Regulations of the People's Republic of China on Sino-Foreign Cooperation in the Exploration of Offshore Petroleum Resources (Revised in 2013)

Order of the State Council No. 638

July 18, 2013

(Promulgated by the State Council on January 30, 1982, revised for the first time in accordance with the Decision of the State Council on the Revision of the Regulations of the People's Republic of China on Sino-foreign Cooperation in the Exploration of Offshore Petroleum Resources dated September 23, 2001, revised for the second time in accordance with the Decision of the State Council on the Repeal and Revision of Certain Administrative Regulations dated January 8, 2011, and revised for the third time in accordance with the Decision of the State Council on the Revision of the Regulations of the People's Republic of China on Sino-foreign Cooperation in the Exploration of Offshore Petroleum Resources dated September 30, 2011; revised for the fourth time according to the Decision of the State Council on Abolishing and Revising Some Administrative Laws and Regulations on July 18, 2013)

Chapter I General Provisions

Article 1 For the purpose of promoting the development of the national economy and expanding international economic and technological cooperation, these Regulations have been formulated to allow foreign enterprises to participate in the cooperative exploration of offshore petroleum resources of the People's Republic of China based on the premise that China's state sovereignty and economic interests will be upheld.

Article 2 All petroleum resources in the internal waters, territorial seas and continental shelf of the People's Republic of China, and other petroleum resources in all sea regions bearing maritime resources falling within the national jurisdiction of the People's Republic of China, shall belong to the People's Republic of China.
In the sea regions referred to in the preceding paragraph, all buildings and structures and operating vessels established for petroleum exploration, and the corresponding offshore oil (gas) terminals and base facilities, shall fall within the jurisdiction of the People's Republic of China.

Article 3 The Chinese Government shall, according to the law, protect the investments of foreign enterprises involved in the cooperative exploration of offshore petroleum resources, their profits and their other lawful rights and interests, and shall protect the cooperative exploration activities of foreign enterprises in accordance with the law.
All activities for the cooperative exploration of offshore petroleum resources within the scope of these Regulations shall be conducted in accordance with the laws and orders of the People's Republic of China and the relevant provisions of the State; any enterprises or individuals that participate in petroleum activities shall be subject to the laws of China and shall accept the examination and supervision of the competent authorities of the Chinese Government.

Article 4 The State shall not expropriate the investments and proceeds of foreign enterprises that participate in the cooperative exploration of offshore petroleum resources. Nevertheless, under special circumstances, where the public interest requires it to do so, the State may expropriate part or all of the petroleum belonging to foreign enterprises involved in cooperative exploration activities in accordance with applicable legal procedures, and shall compensate the relevant parties appropriately.

Article 5 The department designated by the State Council shall determine the various forms of cooperation and demarcate the geographical blocks for cooperation based on the cooperative maritime zones and their areas designated by the State; it shall formulate the plans for the exploration of offshore petroleum resources in cooperation with foreign enterprises in accordance with the provisions of the state, formulate policies for operating and managing the cooperative exploration of offshore petroleum resources, and examine and approve the overall offshore oil (gas) field development plan.

Article 6 China National Offshore Oil Corporation (CNOOC) shall take overall responsibility for the work involved in the exploration of offshore petroleum resources in the People's Republic of China in cooperation with foreign enterprises.
CNOOC is a state corporation with legal person status and shall have the exclusive right to carry out prospecting, exploration, production and sales of petroleum within the maritime blocks in cooperation with foreign enterprise.
CNOOC may, in light of its operating requirements, establish regional corporations, special corporations and overseas representative offices to execute tasks delegated by CNOOC head office.

Article 7 With respect to the sea, areas and blocks for Sino-foreign cooperation of petroleum exploitation, CNOOC shall determine, by bidding, the foreign enterprises to conduct cooperation in exploitation of marine petroleum resources and enter into petroleum exploitation cooperation contracts or other cooperation contracts therewith and report contract-related information to the Ministry of Commerce of the People's Republic of China.


Chapter II Rights and Obligations of the Parties to Petroleum Contracts

Article 8 CNOOC shall enter into petroleum contracts to facilitate cooperation with foreign enterprises in exploration of offshore petroleum resources and, unless otherwise provided by the law, regulations or the relevant petroleum contract, foreign enterprises that have executed the contracts (hereinafter the "Foreign Contractor") shall, on their own, independently invest in the prospecting, and shall undertake the prospecting operations and assume all prospecting risks. Upon discovering any oil (gas) field of commercial value, the foreign contractor and CNOOC shall jointly invest in cooperative exploration; furthermore, the foreign contractor shall undertake the exploration and production operations until the production operations are taken over by the CNOOC in accordance with the provisions of the petroleum contract. Based on the provisions of the petroleum contract, the foreign contractor may recover its investment and expenses and receive remuneration out of the proceeds of petroleum production.

Article 9 Foreign contractors may ship their deserved share of petroleum or purchased petroleum abroad, and may also remit abroad their recovered investments, profits and other lawful income according to the law.

Article 10 All Chinese enterprises and foreign enterprises participating in the cooperative exploration of offshore petroleum resources shall pay taxes according to the law.

Article 11 Equipment and materials imported to facilitate petroleum contracts shall be subject to tax at a reduced rate, exempted from tax, or given other preferential tax treatment according to the applicable provisions of the State.

Article 12 When opening foreign exchange bank accounts and dealing with other foreign exchange matters, a foreign contractor shall comply with the Foreign Exchange Control Regulations of the People's Republic of China and other provisions of the State relating to foreign exchange controls.

Article 13 A petroleum contract may stipulate the personnel required for petroleum operations, and Chinese citizens may be given preference in the employment of such personnel.

Article 14 A foreign contractor must, in carrying out development and production activities in fulfillment of a petroleum contract, provide CNOOC with timely and accurate reports on the status of its petroleum activities; it must also compile complete and accurate data, records, samples, documents and other original materials on the various aspects of its petroleum activities, and provide CNOOC with the materials and samples, as well as various technological, economic, financial and accounting, and administrative reports, on a regular basis.

Article 15 A foreign contractor shall, when carrying out development and production activities in fulfillment of a petroleum contract, set up a branch, subsidiary or representative office within the territory of the People's Republic of China and go through the appropriate registration formalities in accordance with the law.
The location of any office referred to in the preceding paragraph shall be decided in consultation with CNOOC.

Article 16 The provisions of Articles 3, 9, 10, 11 and 15 of these Regulations shall apply mutatis mutandis to foreign subcontractors that provide services for petroleum activities.

Chapter III Petroleum Activities

Article 17 An operator must, in accordance with these Regulations and the applicable provisions of the State on the exploration of petroleum resources and take international practice into consideration, formulate an overall oil (gas) field development plan and implement production activities so as to achieve the highest possible oil recovery rate.

Article 18 A foreign contractor shall, when carrying out development and production activities in fulfillment of a petroleum contract, utilize existing base facilities within the territory of the People's Republic of China, if it is deemed necessary to set up new base facilities, such new base facilities must be located within the territory of the People's Republic of China.
The specific location of any new base facility referred to in the preceding paragraph or any other arrangements necessary under special circumstances must be approved in writing by CNOOC.

Article 19 CNOOC shall be entitled to appoint personnel to join a foreign operator to formulate general plans and engineering designs in fulfillment of a petroleum contract.

Article 20 The ownership of all assets, other than equipment leased from a third party, purchased or built by a foreign contractor to fulfill the terms of a petroleum contract in accordance with the plan and budget, shall be transferred to CNOOC after the foreign contractor's investment funds have been recovered as stipulated; the foreign contractor may continue using those assets within the term of the contract according to the provisions of the contract.

Article 21 The ownership of all data, records, samples, documentation and other original materials obtained in the course of petroleum activities in fulfillment of a petroleum contract shall belong to CNOOC.
The utilization and transfer, grant, exchange, sale or publication of the data, records, samples, documentation and other original materials referred to in the preceding paragraph and the export and transmission of such data from the People's Republic of China must be carried out in accordance with the relevant provisions of the State.

Article 22 In the course of carrying on petroleum activities, the operators and subcontractors shall abide by the relevant laws and provisions of the People's Republic of China on the protection of the environment and safety, and shalltake international practice into consideration when carrying on such activities, protect fisheries and other natural resources and prevent atmosphere, seas, rivers, lakes, land and other aspects of the environment from pollution and damage.

Article 23 Petroleum produced within a petroleum contract zone shall be landed onshore in the People's Republic of China or may be exported through an oil (gas) metering point on an offshore terminal. The approval of the department designated by the State Council must be sought where there is a need to land such petroleum outside the territory of the People's Republic of China.

Chapter IV Miscellaneous

Article 24 Any dispute arising between foreign and Chinese enterprises in the course of any cooperative exploration of offshore petroleum resources shall be settled through friendly negotiations. In the event that such negotiations fail, the dispute shall be settled through mediation and arbitration by an arbitration tribunal within the People's Republic of China, or in any other arbitration forum agreed upon by the parties to the contract.

Article 25 Where an operator or subcontractor violates any of the provisions of these Regulations in the course of carrying on petroleum activities, the department designated by the State Council shall, in light of its powers, order for corrective action to be taken within a certain period of time and shall issue a warning. Where the relevant party fails to take corrective action, order may be made to suspend its petroleum activities. All consequential economic loss shall be borne by the party responsible.

Article 26 For the purpose of these Regulations, the terms used herein shall have the following definitions:
1. "Petroleum" shall refer to underground crude oil or natural gas that is currently being extracted or has already been extracted.
2. "Exploration" shall refer to the activities of exploring for and developing, producing and marketing petroleum, as well as other associated general activities.
3. "Petroleum contract" shall refer to a contract concluded according to law between CNOOC and a foreign enterprise for the cooperative exploration of offshore petroleum resources of the People's Republic of China, including any contract for the exploration, development or production of petroleum.
4. "Contract area" shall refer to an area designated within a maritime region demarcated by geographical coordinates in a petroleum contract for the cooperative exploration of petroleum resources.
5. "Petroleum activities" shall refer to the activities of prospecting, exploration and production and other related activities carried out in fulfillment of a petroleum contract.
6. "Exploration activities" shall refer to all efforts made to locate petroleum reserves using geological, geophysical and geochemical methods or through the drilling of exploratory wells, etc., and all efforts made to determine the commercial value of known petroleum reserves, including appraisal drilling, feasibility studies and preparation of the overall oil (gas) field development plan.
7. "Development activities" shall refer to the activities of designing, construction, installation and drilling, and associated research work, carried out to bring about petroleum production as of the date on which the overall oil (gas) field development plan is approved by the department designated by the State Council, including production activities conducted before the commencement of commercial production.
8. "Production activities" shall refer to the entire operational activities for petroleum production carried out as of the date of commencement of commercial production in an oil (gas) field and the associated activities, such as the extraction, injection, production stimulation, processing, storage and transportation and lifting of petroleum and other operations.
9. "Foreign contractor" shall refer to a foreign enterprise that executes a petroleum contract with CNOOC. A foreign enterprise may be a corporation or a group of corporations.
10. "Operator" shall refer to an entity in charge of carrying on activities in accordance with the provisions of a petroleum contract.
11. "Subcontractor" shall refer to an entity that provides services to an operator.

Article 27 These Regulations shall come into effect as of the date of issue hereof.