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TABLE OF CONTENTS CHAPTER I GENERAL PROVISIONS CHAPTER II RIGHTS AND OBLIGATIONS OF THE PARTIES TO PETROLEUM CONTRACTS CHAPTER III PETROLEUM OPERATIONS CHAPTER IV SUPPLEMENTARY PROVISIONS CHAPTER I GENERAL PROVISIONS Article 1. In the interests of developing the national economy and expanding international economic and technological cooperation, these Regulations are formulated, on the premise of safeguarding national sovereignty and economic interests, to permit foreign enterprises to participate in the cooperative exploitation of offshore petroleum resources of the People's Republic of China. Article 2. All petroleum resources in the internal waters, territorial sea and continental shelf of the People's Republic of China and in all sea areas within the limits of national jurisdiction over the maritime resources of the People's Republic of China are owned by the People's Republic of China. In the sea areas referred to in the preceding paragraph, all buildings and structures set up and vessels operating to exploit petroleum, and the corresponding onshore oil (gas) terminals and bases, shall be under the jurisdiction of the People's Republic of China. Article 3. The Government of the People's Republic of China shall protect, in accordance with the law, the investments of foreign enterprises participating in the cooperative exploitation of offshore petroleum resources, the profits due to them and their other legitimate rights and interests, and shall protect, in accordance with the law, the cooperative exploitation activities of foreign enterprises. All activities for the cooperative exploitation of offshore petroleum resources within the scope of these Regulations shall be subject to the laws and decrees of the People's Republic of China and relevant provisions of the State; all persons and enterprises taking part in petroleum operations shall be subject to the laws of China and shall accept inspection and supervision by the competent authorities concerned of the Chinese Government. Article 4. The State shall not requisition the investments and income of the foreign enterprises participating in the cooperative exploitation of offshore petroleum resources. Under special circumstances, the State may, according to the needs of public interests, requisition a portion or all of the petroleum due to the foreign enterprises in the cooperative exploitation according to legal procedures and shall make appropriate compensation. Article 5. The department designated by the State Council shall determine the forms of cooperation and demarcate the areas of cooperation in accordance with the zones and the surface areas of cooperation designated by the State; it shall work out a plan for the exploitation of offshore petroleum resources in cooperation with the foreign enterprises in accordance with long-term state economic plans, formulate operation and management policies for the cooperative exploitation of offshore petroleum resources and examine and approve the overall development program for offshore oil (gas) fields. Article 6. The China National Offshore Oil Corporation (CNOOC) shall have overall responsibility for the work of exploiting offshore petroleum resources in the People's Republic of China in cooperation with foreign enterprises. CNOOC shall be a state corporation with the qualifications of a juridical person and shall have the exclusive right to explore for, develop, produce and market the petroleum within the zones of cooperation with foreign enterprises. CNOOC may, as the work requires, establish regional corporations, specialized corporations and overseas representative offices to carry out the tasks delegated by the head office. Article 7. CNOOC shall, by means of calling for bids and signing petroleum contracts, cooperate with foreign enterprises to exploit petroleum resources in accordance with the zones, surface areas and areas of cooperation with foreign enterprises for the exploitation of petroleum resources. The petroleum contracts referred to in the preceding paragraph shall come into force after approval by the Ministry of Foreign Trade and Economic Cooperation of the People's Republic of China. All documents signed by CNOOC for other forms of cooperative exploitation of petroleum resources utilizing technology and funds provided by foreign enterprises shall also be subject to approval by the Ministry of Foreign Trade and Economic Cooperation of the People's Republic of China. CHAPTER II RIGHTS AND OBLIGATIONS OF THE PARTIES TO PETROLEUM CONTRACTS Article 8. CNOOC shall cooperate with foreign enterprises to exploit offshore petroleum resources by means of entering into petroleum contracts, and, unless otherwise specified by laws and regulations or agreed upon in a petroleum contract, the foreign enterprise that is one party to the petroleum contract (hereafter "foreign contractor") shall provide the investment to carry out exploration, be responsible for exploration operations and bear all exploration risks; after a commercial oil (gas) field is discovered, both the foreign contractor and CNOOC shall provide the investment for its cooperative development, and the foreign contractor shall be responsible for the development operations and production operations until CNOOC takes over the production operations when conditions permit provided in the petroleum contract. The foreign contractor, in accordance with the provisions of the petroleum contract, may recover its investment and expenses and receive remuneration out of the petroleum produced. Article 9. The foreign contractor may export the petroleum due to it and the petroleum it purchases, and may also remit abroad, in accordance with the law, the investment it recovers, its profits and its other legitimate income. Article 10. All Chinese enterprises and foreign enterprises participating in the cooperative exploitation of offshore petroleum resources shall pay taxes in accordance with the law and shall pay mining royalties. All employees of the enterprises referred to in the preceding paragraph shall pay individual income tax in accordance with the law. Article 11. The equipment and material imported for carrying out the petroleum contract shall be subject to tax at a reduced rate, or exempted from tax, or given other preferential tax treatment in accordance with State provisions. Article 12. The foreign contractor shall abide by the Regulations on Foreign Exchange Control of the People's Republic of China and other provisions of the State related to foreign exchange control when opening the bank account and transacting other foreign exchange matters. Article 13. The personnel needed for the petroleum operations may be agreed upon in the petroleum contract, and Chinese citizens may be given preference in the employment of operators. Article 14. When undertaking development and production operations in carrying out the petroleum contract, the foreign contractor must promptly and accurately report to CNOOC on the situation of petroleum operations; and it must acquire complete and accurate date, records, samples, vouchers and other original data with respect to various aspects of the petroleum operations, and regularly submit to CNOOC necessary data and samples, and various technological, economic, financial and accounting, and administrative reports. Article 15. When undertaking development and production operations for carrying out the petroleum contract, the foreign contractor shall establish a branch or subsidiary or representative office within the territory of the People's Republic of China and fulfill registration formalities in accordance with the law. The domiciles of the offices referred to in the preceding paragraph shall be determined through consultation with CNOOC. Article 16. The provisions of Articles 3, 9, 10, 11 and 15 of these Regulations shall apply, by analogy, to foreign subcontractors that render services in connection with the petroleum operations. CHAPTER III PETROLEUM OPERATIONS Article 17. In order to achieve the highest possible oil recovery factor, the operator must, in accordance with these Regulations and the relevant provisions on the exploitation of petroleum resources of the State and by taking account of international practice, formulate an overall development program for the oil (gas) field and implement production operations. Article 18. When undertaking development and production operations for carrying out the petroleum contract, the foreign contractor shall use the existing bases within the territory of the People's Republic of China, and, if new bases are needed, they must be established within the territory of the People's Republic of China. The specific locations of the new bases referred to in the preceding paragraph, and other arrangements that may be necessary in special circumstances, must all be subject to the written approval of CNOOC. Article 19. CNOOC shall have the right to send personnel to join the foreign operator in making master designs and engineering designs for carrying out the petroleum contract. Article 20. The ownership of all assets purchased or built by the foreign contractor to carry out the petroleum contract in accordance with the plan and budget, excluding equipment leased from a third party, shall belong to CNOOC after the foreign contractor's investment has been compensated within the term of the contract, the foreign contractor may continue to use those assets in accordance with the provisions of the contract. Article 21. CNOOC shall have the ownership of all of the data, records, samples, vouchers and other original data with respect to the petroleum operations for carrying out the petroleum contract. The utilization and transfer, donation, exchange, sale and publication of the previously mentioned data, records, samples, vouchers and other original data and their export and transmission from the People's Republic of China all must be conducted in accordance with the relevant provisions of the State. Article 22. In the course of implementing petroleum operations, the operator and subcontractors shall comply with the relevant laws and provisions on environmental protection and safety of the People's Republic of China, and shall, by taking account of international practice when conducting operations, protect fishery resources and other natural resources and prevent the environment, including the air, sea, rivers, lakes and land, from being polluted or damaged. Article 23. The petroleum produced within the petroleum contract area shall be landed in the People's Republic of China or may be exported from oil (gas) metering points on offshore terminals. In case such petroleum has to be landed at a point outside the People's Republic of China, the approval of the department designated by the State Council must be obtained. CHAPTER IV SUPPLEMENTARY PROVISIONS Article 24. Any dispute arising between foreign and Chinese enterprises during the cooperative exploitation of offshore petroleum resources shall be settled through friendly consultations. If it cannot be resolved through consultation, mediation and arbitration may be conducted by an arbitration body of the People's Republic of China, or the parties to the contract may agree upon arbitration by another arbitration body. Article 25. In case an operator or subcontractor violates the provisions of these Regulations in implementing petroleum operations, the department designated by the State Council shall, in accordance with its powers, set a deadline for correction and issue a warning. If no correction is made prior to the specified deadline, it may be ordered that the petroleum operations be stopped. All economic losses caused as a result of this shall be borne by the responsible party. Article 26. The terms used in these Regulations shall have the following definitions: (1) "Petroleum" means crude oil or natural gas deposited underground, currently being extracted or already extracted. (2) "Exploitation" means, in general, the exploration for and development, production and marketing of petroleum, and other related activities. (3) "Petroleum contract" means a contract signed, in accordance with the law, between CNOOC and foreign enterprises for the cooperative exploitation of offshore petroleum resources of the People's Republic of China, including the exploration for and development and production of petroleum. (4) "Contract area" means a surface area designated within a sea area demarcated by geographical coordinates in the petroleum contract for the cooperative exploitation of petroleum resources. (5) "Petroleum operations" means all exploration, development and production operations and other related activities conducted in carrying out the petroleum contract. (6) "Exploration operations" means all work done to locate the petroleum-bearing traps by means of geological, geophysical and geochemical methods and including drilling exploratory wells, and all work done to determine the commerciality of discovered petroleum traps, including appraisal drilling, feasibility studies and preparation of the overall development program for an oil (gas) field. (7) "Development operations" means projects, such as those for design, construction, installation and drilling, and corresponding research work, conducted from the date of the approval of the overall development program for an oil (gas) filed by the department designated by the State Council, in order to bring about petroleum production, including production activities carried out before the commencement of commercial production. (8) "Production operations" means all operations for producing petroleum conducted after the date of commencement of the commercial production of an oil (gas) field and related activities, such as extraction, injection, production stimulation, processing, storage and transportation and lifting of petroleum and other operations. (9) "Foreign contractor" means a foreign enterprise that signs a petroleum contract with CNOOC. The foreign enterprises may be a corporation or a consortium of corporations. (10) "Operator" means an entity that is responsible for implementing the operations pursuant to the provisions of the petroleum contract. (11) "Subcontractor" means an entity that renders services to the operator. Article 27. These Regulations shall come into force on the day of promulgation. |
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