERSONNEL’S REMUNERATION (continued)

 

( ii) Other key management personnel’s (excluding Directors’) remuneration

 

   2015  2016  2017
          
Short term employee benefits    8    7    9 
Pension scheme contributions    1    1    1 
Amount paid/payable during the year    9    8    10 
Share options*    -      -      -   
    9    8    10 

 

The bands of the remuneration of other key management personnel (excluding Directors) and the related number of members of other key management personnel (excluding Directors) are as follows:

 

   Number of employees
   2015  2016  2017
          
Nil to RMB 2,000,000    10    10    12 
    10    10    12 

 

 

 

*This item represents the fair value of share options measured according to the Group's accounting policy as set out in note 3. No other key management personnel exercised any share option in 2015, 2016 or 2017.

 

F-38

 

CNOOC LIMITED

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(All amounts expressed in millions of Renminbi unless otherwise stated)

 

9.FIVE HIGHEST PAID EMPLOYEES

 

During the year, none (2016: none; 2015: none) of the Directors, details of whose remuneration are disclosed in note 8 (i) above, received an amount which falls within the category of the five highest paid employees. Details of the remuneration of the five (2016: five; 2015: five) highest paid employees, for the year are as follows:

 

   2015  2016  2017
          
Basic salaries, allowances and benefits in kind(1)    22    23    21 
Performance-related bonuses    17    14    19 
Pension scheme contributions    1    1    1 
Amount paid/payable during the year    40    38    41 

 

 

 

(1)Salaries, allowances, and benefits in kind represent the gross amount (before applicable individual salary tax) paid/payable to individual employees.

 

The remuneration of the five (2016: five, 2015: five) highest paid employees, falls within the following bands:

 

   2015  2016  2017
          
RMB5,500,001 to RMB6,000,000    -      1    -   
RMB6,000,001 to RMB6,500,000    -      -      1 
RMB7,000,001 to RMB7,500,000    3    -      1 
RMB7,500,001 to RMB8,000,000    -      3    -   
RMB8,000,001 to RMB8,500,000    -      -      1 
RMB9,000,001 to RMB9,500,000    2    1    1 
RMB10,000,001 to RMB10,500,000    -      -      1 
    5    5    5 

F-39

 

CNOOC LIMITED

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(All amounts expressed in millions of Renminbi unless otherwise stated)

 

10.TAX

 

(i)Income tax

 

The Company and its subsidiaries are subject, on an entity basis, to income taxes on profits arising in or derived from the tax jurisdictions in which the entities of the Group are domiciled and operate. The Company is subject to profits tax at a rate of 16.5 % (2016: 16.5%, 2015: 16.5%) on profits arising in or derived from Hong Kong.

 

The Company is regarded as a Chinese Resident Enterprise (as defined in the "Enterprise Income Tax Law of the People's Republic of China") by the State Administration of Taxation of the PRC. As a result, the Company is subject to the PRC corporate income tax at the rate of 25% starting from January 1, 2008. The corporate income tax which is subjected in Hong Kong is qualified as a foreign tax credit to offset the PRC corporate income tax starting from January 1, 2008.

 

The Company's subsidiary in Mainland China, CNOOC China Limited, is a wholly-owned foreign enterprise. It is subject to corporate income tax at the rate of 25% under the prevailing tax rules and regulations. CNOOC Deepwater Development Limited, a wholly-owned subsidiary of CNOOC China Limited, is subject to corporate income tax at the rate of 15% for the three years ended December 31, 2017, after being assessed as a high and new technology enterprise. The company is in the process of re-applying to be assessed as a high and new technology enterprise from 2018 to 2020.

 

Subsidiaries of the Group domiciled outside the PRC are subject to income tax at rates ranging from 10% to 50% (2016: 10% to 50%, 2015: 10% to 56%). The U.S. government enacted comprehensive tax legislation in December 2017 that took effect as of January 1, 2018. A one-time non-cash deferred tax charge was recorded due to the impact of the reduction of U.S. federal corporate income tax rate from 35% to 21%. The U.K. government decreased the combined income tax rate on North Sea oil and gas activities from 50% to 40% with effect from January 1, 2016.

 

As of December 31, 2017, deferred tax liabilities related to undistributed earnings of the Company's overseas subsidiaries have not been provided since the timing of the reversal of the taxable temporary differences can be controlled by the Company and it is probable that the temporary differences would not reverse in the foreseeable future.

 

F-40

 

CNOOC LIMITED

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(All amounts expressed in millions of Renminbi unless otherwise stated)

 

10.TAX (continued)

 

(i)Income tax (continued)

 

An analysis of the tax (credit)/expense in the Group's consolidated statement of profit or loss and other comprehensive income is as follows:

 

   2015  2016  2017
          
Current tax         
Provision for PRC enterprise income tax on the estimated taxable profits for the year    9,990    7,547    11,472 
Provision for overseas enterprise income tax on the estimated taxable profits for the year    3,501    2,983    4,390 
Deferred tax               
Temporary differences in the current year    (12,585)   (14,595)   (7,558)
Effect of changes in tax rates    (4,022)   (1,847)   3,376 
Income tax (credit)/expense for the year    (3,116)   (5,912)   11,680 

 

A reconciliation of the PRC statutory corporate income tax rate to the effective income tax rate of the Group is as follows:

 

   2015  2016  2017
   %  %  %
          
PRC statutory enterprise income tax rate    25.0    25.0    25.0 
Effect of different tax rates for overseas subsidiaries    (5.8)   34.8    (1.6)
Effect of changes in tax rates    (23.5)   35.0    9.4 
Tax credit from the government    (11.5)   8.3    (2.7)
Tax reported in equity-accounted entities    (0.4)   1.0    (0.2)
Tax losses previously not recognized    (1.9)   5.3    -   
Others    (0.1)   2.7    2.2 
Group’s effective income tax rate    (18.2)   112.1    32.1 

 

The movements of deferred tax liabilities net of deferred tax assets are as follows:

 

   2015  2016  2017
          
At January 1    14,312    (1,948)   (19,174)
Credit to the profit or loss    (12,585)   (14,595)   (7,558)
Changes in tax rates    (4,022)   (1,847)   3,376 
Charge to equity    141    (226)   7 
Exchange differences    206    (558)   1,143 
At December 31    (1,948)   (19,174)   (22,206)

 

F-41

 

CNOOC LIMITED

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(All amounts expressed in millions of Renminbi unless otherwise stated)

 

10.TAX (continued)

 

(i)Income tax (continued)

 

Principal components of deferred tax balances are as follows:

 

   2016  2017
       
Deferred tax assets      
Property, plant and equipment    1,681    7,312 
Provision for dismantlement    9,325    9,669 
Losses available for offsetting against future taxable profit    21,163    16,529 
Fair value of long term borrowings    1,969    1,771 
Others    1,389    1,178 
    35,527    36,459 
           
Deferred tax liabilities          
Property, plant and equipment    (16,208)   (13,670)
Fair value changes on other financial assets    (139)   (232)
Others    (6)   (351)
           
    (16,353)   (14,253)
           
Net deferred tax assets    19,174    22,206 
           
Of which – deferred tax assets    24,844    25,509 
deferred tax liabilities    (5,670)   (3,303)

 

As at December 31, 2017, the Group had approximately RMB87,623 million (December 31, 2016: RMB82,288 million) of carry-forward tax losses, predominantly in North America, that would be available to offset against future taxable profits of the subsidiaries in which the tax losses arose. Most of the US and Canadian tax losses will expire in 8 to 20 years.

 

Deferred tax assets in respect of tax losses are recognized only to the extent of the anticipated future taxable profits or reversal of existing taxable temporary differences.

 

As at December 31, 2017, the Group's recognized deferred tax assets on tax losses amounted to RMB75,018 million (December 31, 2016: RMB68,061 million). Unrecognized tax losses, where recovery is not currently expected, amounted to RMB12,605 million (December 31, 2016: RMB14,227 million). This includes RMB3,181 million (2016: RMB3,207 million) of unrecognized tax loss arising from Uganda which has no fixed expiry date. The remainder expires between 5 to 20 years.

 

As at December 31, 2017, the Group's unrecognized deferred tax assets related to unused tax credits amounted to RMB4,990 million (2016: RMB5,761 million). This includes RMB4,587 million (2016: RMB4,807 million) of unrecognized deferred tax assets related to unused tax credits from Nigeria which has no fixed expiry date. The remainder expires between 2026 and 2036.

 

The realisability of the deferred tax assets recognized mainly depends on whether sufficient future profits or taxable temporary differences will be available in the future. In case where the actual future taxable profits generated are less than expected, or change in facts and circumstances which result in revision of future taxable profits estimation, the balance of deferred tax assets may be significantly revised.

 

F-42

 

CNOOC LIMITED

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(All amounts expressed in millions of Renminbi unless otherwise stated)

 

10.TAX (continued)

 

(ii)       Other taxes

 

The Company's PRC subsidiaries pay the following other taxes and dues:

 

i.Production tax at the rate of 5% on production under production sharing contracts;

 

ii.VAT at the rates from 13% to 17% on taxable sales under independent oil and gas fields since May 1 2016 according to "Provisional Regulations on VAT of the PRC" and relevant detailed rules according to the "Circular on Certain Policies on the Pilot Program of the Collection of VAT in Lieu of Business Tax" (Cai Shui [2016] No.39), which replaced the production tax at the rate of 5% on production under independent oil and gas fields before May 1 2016. According to “Notice on Simplifying the Relevant Policies on Value-added Tax Rates” (Cai Shui [2017] No.37), with effect from 1 July 2017, the 13% VAT rate shall be removed and gas sales shall be subject to the 11% tax rate.

 

VAT at the rates from 3% to 17% on other income since May 1 2016, which were subject to the business tax at rates of 3% to 5% or VAT at the rates of 3% to 17% before May 1 2016.

 

The VAT payable is calculated using the taxable sales amount multiplied by the applicable tax rate less relevant deductible input VAT;

 

iii.Resource tax (reduced tax rates may apply to specific products and fields) on the oil and gas sales revenue (excluding production tax) derived by oil and gas fields under production sharing contracts signed after November 1, 2011 and independent offshore oil and gas fields starting from November 1, 2011, which replaced the royalties for oil and gas fields, except for those under production sharing contracts signed before November 1, 2011 which will be subject to related resource tax requirement after the expiration of such production sharing contracts. The resource tax rate was changed from 5% to 6% since December 1, 2014;

 

iv.Export tariff at the rate of 5% on the export value of petroleum oil;

 

v.City construction tax at the rates of 1% or 7% on the production tax, business tax and VAT paid;

 

vi.Educational surcharge at the rate of 3% on the production tax, business tax and VAT paid; and

 

vii.Local educational surcharge at the rate of 2% on the production tax, business tax and VAT paid.

 

In addition, other taxes paid and payable by the Company's non-PRC subsidiaries include royalty as well as taxes levied on petroleum-related income, budgeted operating and capital expenditure.

 

F-43

 

CNOOC LIMITED

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(All amounts expressed in millions of Renminbi unless otherwise stated)

 

10.TAX (continued)

 

(iii)       Special Oil Gain Levy

 

In 2006, a Special Oil Gain Levy ("SOG Levy") was imposed by the Ministry of Finance of the PRC ("MOF") at the progressive rates from 20% to 40% on the portion of the monthly weighted average sales price of the crude oil lifted in the PRC exceeding US$40 per barrel. The MOF has decided to increase the threshold of the SOG Levy to US$65 with effect from January 1, 2015. Notwithstanding this adjustment, the SOG Levy continues to have five levels and is calculated and charged according to the progressive and valorem rates on the excess amounts. The SOG Levy paid can be claimed as a deductible expense for corporate income tax purposes and is calculated based on the actual volume of the crude oil entitled.

 

11.EARNINGS PER SHARE

 

   2015  2016  2017
          
Earnings         
Profit for the purpose of basic and diluted earnings per share calculation    20,246    637    24,677 
                
Number of shares               
Number of ordinary shares for the purpose of basic earnings per share calculation    44,647,455,984    44,647,455,984    44,647,455,984 
                
Effect of dilutive potential ordinary shares under the share option schemes    37,363,069    11,684,504    4,101,969 
                
Weighted average number of ordinary shares for the purpose of diluted earnings per share    44,684,819,053    44,659,140,488    44,651,557,953 
                
Earnings per share:               
Basic (RMB Yuan)    0.45    0.01    0.55 
Diluted (RMB Yuan)    0.45    0.01    0.55 

 

F-44

 

CNOOC LIMITED

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(All amounts expressed in millions of Renminbi unless otherwise stated)

 

12.DIVIDENDS

 

   2015  2016  2017
          
Dividend per ordinary share:         
2017 interim dividend - HK$0.20 (2016: interim dividend HK$0.12, 2015: interim dividend    HK$0.25) per ordinary share    9,145    4,673    7,601 
2016 final dividend - HK$0.23 (2015: final dividend HK$0.25, 2014: final dividend    HK$0.32) per ordinary share    11,274    9,571    8,847 
2017 final dividend proposed at HK$0.3 (2016: final dividend proposed at HK$0.23, 2015: final dividend proposed at HK$0.25) per ordinary share by the Board of Directors - not recognized as a liability as at the end of the year    9,397    9,096    10,830 

 

Pursuant to the Enterprise Income Tax Law of the People's Republic of China and related laws and regulations, the Company is regarded as a Chinese Resident Enterprise, and thus is required to withhold corporate income tax at the rate of 10% when it distributes dividends to its non-resident enterprise (as defined in the "Enterprise Income Tax Law of the People's Republic of China") shareholders, with effect from the distribution of the 2008 final dividend. In respect of all shareholders whose names appear on the Company's register of members and who are not individuals (including HKSCC Nominees Limited, corporate nominees or trustees such as securities companies and banks, and other entities or organizations, which are all considered as non-resident enterprise shareholders), the Company will distribute the dividend after deducting corporate income tax of 10%.

 

F-45

 

CNOOC LIMITED

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(All amounts expressed in millions of Renminbi unless otherwise stated)

 

13.PROPERTY, PLANT AND EQUIPMENT

 

   Oil and gas properties  Vehicles and office equipment and others  Total
          
Cost:         
          
At January 1, 2016    803,986    5,296    809,282 
Additions    44,302    236    44,538 
Disposals and write-offs    (6,365)   (37)   (6,402)
Exchange differences    25,703    205    25,908 
                
At December 31, 2016    867,626    5,700    873,326 
                
At January 1, 2017    867,626    5,700    873,326 
Additions    48,937    99    49,036 
Disposals and write-offs    (2,577)   (914)   (3,491)
Exchange differences    (24,985)   (148)   (25,133)
                
At December 31, 2017    889,001    4,737    893,738 
                
Accumulated depreciation, depletion and amortization and impairment:               
                
At January 1, 2016    (353,824)   (1,317)   (355,141)
Depreciation charge for the year   (67,906)   (397)   (68,303)
Impairment    (10,768)   -      (10,768)
Disposals and write-offs    3,532    34    3,566 
Exchange differences    (10,157)   (58)   (10,215)
                
At December 31, 2016    (439,123)   (1,738)   (440,861)
              
At January 1, 2017    (439,123)   (1,738)   (440,861)
Depreciation charge for the year    (60,442)   (360)   (60,802)
Impairment    (8,639)   -      (8,639)
Disposals and write-offs    1,185    258    1,443 
Exchange differences    10,932    57    10,989 
                
At December 31, 2017    (496,087)   (1,783)   (497,870)
                
Net book value:               
At December 31, 2016    428,503    3,962    432,465 
                
At December 31, 2017    392,914    2,954    395,868 

 

Included in the current year's additions was an amount of approximately RMB2,495 million (2016: approximately RMB1,430 million, 2015: approximately RMB1,385 million) in respect of interest capitalized in property, plant and equipment (note 7). Included also in the depreciation charge for the year was an amount of approximately RMB636 million (2016: approximately RMB1,609 million, 2015: approximately RMB3,465 million) in respect of a depreciation charge on dismantlement cost capitalized in oil and gas properties.

 

F-46

 

CNOOC LIMITED

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(All amounts expressed in millions of Renminbi unless otherwise stated)

 

13.PROPERTY, PLANT AND EQUIPMENT (continued)

 

Impairment and provision recognized during the year included the impairment loss to reduce the carrying amount of certain oil and gas properties to the recoverable amount. In 2017, the impairment loss was mainly related to fields in China, Africa and North America which was primarily due to the revision of the oil and gas price forecast and revision of reserves. In 2016, the impairment loss was mainly related to fields in North America, Europe and Africa primarily due to the revision of the oil price forecast and an adjustment in operating plan for oil sand assets in Canada.

 

For both years, the recoverable amount was calculated based on the assets' value in use and was determined at the cash-generating unit level. The Company identifies a field or the group of fields that could generate cash inflows independently as a cash-generating unit. The principal parameters used in determining the recoverable amount of the Group’s assets include estimates of proved and unproved reserves, future commodity prices that come from the price forecast of respected and independent institutions, combined with internal analysis and judgment of the international market environment, as well as best estimates of drilling and development costs.

 

The discount rate is derived from the Company’s weighted average cost of capital (“WACC”) and is adjusted, where applicable, to take into account any specific risks relating to the country where the asset is located as well as the asset specific characteristics, such as specific tax treatments, cash flow profiles and economic life. The discount rate used for value in use calculations is 8%-12% in 2017 after tax (2016: 8%-11% after tax). A derived pre-tax discount rate would be in the range of 8%-15% (2016: 9%-11% pre-tax).

 

For 2016, included in impairment was RMB7,358 million recognized on the Long Lake project, due to the revision of the oil price forecast and adjustments to operating plans caused by the pipeline rupture and the explosion accident. Specifically, the operating plan was changed to defer the timing of when to bring the Long Lake upgrader back online, to make the timing concurrent with the most recent expectation of when sufficient feedstock will be produced from Long Lake assets to maximize the utilization and cash generating potential of the upgrader. The Company also updated the yield assumptions based on the most recent operating performance of the upgrader. The asset was written down to an estimated recoverable amount of RMB33,902 million in June 2016. As at 31 December 2017, the future operating plan of Long Lake assets is still under assessment by management, which may significantly impact the recoverable amount of the oil sands properties of Long Lake assets in the future.

 

During 2017, the Group wrote off certain oil and gas assets in the North America mainly due to the expiration of lease contracts. Approximately RMB71 million was included in the exploration expenses, and approximately RMB1,588 million was included in the depreciation, depletion and amortisation charge, respectively.

 

F-47

 

CNOOC LIMITED

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(All amounts expressed in millions of Renminbi unless otherwise stated)

 

14.INTANGIBLE ASSETS

 

   Gas processing rights under NWS Project  Drilling rig contracts and seismic data usage rights  Marketing transportation and storage contracts  Software and others  Goodwill  Total
                   
Cost:                  
At January 1, 2016    1,191    1,596    1,527    2,861    13,805    20,980 
Additions    -      -      -      197    -      197 
Disposal    -      -      -      (387)   -      (387)
Exchange differences    82    109    104    67    943    1,305 
                               
At December 31, 2016    1,273    1,705    1,631    2,738    14,748    22,095 
                               
At January 1, 2017    1,273    1,705    1,631    2,738    14,748    22,095 
Additions    -      -      -      206    -      206 
Disposal    -      (1,662)   (54)   (199)   -      (1,915)
Exchange differences    (74)   (43)   (93)   (57)   (856)   (1,123)
                               
At December 31, 2017    1,199    -      1,484    2,688    13,892    19,263 
                               
Accumulated amortization:                              
At January 1, 2016    (621)   (958)   (1,096)   (1,882)   -      (4,557)
Amortization charge for the year    (51)   (326)   (135)   (508)   -      (1,020)
Disposal    -      -      -      386    -      386 
Exchange differences    (57)   (80)   (81)   (42)   -      (260)
                               
At December 31, 2016    (729)   (1,364)   (1,312)   (2,046)   -      (5,451)
                               
At January 1, 2017    (729)   (1,364)   (1,312)   (2,046)   -      (5,451)
Amortization charge for the year    (46)   (332)   (57)   (419)   -      (854)
Disposal    -      1,662    54    199    -      1,915 
Exchange differences    43    34    76    44    -      197 
                               
At December 31, 2017    (732)   -      (1,239)   (2,222)   -      (4,193)
                               
Net book value:                              
At December 31, 2016    544    341    319    692    14,748    16,644 
                               
At December 31, 2017    467    -      245    466    13,892    15,070 

 

Goodwill represents the excess of the purchase price over the estimated fair value of the assets acquired and liabilities assumed in a business combination.

 

According to the accounting policies as set out in note 3, goodwill is acquired in the acquisition of Nexen Inc., and from the acquisition date, allocated to the entire E&P assets, which are the groups of cash-generating units that are expected to benefit from the synergies of the acquisition.

 

Impairment is determined by assessing the recoverable amount of the entire E&P assets to which the goodwill relates. Where the recoverable amount of the entire E&P assets is less than the carrying amount of the assets and the goodwill together, an impairment loss on goodwill is recognized.

 

In assessing value in use of E&P segment, the key assumptions include, but are not limited to, future commodity prices, future production estimates, estimated future capital expenditures, estimated future operating expenses and the discount rate. The discount rate used for value in use is derived from the Company’s WACC and is adjusted, where applicable, to take into account any specific risks relating to the country where the asset is located as well as the asset specific characteristics, such as specific tax treatments, cash flow profiles and economic life. However, actual results could differ from those estimates.

 

The intangible asset regarding the gas processing rights has been amortized upon the commercial production of the liquefied natural gas on a unit-of -production basis over the total proved reserves of the relevant asset. The intangible assets regarding the marketing transportation and storage contracts are amortized on a straight-line basis over the life of the contracts which is less than 20 years. Other identifiable intangible assets are amortized on a straight-line basis over a period ranging from 3 to 5 years.

F-48

 

CNOOC LIMITED

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(All amounts expressed in millions of Renminbi unless otherwise stated)

 

15.INVESTMENTS IN ASSOCIATES

 

Particulars of the principal associates at the end of the reporting period are as follows:

 

Name of associates  Place of
establishment
  Nominal value
of ordinary shares issued and
paid-up/registered
capital
  Percentage of equity
attributable to
the Group
  Principal activities
Shanghai Petroleum
 Corporation Limited
  Shanghai, PRC  RMB900 million   30%  Production, processing and technology consultation of oil, gas and relevant products in the PRC
               
CNOOC Finance
 Corporation Limited
  Beijing, PRC  RMB4 billion   31.8%  Provision of deposit, transfer, settlement, loan, discounting and other financing services to CNOOC and its member entities

 

To give details of other associate would, in the opinion of the Directors, result in particulars of excessive length.

 

The Group’s investments in associates represent:

 

   2016  2017
Share of net assets    3,695    4,067 

 

None of the Group’s associates are considered to be individually material. The following table illustrates the summarized financial information of the Group’s associates in the consolidated financial statements:

 

   2015  2016  2017
          
Profit/(loss) for the year    256    (609)   302 
Other comprehensive income/(expense)    74    (127)   36 
Total comprehensive income/(expense)    330    (736)   338 

 

Dividend of RMB116 million was received from the associates in 2017 (2016: RMB135 million).

 

16.       INVESTMENT IN A JOINT VENTURE

 

Particulars of the joint venture at the end of the reporting period are as follows:

 

Name of entity  Place of
establishment
  Nominal value of ordinary shares issued and
paid-up/registered capital
  Percentage
of equity
attributable to the Group
  Principal activities
Bridas Corporation   British Virgin Islands   US$                               102,325,582   50%  Investment holding

 

F-49

 

CNOOC LIMITED

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(All amounts expressed in millions of Renminbi unless otherwise stated)

 

16.       INVESTMENT IN A JOINT VENTURE (continued)

 

Summarized financial information of the joint venture is disclosed below:

 

      2016  2017
Current assets         9,201    11,614 
Non-current assets         66,992    63,660 
Current liabilities         (6,866)   (6,630)
Non-current liabilities         (16,727)   (18,486)
                
    2015    2016    2017 
Revenue    31,231    28,371    29,879 
Depreciation, depletion and amortization    (3,535)   (3,988)   (3,742)
Interest income    288    388    313 
Finance costs    (799)   (704)   (550)
Profit before tax    4,194    1,226    2,215 
Income tax expense    (900)   (160)   (1,109)
Profit after tax    3,294    1,066    1,106 
Total comprehensive income    3,294    1,066    1,106 

 

Dividend of US$36 million (equivalent to RMB243 million) was received from the joint venture in 2017, no dividend was received from the joint venture in 2016 and dividend of US$5 million (equivalent to RMB32 million) was received from the joint venture in 2015.

 

F-50

 

CNOOC LIMITED

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(All amounts expressed in millions of Renminbi unless otherwise stated)

 

17.EQUITY INVESTMENTS AND OTHER FINANCIAL ASSETS

 

(i)       Equity investments

 

   2016  2017
Current:      
Non-publicly traded investments      
Private equity funds classified at FVTOCI    15    14 
           
    15    14 
Non-current:          
Publicly traded investments          
Equity investment in MEG Energy Corporation
(“MEG”) classified at FVTOCI(1)
   1,356    766 
Other equity investment classified at FVTPL    35    15 
    1,391    781 
Non-publicly traded investments          
Private equity fund in Kerogen Energy Fund
classified at FVTOCI (2)
   2,875    2,759 
           
    4,266    3,540 

 

 

 

(1)MEG is principally engaged in the exploitation and production of oil sands. The investment in MEG is designated by the Group as at FVTOCI. As at December 31, 2017, the investment in MEG was stated at the quoted market price.

 

(2)Kerogen Energy Fund is principally engaged in the investment in the oil and gas industry. The equity investment in Kerogen Energy Fund is designated by the Group as at FVTOCI. The cost of this non-publicly traded equity investment represents an appropriate estimate of its fair value as at January 1, 2017 and December 31, 2017, as sufficient information is not available recently to measure its fair value.

 

F-51

 

CNOOC LIMITED

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(All amounts expressed in millions of Renminbi unless otherwise stated)

 

17.EQUITY INVESTMENTS AND OTHER FINANCIAL ASSETS (Continued)

 

(ii)       Other financial assets

 

   2016  2017
Current:      
Non-publicly traded investments classified at FVTPL:      
Corporate wealth management products (1)    46,958    66,229 
Money market funds (2)    5,931    8,115 
           
    52,889    74,344 

 

 

 

(1)`The corporate wealth management products will mature from January 8, 2018 to November 6, 2018 (2016: January 10, 2017 to December 5, 2017).

 

(2)The money market funds can be redeemed at any time.

 

The gains of the Group's other financial assets recognized in the profit or loss for the year was RMB2,409 million (2016: RMB2,774 million, 2015: RMB2,398 million).

 

During the year, the fair value changes on the Group's equity investments recognized directly in other comprehensive expense amounted to RMB542 million (2016: RMB461 million, 2015: RMB1,573 million).

 

None of the equity investments and other financial assets above is past due or impaired.

 

F-52

 

CNOOC LIMITED

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(All amounts expressed in millions of Renminbi unless otherwise stated)

 

18.       OTHER NON-CURRENT ASSETS

 

Included in the other non-current assets were restricted deposits for future dismantlement. Pursuant to the Provisional Regulations on the Dismantlement of Offshore Oil and Gas Production Facilities of the People's Republic of China, the Group accrues dismantlement costs for all the oil and gas fields under production sharing contracts in the PRC, and makes monthly cash contributions to the specified dismantlement fund accounts supervised by the PRC government. The deposit cannot be withdrawn or utilized for any other purposes but the dismantlement of oil and gas production facilities in the future. As of December 31, 2017, the balance of the specified dismantlement fund accounts was RMB7,555 million (December 31, 2016: RMB6,088 million).

 

19.INVENTORIES AND SUPPLIES

 

   2016  2017
       
Materials and supplies    7,288    6,278 
Oil in tanks    1,594    1,540 
Less: Provision for inventory obsolescence    (173)   (464)
    8,709    7,354 

 

 

20.TRADE RECEIVABLES

 

The credit terms of the Group are generally within 30 days after the delivery of oil and gas. Payment in advance or collateral may be required from customers, depending on credit rating. Trade receivables are non-interest-bearing.

 

All customers have good credit quality with good repayment history and no significant receivables are past due. As at December 31, 2017 and December 31, 2016, the age of substantially all the trade receivables was within one year.

 

21.CASH AND CASH EQUIVALENTS AND TIME DEPOSITS WITH MATURITY OVER THREE MONTHS

 

The Group's cash and cash equivalents mainly consist of current deposits and time deposits with maturity within seven days. The bank balances are deposited with creditworthy banks with no recent history of default.

 

The weighted average effective interest rates of the Group's bank deposits were 2.23% per annum for the year ended December 31, 2017 (2016: 2.95% per annum, 2015: 2.61% per annum).

 

22.TRADE AND ACCRUED PAYABLES

 

As at December 31, 2017 and 2016, substantially all the trade and accrued payables were aged within six months. The trade and accrued payables are non-interest-bearing.

 

F-53

 

CNOOC LIMITED

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(All amounts expressed in millions of Renminbi unless otherwise stated)

 

23.OTHER PAYABLES AND ACCRUED LIABILITIES

 

   2016  2017
       
Accrued payroll and welfare payable    1,509    1,490 
Provision for retirement benefits    683    630 
Accrued expenses    449    381 
Advances from customers    3,272    3,096 
Special oil gain levy payable    -      55 
Royalties payable    240    75 
Provision for dismantlement (note 25)    462    1,180 
Other payables    8,251    7,199 
    14,866    14,106 

 

24.LOANS AND BORROWINGS

 

Current

 

      2016  2017
   Effective interest rate and final maturity  Loans  Notes  Total  Loans  Notes  Total
                      
Short-term loans and borrowings                     
General loans****  LIBOR+0.35% to 0.75% per annum with maturity within one year    10,361    -      10,361    8,779    -      8,779 
       10,361    -      10,361    8,779    -      8,779 
Loans and borrowings due within one year                                 
For Tangguh LNG Project**  LIBOR+0.19% to 0.335% per annum with maturity within one year    215    -      215    212    -      212 
Notes*      -      9,102    9,102    -      4,901    4,901 
       215    9,102    9,317    212    4,901    5,113 
       10,576    9,102    19,678    8,991    4,901    13,892 

F-54

 

CNOOC LIMITED

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(All amounts expressed in millions of Renminbi unless otherwise stated)

 

24.       LOANS AND BORROWINGS (continued)

 

Non-current

 

      2016  2017
   Effective interest rate and final maturity  Loans  Notes  Total  Loans  Notes  Total
For Tangguh LNG Project**  LIBOR+0.19% to 0.335% per annum with maturity through to 2021    758    -      758    502    -      502 
For Tangguh LNG III Project ***  LIBOR+1.37% to 3.45% per annum with maturity through 2021 to 2029    327    -      327    777    -      777 
Notes*
      -      129,713    129,713    -      117,079    117,079 
       1,085    129,713    130,798    1,279    117,079    118,358 

F-55

 

CNOOC LIMITED

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(All amounts expressed in millions of Renminbi unless otherwise stated)

 

24.       LOANS AND BORROWINGS (continued)

 

*The details of notes are as follows:

 

         Outstanding Principal Amount
Issued by  Maturity  Coupon Rate  December 31, 2017  December 31,2016
       USD million
            
CNOOC Finance (2003) Limited  Due in 2033    5.500%   300    300 
CNOOC Finance (2011) Limited  Due in 2021    4.25%   1,500    1,500 
CNOOC Finance (2011) Limited  Due in 2041    5.75%   500    500 
CNOOC Finance (2012) Limited  Due in 2022    3.875%   1,500    1,500 
CNOOC Finance (2012) Limited  Due in 2042    5.000%   500    500 
CNOOC Finance (2013) Limited  Due in 2018    1.750%   750    750 
CNOOC Finance (2013) Limited  Due in 2023    3.000%   2,000    2,000 
CNOOC Finance (2013) Limited  Due in 2043    4.250%   500    500 
CNOOC Nexen Finance (2014) ULC  Matured in 2017    1.625%   -      1,250 
CNOOC Nexen Finance (2014) ULC  Due in 2024    4.25%   2,250    2,250 
CNOOC Nexen Finance (2014) ULC  Due in 2044    4.875%   500    500 
Nexen  Matured in 2017    5.65%   -      62 
Nexen  Due in 2019    6.2%   300    300 
Nexen  Due in 2028    7.4%   200    200 
Nexen  Due in 2032    7.875%   500    500 
Nexen  Due in 2035    5.875%   790    790 
Nexen  Due in 2037    6.4%   1,250    1,250 
Nexen  Due in 2039    7.5%   700    700 
CNOOC Finance (2015) U.S.A. LLC  Due in 2025    3.500%   2,000    2,000 
CNOOC Finance (2015) Australia Pty Ltd  Due in 2020    2.625%   1,500    1,500 
CNOOC Finance (2015) Australia Pty Ltd  Due in 2045    4.200%   300    300 

 

All the notes issued mentioned above were fully and unconditionally guaranteed by the Company.

 

F-56

 

CNOOC LIMITED

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(All amounts expressed in millions of Renminbi unless otherwise stated)

24.       LOANS AND BORROWINGS (continued)

 

**In connection with the Tangguh LNG Project in Indonesia, the Company delivered a guarantee dated October 29, 2007, in favor of Mizuho Corporate Bank, Ltd., which acts as the facility agent for and on behalf of various international commercial banks under a US$884 million commercial loan agreement. The Company guarantees the payment obligations of the trustee borrower under the subject loan agreement and is subject to a maximum cap of approximately US$135,163,308.28.

 

A letter of credit agreement was signed between the Company and Talisman Energy Inc. (“Talisman”) with execution of the agreement in respect of the sale of a 3.05691% interest of the Company in the Tangguh LNG Project to Talisman. Accordingly, Talisman has delivered valid and unexpired standby letters of credit to the Company (as the beneficiary) as a counter-guarantee to offset the exposure of the Company’s guarantee for the aforesaid interest of 3.05691% in respect of the Tangguh LNG Project financing. The amount of the standby letters of credit was US$30 million. In February 2017, the standby letters of credit were withdrawn as the Company transferred the 3.05691% guarantee obligations to BP Corporation North America Inc..

 

***In connection with the financing for the third LNG process train of Tangguh LNG Project in Indonesia, the Company delivered two guarantees dated August 3, 2016, in favor of Mizuho Bank, Ltd., which acts as the facility agent for and on behalf of various international commercial banks and Indonesian local commercial banks under two commercial loan agreements with aggregate loan amount of US$2,145 million. The Company guarantees the payment obligations of the trustee borrower under the subject loan agreements and is subject to an aggregate maximum cap of approximately US$573 million.

 

****As at December 31, 2017, US$650 million bank loans (2016: US$800 million) were guaranteed by the Company.

 

As at December 31, 2017, US$694 million shareholder loans (2016: US$694 million) of the Group were included in general loans. For details please refer to Note 28(v).

 

F-57

 

CNOOC LIMITED

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(All amounts expressed in millions of Renminbi unless otherwise stated)

24.       LOANS AND BORROWINGS (continued)

 

The maturities of the long term bank loans are as follows:

 

   2016  2017
Repayable:      
Within one year    215    212 
After one year but within two years    225    212 
After two years but within three years    225    212 
After three years but within four years    225    108 
After four years but within five years    97    61 
After five years    313    686 
    1,300    1,491 
Amount due within one year shown under current liabilities    (215)   (212)
    1,085    1,279 

 

Supplemental information with respect to the long term bank loans:

 

For the year ended
December 31
  Balance
at year end
  Weighted
average
interest rate
at year end
  Maximum
amount
outstanding
during the
year
  Average
amount
outstanding
during the
year (1)
  Weighted
average
interest rate
during the
year (2)
2016    1,300    1.74%   1,369    1,199    1.29%
2017    1,491&