SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 6-K
REPORT OF FOREIGN ISSUER
PURSUANT TO RULE 13a-16 OR 15d-16 OF
THE SECURITIES EXCHANGE ACT OF 1934
For the month of September 2008
PETROCHINA COMPANY LIMITED
16 ANDELU, DONGCHENG DISTRICT
BEIJING, THE PEOPLE'S REPUBLIC OF CHINA, 100011
(Address of Principal Executive Offices)
(Indicate by check mark whether the registrant files or will file annual
reports under cover of Form 20-F or Form 40-F.)
Form 20-F X Form 40-F
---
(Indicate by check mark whether the registrant by furnishing the
information contained in this Form is also thereby furnishing the information to
the Commission pursuant to Rule 12g3-2(b) under the Securities Exchange Act of
1934.)
Yes No X
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(If "Yes" is marked, indicate below the file number assigned to the
registrant in connection with Rule 12g3-2(b): 82-________ )
PetroChina Company Limited (the "Registrant") is furnishing under the cover
of Form 6-K the Registrant's circular regarding the renewal of continuing
connected transactions in respect of 2009 to 2011 and the revised caps of
continuing connected transactions in respect of 2008.
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this circular to be signed on its behalf by the
undersigned, thereunto duly authorized.
PetroChina Company Limited
Dated: September 8, 2008 By: /s/ Li Huaiqi
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Name: Li Huaiqi
Title: Company Secretary
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THIS CIRCULAR IS IMPORTANT AND REQUIRES YOUR IMMEDIATE ATTENTION
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IF YOU ARE IN ANY DOUBT as to any aspect of this circular, or as to the action
to be taken, you should consult your stockbroker or other registered dealer in
securities, bank manager, solicitor, professional accountant or other
professional adviser.
IF YOU HAVE SOLD OR TRANSFERRED all your shares in PETROCHINA COMPANY LIMITED,
you should at once hand this circular, together with the enclosed form of proxy,
to the purchaser or the transferee or to the bank, stockbroker or other agent
through whom the sale was effected for transmission to the purchaser or the
transferee.
The Stock Exchange of Hong Kong Limited takes no responsibility for the contents
of this circular, makes no representation as to its accuracy or completeness and
expressly disclaims any liability whatsoever for any loss howsoever arising from
or in reliance upon the whole or any part of the contents of this circular.
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(PETROCHINA COMPANY LIMITED LOGO)
(a joint stock limited company incorporated in the
People's Republic of China with limited liability)
(STOCK CODE IN THE HONG KONG STOCK EXCHANGE: 857)
(1) RENEWAL OF CONTINUING CONNECTED TRANSACTIONS IN RESPECT OF 2009 TO 2011
(2) REVISED CAPS OF CONTINUING CONNECTED TRANSACTIONS IN RESPECT OF 2008
INDEPENDENT FINANCIAL ADVISER TO THE INDEPENDENT BOARD COMMITTEE AND
THE INDEPENDENT SHAREHOLDERS OF THE COMPANY
(ICEA LOGO)
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A letter from the Independent Board Committee is set out on pages 35 to 36 of
this circular. A letter from ICEA, the Independent Financial Adviser,
containing its advice to the Independent Board Committee and the independent
shareholders of the Company is set out on pages 37 to 52 of this circular.
The second extraordinary general meeting of PetroChina Company Limited in 2008
is to be held at Crowne Plaza Beijing Park View Wuzhou Hotel, No. 8 North Si
Huan Zhong Road, Chaoyang District, Beijing, PRC at 9 a.m. on 21 October 2008
(Tuesday). A copy of the notice convening such extraordinary general meeting
is set out on pages 56 - 57 of this circular. Whether or not you are able to
attend the meeting, you are requested to complete and return the form of
proxy, despatched together with this circular, in accordance with the
instructions printed thereon as soon as possible to the registered office of
PetroChina Company Limited at World Tower, 16 Andelu, Dongcheng District,
Beijing, PRC in any event not less than 24 hours before the time appointed for
holding of the meeting. Completion and return of the form of proxy will not
preclude you from attending and voting at the meeting should you so desire.
5 September 2008
CONTENTS
Page
DEFINITIONS ............................................................. 1
LETTER FROM THE BOARD ................................................... 5
LETTER FROM THE INDEPENDENT BOARD COMMITTEE ............................. 35
LETTER FROM ICEA CAPITAL LIMITED ........................................ 37
APPENDIX I -- GENERAL INFORMATION ....................................... 53
NOTICE OF EXTRAORDINARY GENERAL MEETING ................................. 56
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DEFINITIONS
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In this circular, the following expressions have the following meanings
unless the context requires otherwise:
"associate(s)" has the meanings ascribed to it under the HKEx
Listing Rules
"ADS(s)" the American Depository Share(s) issued by the
Bank of New York as the depository bank and listed
on the New York Stock Exchange, with the ADS
representing 100 H Shares
"A Shares" the domestic ordinary shares issued by the Company
to domestic investors for subscription and trading
and denominated in Renminbi
"Beijing Gas" (CHINESE CHARACTERS) (Beijing Gas Group Company
Limited*), a company established under the laws of
the PRC, and a substantial shareholder of Huayou,
holding 40% interests in Huayou
"Beijing Gas Products and the agreement dated 1 September 2005 entered into
Services Agreement" between the Company and Beijing Gas in relation to
the provision of certain products and services
"Board" the board of directors of the Company
"Buildings Leasing Contract" the buildings leasing contract dated 10 March 2000
entered into between the Company and CNPC pursuant
to which CNPC has leased to the Company buildings
located throughout the PRC for the use by the
Company for its business operation including the
exploration, development and production for a term
of 20 years, as amended by a supplemental
agreement dated 26 September 2002
"CNPC" China National Petroleum Corporation, a
state-owned enterprise incorporated under the laws
of the PRC, and the controlling shareholder of the
Company, holding approximately 86.29% of the
issued share capital of the Company and for the
purpose of this circular, unless otherwise
specified, shall include other subsidiaries and
units of CNPC (including subsidiaries, branches
and relevant units) other than the Group
"CNPC Finance" (CHINESE CHARACTERS) (China Petroleum Finance
Company Limited), a subsidiary of CNPC
"Company" PetroChina Company Limited, a joint stock company
limited by shares incorporated in the PRC on 5
November 1999 under the PRC Company Law, the H
shares of which are listed on the Hong Kong Stock
Exchange with American Depository Shares listed on
the New York Stock Exchange and the A shares are
listed on the Shanghai Stock Exchange
"Comprehensive Agreement" the comprehensive products and services agreement
dated 10 March 2000 entered into between CNPC and
the Company regarding the provision by the Group
to CNPC and by CNPC to the Group, of a range of
products and services from time to time, effective
as of 5 November 1999
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DEFINITIONS
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"Continuing Connected the continuing connected transactions which have
Transactions" been and will continue to be entered into between
(1) the Group and CNPC; (2) the Group and Beijing
Gas; and (3) the Group and CRMSC, details of which
are set out in the Letter from the Board of this
circular
"controlling shareholder" has the meanings ascribed to it under the HKEx
Listing Rules
"CRMSC" (CHINESE CHARACTERS) (China Railway Materials and
Suppliers Corporation), a state-owned enterprise
established under the laws of the PRC, and a
substantial shareholder of PetroChina & CRMSC Oil
Marketing
"CRMSC Products and Services the agreement dated 1 September 2005 entered into
Agreement" between the Company and CRMSC in relation to the
provision of certain products and services
"Director(s)" directors of the Company
"Extraordinary General the second extraordinary general meeting of the
Meeting" Company in 2008 to be held at Crowne Plaza Beijing
Park View Wuzhou Hotel, No. 8 North Si Huan Zhong
Road, Chaoyang District, Beijing, PRC at 9 a.m. on
21 October 2008 (Tuesday) to approve, among other
things, the Revised Non-Exempt Annual Caps, the
Non-Exempt Continuing Connected Transactions and
the Proposed Caps of the Non-Exempt Continuing
Connected Transactions
"First Supplemental the supplemental comprehensive products and
Agreement" services agreement dated 9 June 2005 entered into
between the Company and CNPC in relation to
certain amendments of the Comprehensive Agreement
"Group" the Company and its subsidiaries
"H Share(s)" the overseas-listed foreign share(s) in the
Company's share capital, with a nominal value of
RMB1.00 each, which are listed on the Hong Kong
Stock Exchange and subscribed for in Hong Kong
dollars, and which include the H Share(s) and the
underlying ADS(s)
"HKEx Listing Rules" the Rules Governing the Listing of Securities on
the Hong Kong Stock Exchange
"Hong Kong" the Hong Kong Special Administrative Region of the
PRC
"Hong Kong Stock Exchange" The Stock Exchange of Hong Kong Limited
"Huayou" (CHINESE CHARACTERS) (Beijing Huayou Natural Gas
Company Limited*), a company established under the
laws of the PRC with limited liability and a
subsidiary of the Company (where the Company has
60% interests in Huayou)
"Independent Board the independent committee of the Board, comprising
Committee" Messrs. Chee- Chen Tung, Liu Hongru, Franco
Bernabe, Li Yongwu and Cui Junhui, the independent
non-executive Directors of the Company,
established for the purpose of reviewing and
advising the Independent Shareholders or the
Shareholders (as the case may be) in respect of
the Revised Non-Exempt Annual Caps, the Non-Exempt
Continuing Connected Transactions and the relevant
Proposed Caps
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DEFINITIONS
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"Independent Financial ICEA Capital Limited, a licensed corporation under
Adviser" or "ICEA" transitional arrangement carrying out Type 1
(dealing in securities) and Type 6 (advising on
corporate finance) regulated activities under the
SFO, and the independent financial adviser
appointed to advise the Independent Board
Committee and the Independent Shareholders in
respect of the Revised Non-Exempt Annual Caps, the
Non-Exempt Continuing Connected Transactions and
the relevant Proposed Caps, and whether the
respective term of the Land Use Rights Leasing
Contract, the Buildings Leasing Contract and the
Supplemental Buildings Agreement is normal
business practice (or the Shareholders on the
Non-Exempt Continuing Connected Transactions and
the relevant Proposed Caps under the CRMSC
Products and Services Agreement)
"Independent Shareholders" the shareholders of the Company other than the
CNPC and its associates
"Jointly-held Entities" a subsidiary of the Company in which both the
Company and CNPC are shareholders, and where CNPC
and/or its subsidiaries and/or affiliates
(individually or together) is/are entitled to
exercise, or control the exercise of, 10% or more
of the voting power at any general meeting of such
company
"Land Use Rights Leasing the land use rights leasing contract dated 10
Contract" March 2000 entered into between the Company and
CNPC pursuant to which CNPC has leased to the
Company parcels of land in connection with and for
the purpose of all aspects of the operations and
business of the Group for a term of 50 years
"Latest Practicable Date" 1 September 2008, being the latest practicable
date prior to the printing of this circular for
ascertaining certain information herein
"New Comprehensive the comprehensive products and services agreement
Agreement" dated 27 August 2008 entered into between CNPC and
the Company regarding the provision by the Group
to CNPC and by CNPC to the Group, of a range of
products and services from time to time which
shall come into effect on 1 January 2009
"Non-Exempt Continuing the Continuing Connected Transactions under the
Connected Transactions" categories of (1), (2)(a)-(b), (3) and (6), as set
out in the section headed "Renewal of Continuing
Connected Transactions in respect of 2009-2011" of
the Letter from the Board in this circular
"PetroChina & CRMSC Oil (CHINESE CHARACTERS) (PetroChina & CRMSC Oil
Marketing" Marketing Company Limited*), a company established
under the laws of the PRC with limited liability
China Petroleum Sales Company Limited (CHINESE
CHARACTERS), a wholly-owned subsidiary of the
Company, and CRMSC jointly established PetroChina
& CRMSC Oil Marketing in December 2004, holding
respectively 51% and 49% of its equity interest.
"Proposed Caps" the proposed annual caps in respect of the
Continuing Connected Transactions, including the
Non-Exempt Continuing Connected Transactions
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DEFINITIONS
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"PRC" or "China" the People's Republic of China
"Relevant Categories" the relevant categories of the Continuing
Connected Transactions the annual caps of which
for the year ending 31 December 2008 will be
subject to revision
"Revised Caps" the revised annual caps in respect of the Relevant
Categories, including the Revised Non-Exempt
Annual Caps
"Revised Non-Exempt Annual the revised annual caps in respect of the Relevant
Caps" Categories which are not exempted
"RMB" Renminbi, the lawful currency of the PRC
"Second Supplemental the supplemental comprehensive products and
Agreement" services agreement dated 1 September 2005 entered
into between the Company and CNPC in relation to
certain amendments of the Comprehensive Agreement
"SFO" the Securities and Futures Ordinance (Cap. 571 of
the Laws of Hong Kong)
"Shanghai Stock Exchange" The Shanghai Stock Exchange Limited
"Shanghai Listing Rules" the listing rules of the Shanghai Stock Exchange
"Share(s)" shares of the Company, including the A Share(s)
and the H Share(s)
"Shareholder(s)" holder(s) of Shares of the Company
"subsidiaries" has the meanings ascribed to it under the HKEx
Listing Rules
"substantial shareholder" has the meanings ascribed to it under the HKEx
Listing Rules
"US$" United States Dollars, the lawful currency of the
United States of America
"%" per cent.
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* For identification purpose only.
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LETTER FROM THE BOARD
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(PETROCHINA COMPANY LIMITED LOGO)
(a joint stock limited company incorporated in the
People's Republic of China with limited liability)
(STOCK CODE: 857)
BOARD OF DIRECTORS LEGAL ADDRESS
Jiang Jiemin (Chairman) World Tower,
Zhou Jiping (Deputy Chairman) 16 Andelu
Wang Yilin Dongcheng District
Zeng Yu Kang Beijing 100011
Wang Fucheng People's Republic of China
Li Xinhua
Liao Yongyuan
Wang Guoliang
Jiang Fan
Chee-Chen Tung*
Liu Hongru*
Franco Bernabe*
Li Yongwu*
Cui Junhui*
* Independent non-executive Director
5 September 2008
To the Shareholders
Dear Sir or Madam
(1) RENEWAL OF CONTINUING CONNECTED TRANSACTIONS IN RESPECT OF 2009 TO 2011
(2) REVISED CAPS OF CONTINUING CONNECTED TRANSACTIONS IN RESPECT OF 2008
1. INTRODUCTION
Reference is made to the announcement of the Company dated 27 August 2008
in relation to the Revised Non-Exempt Annual Caps and the Proposed Caps in
respect of the Non-Exempt Continuing Connected Transactions. The purpose
of this circular is to provide you with information necessary to enable
you to make an informed decision on whether to vote for or against the
ordinary resolutions to be proposed at the EGM relating to the approval of
the Revised Non-Exempt Annual Caps and the Proposed Caps in respect of the
Non-Exempt Continuing Connected Transactions.
2. RENEWAL OF CONTINUING CONNECTED TRANSACTIONS IN RESPECT OF 2009 TO 2011
2.1 Background
References are made to the circular of the Company dated 22 September 2005
in relation to the Continuing Connected Transactions and the circular of
the Company dated 14 September 2006
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LETTER FROM THE BOARD
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revising certain annual caps of the Continuing Connected Transactions. At
the extraordinary general meetings of the Company held on 8 November 2005
and 1 November 2006 respectively, the Independent Shareholders and/or
Shareholders (as the case may be) approved the Continuing Connected
Transactions and the annual caps for the three years ending 31 December
2008 and the subsequent revision of certain annual caps.
The Company would continue the Continuing Connected Transactions after 31
December 2008 and therefore will, in accordance with the HKEx Listing
Rules, comply with the provisions of Chapter 14A of the HKEx Listing Rules
in relation to the Continuing Connected Transactions for the next three
years (i.e. from 1 January 2009 to 31 December 2011), including disclosing
further information thereof in this circular and seeking approvals from
the Independent Shareholders and/or Shareholders for the Non-Exempt
Continuing Connected Transactions (including the relevant Proposed Caps).
2.2 Continuing connected transactions under the Comprehensive Agreement
2.2.1 The existing Comprehensive Agreement
The Company and CNPC initially entered into the Comprehensive Agreement on
10 March 2000 for the provision (1) by the Group to CNPC and (2) by CNPC
to the Group, of a range of products and services which may be required
and requested from time to time by either party and/or its subsidiaries
and relevant units (including their respective subsidiaries, branches and
relevant units). The Comprehensive Agreement was amended by the First
Supplemental Comprehensive Agreement and the Second Supplemental
Comprehensive Agreement. The material terms are as follows:
(1) Products and services to be provided by the Group to CNPC and
the Jointly-held Entities
Under the Comprehensive Agreement, products and services to be
provided by the Group to CNPC include those relating to refined oil
products, chemical products, natural gas, crude oil, supply of
water, electricity, gas, heating, quantifying and measuring, quality
inspection and other products and services as may be requested by
CNPC for its own consumption, use or sale from time to time.
Under the Comprehensive Agreement, it was agreed that, among other
things, the Group shall provide to the Jointly-held Entities
products and services including crude oil, refined products,
petrochemical products, natural gas products on the same pricing
basis as those products and services to be provided by the Group to
CNPC.
(2) Products and services to be provided by CNPC to the Group
The products and services to be provided by CNPC to the Group are
expected to be more numerous, both in terms of quantity and variety,
than those to be provided by the Group to CNPC. They have been
grouped together and categorised according to the following types of
products and services:
(a) Construction and technical services, mainly associated with
products and services to be provided at the stage prior to
commission and production, including but not limited to
exploration technology service, downhole operation service,
oilfield construction service, oil refinery construction
service and engineering and design service;
(b) Production services, mainly associated with products and
services to be provided after the formal commission and
production has taken place, arising from the day-to-day
operations needs of the Group, including but not limited to
water supply, electricity generation and supply, gas supply
and communications;
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LETTER FROM THE BOARD
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(c) Material supply services, mainly involving the agency services
on the procurement of materials both before and after
commission and production, including but not limited to
purchase of materials, quality control, storage of materials
and delivery of materials, which by virtue of its nature, are
not covered in the construction and technical services and
production services referred to above;
(d) Social and ancillary services, including but not limited to
security services, education, hospitals, property management,
staff canteen, training centers and guesthouses; and
(e) Financial services, including loans and other financial
assistance, deposits services, entrustment loans, settlement
services and other intermediary services.
(3) Financial services to be provided by the Group to jointly controlled
entities
Financial services including but not limited to provision of
entrustment loans and guarantees.
2.2.2 General principles, pricing and terms
The Comprehensive Agreement (as amended) requires in general terms
that:
S the quality of products and services to be provided
should be satisfactory to the recipient;
S the price at which such products and services are to be
provided must be fair and reasonable; and
S the terms and conditions on which such products and
services are to be provided should be no less favourable
than those offered by independent third parties.
2.2.3 Pricing determination
The Comprehensive Agreement details specific pricing principles for
the products and services to be provided pursuant to the
Comprehensive Agreement. If, for any reason, the specific pricing
principle for a particular product or service ceases to be
applicable, whether due to a change in circumstances or otherwise,
such product or service must then be provided in accordance with the
following general pricing principles:
(a) government-prescribed price (at present, this applies to
products and services such as refined oil products, natural
gas, oil refinery construction, engineering and design,
project monitoring and management); or
(b) where there is no government-prescribed price, then according
to the relevant market prices (at present, this applies to
products and services such as asset leasing, repair of
machinery, transportation, purchase of material, and regional
facilities); or
(the above definitions were amended by the First Supplemental
Agreement. Please refer to the details set out in the
sub-section headed "First Supplemental Agreement")
(c) where neither (a) nor (b) is applicable, then according to:
(i) the actual cost incurred (at present, this applies to
products and services such as library information and
filing, maintenance of roads, retirement administration
and reemployment training); or
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(ii) the agreed contractual price, being the actual cost for
the provision of such product or service plus an
additional margin of not more than:
(1) 15 per cent. (which includes finance costs,
general and administrative expenses and a profit
margin) for certain construction and technical
services (at present, this applies to products and
services such as geological surveying, drilling,
well cementing, logging, mud logging, well testing
and oilfield construction) provided that, such
agreed contractual price shall not be higher than
the prices available for the provision of such
products and services in the international market;
and
(2) 3 per cent. for all other types of products and
services priced in accordance with the agreed
contractual price (at present, this applies to
products and services such as downhole operations,
technology research, equipment repairing and
supporting, equipment antiseptic testing,
communications, fire fighting, quality inspection,
storage of materials, delivery of materials and
training centers).
The definitions of cost price and agreed contractual price include a
provision that the aggregate value, in each future financial year,
of all products and services which are required to be priced at cost
or at agreed contractual prices to be provided under the
Comprehensive Agreement, shall not exceed the aggregate value,
calculated on an adjusted basis as if the Comprehensive Agreement
had been in effect during the year ended 31 December 1998, of all
products and services which were required to be priced at cost or at
agreed contractual prices during the year ended 31 December 1998,
being RMB36.9 billion (the "1998 Amount"), subject to any necessary
adjustment for inflation or deflation, as appropriate, for the
relevant year.
However, if in any future financial year, the Company, due to any
events or factors beyond the control of the Company (e.g. natural
disasters) or the development of new projects, is required to
purchase additional products and services required to be priced at
cost or at agreed contractual prices exceeds the 1998 Amount (as
adjusted for inflation or deflation as appropriate), then that
decision to purchase such additional products or services should be
authorised by the Board (with affirmative votes from the independent
non-executive Directors) and the management of the Company on the
basis of any revised business plan and comprehensive financial
analysis, to ensure that such purchases will allow for a reasonable
return to the Shareholders. In the event that the relevant Proposed
Caps are to be exceeded, the Company will comply with the
requirements of the HKEx Listing Rules.
2.2.4 Coordination of annual demand of products and services
Two months prior to the end of each financial year, both parties are
required to prepare and submit to each other an annual plan
detailing the estimated demand for products and services to be
rendered in accordance with the Comprehensive Agreement for the
forthcoming financial year.
2.2.5 Rights and obligations
Both the Group and CNPC retain the right to choose to receive
products and services, as contemplated under the Comprehensive
Agreement, from independent third parties where the terms and
conditions as to price or quality of products or services offered by
such third parties may be superior to those offered by either of the
Group or the CNPC, as appropriate.
In addition, the provision of products and services by either party
is on a non-exclusive basis and each party may provide products and
services to other third parties, subject always to the
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obligation that each party must be able to provide those products
and services which may be required to be provided in accordance with
the Comprehensive Agreement and the annual plan then in force.
2.2.6 Term and termination
The term of the Comprehensive Agreement was initially 10 years
starting from the date when the Company's business license was
issued and was amended by the Second Supplemental Agreement to 3
years commencing from 1 January 2006. During the term of the
Comprehensive Agreement (as amended), termination of the product and
service implementation agreements described below may be effected
from time to time by the parties to the product and service
implementation agreements providing at least 6 months' written
notice of termination in relation to any one or more categories of
products or services. Further, in respect of any products or
services already contracted to be provided, termination may not take
place until after such products and services have been provided.
In the event that CNPC proposes to terminate the provision of any
products or services, and the Company is unable to find an
alternative product or service provider (which fact shall be
communicated by the Company to CNPC from time to time), then unless
permitted by the Company, CNPC must continue to provide such
products or services in accordance with the terms of the
Comprehensive Agreement (as amended).
2.2.7 First Supplemental Agreement
The First Supplemental Agreement was entered into by CNPC and the
Company on 9 June 2005 in which the following definitions under the
Comprehensive Agreement were amended as follows:
The definition of "government-prescribed price" was amended to mean
the price in respect of certain category of services determined by
the laws, regulations, decisions, orders or policies, etc. enacted
by governments of the relevant countries or regions (including but
not limited to the central government, federal government,
provincial government, state or coalition government or any
organisation responsible for domestic ruling and foreign affairs in
respect to certain specified territory, irrespective of its name,
organisation or structure) or other regulatory departments; or
The definition of "market price" was amended to mean the price
determined in accordance with the following order:
(i) the price charged by independent third parties in areas where
such type of service is provided and on normal terms in the
area where the service is being provided at that time; or
(ii) the price charged by independent third parties in nearby areas
where such type of service is provided and on normal terms in
the area or country adjacent to the area where the service is
being provided at that time.
2.2.8 Second Supplemental Agreement
The Second Supplemental Agreement was entered into by CNPC and the
Company on 1 September 2005 and took effect on 1 January 2006, in
which CNPC and the Company agreed to amend certain terms of the
Comprehensive Agreement, including, among other things, that:
S both CNPC and the Company shall provide and shall
procure their respective entities including their
subsidiaries, branches and other relevant units to
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provide products and services in accordance with the
terms and principles of the Comprehensive Agreement;
S CNPC will provide certain risk operation services as
part of the construction and technical services to the
Group, and these include the provision of exploration
and production services within certain and specific
reserves of the Company with exploration and
exploitation difficulties;
S the Group will provide certain financial assistance to
the Jointly-held Entities including entrustment loans
and guarantees; and
S the Jointly-held Entities will provide certain financial
assistance to the Group including entrustment loans and
guarantees.
Under the Second Supplemental Agreement, the products and services
shall be provided at prices to be determined according to the
pricing principles for the corresponding products or services under
the Comprehensive Agreement.
In particular, the Comprehensive Agreement stipulates, among other
things, that:
S the loans and deposit services shall be provided at
prices determined in accordance with the relevant
interest rate and standard for fees as promulgated by
the People's Bank of China. Such prices must also be
more favourable to the Group than those provided by
independent third parties; and
S the guarantees shall be provided at prices not higher
than the fees charged by the state policy banks in
relation to the provision of guarantees. References must
also be made to the relevant government-prescribed price
and market price.
2.3 New Comprehensive Agreement
In October 2007, the Company issued the A Shares which have been listed on
the Shanghai Stock Exchange. In order to comply with the HKEx Listing
Rules and the Shanghai Listing Rules, on the basis of the existing
Comprehensive Agreement, the Company and CNPC entered into a new products
and services comprehensive agreement on 27 August 2008 for a period of
three years which shall take effect on 1 January 2009. The New
Comprehensive Agreement has already incorporated the terms of the First
Supplemental Agreement and the Second Supplemental Agreement and the
following three amendments are introduced to the Comprehensive Agreement:
The major amendments to the First Supplemental Agreement and the Second
Supplemental Agreement which have already been incorporated into the New
Comprehensive Agreement are as follows:
(1) The following material provisions relating to the regulatory
requirements for A Shares have been added to the New
Comprehensive Agreement following the issue of A Shares by the
Company in 2007:
(a) The following description has been added to the
"Background" section: "PetroChina conducted a placing of
H Shares (which include newly issued Shares and a sale
of Shares transferred from CNPC to the National Council
for Social Security Fund) in September 2005 and issued
Renminbi-denominated ordinary A shares ("A Shares") in
the PRC in October 2007 and the A Shares are listed on
the Shanghai Stock Exchange. Upon the issue and listing
of the A Shares, CNPC remains as the controlling
shareholder of PetroChina".
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(b) Terms stipulating the requirement for obtaining approval
of the "Hong Kong Stock Exchange" or the application of
the regulatory rules of the Hong Kong Stock Exchange
have been amended to refer to "the relevant stock
exchange(s) and authorized regulatory authorities of the
places of listing", or alternatively, the "Shanghai
Stock Exchange" is inserted where appropriate.
(2) Provisions of the existing Comprehensive Agreement are
modified based on the actual operating requirements of the
Company:
(a) References to "services" provided by a party in the
existing agreement have been changed to "products and/or
services provided by a party".
(b) The scope of financial products and services provided
for in the existing Comprehensive Agreement is modified
as shown below in italics: "Party A (CNPC) shall,
through its subsidiaries or entities including CNPC
Finance and other financial institutions to operate in
accordance with relevant rules the business of Renminbi
and foreign currency deposits and loans, interest
earning, provision of guarantee, entrusted management
of funds guaranteeing safety in refined products and
petrochemical production and other financial services."
(c) The pricing principle applicable to financial products
and services as set out in the existing Comprehensive
Agreement shall be amended as shown below in italics:
"The fees for the financial services provided by CNPC
Finance and other financial institutions shall be
determined by making reference to the interest rate and
the relevant fee rate for the same period published by
the People's Bank of China or relevant financial
industry regulatory authorities, and shall be more
favourable than the interest rate, fee rate and other
terms for the provision of funds and services for the
same period offered by an independent third party to
Party B (the Company)."
(d) The scope of products and services to be provided by
Party B to Party A under the existing Comprehensive
Agreement shall be modified as shown below in italics:
"Products and services to be provided by the Group to
CNPC include those relating to crude oil, natural gas,
refined oil products, chemical products, supply of
water, electricity, gas, heating, quantifying and
measuring, quality inspection, entrusted operation and
management and other related or similar products and
services.
(e) Other modifications include amending the registered
addresses, definition of names of companies, etc.
(3) The term of the agreement: "This agreement shall become
effective from 1 January, 2009 for a period of three years
after this agreement has been approved by the shareholders of
Party B at its shareholders' meeting and after the authorized
representatives of both parties have signed and affixed the
common seals. The term of this agreement may be extended upon
mutual agreement of both parties and subject to the approval
of the relevant stock exchange(s) and authorized regulatory
authorities of the places of listing and/or the approval of
shareholders of Party B at a shareholders' meeting (depending
on the requirements of the stock exchanges and authorized
regulatory authorities of the places of listing)."
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2.4 Rentals to be paid by the Group to CNPC in respect of land
The Company entered into the Land Use Rights Leasing Contract with CNPC on
10 March 2000 under which CNPC has leased a total of 42,476 parcels of
land in connection with and for the purpose of all aspects of the
operations and business of the Group covering an aggregate area of
approximately 1,145 million square meters, located throughout the PRC, to
the Company for a term of 50 years at an annual fee of RMB2,000 million.
The Board believes that a term of 50 years is appropriate for the Land Use
Rights Leasing Contract, since the Company is China's largest petroleum
company engaging in exploration, development, sale and production of crude
oil, natural gas and chemicals, and the relevant land leases are of
material significance of its operations, the long stability of a 50 year
tenure is required to avoid the unnecessary disruption of its operations;
and such tenure conforms with normal business practice in the PRC property
market. The total fee payable for the lease of all such property may,
after the expiration of 10 years from the date of the Land Use Rights
Leasing Contract, be adjusted (to reflect market conditions prevalent at
such time of adjustment, including current market prices, inflation or
deflation, as appropriate, and such other pertinent factors as may be
considered in negotiating and agreeing to any such adjustment) by
agreement between the Company and CNPC. In addition, any governmental,
legal or other administrative taxes and fees required to be paid in
connection with the leased properties will be borne by CNPC. However, any
additional amount of such taxes payable as a result of changes in the PRC
Government policies after the date of the contract shall be shared
proportionately on a reasonable basis between CNPC and the Company.
In view of the increase in the land consumption tax by 200% per square
meter in the PRC with effect from 1 January 2007, the proposed annual cap
for the three years ending 31 December 2011, comprising the annual fee of
RMB2,000 million and the relevant tax, has been increased to approximately
RMB3,800 million per annum.
The Directors (including the independent non-executive Directors, whose
view are included in the letter from the Independent Board Committee set
out in this circular) consider it is normal business practice for the Land
Use Rights Leasing Contract to have a term of 50 years. Savills (Hong
Kong) Limited, an independent valuer, has reviewed the Land Use Rights
Leasing Contract and has confirmed that the term of 50 years and current
rentals payable by the Company to CNPC are fair and reasonable to the
Company, that the term of 50 years is in line with the normal practice in
the PRC and that the current rentals payable by the Company to CNPC are in
line with the market rentals. The date of valuation is 30 June 2008.
The views of the Independent Financial Adviser on whether it is normal
business practice for the Land Use Rights Leasing Contract to have a term
of 50 years are included in the letter from the Independent Financial
Adviser set out in this circular.
2.5 Rentals to be paid by the Group to CNPC in respect of buildings
The Company entered into the Buildings Leasing Contract with CNPC on 10
March 2000 pursuant to which CNPC has leased to the Company a total of 191
buildings covering an aggregate area of 269,770 square meters, located
throughout the PRC for the use by the Company for its business operation
including the exploration, development and production of crude oil, the
refining of crude oil and petroleum products, the production and sale of
chemicals, etc.
The 191 buildings were leased at a price of RMB145 per square meter per
year, that is, at an aggregate annual fee of RMB39,116,650, for a term of
20 years. The Board believes that a term of 20 years is appropriate for
the Buildings Leasing Contract (as amended), since the Company is China's
largest petroleum company engaging in exploration, development, sales and
production of crude oil, natural gas and chemicals, the relevant building
leases are of material significance of its operations, and the long
stability of a 20 year tenure is required to avoid the unnecessary
disruption of its operations; and such tenure conforms with normal
business practice in the PRC property market. The Company is responsible
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for the payment of any governmental, legal or other administrative taxes
and maintenance charges required to be paid in connection with these 191
leased buildings. The Buildings Leasing Contract details the particulars
of the buildings leased by members of CNPC to the Company.
Members of CNPC which own one or more of the leased buildings will enter
into individual building leasing contracts with the Company. The
individual building leasing contracts may only contain provisions which
are consistent with the terms and conditions of the Buildings Leasing
Contract.
One month prior to the end of each financial year, CNPC and the Company
shall make and agree upon a rental fee distribution plan setting out
specific prices for the buildings according to their geographical
locations and conditions.
Supplemental Buildings Leasing Agreement
Further to the Buildings Leasing Contract mentioned above, the Company
entered into a Supplemental Buildings Leasing Agreement (the "Supplemental
Buildings Agreement") with CNPC on 26 September 2002 under which CNPC
agreed to lease another 404 buildings to the Group in connection with and
for the purpose of the operation and business of the Group covering an
aggregate of approximately 442,730 square meters. Leasing of the units in
the Supplemental Buildings Agreement is mainly attributable to the
expansion of the Company's operations in the areas of oil and natural gas
exploration, the West-East natural gas pipeline project and the
construction of the Northeast refineries and chemical operation base. The
annual fee payable under the Supplemental Buildings Agreement amounts to
RMB157,439,540. The Company and CNPC will, based on their needs for
production and operation or the changes of the market prices of the
buildings, adjust the scale and the amount of all such buildings under the
Buildings Leasing Contract as well as the Supplemental Buildings Agreement
every three years. The Supplemental Buildings Agreement became effective
on 1 January 2003 and will expire at the same time as the Buildings
Leasing Contract.
The Directors (including the independent non-executive Directors, whose
views are included in the letter from the Independent Board Committee set
out in this circular) consider it is normal business practice for the
Buildings Leasing Contract and the Supplemental Buildings Agreement to
have a term of 20 years. Savills (Hong Kong) Limited, an independent
valuer, has reviewed both the Buildings Leasing Contract and the
Supplemental Buildings Agreement and has confirmed that the term of 20
years and current rentals payable by the Company to CNPC are fair and
reasonable to the Company, the term of 20 years is in line with the normal
practice in the PRC and the current rentals payable by the Company to CNPC
are in line with the market rentals. The date of valuation is 30 June
2008.
The views of the Independent Financial Adviser on whether it is normal
business practice for the Buildings Leasing Contract and the Supplemental
Buildings Agreement to have a term of 20 years are included in the letter
from the Independent Financial Adviser set out in this circular.
2.6 Continuing connected transactions under the CRMSC Products and Services
Agreement
2.6.1 Products and services to be provided by the Company to CRMSC
Under the CRMSC Products and Services Agreement, products and
services to be continuously provided by the Company to CRMSC
include, among other things, refined products (such as gasoline,
diesel and other petroleum products).
2.6.2 General principles, pricing and terms
The CRMSC Products and Services Agreement requires, in general terms
that:
(a) The quality of goods and services to be provided should be
satisfactory to the recipient;
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(b) The price at which such products and services are to be
provided must be fair and reasonable;
(c) The terms and conditions on which such products and services
are to be provided should be no less favourable than those
offered by independent third parties; and
(d) The products and services shall be provided and standardised
by contracting under individual product and service
agreements.
2.6.3 Pricing determination
The price of any product and service provided pursuant to the CRMSC
Products and Services Agreement shall be determined by reference to
the government-prescribed price or the market price where there is
no government-prescribed price.
2.6.4 Coordination of annual demand of products and services
Before November of each year, CRMSC is required to discuss and
confirm with the Company an annual plan detailing the estimated
demand for products and services to be rendered in accordance with
the CRMSC Products and Services Agreement for the forthcoming year.
It is envisaged that from time to time and as required, individual
product and service implementation agreements will be entered into
between the Company and CRMSC and their respective subsidiaries and
units (including subsidiaries, branches and other relevant units),
as appropriate, in connection with the provision of products and
services under the CRMSC Products and Services Agreement.
2.6.5 Rights and obligations
Both the Company and CRMSC agree and guarantee, among other things,
to procure their respective subsidiaries and units (including
subsidiaries, branches and other relevant units) to provide the
products and services thereof in accordance with the terms and
services thereof in accordance with the terms and principles of the
CRMSC Products and Services Agreement.
2.6.6 Term and termination
The term of the CRMSC Products and Services Agreement was initially
3 years commencing from 1 January 2006. Pursuant to the supplemental
agreement to the CRMSC Products and Services Agreement dated 27
August 2008, the term of the CRMSC Products and Services Agreement
shall be extended for a further period of three years commencing
from 1 January 2009 to 31 December 2011.
During the term of the CRMSC Products and Services Agreement (as
amended), the product and service implementation agreements may be
terminated from time to time by the parties to the product and
service implementation agreements providing at least 6 months'
written notice of termination in relation to any one or more
categories of products or services. Further, in respect of any
products or services already contracted to be provided, termination
may not take place until after such products and services have been
provided.
2.7 Continuing connected transactions under the Beijing Gas Products and
Services Agreement
2.7.1 Products and services to be provided by the Company to Beijing Gas
Under the Beijing Gas Products and Services Agreement, products and
services to be continuously provided by the Company to Beijing Gas
include, among other things, natural gas and natural gas related
pipe transportation services.
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2.7.2 General principles, pricing and terms
The Beijing Gas Products and Services Agreement requires, in general
terms that:
(a) The quality of goods and services to be provided should be
satisfactory to the recipient;
(b) The price at which such products and services are to be
provided must be fair and reasonable;
(c) The terms and conditions on which such products and services
are to be provided should be no less favourable than those
offered by independent third parties; and
(d) The products and services shall be provided and standardised
by contracting under individual product and service
agreements.
2.7.3 Pricing determination
The pricing of any product and service provided pursuant to the
Beijing Gas Products and Services Agreement shall be determined by
reference to the government-prescribed price or the market price
where there is no government-prescribed price.
2.7.4 Coordination of annual demand of products and services
Before November of each year, Beijing Gas is required to discuss and
confirm with the Company an annual plan detailing the estimated
demand for products and services to be rendered in accordance with
the Beijing Gas Products and Services Agreement for the forthcoming
year. It is envisaged that from time to time and as required,
individual product and service implementation agreements will be
entered into between the Company and Beijing Gas and their
respective subsidiaries and units (including subsidiaries, branches
and other relevant units), as appropriate, in connection with the
provision of products and services under the Beijing Gas Products
and Services Agreement.
2.7.5 Rights and obligations
Both the Company and Beijing Gas agree and guarantee, among other
things, to procure their respective subsidiaries and units
(including subsidiaries, branches and other relevant units) to
provide the products and services in accordance with the terms and
principles of the Beijing Gas Products and Services Agreement.
2.7.6 Term and termination
The term of the Beijing Gas Products and Services Agreement was
initially 3 years commencing from 1 January 2006. Pursuant to the
supplemental agreement to the Beijing Gas Products and Services
Agreement dated 27 August 2008, the term of the Beijing Gas Products
and Services Agreement shall be extended for a further period of
three years commencing from 1 January 2009 to 31 December 2011.
During the term of the Beijing Gas Products and Services Agreement
(as amended), the product and service implementation agreements may
be terminated from time to time by the parties to the product and
service implementation agreements providing at least 6 months'
written notice of termination in relation to any one or more
categories of products or services. Further, in respect of any
products or services already contracted to be provided, termination
may not take place until after such products and services have been
provided.
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2.8 Historical amounts, existing caps, proposed caps and rationale
The Board has considered and proposed that the following proposed caps in
respect of the Continuing Connected Transactions which will serve as the
maximum annual value of the relevant transactions above for the period
from 1 January 2009 to 31 December 2011:
HISTORICAL EXISTING 2008 PROPOSED CAPS FOR BASIS OF DETERMINATION OF
TRANSACTIONS AMOUNT ANNUAL CAP 2009 TO 2011 THE PROPOSED CAPS
------------ ------------------ ------------- ----------------- --------------------------------------------
(1) Products and For the two years For the year For the three The annual proposed caps for the products
services to be ended 31 December ending years ending and services to be provided by the Group to
provided by the 2007 and the six 31 December 31 December CNPC and Jointly-held Entities have been
Group to CNPC months ended 2008, 2011, RMB96,324 determined with reference to the historical
and Jointly 30 June 2008, RMB50,129 million, transactions and transaction amounts in
controlled approximately million RMB156,440 providing products and services by the Group
Entities RMB27,714 million, (proposed to million and to CNPC; the estimated business growth of
RMB40,730 million be revised to RMB167,981 the Group; the estimated business growth of
and RMB22,186 RMB71,289 million, CNPC; the potential fluctuations and
million, million) respectively increases in the prices of crude oil,
respectively petrochemical products, natural gas and
other oil products and services both in the
international market and in the domestic
market; and quantities of crude oil required
(by the Group as decreed by the government).
The Group is of the view that the proposed
increase in annual cap is in line with the
estimated development of the business of the
Group and the CNPC Group, and is determined
based on principles of fairness and
reasonableness.
(2) Products
and services to be
provided by CNPC
to the Group
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HISTORICAL EXISTING 2008 PROPOSED CAPS FOR BASIS OF DETERMINATION OF
TRANSACTIONS AMOUNT ANNUAL CAP 2009 TO 2011 THE PROPOSED CAPS
------------ ------------------ ------------- ----------------- --------------------------------------------
(a) Construction For the two years For the year For the three The annual proposed caps for the provision
and technical ended 31 December ending years ending of construction and technical services have
services 2007 and the six 31 December 31 December 2011, been determined with reference to the
months ended 2008, RMB242,967 previous transactions and transaction
30 June 2008, RMB105,661 million, amounts for the construction and technical
approximately million RMB256,937 services provided by CNPC to the Group; the
RMB82,741 million, (proposed to million and estimated business growth of the Company and
RMB97,257 million be revised to RMB215,526 the increase in capital investment for
and RMB42,588 RMB165,578 million, pipelines construction and refinery projects
million, million) respectively during 2009-2011.
respectively
As it is expected that a significant portion
of these projects will be completed in 2010,
the estimated cap in 2011 is lower than
that of 2009-2010.
The Group has obtained construction and
technical services from CNPC in the ordinary
course of business, and as one of the most
experienced companies in the world, the
construction and technical services provided
to the Group are quality services. CNPC is
also one of the few companies in the PRC
which provide quality petrochemical related
construction and technical services.
The Group is of the view that the proposed
increase in annual cap is in line with the
estimated development of the business of the
Group, and is determined based on principles
of fairness and reasonableness.
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HISTORICAL EXISTING 2008 PROPOSED CAPS FOR BASIS OF DETERMINATION OF
TRANSACTIONS AMOUNT ANNUAL CAP 2009 TO 2011 THE PROPOSED CAPS
------------ ------------------ ------------- ----------------- --------------------------------------------
(b) Production For the two years For the year For the three The annual proposed caps for the production
services ended 31 December ending years ending services provided by CNPC to the Group have
2007 and the six 31 December 31 December 2011, been determined with reference to the
months ended 2008, RMB92,912 previous transactions conducted and
30 June 2008, RMB98,518 million, transaction amounts in respect of production
approximately million RMB138,221 services provided by CNPC to the Group; the
RMB32,730 million, million and estimated business growth of the Group; and
RMB49,455 million RMB182,798 the potential fluctuations and increases in
and RMB38,391 million, the international and the PRC market prices
million, respectively of crude oil, petroleum and petrochemical
respectively products, leading to higher energy costs
in the production process.
Production services mainly consist of water
supply, electricity generation and supply,
gas supply by CNPC to the Group and the
supply of petroleum and petrochemical
products by Jointly-held Entities to the
Group. The Group is of the view that the
proposed increase in annual cap is in line
with the estimated development of the
business of the Group, and is determined
based on principles of fairness and
reasonableness.
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HISTORICAL EXISTING 2008 PROPOSED CAPS FOR BASIS OF DETERMINATION OF
TRANSACTIONS AMOUNT ANNUAL CAP 2009 TO 2011 THE PROPOSED CAPS
------------ ------------------ ------------- ----------------- --------------------------------------------
(c) Material For the two years For the year For the three The annual caps for the supply of materials
supply services ended 31 December ending years ending services paid by the Group to CNPC have been
2007 and the six 31 December 31 December 2011, determined by reference to the estimated
months ended 2008, RMB5,574 RMB6,245 million, business growth of the Company; and
30 June 2008, million RMB7,306 million increases in the volume of purchases by
approximately (proposed to and RMB6,985 the Group.
RMB3,306 million, be revised to million,
RMB3,573 million RMB5,850 respectively CNPC is one of the leading buyers of
and RMB3,818 million) petrochemical raw materials in the PRC. With
million, the economy of scale and to increase the
respectively collective bargaining power of CNPC, the
centralized materials purchase by CNPC thus
stabilise the purchase prices of the
Company's raw materials.
With the Company's dominant position and
increase in the petroleum and petrochemical
industries of the PRC, as well as the
increase in the size of business, these
ongoing connected transactions and
transaction amounts are expected to
increase.
On the other hand, the Group is also
involved in a number of pipeline
construction and refinery projects in which
CNPC provides to the Group material supply
services. As it is expected that a
significant portion of these projects will
be completed in 2010, the estimated cap in
2011 is lower than that of 2010.
The Group is of the view that the proposed
increase in annual cap is in line with the
estimated development of the business of the
Group, and is determined based on principles
of fairness and reasonableness.
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HISTORICAL EXISTING 2008 PROPOSED CAPS FOR BASIS OF DETERMINATION OF
TRANSACTIONS AMOUNT ANNUAL CAP 2009 TO 2011 THE PROPOSED CAPS
------------ ------------------ ------------- ----------------- --------------------------------------------
(d) Social and For the two years For the year For the three The annual proposed caps for social and
ancillary ended 31 December ending years ending ancillary services have been determined with
services 2007 and the six 31 December 31 December 2011, reference to the previous transactions
months ended 2008, RMB5,000 RMB7,045 million, conducted and transaction amounts in respect
30 June 2008, million RMB7,581 million of the social and ancillary services
approximately (proposed to and RMB8,040 provided by CNPC to the Group; the estimated
RMB4,759 million, be revised million, business growth of the Group. The Group is
RMB4,864 million to RMB5,811 respectively of the view that the proposed increase in
and RMB2,341 million) annual cap is in line with the development
million, of the business of the Group, and is
respectively determined based on principles of fairness
and reasonableness.
(e) Financial
services (note)
(i) Aggregate For the two years For the year For the three The annual proposed caps for the financial
of maximum daily ended 31 December ending years ending services (aggregate of deposits and
deposits made 2007 and the six 31 December 31 December 2011, interests) provided by CNPC to the Group
by the Group months ended 2008, RMB18,600 million, have been determined with reference to the
with CNPC and 30 June 2008, RMB9,126 RMB18,600 million estimated business growth of the Group; the
the interests approximately million and RMB18,600 Group's historical cashflow and levels of
thereon RMB8,816 million, million, deposits; the competitive interest rates
RMB8,694 million respectively offered by CNPC Finance and other financial
and RMB7,900 institutions.
million,
respectively In order to optimise cash flow management
and capital efficiency of the Group and
CNPC, there is the specific target of
providing a centralised financial management
by CNPC Finance and other financial
institutions, which provides a full range of
financial services to the Group and CNPC.
The Group is of the view that the proposed
increase in annual cap is in line with the
development of the business of the Group,
and is determined based on principles of
fairness and reasonableness.
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HISTORICAL EXISTING 2008 PROPOSED CAPS FOR BASIS OF DETERMINATION OF
TRANSACTIONS AMOUNT ANNUAL CAP 2009 TO 2011 THE PROPOSED CAPS
------------ ------------------ ------------- ----------------- --------------------------------------------
(ii) Insurance, Nil The annual For the three To optimise cash flow management and capital
fees and caps for years ending efficiency of the Group and CNPC, there is
expenses for 2006 to 2008 31 December 2011, the specific target of providing a
entrustment approved by RMB1,864 million, centralised financial management by CNPC
loans, the RMB1,928 million Finance and other financial institutions,
settlement Independent and RMB2,016 which provides a full range of financial
services and Shareholders million, services to the Group and CNPC.
other were combined respectively
intermediary into the
services annual caps
in respect of
the loans and
other
financial
services
provided by
CNPC to the
Group and
therefore,
no separate
annual caps
are available.
(3) Financial For the two years For the year For the three The annual proposed caps for the financial
services to be ended 31 December ending years ending services, including but not limited to
provided by the 2007 and the six 31 December 31 December 2011, guarantees and entrustment loans, to be
Group to months ended 2008, RMB23,582 million, provided by the Group to the Jointly-held
Jointly-held 30 June 2008, RMB44,465 RMB36,484 million Entities have been determined with reference
Entities approximately million and RMB51,839 to the business development and financing
RMB1,515 million, million, needs of the Jointly-held Entities; and the
RMB2,138 million respectively acquisition opportunities which may arise
and RMB353 from time to time in the international
million, market. The Group's strategic objective of
respectively becoming an international petroleum company
with significant oil assets both onshore and
offshore as well as in both the PRC and
international markets. The Group is of the
view that the provision of financial
services to the Jointly-held Entities will
enable them to have sufficient funding for
future expansion.
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HISTORICAL EXISTING 2008 PROPOSED CAPS FOR BASIS OF DETERMINATION OF
TRANSACTIONS AMOUNT ANNUAL CAP 2009 TO 2011 THE PROPOSED CAPS
------------ ------------------ ------------- ----------------- --------------------------------------------
(4) Rentals to For the two years For the year For the three Each of the annual proposed caps comprises
be paid by the ended 31 December ending years ending of the annual leasing fee and the relevant
Group to CNPC 2007 and the six 31 December 31 December PRC tax, which are in accordance with the
in respect of months ended 2008, RMB2,260 2011, RMB3,795 Land Use Rights Leasing Contract. Savills
land 30 June 2008, million million, (Hong Kong) Limited, an independent valuer,
approximately (proposed to be RMB3,781 has appraised the lands leased to the Group.
RMB2,135 million, revised to million and
RMB2,152 million RMB3,506 RMB3,786 million,
and RMB978 million, million) respectively
respectively
(5) Rentals to For the two years For the year For the three The Board considers that pursuant to the
be paid by the ended 31 December ending years ending Buildings Leasing Contract (as amended by
Group to CNPC 2007 and the six 31 December 31 December the Supplemental Buildings Agreement), the
in respect of months ended 2008, RMB140 2011, RMB210 annual proposed caps in respect of the
buildings 30 June 2008, million million, RMB217 building leases provided by CNPC to the
approximately (proposed to million and Group can support future business
RMB140 million, be revised RMB221 million, development and planning. The annual
RMB140 million to RMB196 respectively proposed caps are in accordance with
and RMB58 million, million) Buildings Leasing Contract (as amended by
respectively the Supplemental Buildings Agreement), and
Savills (Hong Kong) Limited, an independent
valuer, has appraised the buildings leased
to the Group.
(6) Products and For the two years For the year For the three The annual proposed caps have been
services to be ended 31 December ending years ending determined with reference to (i) the
provided by the 2007 and the six 31 December 31 December 2011, relevant pricing principles, i.e., the
Group to months ended 2008, RMB19,814 million, government-prescribed price; (ii) the
CRMSC 30 June 2008, RMB13,152 RMB22,012 million historical transaction levels for the same
approximately million and RMB23,729 type of transaction; and (iii) the estimated
RMB11,046 million, (proposed to be million, future transaction levels based on the
RMB12,022 million revised to respectively market needs in the coming 3 years.
and RMB7,229 RMB16,833
million, million)
respectively
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HISTORICAL EXISTING 2008 PROPOSED CAPS FOR BASIS OF DETERMINATION OF
TRANSACTIONS AMOUNT ANNUAL CAP 2009 TO 2011 THE PROPOSED CAPS
------------ ------------------ ------------- ----------------- --------------------------------------------
(7) Products and For the two years For the year For the three The annual proposed caps have been
services to be ended 31 December ending years ending determined with reference to (i) the
provided by the 2007 and the six 31 December 31 December 2011, relevant pricing principles, i.e., the
Group to months ended 2008, RMB7,097 RMB8,296 million, government-prescribed price; (ii) the
Beijing Gas 30 June 2008, million RMB11,775 million historical transaction levels for the same
approximately (proposed to and RMB16,200 type of transaction; and (iii) the estimated
RMB4,170 million, be revised to million, future transaction levels based on the
RMB4,865 million RMB7,936 respectively market needs in the coming 3 years.
and RMB3,331 million)
million,
respectively
Note: The New Comprehensive Agreement also provides for loans and other
financial assistance to be provided by CNPC to the Group. These are
exempted under Rule 14A.65(4) of the HKEx Listing Rules from the
reporting, announcement and the independent shareholders' approval
requirements set out in Chapter 14A of the HKEx Listing Rules. Please
refer to paragraph 2.10.1 for details.
2.9 Reasons for and benefits of the Continuing Connected Transactions
The Continuing Connected Transactions are and will be conducted in the
ordinary and usual course of business of the Company. This category of
transactions will continue to be agreed on an arm's length basis with
terms that are fair and reasonable to the Company. Due to the long-term
relationship between the Company and CNPC and between the Company and
Beijing Gas/ CRMSC, the Directors (including the independent non-executive
Directors) consider that: (a) it is beneficial to the Company to continue
to enter into the Continuing Connected Transactions as these transactions
have facilitated and will continue to facilitate the operation and growth
of the Group's business; (b) the Continuing Connected Transactions have
been conducted on normal commercial terms or on terms no less favourable
than those available to the Group from independent third parties, under
prevailing local market conditions, and were entered into in the ordinary
and usual course of business of the Group, are fair and reasonable and in
the interests of the Company and the Shareholders as a whole, and that the
Proposed Caps are fair and reasonable.
The views of the independent non-executive Directors constituting the
Independent Board Committee on the Non-Exempt Continuing Connected
Transactions and the Proposed Caps in respect of the Non-Exempt Continuing
Connected Transactions are included in the letter from the Independent
Board Committee set out in this circular.
2.10 Disclosure and independent shareholders' approval requirements
2.10.1 Under the HKEx Listing Rules, loans and other financial assistance
to be provided by CNPC to the Group, being financial assistance
provided by a connected person for the benefit of the listed
issuer on normal commercial terms (or better to the listed issuer)
where no security over the assets of the listed issuer is granted
in respect thereof, is exempted under Rule 14A.65(4) of the HKEx
Listing Rules from the reporting, announcement and the independent
shareholders' approval requirements set out in Chapter 14A of the
HKEx Listing Rules.
2.10.2 Under the HKEx Listing Rules, the following category of Continuing
Connected Transactions is exempted from the reporting,
announcement and the independent shareholders' approval
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requirements set out in Chapter 14A of the HKEx Listing Rules, as
each of the percentage ratios under Rule 14.07 of the HKEx Listing
Rules (other than the profits ratio), where applicable, in
relation of each of these categories is, on an annual basis,
expected to be less than 0.1% under Rule 14A.33(3)(a) of the HKEx
Listing Rules:
(5) Rentals to be paid by the Group to CNPC in respect of
buildings
2.10.3 Under the HKEx Listing Rules, the following categories of
Continuing Connected Transactions are exempted from the
independent shareholders' approval requirement but are subject to
the reporting and announcement requirements set out in Rules
14A.45 to 14A.47 of the HKEx Listing Rules, as each of the
percentage ratios under Rule 14.07 of the HKEx Listing Rules
(other than the profits ratio), where applicable, in relation of
each of these categories is, on an annual basis, expected to be
less than 2.5% under Rule 14A.34(1) of the HKEx Listing Rules:
2(c) Material supply services to be provided by CNPC to the
Group
2(d) Social and ancillary services to be provided by CNPC to
the Group
(2)(e)(i) Aggregate of the maximum daily amount of deposits and
the total amount of interest received in respect of
these deposits
(2)(e)(ii) Insurance, fees and expenses for entrustment loans,
settlement services and other intermediary services
(4) Rentals to be paid by the Group to CNPC in respect
of land
(7) Products and services to be provided by the Group to
Beijing Gas
2.10.4 Under the HKEx Listing Rules, the following transactions are
Non-Exempt Continuing Connected Transactions which are subject to
the reporting, announcement and independent shareholders' approval
(in respect of products and services to be provided by the Group
to CRMSC, Shareholders' approval only) requirements
(1) Products and services to be provided by the Group to
CNPC and Jointly-held Entities
(2)(a) Construction and technical services to be provided by
CNPC to the Group
(2)(b) Production services to be provided by CNPC to the Group
(3) Financial services to be provided by the Group to the
Jointly-held Entities
(6) Products and services to be provided by the Group to
CRMSC
The Company will seek the Independent Shareholders'/Shareholders'
approval at the Extraordinary General Meeting for the Non-Exempt
Continuing Connected Transactions and the relevant proposed caps
on the condition that:
(I) the annual amount of each category of the Non-Exempt
Continuing Connected Transactions shall not exceed the
relevant proposed cap;
(II) (i) the Non-Exempt Continuing Connected Transactions
will be entered into in the ordinary and usual
course of business of the Group and either (A)
on normal commercial terms or (B) if there is
no available comparison, on terms no less
favourable than terms available to the Group
from independent third parties; and
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(ii) the Non-Exempt Continuing Connected Transactions will be
entered into in accordance with the Comprehensive Agreement
(for transactions (1), (2)(a)-(b) and (3)), or the CRMSC
Products and Services Agreement (for transaction (6)) and on
terms that are fair and reasonable and in the interests of
the Company and the Shareholders as a whole.
The Company will comply with relevant provisions of the HKEx Listing
Rules in relation to each category of the Non-Exempt Continuing
Connected Transactions.
3. REVISED CAPS OF CONTINUING CONNECTED TRANSACTIONS IN RESPECT OF 2008
3.1 Background
References are made to the circular of the Company dated 22 September 2005
in relation to the Continuing Connected Transactions and the circular of
the Company dated 14 September 2006 revising certain annual caps of the
Continuing Connected Transactions. At the extraordinary general meetings of
the Company held on 8 November 2005 and 1 November 2006 respectively, the
Independent Shareholders and/or Shareholders (as the case may be) approved
the Continuing Connected Transactions and the annual caps for the three
years ending 31 December 2008 and the subsequent revision of certain annual
caps.
The Company has closely monitored the performance of the Continuing
Connected Transactions. However, due to the surge in the international
crude oil prices in 2008, the increase in the volume of the refined
products, estimated increase in the level of exploration activities by the
Group within the PRC, the rise of exploration costs and the expansion of
overseas exploration, and taking into account the fact that, based on
historical trends, the amount of transactions settled for the second half
of each year often accounts for more than two-thirds of the value for the
full year, the Board considers that the existing annual cap in respect of
2008 for certain categories of the Continuing Connected Transactions,
namely the Relevant Categories, may not be able to satisfy the Group's
requirements for the whole year. The Board therefore proposes that the
existing annual cap for the Relevant Categories in respect of 2008 be
revised in order to cater for the Group's demand for the year ending 31
December 2008.
3.2 The Relevant Categories
3.2.1 Products and services to be provided by the Group to CNPC and
Jointly-held Entities
Under the Comprehensive Agreement, products and services to be
provided by the Group to CNPC include those relating to refined oil
products, chemical products, natural gas, crude oil, supply of water,
electricity, gas, heating, quantifying and measuring, quality
inspection and other products and services as may be requested by
CNPC for its own consumption, use or sale from time to time.
Under the Comprehensive Agreement, it was agreed that, among other
things, the Group shall provide to the Jointly-held Entities products
and services including crude oil, refined products, petrochemical
products, natural gas products on the same pricing basis as those
products and services to be provided by the Group to CNPC.
3.2.2 Products and services to be provided by CNPC to the Group
The products and services to be provided by CNPC to the Group are
expected to be more numerous, both in terms of quantity and variety,
than those to be provided by the Group to CNPC. They have been
grouped together and categorised into various types. The Board has
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proposed to revise the annual cap in respect to the following types
of products and services for the year ending 31 December 2008:
(a) Construction and technical services, mainly associated with
products and services to be provided at the stage prior to
commission and production, including but not limited to
exploration technology service, downhole operation service,
oilfield construction service, oil refinery construction
service and engineering and design service;
(c) Material supply services, mainly involving the agency services
on the procurement of materials both before and after
commission and production, including but not limited to
purchase of materials, quality control, storage of materials
and delivery of materials, which by virtue of its nature, are
not covered in the construction and technical services and
production services referred to above; and
(d) Social and ancillary services, including but not limited to
security services, education, hospitals, property management,
staff canteen, training centers and guesthouses.
3.2.3 Rentals to be paid by the Group to CNPC in respect of land
The Company entered into the Land Use Rights Leasing Contract with
CNPC on 10 March 2000 under which CNPC has leased a total of 42,476
parcels of land in connection with and for the purpose of all
aspects of the operations and business of the Group covering an
aggregate area of approximately 1,145 million square meters, located
throughout the PRC, to the Company for a term of 50 years at an
annual fee of RMB2,000 million.
3.2.4 Rentals to be paid by the Group to CNPC in respect of buildings
The Company entered into the Buildings Leasing Contract with CNPC on
10 March 2000 pursuant to which CNPC has leased to the Company a
total of 191 buildings covering an aggregate area of 269,770 square
meters, located throughout the PRC for the use by the Company for
its business operation including the exploration, development and
production of crude oil, the refining of crude oil and petroleum
products, the production and sale of chemicals, etc.
Further to the Buildings Leasing Contract mentioned above, the
Company entered into a Supplemental Buildings Leasing Agreement with
CNPC on 26 September 2002 under which CNPC agreed to lease another
404 buildings to the Group in connection with and for the purpose of
the operation and business of the Group covering an aggregate of
approximately 442,730 square meters.
3.2.5 Products and services to be provided by the Company to CRMSC
Under the CRMSC Products and Services Agreement, products and
services to be continuously provided by the Company to CRMSC
include, among other things, refined products (such as gasoline,
diesel and other petroleum products).
3.2.6 Products and services to be provided by the Company to Beijing Gas
Under the Beijing Gas Products and Services Agreement, products and
services to be continuously provided by the Company to Beijing Gas
include, among other things, natural gas and natural gas related
pipe transportation services.
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3.3 Historical amounts, existing caps, revised caps and rationale of the
Relevant Categories
The Board has proposed that the following revised caps in respect of the
Relevant Categories be set as the maximum annual amount of such
transactions for the year ending 31 December 2008:
HISTORICAL EXISTING 2008 REVISED CAPS IN BASIS OF DETERMINATION OF
TRANSACTIONS AMOUNT ANNUAL CAP RESPECT OF 2008 THE REVISED CAPS
------------ --------------------- ----------------- ------------------- -------------------------------------------
(1) Products and For the two years For the year For the year ending The reason for the increase in the
services to be ended 31 December ending 31 December 2008, transaction amounts is mainly due to
provided by the 2007 and the six 31 December 2008, RMB71,289 million increases in the transaction volume and
Group to CNPC months ended 30 June RMB50,129 million the prices for both the crude oil and
and the Jointly- 2008, approximately refined products. In particular, there have
held Entities RMB27,714 million, been increases in both the import of crude
RMB40,730 million and oil reserve and export/import trading of
RMB22,186 million, crude oil (by the Group as decreed by the
respectively government) as well as the production of
crude oil (by the Group as decreed by the
the government).
(2) Products and
services to be
provided by CNPC
to the Group
(a) Construction and For the two years For the year For the year ending The volume of crude oil and natural gas
technical services ended 31 December ending 31 December deployed in the two-dimension seismic
2007 and the six 31 December 2008, 2008, RMB165,578 (CHINESE CHARACTERS), three-dimension
months ended 30 June RMB105,661 million million seismic (CHINESE CHARACTERS), drilling and
2008, approximately risk operations has increased
RMB82,741 million, continuously, which is an important reason
RMB97,257 million and for the increased in the transaction.
RMB42,588 million, Following the commencement of a number of
respectively pipeline construction projects and refining
construction projects, the direct
deployment of materials from CNPC increases.
(b) Production - - No Revision -
Services
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HISTORICAL EXISTING 2008 REVISED CAPS IN BASIS OF DETERMINATION OF
TRANSACTIONS AMOUNT ANNUAL CAP RESPECT OF 2008 THE REVISED CAPS
------------ --------------------- ----------------- ------------------- -------------------------------------------
(c) Material supply For the two years For the year For the year Following the commencement of construction
services years ended ending 31 December ending 31 December of oil and gas facilities and other
31 December 2007 and 2008, RMB5,574 2008, RMB5,850 construction projects, transaction amounts
the six months ended million million for materials purchase and the agency fees
30 June 2008, are therefore increased.
approximately
RMB3,306 million,
RMB3,573 million and
RMB3,818 million,
respectively
(d) Social and For the two years For the year For the year The main reasons for the increase are the
ancillary services ended 31 December 2007 ending 31 December ending 31 December enhancement of property management services
and the six months 2008, RMB5,000 2008, RMB5,811 and increases in the prices of water and
ended 30 June 2008, million million electricity supplies.
approximately
RMB4,759 million,
RMB4,864 million and
RMB2,341 million,
respectively
(3) Financial
Services - - No revision -
(4) Rentals to be For the two years For the year For the year The proposed revision of the annual cap for
paid by the Group ended 31 December 2007 ending 31 December ending 31 December the year ending 31 December 2008 is resulted
to CNPC in respect and the six months 2008, RMB2,260 2008, RMB3,506 from an increase in the land consumption tax
of land ended 30 June 2008, million million by 200% per square meter in accordance with
approximately the relevant PRC regulations. Municipal and
RMB2,135 million, prefectural governments may also make
RMB2,152 million and classifications on local land.
RMB978 million,
respectively
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HISTORICAL EXISTING 2008 REVISED CAPS IN BASIS OF DETERMINATION OF
TRANSACTIONS AMOUNT ANNUAL CAP RESPECT OF 2008 THE REVISED CAPS
------------ --------------------- ----------------- ------------------- -------------------------------------------
(5) Rentals to be For the two years For the year For the year ending The proposed revision of the annual cap
paid by the Group ended 31 December 2007 ending 31 December 31 December 2008, for the year ending 31 December 2008 is
to CNPC in respect and the six months 2008, RMB140 RMB196 million resulted from full execution of the area
of buildings ended 30 June 2008, million leased under the Building Leasing Contract
approximately and its supplemental agreement.
RMB140 million,
RMB140 million and
RMB58 million,
respectively
(6) Products and For the two years For the year For the year ending As a result of the rapid expansion of the
services to be ended 31 December 2007 ending 31 December 31 December 2008, railway network in the PRC, demand for goods
provided by the and the six months 2008, RMB13,152 RMB16,833 million rose markedly. In addition, the increase
Group to CRMSC ended 30 June 2008, million in the transaction amounts is also due to
approximately the increase in the refined product price.
RMB11,046 million,
RMB12,022 million and
RMB7,229 million,
respectively
(7) Products and For the two years For the year For the year ending The increase in the transaction volume is
services to be ended 31 December 2007 ending 31 December 31 December 2008, due to the 2008 Beijing Olympic Games where
provided by the and the six months 2008, RMB7,097 RMB7,936 million demand for green and clean energy surged. In
Group to ended 30 June 2008, million addition, the increase in the transaction
Beijing Gas approximately amounts is due to the increase in the
RMB4,170 million, natural gas selling price in accordance
RMB4,865 million and with the relevant PRC regulations.
RMB3,331 million,
respectively
The continuing connected transactions under the Relevant Categories are and will
be conducted in the ordinary and usual course of business of the Company. This
category of transactions will continue to be agreed on an arm's length basis
with terms that are fair and reasonable to the Company. Due to the long- term
relationship between the Company and CNPC and between the Company and
CRMSC/Beijing Gas, the Directors (including the independent non-executive
Directors) consider that: (a) it is beneficial
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to the Company to continue to enter into the Relevant Categories of the
continuing connected transactions as these transactions have facilitated
and will continue to facilitate the operation and growth of the Group's
business; (b) the continuing connected transactions under the Relevant
Categories have been conducted on normal commercial terms or on terms no
less favourable than those available to the Group from independent third
parties, under prevailing local market conditions, and were entered into
in the ordinary and usual course of business of the Group, are fair and
reasonable and in the interests of the Company and the Shareholders as a
whole, and that the Revised Caps for the Relevant Categories are fair and
reasonable.
The views of the independent non-executive Directors constituting the
Independent Board Committee on the Revised Non-Exempt Annual Caps are
included in the letter from the Independent Board Committee set out in
this circular.
3.4 Disclosure and independent shareholders' approval requirements
3.4.1 Under the HKEx Listing Rules, the Revised Caps of the following
category of Continuing Connected Transactions is exempted from the
reporting, announcement and the independent shareholders' approval
requirements set out in Chapter 14A of the HKEx Listing Rules, as
each of the percentage ratios under Rule 14.07 of the HKEx Listing
Rules (other than the profits ratio), where applicable, in relation
of each of these categories is, on an annual basis, expected to be
less than 0.1% under Rule 14A.33(3)(a) of the HKEx Listing Rules:
(5) Rentals to be paid by the Group to CNPC in respect of
buildings
3.4.2 Under the HKEx Listing Rules, the Revised Caps of the following
categories of the Continuing Connected Transaction are exempted from
the independent shareholders' approval requirement but are subject
to the reporting and announcement requirements set out in Rules
14A.45 to 14A.47 of the HKEx Listing Rules, as each of the
percentage ratios under Rule 14.07 of the HKEx Listing Rules (other
than the profits ratio), where applicable, in relation of each of
these categories is, on an annual basis, expected to be less than
2.5% under Rule 14A.34(1) of the HKEx Listing Rules:
(2)(c) Material supply services
(2)(d) Social and ancillary services
(4) Rentals to be paid by the Group to CNPC in respect of land
(6) Products and services to be provided by the Group to CRMSC
(7) Products and services to be provided by the Group to Beijing
Gas
3.4.3 Under the HKEx Listing Rules, the Revised Non-Exempt Annual
Caps of the following categories of the Continuing Connected
Transactions are subject to the reporting, announcement and
independent shareholders' approval requirements.
(1) Products and services to be provided by the Group to CNPC and
the Jointly-held Entities
(2)(a) Construction and technical services to be provided by CNPC to
the Group
The Company will seek the Independent Shareholders' approval at the
Extraordinary General Meeting for the Revised Non-Exempt Annual Caps
and the relevant revised caps on the condition that:
(a) the annual amount of each of the above category for the year
ending 31 December 2008 shall not exceed the Revised
Non-Exempt Annual Caps;
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(b) (i) the above continuing connected transactions will be
entered into in the ordinary and usual course of
business of the Group and either (A) on normal
commercial terms or (B) if there is no available
comparison, on terms no less favourable than terms
available to the Group from independent third parties;
and
(ii) the above continuing connected transactions will be
entered into in accordance with the relevant agreements
and on terms that are fair and reasonable and in the
interests of the Company and the Shareholders as a
whole.
The Company will comply with relevant provisions of the HKEx Listing Rules
and the Shanghai Listing Rules in relation to the continuing connected
transactions under the Relevant Categories.
4. APPROVAL BY INDEPENDENT SHAREHOLDERS/SHAREHOLDERS
As CNPC holds approximately 86.29% of the issued share capital of the
Company, it is a controlling shareholder of the Company. CRMSC, being a
substantial shareholder of the Company's subsidiary, PetroChina & CRMSC
Oil Marketing. Beijing Gas is a substantial shareholder of the Company's
subsidiary, Huayou. By virtue of the above relationships, each of CNPC,
CRMSC and Beijing Gas is a connected person of the Company under the HKEx
Listing Rules. Transactions between the Company and each of CNPC, CRMSC
and Beijing Gas constitute connected transactions of the Company under the
HKEx Listing Rules. The Proposed Caps in respect of the Non-Exempt
Continuing Connected Transactions and the Revised Non-Exempt Annual Caps
are subject to approval by the Independent Shareholders/Shareholders under
the HKEx Listing Rules. In view of the interests of CNPC, CNPC and its
associates will abstain from voting in relation to the resolutions
approving the entering into of the New Comprehensive Agreement and the
Proposed Caps in respect of the Non-Exempt Continuing Connected
Transactions and the Revised Non-Exempt Annual Caps under the
Comprehensive Agreement. In view of the interests of CRMSC, in the event
CRMSC and its associates is interested in the Shares, CRMSC and its
associates will abstain from voting in relation to the resolutions
approving the supplemental agreement to the CRMSC Products and Services
Agreement and the Non-Exempt Continuing Connected Transaction under the
CRMSC Products and Services Agreement.
An Independent Board Committee has been formed to advise the Independent
Shareholders/ Shareholders in connection with the terms of the Revised
Non-Exempt Annual Caps and the Proposed Caps in respect of the Non-Exempt
Continuing Connected Transactions, and the Independent Financial Adviser
has been appointed to advise the Independent Board Committee and the
Independent Shareholders/Shareholders on the same. Their respective views
are included in the letter from the Independent Board Committee and the
letter from the Independent Financial Adviser set out in this circular.
5. GENERAL INFORMATION
5.1 Information on the Company
The Company and its subsidiaries are mainly engaged in petroleum and
natural gas-related activities, including:
(1) the exploration, development, production and sale of crude oil and
natural gas;
(2) the refining, transportation, storage and marketing of crude oil and
petroleum products;
(3) the production and sale of basic petrochemical products, derivative
chemical products and other petrochemical products; and
(4) the transmission of natural gas, crude oil and refined products, and
the sale of natural gas.
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5.2 Information on CNPC
The controlling shareholder of the Company is CNPC. CNPC is a petroleum
and petrochemical conglomerate that was formed in the wake of the
restructuring launched by the State Council to restructure the predecessor
of CNPC, China National Petroleum Company (CHINESE CHARACTERS). CNPC is
also a state-authorised investment corporation and state-owned enterprise.
CNPC is an integrated energy corporation with businesses covering oil and
gas exploration and development, refining and petrochemical, oil product
marketing, oil and gas storage and transportation, oil trading,
engineering and technical services and petroleum equipment manufacturing.
5.3 Information on CNPC Finance
As approved by the People's Bank of China and the China Banking Regulatory
Commission, the principal business activities of CNPC Finance include
receipt and payment of transaction amounts, insurance agency services,
provision of guarantees, entrustment loans and entrustment investments,
settlement and clearance of commercial notes, settlement of internal
transfers, deposits, loans, financial leases and foreign exchange
services.
5.4 Information on CRMSC
CRMSC is a corporation of materials supply in the PRC. China Petroleum
Sales Company Limited (CHINESE CHARACTERS), a wholly-owned subsidiary of
the Company, and CRMSC jointly established PetroChina & CRMSC Oil
Marketing in December 2004, holding respectively 51% and 49% of its equity
interest. As far as the Company is aware of, CRMSC is independent of CNPC
and Beijing Gas and does not have any relationship with CNPC or Beijing
Gas.
5.5 Information on Beijing Gas
Beijing Gas is an operator of natural gas supply network in the PRC. As
far as the Company is aware of, Beijing Gas is independent of CNPC and
CRMSC and does not have any relationship with CNPC or CRMSC.
6. HKEX LISTING RULES IMPLICATIONS
The views of the Independent Board Committee as well as the advice of the
Independent Financial Adviser to the Independent Board Committee in
respect of the Revised Non-Exempt Annual Caps and the Proposed Caps in
respect of the Non-Exempt Continuing Connected Transactions set out in
this circular.
7. APPROVAL OF AGREEMENTS
Pursuant to the HKEx Listing Rules and the Shanghai Listing Rules,
(a) the New Comprehensive Agreement shall be approved or ratified by the
Independent Shareholders at the Extraordinary General Meeting, and
CNPC and its associates will abstain from voting in view of its
interests thereon; and
(b) the supplemental agreement to the CRMSC Products and Services
Agreement shall be approved or ratified by the Shareholders at the
Extraordinary General Meeting, and, in the event CRMSC and its
associates is interested in the Shares, CRMSC and its associates
will abstain from voting in view of its interests thereon.
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To the knowledge of the Company and its Directors, as at the Latest
Practicable Date, CNPC and its associates are interested in
157,922,077,818 A Shares, or approximately 86.29% of the total issued
share capital of the Company.
The EGM will be held at Crowne Plaza Beijing Park View Wuzhou Hotel, No. 8
North Si Huan Zhong Road, Chaoyang District, Beijing, PRC at 9 a.m. on 21
October 2008 (Tuesday) to approve the New Comprehensive Agreement, the
supplemental agreement to the CRMSC Products and Services Agreement, the
Proposed Caps in respect of the Non-Exempt Continuing Connected
Transactions and the Revised Non-Exempt Annual Cap by way of ordinary
resolution. The EGM Notice is set out in pages 56 to 57 of this circular.
A form of proxy for use at the EGM is enclosed herewith. Whether or not
you are able to attend the EGM, please complete the form of proxy and
return the same in accordance with the instructions printed thereon. To be
valid, for holders of A Shares, this form of proxy, together with the
notarised power of attorney or other document of authorisation (if any),
must be delivered to the Secretariat of the Board of Directors of the
Company at Room 1521, World Tower, 16 Andelu, Dongcheng District, Beijing,
PRC (Postal code: 100011) not less than 24 hours before the time appointed
for the EGM. In order to be valid, for holders of H Shares, the above
documents must be delivered to Hong Kong Registrars Limited, 46/F Hopewell
Centre, 183 Queen's Road East, Hong Kong within the same period.
Holders of H Shares whose names appear on the register of members of the
Company before 4:00 p.m. on 10 October 2008 (Friday) are entitled to
attend the EGM. The register of members of H Shares of the Company will be
closed from 20 September 2008 to 21 October 2008 (both days inclusive),
during which period no share transfer of H Shares will be registered.
The Articles of Association provide that Shareholders who intend to attend
the EGM shall lodge a written reply to the Company 20 days before the date
of the EGM (the "Reply Date"). In case the written replies received by the
Company from the Shareholders indicating their intention to attend the EGM
represent less than one half of the total number of voting shares, the
Company shall within five days from the Reply Date inform the Shareholders
of the proposed matters for consideration at the EGM and the date and
venue of the EGM by way of announcement. The EGM may be convened after the
publication of such announcement.
You are urged to complete and return the form of proxy and reply slip
whether or not you intend to attend the EGM. Completion and return of the
form of proxy will not preclude you from attending and voting at the EGM
(or any subsequent meetings following the adjournments thereof) should you
wish to do so.
In accordance with the Articles of Association, the vote of a general
meeting of the Company shall be taken on a show of hands unless a request
for a voting by poll is made by the following person(s) before or after a
voting by a show of hands:
(1) the chairman of the meeting;
(2) at least two Shareholders with voting rights or their proxies;
(3) a Shareholder or Shareholders (including his or their proxies) who
solely or jointly hold(s) 10% or more of the Shares with rights to
vote at the meeting.
Unless a request for a voting by poll has been made, the chairman of the
meeting shall based on the results of the voting by a show of hands,
announce the results of voting on a resolution and enter the same in the
minutes of the meeting.
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IN ACCORDANCE WITH THE HKEX LISTING RULES, THE VOTES OF THE INDEPENDENT
SHAREHOLDERS (IN RESPECT OF PRODUCTS AND SERVICES TO BE PROVIDED BY THE
GROUP TO CRMSC, THE SHAREHOLDERS) AT THE EGM WILL BE TAKEN BY A POLL.
CNPC, THE CONTROLLING SHAREHOLDER OF THE COMPANY, WILL ABSTAIN FROM VOTING
IN RESPECT OF THE ORDINARY RESOLUTION TO APPROVE THE PROPOSED CAPS IN
RESPECT OF THE NON-EXEMPT CONTINUING CONNECTED TRANSACTIONS AND THE
REVISED NON-EXEMPT ANNUAL CAP (EXCEPT IN RESPECT OF PRODUCTS AND SERVICES
TO BE PROVIDED BY THE GROUP TO CRMSC) AT THE EGM BECAUSE OF ITS INTEREST
IN THESE TRANSACTIONS. IN VIEW OF THE INTERESTS OF CRMSC, IN THE EVENT
CRMSC AND ITS ASSOCIATES IS INTERESTED IN THE SHARES, CRMSC AND ITS
ASSOCIATES WILL ABSTAIN FROM VOTING IN RELATION TO THE RESOLUTION
APPROVING THE SUPPLEMENTAL AGREEMENT TO THE CRMSC PRODUCTS AND SERVICES
AGREEMENT AND THE NON-EXEMPT CONTINUING CONNECTED TRANSACTION UNDER THE
CRMSC PRODUCTS AND SERVICES AGREEMENT.
8. RECOMMENDATION
Your attention is drawn to the letter from the Independent Board
Committee, which is set out on pages 35 to 36 of this circular, and which
contains their recommendation in respect of the New Comprehensive
Agreement, the supplemental agreement to the CRMSC Products and Services
Agreement, the Proposed Caps in respect of the Non-Exempt Continuing
Connected Transactions and the Revised Non-Exempt Annual Cap.
The advice of the Independent Financial Adviser on the fairness and
reasonableness of the Proposed Caps in respect of the Non-Exempt
Continuing Connected Transactions and the Revised Non-Exempt Annual Cap
are set out on pages 37 to 52 of this circular. The Independent Financial
Adviser considers that the terms of Proposed Caps in respect of the
Non-Exempt Continuing Connected Transactions and the Revised Non-Exempt
Annual Cap on the whole are fair and reasonable so far as the Shareholders
are concerned and are in the interests of the Company and the Shareholders
as a whole.
The Directors believe that the New Comprehensive Agreement, the
supplemental agreement to the CRMSC Products and Services Agreement, the
Proposed Caps in respect of the Non-Exempt Continuing Connected
Transactions and the Revised Non-Exempt Annual Cap are in the interests of
the Company and the Shareholders as a whole. Accordingly, the Directors
recommend the Shareholders to vote in favour of the resolutions to be
proposed at the EGM to approve the New Comprehensive Agreement, the
supplemental agreement to the CRMSC Products and Services Agreement, the
Proposed Caps in respect of the Non-Exempt Continuing Connected
Transactions and the Revised Non-Exempt Annual Cap.
9. FURTHER INFORMATION
Your attention is drawn to the general information set out in Appendix I
to this circular.
By the order of the Board
PETROCHINA COMPANY LIMITED
JIANG JIEMIN
Chairman of the Board of Directors
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LETTER FROM THE INDEPENDENT BOARD COMMITTEE
--------------------------------------------------------------------------------
(PETROCHINA COMPANY LIMITED LOGO)
(a joint stock limited company incorporated in the People's Republic of China
with limited liability)
(STOCK CODE IN THE HONG KONG STOCK EXCHANGE: 857)
5 September 2008
Dear Shareholders,
1. RENEWAL OF CONTINUING CONNECTED TRANSACTIONS IN RESPECT OF 2009 TO 2011
2. REVISED CAPS OF CONTINUING CONNECTED TRANSACTIONS IN RESPECT OF 2008
We refer to the Circular dated 5 September 2008 of the Company of which
this letter forms a part. Terms defined in the circular shall have the same
meanings when used herein.
As CNPC directly owns an aggregate of approximately 86.29% of the issued
share capital of the Company, transactions between the Group and CNPC and its
associates constitute connected transactions for the Group under the HKEx
Listing Rules and are subject to approval from the Independent Shareholders.
As CRMSC is a substantial shareholder of the Company's subsidiary,
PetroChina & CRMSC Oil Marketing, transactions between the Group and CRMSC and
its associates constitute connected transactions for the Group under the HKEx
Listing Rules and are subject to approval from the Shareholders.
In view of the interest of the Independent Shareholders / the Shareholders
(where applicable), we have been appointed by the Board to constitute the
Independent Board Committee to consider and advise the Independent Shareholders
/ the Shareholders (where applicable) as to the fairness and reasonableness in
relation to the New Comprehensive Agreement, the supplemental agreement to the
CRMSC Products and Services Agreement, the Proposed Caps in respect of the
Non-Exempt Continuing Connected Transactions and the Revised Non-Exempt Annual
Cap, details of which are set out in the Letter from the Board in the Circular
to the Shareholders. ICEA has been retained as the independent financial adviser
to advise the Independent Board Committee in this respect. We wish to draw your
attention to the letter from ICEA as set out on pages 37 to 52 of the Circular.
Having taken into account the information set out in the Letter from the
Board, and the principal factors, reasons and recommendations set out in the
letter from ICEA, we consider the New Comprehensive Agreement, the supplemental
agreement to the CRMSC Products and Services Agreement, the Proposed Caps in
respect of the Non-Exempt Continuing Connected Transactions and the Revised
Non-Exempt Annual Cap to be fair and reasonable from a financial point of view
insofar as the Independent Shareholders / the Shareholders (where applicable)
are concerned and believe that the New Comprehensive Agreement, the supplemental
agreement to the CRMSC Products and Services Agreement, the Proposed Caps in
respect of the Non-Exempt Continuing Connected Transactions and the Revised
Non-Exempt Annual Cap are in the interests of the Company and the Shareholders
as a whole. Accordingly, we recommend that the Independent Shareholders / the
Shareholders (where applicable) should vote in favour of the resolutions to be
proposed at the EGM to approve the New
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LETTER FROM THE INDEPENDENT BOARD COMMITTEE
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Comprehensive Agreement, the supplemental agreement to the CRMSC Products and
Services Agreement, the Proposed Caps in respect of the Non-Exempt Continuing
Connected Transactions and the Revised Non-Exempt Annual Cap.
Yours faithfully,
CHEE-CHEN TUNG LIU HONG RU FRANCO BERNABE
Independent Non-Executive Independent Non-Executive Independent Non-Executive
Director Director Director
LI YONGWU CUI JUNHUI
Independent Non-Executive Independent Non-Executive
Director Director
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LETTER FROM ICEA CAPITAL LIMITED
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The following is the text of the letter of advice to the Independent Board
Committee and the Independent Shareholders (or the Shareholders for CRMSC
Transactions and CRMSC Caps) from ICEA in relation to the Non-Exempt Continuing
Connected Transactions (including the relevant Proposed Caps) and the Revised
Non-Exempt Annual Caps for the purpose of incorporation in this circular.
(ICEA LOGO)
ICEA CAPITAL LIMITED (CHINESE CHARACTERS)
26/F., ICBC Tower (CHINESE CHARACTERS)
3 Garden Road, Central, Hong Kong (CHINESE CHARACTERS)
General Line:(852) 2231 8000 (CHINESE CHARACTERS):(852) 2231 8000
General Fax:(852) 2525 0967 (CHINESE CHARACTERS):(852) 2525 0967
5 September 2008
To the Independent Board Committee and the independent shareholders of the
Company
Dear Sirs:
(1) RENEWAL OF CONTINUING CONNECTED TRANSACTIONS IN RESPECT OF 2009 TO 2011
(2) REVISED CAPS OF CONTINUING CONNECTED TRANSACTIONS IN RESPECT OF 2008
We refer to our engagement as the Independent Financial Adviser to advise
the Independent Board Committee and the Independent Shareholders (or the
Shareholders for approving the Non-Exempt Continuing Connected Transactions
(including the relevant Proposed Caps) under the CRMSC Products and Services
Agreement ("CRMSC Transactions and CRMSC Caps")) with respect to (i) the
Non-Exempt Continuing Connected Transactions (including the relevant Proposed
Caps); (ii) the Revised Non-Exempt Annual Caps; and (iii) the duration of the
Land Use Rights Leasing Contract, the Building Leasing Contract and the
Supplemental Building Leasing Agreement for longer than three years. Pursuant to
the HKEx Listing Rules, the Non-Exempt Continuing Connected Transactions and the
Revised Non-Exempt Annual Caps are subject to, among other things, the approval
of the Independent Shareholders (or the Shareholders for CRMSC Transactions and
CRMSC Caps) at the Extraordinary General Meeting of the Company. Details of the
Continuing Connected Transactions (including the Non-Exempt Continuing Connected
Transactions and the relevant Proposed Caps) and the Revised Non-Exempt Annual
Caps are summarized in the Company's circular to its Shareholders dated 5
September 2008 (the "Circular"). This letter has been prepared for inclusion in
the Circular and capitalised terms used in this letter shall have the same
meaning as defined in the Circular unless the context otherwise requires.
At the extraordinary general meetings of the Company held on 8 November
2005 and 1 November 2006 respectively, the Independent Shareholders and/or
Shareholders (as the case maybe) approved the Continuing Connected Transactions
and the annual caps for the three years ending 31 December 2008 and the
subsequent revision of certain annual caps. Due to changes in the Company's
production and operational environment, the existing annual caps in respect of
2008 for the Relevant Categories may not be able to satisfy the Group's
requirements for the whole year. The Board therefore proposed the Revised
Non-Exempt Annual Caps for the year ending 31 December 2008. As the Group will
continue to carry out the Continuing Connected Transactions for the next three
years from 1 January 2009 to 31 December 2011 (including the Non-Exempt
Continuing Connected Transactions), the Directors also propose to seek the
Independent Shareholders (or the Shareholders for CRMSC Transactions and CRSMC
Caps) approval of the Non-Exempt Continuing Connected Transactions (including
the relevant Proposed Caps). The Independent Shareholders do not include CNPC
and its associates for approving Non-Exempt Continuing Connected Transactions
(including the relevant Proposed Caps) and the Revised Non-Exempt Annual Caps
under the Comprehensive Agreement. For approving CRMSC Transactions and CRMSC
Caps, the Shareholders include CNPC and its associates and exclude CRMSC and its
associates.
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LETTER FROM ICEA CAPITAL LIMITED
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Our opinion only applies to the Non-Exempt Continuing Connected
Transactions (including the relevant Proposed Caps) and the Revised Non-Exempt
Annual Caps. Other Continuing Connected Transactions which are not subject to
approval by the Independent Shareholders are not within the scope of our work.
We, ICEA, have been retained as the Independent Financial Adviser to advise
the Independent Board Committee and the Independent Shareholders (or the
Shareholders for CRMSC Transactions and CRMSC Caps) as to whether the Non-Exempt
Continuing Connected Transactions are on normal commercial terms, in the
ordinary and usual course of business, and fair and reasonable so far as the
Independent Shareholders (or the Shareholders for CRMSC Transactions and CRMSC
Caps) are concerned and are in the interests of the Company and its Shareholders
as a whole, and whether the Proposed Caps in respect of the Non-Exempt
Continuing Connected Transactions and the Revised Non-Exempt Annual Caps are
reasonably determined. We are also engaged to advise why longer period of the
Land Use Rights Leasing Contract, the Building Leasing Contract and the
Supplemental Building Leasing Agreement is required and whether it is normal
business practice for contracts of this type to be such of such duration.
In formulating our recommendation, we have relied, without assuming any
responsibility for independent verification, on the information, opinions and
facts supplied and representations made to us by the Directors and management of
the Company, who have assumed full responsibility for the accuracy of the
information contained in the Circular, and that any information and
representations made to us are true, accurate and complete in all material
respects as at the date hereof and that they may be relied upon. We have no
reason to doubt the truth, accuracy and completeness of the information and
representations provided to us by the Company. We have discussed with the
management of the Company regarding their plans and prospects of the Company. We
have also relied on certain information available to the public and have assumed
such information to be accurate and reliable, and we have not independently
verified the accuracy of such information. We have studied the relevant market
and other conditions and trends relevant to the pricing of the Continuing
Connected Transactions. We have also assumed that statements and representations
made or referred to in the Circular were accurate at the time they were made and
continue to be accurate at the date of the Circular.
We consider that we have reviewed sufficient information to reach an
informed view in order to provide a reasonable basis for our advice. We have
not, however, carried out any independent verification of the information
provided to us nor have we conducted any form of independent in-depth
investigation into the business affairs or assets and liabilities of the
Company, CNPC or any of their respective subsidiaries or associated companies.
Additionally, we did not conduct any physical inspection of the properties or
facilities of the Company, CNPC, or any of their respective subsidiaries or
associated companies. It is not within our terms of engagement to comment on the
commercial feasibility of the Continuing Connected Transactions, which remains
the responsibility of the Directors. As the Independent Financial Adviser to the
Independent Board Committee and the Independent Shareholders (or the
Shareholders for CRMSC Transactions and CRMSC Caps), we have not been involved
in the negotiations in respect of the terms of the Continuing Connected
Transactions. Our opinion with regard to the terms thereof has been made on the
assumption that all obligations to be performed by each of the parties to the
Continuing Connected Transactions will be fully performed in accordance with the
terms thereof.
Our opinion is necessarily based upon the financial, economic, market,
regulatory, and other conditions as they exist on, and the facts, information,
and opinions made available to us as of the date of this letter. We have no
obligation to update this opinion to take into account events occurring after
the date on which this opinion is delivered to the Independent Board Committee
and the Independent Shareholders (or the Shareholders for CRMSC Transactions and
CRMSC Caps). This letter is for the information of the Independent Board
Committee and the Independent Shareholders (or the Shareholders for CRMSC
Transactions and CRMSC Caps) solely in connection with their consideration of
the Continuing Connected Transactions and, except for its inclusion in the
Circular, is not to be quoted or referred to, in whole or in part, nor shall
this letter be used for any other purpose, without our prior written consent.
ICEA is a licensed corporation to carry out regulated activities of dealing
in securities and advising on corporate finance under the SFO. ICEA and its
affiliates, whose ordinary business involves the trading of, dealing in and the
holding of securities, may be involved in the trading of, dealing in, and the
holding of the securities of the Company for client accounts.
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LETTER FROM ICEA CAPITAL LIMITED
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PRINCIPAL FACTORS CONSIDERED
In arriving at our opinion, we have taken into consideration the principal
factors and reasons set out below. In reaching our conclusion, we have
considered the results of the analyses in light of each other and ultimately
reached our opinion based on the results of all analyses taken as a whole.
(A) RENEWAL OF THE NON-EXEMPT CONTINUING CONNECTED TRANSACTIONS
1. BACKGROUND AND NATURE OF THE NON-EXEMPT CONTINUING CONNECTED TRANSACTIONS
COMPREHENSIVE AGREEMENT
The Company and CNPC initially entered into the Comprehensive Agreement on
10 March 2000 for the provision (1) by the Group to CNPC and (2) by CNPC to
the Group, of a range of products and services which may be required and
requested from time to time by either party and/or its subsidiary companies
and relevant units (including their respective subsidiaries, branches and
relevant units). The Comprehensive Agreement was amended by the First
Supplemental Comprehensive Agreement on 9 June 2005 and the Second
Supplemental Comprehensive Agreement on 1 September 2005. In order to
comply with the requirements of the HKEx Listing Rules and the Shanghai
Listing Rules, the Company and CNPC entered into the New Comprehensive
Agreement on 27 August 2008, details of which are set out in the paragraph
headed "New Comprehensive Agreement" set out in the "Letter from the Board"
of this Circular. The New Comprehensive Agreement has incorporated the
principal terms of the First Supplemental Agreement and the Second
Supplemental Agreement.
Details of the Non-Exempt Continuing Connected Transactions under the
Comprehensive Agreement (as amended by the First Supplemental Comprehensive
Agreement, the Second Supplemental Comprehensive Agreement and the New
Comprehensive Agreement) are set out as follows:
TRANSACTION DESCRIPTION
------------------------------------------- --------------------------------------------------------------------
(1) Products and services to be provided by the Products and services including those relating to crude oil,
Group to CNPC and the Jointly-held Entities natural gas, refined oil products, chemical products, supply
of water, electricity, gas, heating, quantifying and measuring,
quality inspection, entrusted operation and management and
other related or similar products and services
(2) Construction and technical services to be Construction and technical services including but not limited
provided by CNPC to the Group to exploration technology service, downhole operation service,
oilfield construction service, oil refinery construction service,
engineering and design service, risk operation services and other
related or similar products and services
(3) Production services to be provided by CNPC to Production services including but not limited to water supply,
the Group electricity generation and supply, gas supply, communications and
other related or similar products and services
(4) Financial services provided by the Group to the Financial services including but not limited to entrustment loans
Jointly-held Entities and guarantees
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LETTER FROM ICEA CAPITAL LIMITED
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CRMSC PRODUCTS AND SERVICES AGREEMENT
Products and services to be provided by the Company to CRMSC under the
CRMSC Products and Services Agreement include, among other things, refined
products such as gasoline, diesel and other petroleum products. The term of
the CRMSC Products and Services Agreement was initially 3 years commencing
from 1 January 2006 and it was amended by the supplemental agreement dated
27 August 2008 to extend for a further period of three years commencing
from 1 January 2009 to 31 December 2011. Before November of each year,
CRMSC is required to discuss and confirm with the Company an annual plan
detailing the estimated demand for products and services to be rendered by
the Company in the forthcoming year and that individual product and service
implementation agreements will be entered into between the Company and
CRMSC and their respective subsidiaries and units.
We note that the products and service implementation agreements may be
terminated from time to time by the parties to the product and service
implementation agreements providing at least 6 months' written notice of
termination in relation to any one or more categories of products and
services.
2. PRICING OF THE NON-EXEMPT CONTINUING CONNECTED TRANSACTIONS
COMPREHENSIVE AGREEMENT
The Comprehensive Agreement (as amended by the First Supplemental
Comprehensive Agreement, the Second Supplemental Comprehensive Agreement
and the New Comprehensive Agreement) details specific pricing principles
for the products and services to be provided pursuant to the Comprehensive
Agreement. If, for any reason, the specific pricing principle for a
particular product or service ceases to be applicable, whether due to a
change in circumstances or otherwise, such product or service must then be
provided in accordance with the following general pricing principles:
(a) government-prescribed price (at present, this applies to products and
services such as refined oil products, natural gas, oil refinery
construction, engineering and design, project monitoring and
management), the definition of "government-prescribed price" was
amended by the First Supplemental Comprehensive Agreement to mean
price in respect of certain category of services determined by the
laws, regulations, decisions, orders or policies, etc. enacted by
governments of the relevant countries or regions (including but not
limited to the central government, federal government, provincial
government, state or coalition government or any organisation
responsible for domestic ruling and foreign affairs in respect to
certain specified territory, irrespective of its name, organisation or
structure) or other regulatory departments; or
(b) where there is no government-prescribed price, then according to the
relevant market prices (at present, this applies to products and
services such as asset leasing, repair of machinery, transportation,
purchase of material, and regional facilities), the definition of
"market price" was amended by the First Supplemental Comprehensive
Agreement to mean the price determined in accordance with the
following order:
(i) the price charged by independent third parties in areas where
such type of service is provided and on normal terms in the area
where the service is being provided at that time; or
(ii) the price charged by independent third parties in nearby areas
where such type of service is provided and on normal terms in the
area or country adjacent to the area where the service is being
provided at that time; or
(c) where neither (a) nor (b) is applicable, then according to:
(i) the actual cost incurred (at present, this applies to products
and services such as library information and filing, maintenance
of roads, retirement administration and reemployment training);
or
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LETTER FROM ICEA CAPITAL LIMITED
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(ii) the agreed contractual price, being the actual cost for the
provision of such product or service plus an additional margin of
not more than:
(1) 15 per cent. (which includes finance costs, general and
administrative expenses and a profit margin) for certain
construction and technical services (at present, this
applies to products and services such as geological
surveying, drilling, well cementing, logging, mud logging,
well testing and oilfield construction) provided that, such
agreed contractual price shall not be higher than the prices
available for the provision of such products and services in
the international market; and
(2) 3 per cent. for all other types of products and services
priced in accordance with the agreed contractual price (at
present, this applies to products and services such as
downhole operations, technology research, equipment
repairing and supporting, equipment antiseptic testing,
communications, fire fighting, quality inspection, storage
of materials, delivery of materials and training centres).
For (i) products and services to be provided by the Group to CNPC and
Jointly-held Entities and (ii) production services to be provided by CNPC
to the Group, we understand from the Company that the pricing of these
products and services is mainly based on principle (a) or (b) mentioned
above according to the Comprehensive Agreement. As for construction and
technical services to be provided by CNPC to the Group, the pricing is
mainly based on principle (a) or (c) mentioned above according to the
Comprehensive Agreement. The Company advises that no more than 15%
additional margin respective to the categories of products and services
stated above is what they believe to be the norm in the PRC across relevant
industries. Such margin has taken into account, among other things, the
administrative expenses incurred for providing such products or services,
as well as the profit margin required by comparable companies providing
such services. We noted that the operating profit margin of the Group
(being profit from operations divided by turnover of the Group) for 2005 to
2007 were 34.8%, 28.7% and 23.9% respectively, which were higher than the
15% additional margin to be charged by CNPC. In order to assess the
fairness and reasonableness of the 15% margin set out in the pricing
mechanism (c) above, we have identified all of the oilfield servicing
companies listed on the New York Stock Exchange mainly engaged in
exploration and development business with the total assets of each of them
over US$5 billion at the end of 2007 and only three oilfield servicing
companies listed on the Hong Kong Stock Exchange (the "Comparable
Companies"). These companies are principally engaged in the provision of
oil and gas services including drilling, evaluation, production and
completion of oil and gas wells, and providing equipments and products for
oilfield and gas services.
The tables below illustrate the operating profit margins of the Comparable
Companies for the three financial years ended 31 December 2005, 2006 and
2007 respectively.
Listed in the New York Stock Exchange
NO. NAME OF COMPARABLE COMPANIES 2005 2006 2007
--- ---------------------------------------- ------ ------ ------
1 Schlumberger Ltd. ...................... 19.30% 25.46% 27.79%
2 National Oilwell Varco Inc. ............ 10.95% 15.93% 20.88%
3 Tenaris S.A. (ADS) ..................... 31.34% 36.14% 29.45%
4 Weatherford International Ltd. ......... 15.33% 20.59% 20.74%
5 Halliburton Co. ........................ 20.43% 24.60% 22.58%
6 Baker Hughes Inc. ...................... 17.17% 21.43% 21.84%
7 Exterran Holdings Inc. ................. 9.46% 14.09% 13.74%
8 Smith International Inc. ............... 12.02% 14.73% 15.63%
9 Cameron International Corp. ............ 10.40% 13.68% 15.79%
10 Helix Energy Solutions Group Inc. ...... 27.55% 28.96% 20.50%
11 BJ Services Co. ........................ 20.08% 26.85% 23.96%
Source: Factset
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LETTER FROM ICEA CAPITAL LIMITED
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Listed in Hong Kong Stock Exchange
NO. NAME OF COMPARABLE COMPANIES 2005 2006 2007
--- ---------------------------------------- ------ ------ ------
1 Jutal Offshore Oil Services Limited..... 18.14% 16.24% 16.28%
2 Anton Oilfield Services Group........... 32.11% 34.35% 27.03%
3 China Oilfield Services Limited......... 17.76% 21.87% 31.38%
Source: 2007 annual report and prospectus of Jutal Offshore Oilfield
Services Limited; 2007 annual report and prospectus of Anton Oilfield
Services Group; 2006 and 2007 annual reports of China Oilfield Services
Limited
The operating profit margins of the Comparable Companies ranged from 9.46%
to 36.14% for the three financial years ended 31 December 2005, 2006 and
2007, and the pricing mechanism referred to (c) above lies within the
range. As such, we are of the opinion that the 15% profit margin charged by
CNPC to the Group to be fair and reasonable so far as the Independent
Shareholders are concerned.
For detailed description of the terms in relation to the Comprehensive
Agreement (as amended by the First Supplemental Comprehensive Agreement,
the Second Supplemental Comprehensive Agreement and the New Comprehensive
Agreement), please refer to the "Letter from the Board" set out in this
Circular. Based on the above, the priority is set from (a) to (c) such that
the price mechanisms in (b) and (c) would only apply where the preceding
price mechanism(s) are inapplicable. As (a) and (b) are based on the
applicable government-prescribed prices and market prices, including the
applicable local or national market prices, we are of the opinion that the
above mechanism is fair and reasonable as far as the Independent
Shareholders are concerned.
We also noted that the rates of financial services provided under the
Comprehensive Agreement (as amended by the First Supplemental Comprehensive
Agreement, the Second Supplemental Comprehensive Agreement and the New
Comprehensive Agreement) are determined in accordance with the relevant
interest rates and the relevant fee rates for the same period published by
the People's Bank of China or relevant financial industry regulatory
authorities, and shall be more favourable than the interest rate, fee rate
and other terms for the provision of funds and services for the same period
offered by an independent third party to the Group. As the interest rates
and fee rates of financial services are determined by reference to the
guidelines of the People's Bank of China or relevant financial industry
regulatory authorities, we are of the opinion that the pricing mechanism is
fair and reasonable as far as the Independent Shareholders are concerned.
CRMSC PRODUCTS AND SERVICES AGREEMENT
The price of any product and service provided pursuant to the CRMSC
Products and Services Agreement shall be determined with reference to the
government-prescribed price or the market price where there is no
government-prescribed price.
Given the prices of the products and services are determined with reference
to the government- prescribed prices and that the product and service
implementation agreements could be terminated by the Group, we are of the
opinion that the above mentioned pricing mechanism is fair and reasonable
as far as the Shareholders as a whole are concerned.
3. REASONS FOR AND BENEFITS OF THE NON-EXEMPT CONTINUING CONNECTED
TRANSACTIONS
As mentioned in the Circular, the Continuing Connected Transactions are and
will be conducted in the ordinary and usual course of business of the
Company and will continue to be agreed on an arm's length basis with terms
that are fair and reasonable and in the interests of the Company and the
Shareholders as a whole. Given that the Company has maintained long-term
relationship with CNPC and CRMSC, it is
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beneficial to the Company to continue to enter into the Non-Exempt
Continuing Connected Transactions as they have facilitated and will
facilitate the operation and growth of the Group's business. Also, the
Non-Exempt Continuing Connected Transactions will be conducted on normal
commercial terms or on terms no less favourable than those available to the
Group from independent third parties, under prevailing local market
conditions.
We noted from the 2007 annual report of the Company that the auditors of
the Company have reviewed the Non-Exempt Continuing Connected Transactions
for the financial year 31 December 2007 (the "Prior Year Transactions") and
confirmed that the Prior Year Transactions were conducted in the manner
stated in Rule 14A.38 of the HKEx Listing Rules.
In light of the aforesaid analysis and the review of the Prior Year
Transactions by the auditors, we are of the view that the Non-Exempt
Continuing Connected Transactions are being conducted on normal commercial
terms.
4. PROPOSED CAPS OF THE NON-EXEMPT CONTINUING CONNECTED TRANSACTIONS
The Non-Exempt Continuing Connected Transactions are subject to the
Proposed Caps whereby for each of the three financial years ending 31
December 2009, 2010, 2011, the monetary value of the Non-Exempt Continuing
Connected Transactions will not exceed the applicable annual amounts as
stated in the "Letter from the Board" contained in the Circular.
In assessing the fair and reasonableness of the Proposed Caps, we have
discussed with the management of the Company the basis and underlying
assumptions used in the determination of the Proposed Caps.
Historical figures of the Non-Exempt Continuing Connected Transactions for
the three years ended 31 December 2005, 2006 and 2007 and the six months
ended 30 June 2008, the Revised Non-Exempt Annual Caps for 2008 (if
applicable) and the Proposed Caps of the Non-Exempt Continuing Connected
Transaction for each of the three years ending 2009, 2010 and 2011 are set
out as follows:
HISTORICAL FIGURES PROPOSED CAPS
-------------------------------------- --------------------------
FOR THE
FOR THE YEARS ENDED SIX MONTHS EXISTING OR FOR THE YEARS ENDING
31 DECEMBER ENDED REVISED 31 DECEMBER
2005 2006 2007 30 JUNE 2008 CAPS OF 2008 2009 2010 2011
------ ------ ------ ------------ ------------- ------ ------- -------
(RMB MILLION) (RMB MILLION) (RMB MILLION)
4.1 Products and services to
be provided by the Group
to CNPC and the Jointly-held
Entities........................ 19,823 27,714 40,730 22,186 71,289 96,324 156,440 167,981
4.2 Construction and technical
services to be provided by
CNPC to the Group............... 64,662 82,741 97,257 42,588 165,578 242,967 256,937 215,526
4.3 Production services to be
provided by CNPC to the Group... 23,344 32,730 49,455 38,391 98,518 92,912 138,221 182,798
4.4 Financial services to be
provided by the Group to the
Jointly-held Entities........... N/A 1,515 2,138 353 44,465 23,582 36,484 51,839
4.5 Products and services to be
provided by the Group to
CRMSC........................... N/A 11,046 12,022 7,229 16,833 19,814 22,012 23,729
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4.1 PRODUCTS AND SERVICES TO BE PROVIDED BY THE GROUP TO CNPC AND THE
JOINTLY-HELD ENTITIES
The proposed annual caps for the products and services to be provided by
the Group to CNPC and the Jointly-held Entities have been determined with
reference to:
a) the historical transactions and transaction amounts in providing
products and services by the Group to CNPC and the Jointly-held
Entities;
b) the estimated business growth of the Group and CNPC;
c) the estimated business growth of the Jointly-held Entities;
d) the potential fluctuations and increases in the prices of crude oil,
petrochemical products, natural gas and other oil products and
services both in the international market and in the domestic
market; and
e) the quantities of crude oil required (by the Group as decreed by the
government).
The increases in the proposed annual caps for products and services
provided by the Group to CNPC and the Jointly-held Entities for the three
years ending 31 December 2009, 2010 and 2011 are mainly due to the
increases in sales of refined oil products, chemical products, and crude
oil, as a result of (i) the anticipated high crude and refined oil prices
in the next three years and (ii) the increase in the trading volumes
between the Group and CNPC and the Jointly-held Entities upon
China-Kazakhstan pipeline reaching its designed transportation capacity.
In arriving at the proposed annual caps for products and services provided
by the Group to CNPC and the Jointly-held Entities for the three years
ending 31 December 2009, 2010 and 2011, the Group has estimated the future
crude and refined oil prices based on the experience with reference to the
historical crude and refined oil prices fluctuations and expected future
prices fluctuation. We are given to understand that the Group estimated
the international crude oil prices will remain at high level and will
fluctuate between US$100 to US$120 per barrel in the coming three years.
It is also anticipated that the PRC government will implement control on
domestic refined oil prices and so the Group expects the price of refined
oil will also increase slightly.
According to the information obtained from Bloomberg, the closing prices
of crude oil from 1 January 2007 to 31 July 2008 ranged from about US$50.5
per barrel to US$145.3 per barrel. The prices of crude oil closed at above
US$90 per barrel during most of the time during the first seven months
ended 31 July 2008. According to the International Energy Outlook 2008
presented by Energy Information Administration, Official Energy Statistics
from the U.S. Government, they predict that the high world oil prices for
2009, 2010 and 2011 will be approximately US$92.5, US$85.7 and US$89.7 per
barrel respectively. Taking into account the historical crude oil prices
fluctuation and the future world oil prices as estimated in the
International Energy Outlook 2008, we consider that the Company using
US$100 to US$120 per barrel to estimate the proposed annual caps for
products and services provided by the Group to CNPC and the Jointly-held
Entities is fair and reasonable.
During the two years ended 31 December 2006 and 2007, the growth in
products and services provided by the Group to CNPC and the Jointly-held
Entities has increased annually by approximately 40% and 47% respectively.
Based on the proposed annual caps for products and services provided by
the Group to CNPC and the Jointly-held Entities for each of the three
years ending 31 December 2009, 2010 and 2011 and the proposed revised cap
for 2008, the products and services provided by the Group to CNPC and the
Jointly-held Entities will grow annually by approximately 35%, 62% and 7%
respectively. We understand from the Group that China-Kazakhstan pipeline,
which is owned by CNPC, will reach its full transportation capacity within
the second half of year 2009. Upon China-Kazakhstan pipeline reaching
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its designed transportation capacity, the Group would be able to transport
and sell more crude oil to CNPC. There is a significant growth in the
proposed cap in 2010 as compared to 2009 because it is expected that
China-Kazakhstan pipeline will be in full year operation. However, the
proposed annual cap for 2011 only represents an increase of 7% as compared
to the proposed annual cap of 2010 because China-Kazakhstan pipeline will
be in full year operation both in 2010 and 2011.
Given the dominant position of the Group in the petroleum and
petrochemical industry in the PRC, and the increase in turnover and
activities of CNPC and the Jointly-held Entities, the quantities and
amounts of future transactions between the Group and CNPC and the
Jointly-held Entities are expected to increase. The Directors are of the
view that the Proposed Caps provide sufficient increment for the Group to
capture the Group's future anticipated expansion plan. We are of the view
that given the uncertainty in the world energy market, the escalating
energy prices and business development of the Group, the Proposed Caps
will provide a reasonable certainty of maintaining supply to CNPC and the
Jointly-held Entities. We consider that the Proposed Caps for each of the
three years ending 31 December 2009, 2010 and 2011 are fair and
reasonable.
4.2 CONSTRUCTION AND TECHNICAL SERVICES TO BE PROVIDED BY CNPC TO THE GROUP
The proposed annual caps for the provision of construction and technical
services have been determined with reference to:
a) the previous transactions and transaction amounts for the
construction and technical services provided by CNPC to the Group;
b) the estimated business growth of the Group; and
c) the increase in capital investment for pipelines construction and
refinery projects during 2009-2011.
The construction and technical services provided by CNPC to the Group
include mainly exploration technology service, downhole operation service,
oilfield construction service, oil refinery construction service,
engineering and design service, risk operation services and other related
or similar products and services. We understand from the management that
the transaction amounts of construction and technical services are closely
related to the capital expenditure incurred by the Group.
Based on the information provided by the Group, the transaction amounts of
construction and technical services provided by CNPC to the Group from
2005 to 2007 accounted for approximately 52%, 56% and 54% of each
corresponding year's total capital expenditure of the Group. The forecast
amounts of construction and technical services to be provided by CNPC to
the Group during 2009 to 2011 are expected to be approximately 64%, 63%
and 63% of each corresponding year's capital expenditure budget of the
Group. The major reasons leading to this significant increase in the
proposed annual caps for the provision of construction and technical
services are due to the increased investment on pipeline projects and
refinery petrochemical projects during 2009 to 2011 after the
establishment of Pipeline Construction Department and the enhanced
competitiveness of CNPC owned construction department. However, there is a
decrease in the capital expenditure as well as the proposed annual cap
amount of 2011 as compared to the capital expenditure and proposed annual
caps of 2009 and 2010 because it is expected that a significant portion of
these pipeline and petrochemical projects will be completed in 2010.
The Group has, from time to time, obtained construction and technical
services from CNPC in the ordinary and usual course of business. CNPC has
extensive experience in exploration and development of crude oil and
natural gas projects in the world, offering a premier construction and
technical services to the Group. CNPC is also one of the few companies in
the PRC that provides premier petrochemical related construction and
technical services. The services and terms offered by independent third
parties are difficult to match the same quality services provided by CNPC.
CNPC offers advantages including safety, reliability, technical expertise,
understanding of existing facilities and experience in providing
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construction and technical services, which enable CNPC to gain
construction business from bidding with other firms.
We have discussed with the management of the Group on the future capital
expenditure plan and considered that the plan was prepared by the Group
after due and careful enquiry. We are of the view that the proposed annual
caps for the provision of construction and technical services provide
sufficient increment for the Group to capture the Group's future
anticipated expansion plan, and the proposed annual caps for the provision
of construction and technical services are determined on a fair and
reasonable basis.
4.3 PRODUCTION SERVICES TO BE PROVIDED BY CNPC TO THE GROUP
The proposed annual caps for the production services provided by CNPC to
the Group have been determined with reference to:
a) the previous transactions conducted and transaction amounts in
respect of production services provided by CNPC to the Group;
b) the estimated business growth of the Group; and
c) the potential fluctuations and increases in the international and
the PRC market prices of crude oil, petroleum and petrochemical
products, leading to higher energy costs in the production process.
The production services provided by CNPC to the Group mainly consist of
water supply, electricity generation and supply, gas supply by CNPC to the
Group and the supply of petroleum and petrochemical products by the
Jointly-held Entities to the Group. Comparing the proposed annual cap for
production services provided by CNPC to the Group for 2009 of RMB92,912
million to the existing annual cap for the year ending 31 December 2008 of
RMB98,518 million, it represents a slight decrease of 6%. For the six
months ended 30 June 2008, the transactions amount of production services
provided by CNPC to the Group amounted to approximately RMB38,391 million.
As advised by the Company, the actual transaction amount for the year
ending 31 December 2008 is expected to be less than the existing cap of
2008 and hence the cap for the year ending 31 December 2009 is slightly
adjusted downwards. The proposed annual caps for the production services
provided by CNPC to the Group for 2010 to 2011 are expected to increase
annually by 49% and 32% respectively.
We understand from the Group that reasons for the increasing amount of
production services provided by CNPC to the Group are primarily due to the
increasing amount of imported crude oil and related transportation cost
purchased from CNPC in the coming three years and increasing ship leasing
services provided by CNPC to the Group. Also, CNPC is responsible for the
national crude oil reserves of the PRC, such reserve needs to be updated by
the Group annually in accordance with technical requirements and old crude
oil of the reserve will be sold by CNPC to the Group for sale.
We have discussed with the management of the Group on the future business
plan and considered the plan was prepared by the Group after due and
careful enquiry. Considering (i) the volatility and possible increase in
the prices of crude oil, petroleum and petrochemical products in the
international and the PRC market, leading to a higher energy costs during
the production process; and (ii) modest and reasonable increasing rate, we
are of the opinion that the proposed annual caps for the production
services provided by CNPC to the Group are determined on a fair and
reasonable basis, we are of the view that the Proposed Caps provide
sufficient increment for the Group to capture the Group's future
anticipated expansion plan, and the Proposed Caps are determined on a fair
and reasonable basis.
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4.4 FINANCIAL SERVICES TO BE PROVIDED BY THE GROUP TO THE JOINTLY-HELD
ENTITIES
The proposed annual caps for the financial services to be provided by the
Group to the Jointly-held Entities have been determined with reference to:
a) the business development and financing needs of the Jointly-held
Entities; and
b) the acquisition opportunities which may arise from time to time in
the international market.
The Group's strategic objective is to become an international petroleum
company with significant oil and gas assets both onshore and offshore as
well as in both the PRC and international markets. Taking into
consideration of tight global energy supply, we understand the top
priority among PRC petroleum companies is to secure overseas energy
reserves. The Group, being the largest petroleum company in the PRC, is
prepared to secure good acquisition targets when the opportunity appears.
As overseas acquisition is part of the growth strategy of the Jointly-held
Entities, the Group is of the view that the provision of financial
services to the Jointly-held Entities will enable them to have sufficient
funding for future expansion to acquire premier energy reserves. The
funding will be provided in the form of entrustment loans and/or loan
guarantees.
Also, due to the good reputation of the Group, it is capable to obtain
better credit terms (including lower loan interest rate) comparing to its
Jointly-held Entities, it is more efficient for the Group to raise funds
externally on behalf of the Jointly-held Entities. We note that it is a
common practice amongst PRC major state-owned companies to have financing
services provided by the parent groups to the related companies. The
Directors are of the view that the proposed annual caps for the financial
services to be provided by the Group provide sufficient capacity for the
Jointly-held Entities to capture the future anticipated expansion plan.
4.5 PRODUCTS AND SERVICES TO BE PROVIDED BY THE GROUP TO CRMSC
The proposed annual caps for the products and services to be provided by
the Group to CRMSC, amongst other things, gasoline, diesel, and other
petroleum products, have been determined with reference to:
a) the relevant pricing principles, i.e., the government-prescribed
prices;
b) the historical transaction levels for the same type of transaction;
and
c) the estimated future transaction levels based on the market needs in
the coming three years.
We are advised by the Company that the proposed annual caps of the
products and services to be provided by the Group to CRMSC are estimated
mainly based on the fact that PetroChina & CRMSC Oil Marketing formulates
the demand plan of petroleum products to the Group according to China's
railway development planning, and the passenger and cargo transportation
load. Based on the budget of CRMSC, the petroleum products demand for
railway from 2009 to 2011 are expected to be approximately 3.06, 3.15 and
3.2 million tons respectively. The proposed annual caps of the products
and services to be provided by the Group to CRMSC are expected to increase
by a compound annual growth rate of approximately 12% from the revised
annual cap for 2008 to the proposed annual cap for 2011.
Considering (i) the business growth of CRMSC; (ii) the fluctuation and
potential upward shift in the petroleum products; and (iii) the modest
annual compound growth rate of the transactions amount with CRMSC, we are
of the view that Proposed Caps are reasonably determined.
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(B) LAND USE RIGHTS LEASING CONTRACT, BUILDING LEASING CONTRACT AND SUPPLEMENTAL
BUILDING LEASING AGREEMENT
1. LAND USE RIGHTS LEASING CONTRACT
The Company entered into the Land Use Rights Leasing Contract with CNPC on
10 March 2000 under which CNPC has leased a total of 42,476 parcels of land
in connection with and for the purpose of all aspects of the operations and
business of the Group covering an aggregate area of approximately 1,145
million square meters, located throughout the PRC, to the Company for a
term of 50 years at an annual fee of RMB2,000 million. The total fee
payable for the lease of all such property may, after the expiration of 10
years from the date of the Land Use Rights Leasing Contract, be adjusted
(to reflect market conditions prevalent at such time of adjustment,
including current market prices, inflation or deflation, as appropriate,
and such other pertinent factors as may be reasonably considered in
negotiating and agreeing to any such adjustment) by agreement between the
Company and CNPC. In addition, any governmental, legal or other
administrative taxes and fees required to be paid in connection with the
leased properties will be borne by CNPC. However, any additional amount of
such taxes payable as a result of changes in the PRC Government policies
after the date of the contract shall be shared proportionately on a
reasonable basis between CNPC and the Company. Such additional taxes
payable will be shared proportional to the land area occupied respectively
by CNPC and the Company.
Savills (Hong Kong) Limited ("Savills"), an independent valuer, has
reviewed the Land Use Rights Leasing Contract and has confirmed that the
term of 50 years and current rentals payable by the Company to CNPC are
fair and reasonable to the Company and are in line with the market rentals.
We have discussed with the management the rationale for the duration of the
Land Use Rights Leasing Contract and we are given to understand that the
relevant land leases are of material significance to the Group's operation.
In this connection, the long lease term of 50 years is required so as to
avoid the unnecessary disruption to the Company's business operations that
would arise if the lease of the land is a short lease term. We also
understand that certain assets (including buildings and premises) of the
Company are located on the lands leased from CNPC, and the continued
operation of such assets would depend on the Company's ability to occupy
the relevant land. It is not cost effective to frequently move or relocate
the assets (including properties) that are currently located on the land
leased from CNPC. In addition, we note from the Company that 50 years lease
term is currently the maximum tenure for industrial use that is allowed
under the PRC laws and regulations. The Board believes that a 50 year
tenure of the Land Use Rights Leasing Contract conforms with normal
business practice in the PRC property market. For these reasons, the long
term lease of land use rights is necessary for the Group's operation.
We note in the Land Use Rights Leasing Contract that the Company has the
right to terminate the contract, in whole or in part, with six months
notice to CNPC. In this connection, we consider that the Group could
terminate the contract if the Group is able to find other parcels of land
at more favourable terms than CNPC or when the Group no longer needs such
land. Based on the above reasons, the terms of the Land Use Rights Leasing
Contract are fixed for a period exceeding three years. We are of the view
that such long term land use rights leasing arrangement has commercial
justification and is necessary for the Group to pursue its long term
business development.
We have searched publicly available information regarding the lease of land
use rights which involves contracts with lease term of exceeding three
years. We note from the circular of China Petroleum and Chemical
Corporation ("Sinopec") dated 21 April 2006 that Sinopec entered into a
land use rights leasing agreement with Sinopec Group Company and its
subsidiaries (collectively known as "Sinopec Group") in June 2000 pursuant
to which Sinopec agreed to lease certain land use rights from Sinopec
Group. Regarding authorised land for operation owned by members of the
Sinopec Group, land for industrial use are leased to Sinopec for a term of
50 years and land for commercial use are leased to Sinopec for a term of 40
years. Regarding land over which members of Sinopec Group have been
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granted with land use rights with consideration, they are leased for a term
up to the date of the expiry of the respective land use rights
certificates.
We also note from the announcement and circular of Aluminium Corporation of
China Limited ("Chalco") dated 20 August 2007 and 26 November 2003
respectively that Chalco had entered into a land use rights leasing
agreement with Aluminium Corporation of China ("Chinalco") in November 2001
regarding the lease of certain land use rights in the PRC by Chalco from
Chinalco. The lease term for each piece of allocated land is 50 years and
the lease term for each piece of land over which Chinalco has been granted
land use rights is until the date of expiry of the relevant land use rights
certificates.
Based on the above, we consider that the term of the Land Use Rights
Leasing Contract of 50 years is in line with the term of the land use
rights lease agreements of Sinopec and Chalco and that the duration of the
Land Use Rights Leasing Contract for such longer term is in line with
normal business practice for contract of this type.
2. BUILDINGS LEASING CONTRACT AND SUPPLEMENTAL BUILDINGS LEASING AGREEMENT
The Company entered into the Buildings Leasing Contract with CNPC on 10
March 2000 pursuant to which CNPC has leased to the Company a total of 191
buildings covering an aggregate area of 269,770 square meters, located
throughout the PRC for the use by the Company for its business operation
including the exploration, development and production of crude oil, the
refining of crude oil and petroleum products, the production and sale of
chemicals, etc.
The 191 buildings were leased at a price of RMB145 per square meter per
year with an aggregate annual fee of RMB39,116,650 for a term of 20 years.
The Company is responsible for the payment of any governmental, legal or
others administrative taxes and maintenance charges required to be paid in
connection with these 191 leased buildings.
Members of CNPC which own one or more of the leased buildings will enter
into individual building leasing contracts with the Company. The individual
building leasing contracts may only contain provisions which are consistent
with the terms and conditions of the Buildings Leasing Contract. According
to the Company, such individual building leasing contracts were also leased
at a price of RMB145 per square meter per year.
One month prior to the end of each financial year, CNPC and the Company
shall meet and agree upon a rental fee distribution plan setting out
specific prices for the buildings according to their geographical locations
and conditions.
Further to the Buildings Leasing Contract mentioned above, the Company
entered into a Supplemental Buildings Leasing Agreement with CNPC on 26
September 2002 under which CNPC agreed to lease another 404 buildings to
the Group in connection with and for the purpose of the operations and
business of the Group covering an aggregate of approximately 442,730 square
meters. Leasing of the units in the Supplemental Buildings Leasing
Agreement is mainly attributable to the expansion of the Company's
operations in the areas of oil and natural gas exploration, the West-East
natural gas pipeline project and the construction of the Northeast
refineries and chemical operation base. The annual fee payable under the
Supplemental Buildings Leasing Agreement amounts to RMB157,439,540. The
Company and CNPC will, based on their needs for production and operation or
the changes of the market prices of the buildings, adjust the scale and the
amount of all such buildings under the Buildings Leasing Contract as well
as the Supplemental Buildings Leasing Agreement every three years. The
Supplemental Buildings Leasing Agreement became effective on 1 January 2003
and will expire at the same time as the Buildings Leasing Contract.
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Savills has reviewed both the Buildings Leasing Contract and Supplemental
Buildings Leasing Agreement and has confirmed that the term of 20 years and
current rentals payable by the Company to CNPC are fair and reasonable to
the Company and in line with the market rentals.
We have discussed with the management the rationale for the duration of the
Buildings Leasing Contract and Supplemental Buildings Leasing Agreement and
we are given to understand that the relevant buildings leases are of
material significance to the Group's operation. In this connection, the
long lease term of 20 years is required so as to avoid the unnecessary
disruption to the Company's business operations that would arise if the
lease of the buildings is a short lease term. We also understand that
certain assets of the Company are located in the buildings leased from
CNPC, and the continued operation of such assets would depend on the
Company's ability to occupy the relevant buildings. It is not cost
effective to frequently move or relocate the assets that are currently
located on the buildings leased from CNPC. In addition, we note from the
Company that 20 years lease term is currently the maximum tenure that is
allowed for building lease under the relevant PRC laws and regulations. The
Board believes that a 20 year tenure of the Buildings Leasing Contract and
Supplemental Buildings Leasing Agreement conforms with normal business
practice in the PRC property market. For these reasons, the long term lease
of buildings is necessary to the Group's operation.
We also note in the Building Leasing Contract and the Supplemental
Buildings Leasing Agreement that the Company has the right to terminate the
contract, in whole or in part, with six months notice to CNPC. In this
connection, we consider that the Group could terminate the contract if the
Group is able to find other buildings at more favourable terms than CNPC or
when the Group no longer needs such buildings. Based on the above reasons,
the terms of the Building Leasing Contract and the Supplemental Buildings
Leasing Agreement are fixed for a period exceeding three years. We are of
the view that such long term building lease arrangement has commercial
justification and is necessary for the Group to pursue its long term
business development.
We have searched publicly available information regarding the lease of
buildings which involves contracts with terms exceeding three years. We
noted from the circular of China Petroleum and Chemical Corporation
("Sinopec") dated 21 April 2006 that Sinopec had entered into properties
leasing agreement with Sinopec Group in June 2000 pursuant to which Sinopec
agreed to lease certain buildings from Sinopec Group for a term of 20
years.
We also note from the circular of Chalco dated 26 November 2003 that Chalco
had entered into a buildings leasing agreement with Chinalco in November
2001 pursuant to which Chalco agreed to lease certain properties from
Chinalco. The lease of properties is for a term of 20 years.
Based on the above, we consider that the term of the Buildings Leasing
Contract and Supplemental Buildings Leasing Agreement of 20 years is in
line with the terms of the properties leasing agreements of Sinopec and
Chalco and that the duration of the Buildings Leasing Contract and
Supplemental Buildings Leasing Agreement for such longer term is in line
with normal business practice for contract of this type.
(C) REVISED NON-EXEMPT ANNUAL CAPS FOR 2008
The Company has closely monitored the performance of the Continuing
Connected Transactions. However, due to the surge in the international crude oil
prices in 2008, the increase in the volume of the refined products, estimated
increase in the level of exploration activities by the Group within the PRC, the
rise of exploration costs and the expansion of overseas exploration, and taking
into account the fact that, based on historical trends, the amount of
transactions of the Relevant Categories for the second half of each year often
accounts for more than two-thirds of the value for the full year, the Directors
consider that the existing annual caps in respect of 2008 for the Relevant
Categories, may possibly be insufficient for the Group's requirements for the
whole year. The Directors therefore propose that the existing annual caps for
the Relevant Categories in respect of 2008 be revised in order to cater for the
Group's demand for the year ending 31 December 2008.
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Historical figures of the Continuing Connected Transactions of (1)
products and services provided by the Group to CNPC and the Jointly-held
Entities and (2) construction and technical services provided by CNPC to the
Group for three years ended 31 December 2005, 2006 and 2007 and the six months
ended 30 June 2008, the existing caps and the Revised Non-Exempt Annual Caps in
respect of 2008 are set out as follows:
HISTORICAL FIGURES
--------------------------
FOR THE YEARS ENDED FOR THE
31 DECEMBER SIX MONTHS ENDED EXISTING CAPS REVISED CAPS
2005 2006 2007 30 JUNE 2008 OF 2008 OF 2008
------ ------ ------ ---------------- ------------- -------------
(RMB MILLION) (RMB MILLION) (RMB MILLION) (RMB MILLION)
1 Products and services provided
by the Group to CNPC and the
Jointly-held Entities....................19,823 27,714 40,730 22,186 50,129 71,289
2 Construction and technical
services provided by CNPC to
the Group................................64,662 82,741 97,257 42,588 105,661 165,578
1. PRODUCTS AND SERVICES PROVIDED BY THE GROUP TO CNPC AND THE JOINTLY-HELD
ENTITIES
Under the Comprehensive Agreement, products and services to be provided by
the Group to CNPC and Jointly-held Entities include those relating to
crude oil, natural gas, refined oil products, chemical products, supply of
water, electricity, gas, heating, quantifying and measuring, quality
inspection and other products and services as may be requested by CNPC for
its own consumption, use or sale from time to time.
As mentioned in the "Letter of the Board" of the Circular, the basis of
determination of the Revised Non-Exempt Annual Caps for products and
services provided by the Group to CNPC and the Jointly-held Entities is
due to the increase in the transaction volume and prices for both crude
oil and refined products. In particular, there have been increases in both
the import of crude oil reserve and export/import trading of crude oil
(by the Group as decreed by the government) as well as the production of
crude oil (by the Group as decreed by the government).
As we noted, transaction amounts in 2006 and 2007 have been increased by
approximately 40% and 47% as compared to its respective previous year's
amount. The Revised Non-Exempt Annual Cap of the products and services to
be provided by the Group to CNPC and the Jointly-held Entities increases
to RMB71,289 million. We understand from the management of the Group that
the reasons for revising of the existing cap of 2008 are mainly related to
the increased transaction amount of trading of crude oil between China
United Oil (a subsidiary of CNPC) after the Group disposed its interest in
China United Oil to CNPC in 2007; the increasing amount of crude oil
reserve provided by the Group to CNPC; the paying of agent service fee to
CNPC for purchasing construction materials in 2008; and the increasing
supply of products sold to CNPC following the acquisition of Qinghai
Oilfield.
Based on the information provided by the Group, we noticed that (i) the
amount of transactions for the second half of each year often accounts for
more than two-thirds of the value for the full year (ii) the fluctuation
in the petroleum products; (iii) the surge of international energy price;
(iv) business growth of the Group in the second half year of 2008, we are
of the view that the Revised Non-Exempt Annual Cap for products and
services provided by the Group to CNPC and the Jointly-held Entities is
fair and reasonable.
2. CONSTRUCTION AND TECHNICAL SERVICES PROVIDED BY CNPC TO THE GROUP
Under the Comprehensive Agreements, construction and technical services
provided by CNPC to the Group include exploration technology service,
downhole operation service, oilfield construction service, oil refinery
construction service, engineering and design service and risk operation
services.
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The Revised Non-Exempt Annual Cap of the construction and technical
services to be provided by CNPC to the Group has been determined with
reference to the volume of crude oil gas deployed in the two-dimensional
seismic, three-dimensional seismic, drilling and risk operations have
increased continuously following the commencement of a number of pipeline
construction projects and refining construction projects. Also, the
materials deployed from CNPC increased.
As we noted, transaction amounts in 2006 and 2007 have been increased by
approximately 28% and 18% as compared to its respective previous year's
amount. The Revised Non-Exempt Annual Cap of the construction and
technical services provided by CNPC to the Group is increased to
RMB165,578 million. We understand from the management of the Group that
the reasons for revising of the existing cap of 2008 are mainly related to
the increased exploration activities related to Daqing Oilfield, Changqing
Oilfield and other oilfields of the Group. Also, the exploration cost has
increased resulting from inflation. Following the commencement of a number
of pipeline construction projects in 2008, the materials consumed for
projects increased.
Based on the information provided by the Group, we noted that (i) the
increasing cost on exploration activities; (ii) the estimated business
growth of the Group in the second half year of 2008, we are of the view
that the Revised Non-Exempt Annual Cap for construction and technical
services provided by CNPC to the Group is fair and reasonable.
RECOMMENDATION
Having considered the above principal factors and reasons, we consider
that (i) the Non-Exempt Continuing Connected Transactions will be carried out in
the ordinary and usual course of business of the Group and on normal commercial
terms; (ii) the Revised Non-Exempt Annual Caps and the Proposed Caps of the
Non-Exempt Continuing Connected Transactions are reasonably determined; (iii)
the terms of the Non-Exempt Continuing Connected Transactions are fair and
reasonable so far as the Independent Shareholders (or the Shareholders for CRMSC
Transactions and CRMSC Caps) are concerned; (iv) the revision of the Revised
Non-Exempt Annual Caps and the entering into the Non-Exempt Continuing Connected
Transactions are in the interest of the Company and the Independent Shareholders
(or the Shareholders for CRMSC Transactions and CRMSC Caps) of the Company as a
whole.
Given that (i) long term lease for land use rights and buildings would
minimise any potential disruption to the Company's business operations arising
from the expiry of a short lease term; and (ii) it is not cost effective to
frequently move or relocate the assets that currently are located on the land
use rights and/or buildings leased from CNPC, we are of the view that it is
necessary from a commercial point of view for the Land Use Rights Leasing
Contract, the Buildings Leasing Contract and the Supplemental Buildings Leasing
Agreement to be of a longer period than three years. Based on our research
regarding other land use rights and buildings leases, we consider that it is
normal business practice for agreements of a similar nature to the Land Use
Rights Leasing Contract, the Buildings Leasing Contract and the Supplemental
Buildings Leasing Agreement to be of such duration.
Accordingly, we advise the Independent Board Committee to recommend the
Independent Shareholders (or the Shareholders for CRMSC Transactions and CRMSC
Caps) to vote in favor of ordinary resolutions as detailed in the notice of the
Extraordinary General Meeting set out at the end of the Circular.
Yours faithfully,
For and on behalf of
ICEA CAPITAL LIMITED
FABIAN SHIN
Managing Director
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APPENDIX I GENERAL INFORMATION
--------------------------------------------------------------------------------
1. RESPONSIBILITY STATEMENT
This circular includes particulars given in compliance with the Hong Kong
Listing Rules for the purpose of giving information with regard to the
Company. The Directors collectively and individually accept full
responsibility for the accuracy and completeness of the information
contained in this circular and confirm, having made all reasonable
enquiries, that to the best of their knowledge and belief, there are no
other facts the omission of which would make any statement herein
misleading.
2. DISCLOSURE OF INTERESTS AND CONFIRMATIONS
As at the Latest Practicable Date, the following Directors, supervisors or
chief executives of the Company had an interest and short positions in the
shares, underlying shares and debentures of the Company or an associated
corporation:
PERCENTAGE
(%) OF THE PERCENTAGE
TOTAL NUMBER (%) OF THE
TYPES OF OF THAT CLASS IN TOTAL SHARE
NAME POSITION SHARES NO. OF SHARES ISSUE CAPITAL
---- ---------- -------- ------------- ---------------- -----------
Yu Yibo ..................Supervisor A Shares 56,500 0.000034 0.000031
Wang Shali ...............Supervisor A Shares 7,000 0.000004 0.000013
H Shares 18,000 0.000085
As at the Latest Practicable Date:
(a) save as disclosed above, none of the Directors, supervisors or chief
executives of the Company had any interest and short positions in
the shares, underlying shares and debentures of the Company or any
associated corporation (within the meaning of Part XV of the SFO,
which are required to be notified to the Company and the Stock
Exchange pursuant to Divisions 7 and 8 of Part XV of the SFO
(including interests and short positions which he is taken or deemed
to have under such provision of the SFO); or are required pursuant
to section 352 of the SFO to be entered in the register referred to
therein, or as otherwise notified to the Company and the Stock
Exchange pursuant to the Model Code for Securities Transactions by
Directors of Listed Companies;
(b) the Company has not granted its Directors, chief executive or their
respective spouses or children below 18 any rights to subscribe for
its equity securities or debt securities;
(c) apart from Mr Jiang Jiemin (Chairman), Mr Zhou Jiping (Deputy
Chairman), Mr Wang Yilin, Mr Zeng Yukang, Mr Wang Fusheng, Mr Li
Xinhua, Mr Liao Yongyuan and Mr Wang Guoliang, who are deemed by the
Shanghai Listing Rules as connected directors of the Company by
virtue of their positions in CNPC who abstained from voting at the
board meeting held on 26 and 27 August 2008 in respect of the
Continuing Connected Transactions in relation to CNPC, none of the
Directors was materially interested in any contract or arrangement
entered into by any member of the Group since 31 December 2007,
being the date to which the latest published audited financial
statements of the Company were made up, and which was subsisting as
at the Latest Practicable Date and significant in relation to the
business of the Group;
(d) none of the Directors had any direct or indirect interest in any
assets which have been since 31 December 2007, being the date to
which the latest published audited annual financial statements of
the Company were made up, acquired or disposed of by or leased to
any member of the Group, or are proposed to be acquired or disposed
of by or leased to any member of the Group;
(e) none of the Directors or, so far as is known to them, any of their
respective associates was interested in any business (apart from the
Group's business) which competes or is likely to compete either
directly or indirectly with the Group's business (as would be
required to be disclosed under Rule 8.10 of the Hong Kong Listing
Rules if each of them were a controlling shareholder);
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APPENDIX I GENERAL INFORMATION
--------------------------------------------------------------------------------
(f) the Directors are not aware of any material adverse change in the
financial or trading positions of the Company since 31 December
2007, the date to which the latest published audited annual
financial statements of the Company were made up; and
(g) none of the Directors had entered into any service contract with the
Company or any member of the Group (excluding contracts expiring or
determinable by the employer within one year without payment of
compensation (other than statutory compensation)).
3. SUBSTANTIAL SHAREHOLDERS
Save as disclosed in this circular, as at the Latest Practicable Date, as
far as is known to the Directors and the chief executive of the Company, the
following persons have an interest or short position in the shares or underlying
shares of the Company which would fall to be disclosed to the Company under
Divisions 2 and 3 of Part XV of the SFO or who are directly or indirectly
interested in 10% or more of the nominal value of any class of share capital
carrying rights to vote in all circumstances at general meetings:
PERCENTAGE OF SUCH
SHARES IN THE SAME
CLASS OF THE ISSUED PERCENTAGE OF TOTAL
NAME OF SHAREHOLDER TYPE OF SHARE NUMBER OF SHARES CAPACITY SHARE CAPITAL (%) SHARE CAPITAL (%)
------------------- ------------- --------------- -------------------- ------------------- -------------------
CNPC................. A Share 157,922,077,818(L) Beneficial Owner 97.53 86.29
Deutsche Bank
Aktiengesellschaft
(Note 1)........... H Share 1,303,488,060(L) Beneficial Owner/ 6.18 0.71
Investment Manager/
Persons having a
security interest in
shares
H Share 731,451,830(S) Beneficial Owner/ 3.47 0.40
Investment Manager/
Persons having a
security interest in
shares
(L) Long position
(S) Short position
Note 1: Deutsche Bank Aktiengesellschaft, through various subsidiaries, has an
interest in 1,303,488,060 H shares of the Company.
Save as disclosed above, the Directors and chief executive of the Company
are not aware that there is any party who, as at the Latest Practicable Date,
had an interest or a short position in the shares and underlying shares which
would fall to be disclosed to the Company under the provisions of Divisions 2
and 3 of Part XV of the SFO or who are directly or indirectly interested in 10%
or more of the nominal value of any class of share capital carrying rights to
vote in all circumstances at general meetings.
4. EXPERTS' QUALIFICATIONS AND CONSENTS
The followings are the qualifications of the experts who have given
opinions or advice which are contained in this circular:
NAMES QUALIFICATIONS
----- -----------------------------------------------------
ICEA Capital Limited a licensed corporation under the transitional
arrangement to conduct Type 1 (dealing in securities)
and Type 6 (advising on corporate finance) regulated
activities under the SFO
Savills (Hong Kong) Limited a member of The Hong Kong Institute of Surveyors
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APPENDIX I GENERAL INFORMATION
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(a) Each of ICEA and Savills (Hong Kong) Limited is not beneficially
interested in the share capital of any member of the Group and none
of them has any right, whether legally enforceable or not, to
subscribe for or to nominate persons to subscribe for securities in
any member of the Group.
(b) Each of ICEA and Savills (Hong Kong) Limited has given and has not
withdrawn its written consent to the issue of this circular with
inclusion of its opinions and letters, as the case may be, and the
reference to its name included herein in the form and context in
which they respectively appear.
(c) As at the Latest Practicable Date, each of ICEA and Savills (Hong
Kong) Limited did not have any interest in any assets which have
been, since 31 December 2007 (being the date to which the latest
published audited annual accounts of the Company were made up),
acquired or disposed of by or leased to any member of the Group, or
are proposed to be acquired or disposed of by or leased to any
member of the Group.
5. GENERAL
(a) The secretary to the Board is Mr. Li Huaiqi.
(b) The registered office of the Company is at 16 Andelu, Dongcheng
District, Beijing, 100011, the PRC.
(c) The principal share register and transfer office for the H Shares is
Hong Kong Registrars Limited, Room 1901--5, 19th Floor, Hopewell
Centre, 183 Queen's Road East, Hong Kong.
(d) In the event of inconsistency, the English language text of this
circular shall prevail over the Chinese language text.
6. DOCUMENTS AVAILABLE FOR INSPECTION
Copies of the following documents will be available for inspection during
normal business hours at the offices of Clifford Chance at 28th Floor, Jardine
House, Central, Hong Kong from the date of this circular up to and including 19
September 2008:
(a) the agreements mentioned in this circular;
(b) the letter of recommendation from the Independent Board Committee,
the text of which is set out on pages 35 to 36 of this circular;
(c) the letter issued by the ICEA, the text of which is set out on pages
37 to 52 of this circular;
(d) the letter issued by Savills (Hong Kong) Limited in respect of
rental of land and buildings of CNPC by the Group; and
(e) the written consents of ICEA and Savills (Hong Kong) Limited
referred to paragraph 4 of this Appendix.
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NOTICE OF EXTRAORDINARY GENERAL MEETING
--------------------------------------------------------------------------------
(PETROCHINA COMPANY LIMITED LOGO)
(a joint stock limited company incorporated in
the People's Republic of China with limited liability)
(STOCK CODE IN THE HONG KONG STOCK EXCHANGE: 00857)
NOTICE IS HEREBY GIVEN that the second extraordinary general meeting of
the shareholders of PetroChina Company Limited (the "Company") of 2008 will be
held at Crowne Plaza Beijing Park View Wuzhou Hotel, No. 8 North Si Huan Zhong
Road, Chaoyang District, Beijing, PRC on 21 October 2008 (Tuesday) at 9:00 a.m.
for the purpose of considering and, if deemed appropriate, passing, with or
without modification, the following resolutions as ordinary resolutions:
ORDINARY RESOLUTIONS
1. "THAT, as set out in the circular dated 5 September 2008 issued by the
Company to its shareholders (the "Circular"):
(a) the New Comprehensive Agreement entered into between the Company and
China National Petroleum Corporation be and is hereby approved,
ratified and confirmed;
(b) the Non-Exempt Continuing Connected Transactions and the Proposed
Caps of the Non-Exempt Continuing Connected Transactions under the
New Comprehensive Agreement and the Revised Non- Exempt Annual Caps,
which the Company expects to occur in the ordinary and usual course
of business of the Company and its subsidiaries, as the case may be,
and to be conducted on normal commercial terms, be and are hereby
generally and unconditionally approved; and
(c) the execution of the New Comprehensive Agreement by Mr. Zhou
Mingchun, Chief Financial Officer for and on behalf of the Company
be and is hereby approved, ratified and confirmed and that Mr. Zhou
Mingchun be and is hereby authorised to make any amendment to the
New Comprehensive Agreement as he thinks desirable and necessary and
to do all such further acts and things and execute such further
documents and take all such steps which in his opinion may be
necessary, desirable or expedient to implement and/or give effect to
the terms of such transactions."
2. "THAT, as set out in the Circular:
(a) the supplemental agreement to the CRMSC Products and Services
Agreement between the Company and China Railway Materials and
Suppliers Corporation (as attached to the resolution) be and is
hereby approved, ratified and confirmed;
(b) the Non-Exempt Continuing Connected Transactions under, and the
Proposed Caps in respect of, the supplemental agreement to the CRMSC
Products and Services Agreement which the Company expects to occur
in the ordinary and usual course of business of the Company and its
subsidiaries, as the case may be, and to be conducted on normal
commercial terms, be and are hereby generally and unconditionally
approved; and
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NOTICE OF EXTRAORDINARY GENERAL MEETING
--------------------------------------------------------------------------------
(c) the execution of the CRMSC Products and Services Agreement by Mr.
Zhou Mingchun, Chief Financial Officer for and on behalf of the
Company be and is hereby approved, ratified and confirmed and that
Mr. Zhou Mingchun, be and is hereby authorised to make any amendment
to the CRMSC Products and Services Agreement as he thinks desirable
and necessary and to do all such further acts and things and execute
such further documents and take all such steps which in his opinion
may be necessary, desirable or expedient to implement and/or give
effect to the terms of such transactions."
By Order of the Board
PETROCHINA COMPANY LIMITED
LI HUAIQI
Secretary to the Board
Beijing, 5 September 2008
NOTES:
1. Holders of H shares and holders of A Shares whose names are registered in
the register of members of the Company at the close of business on Friday,
10 October 2008 are entitled to attend and vote at the Extraordinary
General Meeting. Persons holding the Company's H shares should note that
the register of members of the Company's H shares will be closed from
Saturday, 20 September 2008 to Tuesday, 21 October 2008, both days
inclusive, during which period no transfer of H Shares will be effected.
2. Shareholders who intend to attend the Extraordinary General Meeting are
required to send the reply slip to the Secretariat of the Board of the
Company by Tuesday, 30 September 2008. Please refer to the form of reply
slip for details.
3. Any shareholder entitled to vote at the Extraordinary General Meeting is
entitled to appoint one (1) or more proxies to attend and vote on his
behalf. A proxy need not be a shareholder of the Company. Shareholders
must appoint a proxy in writing. Such instrument should be signed by the
person appointing the proxy or by such person's authorised representative.
If the form of proxy is signed by another person so authorised by the
shareholder, the power of attorney or other authorising document must be
certified by a notary. The notarially certified power of attorney or other
authorising document together with the proxy form must be returned to the
Secretariat of the Board of the Company not later than 24 hours prior to
the commencement of the Extraordinary General Meeting. The completion and
deposit of a form of proxy will not preclude any shareholder from
attending and voting at the Extraordinary General Meeting.
4. Each shareholder (or his/her proxy) shall be entitled to one vote for each
share held. If a shareholder has appointed more than one proxy to attend
the meeting, the voting rights can only be exercised by way of poll.
Address of Secretariat of the Board of the Company:
Secretariat of Board of Directors of PetroChina Company Limited
Room 1521, World Tower, 16 Andelu, Dongcheng District
Beijing, 100011, PRC
Tel: 8610-8488 6270
Fax: 8610-8488 6260
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