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Opportunities
for Foreign Investors |
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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. |
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Framework
Conditions |
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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. |
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Introduction
To CNOOC's Model Contract |
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Sharing Model Of The Model Contract |
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The
total annual crude oil output of one oil field in the
contract area shall be divided into the following three
portions: |
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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: |
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- 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. |
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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.
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General
Economic Terms Of The Contract |
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The
general economic terms of the contract form the main part
of the risk investment of foreign contractors: |
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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; |
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ECONOMIC
MODEL
(PETROLEUM CONTRACT)
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;
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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; |
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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; |
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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; |
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6.
The foreign contractor shall pay salaries to the CNOOC
participants and contractual management personnel. |
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Non-Economic
Terms Of The Contract |
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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.
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2.
Contractual area: Each contractual area is composed
of several adjacent basic blocks, each of which is a 10'
x 10' rectangular area. |
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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. |
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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. |
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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. |
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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.. |
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7.
Procurement and subcontracting services: |
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Materials and subcontracting services necessary for
petroleum operation shall in general be made by calling
international for bids.
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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.
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Equipment and materials required to carry out petroleum
operation, shall be procured in china, provided
that they are competitive.
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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. |
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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. |
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10.
Transfer and authorization: |
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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;
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The
foreign contractor shall not transfer its contractual
rights and obligations to the third party without
CNOOC's prior approval.
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CNOOC may authorize its subsidiaries, branches to
execute the contract but shall be responsible for
its obligations under this contract
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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. |
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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. |
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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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