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Petroleum Geology & Potential
Exploration/Development History
Present Status
Offered Acreage
Contract Terms
Opportunities for Foreign Investors
Framework Conditions
Introduction To CNOOC's Model Contract
Sharing Model Of The Model Contract
General Economic Terms Of The Contract
Non-Economic Terms Of The Contract
Bidding Procedure
Other Information
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  Opportunities for Foreign Investors
           The oil resources potentials in China are very attractive due to the good geologic conditions, hardworking cooperators as well as legislative guaranties. There are more than 100 blocks available for investors to carry out exploration and other related activities.
  Framework Conditions
           For any economy, a strategically indispensable mineral is oil. Considered the wheel of the economy, the oil industry is inextricably linked with almost all other sectors. It is common knowledge that any hike in prices of petroproducts automatically pushes up inflation. Oil is so crucial for the hydrocarbon sector that it must be a national imperative. China Government has stepped up its initiative of enticing either overseas or domestic investment in the oil sector since the 1980's. All companies, whether in the private or public sector, would compete on an equal footing for obtaining exploration licenses from the government. Government of China issued different regulations in line with the law to help investors to get comprehensive perspective of various taxes and duties payable on petroleum operations to enable them to work out economics of their projects under a stable fiscal regime.
  Introduction To CNOOC's Model Contract
          Sharing Model Of The Model Contract
          The total annual crude oil output of one oil field in the contract area shall be divided into the following three portions:
  • 5%: payable to the government as the Value Added Tax;
  • 62.5%: payable to the government as royalty and cost recovery.

        Sequence of investment recovery:

  • Payment for the operating costs of the said year;
  • Recovery of investment on exploration of the contract area (no interests);
  • Recovery of investment and interests on development of the said oil field.

        ---32.5%: payable to the government as 'remainder oil' according to the rate(1 - X) specified in the contract.

          The remaining portion (X) shall be shared between CNOOC and the foreign contractor as the profit oil according to the ratio (51:49), subject to 33% of income tax payable to the government.
          General Economic Terms Of The Contract
          The general economic terms of the contract form the main part of the risk investment of foreign contractors:
          1. The foreign contractors shall be responsible for all exploration expenses in the contract area and such expenses are recoverable from the production after the discovery of commercial oil or gas field in the contract area;

Annual Gross Production /Each Oil Field

        2. After the discovery of commercial oil (gas) field, CNOOC shall be entitled to 0-50% of investment in developing the said field whilst the foreign party is entitled to at least 49% of investment in development in which case the investments of both parties plus 9% of annual interests shall be recovered from the production of the oil (gas) field;

          3. The operating costs of the oil (gas) field shall be shared by both parties according to the investment ratio and recoverable in the same year;
          4. Upon the signing of a petroleum contract, the foreign contractor shall pay to CNOOC a sum of US$1million as signature fee payable by stages;
          5. The foreign contractor shall provide technical training for CNOOC personnel. Plans and expenses for such training shall be subjected to the agreement by the two parties;
          6. The foreign contractor shall pay salaries to the CNOOC participants and contractual management personnel.
          Non-Economic Terms Of The Contract
          1. Period of the contract: 30 years, including Exploration period of 7(3+2+2) years, extendable, subject to CNOOC's approval and production period of 15Years, extendable, subject to the approval of competent governmental departments.
          2. Contractual area: Each contractual area is composed of several adjacent basic blocks, each of which is a 10' x 10' rectangular area.
          3. Relinquishment: At the end of the third and fifth year, the contractors shall relinquish 25% of the contractual area (deducing developing area and production area), at the end of the seventh year, all the area shall be relinquished other than area under development, production and appraisal.
          4. Minimum exploration work commitment and expenses: The contract specifies the minimum exploration work commitment (wildcats and seismic lines) and minimum exploration expenses that shall be provided by the foreign contractor. In case the specified work commitment is not completed, the uncompleted portion shall be turn into expenses payable to CNOOC.
          5. Managerial organization for implementation of the contract: Equal numbers of representatives shall be appointed by CNOOC and the foreign contractors to form the Joint Management Committee (JMC) as the highest level of organization to make decisions on main issues according to the principles determined through negotiation. The chairman of JMC shall be appointed by CNOOC. The operator should execute the contract under the leadership and supervision of JMC. At the stage of development, a project management team shall be set up in the operators' organization to ensure the smooth execution of development. The project manager shall be appointed by the foreign contractor, the deputy project manager shall be appointed by CNOOC and the project organization and appointment of personnel shall be determined through negotiation of both parties.
          6. Assistance of the state Company: for timely and effective progress of petroleum operation, CNOOC shall have the duties to provide the foreign contractor with necessary assistance including: opening of bank account, allocation of offices, handling of customs and entry procedure of foreign employees, liaison and coordination with concerned government department to maintain necessary permits, etc..
          7. Procurement and subcontracting services:
  • Materials and subcontracting services necessary for petroleum operation shall in general be made by calling international for bids.
  • Subcontracting services within the territory of P.R. China shall be preferentially used, provided that they are competitive in terms of quality, prices, terms of delivery and services.

  • Equipment and materials required to carry out petroleum operation, shall be procured in china, provided that they are competitive.

          8. Training of CNOOC's personnel and transferring of technology: The foreign contractor shall apply proper and advance technology and operating and managerial experiences and is obliged to transfer the said technology and experience to CNOOC and its affiliated companies and to carry out technical training courses for CNOOC's personnel in accordance with the plans agreed by both parties.
          9. Ownership of assets and information: All assets procured and constructed according to the plan and budget for each oil (gas) field in the contractual area, when the developing expenses are fully recovered, shall be the properties of CNOOC, prior to which shall be shared by both parties. All information, data, samples, recordings and other firsthand information acquired in the execution of petroleum operation shall be the properties of CNOOC.
          10. Transfer and authorization:
  • The foreign contractor may, subject to CNOOC's approval, transfer its contractual rights and obligations to its affiliated companies but shall ensure in writing that the transferred obligations shall be carried out;
  • The foreign contractor shall not transfer its contractual rights and obligations to the third party without CNOOC's prior approval.

  • CNOOC may authorize its subsidiaries, branches to execute the contract but shall be responsible for its obligations under this contract

          11. Applicable laws: The effectiveness, interpretation and execution of this contract shall be governed by Chinese laws. In case no relevant provision is stipulated in Chinese law, then international practices may apply.
          12. Terms of stability: After the effectiveness of this contract, in case Chinese government issues new rules and regulations or revises the existing rules and regulations which results in great changes in the foreign contractor's economic benefits, the two parties shall negotiate to revise concerned terms of the contract to protect the foreign contractor's normal economic benefits.
          13. Settlement of disputes: For a dispute that arose from the performance of the contract, in case such dispute can not be settled through consultation, then any party concerned may submit the dispute to China's Arbitration agency under the agreement between the parties, or the arbitration tribunal formed by two parties. In case this arbitrator failed to be appointed by the two parties through consultation, then the Court of Arbitration of the Committee of Commerce in Stockholm Sweden shall be appointed.

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Last Update: 8 August 2002