UNITED STATES
                      SECURITIES AND EXCHANGE COMMISSION
                            Washington, D.C. 20549
                              -------------------

                                   FORM 20-F

(Mark One)

|_|     REGISTRATION STATEMENT PURSUANT TO SECTION 12(b) OR (g) OF THE
        SECURITIES EXCHANGE ACT OF 1934
                                      OR
|X|     ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
        EXCHANGE ACT OF 1934
        For the fiscal year ended December 31, 2002
                                      OR
|_|     TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
        EXCHANGE ACT OF 1934
        For the transition period from            to

                        Commission File Number 1-14966

                                 CNOOC LIMITED
                   [NAME OF COMPANY IN CHINESE CHARACTERS]
            (Exact name of Registrant as specified in its charter)
                              -------------------
                                   Hong Kong
                (Jurisdiction of incorporation or organization)
                              -------------------
                        65th Floor, Bank of China Tower
                           One Garden Road, Central
                                   Hong Kong
                   (Address of principal executive offices)
                              -------------------
Securities registered or to be registered pursuant to Section 12(b) of the Act.

<TABLE>
<CAPTION>
                                         Title of                                                        Name of each exchange
                                        Each class                                                        On which Registered
                                        ----------                                                        -------------------

<S>                                                                                                 <C>
American Depositary Shares, each representing 20 shares of
   par value HK$0.10 per share..................................................................    New York Stock Exchange, Inc.
Shares of par value HK$0.10 per share...........................................................    New York Stock Exchange, Inc.*
</TABLE>

            Securities registered or to be registered pursuant to
                        Section 12(g) of the Act. None
                               (Title of Class)

       Securities for which there is a reporting obligation pursuant to
                        Section 15(d) of the Act. None
                               (Title of Class)

  Indicate the number of outstanding Shares of each of the issuer's classes
              of capital or common stock as of the close of the
                     period covered by the annual report.

Shares, par value HK$0.10 per share..............................8,214,165,655

     Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) or the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
Registrant as required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.

                                Yes |X| No |_|

     Indicate by check mark which financial statement item the Registrant has
elected to follow.

                            Item 17 |_| Item 18 |X|

----------
*    Not for trading, but only in connection with the registration of American
     Depositary Shares.


<PAGE>


<TABLE>
<CAPTION>
                                                         Table of Contents

                                                                                                                              Page
                                                                                                                              ----

Certain Terms and Conventions....................................................................................................3
Currencies and Exchange Rates....................................................................................................7
Forward-Looking Statements.......................................................................................................9

                                                              PART I

<S>            <C>
ITEM 1.        IDENTITY OF DIRECTORS, SENIOR MANAGEMENT AND ADVISORS............................................................10
ITEM 2.        OFFER STATISTICS AND EXPECTED TIMETABLE..........................................................................10
ITEM 3.        KEY INFORMATION..................................................................................................10
               A.       Selected Financial Data.................................................................................10
               B.       Capitalization and Indebtedness.........................................................................13
               C.       Reasons for the Offer and Use of Proceeds...............................................................13
               D.       Risk Factors............................................................................................14
ITEM 4.        INFORMATION ON THE COMPANY.......................................................................................23
               A.       History and Development.................................................................................23
               B.       Business Overview.......................................................................................26
ITEM 5.        OPERATING AND FINANCIAL REVIEW AND PROSPECTS.....................................................................73
               A.       Operating Results.......................................................................................73
               B.       Liquidity and Capital Resources.........................................................................86
ITEM 6.        DIRECTORS, SENIOR MANAGEMENT AND EMPLOYEES.......................................................................94
               A.       Directors and Senior Management.........................................................................94
               B.       Compensation of Directors and Officers..................................................................96
               C.       Board Practice..........................................................................................97
               D.       Employees...............................................................................................98
               E.       Share Ownership.........................................................................................98
ITEM 7.        MAJOR SHAREHOLDERS AND RELATED PARTY TRANSACTIONS...............................................................101
               A.       Major Shareholders.....................................................................................101
               B.       Related Party Transactions.............................................................................101
               C.       Interests of Experts and Counsel.......................................................................106
ITEM 8.        FINANCIAL INFORMATION...........................................................................................107
               A.       Consolidated Statements and Other Financial Information................................................107
               B.       Significant Changes....................................................................................108
ITEM 9.        THE OFFER AND LISTING...........................................................................................110
ITEM 10.       ADDITIONAL INFORMATION..........................................................................................111
               A.       Share Capital..........................................................................................111
               B.       Memorandum and Articles of Association.................................................................111
               C.       Material Contracts.....................................................................................113
               D.       Exchange Controls......................................................................................113
               E.       Taxation...............................................................................................113
               F.       Dividends and Paying Agents............................................................................116
               G.       Statement by Experts...................................................................................116
               H.       Documents on Display...................................................................................117
               I.       Subsidiary Information.................................................................................117
ITEM 11.       QUALITATIVE AND QUANTITATIVE DISCLOSURES ABOUT MARKET RISK......................................................117
ITEM 12.       DESCRIPTION OF SECURITIES OTHER THAN EQUITY SECURITIES..........................................................118

                                                              PART II

ITEM 13.       DEFAULTS, DIVIDEND ARREARAGES AND DELINQUENCIES.................................................................119
ITEM 14.       MATERIAL MODIFICATIONS TO THE RIGHTS OF SECURITY HOLDERS AND USE OF PROCEEDS....................................119
               A.       Material Modifications to the Rights to Securities Holders.............................................119
               B.       Use of Proceeds........................................................................................119
ITEM 15.       CONTROLS AND PROCEDURES.........................................................................................119
ITEM 16.       RESERVED........................................................................................................119

                                                             PART III

ITEM 17.       FINANCIAL STATEMENTS............................................................................................120
ITEM 18.       FINANCIAL STATEMENTS............................................................................................120
ITEM 19.       EXHIBITS........................................................................................................120


                                                                2
</TABLE>


<PAGE>


                         CERTAIN TERMS AND CONVENTIONS


Definitions

     Unless the context otherwise requires, references in this annual report
to:

     o    "CNOOC" are to our parent, China National Offshore Oil Corporation,
          a PRC state-owned enterprise, and its affiliates, excluding us and
          our subsidiaries;

     o    "CNOOC Limited," "we," "our" and "us" are to CNOOC Limited, a Hong
          Kong limited liability company and the registrant of this annual
          report, and its subsidiaries;

     o    "China" or the "PRC" are to the People's Republic of China,
          excluding for purposes of this annual report Hong Kong, Macau and
          Taiwan;

     o    "Hong Kong Stock Exchange" are to The Stock Exchange of Hong Kong
          Limited;

     o    "HK$" are to Hong Kong dollars;

     o    "JPY" are to Japanese yen;

     o    "Rmb" are to Renminbi, the currency of the PRC;

     o    "Rupiah" are to Indonesian Rupiah, the currency of the Republic of
          Indonesia; and

     o    "US$" are to U.S. dollars, the currency of the United States of
          America.

Conventions

     We have translated amounts from Renminbi into U.S. dollars solely for the
convenience of the reader at the noon buying rate in New York for cable
transfers payable in foreign currencies as certified for customs purposes by
the Federal Reserve Bank of New York on December 31, 2002 of US$1.00=Rmb
8.2800. We have also translated amounts in Hong Kong dollars solely for the
convenience of the reader at the rate of HK$7.8000 to US$1.00, the linked
exchange rate between such currencies under policies of the Hong Kong
government in effect on December 31, 2002. We make no representation that the
Renminbi amounts or Hong Kong dollar amounts could have been, or could be,
converted into U.S. dollars at those rates on December 31, 2002, or at all.
For further information on exchange rates, see "Currencies and Exchanges
Rates."

     Totals presented in this annual report may not total correctly due to
rounding of numbers.

     Our "average net realized price" for oil and gas in each period is
derived from a numerator divided by a denominator, where:

     o    the numerator is equal to the sum of (i) revenues from our oil and
          gas sales offshore China for the applicable period; (ii) the 30%
          ownership share of revenues from oil and gas sales for the
          applicable period from our associated company, Shanghai Petroleum
          and Natural Gas Company Limited; and (iii) the revenues from oil and
          gas sales for the applicable period from our overseas interests;
          while:

     o    the denominator is equal to the sum of (i) the volume of oil and gas
          sales offshore China for the applicable period; (ii) 30% of the
          volume of oil and gas sales for the applicable period from our
          associated company; and (iii) the volume of oil and gas sales for
          the applicable period from our overseas interests.

     Our "net proved reserves" are derived from proved reserves less certain
adjustments, where:

     o    proved reserves is equal to the sum of (i) our 100% interest in our
          independent oil and gas properties (excluding the proved reserves
          attributable to our associated company); (ii) our participating
          interest in the properties covered under our production sharing
          contracts in the PRC and Indonesia; and (iii) our 30% interest in
          the proved reserves of our associated company; while:

     o    the adjustments equal the sum of (i) an adjustment for our share of
          royalties payable to the PRC government and our participating
          interest in share oil payable to the PRC government under our
          production sharing contracts in the PRC; (ii) an adjustment for
          production allocable to foreign


                                      3


<PAGE>


          partners under our production sharing contracts in the PRC as
          reimbursement for exploration expenses attributable to our working
          interest; and (iii) adjustments for share oil payable under our
          Indonesian production sharing contracts to Pertamina, the Indonesian
          state-owned oil and gas company and for a domestic market obligation
          under which the contractor must sell a specified percentage of its
          crude oil to the local Indonesian market at a reduced price. In this
          annual report, we use "share oil" to refer to the portion of
          production that must be allocated to the relevant government entity
          or company under our production sharing contracts and technical
          assistance contracts.

     Net proved reserves do not include any deduction for production taxes
payable by us, which are included in our operating expenses. Net production is
calculated in the same way as net proved reserves. Unless otherwise noted, all
information in this annual report relating to oil and natural gas reserves is
based upon estimates prepared by us. In calculating barrels-of-oil equivalent,
or BOE, amounts, we have assumed that 6,000 cubic feet of natural gas equals
one BOE, with the exception of natural gas from certain fields which is
converted using the actual heating value of the natural gas.

Glossary of Technical Terms

     Unless otherwise indicated in the context, references to:

     o    "adjusted finding and development cost per BOE" means, for a given
          period, the sum of (a) total finding costs incurred divided by the
          sum of discoveries, extensions, and revisions of prior estimates of
          net proved reserves and (b) the sum of (i) total development costs
          and (ii) the amount of expected future development costs of proved
          undeveloped reserves divided by the sum of (iii) proved undeveloped
          reserves and (iv) the sum of undeveloped reserves converted to
          developed reserves. This measure is used to account for expected
          future development costs for existing reserves in addition to
          finding and development costs already incurred.

     o    "API gravity" means the American Petroleum Institute's scale for
          specific gravity for liquid hydrocarbons, measured in degrees. The
          lower the API gravity, the heavier the liquid and, generally, the
          lower its commercial value. For example, asphalt has an API gravity
          of eight degrees, West Texas Intermediate, a benchmark crude oil,
          has an API of 40 degrees, and gasoline has an API gravity of 50
          degrees.

     o    "appraisal well" means an exploration well drilled after a
          successful wildcat well to gain more information on a newly
          discovered oil or gas reserve.

     o    "condensate" means light hydrocarbon liquids separated from natural
          gas in the field through condensation when natural gas is exposed to
          surface temperature and pressure. This group generally includes
          slightly heavier hydrocarbons than natural gas liquids, such as
          pentane. It is combined with crude oil production and reserve
          figures.

     o    "crude oil" means crude oil and liquids, including condensate,
          natural gas liquids and liquefied petroleum gas.

     o    "development cost" means, for a given period, costs incurred to
          obtain access to proved reserves and to provide facilities for
          extracting, treating, gathering and storing the oil and gas.

     o    "dry hole" means an exploration well that is not commercial (i.e.,
          economically feasible to develop). Dry hole costs include the full
          costs for such drilling and are charged as an expense.

     o    "exploration well" means a wildcat or appraisal well.

     o    "finding and development cost per BOE" means, for a given period,
          the sum of total finding and development cost incurred, divided by
          the sum of discoveries, extensions, and revisions of prior estimates
          of net proved reserves.


                                      4


<PAGE>


     o    "finding cost" means, for a given period, costs incurred in
          identifying areas that may warrant examination and in examining
          specific areas that are considered to have prospects of containing
          oil and gas reserves, including costs of drilling exploration wells.

     o    "lifting cost" means, for a given period, costs incurred to operate
          and maintain wells and related equipment and facilities, including
          applicable operating costs of support equipment and facilities and
          other costs of operating and maintaining those wells and related
          equipment and facilities, plus production taxes. Also known as
          production cost.

     o    "natural gas liquids" means light hydrocarbons that can be extracted
          in liquid form from natural gas through special separation plants.
          This group includes typically lighter liquid hydrocarbons than
          condensate, such as butane, propane and ethane. It is combined with
          crude oil production but not with crude oil reserve figures.

     o    "net wells" means a party's working interest in wells under a
          production sharing contract.

     o    "offshore" means areas under water with a depth of five meters or
          greater.

     o    "onshore" means areas of land and areas under water with a depth of
          less than five meters.

     o    "proved developed reserves" means proved reserves of oil and natural
          gas that can be expected to be recovered through existing wells with
          existing equipment and operating methods.

     o    "proved reserves" means estimated quantities of crude oil and
          natural gas that geological and engineering data demonstrate with
          reasonable certainty to be recoverable in future years from known
          reservoirs under existing economic and operating conditions, i.e.,
          prices and costs as of the date the estimate is made.

     o    "proved undeveloped reserves" means proved reserves that are
          expected to be recovered from new wells in undrilled areas, or from
          existing wells where significant expenditure is required for
          completion.

     For a further definition of reserves:

     o    "reserve replacement ratio" means, for a given year, gross additions
          to proved reserves divided by production during the year.

     o    "reserve-to-production ratio" means the ratio of proved reserves to
          annual production of crude oil or, with respect to natural gas, to
          wellhead production excluding flared gas.

     o    "seismic data" means data recorded in either two-dimensional (2D) or
          three-dimensional (3D) form from sound wave reflections off of
          subsurface geology. This is used to understand and map geological
          structures for exploratory purposes to predict the location of
          undiscovered reserves.

     o    "success" means a discovery of oil or gas by an exploration well.
          Such an exploration well is a successful well and is also known as a
          discovery. A successful well is not necessarily commercial, which
          means there are enough hydrocarbon deposits discovered for
          economical recovery.

     o    "success rate" means the total number of successful wells divided by
          the total number of wells drilled in a given period. Success rate
          can be applied to wildcat wells or exploration wells in general.

     o    "wildcat well" means an exploration well drilled in an area or rock
          formation that has no known reserves or previous discoveries.

     References to:

     o    bbls means barrels, which is equivalent to approximately 0.134 tons
          of oil (33 degrees API);


                                      5


<PAGE>


     o    mmbbls means million barrels;

     o    BOE means barrels-of-oil equivalent;

     o    BOE per day means barrels-of-oil equivalent per day;

     o    million BOE means million barrels-of-oil equivalent;

     o    mcf means thousand cubic feet;

     o    mmcf means million cubic feet;

     o    bcf means billion cubic feet, which is equivalent to approximately
          283.2 million cubic meters;

     o    BTU means British Thermal Unit, a universal measurement of energy;
          and

     o    km means kilometers, which is equivalent to approximately 0.62
          miles.


                                      6


<PAGE>


                         CURRENCIES AND EXCHANGE RATES

     We publish our financial statements in Renminbi. Unless otherwise
indicated, all translations from Renminbi to U.S. dollars have been made at a
rate of Rmb 8.2800 to US$1.00, the noon buying rate as certified for customs
purposes by the Federal Reserve Bank of New York on December 31, 2002. We do
not represent that Renminbi or U.S. dollar amounts could be converted into
U.S. dollars or Renminbi, as the case may be, at any particular rate, the rate
below or at all.

     The following table sets forth the noon buying rate for U.S. dollars in
New York City for cable transfers in Renminbi as certified for customs
purposes by the Federal Reserve Bank of New York for the periods indicated:

<TABLE>
<CAPTION>
                                                                                            Noon Buying Rate
                                                                                            ----------------
Period                                                                End           Average(1)             High              Low
------                                                                ---           ----------             ----              ---
                                                                                           (Rmb per US$1.00)

<S>                                                                  <C>               <C>               <C>               <C>
1998...........................................................      8.3008            8.2991            8.3100            8.2778
1999...........................................................      8.2795            8.2785            8.2800            8.2770
2000...........................................................      8.2774            8.2784            8.2799            8.2768
2001...........................................................      8.2766            8.2772            8.2786            8.2676
2002...........................................................      8.2800            8.2772            8.2800            8.2669
November 2002..................................................      8.2773               --             8.2774            8.2771
December 2002..................................................      8.2800               --             8.2800            8.2771
January 2003...................................................      8.2768               --             8.2800            8.2766
February 2003..................................................      8.2775               --             8.2800            8.2768
March 2003.....................................................      8.2774               --             8.2776            8.2770
April 2003.....................................................      8.2771               --             8.2774            8.2769
2003 (through May 9, 2003).....................................      8.2768               --             8.2800            8.2766

----------
(1)  Determined by averaging the noon buying rates on the last business day of each month during the relevant period.
</TABLE>

     As of May 9, 2003, the noon buying rate for cable transfers in Renminbi
as certified for customs purposes by the Federal Reserve Bank of New York was
Rmb 8.2768 to US$1.00.


                                      7


<PAGE>


     The Hong Kong dollar is freely convertible into the U.S. dollar. Since
1983, the Hong Kong dollar has been linked to the U.S. dollar at the rate of
HK$7.80 to US$1.00. The Hong Kong government has also stated that it has no
intention of imposing exchange controls in Hong Kong and that the Hong Kong
dollar will remain freely convertible into other currencies, including the
U.S. dollar. However, we cannot assure you that the Hong Kong government will
maintain the link at HK$7.80 to US$1.00 or at all.

     The following table sets forth the noon buying rate for U.S. dollars in
New York City for cable transfers in Hong Kong dollars as certified for
customs purposes by the Federal Reserve Bank of New York for the periods
indicated.

<TABLE>
<CAPTION>
                                                                                       Noon buying rate
                                                                                       ----------------
Period                                                           End           Average(1)             High              Low
------                                                           ---           ----------             ----              ---
                                                                                      (HK$ per US$1.00)

<S>                                                            <C>               <C>                  <C>             <C>
1998......................................................     7.7476            7.7465               7.7595          7.7355
1999......................................................     7.7740            7.7599               7.7814          7.7457
2000......................................................     7.7999            7.7936               7.8008          7.7765
2001......................................................     7.7980            7.7996               7.8004          7.7970
2002......................................................     7.7988            7.7996               7.8095          7.7970
November 2002.............................................     7.7988                --               7.8000          7.7987
December 2002.............................................     7.7988                --               7.7992          7.7980
January 2003..............................................     7.8001                --               7.8001          7.7988
February 2003.............................................     7.7991                --               7.8000          7.7989
March 2003................................................     7.7995                --               7.7995          7.7987
April 2003................................................     7.7991                --               7.7998          7.7991
2003 (through May 9, 2003)................................     7.7991                --               7.8001          7.7987

----------
(1)  Determined by averaging the noon buying rates on the last business day of each month during the relevant period.
</TABLE>

     As of May 9, 2003, the noon buying rate for cable transfers in Hong Kong
dollars as certified for customs purposes by the Federal Reserve Bank of New
York was HK$7.7991 to US$1.00.


                                      8


<PAGE>


                          FORWARD-LOOKING STATEMENTS

     This annual report includes "forward-looking statements" within the
meaning of the United States Private Securities Litigation Reform Act of 1995.
All statements, other than statements of historical facts, included in this
annual report that address activities, events or developments which we expect
or anticipate will or may occur in the future are forward-looking statements.
The words "believe", "intend", "expect", "anticipate", "project", "estimate",
"predict" and similar expressions are also intended to identify such
forward-looking statements.

     These forward-looking statements address, among others, such issues as:

     o    the amount and nature of future exploration, development and other
          capital expenditures,

     o    wells to be drilled or reworked,

     o    oil and gas prices and demand,

     o    future earnings and cash flow,

     o    development projects,

     o    exploration prospects,

     o    estimates of proved oil and gas reserves,

     o    potential reserves,

     o    development and drilling potential,

     o    drilling prospects,

     o    expansion and other development trends of the oil and gas industry,

     o    business strategy,

     o    production of oil and gas,

     o    development of undeveloped reserves,

     o    expansion and growth of our business and operations, and

     o    our estimated financial information.

     These statements are based on assumptions and analyses made by us in
light of our experience and our perception of historical trends, current
conditions and expected future developments, as well as other factors we
believe are appropriate under the circumstances. However, whether actual
results and developments will meet our expectations and predictions depend on
a number of risks and uncertainties which could cause our actual results,
performance and financial condition to differ materially from our expectation.
For a description of such risks and uncertainties, see "Item 3-Key
Information-Risk Factors."

     Consequently, all of the forward-looking statements made in this annual
report are qualified by these cautionary statements. We cannot assure you that
the actual results or developments anticipated by us will be realized or, even
if substantially realized, that they will have the expected effect on us or
our business or operations.


                                      9


<PAGE>


                                    PART I

ITEM 1.   IDENTITY OF DIRECTORS, SENIOR MANAGEMENT AND ADVISORS

     Not applicable, but see "Item 6--Directors, Senior Management and
Employees--Directors and Senior Management."

ITEM 2.   OFFER STATISTICS AND EXPECTED TIMETABLE

     Not applicable.

ITEM 3.   KEY INFORMATION

A.   SELECTED FINANCIAL DATA

     You should read our selected historical consolidated financial data set
forth below in conjunction with our consolidated financial statements and
their notes attached to this annual report and "Item 5--Operating and
Financial Review and Prospects" in this annual report. The following selected
income statement data and cash flow data for the year ended December 31, 2002
and the selected balance sheet data as of December 31, 2002 have been derived
from our consolidated financial statements audited by Ernst & Young, our
current independent public accountants. The following selected income
statement data and cash flow data for the years ended December 31, 2000 and
2001 and the selected balance sheet data as of December 31, 2000 and 2001 have
been derived from our consolidated financial statements audited by Arthur
Andersen & Co, our independent public accountants prior to 2002. The selected
income statement data and cash flow data for the years ended December 31, 1998
and 1999 and the selected balance sheet data as of December 31, 1998 and 1999
are derived from our consolidated financial statements audited by Arthur
Andersen & Co, which are not included in this annual report.

     On June 6, 2002, Ernst & Young replaced Arthur Andersen & Co as our
independent public accountants. For a discussion on such change of
accountants, see "Item 3--Key Information--Risk Factors--Risks relating to our
business--You may not be able to assert claims against Arthur Andersen, our
independent public accountants for periods prior to December 31, 2001, nor may
you be able to assert claims against our current independent public
accountants for financial statements previously audited by Arthur Andersen"
and "Item 5--Operating and Financial Review and Prospects--Change of
Accountants."

     Our financial information reflects our October 1999 reorganization and
has been prepared as if our current structure had been in existence at the
beginning of the relevant periods. The following financial information may not
necessarily reflect our results of operations, financial position and cash
flow in the future or what they would have been had we been a separate,
stand-alone entity during the periods presented. We have prepared and
presented our consolidated financial statements in accordance with Hong Kong
GAAP. For an explanation of the reconciliation of our net income and
shareholders' equity to U.S. GAAP, see note 38 to our consolidated financial
statements attached to this annual report.


                                      10


<PAGE>


<TABLE>
<CAPTION>
                                                                                    Year ended December 31,
                                                               -------------------------------------------------------------------
                                                                 1998        1999       2000        2001        2002        2002
                                                               --------   ----------  --------   ----------   --------   ---------
                                                                  Rmb         Rmb        Rmb        Rmb          Rmb         US$
                                                               --------   ----------  --------   ----------   --------   ---------
                                                                                         (in millions)

<S>                                                            <C>          <C>        <C>         <C>         <C>          <C>
Income Statement Data:
Hong Kong GAAP
Operating revenues:
   Oil and gas sales......................................      7,814       11,398     18,819      17,561      23,779       2,872
   Marketing revenues.....................................      1,488        3,805      5,126       2,537       2,377         287
   Other income...........................................         10          108        279         722         217          26
                                                               --------   ----------  --------   ----------   --------   ---------
   Total operating revenues...............................      9,312       15,311     24,224      20,820      26,374       3,185
                                                               --------   ----------  --------   ----------   --------   ---------

Expenses:

   Operating expenses.....................................     (1,954)      (1,855)    (2,124)     (2,329)     (3,775)       (456)
   Production taxes.......................................       (383)        (579)    (1,037)       (884)     (1,023)       (124)
   Exploration expenses...................................       (584)        (247)      (553)     (1,039)     (1,318)       (159)
   Depreciation, depletion and amortization...............     (1,954)      (2,373)    (2,578)     (2,567)     (4,020)       (486)
   Dismantlement..........................................       (188)        (177)      (104)        (90)       (126)        (15)
   Crude oil and product purchases........................     (1,432)      (3,737)    (5,098)     (2,453)     (2,326)       (281)
   Selling and administrative expenses....................       (650)        (517)      (456)       (616)     (1,007)       (122)
   Other..................................................       (109)          (5)      (217)       (618)        (31)         (4)
                                                               --------   ----------  --------   ----------   --------   ---------
                                                               (7,254)      (9,490)    12,167)    (10,596)    (13,626)     (1,647)
                                                               --------   ----------  --------   ----------   --------   ---------

Interest income...........................................        117           54        237         318         148          18
Interest expenses.........................................       (608)        (662)      (475)       (117)       (295)        (36)
Exchange gain (loss), net.................................       (303)        (432)       381         235        (114)        (14)

Investment income.........................................         --           --         --         221         193          23
Share of  profit of an associate..........................         --           13        218          90         165          20
Non-operating profit (loss), net..........................        580           (1)      (195)         35         (71)         (9)
                                                               --------   ----------  --------   ----------   --------   ---------

Income before tax.........................................      1,844        4,833     12,223      11,006      12,774       1,540
Tax.......................................................       (295)        (722)    (1,926)     (3,048)     (3,541)       (428)
                                                               --------   ----------  --------   ----------   --------   ---------
Net income................................................      1,549        4,111     10,297       7,958       9,233       1,112
                                                               ========   ==========  ========   ==========   ========   =========

Net income per share (basic & diluted)(a).................       0.26         0.69       1.63        1.00        1.12        0.14
Net income per ADS(a).....................................       5.16        13.70      32.53       20.04       22.48        2.71

U.S. GAAP
Operating revenues:
Oil and gas sales.........................................      7,814       11,398     18,819      17,561      23,779       2,872
Marketing revenues........................................      1,488        3,805      5,126       2,537       2,377         287
Other income..............................................         10          108        279         722         217          26
                                                               --------   ----------  --------   ----------   --------   ---------
Total operating revenues..................................      9,312       15,311     24,224      20,820      26,374       3,185
                                                               --------   ----------  --------   ----------   --------   ---------
Net Income................................................      1,549        4,113     10,302       7,920       9,088       1,098

Net income per share (basic & diluted)(a).................       0.26         0.69       1.63        1.00        1.11        0.13
Net income per ADS(a).....................................       5.16        13.71      32.55       19.95       22.13        2.67
</TABLE>
----------

(a)  Net income per share and net income per ADS for the years ended December
     31, 1998 and 1999 have been computed by dividing net income by the number
     of shares and the number of ADSs of 6,000,000,000 and 300,000,000,
     respectively (based on a ratio of 20 shares to one ADS), outstanding
     immediately after our reorganization in 1999. Net income per share and
     net income per ADS for 2000 have been computed by dividing net income by
     the weighted average number of shares and the weighted average number of
     ADSs of 6,331,114,421 and 316,555,721 respectively (based on a ratio of
     20 shares to one ADS) for the period. Similarly, net income per share and
     net income per ADS for 2001 have been computed, after considering the
     dilutive effect of the shares underlying our share option scheme, using
     7,942,288,803 and 397,114,440 respectively. Net income per share and net
     income per ADS for 2002 have been computed, after considering the
     dilutive effect of the shares underlying our share option scheme, using
     8,219,285,384 and 410,964,269, respectively.


                                      11


<PAGE>
<TABLE>
<CAPTION>


                                                                                    Year ended December 31,
                                                               -------------------------------------------------------------------
                                                                 1998        1999       2000        2001        2002        2002
                                                               --------   ----------  --------   ----------   --------   ---------
                                                                  Rmb         Rmb        Rmb        Rmb          Rmb         US$
                                                               --------   ----------  --------   ----------   --------   ---------
                                                                                         (in millions)

<S>                                                            <C>          <C>        <C>         <C>         <C>          <C>
Balance Sheet Data:
Hong Kong GAAP
Cash and cash equivalents..................................       426          879      2,797       6,394       7,839         947
Time deposits with maturities over three months............        --           --      3,425       2,050       4,690         566
Short-term investments.....................................        --           --        300       8,896       6,531         789
Current assets.............................................     2,102        4,987      9,472      20,030      24,487       2,957
Property, plant and equipment, net.........................    18,963       20,907     22,654      23,828      36,072       4,357
Investment in an associate.................................       260          274        471         462         537          65
Total assets...............................................    21,325       26,168     32,597      44,320      61,096       7,378
Current liabilities........................................     2,813        9,177      8,768       4,392       7,134         862
Long-term bank loans, net of current portion...............     8,333        6,033      4,749       3,256         941         114
US$500 million 6.375% guaranteed notes due 2012............        --           --         --          --       4,071         492
Total long-term liabilities................................    12,153        8,607      7,707       6,617      13,393       1,618
Total liabilities..........................................    14,966       17,784     16,475      11,009      20,527       2,479
Shareholders' equity.......................................     6,359        8,384     16,122      33,311      40,568       4,900

U.S. GAAP
Total assets...............................................    21,325       26,000     32,330      44,062     59,984        7,244
Total long-term liabilities................................    12,153        7,562      7,707       6,617     13,393        1,618
Shareholders' equity.......................................     6,359        9,261     15,855      33,053     39,884        4,817


                                                                12
</TABLE>


<PAGE>


<TABLE>
<CAPTION>
                                                                                    Year ended December 31,
                                                               -------------------------------------------------------------------
                                                                 1998        1999       2000        2001        2002        2002
                                                               --------   ----------  --------   ----------   --------   ---------
                                                                  Rmb         Rmb        Rmb        Rmb          Rmb         US$
                                                               --------   ----------  --------   ----------   --------   ---------
                                                                          (in millions, except percentages and ratios)

<S>                                                            <C>          <C>        <C>        <C>         <C>         <C>
Other Financial Data:
Hong Kong GAAP
Capital expenditures paid.................................      3,576        4,070      4,404       4,343       6,833        825
Cash provided by (used for):(1)
      Operating activities................................      3,942        7,323     13,233      11,759      14,597      1,763
      Investing activities................................     (2,952)      (4,442)    (7,861)    (11,366)    (11,724)    (1,416)
      Financing activities................................       (895)      (2,428)    (3,454)      3,204      (1,428)      (172)
EBITDE(2).................................................      5,364        8,630     15,315      14,366      18,499      2,235
EBITDE margin(3)..........................................       57.6%        56.4%      63.2%       69.0%       70.1%      70.1%
Ratio of EBITDE to gross interest expense(4)..............        7.5x        12.3x      32.2x       45.5x       45.7x      45.7x
Ratio of total debt to EBITDE.............................        1.9x         1.1x       0.4x        0.3x        0.3x       0.3x
Ratio of total debt to total capitalization(5)............       68.3%        63.1%      27.5%       12.3%       11.6%      11.6%

U.S. GAAP
Cash provided by (used for):
      Operating activities(6).............................      3,942        7,323     13,233      11,759      14,597      1,763
      Investing activities................................     (2,952)      (4,442)    (7,861)    (11,366)    (11,724)    (1,416)
      Financing activities................................       (895)      (2,428)    (3,454)      3,204      (1,428)      (172)
Ratio of cash provided by operating activities to gross
   interest expense(4)(7).................................       5.5x         10.5x     27.9x       37.2x       44.6x      44.6x
Ratio of total debt to cash provided by operating
   activities(7)..........................................        2.5x         1.2x       0.4x        0.4x       0.4x        0.4x
Net income(7).............................................      1,549        4,113     10,302       7,920      9,088       1,098
Net income margin(6)(8)...................................       16.6%        26.9%      42.5%      38.0%       34.5%       34.5%
Ratio of net income to gross interest expense(4)(7).......        2.2x         5.9x      21.7x      25.1x       27.8x       27.8x
Ratio of total debt to net income(7)......................        6.5x         2.2x       0.6x       0.6x        0.6x        0.6x
EBITDE(2).................................................      5,364        8,630     15,315     14,319      18,483       2,232
EBITDE margin(3)..........................................       57.6%        56.4%      63.2%      68.8%       70.1%       70.1%
Ratio of EBITDE to gross interest expense(4)..............        7.5x        12.3x      32.2x      45.4x       56.6x       56.6x
Ratio of total debt to EBITDE.............................        1.9x         1.1x       0.4x       0.3x        0.3x        0.3x
Ratio of total debt to total capitalization(5)............       68.3%        59.5%      27.9%      12.4%       11.8%       11.8%

----------
(1)  In accordance with a new accounting pronouncement, SSAP 15 "Cash Flow Statements," the presentation of cash flow for 1998,
     1999, 2000 and 2001 conforms to the presentation of cash flow for 2002. For further information on HK SSAP 15, see "Item
     5--Operating and Financial Review and Prospects--Recent Accounting Pronouncements."
(2)  We have defined EBITDE to mean earnings before interest income, interest expense, income taxes, depreciation, depletion,
     amortization, dismantlement, exploration expenses, impairment losses related to property, plant and equipment and exchange
     gains or losses as computed under Hong Kong and U.S. GAAP. EBITDE is not a standard measure under either Hong Kong or U.S.
     GAAP. You should not consider our definition of EBITDE in isolation or construe it as an alternative to net income, cash
     provided by operating activities or any other measure of performance or as an indicator of operating performance, liquidity
     or any other standard measure under either Hong Kong or U.S. GAAP. We believe net income and cash provided by operating
     activities are the most directly comparable financial measures for EBITDE as an indicator of our operating performance and
     liquidity, respectively. For our management's explanation of how we define EBITDE and why we use it, see "Item 5--Operating
     and Financial Review and Prospects--Overview--Non-GAAP Financial Measures."
(3)  EBITDE margin represents EBITDE as a percentage of our total operating revenues, as computed under both Hong Kong and U.S.
     GAAP. EBITDE margin is used as an indicator of operating performance.
(4)  Gross interest expense includes capitalized interest.
(5)  Total capitalization excludes current portion of long-term debt.
(6)  We have included data relating to cash provided by operating activities in this table because we believe it is the most
     directly comparable Hong Kong and U.S. GAAP measure to EBITDE as an indicator of liquidity. EBITDE is not a standard measure
     under either Hong Kong or U.S. GAAP.
(7)  We have included net income data in this table because we believes it is the most directly comparable Hong Kong and U.S. GAAP
     measure to EBITDE as an indicator of operating performance. EBITDE is not a standard measure under either Hong Kong or U.S.
     GAAP.
(8)  Net income margin represents net income as a percentage of our total operating revenues, as computed under U.S. GAAP.
</TABLE>


B.   CAPITALIZATION AND INDEBTEDNESS

     Not applicable.

C.   REASONS FOR THE OFFER AND USE OF PROCEEDS

     Not applicable.


                                      13


<PAGE>


D.   RISK FACTORS

Risks relating to our business

     Our business, revenues and profits fluctuate with changes in oil and gas
prices. Even relatively modest declines in crude oil prices may adversely
affect our business, revenues and profits. Our profitability is determined in
large part by the difference between the prices received for the crude oil we
produce and the costs of exploring for, developing, producing and selling
these products.

     Prices for crude oil fluctuate widely in response to relatively minor
changes in the supply and demand for oil, market uncertainty and various other
factors that are beyond our control, including:

     o    political developments in petroleum producing regions;

     o    the ability of the Organization of Petroleum Exporting Countries and
          other petroleum producing nations to set and maintain production
          levels and prices;

     o    the price and availability of other energy sources, such as coal;

     o    domestic and foreign government regulation;

     o    weather conditions; and

     o    overall economic conditions.

     Our revenues and net income have fluctuated significantly in the past
four years, principally due to the volatility of world oil prices. Over the
past year, oil prices rose 62% from US$19.84 per barrel on January 1, 2002 to
US$32.20 per barrel on December 31, 2002. In the last half of 2002, worldwide
oil prices rose due to increasing political and economic turmoil in Venezuela
and the conflict in Iraq. These uncertainties, together with the conflict in
Iraq, raised concerns about the security and availability of ample supplies to
meet growing demand, although oil prices recently have fallen. The
international benchmark crude oil, West Texas Intermediate, was US$27.72
barrel on May 9, 2003. For a description of oil prices in recent years, see
"Item 4--Information on the Company--Business Overview--Sales and
Marketing--Sales of Offshore Crude Oil--Pricing" in this annual report. Any
future declines in oil and gas prices would adversely affect our revenues and
net income.

     The prices for the natural gas we sell in the PRC market are determined
by negotiations between us and the prospective buyers. Our typical contracts
with gas buyers include provisions for annual resets and adjustment formulas
that depend on a basket of crude oil prices and inflation as well as various
other factors. These resets and adjustment formulas can result in natural gas
price fluctuations which may adversely affect our business, results of
operations and financial condition.

     Lower oil and gas prices may result in the write-off of higher cost
reserves and other assets and in decreased earnings or losses. Lower oil and
natural gas prices may also reduce the amount of oil and natural gas we can
produce economically and render existing contracts that we have entered into
uneconomical. For further details regarding the effects of oil and gas price
fluctuations on our financial condition and results of operations, see "Item
5--Operating and Financial Review and Prospects."

     The oil and gas reserve estimates in this annual report may require
substantial revision as a result of future drilling, testing and production.
The reliability of reserves estimates depends on a number of factors,
including:

     o    the quality and quantity of technical and economic data;

     o    the prevailing oil and gas prices for our production;

     o    the production performance of reservoirs;

     o    extensive engineering judgments; and


                                      14


<PAGE>


     o    consistency in the PRC government's royalty and share oil policies.

     Many of the factors, assumptions and variables involved in estimating
reserves are beyond our control and may prove to be incorrect over time.
Consequently, the results of drilling, testing and production may require
substantial upward or downward revisions in our initial reserves data. For
more information on our oil and gas reserves data, see "Item 4--Information on
the Company--Business Overview--Oil and Natural Gas Reserves."

     Any failure to develop our proved undeveloped reserves and gain access to
additional reserves could impair our ability to achieve certain growth
objectives. Our ability to achieve certain growth objectives depends upon our
success in finding and acquiring or gaining access to additional reserves.
Future drilling, exploration and acquisition activities may not be successful.
If our exploration and development activities or acquisition of properties
containing proved reserves are unsuccessful, our total proved reserves will
decline.

     Approximately 60.6% of our proved reserves were undeveloped as of
December 31, 2002. Our future success will depend on our ability to develop
these reserves in a timely and cost-effective manner. There are various risks
in developing reserves, including construction, operational, geophysical,
geological and regulatory risks.

     Our future prospects largely depend on our capital expenditure plans,
which are subject to various risks. The oil and gas exploration and production
business is capital intensive. We currently plan to spend approximately US$2.7
billion to develop our oil and gas properties and approximately US$308 million
for independent exploration from 2003 through the end of 2004. In addition to
these amounts, we may make additional capital expenditures and investments to
implement our business strategy.

     The ability to maintain and increase our revenues, net income and cash
flow depends upon continued capital spending. We adjust our capital
expenditure and investment budget each year. Our capital expenditure plans are
subject to a number of contingencies, some of which are beyond our control.
These variables include:

     o    our ability to generate sufficient cash flow from operations to
          finance our capital expenditures, investments and other
          requirements;

     o    the availability and terms of external financing;

     o    changes in crude oil and natural gas prices, which may affect cash
          flow from operations and capital expenditure and investment plans;

     o    the mix of exploration and development activities conducted on an
          independent basis and under production sharing contracts;

     o    new investment opportunities that may be presented to us, including
          international investment opportunities and liquefied and other
          natural gas projects;

     o    PRC government approvals required for certain capital expenditures
          and investments;

     o    our ability to obtain sufficient foreign currency to finance our
          capital expenditures; and

     o    economic, political and other conditions in the PRC and Hong Kong.

     Therefore, our actual future capital expenditures and investments may
differ significantly from our current planned amounts. There can be no
assurance that we will be able to execute our capital expenditure program on
schedule or as planned.


                                      15


<PAGE>


     Any failure to implement our natural gas business strategy may adversely
affect our business and financial position. As part of our business strategy
and to meet increasing market demand in China, we continue to expand our
natural gas business. This strategy involves a number of risks and
uncertainties including the following:

     o    we have limited experience in investing in liquefied natural gas
          facilities, gas transmission and distribution systems, and overseas
          upstream natural gas properties;

     o    any additional capital expenditures that are necessary to implement
          our natural gas strategy could divert resources from our core oil
          and gas exploration and production business and require us to seek
          additional financing;

     o    our new natural gas operations may face additional competition from
          a number of international and PRC companies. In particular,
          PetroChina Company Limited, or PetroChina, is constructing natural
          gas pipelines to link its natural gas fields located in the western
          part of China to the eastern coastal regions.

     o    our new natural gas activities may subject us to additional
          government regulation in China and overseas;

     o    our overseas natural gas businesses are subject to economic and
          political risks, particularly in Indonesia. See "--We may be exposed
          to certain operating risks in Indonesia and Australia as a result of
          our acquisition of oil and gas interests located in these regions;"

     o    we do not have the same preferential rights or access to natural gas
          businesses or overseas natural gas investments that we enjoy with
          respect to our upstream natural gas business offshore China; and

     o    we are evaluating an option to make an investment in CNOOC's
          liquefied natural gas project in Guangdong Province. However, we
          have not decided whether to exercise this option. This option is
          subject to various conditions, including certain governmental
          approvals.

     Due to the above factors or other reasons, we may fail to implement our
natural gas strategy successfully.

     The infrastructure and demand for natural gas in the PRC may proceed at a
slower pace than our planned increase in production. Our proposed expansion of
natural gas production in China is currently constrained by a lack of natural
gas transmission and supply infrastructure and an underdeveloped natural gas
market. Construction of transmission and supply pipelines and other
infrastructure depends on many factors, many of which are beyond our control,
such as government funding, costs of land acquisition, national and local
government approvals, and timely completion of construction. Development of
the natural gas market depends on the establishment of long-term natural gas
supply contracts with natural gas utilities or large end-users, such as power
and chemical plants. The demand of these buyers for natural gas could be
affected by a number of regulatory and market factors, such as regulation of
coal prices, government power and utility policies, chemical commodity cycles,
electricity pricing and demand, and environmental policies.

     CNOOC largely controls us and we regularly enter into related party
transactions with CNOOC and its affiliates. CNOOC indirectly owns, through
CNOOC (BVI) Limited, a wholly owned subsidiary, an aggregate of approximately
70.6% of our shares. As a result, CNOOC is able to control the composition of
our board of directors, determine the timing and amount of our dividend
payments and otherwise control us. Although CNOOC is required to comply with
provisions in the Hong Kong Stock Exchange listing rules relating to protection
for minority shareholders, there can be no assurance that CNOOC will act in a
manner that benefits all of our shareholders. If CNOOC takes actions that
favor its interests over ours, our results of operations and financial position
may be adversely affected. We regularly enter into transactions with CNOOC and
its affiliates, including China Oilfield Services Limited and CNOOC Finance
Corporation Limited. For the year ended December 31, 2002, sales to CNOOC and
its affiliates accounted for approximately 16.5% of our total revenues. For
further details, see "Item 7--Major Shareholders and Related Party
Transactions." Our transactions with CNOOC and its affiliates constitute
connected transactions under the Hong Kong Stock Exchange listing rules. We
must obtain the prior approval of the Hong Kong Stock Exchange to engage in
some of these transactions and may also be required to obtain the prior
approval of our


                                      16


<PAGE>


independent directors and our independent shareholders. If we do not obtain
these approvals, we may not be allowed to execute these transactions, and our
business operations and financial condition could be adversely affected.

     Under current PRC law, CNOOC has the exclusive right to enter into
production sharing contracts with international oil and gas companies for
petroleum exploration and production offshore China. CNOOC has undertaken to
us that it will transfer all of its rights and obligations under any new
production sharing contracts to us, except those relating to its
administrative functions. PRC law restricts us from contracting directly with
foreign enterprises for these purposes without CNOOC. The interests of CNOOC
in entering into production sharing contracts with international oil and gas
companies may differ from our interest, especially with respect to the
criteria for determining whether, and on what terms, to enter into production
sharing contracts. Our future business development may be adversely affected
if CNOOC does not enter into new production sharing contracts on terms that
are acceptable to us.

     A substantial drop in sales to any of our three main customers could have
a material adverse affect on our results of operations. We sell a significant
proportion of our production to China Petroleum & Chemical Corporation, or
Sinopec, PetroChina and the Castle Peak Power Company. For the years ended
December 31, 2000, 2001 and 2002, sales to Sinopec accounted for approximately
26.1%, 30.2% and 26.1% respectively, of our total operating revenues, while
sales to PetroChina were approximately 6.0%, 6.3% and 4.5% respectively, of
our total operating revenues. Both PetroChina and Sinopec are majority owned
by the PRC government. We sell a significant portion of our natural gas to
Castle Peak Power Company Limited in Hong Kong under a long-term take-or-pay
contract. For the years ended December 31, 2000, 2001 and 2002, sales to this
customer were approximately 5.0%, 5.8% and 4.7% respectively, of our total
operating revenues.

     Both PetroChina and Sinopec have their own oil and gas fields and have
the right to import crude oil directly from the international market. We do
not have any long-term sales contracts with Sinopec or PetroChina. Our
business, results of operations and financial condition would be adversely
affected if either Sinopec or PetroChina significantly reduces its purchases
of crude oil from us and we cannot find another ready buyer for our crude oil
in the international market.

     The PRC offshore petroleum and natural gas industries are highly
competitive and our success depends on several factors. We compete in the PRC
and international markets for customers, capital financing and business
opportunities, including desirable oil and gas prospects. The performance of
our competitors may also affect the international market price for comparable
crude oil, which in turn would likely affect the price of our crude oil. Our
principal competitors in the PRC market are PetroChina and Sinopec. For
further details, see "Item 4--Information on the Company--Business
Overview--Competition."

     We are the dominant player in the oil and gas industry offshore China. We
are the only company authorized to engage oil and gas exploration offshore
China in cooperation with international oil and gas companies. Any change to
PRC law that allows new entrants into the offshore petroleum industry could
increase the competition for new oil and gas properties offshore China.

     CNOOC has undertaken to us that so long as it retains a controlling
interest in us and our securities are listed on the Hong Kong Stock Exchange,
the New York Stock Exchange or other securities trading systems in other parts
of the world, we will have the exclusive right to exercise CNOOC's rights to
engage in offshore oil and gas exploration, development, production and sales
in the PRC and that it will not compete with us in this business. However,
CNOOC's controlling interest in us may not continue in the future and CNOOC's
undertaking may be subject to interpretative challenges. See "Item
4--Information on the Company--History and Development--Corporate Structure"
and "Item 7--Major Shareholders and Related Party Transactions."

     Exploration, development and production risks and natural disasters
affect our operations and could result in losses that are not covered by
insurance. Our petroleum exploration, development and production operations
are subject to various risks, including pipeline ruptures and spills, fires,
explosions, encountering formations with abnormal pressures, blowouts,
cratering and natural disasters. Any of these results could result in loss of
hydrocarbons, environmental pollution and other damage to our properties and
the properties of operators under production sharing contracts. In addition,
we face the risk that we may not discover any economically productive natural
gas or oil reservoirs. The costs of drilling, completing and operating wells
also are uncertain and are subject to numerous factors beyond our control,
including:

     o    weather conditions;


                                      17


<PAGE>


     o    natural disasters;

     o    equipment shortages and delays; and

     o    lack of adequate transportation facilities.

     We maintain insurance coverage against some, but not all, potential
losses. We do not maintain business interruption insurance for all of our oil
and gas fields. We may suffer material losses resulting from uninsurable or
uninsured risks or insufficient insurance coverage.

     For further information on insurance coverage, see "Item 4--Information
on the Company--Business Overview--Operating Hazards and Uninsured Risks."

     We may be exposed to certain operating risks in Indonesia and Australia
as a result of our acquisition of oil and gas interests located in these
regions. We acquired interests in oil and gas properties located offshore
Indonesia in April 2002 and January 2003 and recently entered into conditional
agreements to acquire interests in Australia's North West Shelf Project. See
"Item 4--Information on the Company--Business Overview--Principal Oil and Gas
Regions--Overseas Activity," "Item 4--Information on the Company--Business
Overview--Natural Gas Business--Overseas Activity" and "Item 5--Operating and
Financial Review and Prospects--Operating Results--Acquisitions and Overseas
Activities." These interests are subject to certain operating risks in their
respective regions, including economic and political risks. Although these
properties historically have not experienced problems from civil unrest or
regulatory disputes, the political and economic environment in these regions
could impact the financial position, results of operations and prospects of
these properties.

     Our Indonesian interests are subject to the laws and regulations of
Indonesia, including those relating to the development, production, marketing,
pricing, transportation and storage of natural gas and crude oil, taxation and
environmental and safety matters. In addition, the operations are subject to
production sharing arrangements with Pertamina, the Indonesian state-owned oil
and gas company, which is currently the sole entity authorized to manage
Indonesia's petroleum resources on behalf of the Indonesian government. Our
Indonesian interests may be adversely affected by changes in governmental
policies or social instability or other political, economic or diplomatic
developments in or affecting Indonesia which are not within our control
including, among other things, a change in crude oil or natural gas pricing
policy, the risks of war and terrorism, expropriation, nationalization,
renegotiation or nullification of existing concessions and contracts, taxation
policies, foreign exchange and repatriation restrictions, changing political
conditions, Rupiah/U.S. dollar exchange rate fluctuations and currency
controls. If we successfully acquire the interests in Australia's North West
Shelf Project, we could face similar risks in Australia.

     The Tangguh LNG project is a greenfield project and may not be
successful. In January 2003, we paid approximately US$275 million to acquire
the equivalent of a 12.5% equity interest in the Tangguh LNG project in
Indonesia. The Tangguh LNG project is a greenfield project with a limited
operational track record, and is subject to risks associated with attaining
government approvals, delays in the development of LNG facilities required to
process gas, and lower than expected demand for gas reserves from this
project. Although the partners in the Tangguh LNG project have entered into a
25-year supply contract beginning in 2007 to provide up to 2.6 million tons of
liquefied natural gas per annum to a liquefied natural gas terminal being
developed by CNOOC, our controlling shareholder, in Fujian Province, China,
this single contract may not be sufficient to make the project commercially
viable. We cannot assure you that the parties to the project will be able to
secure sufficient contracts to make the project commercially viable. For
further details of our investment in the Tangguh LNG project, see "Item
4--Information on the Company--Business Overview--Natural Gas
Business--Overseas Activity."

     We may not be able to obtain external financing that is acceptable to us
for business development purposes. From time to time, we must secure external
debt and equity financing to implement our development plans and fund our
other business requirements.

     Our ability to obtain external financing is subject to various
uncertainties, including:

     o    our results of operations, financial condition and cash flow;

     o    the amount of capital that other PRC and Hong Kong entities may seek
          to raise in the international capital markets;


                                      18


<PAGE>


     o    economic, political and other conditions in the PRC and Hong Kong;

     o    the PRC government's policies relating to foreign currency
          borrowings; and

     o    conditions in the PRC, Hong Kong and international capital markets.

     If we are unable to obtain sufficient funding for our operations or
development plans, our business, revenues, net income and cash flow could be
adversely affected. For additional information on our capital expenditure
plans and financing requirements, see "Item 5--Operating and Financial Review
and Prospects--Liquidity and Capital Resources."

     Once we issue debt securities or otherwise incur indebtedness, we become
subject to risks that impact the underlying principal of such indebtedness.
While all our current debt securities are rated investment grade by rating
agencies, we cannot assure you that such ratings will not change due to
internal or external factors. These factors may be beyond our control. Even if
there is no default or event of default on our part, a market perception of an
increased likelihood of a default may have a material adverse effect on our
outstanding indebtedness as well as to our business operations.

     You may not be able to assert claims against Arthur Andersen, our
independent public accountants for periods prior to December 31, 2001, nor may
you be able to assert claims against our current independent public
accountants for financial statements previously audited by Arthur Andersen. On
June 6, 2002, we terminated the engagement of Arthur Andersen & Co as our
independent public accountants. Prior to that date, Arthur Andersen had
audited our financial statements, including the financial statements for the
two-year period ended December 31, 2001 attached to this annual report. Our
selected historical financial data for the years ended, and as of, December
31, 1998 and 1999 set forth in "Item 3--Key Information--Selected Financial
Data" were also based on our financial statements audited by Arthur Andersen.
On June 15, 2002, Arthur Andersen was convicted of federal obstruction of
justice charges in connection with the U.S. government's investigation of
Enron Corporation. On August 31, 2002, Arthur Andersen voluntarily
relinquished its licenses to practice public accountancy in all states of the
United States, thereby effectively ceasing to exist as a global accounting
firm. Accordingly, it may be difficult or impossible for you to assert any
claims against, or recover any damages from, Arthur Andersen, in respect of
this annual report, including in respect of the financial statements
previously audited by Arthur Andersen that are included in this annual report.
Moreover, our current independent public accountants, Ernst & Young, have not
reaudited the financial statements previously audited by Arthur Andersen.
Therefore, it is highly unlikely that you will be able to assert claims
against, or recover any damages from, Ernst & Young, in respect of the
financial statements that were previously audited by Arthur Andersen and
included in this annual report.

Risks relating to the PRC petroleum industry

     A change in PRC petroleum industry regulations could have an adverse
affect on our operations. The PRC government exercises control over the PRC
petroleum industry, including with respect to licensing, exploration,
production, distribution, pricing, exports and allocation of various
resources. Recently, the PRC government underwent substantial reform. As of
the date of this annual report, we cannot assure you that the legal regime
affecting our businesses will remain substantially unchanged. Since the
reorganization, the Ministry of Commerce has become the primary coordinator
for the petroleum industry and, together with other relevant governmental
agencies, provides regulatory supervision over the petroleum industry. Prior
to March 2003, the State Economic and Trade Commission had been the prime
coordinator for the petroleum industry.

     In the past, we have benefited from various favorable PRC government
policies, laws and regulations that were enacted to encourage the development
of the offshore petroleum industry. See "Item 4--Information on the
Company--Regulatory Framework--Special Policies Applicable to the Offshore
Petroleum Industry in China." However, there can be no assurance that the PRC
government will continue existing policies or that it will not adopt new
policies, laws or regulations.

     In addition, existing PRC regulations require us to apply for and obtain
various PRC government licenses and other approvals, including in some cases
approvals for amendments and extensions of existing licenses and approvals, to
conduct exploration and development activities offshore China. If we are
unable to obtain any necessary approvals, our reserves and production would be
adversely affected. See "Item 4--Information on the Company--Regulatory
Framework."


                                      19


<PAGE>


     Certain restrictions on foreign companies will be lifted as a result of
China's entry into the World Trade Organization and may adversely affect our
business. Effective December 11, 2001, the PRC became a member of the World
Trade Organization, or WTO. China's WTO commitments require it, within five
years from the date of China's accession to the WTO, to lift restrictions that
prohibit foreign companies from directly selling crude and processed oil in
China. The sale of natural and liquefied petroleum gas is not specifically
dealt with under China's market-access commitments relating to distribution
services (as is the case with crude and processed oil). Accordingly, foreign
participation in the sale of such products may be permitted within one year of
accession in the form of minority-owned joint ventures and, within two years
of accession, through wholly owned subsidiaries without any equity
restrictions.

     We may be harmed if we fail to comply with existing or future
environmental laws and regulations. Our business is subject to PRC
environmental protection laws and regulations which:

     o    impose fees for the discharge of waste substances;

     o    require the payment of fines and damages for serious environmental
          pollution; and

     o    provide that the government may, at its discretion, close or suspend
          any facility which fails to comply with orders requiring it to cease
          or cure operations causing environmental damage.

     We believe that all of our facilities and operations are in material
compliance with the requirements of the relevant environmental protection laws
and regulations. However, amendment of existing laws or regulations may impose
additional or more stringent requirements. In addition, our compliance with
such laws or regulations may require us to incur significant capital
expenditures or other obligations or liabilities, which could create a
substantial financial burden on us. For a further discussion of the
environmental regulations in the PRC, see "Item 4--Information on the
Company--Business Overview--Environmental Regulation."

Risks relating to the PRC

     PRC economic and political conditions may adversely affect our
operations. Most of our businesses, assets and operations are located in the
PRC. The economic system of the PRC differs from the economies of most
developed countries in many respects, including:

     o    government investment;

     o    level of development;

     o    control of capital investment;

     o    control of foreign exchange; and

     o    allocation of resources.

     The economy of the PRC has been undergoing a transformation from a
planned economy to a market-oriented economy. In recent years the PRC
government has implemented economic reform measures emphasizing
decentralization, utilization of market forces in the development of the PRC
economy and a higher level of management autonomy. These economic reform
measures have and will continue to subject our businesses to some uncertainty.
In the future, our operating results could be adversely affected by changes to
the laws and regulations that govern our industry and changes in the PRC
political and economic systems.

     The PRC economy has experienced significant growth in the past 20 years,
but the growth has been uneven both geographically and among various sectors
of the economy. Economic growth has also been accompanied by periods of high
inflation. The PRC government has implemented various policies from time to
time to restrain the rate of such economic growth, control inflation and
otherwise regulate economic expansion. In addition, the PRC government has
attempted to control inflation by controlling the prices of basic commodities.
Severe measures or other actions by the PRC government, such as placing
additional controls on prices of petroleum and petroleum products, could
restrict our business operations and adversely affect our financial position.


                                      20


<PAGE>


     In March 2003, several countries, including China, experienced an
outbreak of a new and highly contagious form of atypical pneumonia now known
as "severe acute respiratory syndrome" or "SARS." The severity of the outbreak
in certain municipalities, such as Beijing, and provinces, such as Guangdong
Province, has affected general commercial activity. While the long-term impact
of the SARS outbreak is unclear at this time, the prolonged existence of SARS
could have a negative impact on the PRC economy and, in turn, have a material
adverse effect on our results of operations.

     Government control of currency conversion and future movements in
exchange rates may adversely affect our operations and financial condition. A
portion of our Renminbi revenue may need to be converted into other currencies
by our wholly owned principal operating subsidiary in the PRC to meet our
foreign currency obligations. We have substantial requirements for foreign
currency, including:

     o    debt service on foreign currency denominated debt;

     o    overseas acquisitions of oil and gas properties;

     o    purchases of imported equipment; and

     o    payment of dividends declared in respect of shares held by
          international investors.

     Our wholly owned subsidiary in the PRC may undertake current account
foreign exchange transactions without prior approval from the State
Administration for Foreign Exchange. It has access to current account foreign
exchange so long as it can produce commercial documents evidencing such
transactions and provided that they are processed through certain banks in
China. Foreign exchange transactions under the capital account, including
principal payments with respect to foreign currency denominated obligations,
will be subject to the registration requirements of the State Administration
for Foreign Exchange.

     Since 1994, the conversion of Renminbi into Hong Kong and United States
dollars has been based on rates set by the People's Bank of China, which are
set daily based on the previous day's PRC interbank foreign exchange market
rate and current exchange rates on the world financial markets. The PRC
government has stated publicly that it intends to make Renminbi freely
convertible in the future. However, we cannot predict when the PRC government
will allow free conversion of Renminbi into foreign currencies. Renminbi
devaluation and fluctuations in exchange rates may adversely affect the value,
translated or converted into U.S. dollars or Hong Kong dollars, of our net
assets, earnings and any declared dividends. Renminbi devaluation and exchange
rate fluctuations may adversely affect our results of operations and financial
condition and may result in foreign exchange losses because of our substantial
U.S. dollar and Japanese yen-denominated debts, expenses and other
requirements. In addition, we may not be able to increase the Renminbi prices
of our domestic sales to offset fully any depreciation of the Renminbi due to
political, competitive or social pressures.

     We do not hedge exchange rate fluctuations between the Renminbi and
foreign currencies and currently do not have plans to do so. For further
information on foreign exchange risks, foreign exchange rates and hedging
activities, see "Currencies and Exchange Rates" and "Item 11--Qualitative and
Quantitative Disclosure about Market Risk."

     The interpretation and enforcement of PRC laws and regulations is subject
to some uncertainty. The PRC legal system is based on statutory law. Under
this system, prior court decisions may be cited as persuasive authority but
are not binding. Since 1979, the PRC government has been developing a
comprehensive system of commercial laws and considerable progress has been
made in the promulgation of laws and regulations dealing with economic
matters, such as corporate organization and governance, foreign investments,
commerce, taxation and trade. In particular, the regulatory framework for the
securities industry in China is at an early stage of development. The China
Securities Regulatory Commission, or CSRC, is responsible for administering
and regulating the national securities markets and drafting regulations for
the regulation of the national securities markets. Regulations of the State
Council and the relevant implementing measures of CSRC, such as provisions
dealing with acquisitions of listed PRC companies and disclosure of
information, apply to listed companies in general without being confined to
companies listed on any particular stock exchange. Hence these provisions
apply to our company. Because these laws, regulations and legal requirements
are relatively new, and because of the limited volume of published cases and
judicial


                                      21


<PAGE>


interpretations and the non-binding nature of prior court decisions, the
interpretation and enforcement of these laws, regulations and legal
requirements involve some uncertainty.

     The PRC government recently underwent substantial reforms after the
National People's Congress meeting in March 2003. The PRC government has
reiterated its policy of furthering reforms in the socialist market economy.
No assurance can be given that these changes will not have an adverse effect
on business conditions in China generally or on our business in particular.

Risks relating to our ADSs and shares

     Additional shares or ADSs eligible for public sale could adversely affect
the price of our shares or ADSs. Sales, or the real or perceived possibility
of sales, of a significant number of additional shares in the public market
could adversely affect prevailing market prices for our ADSs and shares. As of
April 30, 2003, CNOOC, through its wholly owned subsidiary, CNOOC (BVI)
Limited, held approximately 70.6% of our shares and the rest of our shares
were held by public investors, including institutional and corporate
investors. As of April 30, 2003, CNOOC (BVI) Limited has not sold any of its
holdings of our shares. We cannot predict the effect, if any, that sales of
our shares, including sales of large positions held by institutional and
corporate investors, or the availability of our shares for future sale, will
have on the market price of our shares or ADSs.

     Pursuant to the registration rights agreement we entered into with our
strategic investor and corporate investors, we have agreed to indemnify these
investors for certain liabilities that it may have under the Securities Act.
Resale of the shares or ADSs in the United States by our strategic investor
and corporate investors may only be done pursuant to an effective registration
statement or an exemption from the registration requirements of the Securities
Act. We have entered into registration rights agreements with our strategic
investor and corporate investors whereby we have agreed to register the
securities of these investors if they so request. We have agreed to pay for
the cost of any such registration and to indemnify these investors for certain
liabilities that they may have under the Securities Act which relate to the
registration statement that would have to be filed and the annual report that
would have to be delivered to purchasers, in the event of a resale by any such
investor. There is a risk that we will be required to indemnify our strategic
investor and corporate investors pursuant to the registration rights
agreements.


                                      22


<PAGE>


ITEM 4.   INFORMATION ON THE COMPANY

A.   HISTORY AND DEVELOPMENT

     Our legal and commercial name is CNOOC Limited. We were incorporated with
limited liability on August 20, 1999 in Hong Kong under the Companies
Ordinance. Our business registration number in Hong Kong is 685974. Under the
third section of our Memorandum of Association, we may do anything which we
are permitted to do by any enactment or rule of law. Our head office is
located at 65th Floor, Bank of China Tower, One Garden Road, Central, Hong
Kong, and our telephone number is 852-2213-2500. We have appointed CT
Corporation System, 111 Eighth Avenue, New York, New York 10011, as our agent
for service of process.

     The PRC government established CNOOC as the state-owned offshore
petroleum company of China in 1982 under the Regulation of the People's
Republic of China on Exploitation of Offshore Petroleum Resources in
Cooperation with Foreign Enterprises, whereby CNOOC assumed overall
responsibility for the administration and development of PRC offshore
petroleum operations with foreign oil and gas companies. Prior to March 2003,
CNOOC was regulated and supervised by the State Economic and Trade Commission.
Since March 2003, the PRC government has undergone substantial reform. The
State Economic and Trade Commission has been succeeded by the newly
established State Development and Reform Commission.

     Prior to CNOOC's internal business reorganization, which took effect as
of October 1, 1999, CNOOC and its various subsidiaries and affiliates
performed commercial and administrative functions, including:

     o    exercising the exclusive right to cooperate with foreign partners in
          offshore petroleum exploration, development, production and sales
          activities, and taking up to a 51% or more participating interest in
          production sharing contracts;

     o    organizing international bidding for offshore petroleum
          exploitation;

     o    conducting independent exploration, development, production and
          sales activities in independently operated oil and gas fields
          offshore China;

     o    awarding projects to and signing bilateral contracts with foreign
          partners for offshore petroleum exploitation;

     o    reviewing and confirming appraisal reports and overall development
          plans required under production sharing contracts; and

     o    obtaining from the PRC government all approvals, permits, licenses,
          consents and special policies necessary under production sharing
          contracts.

Reorganization

     Pursuant to CNOOC's internal business reorganization in 1999, CNOOC
transferred all of its then current operational and commercial interests in
its offshore petroleum business to us. As a result, we and our subsidiaries
are the only vehicle through which CNOOC engages in petroleum exploration,
development, production and sales activities both within and outside China.

     The assets and liabilities primarily relating to the offshore petroleum
business that were transferred to us in the reorganization included:

     o    37 production sharing contracts and one geophysical survey
          agreement;

     o    eight independent development and production projects;

     o    a 30% interest in Shanghai Petroleum and Natural Gas Company
          Limited;

     o    the land use rights to terminal facilities in Nanhai, Weizhou and
          the western part of the Bohai Bay; and


                                      23


<PAGE>


     o    loans from, and swap agreements with, various PRC and foreign banks.

     In addition, CNOOC transferred 917 employees to us to facilitate the
transfer of the oil and natural gas businesses previously operated by CNOOC.

     CNOOC has retained its commercial interests in operations and projects
not related to oil and gas exploration and production, including:

     o    a petrochemical project in Huizhou, Guangdong Province;

     o    a fertilizer plant in Hainan Province; and

     o    a liquefied natural gas project in Guangdong Province.

     CNOOC also retained all of its administrative functions, which it
performed prior to the reorganization, including:

     o    organizing international bidding for offshore petroleum
          exploitation;

     o    awarding projects to and signing bilateral contracts with foreign
          partners for offshore petroleum exploitation;

     o    approving any extension of the period for the completion of the
          appraisal work on petroleum discovery under the production sharing
          contracts; and

     o    submitting the overall development plans, reports of the oil and gas
          fields and the environmental impact statements related to the
          production sharing contracts to the PRC governmental authorities.

Undertakings

     CNOOC has undertaken to us that:

     o    we will enjoy the exclusive right to exercise all of CNOOC's
          commercial and operational rights under the PRC laws and regulations
          relating to the exploration, development, production and sales of
          the PRC offshore oil and natural gas;

     o    it will transfer to us all of CNOOC's rights and obligations under
          any new production sharing contracts and geophysical exploration
          operations, except those relating to CNOOC's administrative
          functions;

     o    neither CNOOC nor any of its affiliates will engage or be
          interested, directly or indirectly, in oil and natural gas
          exploration, development, production and sales in or outside the
          PRC;

     o    we will be able to participate jointly with CNOOC in negotiating new
          production sharing contracts and to set out our views to CNOOC on
          the proposed terms of new production sharing contracts;

     o    we will have unlimited and unrestricted access to all data, records,
          samples and other original data owned by CNOOC relating to oil and
          natural gas resources;

     o    we will have an option, for which no consideration will be payable
          by us to CNOOC, to make any investment in liquefied natural gas
          projects that CNOOC has invested or proposes to invest, and CNOOC
          will at its own expense help us to procure all necessary government
          approvals needed for our participation in these projects; and

     o    we will have an option, for which no consideration will be payable
          by us to CNOOC, to participate in other businesses related to
          natural gas in which CNOOC has invested or proposes


                                      24


<PAGE>


          to invest, and CNOOC will at its own expense procure all necessary
          government approvals needed for our participation in such business.

     The undertakings from CNOOC will cease to have any effect:

          o if we become a wholly owned subsidiary of CNOOC;

          o if our securities cease to be listed on any stock exchange or
          automated trading system; or

          o 12 months after CNOOC or any other PRC government-controlled
          entity ceases to be our controlling shareholder.

Corporate Structure

     CNOOC indirectly owned or controlled an aggregate of approximately 70.6%
of our shares as of April 30, 2003. There have been no changes to our
corporate structure since April 30, 2003. Accordingly, CNOOC continues to be
able to exercise all the rights of a controlling shareholder, including
electing our directors and voting to amend our articles of association.
Although CNOOC has retained a controlling interest in our company, the
management of our business will be our directors' responsibility.

     The following chart sets forth our controlling entities and our principal
subsidiaries as of December 31, 2002.


<TABLE>
<S>                           <C>                   <C>                                                 <C>
                                                    ----------------------------
                                                    | China National Offshore  |
                                                    |     Oil Corporation      |
                                                    |          (PRC)           |
                                                    ----------------------------
                                                                 |
                                                                 |  100%
                                                                 |
                                                    ----------------------------
                                                    |    Overseas Oil & Gas    |
                                                    |     Corporation Ltd.     |
                                                    |        (Bermuda)         |
                                                    ----------------------------
                                                                 |
                                                                 |  100%
                                                                 |
                                                    ----------------------------
                                                    |                          |
                                                    |   CNOOC (BVI) Limited    |
                                                    | (British Virgin Islands) |
                                                    |                          |
   ---------------------------                      ----------------------------
   |                         |\                                 |
   | Public Shareholders and | \                                |  70.61%
   |   Corporate Investors   |  \ 29.39%                        |
   |                         |   \                  ----------------------------
   ---------------------------    \                 |      CNOOC Limited       |
                                   \                |       (Hong Kong)        |
                                    ----------------|                          |
                                                    ----------------------------
                                                                 |
                                                                 |
              ----------------------------------------------------------------------------------------------------------
              |                            |                                           |                               |
              | 100%                       | 100%                                      | 100%                          | 100%
              |                            |                                           |                               |
----------------------------  ----------------------------              ------------------------------  ----------------------------
|          CNOOC           |  |                          |              |    China Offshore Oil      |  |       CNOOC Finance      |
|      International       |  |       CNOOC China        |              |        (Singapore)         |  |     (2002) Limited(4)    |
|        Limited(1)        |  |        Limited(2)        |              | International Pte. Ltd.(3) |  | (British Virgin Islands) |
| (British Virgin Islands) |  |           (PRC)          |              |        (Singapore)         |  |                          |
----------------------------   ---------------------------              ------------------------------  ----------------------------
</TABLE>
-----------------
(1)  Owner of our overseas interests in petroleum exploration and production
     businesses and operations.
(2)  Owner of substantially all of our PRC petroleum exploration and
     production businesses, operations and properties.
(3)  Business vehicle through which we engage in sales and marketing
     activities in the international markets.
(4)  Financing vehicle through which we issued our US$500 million 6.375%
     guaranteed notes due 2012.


                                      25


<PAGE>


B.   BUSINESS OVERVIEW

Overview

     We are an oil and gas company engaged in the exploration, development,
production and sale of crude oil and natural gas primarily offshore China. We
are the dominant producer of crude oil and natural gas offshore China and the
only company permitted to conduct exploration and production activities with
international oil and gas companies offshore China. As of December 31, 2002,
we had estimated net proved reserves of 2,015.8 million BOE, comprised of
1,424.4 million barrels of crude oil and condensate and 3,547.9 billion cubic
feet of natural gas. For the year 2002, our net production averaged 298,625
barrels per day of crude oil, condensate and natural gas liquids and 272.6
million cubic feet per day of natural gas, which together totaled 346,639 BOE
per day.

     Our net proved reserves increased from 668 million BOE as of December 31,
1995 to 2,015.8 million BOE as of December 31, 2002, which represents a
compound annual growth rate of 17.1%. Based on net proved reserves, we are one
of the largest independent oil and gas exploration and production companies in
the world. In the petroleum industry, an "independent" company owns oil and
gas reserves independently of other downstream assets, such as refining and
marketing assets, whereas an integrated company owns downstream assets in
addition to oil and gas reserves. As of December 31, 2002, approximately 60.6%
of our net proved reserves were classified as net proved undeveloped. We plan
to spend approximately US$2.7 billion developing our reserves offshore China
and approximately US$308 million for independent exploration offshore China
from 2003 through 2004.

     We conduct exploration, development, production and sale activities
through both independent operations and production sharing contracts with
foreign partners. We have added to our reserves in recent years primarily
through our independent operations. As of December 31, 2002, independent
properties accounted for approximately 53.2% of our total net proved reserves
and approximately 56.0% of our total net proved undeveloped reserves. We are
the operator of all of our independent producing properties. For the year
ended December 31, 2002, production from our independent properties accounted
for 46.3% of total net production.

     Through our parent company, CNOOC, we have the exclusive right to enter
into contracts with international oil and gas companies to conduct exploration
and production activities offshore China. Under these production sharing
contracts, we have the sole right to acquire, at no cost, up to a 51%
participating interest in any successful discovery offshore China made by our
foreign partners. Our foreign partners can recover their exploration costs
under the production sharing contracts only if a commercially viable discovery
is made. As of December 31, 2002, we had approximately 28 foreign partners
under our production sharing contracts offshore China, all of which are
international oil and gas companies, including Agip, BP, Burlington Resources,
ChevronTexaco, ConocoPhillips, Devon Energy, Husky, Kerr-McGee, Newfield
Exploration and Royal Dutch Shell. As of December 31, 2002, we were a party to
31 production sharing contracts and one joint study agreement. We are
currently the operator or joint operator of most of the properties developed
under our production sharing contracts. In the early years of our existence,
we conducted most of our activities through production sharing contracts.
Production sharing contracts have enabled us to develop technical and
management expertise and provided us with the cash flow necessary to increase
our independent exploration and production activities.

     Natural gas is becoming an increasingly important part of our business
strategy because of rapidly growing domestic demand. In view of the domestic
natural gas supply shortfall forecasted by the Chinese government, we have
continued to develop our natural gas reserves and invested in liquefied
natural gas related upstream projects outside the PRC. We continue to explore
for natural gas and develop natural gas properties. We have acquired interests
in gas reserves located in Tangguh, Indonesia and entered into an agreement to
acquire interests in gas reserves located in the North West Shelf of
Australia. In addition, CNOOC has granted us an option to invest in liquefied
natural gas projects or other natural gas related businesses in the PRC in
which CNOOC has invested or proposes to invest, including an option for us to
acquire CNOOC's 33% interest in a liquefied natural gas terminal being
constructed in Guangdong Province, China. Furthermore, in connection with this
option, CNOOC will at its own expense procure all necessary PRC government
approvals needed for our participation in the related projects or businesses.

     On April 19, 2002, we completed the acquisition of Repsol YPF, S.A.'s
interest in a portfolio of oil and gas production sharing and technical
assistance contracts in areas located offshore and onshore Indonesia. The
acquisition was implemented retroactively from January 1, 2002. Under the
terms of the acquisition, we


                                      26


<PAGE>


paid a consideration of US$585 million, subject to a final oil price
adjustment. See note 5 to our consolidated financial statements attached to
this annual report. The assets include a 65.3% interest in the South East
Sumatra production sharing contract, a 36.7% interest in the Offshore North
West Java production sharing contract, a 25.0% interest in the West Madura
production sharing contract, a 50.0% interest in the Poleng technical
assistance contract and a 16.7% interest in the Blora production sharing
contract.

     CNOOC, our parent company and controlling shareholder, was formed in 1982
when the Regulations of the People's Republic of China on Exploitation of
Offshore Petroleum Resources in Cooperation with Foreign Enterprises gave
CNOOC the exclusive right to enter into production sharing contracts with
foreign partners to conduct exploration and production activities offshore
China. As a result of CNOOC's October 1999 reorganization, we became the only
entity through which CNOOC engages in the upstream petroleum business. CNOOC
continues to perform administrative functions relating to our upstream
petroleum business. For further details regarding this reorganization, see
"Item 4--Information on the Company--History and Development" and "Item
7--Major Shareholders and Related Party Transactions--Related Party
Transactions."

Competitive Strengths

     We believe that our historical success and future prospects are directly
related to a combination of our strengths, including the following:

     o    large proved reserve base with significant exploitation
          opportunities;

     o    sizable operating area with demonstrated exploration potential;

     o    successful independent exploration and development record;

     o    competitive cost structure;

     o    reduced risks and access to capital and technology through
          production sharing contracts;

     o    strategic position in China's growing natural gas markets; and

     o    experienced management team.

     Large proved reserve base with significant exploitation opportunities.
Based on net proved reserves as of December 31, 2002 and average net daily
production for the year ended December 31, 2002, we had a
reserve-to-production ratio of approximately 15.9 years. As of December 31,
2002, approximately 60.6% of our net proved reserves were classified as net
proved undeveloped. We expect our production to grow significantly as these
undeveloped properties begin producing.

     Sizable operating area with demonstrated exploration potential. The
offshore China exploration area is approximately 1.3 million square kilometers
in size, about twice as large as the U.S. Gulf of Mexico exploration area. As
of December 31, 2002, a total of 797 exploration wells had been drilled
offshore China. Only limited exploration has been conducted in prospective
natural gas regions of the Western South China Sea and the East China Sea.
Since CNOOC's inception in 1982 to the end of 2002, a total of 674 exploration
wells have been drilled offshore China, including 430 wildcat wells with a
success rate of approximately 37.5%. Between the beginning of 1999 and
December 31, 2002, we made 15 discoveries and foreign parties made 15
discoveries offshore China.

     Successful independent exploration and development record. From the
inception of CNOOC in 1982 to December 31, 2002, we achieved a success rate of
approximately 50% on our 177 offshore China independent wildcat wells, while
our foreign partners achieved a success rate of approximately 29% on their 253
offshore China wildcat wells. Reserve additions from independent operations
have accounted for approximately 67% of our total reserve additions offshore
China since the beginning of 1997. Between late 1995 and the end of 2002, we
completed seven of our major independent development projects on time and
under budget.

     Competitive cost structure. For the year ended December 31, 2002, our
total offshore China lifting costs were US$3.92 per BOE. Total lifting costs
for independent operations offshore China were US$3.89 per


                                      27


<PAGE>


BOE during the same period. Lifting costs consist of operating expenses and
production taxes. We have kept our offshore China lifting costs low through
various measures including more efficient use of existing offshore facilities,
the linking of employee bonuses to cost reduction and the adoption of new
technology in our operations. Our average finding and development cost for the
three years ended December 31, 2002 was US$4.59 per BOE, or US$4.54 per BOE as
adjusted for the estimated future costs of developing proved undeveloped
reserves. We believe that this cost structure allows us to compete effectively
even in a low crude oil price environment.

     Reduced risks and access to capital and technology through production
sharing contracts. Production sharing contracts help us minimize our offshore
China finding costs, exploration risks and capital requirements because our
foreign partners are responsible for all costs associated with exploration.
Our foreign partners recover their exploration costs only if a commercially
viable discovery is made.

     Strategic position in China's growing natural gas markets. The proximity
of our natural gas reserves to the major demand areas in the coastal regions
of China provides us with a competitive advantage over other natural gas
suppliers in China, whose natural gas reserves are located primarily in
northwest and southwest China. We have natural gas fields near many of China's
rapidly growing coastal areas, including Hong Kong, Shanghai and Tianjin. We
have also acquired interests in gas reserves located in Tangguh, Indonesia and
entered into an agreement to acquire interests in gas reserves located in the
North West Shelf of Australia. In addition, CNOOC has granted us an option to
invest in liquefied natural gas projects or other natural gas related
businesses in the PRC in which CNOOC has invested or proposes to invest, which
includes an option to acquire CNOOC's interest in a liquefied natural gas
terminal in Guangdong Province, China. For further information, see "--Natural
Gas Business."

     Experienced management team. Our senior management team has extensive
experience in the oil and gas industry, and most of our executives have been
with the CNOOC group since its inception in 1982. We evolved from a company
heavily reliant on production sharing contracts with foreign partners to a
company with a balance of both independent and production sharing contract
operations. Our management team and staff have had the opportunity to work
closely with foreign partners both within and outside China. We have
implemented international management practices including incentive
compensation schemes for our employees. In addition, we have adopted a share
option scheme for our employees. See "Item 6--Directors, Senior Management and
Employees--Share Ownership."

Business Strategy

     We intend to continue expanding our oil and gas exploration and
production activities and, where appropriate, to continue making strategic
investments in natural gas businesses. While our expansion strategy will
continue to focus primarily on offshore China, we may also consider overseas
acquisition opportunities that may be presented to us. The principal
components of our strategy are as follows:

     o    increase production primarily through the development of our net
          proved undeveloped reserves;

     o    add to our reserves through independent exploration and production
          sharing contracts;

     o    capitalize on the growing demand for natural gas in China;

     o    selectively pursue acquisitions to ensure long-term production
          growth, geographical reserves risk diversification, and to further
          our natural gas strategy;

     o    maintain operational efficiency and low production costs; and

     o    maintain financial flexibility through conservative financial
          practices.

     Increase production primarily through the development of our net proved
undeveloped reserves. As of December 31, 2002, approximately 60.6% of our
proved reserves were classified as net proved undeveloped, which gives us the
opportunity to achieve substantial production growth even without additional
reserve discoveries, assuming that we will be able to develop these reserves
more quickly than we deplete our currently producing reserves. We are
currently undertaking a number of large development projects located primarily
in the Bohai Bay and the Western South China Sea, which will substantially
increase production.


                                      28


<PAGE>


We plan to spend approximately US$2.7 billion from 2003 through the year 2004
to develop our net proved undeveloped reserves offshore China.

     Add to our reserves through independent exploration and production
sharing contracts. We plan to concentrate our independent exploration efforts
in existing operating areas with a particular emphasis on natural gas. We plan
to spend approximately US$308 million from 2003 through 2004 on independent
exploration activities. We plan to augment independent exploration efforts and
reduce capital requirements and exploration risks by continuing to enter into
production sharing contracts with foreign partners. We currently have
identified 23 drilling prospects. In 2003, we plan to drill approximately 33
exploration wells, acquire approximately 16,100 kilometers of 2D seismic data
and acquire approximately 1,180 square kilometers of 3D seismic data
independently. Our foreign partners under existing production sharing
contracts plan to drill approximately 10 to 11 exploration wells, acquire
approximately 1,500 kilometers of 2D seismic data and acquire approximately
923 square kilometers of 3D seismic data in 2003.

     Capitalize on the growing demand for natural gas in China. The Chinese
government forecasts significant growth in domestic natural gas demand and has
promoted the use of natural gas as a clean and more efficient fuel. We plan to
capitalize on this growth potential through the following initiatives:

     o    continue to develop natural gas fields and focus independent
          exploration efforts on natural gas;

     o    evaluate whether to exercise the option to invest in the planned
          Guangdong liquefied natural gas project; and

     o    evaluate investment opportunities in related natural gas businesses
          that will help develop markets for our natural gas production.

     To the extent we invest in businesses and geographic areas where we have
limited experience and expertise, we plan to structure our investments as
alliances or partnerships with parties possessing the relevant experience and
expertise.

     Selectively pursue acquisitions to ensure long-term production growth,
geographical reserves risk diversification, and to further our natural gas
strategy. We plan to make selective acquisitions that will meet one or more of
our strategic objectives of enhancing our production profile, diversifying our
reserve base and geographic risk profile and furthering our natural gas
strategy. In addition, we evaluate acquisition opportunities based on our
expected economic return criteria. In April 2002, we completed the acquisition
of certain Indonesian assets from Repsol YPF. These assets increased our near
term production and leveraged our expertise and experience in offshore oil and
gas activities. We have also completed an acquisition of the equivalent of a
12.5% interest in Indonesia's Tangguh LNG project in January 2003 and have
signed a key terms agreement to acquire an aggregate interest of approximately
5.56% in the reserves and upstream production of Australia's North West Shelf
Project. We believe these upstream acquisitions of gas reserves will enhance
our natural gas strategy by facilitating the supply of LNG to China's rapidly
growing coastal gas market as well as provide us with access to other gas-rich
basins for further growth opportunities.

     Maintain operational efficiency and low production costs. We will
continue to maintain our low cost structure and operational efficiency through
the following initiatives:

     o    Apply up-to-date drilling, production and offshore engineering
          technology to our operations through our oilfield service providers;
          this technology includes long-range extension wells, multilateral
          wells, advanced formation testing, multi-phase transmission,
          monolayer pipeline and subsea technology, minimal structure
          techniques and suction foundation technology

     o    Proactively manage service contracts and cooperate with our oilfield
          service providers to improve exploration efficiency and reduce
          exploration costs; this measure includes using operational
          techniques such as cluster drilling, which reduces drilling time by
          one-third and lowers the related costs by up to 40%; and

     o    Maintain high production volume levels on an individual well basis
          and increase the productivity of producing wells.


                                      29


<PAGE>


     Maintain financial flexibility through conservative financial practices.
We will continue to emphasize conservative financial management practices.
Currently, we have a strong financial profile with a low leverage ratio. We
intend to maintain our financial strength by managing key measures such as
capital expenditures, cash flow and fixed charge coverage. We intend to
actively manage our accounts receivable and inventory positions to enhance
liquidity and improve profitability. We will continue to monitor our foreign
currency denominated debt and to minimize our exposure to foreign exchange
rate fluctuations.

Selected Operating and Reserves Data

     The following table sets forth our operating data and our net proved
reserves as of and for the periods indicated.

<TABLE>
<CAPTION>
                                                                                       Year ended December 31,
                                                                    --------------------------------------------------------------
                                                                       2000                      2001                      2002
                                                                    ----------                ----------                ----------
<S>                                                                 <C>                       <C>                        <C>
Net Production:
Oil (daily average bbls/day)...............................          206,347                   228,873                    298,625
Gas (daily average mmcf/day)...............................            197.9                     195.0                      272.6
Oil equivalent (BOE/day)...................................          239,335                   261,379                    346,639
Average net realized prices:
      Oil (per bbl)........................................         US$28.21                  US$23.34                   US$24.35
      Gas (per mcf)........................................             3.09                      3.08                       2.98
Offshore China lifting costs (per BOE)(1)..................             4.45                      4.16                       3.92
Overseas lifting costs (per BOE)(1)(2).....................               --                        --                       9.06
Three-year average finding and development
  costs (per BOE)(3).......................................          US$2.77                   US$4.86                    US$4.59
Adjusted three-year average finding and
  development costs (per BOE)(4)...........................          US$3.82                   US$4.15                    US$4.54

Net Proved Reserves (end of period):
Oil (mmbbls)...............................................          1,215.8                   1,245.9                    1,424.4
Gas (bcf)..................................................          3,249.7                   3,247.6                    3,547.9
Total (million BOE)........................................          1,757.4                   1,787.1                    2,015.8
Proved developed reserves (million BOE)....................            638.6                     710.0                      794.3
Annual reserves replacement ratio..........................              104%                      131%                       281%
Estimated reserves life (years)............................             20.1                      18.7                       15.9
Present value of estimated future net revenues before
  income taxes (discounted at 10%) (million Rmb)...........          108,423                    69,860                    140,798
Standardized measure of discounted future net cash
  flow (million Rmb).......................................           93,391                    51,082                    100,141

----------
(1)  Includes operating expenses and production taxes. During the years ended December 31, 2000 and 2001, our overseas operations
     were not material and our overseas lifting costs were included in our offshore China lifting costs for those years.
(2)  Overseas lifting costs reflect lifting costs associated with our operations in Indonesia and are calculated using the net
     entitlement method.
(3)  The three-year average finding and development costs for each of 2000, 2001 and 2002 are calculated by taking the sum of
     total costs incurred for exploration and development of oil and gas fields in immediately preceding three-year period and
     dividing it by the sum of the reserve additions, extensions and revisions for the same three years.
(4)  Because a high percentage of our net proved reserves are classified as proved undeveloped, we also presented the adjusted
     three-year average finding and development cost to reflect the estimated future costs of developing these proved undeveloped
     reserves as of December 31, 2000, 2001 and 2002, as estimated by Ryder Scott Company. The actual future costs of developing
     these reserves may differ from these estimates. See the definition of "adjusted finding and development cost per BOE" in
     "Certain Oil and Gas Terms."
</TABLE>

     At our request, Ryder Scott Company, independent petroleum engineering
consultants, carried out an independent evaluation of the reserves of selected
properties as of December 31, 2000, 2001 and 2002. For further information
regarding our reserves, see "Item 3--Key Information--Risk Factors--Risks
relating to our business--The oil and gas reserve estimates in this annual
report may require substantial revision as a result of future drilling,
testing and production" and "--Oil and Natural Gas Reserves."


                                      30


<PAGE>


     The following table sets forth summary information with respect to our
estimated net proved reserves of crude oil and natural gas as at the dates
indicated.

<TABLE>
<CAPTION>
                                                                    Net proved reserves                  Net proved reserves
                                                                      at December 31,                   at December 31, 2002
                                                              -----------------------------   --------------------------------------
                                                                   2000             2001        Developed   Undeveloped     Total
                                                              --------------   ------------   ------------ ------------- -----------
<S>                                                             <C>              <C>               <C>          <C>       <C>
Bohai Bay:
Crude oil (mmbbls)..........................................      923.9            961.3           381.1          611.4     992.5
Natural gas (bcf)...........................................      591.4            629.1           182.1          416.5     598.6
                                                              --------------   ------------   ------------ ------------- -----------
   Total (million BOE):.....................................    1,022.4          1,066.2           411.4          680.9   1,092.3
                                                              ==============   ============   ============ ============= ===========
      Independent (million BOE).............................      774.2            689.7           326.8          268.3     595.1
      Production sharing contracts (million BOE)............      248.2            376.5            84.6          412.6     497.2

Western South China Sea:
Crude oil (mmbbls)..........................................      141.1            131.6            99.0           61.4     160.4
Natural gas (bcf)...........................................    2,593.0          2,421.5           499.6        2,011.6   2,511.2
                                                              --------------   ------------   ------------ ------------- -----------
   Total (million BOE):.....................................      573.3            535.1           182.3          396.6     578.9
                                                              ==============   ============   ============ ============= ===========
      Independent (million BOE).............................      372.0            373.3            50.9          383.3     434.2
      Production sharing contracts (million BOE)............      201.3            161.8           131.4           13.3     144.7

Eastern South China Sea:
Crude oil (mmbbls)..........................................      136.8            132.2            58.9           61.4     120.3
Natural gas (bcf)...........................................         --               --              --           42.8      42.8
                                                              --------------   ------------   ------------ ------------- -----------
   Total (million BOE):.....................................      136.8            132.2            58.9           68.6     127.5
                                                              ==============   ============   ============ ============= ===========
      Independent (million BOE).............................         --               --              --             --        --
      Production sharing contracts (million BOE)............      136.8            132.2            58.9           68.6     127.5

East China Sea:
Crude oil (mmbbls)..........................................        4.5             12.4             2.9            9.6      12.5
Natural gas (bcf)...........................................       65.3            197.0            42.1          137.3     179.4
                                                              --------------   ------------   ------------ ------------- -----------
   Total (million BOE):.....................................       15.4             45.2             9.9           32.5      42.4
                                                              ==============   ============   ============ ============= ===========
      Independent (million BOE).............................       15.4             45.2             9.9           32.5      42.4
      Production sharing contracts (million BOE)............         --               --              --             --        --

Overseas:
Crude oil (mmbbls)..........................................        9.5              8.4           114.8           23.9     138.7
Natural gas (bcf)...........................................         --               --           101.5          114.4     215.9
                                                              --------------   ------------   ------------ ------------- -----------
   Total (million BOE):.....................................        9.5              8.4           131.8           42.9     174.7
                                                              ==============   ============   ============ ============= ===========
      Independent (million BOE).............................         --               --              --             --        --
      Production sharing contracts (million BOE)............        9.5              8.4           131.8           42.9     174.7

Total:
Total crude oil (mmbbls)....................................    1,215.8          1,245.9           656.7          767.7   1,424.4
Total natural gas (bcf).....................................    3,249.7          3,247.6           825.2        2,722.7   3,547.9
                                                              --------------   ------------   ------------ ------------- -----------
   Total (million BOE):.....................................    1,757.4          1,787.1           794.3        1,221.5   2,015.8
                                                              ==============   ============   ============ ============= ===========
      Independent (million BOE).............................    1,161.6          1,108.2           387.6          684.1   1,071.7
      Production sharing contracts (million BOE)............      595.8            678.9           406.7          537.4     944.1


                                                                 31
</TABLE>


<PAGE>


New Contracts Signed in 2002

     In 2002, our parent, CNOOC, signed four petroleum contracts and two
supplemental development agreements.

<TABLE>
<CAPTION>
                                                  New Oil Contracts Signed in 2002

                                                             Interest of                                               Drill
No.    Basin                    Block           Partner      Partners (%)     Date of Agreement    Area (km2)   Obligation (wells)
------------------------------------------------------------------------------------------------------------------------------------

<S>    <C>                 <C>                   <C>             <C>              <C>                 <C>               <C>
1      Pearl River Mouth       Chaotai           OPIC            50%              2002-5-16           15,400            3
2      Beibu Gulf               23/15            Husky           100%             2002-9-23            1,327            1
3      Beibu Gulf               23/20            Husky           100%             2002-9-23            1,543            1
4      Pearl River Mouth        40/30            Husky           100%             2002-12-6            6,704            1
                           (Deepwater Area)
</TABLE>

<TABLE>
<CAPTION>
                                       New Supplemental Development Agreements Signed in 2002

                                                                                                             Date of
No.   Agreements                   Block              Type                  Partner         Interest (%)    Agreement     Area (km2)
------------------------------------------------------------------------------------------------------------------------------------

<S>   <C>                          <C>        <C>                        <C>                  <C>           <C>              <C>
1     CFD11-1/2                    04/36          Development             Kerr-McGee/         40.1/8.9      2002.09.06       91
      Development Supplemental                    Supplemental           Sino-American
      Agreement                                    Agreement                 Energy

2     BZ25-1/1S                    11/19      Unitized Development       Chevron/Texaco         16.2        2002.10.11       218
      Unitized Development                         Agreement
      Agreement


                                                                 32
</TABLE>


<PAGE>


Exploration and Production

   Summary

     We currently conduct exploration, development and production activities
primarily in four areas offshore China:

     o    the Bohai Bay;

     o    the Western South China Sea;

     o    the Eastern South China Sea; and

     o    the East China Sea.

                               [GRAPHIC OMITTED]

     In addition, we hold several equity interests in oil and gas properties
in Indonesia, including a 39.5% participating interest in a production sharing
contract in the Malacca Strait, interests in production sharing contracts and
a technical assistance contract we acquired from Repsol YPF in April 2002 and
interests in the Tangguh LNG project, which we recently acquired. We also
expect to complete an acquisition for natural gas reserves offshore Australia
by the end of 2003. See "--Overseas Activity," "--Natural Gas
Business--


                                      33


<PAGE>


Overseas Activity" and "Item 5--Operating and Financial Review and
Prospects--Operating Results--Acquisitions and Overseas Activities."

     As of December 31, 2002, we had estimated net proved reserves of 2,015.8
million BOE, comprised of 1,424.4 million barrels of crude oil and condensate
and 3,547.9 billion cubic feet of natural gas. As of December 31, 2002, we had
interests in 25 producing properties and 29 properties under development and
appraisal offshore China. We are the operator or joint operator of 21 oil and
gas properties under production. In 2002, three properties offshore China
commenced production. For the year 2002, net production averaged 298,625
barrels per day of crude oil, condensate and natural gas liquids and 272.6
million cubic feet per day of natural gas, which together totaled 346,639 BOE
per day, representing a 32.6% increase over the annual average daily
production for the year 2001.

     We conduct our exploration, development and production activities
independently as well as through production sharing contracts and geophysical
survey agreements with foreign partners. A production sharing contract
contains provisions regarding the exploration, development, production and
operation of an oil and gas field and the formula through which foreign
partners may recover exploration, development and production costs and share
in the production after the successful development of petroleum reserves. See
"--Production Sharing Contracts--Offshore China" for a detailed discussion of
these arrangements.

     We also conduct exploration efforts through geophysical survey agreements
with foreign companies. These geophysical survey agreements allow
international oil and gas companies to conduct geophysical studies before
deciding whether to negotiate a production sharing contract with CNOOC. If a
foreign partner decides to enter into a production sharing contract with
CNOOC, the costs and expenses that the foreign partner incurs in conducting
geophysical exploration may be recovered in the production period by the
foreign partner, subject to our confirmation. See "--Geophysical Survey
Agreements" for a detailed discussion of these arrangements. As of December
31, 2002, we were not a party to any geophysical survey agreements, although
we may enter such agreements in the future.

     The offshore China exploration area is approximately 1.3 million square
kilometers in size. We currently have the exclusive right to operate
independently or in conjunction with international oil and gas companies in
approximately 601,700 square kilometers of the total offshore China
exploration area. We currently have rights to operate independently or in
conjunction with international oil and gas companies in 133 exploration blocks
covering approximately 572,486 square kilometers. We have access to
approximately 822,700 kilometers of 2D seismic data and approximately 33,700
square kilometers of 3D seismic data. From the beginning of CNOOC's operations
in 1982 to December 31, 2002, a total of 674 exploration wells have been
drilled, including 430 wildcat wells, with a success rate of approximately
37.5%. During this period we achieved a success rate of approximately 50% on
177 exploration wildcat wells which were drilled independently, while foreign
partners achieved a success rate of approximately 29% on their 253 exploration
wildcat wells.

Oil and Natural Gas Reserves

     We have a large base of net proved undeveloped reserves as a result of
our exploration successes. As of December 31, 2002, approximately 60.6% of net
proved reserves were classified as net proved undeveloped. We are currently
undertaking a number of large development projects located primarily in the
Bohai Bay and the Western South China Sea and expect these projects to
substantially increase our production.

     Our net proved reserves consist of our percentage interest in total
reserves, comprised of (i) our 100% interest in our independent oil and gas
properties (excluding the proved reserves attributable to our associated
company), (ii) our participating interest in the properties covered under our
production sharing contracts in the PRC and Indonesia, and (iii) our 30%
interest in the proved reserves of our associated company, less (i) an
adjustment for our share of royalties payable to the PRC government under our
production sharing contracts in the PRC, (ii) an adjustment for production
allocable to foreign partners under our production sharing contracts in the
PRC as reimbursement for exploration expenses attributable to our working
interest, and (iii) adjustments for share oil payable under our Indonesian
production sharing contracts to Pertamina, the Indonesian state-owned oil and
gas company, and for a domestic market obligation under which the contractor
must sell a specified percentage of its crude oil to the local Indonesian
market at a reduced price. Net proved reserves do not include any deduction
for production taxes, which are included in our operating expenses. Net
production is calculated in the same way as net proved reserves.


                                      34


<PAGE>


     We explore for and develop our reserves offshore China under exploration
and production licenses granted by the PRC government. The PRC government
generally grants exploration licenses for individual blocks while production
licenses generally are granted for individual fields. We have production
licenses for all of our proved reserves.

     At our request, Ryder Scott Company, an independent petroleum engineering
consultant, evaluated our selected properties as of December 31, 2000, 2001
and 2002. For further information regarding our reserves, see "Item 3--Key
Information--Risk Factors--Risks relating to our business--The oil and gas
reserves data in this annual report may require substantial revisions as a
result of future drilling, testing and production."

     The following tables set forth net proved crude oil reserves, net proved
natural gas reserves and total net proved reserves, as of the dates indicated,
for our independent and production sharing contract operations in each of our
operating areas.

<TABLE>
<CAPTION>
                                                Total Net Proved Crude Oil Reserves
                                                              (mmbbls)

                                                           As of December 31,                    As of December 31, 2002
                                                      -------------------------- ---------------------------------------------------
                                                          2000          2001         Developed          Undeveloped         Total
                                                      -----------  ------------- -----------------  -------------------  -----------
<S>                                                    <C>            <C>             <C>                 <C>             <C>
Offshore China
Independent
      Bohai Bay                                          675.7          589.9         296.6               211.2             507.8
      Western South China Sea.....................        76.4           71.7          47.9                60.5             108.4
      Eastern South China Sea.....................          --             --            --                  --                --
      East China Sea..............................         4.5           12.4           2.8                 9.7              12.5
                                                      -----------  ------------- -----------------  -------------------  -----------
            Total                                        756.6          674.0         347.3               281.4             628.7
Production Sharing Contracts
      Bohai Bay                                          248.2          371.4          84.5               400.2             484.7
      Western South China Sea.....................        64.7           59.9          51.1                 0.9              52.0
      Eastern South China Sea.....................       136.8          132.2          58.9                61.4             120.3
      East China Sea..............................          --             --            --                  --                --
                                                      -----------  ------------- -----------------  -------------------  -----------
            Total                                        449.7          563.5         194.5               462.5             657.0
Combined
      Bohai Bay                                          923.9          961.3         381.1               611.4             992.5
      Western South China Sea.....................       141.1          131.6          99.0                61.4             160.4
      Eastern South China Sea.....................       136.8          132.2          58.9                61.4             120.3
      East China Sea..............................         4.5           12.4           2.8                 9.7              12.5
                                                      -----------  ------------- -----------------  -------------------  -----------
            Total                                      1,206.3        1,237.5         541.8               743.9           1,285.7
Overseas(1)
      Indonesia                                            9.5            8.4         114.9                23.8             138.7
                                                      -----------  ------------- -----------------  -------------------  -----------
            Total                                          9.5            8.4         114.9                23.9             138.7
                                                      -----------  ------------- -----------------  -------------------  -----------
Total                                                  1,215.8        1,245.9         656.7               767.7           1,424.4
                                                      ===========  ============= =================  ===================  ===========
</TABLE>

----------
(1)  We do not conduct independent overseas operations. Our overseas
     operations are conducted through production sharing contracts and
     technical assistance contracts.


                                      35


<PAGE>


<TABLE>
<CAPTION>
                                               Total Net Proved Natural Gas Reserves
                                                               (bcf)

                                                             As of December 31,                     As of December 31, 2002
                                                        ----------------------------   ---------------------------------------------
                                                           2000               2001        Developed        Undeveloped       Total
                                                        ---------          ---------   ---------------  -----------------  ---------
<S>                                                      <C>                <C>             <C>            <C>              <C>
Offshore China
Independent
      Bohai Bay                                            591.4              598.9         182.1            342.1            524.2
      Western South China Sea......................      1,773.6            1,809.2          17.5          1,936.7          1,954.2
      Eastern South China Sea......................         --                 --              --               --              --
      East China Sea...............................         65.3              197.0          42.1            137.3            179.4
                                                        ---------          ---------   ---------------  -----------------  ---------
            Total                                        2,430.3            2,605.1         241.7          2,416.1          2,657.7
Production Sharing Contracts
      Bohai Bay                                             --                 30.2            --             74.5             74.5
      Western South China Sea......................        819.4              612.3         482.0             75.0            557.0
      Eastern South China Sea......................         --                 --              --             42.8             42.8
      East China Sea...............................         --                 --              --               --              --
                                                        ---------          ---------   ---------------  -----------------  ---------
            Total                                          819.4              642.5         482.0            192.2            674.2
Combined
      Bohai Bay                                            591.4              629.1         182.1            416.6            598.6
      Western South China Sea......................      2,593.0            2,421.5         499.6          2,011.5          2,511.2
      Eastern South China Sea......................         --                 --              --             42.8             42.8
      East China Sea...............................         65.3              197.0          42.1            137.3            179.4
                                                        ---------          ---------   ---------------  -----------------  ---------
            Total                                        3,249.7            3,247.6         723.7          2,608.3          3,332.0
Overseas(1)
Indonesia                                                   --                 --           101.5            114.4            216.0
                                                        ---------          ---------   ---------------  -----------------  ---------
            Total                                           --                 --           101.5            114.4            216.0
                                                        ---------          ---------   ---------------  -----------------  ---------
Total                                                    3,249.7            3,247.6         825.2          2,722.7          3,547.9
                                                        =========          =========   ===============  =================  =========
</TABLE>
----------
(1)  We do not conduct independent overseas operations. Our overseas
     operations are conducted through production sharing contracts and
     technical assistance contracts.


                                      36


<PAGE>


<TABLE>
<CAPTION>
                                                      Total Net Proved Reserves
                                                            (million BOE)

                                                               As of December 31,                  As of December 31, 2002
                                                         ----------------------------  ---------------------------------------------
                                                            2000               2001       Developed      Undeveloped        Total
                                                         ----------         ---------  --------------- ---------------   -----------
<S>                                                       <C>                <C>            <C>          <C>              <C>
Offshore China
Independent
      Bohai Bay                                             774.2              689.7        326.9          268.3            595.2
      Western South China Sea........................       372.0              373.3         50.9          383.3            434.1
      Eastern South China Sea........................        --                 --           --               --               --
      East China Sea.................................        15.4               45.2          9.9           32.5             42.4
                                                         ----------         ---------  --------------- ---------------   -----------
            Total                                         1,161.6            1,108.2        387.6          684.1          1,071.7
Production Sharing Contracts
      Bohai Bay                                             248.2              376.5         84.6          412.6            497.1
      Western South China Sea........................       201.3              161.8        131.4           13.4            144.8
      Eastern South China Sea........................       136.8              132.2         58.9           68.6            127.5
      East China Sea.................................        --                 --           --               --               --
                                                         ----------         ---------  --------------- ---------------   -----------
            Total                                           586.3              670.5        274.9          494.5            769.4
Combined
      Bohai Bay                                           1,022.4            1,066.2        411.5          680.9          1,092.3
      Western South China Sea........................       573.3              535.1        182.3          396.6            578.9
      Eastern South China Sea........................       136.8              132.2         58.9           68.6            127.5
      East China Sea.................................        15.4               45.2          9.9           32.5             42.4
                                                         ----------         ---------  --------------- ---------------   -----------
            Total                                         1,747.9            1,778.7        662.5        1,178.5          1,841.0
Overseas(1)
      Indonesia                                               9.5                8.4        131.8           42.9            174.7
                                                         ----------         ---------  --------------- ---------------   -----------
            Total                                             9.5                8.4        131.8           42.9            174.7
                                                         ----------         ---------  --------------- ---------------   -----------
Total                                                     1,757.4            1,787.1        794.3        1,221.5          2,015.8
                                                         ==========         =========  =============== ================  ===========
</TABLE>

----------
(1)  We do not conduct independent overseas operations. Our overseas
     operations are conducted through production sharing contracts and
     technical assistance contracts.


                                      37


<PAGE>


Oil and Natural Gas Production

     The following tables show average daily net oil production, net natural
gas production, and average net total production for the periods indicated.
Oil production comprises crude oil, condensate and natural gas liquids.


<TABLE>
<CAPTION>
                                              Average Daily Net Production of Crude Oil
                                                           (bbls per day)

                                                                                   Year ended December 31,
                                                         ---------------------------------------------------------------------------
                                                             2000                            2001                            2002
                                                         -----------                     -----------                     -----------
<S>                                                        <C>                             <C>                             <C>
Offshore China
Independent
      Bohai Bay                                             63,797                          97,612                         110,989
      Western South China Sea........................       45,828                          40,377                          35,724
      Eastern South China Sea........................           --                              --                              --
      East China Sea.................................        3,557                           3,967                           3,223
                                                         -----------                     -----------                     -----------
            Total                                          113,182                         141,956                         149,936
Production Sharing Contracts
      Bohai Bay                                                 --                           2,366                          16,767
      Western South China Sea........................          606                             900                          21,186
      Eastern South China Sea........................       90,097                          81,404                          73,792
      East China Sea.................................           --                              --                              --
                                                         -----------                     -----------                     -----------
            Total                                           90,703                          84,670                         111,745
Combined
      Bohai Bay                                             63,797                          99,978                         127,756
      Western South China Sea........................       46,434                          41,277                          56,910
      Eastern South China Sea........................       90,097                          81,404                          73,792
      East China Sea.................................        3,557                           3,967                           3,223
                                                         -----------                     -----------                     -----------
            Total                                          203,885                         226,626                         261,681
Overseas(1)
      Indonesia                                              2,462                           2,247                          36,944
                                                         -----------                     -----------                     -----------
            Total                                            2,462                           2,247                          36,944
                                                         -----------                     -----------                     -----------
Total                                                      206,347                         228,873                         298,625
                                                         ===========                     ===========                     ===========
</TABLE>

----------
(1)  We do not conduct independent overseas operations. Our overseas
     operations are conducted through production sharing contracts and
     technical assistance contracts.


                                      38


<PAGE>


<TABLE>
<CAPTION>
                                            Average Daily Net Production of Natural Gas
                                                          (mmcf per day)

                                                                                     Year ended December 31,
                                                           -----------------------------------------------------------------------
                                                               2000                            2001                        2002
                                                           -----------                     -----------                  ----------
<S>                                                           <C>                              <C>                        <C>
Offshore China
Independent
      Bohai Bay                                                45.8                             46.2                       47.2
      Western South China Sea.......................             --                              --                         4.4
      Eastern South China Sea.......................             --                              --                          --
      East China Sea................................            7.8                              9.8                       12.4
                                                           -----------                     -----------                  ----------
            Total                                              53.6                             56.0                       64.0
Production Sharing Contracts
      Bohai Bay                                                  --                              --                          --
      Western South China Sea.......................          144.3                            139.0                      137.9
      Eastern South China Sea.......................             --                              --                          --
      East China Sea................................             --                              --                          --
                                                           -----------                     -----------                  ----------
            Total                                             144.3                            139.0                      137.9
Combined
      Bohai Bay                                                45.8                             46.2                       47.2
      Western South China Sea.......................          144.3                            139.0                      142.2
      Eastern South China Sea.......................             --                              --                          --
      East China Sea................................            7.8                              9.8                       12.4
                                                           -----------                     -----------                  ----------
            Total                                             197.9                            195.0                      201.8
Overseas(1)
      Indonesia                                                  --                              --                        70.8
                                                           -----------                     -----------                  ----------
            Total                                                --                              --                        70.8
                                                           -----------                     -----------                  ----------
Total                                                         197.9                            195.0                      272.6
                                                           ===========                     ===========                  ==========
</TABLE>

----------
(1)  We do not conduct independent overseas operations. Our overseas
     operations are conducted through production sharing contracts and
     technical assistance contracts.


                                      39


<PAGE>


<TABLE>
<CAPTION>
                                                 Average Daily Net Production
                                                         (BOE per day)

                                                                                   Year ended December 31,
                                                                --------------------------------------------------------------
                                                                     2000                     2001                    2002
                                                                -------------             -----------            -------------
Offshore China
Independent
<S>                                                                <C>                      <C>                    <C>
      Bohai Bay                                                     71,437                  105,322                118,845
      Western South China Sea...............................        45,828                   40,377                 36,456
      Eastern South China Sea...............................            --                       --                     --
      East China Sea........................................         4,853                    5,599                  5,283
                                                                -------------             -----------            -------------
            Total                                                  122,118                  151,298                160,584
Production Sharing Contracts
      Bohai Bay                                                         --                    2,366                 16,767
      Western South China Sea...............................        24,658                   24,063                 46,747
      Eastern South China Sea...............................        90,097                   81,404                 73,792
      East China Sea........................................            --                       --                     --
                                                                -------------             -----------            -------------
            Total                                                  114,755                  107,833                137,306
Combined
      Bohai Bay                                                     71,437                  107,688                135,612
      Western South China Sea...............................        70,486                   64,440                 83,203
      Eastern South China Sea...............................        90,097                   81,404                 73,792
      East China Sea........................................         4,853                    5,599                  5,283
                                                                -------------             -----------            -------------
            Total                                                  236,873                  259,132                297,890
Overseas(1)
      Indonesia                                                      2,462                    2,247                 48,749
                                                                -------------             -----------            -------------
            Total                                                    2,462                    2,247                 48,749
                                                                -------------             -----------            -------------
Total                                                              239,335                  261,379                346,639
                                                                =============             ===========            =============
</TABLE>

----------
(1)  We do not conduct independent overseas operations. Our overseas
     operations are conducted through production sharing contracts and
     technical assistance contracts.


Principal Oil and Gas Regions

   Bohai Bay

     The Bohai Bay holds our largest net proved reserves and, for the year
ended December 31, 2002, was our largest producing area for crude oil and
natural gas. The Bohai Bay exploration area is located in the northeastern
part of China, approximately 200 kilometers east of Beijing and is
approximately 58,100 square kilometers in size. As of December 31, 2002, we
had rights to operate independently or in conjunction with international oil
and gas companies in 16 blocks covering approximately 42,419 square kilometers
of the total Bohai Bay exploration area. Our operating area contains numerous
oil and gas fields in shallow waters with typical depths ranging from 10 to 30
meters. The crude oil is generally of heavy gravity ranging from 15 to 20
degrees API. As of December 31, 2002, net proved reserves in this region were
992.5 million barrels of crude oil and condensate and 598.6 billion cubic feet
of natural gas, totaling 1,092.3 million BOE and representing approximately
54.2% of our total net proved reserves.

     The Bohai Bay has been a prolific area with significant oil discoveries
in recent years and will continue to be one of our principal areas for
exploration in the near future. Nine discoveries were made in 2002, including
six by us and three by foreign partners.


                                      40


<PAGE>


     The following table sets forth principal exploration blocks under an
exploration license to us for both our independent operations and our
production sharing contracts in the Bohai Bay as of December 31, 2002.


<TABLE>
<CAPTION>
                            Approximate                                 Exploration License                           Independent
                             block area                           --------------------------------        2003        exploration
                               (km2)           Partner(s)         Commencement          Expiration    exploration  drilling planned
Block                                                                 date                 date         drilling       for 2003
-------------------------- -------------  ----------------------  ------------          ----------    -----------  -----------------
<S>                             <C>      <C>                         <C>                  <C>              <C>           <C>
Independent
------------------------------------------------------------------------------------------------------------------------------------
Middle of Bohai Bay             5,310              --                08/16/02             08/16/04          2               6
------------------------------------------------------------------------------------------------------------------------------------
Southern Bohai Bay(1)             573              --                10/08/00             10/08/02         --               2
------------------------------------------------------------------------------------------------------------------------------------
Western Bohai Bay(1)            1,913              --                03/29/01             03/29/03          1              --
------------------------------------------------------------------------------------------------------------------------------------
Liaodong Bay                    3,344              --                01/31/00             04/08/06          12              7
------------------------------------------------------------------------------------------------------------------------------------
Eastern Liaodong Bay            2,829              --                07/02/01             07/02/06         --              --
------------------------------------------------------------------------------------------------------------------------------------

PSCs (2)
------------------------------------------------------------------------------------------------------------------------------------
05/36                           1,250     Kerr-McGee, Newfield,      02/10/02             02/10/04          2            N/A(3)
                                           Sino-American Energy
------------------------------------------------------------------------------------------------------------------------------------
06/17(1)                        2,587    ChevronTexaco, Carigali     02/01/01             02/01/03          1            N/A(3)
------------------------------------------------------------------------------------------------------------------------------------
Eastern 11/05                   3,601           Phillips,            08/16/02             02/10/04         --            N/A(3)
                                              Phillips Bohai
------------------------------------------------------------------------------------------------------------------------------------
Western 11/05                   4,076           Phillips,            02/10/02             02/10/04         --            N/A(3)
                                              Phillips Bohai
------------------------------------------------------------------------------------------------------------------------------------
11/19(1)                        3,186         ChevronTexaco          03/28/01             03/28/03         --            N/A(3)
------------------------------------------------------------------------------------------------------------------------------------
09/18                           2,226           Kerr-McGee           04/04/01             04/04/04         --            N/A(3)
------------------------------------------------------------------------------------------------------------------------------------
02/31(1)                        3,936    ChevronTexaco, Carigali     04/06/01             04/06/03          5            N/A(3)
------------------------------------------------------------------------------------------------------------------------------------
04/36                           1,694          Kerr-McGee,           12/31/01             12/31/03          4            N/A(3)
                                           Sino-American Energy
------------------------------------------------------------------------------------------------------------------------------------
11/26(1)(4)                     3,190             Shell              10/08/00             10/08/02         --            N/A(3)
------------------------------------------------------------------------------------------------------------------------------------
Other(5)
------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
----------
(1)   An application has been submitted to extend the exploration license.
(2)   One production sharing contract expired in 2002, although the
      exploration license for the block area covered by the production sharing
      contract remains in effect. One well was drilled in this block during
      2002.
(3)   Not applicable.
(4)   Since this production sharing block area is located within an
      independent block, its validity period depends on the exploration
      license granted to the related independent block. To avoid
      double-counting, the area attributable to this production sharing block
      has not been included in the total contract area of the related
      independent block.
(5)   We have exploration rights in the Bohai Bay for two additional blocks
      covering an aggregate area of approximately 2,703 square kilometers.

     During the year ended December 31, 2002, we acquired approximately 680
square kilometers of 3D seismic data and our foreign partners acquired
approximately 1,150 square kilometers of 3D seismic data in the Bohai Bay. We
have independently acquired an aggregate of approximately 171,100 kilometers
and 6,230 square kilometers of 2D and 3D seismic data, respectively, in the
Bohai Bay. We also have access through our production sharing contract
partners to approximately 66,900 kilometers and 8,480 square kilometers,
respectively, of additional 2D and 3D seismic data in this area. During the
year of 2002, we drilled seven wildcat wells, five of which were successful,
and eight appraisal wells, seven of which were successful. During the same
period, our production sharing contract partners drilled five wildcat wells,
two of which were successful, and eight appraisal wells, seven of which were
successful. Our exploration capital expenditures for 2002 were US$54.6
million. In 2003, we plan to drill 15 exploration wells in the Bohai Bay.

     For 2002, net production in this region averaged 127,756 barrels per day
of crude oil, condensate and natural gas liquids and 47.2 million cubic feet
per day of natural gas, representing approximately 39.1% of our


                                      41


<PAGE>


total daily net production. As of December 31, 2002, we were undertaking 10
development projects in the Bohai Bay. Our development capital expenditures
for the Bohai Bay for 2002 were US$261.1 million.

     The following table sets forth our principal oil and gas properties under
production in the Bohai Bay as of December 31, 2002.


<TABLE>
<CAPTION>
                                                                                                                      Net proved
                                                                     Average net     Number    Actual or expected   reserves as of
                                                                      production     of net        production     December 31, 2002
                                                             Our     or year 2002  productive     commencement         (million
Block/Field              Operator          Partner(s)     interest   BOE per day)    wells            year               BOE)
--------------------  ---------------   ---------------  ---------- -------------- ----------  ------------------ ------------------
Liaoxi
------------------------------------------------------------------------------------------------------------------------------------
<S>                   <C>                <C>                <C>         <C>              <C>          <C>                 <C>
Suizhong 36-1          CNOOC Limited           --           100%        72,636           244          1993                222.9
------------------------------------------------------------------------------------------------------------------------------------
Jinzhou 9-3            CNOOC Limited           --           100%        14,671            43          1999                 37.5
------------------------------------------------------------------------------------------------------------------------------------
Jinzhou 20-2           CNOOC Limited           --           100%         9,002            11          1992                 49.5
------------------------------------------------------------------------------------------------------------------------------------

Boxi
------------------------------------------------------------------------------------------------------------------------------------
Qikou 18-1             CNOOC Limited           --           100%         2,953             6          1997                  5.2
------------------------------------------------------------------------------------------------------------------------------------
Qikou 17-3             CNOOC Limited           --           100%         1,688             9          1997                  1.5
------------------------------------------------------------------------------------------------------------------------------------
Qikou 17-2             CNOOC Limited           --           100%        11,143            29          2000                 18.4
------------------------------------------------------------------------------------------------------------------------------------
Chengbei oilfield      CNOOC Limited           --           100%         4,158            52          1985                 11.9
------------------------------------------------------------------------------------------------------------------------------------
Qinhuangdao 32-6       CNOOC Limited         BPCEPC,         51%        16,762            80          2001                 85.6
                                          ChevronTexaco
------------------------------------------------------------------------------------------------------------------------------------

Bonan
------------------------------------------------------------------------------------------------------------------------------------
Bozhong 34-2/4         CNOOC Limited           --           100%         2,594            25          1990                  3.3
------------------------------------------------------------------------------------------------------------------------------------

11/05
------------------------------------------------------------------------------------------------------------------------------------
Penglai 19-3          Phillips China     Phillips Bohai      51%             5             4          2002                123.0
------------------------------------------------------------------------------------------------------------------------------------


                                                                 42
</TABLE>


<PAGE>


     The following table sets forth our principal oil and gas properties under
development in the Bohai Bay as of December 31, 2002.


<TABLE>
<CAPTION>
                                                                                   Actual or expected
                                                                                       production          Net proved reserves as
                                                                          Our         commencement          of December 31, 2002
  Block/Field                    Operator            Partner(s)         interest          year                  (million BOE)
--------------------------- -----------------   --------------------  ------------ ------------------    ---------------------------
  Liaoxi
------------------------------------------------------------------------------------------------------------------------------------
<S>                           <C>               <C>                       <C>             <C>                     <C>
  Luda 4-2                    CNOOC Limited              --               100%            2005                      9.0
------------------------------------------------------------------------------------------------------------------------------------
  Luda 5-2                    CNOOC Limited              --               100%            2005                     33.1
------------------------------------------------------------------------------------------------------------------------------------
  Luda 10-1                   CNOOC Limited              --               100%            2005                     34.4
------------------------------------------------------------------------------------------------------------------------------------
  Jinzhou 21-1                CNOOC Limited              --               100%            2008                     13.1
------------------------------------------------------------------------------------------------------------------------------------

  Boxi
------------------------------------------------------------------------------------------------------------------------------------
  Qikou 18-9                  CNOOC Limited              --               100%            2008                      3.5
------------------------------------------------------------------------------------------------------------------------------------
  Qikou 18-2                  CNOOC Limited              --               100%            2004                      6.1
------------------------------------------------------------------------------------------------------------------------------------

  Bozhong
------------------------------------------------------------------------------------------------------------------------------------
  Nanbao 35-2                 CNOOC Limited              --               100%            2005                     75.7
------------------------------------------------------------------------------------------------------------------------------------

  Bonan
------------------------------------------------------------------------------------------------------------------------------------
  Bonan oilfields             CNOOC Limited              --               100%            2004                     68.3
------------------------------------------------------------------------------------------------------------------------------------
  Bozhong 25-1/25-1s          CNOOC Limited         ChevronTexaco         84%             2004                    229.6
------------------------------------------------------------------------------------------------------------------------------------

  11/05
------------------------------------------------------------------------------------------------------------------------------------
  Penglai 25-6                ConocoPhillips       Phillips Bohai         51%             2008                     10.7
------------------------------------------------------------------------------------------------------------------------------------

  04/36
------------------------------------------------------------------------------------------------------------------------------------
  CFD 11-1                      Kerr-McGee      Sino-American Energy      51%             2004                     40.4
------------------------------------------------------------------------------------------------------------------------------------
  CFD 11-2                      Kerr-McGee      Sino-American Energy      51%             2004                      7.9
------------------------------------------------------------------------------------------------------------------------------------
  CFD 18-1                      Kerr-McGee      Sino-American Energy      51%             2004                      1.7
------------------------------------------------------------------------------------------------------------------------------------
</TABLE>


   Western South China Sea

     The Western South China Sea has been our most important natural gas
producing area, and was our second largest producing area for the year ended
December 31, 2002. The Western South China Sea is located in the southern part
of China southwest of Hong Kong and is approximately 712,480 square kilometers
in area. The most important exploration areas in the Western South China Sea
are the Beibu Gulf, the Yinggehai Basin, and the Qiongdongnan Basin. As of
December 31, 2002, we had rights to operate independently or in conjunction
with international oil and gas companies in 36 blocks covering approximately
166,803 square kilometers of the Western South China Sea exploration area.
Typical water depths in this region range from 40 meters to 120 meters. The
crude oil produced is of medium to light gravity, ranging from 27 to 41
degrees API. As of December 31, 2002, we had net proved reserves of 160.4
million barrels of crude oil and condensate and 2,511.2 billion cubic feet of
natural gas in this region, totaling 578.9 million BOE and representing
approximately 28.7% of our total net proved reserves.

     The Western South China Sea is one of our least explored areas but will
become increasingly important as the markets for natural gas in the southern
part of China develop. During the year ended December 31, 2002, we drilled 17
wildcat wells, two of which were successful, and three appraisal wells, one of
which was successful. Our production sharing contract partners drilled one
wildcat well, which was unsuccessful, in this area and did not drill any
appraisal wells.


                                      43


<PAGE>


     The following table sets forth the principal exploration blocks under an
exploration license to us for both our independent operations and our
production sharing contracts in the Western South China Sea as of December 31,
2002.

<TABLE>
<CAPTION>
                                                                                                                         Independent
                                                                                   Exploration License                   exploration
                                      Approximate                             --------------------------      2002         drilling
                                       block area                             Commencement    Expiration   exploration     planned
Block                                    (km2)           Partner(s)               date           date       drilling      for 2003
------------------------------------ -------------      ------------          ------------    ----------   -----------   -----------
Independent
------------------------------------------------------------------------------------------------------------------------------------
<S>                                     <C>        <C>                          <C>            <C>             <C>         <C>
Ledong 01                                6,543              --                  12/03/01       12/03/03         4            --
------------------------------------------------------------------------------------------------------------------------------------
Changjiang 25                            5,811              --                  12/03/01       12/03/03         7             2
------------------------------------------------------------------------------------------------------------------------------------
Weizhou 12                               6,980              --                  05/11/01       05/11/06        --            --
------------------------------------------------------------------------------------------------------------------------------------
Yulin 35                                 6,050              --                  05/11/01       05/11/06         1            --
------------------------------------------------------------------------------------------------------------------------------------
Qionghai 28                              5,208              --                  05/11/01       05/11/06        --             1
------------------------------------------------------------------------------------------------------------------------------------
Qiongdongnan Songtao 22                  4,063              --                  05/11/01       05/11/06         1            --
------------------------------------------------------------------------------------------------------------------------------------
Qiongdongnan Songtao 31                  5,264              --                  05/11/01       05/11/06         1            --
------------------------------------------------------------------------------------------------------------------------------------
Qiongdongnan Songtao 18                  2,566              --                  03/31/00       12/16/05         1            --
------------------------------------------------------------------------------------------------------------------------------------
Wenchang 20                              4,979              --                  05/11/01       05/11/06         1             1
------------------------------------------------------------------------------------------------------------------------------------
Lingao 11                                4,117              --                  05/11/01       05/11/06         1            --
------------------------------------------------------------------------------------------------------------------------------------
Lingao 15                                6,080              --                  05/11/01       05/11/06         3            --
------------------------------------------------------------------------------------------------------------------------------------
Baodao 16                                7,583              --                  08/08/02       08/08/07        --            --
------------------------------------------------------------------------------------------------------------------------------------
Baodao 30                                6,341              --                  08/07/02       08/07/07        --            --
------------------------------------------------------------------------------------------------------------------------------------

PSCs
------------------------------------------------------------------------------------------------------------------------------------
Wanganbei (A, B, C, D) (1)              25,418            Crestone              10/01/01       10/01/03        --          N/A(3)
------------------------------------------------------------------------------------------------------------------------------------
39/05(2)                                 5,700             Husky                12/03/01       12/03/03        --          N/A(3)
------------------------------------------------------------------------------------------------------------------------------------
22/12(2)                                   608         Rec Oil, Bligh           05/11/01       05/11/06         1          N/A(3)
                                                   Petsec Petroleum, Oil
                                                         Australia
------------------------------------------------------------------------------------------------------------------------------------
23/20(2)                                 1,543             Husky                05/11/01       05/11/06        --          N/A(3)
------------------------------------------------------------------------------------------------------------------------------------
23/15(2)                                 1,327             Husky                05/11/01       05/11/06        --          N/A(3)
------------------------------------------------------------------------------------------------------------------------------------
Other(4)
------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
----------
(1)   The Wanganbei block area consists of four blocks.
(2)   Since this production sharing block area is located within an
      independent block, its validity period depends on the exploration
      license granted to the related independent block. To avoid
      double-counting, the area attributable to this production sharing block
      has not been included in the total block area of the related independent
      block.
(3)   Not applicable.
(4)   We have exploration rights in the Western South China Sea region for 15
      additional blocks covering an aggregate area of approximately 60,622
      square kilometers.

     During the year ended December 31, 2002, we acquired approximately 712
square kilometers of 3D seismic data and our foreign partners acquired
approximately 460 square kilometers of 3D seismic data in the Western South
China Sea. We have independently acquired an aggregate of approximately
159,550 kilometers and 7,010 square kilometers of independent 2D and 3D
seismic data, respectively, in the Western South China Sea. We also have
access through our production sharing contract partners to approximately
106,900 kilometers and 3,670 square kilometers of additional 2D and 3D seismic
data, respectively, in this area. Our exploration capital expenditures for the
Western South China Sea for 2002 were US$68.9 million. In 2003, we plan to
drill four exploration wells in the Western South China Sea area.

     For the year ended December 31, 2002, net production averaged 56,910
barrels per day of crude oil, condensate and natural gas liquids and 142.2
million cubic feet per day of natural gas, representing approximately 24.0% of
total daily net production. Our development capital expenditures for the
Western South China Sea for 2002 were US$268.5 million.


                                      44


<PAGE>



            The following table sets forth the principal oil and gas
properties in the Western South China Sea area that were under production or
development as of December 31, 2002.

<TABLE>
<CAPTION>


                                                                                       Average net
                                                                                       production         Number
                                                                                      for year 2002        of net
                                                                         Our           (BOE per          productive
Block/Field                          Operator            Partner(s)    interest           day)              wells
--------------------------         ------------         -----------    --------       -------------      -----------

Production

---------------------------------------------------------------------------------------------------------------------
Yinggehai
---------------------------------------------------------------------------------------------------------------------
<S>                                 <C>                    <C>            <C>             <C>                <C>
   Yacheng 13-1                         BP                 Kufpec          51%            26,953              6
---------------------------------------------------------------------------------------------------------------------
Yulin 35
---------------------------------------------------------------------------------------------------------------------
   Weizhou 11-4                     CNOOC Limited           --            100%           18,821              45
---------------------------------------------------------------------------------------------------------------------
   Weizhou 12-1                     CNOOC Limited           --            100%           17,635              17
---------------------------------------------------------------------------------------------------------------------
Yangjiang 39/05
---------------------------------------------------------------------------------------------------------------------
   Wenchang 13-1/13-2               CNOOC Limited          Husky          60%            19,794              13
---------------------------------------------------------------------------------------------------------------------

Development

---------------------------------------------------------------------------------------------------------------------
Yulin 35

---------------------------------------------------------------------------------------------------------------------
   Weizhou 12-1 North               CNOOC Limited           --            100%             --               --
---------------------------------------------------------------------------------------------------------------------
Changjiang 25
---------------------------------------------------------------------------------------------------------------------
   Dongfang 1-1                     CNOOC Limited           --            100%             --               --
---------------------------------------------------------------------------------------------------------------------
Yangjiang 31 and 32
---------------------------------------------------------------------------------------------------------------------
   Wenchang 8-3                     CNOOC Limited           --            100%             --               --
---------------------------------------------------------------------------------------------------------------------
   Wenchang 19-1                    CNOOC Limited           --            100%             --               --
---------------------------------------------------------------------------------------------------------------------
Ledong 01
---------------------------------------------------------------------------------------------------------------------
   Ledong 15-1/22-1                 CNOOC Limited           --            100%             --               --
---------------------------------------------------------------------------------------------------------------------

                                                           Net proved
                                        Actual or        reserves as of
                                         expected        December 31,
                                        production           2002
                                       commencement        (million
Block/Field                                year              BOE
--------------------------             ------------    ------------------

Production

-------------------------------------------------------------------------
Yinggehai
-------------------------------------------------------------------------
   Yacheng 13-1                           1995               98.3
-------------------------------------------------------------------------
Yulin 35
-------------------------------------------------------------------------
   Weizhou 11-4                           1993               21.2
-------------------------------------------------------------------------
   Weizhou 12-1                           1999               29.6
-------------------------------------------------------------------------
Yangjiang 39/05
-------------------------------------------------------------------------
   Wenchang 13-1/13-2                     2002               46.5
-------------------------------------------------------------------------

Development

-------------------------------------------------------------------------
Yulin 35
-------------------------------------------------------------------------
   Weizhou 12-1 North                     2004               21.5
-------------------------------------------------------------------------
Changjiang 25
-------------------------------------------------------------------------
   Dongfang 1-1                           2003              218.5
-------------------------------------------------------------------------
Yangjiang 31 and 32
-------------------------------------------------------------------------
   Wenchang 8-3                           2005               11.6
-------------------------------------------------------------------------
   Wenchang 19-1                          2007               26.1
-------------------------------------------------------------------------
Ledong 01
-------------------------------------------------------------------------
   Ledong 15-1/22-1                       2009               83.2
-------------------------------------------------------------------------
</TABLE>

        Eastern South China Sea

     The Eastern South China Sea is currently one of our most important oil
producing areas in terms of its contribution to our total production and
sales. The Eastern South China Sea exploration area is located in the southern
part of China, directly southeast of Hong Kong, and is approximately 174,420
square kilometers in size. As of December 31, 2002, we had rights to operate
independently or in conjunction with international oil and gas companies in 36
blocks covering approximately 164,550 square kilometers in the Eastern South
China Sea exploration area. This area includes the important Pearl River Mouth
Basin. Typical water depths in this region range from 100 meters to 120
meters. The crude oil produced is of medium to light gravity, ranging from 30
to 40 degrees API. As of December 31, 2002, we had net proved reserves of
120.3 million barrels of crude oil and condensate and 42.8 billion cubic feet
of natural gas in this region, totaling 127.5 million BOE and representing
approximately 6.3% of our total net proved reserves.

     During the year ended December 31, 2002, we drilled four wildcat wells,
two of which were successful, and one successful appraisal well. Our
production sharing contract partners drilled two unsuccessful wildcat wells
and did not drill any appraisal wells in this area.



                                      45


<PAGE>


     The following table sets forth the principal exploration blocks that are
under an existing exploration license or pending exploration license to us for
both our independent operations and our production sharing contracts in the
Eastern South China Sea as of December 31, 2002.

<TABLE>
<CAPTION>

                                                                            Exploration License
                            Approximate                                ----------------------------------           2002
                            block area                                 Commencement           Expiration         exploration
Block                         (km2)            Partner(s)                 date                   date             drilling
--------------------        -----------       --------------           ------------           -----------        -----------
Independent
----------------------------------------------------------------------------------------------------------------------------------
<S>                            <C>                   <C>                  <C>                   <C>                  <C>
Huizhou 31                     3,074                 --                   05/11/01              05/11/06             --
----------------------------------------------------------------------------------------------------------------------------------
Enping 15                      5,833                 --                   05/11/01              05/11/06             --
----------------------------------------------------------------------------------------------------------------------------------
Enping 10                      6,547                 --                   05/11/01              05/11/06             --
----------------------------------------------------------------------------------------------------------------------------------
Panyu 33                       4,830                 --                   05/11/01              05/11/06             --
----------------------------------------------------------------------------------------------------------------------------------
Liuhua 07                      4,172                 --                   05/11/01              05/11/06              4
----------------------------------------------------------------------------------------------------------------------------------
Chaotai                        7,834                 --                   05/14/02              05/14/07             --
----------------------------------------------------------------------------------------------------------------------------------
Xijiang 04                     7,969                 --                   05/11/01              05/11/06              1
----------------------------------------------------------------------------------------------------------------------------------
Lufeng 08                      4,723                 --                   05/11/01              05/11/06             --
----------------------------------------------------------------------------------------------------------------------------------
Huizhou 30                     5,862                 --                   05/11/01              05/11/06             --
----------------------------------------------------------------------------------------------------------------------------------


PSCs
----------------------------------------------------------------------------------------------------------------------------------
16/19(1)                         415                Agip,                 10/08/00              03/31/02             --
                                                ChevronTexaco
----------------------------------------------------------------------------------------------------------------------------------
15/34                          5,124          Devon, Burlington           08/30/00              02/28/04              1
----------------------------------------------------------------------------------------------------------------------------------
16/02                          3,498                Devon,                03/31/00              03/31/07             --
                                              Energy Development
                                                 Corporation
----------------------------------------------------------------------------------------------------------------------------------
15/12                          1,895          Shell, Phillips             10/16/00              10/16/06             --
----------------------------------------------------------------------------------------------------------------------------------
15/35(1)                       1,439          Devon, Burlington           08/10/01              01/31/03             --
----------------------------------------------------------------------------------------------------------------------------------
27/10(2)                       6,546                Devon,                10/09/01              10/09/03              1
                                              Energy Development
                                                 Corporation
----------------------------------------------------------------------------------------------------------------------------------
16/08(1)                         541        Agip, ChevronTexaco           04/29/01              04/29/03              --
----------------------------------------------------------------------------------------------------------------------------------
16/05                          3,009                Devon,                03/31/00              03/31/07              --
                                              Energy Development
                                                 Corporation
----------------------------------------------------------------------------------------------------------------------------------
Other(4)
----------------------------------------------------------------------------------------------------------------------------------
</TABLE>


                              Independent
                              exploration
                            drilling planned
Block                           for 2003
--------------------       ------------------
Independent
---------------------------------------------
Huizhou 31                     --
---------------------------------------------
Enping 15                      --
---------------------------------------------
Enping 10                      --
---------------------------------------------
Panyu 33                       --
---------------------------------------------
Liuhua 07                       4
---------------------------------------------
Chaotai                         1
---------------------------------------------
Xijiang 04                     --
---------------------------------------------
Lufeng 08                       3
---------------------------------------------
Huizhou 30                     --
---------------------------------------------


PSCs
---------------------------------------------
16/19(1)                      N/A(3)
---------------------------------------------
15/34                         N/A(3)
---------------------------------------------
16/02                         N/A(3)
---------------------------------------------
15/12                         N/A(3)
---------------------------------------------
15/35(1)                      N/A(3)
---------------------------------------------
27/10(2)                      N/A(3)
---------------------------------------------
16/08(1)                      N/A(3)
---------------------------------------------
16/05                         N/A(3)
---------------------------------------------
Other(4)
---------------------------------------------
--------------
(1)   An application has been submitted to extend the exploration license.
(2)   Since this production sharing block area is located within an
      independent block, its validity period depends on the exploration
      license granted to the related independent block. To avoid
      double-counting, the area attributable to this production sharing block
      has not been included in the total contract area of the related
      independent block.
(3)   Not applicable.
(4)   We have exploration rights in this Eastern South China Sea region for 21
      additional blocks covering an aggregate area of approximately 94,789
      square kilometers.


     For the year ended December 31, 2002, we acquired 6,400 kilometers of 2D
seismic data and 1,330 square kilometers of 3D seismic data, while our foreign
partners acquired approximately 970 kilometers of 2D seismic data and 782
square kilometers of 3D seismic data in the Eastern South China Sea area. We
have an aggregate of approximately 55,600 kilometers of independent 2D seismic
data and 1,330 square kilometers of 3D seismic data in the Eastern South China
Sea. We also have access through our production sharing contract partners to
approximately 107,700 kilometers and 6,090 square kilometers of additional 2D
and 3D seismic data, respectively, in this area. Our exploration capital
expenditures for the Eastern South China Sea for 2002 were US$42.0 million. We
plan to drill eight exploration wells in the Eastern South China Sea in 2003.



                                      46


<PAGE>


     For the year ended December 31, 2002, net production averaged
approximately 73,792 barrels per day of crude oil, representing approximately
21.3% of our total daily net production. Our development capital expenditures
for this region for 2002 were US$122.0 million.

     The following table sets forth our principal oil and gas properties under
production in the Eastern South China Sea as of December 31, 2002.

<TABLE>
<CAPTION>


                                                                                       Average net
                                                                                       production         Number
                                                                                      for year 2002        of net
                                                                         Our           (BOE per          productive
Production Block/Field               Operator            Partner(s)    interest           day)              wells
--------------------------         ------------         -----------    --------       -------------      -----------
16/08
----------------------------------------------------------------------------------------------------------------------
<S>                                    <C>               <C>                      <C>           <C>               <C>
Huizhou 21-1                           CACT                  Agip,               51%           3,015             8
                                                         ChevronTexaco
----------------------------------------------------------------------------------------------------------------------
Huizhou 26-1                           CACT                  Agip,               51%          13,427            11
                                                         ChevronTexaco
----------------------------------------------------------------------------------------------------------------------
Huizhou 32-2                           CACT                  Agip,               51%           3,269             5
                                                         ChevronTexaco
----------------------------------------------------------------------------------------------------------------------
Huizhou 32-3                           CACT                  Agip,               51%           7,113             6
                                                         ChevronTexaco
----------------------------------------------------------------------------------------------------------------------
Huizhou 32-5                           CACT                  Agip,               51%           4,541             2
                                                         ChevronTexaco
----------------------------------------------------------------------------------------------------------------------
15/11
----------------------------------------------------------------------------------------------------------------------
Xijiang 24-3                      CNOOC Limited,             Shell               51%          16,732            11
                                  ConocoPhillips
----------------------------------------------------------------------------------------------------------------------
15/22
----------------------------------------------------------------------------------------------------------------------
Xijiang 30-2                      CNOOC Limited,             Shell               40%          14,202            10
                                  ConocoPhillips
----------------------------------------------------------------------------------------------------------------------
29/04
----------------------------------------------------------------------------------------------------------------------
Liuhua 11-1                       CNOOC Limited,           Kerr-McGee            51%           7,139            13
                                   BPCEPC-Liuhua
----------------------------------------------------------------------------------------------------------------------
16/06
----------------------------------------------------------------------------------------------------------------------
Lufeng 13-1                             JHN                   JHN                25%           2,697             5
----------------------------------------------------------------------------------------------------------------------
17/22
----------------------------------------------------------------------------------------------------------------------
Lufeng 22-1                   CNOOC Limited, Statoil        Statoil              25%           1,657             1
----------------------------------------------------------------------------------------------------------------------
</TABLE>

                                                           Net proved
                                        Actual or        reserves as of
                                         expected        December 31,
                                        production           2002
                                       commencement        (million
Production Block/Field                     year              BOE
--------------------------             ------------    ------------------
16/08
-----------------------------------------------------------------------
Huizhou 21-1                               1990                2.5
-----------------------------------------------------------------------
Huizhou 26-1                               1991               14.4
-----------------------------------------------------------------------
Huizhou 32-2                               1995                1.5
-----------------------------------------------------------------------
Huizhou 32-3                               1995                6.4
-----------------------------------------------------------------------
Huizhou 32-5                               1999                2.8
-----------------------------------------------------------------------
15/11
-----------------------------------------------------------------------
Xijiang 24-3                               1994               12.4
-----------------------------------------------------------------------
15/22
-----------------------------------------------------------------------
Xijiang 30-2                               1995                9.2
-----------------------------------------------------------------------
29/04
-----------------------------------------------------------------------
Liuhua 11-1                                1996                6.0
-----------------------------------------------------------------------
16/06
-----------------------------------------------------------------------
Lufeng 13-1                                1993                2.9
-----------------------------------------------------------------------
17/22
-----------------------------------------------------------------------
Lufeng 22-1                                1997                0.8
-----------------------------------------------------------------------



                                      47


<PAGE>


     The following table sets forth our principal oil and gas properties under
development as of December 31, 2002.

<TABLE>
<CAPTION>

                                                                                                             Net proved
                                                                                  Actual or expected       reserves as of
                                                                     Our              production         December 31, 2002
Block/Field               Operator           Partner(s)            interest       commencement year        (million BOE)
-----------------         --------           ----------            ---------      -------------------    -----------------
16/08
---------------------------------------------------------------------------------------------------------------------------------
<S>                         <C>                 <C>                  <C>              <C>                      <C>
Huizhou 21-1 Gas            CACT                Agip,                51%               2005                    9.5
                                            ChevronTexaco
---------------------------------------------------------------------------------------------------------------------------------

16/19
---------------------------------------------------------------------------------------------------------------------------------
Huizhou 19-1                CACT                Agip,                51%               2006                    2.0
                                            ChevronTexaco
---------------------------------------------------------------------------------------------------------------------------------
Huizhou 19-2                CACT                Agip,                51%               2005                    12.5
                                            ChevronTexaco
---------------------------------------------------------------------------------------------------------------------------------
Huizhou 19-3                CACT                Agip,                51%               2004                    11.2
                                            ChevronTexaco
---------------------------------------------------------------------------------------------------------------------------------
15/34
---------------------------------------------------------------------------------------------------------------------------------
Panyu 4-2                  Devon             Burlington              51%               2003                    16.4
---------------------------------------------------------------------------------------------------------------------------------
Panyu 5-1                  Devon             Burlington              51%               2003                    17.0
---------------------------------------------------------------------------------------------------------------------------------

</TABLE>

   East China Sea

     The East China Sea is the least explored area of our four principal
regions offshore China, and an area that we expect to become an important
natural gas production base in the future. The East China Sea is approximately
339,580 square kilometers in size and is located east of Shanghai. As of
December 31, 2002, we had rights to operate independently or in conjunction
with international oil and gas companies in 45 blocks (excluding the Pinghu
block) covering approximately 198,713 square kilometers of the total East
China Sea. We also own a 50% working interest in the Xihu Trough area within
the East China Sea. We and Sinopec, our joint venture partner, have formed a
joint management committee and established the East China Sea Xihu Oil and Gas
Operating Company to oversee the development of this region. The total block
area of the Xihu Trough is approximately 59,565 square kilometers. Typical
water depths in this region are approximately 90 meters and the crude oil and
condensate are of light gravity. As of December 31, 2002, our net proved
reserves in the Xihu Trough were 8.9 million barrels of crude oil and
condensate and 127.1 billion cubic feet of natural gas, totaling 30.1 million
BOE and representing less than 1.5% of our total net proved reserves. We
acquired our interest in the project from CNOOC and are the operator of the
project.

     During the year ended December 31, 2002, we drilled two appraisal wells,
one of which was successful, in cooperation with Sinopec in our independent
blocks. We drilled one wildcat well that was successful during 2002. Our
foreign partners did not drill any exploration wells in this area in 2002.



                                      48


<PAGE>


     The following table sets forth the principal exploration blocks under an
existing exploration license or pending exploration license to us for both our
independent operations and our production sharing contracts in the East China
Sea as of December 31, 2002.

<TABLE>
<CAPTION>

                                                                            Exploration License
                            Approximate                                ----------------------------------           2002
                            block area                                 Commencement           Expiration         exploration
Block                         (km2)            Partner(s)                 date                   date             drilling
--------------------        -----------       --------------           ------------           -----------        -----------
<S>                         <C>            <C>                         <C>                    <C>               <C>
Independent
-----------------------------------------------------------------------------------------------------------------------------------
Pinghu(1)                        N/A       Sinopec National Star,          N/A                   N/A               --
                                            Shanghai Municipal
                                                Government
----------------------------------------------------------------------------------------------------------------------------------
Huangyan 04                    2,848                   --                08/28/01             08/28/08              3
----------------------------------------------------------------------------------------------------------------------------------
Hangzhou 17                    4,227                   --                08/28/01             08/28/08             --
----------------------------------------------------------------------------------------------------------------------------------
Zhenghai 01                    1,536                   --                08/28/01             08/28/08             --
----------------------------------------------------------------------------------------------------------------------------------
Fuyang 27                      2,526                   --                08/28/01             08/28/08             --
----------------------------------------------------------------------------------------------------------------------------------
Lishui-Jiaojiang Trough        6,767                   --                03/31/00             11/28/05             --
----------------------------------------------------------------------------------------------------------------------------------
Western Wunansha                 242                   --                03/31/00             12/16/05             --
----------------------------------------------------------------------------------------------------------------------------------
Dalian 16                      6,471                   --                05/11/01             05/11/06             --
----------------------------------------------------------------------------------------------------------------------------------
Yantai 04                      6,111                   --                05/11/01             05/11/06             --
----------------------------------------------------------------------------------------------------------------------------------
Lishui 30                      4,085                   --                07/01/02             07/01/09             --
----------------------------------------------------------------------------------------------------------------------------------
Qingdao 34                     5,745                   --                12/07/02             12/07/06             --
----------------------------------------------------------------------------------------------------------------------------------
PSCs
----------------------------------------------------------------------------------------------------------------------------------
32/32                            513           Primeline Energy,         07/11/02             07/11/04             --
                                              Primetime Petroleum
----------------------------------------------------------------------------------------------------------------------------------
Other(3)
----------------------------------------------------------------------------------------------------------------------------------


                              Independent
                              exploration
                            drilling planned
Block                           for 2003
--------------------       ------------------
Independent
------------------------------------------------
Pinghu(1)                           --
------------------------------------------------
Huangyan 04                         6
------------------------------------------------
Hangzhou 17                        --
-----------------------------------------------
Zhenghai 01                        --
------------------------------------------------
Fuyang 27                          --
------------------------------------------------
Lishui-Jiaojiang Trough            --
------------------------------------------------
Western Wunansha                   --
------------------------------------------------
Dalian 16                          --
------------------------------------------------
Yantai 04                          --
------------------------------------------------
Lishui 30                          --
------------------------------------------------
Qingdao 34                         --
------------------------------------------------
PSCs
------------------------------------------------
32/32                             N/A(2)
------------------------------------------------
Other(3)
------------------------------------------------
</TABLE>

----------
(1)   This field is covered by a production license to the Shanghai Petroleum
      and Natural Gas Company in which we have a 30% interest. The production
      license will expire on December 1, 2020.
(2)   Not applicable.
(3)   We have exploration rights in this East China Sea region for 34
      additional blocks covering an aggregate area of approximately 157,642
      square kilometers.

     During the year ended December 31, 2002, we acquired 8,050 kilometers of
2D seismic data in this area. We have independently acquired an aggregate of
approximately 107,430 kilometers and 377 square kilometers, respectively, of
2D and 3D seismic data in the East China Sea area. We also have access through
our production sharing contract partners to approximately 47,520 kilometers
and 475 square kilometers, respectively, of additional 2D and 3D seismic data
in this area. Our exploration capital expenditures for the East China Sea for
2002 were US$18.0 million. We plan to drill six exploration wells with other
parties, and our foreign partners currently have no plans to drill any
exploration wells in the East China Sea in 2003.

     For the year ended December 31, 2002, our net production in this region
averaged 3,223 barrels per day of crude oil, condensate and natural gas
liquids and 12.4 million cubic feet per day of natural gas, representing 1.5%
of total daily net production. Our development capital expenditures for the
East China Sea for 2002 were US$52.2 million.



                                      49


<PAGE>


     The following table sets forth the principal oil and gas properties under
production or development in the East China Sea as of December 31, 2002.




<TABLE>
<CAPTION>

                                                                                 Average net
                                                                                 production           Number
                                                                                for year 2002         of net
                                                                    Our            (BOE per          productive
Block/Field                Operator            Partner(s)         interest           day)              wells
----------------         ------------         -----------         --------       -------------      -----------
Production
-----------------------------------------------------------------------------------------------------------------
Pinghu(1)
-----------------------------------------------------------------------------------------------------------------
<S>                     <C>              <C>                         <C>            <C>                 <C>
   Pinghu (I)           CNOOC Limited    Sinopec National Star,      30%            5,283               5
                                           Shanghai Municipal
                                               Government
-----------------------------------------------------------------------------------------------------------------
Development
-----------------------------------------------------------------------------------------------------------------
Pinghu(1)
-----------------------------------------------------------------------------------------------------------------
   Pinghu (II)          CNOOC Limited    Sinopec National Star,      30%             --                --
                                           Shanghai Municipal
                                               Government
-----------------------------------------------------------------------------------------------------------------
Xihu Trough
-----------------------------------------------------------------------------------------------------------------
   Canxue               CNOOC Limited           Sinopec              50%             --                --
-----------------------------------------------------------------------------------------------------------------
   Duanqiao             CNOOC Limited           Sinopec              50%             --                --
-----------------------------------------------------------------------------------------------------------------
</TABLE>


                                                           Net proved
                                        Actual or        reserves as of
                                         expected        December 31,
                                        production           2002
                                       commencement        (million
Block/Field                                year              BOE
--------------------------             ------------    ------------------
Production
------------------------------------------------------------------------------
Pinghu(1)
------------------------------------------------------------------------------
   Pinghu (I)                             1998                9.9
------------------------------------------------------------------------------
Development
------------------------------------------------------------------------------
Pinghu(1)
------------------------------------------------------------------------------
   Pinghu (II)                            2006                2.4
------------------------------------------------------------------------------
Xihu Trough
------------------------------------------------------------------------------
   Canxue                                 2007                11.6
------------------------------------------------------------------------------
   Duanqiao                               2008                18.5
------------------------------------------------------------------------------
----------
(1)   This field is under license to the Shanghai Petroleum and Natural Gas
      Company in which we have a 30% interest.

   Overseas Activity

     In early 2003, we acquired interests in the Tangguh LNG project located
in Indonesia. For further details of these interests, see "--Natural Gas
Business--Overseas Activity."

     In October 2002, we entered into a key terms agreement to acquire
interests in natural gas reserves located in the North West Shelf of
Australia. See "--Natural Gas Business--Overseas Activity."

     In April 2002, our wholly owned subsidiary, CNOOC Southeast Asia Limited,
acquired subsidiaries in Indonesia formerly owned by Repsol YPF, S.A. These
Indonesian subsidiaries together hold a portfolio of interests in oil and gas
production sharing and technical assistance contracts in areas located
offshore and onshore Indonesia. The acquisition of the Indonesian subsidiaries
was consistent with our plan to expand our production and reserves.
Furthermore, we believe the acquisition represented a unique opportunity to
acquire producing assets that fit with our offshore expertise and experience.
The main businesses of the Indonesian subsidiaries are the exploration,
development and production of oil and gas offshore and onshore Indonesia.
Their main assets comprise a portfolio of interests in four production sharing
contracts and a technical assistance contract in that region. We estimate that
our net proved reserves of the assets as of December 31, 2002 were
approximately 167.1 million BOE.

     The interests owned by the Indonesian subsidiaries comprise the following
assets:

     o    South East Sumatra Production Sharing Contract. The Indonesian
          subsidiaries own a 65.3% interest in the South East Sumatra
          production sharing contract. This contract area covers approximately
          8,100 square kilometers located offshore Sumatra and is the largest
          of the assets held by the Indonesian subsidiaries. It is operated
          and majority-owned by us. It is also one of the largest offshore oil
          developments in Indonesia and has produced more than one billion
          barrels of oil in over 20 years of production. The concession
          expires in 2018.

     o    Offshore North West Java Production Sharing Contract. The Indonesian
          subsidiaries own a 36.7% interest in the Offshore North West Java
          production sharing contract. This contract area covers approximately
          13,800 square kilometers in the Southern Java Sea, offshore Jakarta
          and has produced more than one billion BOE in over 20 years of
          production. It is operated by a member of the BP group and currently
          produces crude oil and natural gas. Its natural gas is sold



                                      50


<PAGE>


          to the Indonesia State Electric Company and the Indonesia State Gas
          Utility Company. The concession expires in 2017.

     o    West Madura Production Sharing Contract and Poleng Technical
          Assistance Contract. These subsidiaries own a 25.0% interest in the
          West Madura production sharing contract and a 50.0% interest in the
          Poleng technical assistance contract. These contract areas are
          located offshore Java, near the island of Madura and the Java city
          of Surabaya and cover approximately 1,600 square kilometers
          combined. Kodeco Energy Company is the operator for the West Madura
          production sharing contract and Korea Development Company is the
          operator for the Poleng technical assistance contract, each assisted
          by certain of the Indonesian subsidiaries. These contract areas
          currently produce crude oil and natural gas. Their natural gas is
          sold to the Indonesia State Electric Company. The West Madura
          production sharing contract expires in May 2011. The Poleng
          technical assistance contract expires in December 2013.

     o    Blora Production Sharing Contract. The Indonesian subsidiaries own a
          16.7% interest in the Blora production sharing contract. This
          contract area lies entirely onshore Java and covers an area of
          approximately 4,800 square kilometers. There has been no production
          of crude oil or natural gas from this concession. The current
          operator is Coparex Blora. The concession expires in 2026.

     The remaining interests in the above assets at the time of our
acquisition were owned by independent third parties, including Lundin
Petroleum, BP, Kodeco, Kalila Energy, BG Group, Pertamina, INPEX, Kanematsu,
Nissho Iwai, Nisseki Mitsubishi, Paladin Resources, C. Itoh and Co. and
Amerada Hess.

     In addition to our Indonesian subsidiaries and the acquisition of
interests in the Tangguh LNG project, we have a 39.5% participating interest
in a production sharing contract in the Malacca Strait in Indonesia. As of
December 31, 2002, our net proved reserves in this property were 7.6 million
barrels of crude oil. For 2002, net production from this property averaged
2,579 barrels per day of crude oil, condensate and natural gas liquids,
representing approximately 0.7% of total daily net production. Production has
been declining in recent years due to water cut increases and natural
production declines. Our interests in the production sharing contract are held
by our wholly owned subsidiaries.

     We currently conduct all of our international oil sales through China
Offshore Oil (Singapore) International Pte. Ltd., our wholly owned Singapore
subsidiary. In the past, this subsidiary has also engaged in oil trading
activities.



                                      51


<PAGE>


     The following table sets forth the principal oil and gas properties under
production in our overseas interests as of December 31, 2002. There is no data
for the number of productive wells and actual or expected production
commencement year because we only recently acquired our interests in these
properties from other parties.
<TABLE>
<CAPTION>

                                                                                                                  Average Net
                                                                                                                 production for
                                                                                                    Our             year 2002
PSCs                                   Operator                     Partner(s)                    interest        (BOE per day)
------------------------            -----------------      -------------------------------     --------------    --------------
Repsol
-----------------------------------------------------------------------------------------------------------------------------------
<S>                                   <C>                   <C>                                    <C>                <C>
                                                                    INPEX Sumatra                  65.3%              24,921
                                                                     KNOC Sumatra
                                                                 MC Oil & Gas Sumatra
South East Sumatra                    CNOOC Limited           Paladin Indonesia (Sunda)
                                                            Paladin UK (Southeast Sumatra)
                                                              Paladin Resources (Bahamas)
                                                                      CNOOC Limited
-----------------------------------------------------------------------------------------------------------------------------------
                                                                      CNOOC ONWJ                   36.7%              15,405
                                                                      INPEX Jaws
                                                                 MC Oil and Gas Java
Offshore North West Java                  BP                       C. ITOH Energy
                                                              Paladin Resources (Sunda)
                                                                    BP West Java
-----------------------------------------------------------------------------------------------------------------------------------
                                                                      Pertamina                    25.0%               1,895
West Madura                           Kodeco Energy                 CNOOC Madura
                                                                    KODECO Energy
-----------------------------------------------------------------------------------------------------------------------------------
Poleng(1)                           Korea Development                CNOOC Poleng                  50.0%               3,945
                                                                   Korea Development
-----------------------------------------------------------------------------------------------------------------------------------
                                                                      CNOOC Blora                   16.7%                  --
Blora                                 Lundin Blora                 Paladin Resources
                                                                      Amerada Hess
                                                                      Lundin Blora
-----------------------------------------------------------------------------------------------------------------------------------
Malacca
-----------------------------------------------------------------------------------------------------------------------------------
                                                                     CNOOC Limited                  39.5%               2,579
                                                                     OOGC Mallaca
Malacca Strait                       Kondur Petroleum              Mallaca Petroleum
                                                                   Imbang Tata Alam
                                                                   Kondur Petroleum
-----------------------------------------------------------------------------------------------------------------------------------
</TABLE>


                                   Net proved reserves as
                                    of December 31, 2002
PSCs                                 (million BOE)
------------------------           -----------------------
Repsol
-------------------------------------------------------------
South East Sumatra                          87.42
-------------------------------------------------------------
Offshore North West Java                    64.86
-------------------------------------------------------------
West Madura                                  8.29
-------------------------------------------------------------
Poleng(1)                                    6.52
-------------------------------------------------------------
Blora                                         --
-------------------------------------------------------------
Malacca
-------------------------------------------------------------
Malacca Strait                               7.63
-------------------------------------------------------------

----------
(1)  Our interest in this contract area is in the form of a technical
     assistance contract.



                                      52


<PAGE>


Other Oil and Gas Data

  Production Cost Data

     The following table sets forth average sales prices per barrel of crude
oil, condensate and natural gas liquids sold, average sales prices per
thousand cubic feet of natural gas sold and production costs per BOE produced
for each of our independent, production sharing contract and combined
operations for the periods indicated.
<TABLE>
<CAPTION>

                                                                                  Year ended December 31,
                                                                           ----------------------------------------
                                                                            2000             2001            2002
                                                                           -------          ------          ------
                                                                                            (US$)
Average Sales Prices of Petroleum Produced

<S>                                                                         <C>              <C>             <C>
Per Barrel of Crude Oil, Condensate and Natural Gas Liquid Sold..........   28.21            23.34           24.35
Per Thousand Cubic Feet of Natural Gas Sold..............................    3.09             3.08            2.98

Offshore China Average Lifting Costs per BOE Produced(1)

Independent..............................................................    4.00             3.88            3.89
Production Sharing Contracts.............................................    4.86             4.51            3.95
Offshore China Average...................................................    4.45             4.16            3.92

Overseas Average Lifting Costs per BOE Produced(1)

Net Entitlement..........................................................   --               --               9.06
</TABLE>
----------
(1)  Our overseas operations during the years ended December 31, 2000 and 2001
     were not material and the related lifting costs have been included in our
     offshore China lifting costs for those years.


   Drilling and Productive Wells

     The following table sets forth our exploratory and productive wells
drilled offshore China as of December 31, 2002 by independent and production
sharing contract operations in each of our operating areas. There is no data
for exploratory and productive wells drilled overseas because we only recently
acquired our interests in these properties from other parties.
<TABLE>
<CAPTION>

                                                                  As of December 31, 2002
                                       ----------------------------------------------------------------------------------
                                           Total                            Western South     Eastern South    East China
                                       Offshore China      Bohai Bay         China Sea         China Sea           Sea
                                       --------------      ---------        -------------     -------------    ----------
Independent
<S>                                         <C>              <C>               <C>               <C>              <C>
Net Exploratory Wells.................      430.0            262.0             148.0             7.0              13.0
Net Productive Wells..................      431.5            373.0              54.0              --               4.5
Crude Oil.............................      418.1            362.0              54.0              --               2.1
Natural Gas...........................       13.4             11.0              --                --               2.4

Production Sharing Contracts

Net Exploratory Wells.................        2.0             --                --                --               2.0
Net Productive Wells..................      175.1             83.1              18.2            73.8                --
Crude Oil.............................      168.5             83.1              12.6            72.8                --
Natural Gas...........................        6.6             --                 5.6             1.0                --

Totals

Net Exploratory Wells.................      432.0            262.0             148.0             7.0              15.0
Net Productive Wells..................      606.6            456.1              72.2            73.8               4.5
Crude Oil.............................      586.6            445.1              66.6            72.8               2.1
Natural Gas...........................       20.0             11.0               5.6             1.0               2.4
</TABLE>



                                      53


<PAGE>


   Drilling Activity

     The following tables set forth our net exploratory and development wells
broken down by independent and production sharing contract operations in each
of our operating areas for the year ended December 31, 2002.

<TABLE>
<CAPTION>

                                                                          Year ended December 31, 2002
                                               ---------------------------------------------------------------------------------
                                                                          Western        Eastern
                                                                        South China    South China    East China
                                               Total       Bohai Bay        Sea            Sea            Sea           Overseas
                                               -----       ---------    -----------    -----------    -----------       --------
Independent
<S>                                             <C>           <C>          <C>             <C>            <C>              <C>
Net Exploratory Wells Drilled..........         41.5          15.0         20.0            5.0            1.5              --
   Successful..........................         19.0          12.0          3.0            3.0            1.0              --
   Dry.................................         22.5           3.0         17.0            2.0            0.5              --
Net Development Wells Drilled..........         14.0           2.0         12.0             --             --              --
   Successful..........................         14.0           2.0         12.0             --             --              --
   Dry.................................           --            --           --             --             --              --

Production Sharing Contracts

Net Exploratory Wells Drilled..........          3.1            --           --             --             --              3.1
   Successful..........................          1.9            --           --             --             --              1.9
   Dry.................................          1.2            --           --             --             --              1.2
Net Development Wells Drilled..........         65.0          20.2          3.6            3.1             --             38.1
   Successful..........................         60.7          20.2          3.6            3.1             --             33.8
   Dry.................................          4.3            --           --             --             --              4.3


                                                                          Year ended December 31, 2001
                                               ---------------------------------------------------------------------------------
                                                                          Western        Eastern
                                                                        South China    South China    East China
                                               Total       Bohai Bay        Sea            Sea            Sea           Overseas
                                               -----       ---------    -----------    -----------    -----------       --------
Independent
Net Exploratory Wells Drilled..........         13.0          4.0           6.0            1.0            2.0             --
   Successful..........................          5.0          2.0           2.0            1.0            --              --
   Dry.................................          8.0          2.0           4.0            --             2.0             --
Net Development Wells Drilled..........         76.0         76.0           --             --             --              --
   Successful..........................         76.0         76.0           --             --             --              --
   Dry.................................           --          --            --             --             --              --

Production Sharing Contracts
Net Exploratory Wells Drilled..........          1.0          --            --             --             1.0             --
   Successful..........................           --          --            --             --             --              --
   Dry.................................          1.0          --            --             --             1.0             --
Net Development Wells Drilled..........         41.7         34.7           4.8            --             0.6             1.6
   Successful..........................         40.7         34.7           3.8            --             0.6             1.6
   Dry.................................          1.0          --            1.0            --             --              --



                                      54


<PAGE>


                                                                          Year ended December 31, 2000
                                               ---------------------------------------------------------------------------------
                                                                          Western        Eastern
                                                                        South China    South China    East China
                                               Total       Bohai Bay        Sea            Sea            Sea           Overseas
                                               -----       ---------    -----------    -----------    -----------       --------
Independent
Net Exploratory Wells Drilled..........          12.0          5.0           4.0            1.0            2.0             --
   Successful..........................           6.0          5.0           1.0            --             --              --
   Dry.................................           6.0          --            3.0            1.0            2.0             --
Net Development Wells Drilled..........          65.2         61.0           3.0            --             1.2             --
   Successful..........................          65.2         61.0           3.0            --             1.2             --
   Dry.................................           --           --            --             --             --              --

Production Sharing Contracts

Net Exploratory Wells Drilled..........           1.4          --            --             --             1.0             0.4
   Successful..........................           1.0          --            --             --             1.0             --
   Dry.................................           0.4          --            --             --             --              0.4
Net Development Wells Drilled..........          24.4         22.4           --             --             --              2.0
   Successful..........................          24.4         22.4           --             --             --              2.0
   Dry.................................           --           --            --             --             --              --
</TABLE>


Natural Gas Business

     Natural gas is becoming an increasingly important part of our business
strategy. We intend to exploit our natural gas reserves to meet rapidly
growing domestic demand for natural gas. Because of a domestic natural gas
shortfall forecasted by the Chinese government, we have made strategic
investments in liquefied natural gas projects outside the PRC and may continue
to do so in the future.

   PRC Activity

     CNOOC, our controlling shareholder, has granted us an option to invest in
liquefied natural gas projects or other natural gas related business in which
CNOOC has invested or proposes to invest. CNOOC is currently involved in the
following large-scale natural gas projects.

     Guangdong LNG Facility. CNOOC is currently engaged in a project to build
China's first proposed liquefied natural gas import facility in Guangdong
Province in southern China. CNOOC has granted us the option to acquire CNOOC's
interest in the project. The terms of this option require us, if we exercise
the option, to reimburse CNOOC for any contribution CNOOC has made with
respect to the facility together with interest calculated at the prevailing
market rate. We have not entered into any negotiations with CNOOC on the
detailed terms under which we may acquire CNOOC's interest in this facility.
CNOOC has committed to take a 33% ownership interest in the project. Other
partners include Hongkong Electric and Hong Kong and China Gas, each committed
to 3% ownership interests, and five customers of the proposed facility who
have collectively committed to a 31% ownership interest. Through a competitive
selection process, BP Global Investment Limited was selected as the foreign
partner to take the remaining 30% interest in the project.

     The project involves the construction of a receiving terminal with
capacity of three million metric tons per year, a 215-kilometer trunkline and
two branch trunklines with a total length of 111 kilometers. Project
construction is expected to begin in the second quarter of 2003. The facility
is scheduled to commence operations in 2006. The total cost of the facility is
estimated to be approximately US$600 million. CNOOC will help us procure all
necessary government approvals for our participation in this project should we
exercise our option. We are currently evaluating the exercise of this option
and may exercise it at any time.

     Zhejiang Network. In September 2001, CNOOC signed an agreement with
Zhejiang Provincial Energy Group Company Limited and Zhejiang Southeast
Electric Power Company Limited to invest in a joint venture to develop an
intra-provincial natural gas distribution network. CNOOC will hold a 37%
equity interest in the joint venture company. We have an option to take
CNOOC's share in the joint venture company in an arrangement similar to our
option for the Guangdong liquefied natural gas project. The business scope of
the joint venture includes the construction, operation and management of
natural gas pipelines, the intra-



                                      55


<PAGE>


          provincial wholesale and distribution of natural gas, and the
          development of gas-fired power plants and other natural gas related
          infrastructure and projects.

     Shandong Pipeline. In September 2001, CNOOC signed an agreement with the
Shandong Province Development Planning Commission and Shandong International
Trust & Investment Corporation in connection with the construction of a gas
pipeline and the importation of liquefied natural gas in Shandong Province. A
steering committee was established by the parties to study the prospect of gas
utilization in Shandong Province, including the feasibility of constructing a
main gas pipeline in Shandong and importing liquefied natural gas to Shandong
through Qingdao. CNOOC intends to use gas resources from the Bohai Bay. CNOOC
expects that natural gas from the Bohai Bay will land in Longkou of Shandong
Province in 2003, which can be further transported to Qingdao and Yantai in
Shandong Province by pipeline. The pipeline between Longkou and Yantai will be
95 kilometers; the pipeline between Longkou and Qingdao will be 2,101
kilometers.

     Fujian Development. In October 2001, CNOOC signed an agreement with the
Fujian provincial government on natural gas market development in Fujian
Province. The agreement provides for a joint investment commitment of
increasing natural gas supply and gas market development in Fujian Province by
both parties. Both parties are committed to sourcing gas, including liquefied
natural gas, from all viable sources, including from offshore production and
overseas. The parties also agreed to invest in gas-fired power plants and
related infrastructure. We have the option to take CNOOC's working interest in
the project and have recently acquired an interest in the Tangguh LNG project
in Indonesia, which will supply liquefied natural gas to this project.

   Overseas Activity

     On January 1, 2003, we acquired BP Muturi Limited, which owns a 44.0%
interest in the Muturi production sharing contract offshore Indonesia, and BP
Wiriagar Limited's 42.4% interest in the Wiriagar production sharing contract
offshore Indonesia for a total of approximately US$275 million. The Muturi
production sharing contract and Wiriagar production sharing contract, together
with the Berau production sharing contract, make up the Tangguh LNG project.
The Tangguh LNG project is a greenfield project located offshore Indonesia and
represents one of the largest natural gas projects in Asia.

     Our interests in these two production sharing contracts represent
approximately 12.5% of the total reserves and upstream production of the
Tangguh LNG project. The remaining interests in the Tangguh LNG project are
held by BP Berau (34.2%), BP Muturi (0.2%), BP Wiriagar (2.7%), MI Berau
(16.3%), Nippon (12.2%), BG (10.7%), KG Berau (8.6%), KG Wiriagar (1.4%) and
Indonesia Natural Gas Resources Muturi (1.1%). The partners in the Tangguh LNG
project have applied to the Indonesia government to consolidate the three
production sharing contracts and expect that BP will serve as the operator for
the project.

     Before acquiring interest in the Tangguh LNG project, the partners in the
Tangguh LNG project entered into a conditional 25-year supply contract
beginning in 2007 to provide up to 2.6 million tons of liquefied natural gas
per year to a liquefied natural gas terminal project in Fujian Province,
China. In addition, a repurchase agreement was entered into whereby put
options and call options were granted to us and the sellers, respectively, to
sell or repurchase, as the case may be, the interests in these production
sharing contracts. The exercise prices of the options are determined based on
the original consideration plus interest and additional investment and draw
down made during the interim period. The options are exercisable if on or
before December 31, 2004:

     o    the LNG supply contract is terminated due to the non-satisfaction of
          the conditions precedent to the LNG supply contract; or

     o    the LNG supply contract is otherwise legally ineffective.

     See "--PRC Activity--Fujian Development." Given the proximity of the
Tangguh LNG project to many major industrial and commercial areas, we expect
the project to secure additional LNG supply contracts in the near future.

     In October 2002, we entered into a key terms agreement to acquire an
aggregate interest of approximately 5.56% in the reserves and upstream
production of Australia's North West Shelf Gas Project for approximately
US$365.6 million, subject to certain adjustments. Under the terms of this
agreement, we would purchase our interest from the six current partners to
this project: BHP Billiton, BP, ChevronTexaco, Japan



                                      56


<PAGE>


Australia LNG (MIMI), Shell and Woodside Energy. Our estimated share of
reserves from this project would be approximately 1.2 trillion cubic feet of
natural gas. Our share of natural gas together with associated liquids would
be approximately 210 million BOE. Woodside Petroleum is the operator for the
project.

     Under the terms of this agreement, we would also acquire a 25% interest
in the China LNG Joint Venture, which is being established by the six current
partners to supply liquefied natural gas from the North West Shelf Gas Project
to a liquefied natural gas terminal currently being developed by CNOOC, our
controlling shareholder, and various partners in Guangdong Province, China.
The terms of this transaction require us to pay the other partners in the
North West Shelf Gas Project for gas production and processing services
provided over the term of the China LNG Joint Venture. We expect to complete
our acquisition of the interests in the North West Shelf Gas Project and China
LNG Joint Venture in 2003. See "Item 4--Information on the Company--Business
Overview--Natural Gas Business--Overseas Activity."

     To the extent we invest in businesses and geographic areas where we have
limited experience and expertise, we plan to structure our investments as
alliances and partnerships with parties possessing the relevant experience and
expertise.

Sales and Marketing

   Sales of Offshore Crude Oil

     We sell crude oil and natural gas to the PRC market through our wholly
owned PRC subsidiary, CNOOC China Limited, and sell to the international
market through our wholly owned subsidiary, China Offshore Oil (Singapore)
International Pte. Ltd., located in Singapore.

     We submit production and sales plans to the State Economic and Trade
Commission each year. Based on information provided by China's three crude oil
producers, PetroChina, Sinopec and us, the State Development and Planning
Commission compiles an overall national plan for coordinating sales. We have
been allowed to determine where we sell our production, both domestically and
internationally. Our sales of crude oil to the international market also
require us to obtain export licenses issued by the Ministry of Foreign Trade
and Economic Cooperation. Historically, we have obtained all required export
licenses.

   Pricing

     We price our crude oil with reference to prices for crude oil of
comparable quality in the international market, including a premium or
discount mutually agreed upon by us and our customers according to market
conditions at the time of the sale. Prices are quoted in U.S. dollars, but
domestic sales are billed and paid in Renminbi.



                                      57


<PAGE>


     We currently produce three types of crude oil: Nanhai Light, Medium Grade
and Heavy Crude. The table below sets forth the sales and marketing volumes,
pricing benchmarks and average realized prices for each of these three types
of crude oil for the periods indicated.

<TABLE>
<CAPTION>

                                                                        Year ended December 31,
                                                  ---------------------------------------------------------------------
                                                      2000                         2001                         2002
                                                  ------------                 ------------                 -----------
Sales and Marketing Volumes (benchmark)
     (mmbbls)(1)
<S>                                                   <C>                          <C>                           <C>
Nanhai Light (APPI(2) Tapis(3))................       39.1                         32.2                          26.4
Medium Grade (Daqing OSP(4))...................       58.3                         57.1                          64.7
Heavy Crude (APPI(2) Duri(5))..................       25.4                         37.4                          52.7

Average Realized Prices (US$/bbl)(6)
Nanhai Light...................................    US$29.49                     US$24.96                      US$24.79
Medium Grade...................................       28.98                        24.16                         25.92
Heavy Crude....................................       26.53                        21.01                         22.79

Benchmark Prices (US$/bbl)
APPI(2) Tapis(3) ..............................    US$29.53                     US$24.99                      US$25.49
Daqing OSP(4) .................................       28.53                        23.92                         24.95
APPI(2) Duri(5) ...............................       26.39                        21.26                         21.94
ICP(7) Cinta(8)................................         --                            --                         24.08
ICP Widuri(9)..................................         --                            --                         24.08

West Texas Intermediate (US$/bbl)..............    US$30.35                     US$25.89                      US$26.16

</TABLE>

----------
(1)  Includes the sales volumes of us and our foreign partners under
     production sharing contracts.
(2)  Asia petroleum price index.
(3)  Tapis is a light crude oil produced in Malaysia.
(4)  Daqing official selling price. Daqing is a medium crude oil produced in
     northeast China.
(5)  Duri is a heavy crude oil produced in Indonesia.
(6)  Includes the average realized prices of us and our foreign partners under
     production sharing contracts.
(7)  Indonesian crude price.
(8)  Cinta is a medium crude oil produced in Indonesia and was not a relevant
     benchmark for our crude oil sales prior to the acquisition of the
     Indonesian subsidiaries in 2002.
(9)  Widuri is a medium crude oil produced in Indonesia and was not a relevant
     benchmark for our crude oil sales prior to the acquisition of the
     Indonesian subsidiaries in 2002.

     The international benchmark crude oil price, West Texas Intermediate, was
US$31.21 per barrel as of December 31, 2002 and US$27.72 per barrel as of May
9, 2003.

     Markets and Customers

     We sell most of our crude oil production in the PRC domestic market. We
also sell to customers in South Korea, Japan, the United States and Australia,
as well as to crude oil traders in the spot market. For the years ended
December 31, 2000, 2001 and 2002, we sold approximately 67.0%, 79.9% and
85.1%, respectively, of our crude oil in the PRC, and exported approximately
33.0%, 20.1% and 14.9%, respectively.

     Most of our crude oil production sales in the PRC domestic market are to
refineries and petrochemical companies that are affiliates of Sinopec,
PetroChina and CNOOC, our controlling shareholder. Sales volume to Sinopec has
been high historically because most of the PRC refineries and petrochemical
companies were affiliates of Sinopec. After the restructuring of the PRC
petroleum industry in July 1998, some refineries and petrochemical companies
were transferred to PetroChina from Sinopec. As a result, sales to Sinopec
decreased and sales to PetroChina increased. For the years ended December 31,
2000, 2001 and 2002, sales to Sinopec were approximately 52.8%, 52.7% and
44.7%, respectively, and sales to PetroChina were approximately 12.6%, 13.8%
and 7.7%, respectively, of total crude oil sales in the PRC domestic market.
Together these two customers accounted for approximately 65.4%, 66.5% and
52.4%, respectively, of the total crude oil sales in the PRC domestic market.
For further information about our sales to CNOOC-affiliated companies, please
see note 27 to our consolidated financial statements attached to this annual
report.



                                      58


<PAGE>


     In recent years, we have diversified our domestic client base by
targeting companies not affiliated with Sinopec or PetroChina. These targeted
companies typically are involved in bitumen processing, fuel blending and
mixing, power generation and production of fertilizer feed stocks. We plan to
continue our efforts to diversify our client base.

     The following table presents, for the periods indicated, our revenues
sourced in the PRC and outside the PRC:

<TABLE>
<CAPTION>

                                                                       Year ended December 31,
                                                 -------------------------------------------------------------------
                                                   2000                          2001                        2002
                                                 ----------                    -------                     ---------
                                                               (Rmb in millions, except percentages)
<S>                                               <C>                           <C>                          <C>
Revenues sourced in the PRC................       17,559                        18,105                       22,781
Revenues sourced outside the PRC...........        6,665                         2,715                        3,593
                                                 ----------                    -------                     ---------
Total revenues.............................       24,224                        20,820                       26,374
                                                 ==========                    =======                     =========
% of revenues sourced outside the PRC......           27.5%                         13.0%                        13.6%
</TABLE>


     Sales Contracts

     We sign sales contracts with customers for each shipment. Sales contracts
are standard form contracts containing ordinary commercial terms such as
quality, quantity, price, delivery and payment. All sales are made on
free-on-board terms. PRC customers are required to make payments within 30
days after the shipper takes possession of the crude oil cargo at our delivery
points. During the years ended December 31, 2000, 2001 and 2002, the accounts
receivable turnover were approximately 39.5 days, 32.3 days and 32.7 days,
respectively. Doubtful accounts provision during the years ended December 31,
2000, 2001 and 2002 were Rmb 15.7 million, Rmb 10.7 million and nil,
respectively.

     We have a credit control policy, including credit investigation of
customers and periodic assessment of credit terms. Sales clerks are directly
responsible for liaising with customers on the collection of receivables
within the credit terms.

     We price our crude oil in U.S. dollars. PRC customers are billed and make
actual payments in Renminbi based on the exchange rate prevailing at the bill
of lading date, while overseas customers are billed and are required to make
payments in U.S. dollars within 30 days of the bill of lading date.

     Sales of Natural Gas from Offshore China

     Driven by environmental and efficiency concerns, the PRC government is
increasingly encouraging residential and industrial use of natural gas to meet
primary energy needs. In 1989, in order to encourage natural gas production,
the PRC government adopted a favorable royalty treatment, which provides a
royalty exemption for natural gas production up to two billion cubic meters
(70.6 billion cubic feet or 11.8 million BOE) per year as compared to a
royalty exemption available for crude oil production of up to one million tons
or approximately seven million BOE per year. The favorable treatment also
includes lower royalty rates on incremental increases in natural gas
production as compared with the royalty rates for crude oil production.

     Since 1989, the PRC government has adopted the following sliding scale of
royalty payments of up to 3% of the annual gross production of natural gas:

Annual gross production                               Royalty rate
-----------------------                               ------------
Less than 2 billion cubic meters........                  0.0%
2-3.5 billion cubic meters..............                  1.0%
3.5-5 billion cubic meters..............                  2.0%
Above 5 billion cubic meters............                  3.0%

     We sell a large portion of our offshore China natural gas production in
Hong Kong. The remaining offshore China natural gas production is sold to
customers in mainland China. Of the 73.6 billion cubic feet of natural gas
that we produced offshore China in the year ended December 31, 2002, 50.3
billion cubic feet was produced from the Yacheng 13-1 gas field in the Western
South China Sea. This field is governed by a



                                      59


<PAGE>


production sharing contract we entered into with BP and Kufpec. We hold a 51%
participating interest in this field. In December 1992, Castle Peak Power in
Hong Kong signed a long-term gas supply contract under which it agreed to buy
from the partners approximately 102.4 billion cubic feet of natural gas per
year on a take-or-pay basis until 2015. Gas prices are quoted and paid in U.S.
dollars. The payments are made in U.S. dollars on a monthly basis and are
reconciled annually. Castle Peak Power purchased approximately 62.3% of our
total offshore China natural gas production for the year ended December 31,
2002. Castle Peak Power is a 60/40 joint venture between ExxonMobil Energy
Limited and CLP Power Hong Kong Limited, a public utility company in Hong
Kong. The remaining 37.7% of our total offshore China natural gas production
in the year ended December 31, 2002 was sold to PRC customers, including
Hainan Fertilizer, Hainan Power, Shanghai Gas, Jingxi Chemical, Xinao Gas,
Tianjin Binhai Power and Tianjin Binhai Gas.

     The price of gas sold to the PRC market is determined by negotiations
between us and the buyers based on market conditions. Contracts typically
consist of a base price with provisions for annual resets and adjustment
formulas which depend on a basket of crude prices, inflation and various other
factors.

Procurement of Services

     We usually outsource work in connection with the acquisition and
processing of seismic data, reservoir studies, well drilling services, wire
logging and perforating services and well control and completion service to
independent third parties or our CNOOC affiliates.

     In the development stage, we normally employ independent third parties
for mooring and oil tanker transportation services and both independent third
parties and CNOOC affiliates for other services by entering into contracts
with them. We conduct a bidding process to determine who we employ to
construct platforms, terminals and pipelines, to drill production wells and to
transport offshore production facilities. Both independent third parties and
CNOOC affiliates participate in the bidding process. We are closely involved
in the design and management of services by contractors and exercise extensive
control over their performance, including their costs, schedule and quality.

Competition

   Domestic Competition

     The petroleum industry is highly competitive. We compete in the PRC and
in international markets for both customers and capital to finance our
exploration, development and production activities. Our principal competitors
in the PRC market are PetroChina and Sinopec.

     We price our crude oil on the basis of comparable crude oil prices in the
international market. The majority of our customers for crude oil are
refineries affiliated with Sinopec and PetroChina to which we have been
selling crude oil, from time to time, since 1982. Based on our dealings with
these refineries, we believe that we have established a stable business
relationship with them. In 1998, the PRC government restructured PetroChina
and Sinopec into vertically integrated companies with each having both
upstream and downstream petroleum businesses and operations.

     We are the dominant player in the oil and gas industry offshore China and
are the only company authorized to engage in oil and gas exploration and
production offshore China in cooperation with foreign parties. We may face
increased competition in the future from other petroleum companies in
obtaining new PRC offshore oil and gas properties, or, as a result of changes
in current PRC laws or regulations permitting an expansion of existing
companies' activities or new entrants into the industry.

     As part of our business strategy, we intend to expand our natural gas
business to meet rapidly increasing domestic demand. Our competitors in the
PRC natural gas market are PetroChina and, to a lesser extent, Sinopec. Our
principal competitor, PetroChina, is the largest supplier of natural gas in
China in terms of volume of natural gas supplied. PetroChina's natural gas
business benefits from strong market positions in Beijing, Tianjin, Hebei
Province and northern China. We intend to develop related natural gas
businesses in China's coastal provinces, where we may face competition from
PetroChina and, to a lesser extent, Sinopec. We believe that our extensive
natural gas resources base, the proximity of these resources to the markets in
China, our relatively advanced technologies and our experienced management
team will enable us to compete effectively in the domestic natural gas market.



                                      60


<PAGE>


   Foreign Competition and the World Trade Organization

     Imports of crude oil are subject to tariffs, import quotas, handling fees
and other restrictions. The PRC government also restricts the availability of
foreign exchange with which the imports must be purchased. The combination of
tariffs, quotas and restrictions on foreign exchange has, to some extent,
limited the competition from imported crude oil.

     In line with the general progress of its economic reform programs, the
PRC government has agreed to reduce import barriers as part of its WTO
commitments. As a result of China joining the World Trade Organization as a
full member on December 11, 2001, it is required to further reduce its import
tariffs and other trade barriers over time, including with respect to certain
categories of petroleum and crude oil. All import quotas and licenses for
processed oil are expected to be eliminated by 2004. Notwithstanding China's
WTO related concessions, crude and processed oil remain, for the time being,
subject to restrictions on import rights and only certain designated
state-owned enterprises may import crude and processed oil. Sinopec and
PetroChina have received permission to import crude oil on their own. At
present, there is no timetable for allowing foreign owned or foreign invested
entities to import crude or processed oil into the PRC.

     The PRC government recently underwent substantial reform. No assurance
can be given that the reorganization will not have a significant effect on the
implementation of China's WTO commitments.

PRC Fiscal Regimes for Offshore Crude Oil and Natural Gas Activities

     We conduct exploration and production operations either independently or
jointly with foreign partners under our production sharing contracts. The PRC
government has established different fiscal regimes for crude oil and natural
gas production from our independent operations and from our production sharing
contracts.

     Royalties paid to the PRC government are based on our gross production
from both independent operations and oil and gas fields under production
sharing contracts. The amount of the royalties varies up to 12.5% based on the
annual production of the relevant property. The PRC government has provided
companies such as ours with a royalty exemption for up to one million tons, or
seven million BOE per year, for our crude oil production and for up to 70.6
billion cubic feet, or 11.8 million BOE per year, for our natural gas
production. The limits in these exemptions apply to our total production from
both independent properties and properties under production sharing contracts.
In addition, we pay production taxes to the PRC government equal to 5% of our
crude oil and gas produced independently and 5% of our crude oil and gas
produced under production sharing contracts.

     Under our production sharing contracts, production of crude oil and gas
is allocated among us, the foreign partners and the PRC government according
to a formula contained in the contracts. Under this formula, a percentage of
production under our production sharing contracts is allocated to the PRC
government as its share oil. For more information about the allocation of
production under the production sharing contracts, see "--Production Sharing
Contracts--Offshore China--Production Sharing Formula."

     The PRC government recently underwent substantial reform. No assurance
can be given that the fiscal regime outlined above will not change
significantly in the future.

Production Sharing Contracts

   Offshore China

     When exploration and production operations offshore China are conducted
through a production sharing contract, the operator of the oil or gas field
must submit a detailed evaluation report and an overall development plan to
CNOOC upon discovery of petroleum reserves. The overall development plan must
also be submitted to a joint management committee established under the
production sharing contract. After CNOOC confirms the overall development
plan, CNOOC submits it to the State Development and Planning Commission for
approval. After receiving the governmental approval, the parties to the
production sharing contract may begin the commercial development of the
petroleum field.

     As part of the reorganization in 1999, CNOOC transferred all of its
economic interests and obligations under its existing production sharing
contracts to us and our subsidiaries. As of December 31,



                                      61


<PAGE>


2002, we had 22 production sharing contracts in the production and development
stage, and 11 contracts in the exploration stage.

     Under PRC law, the negotiation of a production sharing contract is a
function that only a state-owned national company, such as CNOOC, may perform.
This function cannot be transferred to us because we are a pure commercial
entity. Since the reorganization, under the terms of its undertaking with us,
CNOOC, after entering into production sharing contracts with international oil
and gas companies, is required to assign immediately to us all of its economic
interests and obligations under the production sharing contracts. For further
details, see "Item 4--Information on the Company--History and Development" and
"Item 7--Major Shareholders and Related Party Transactions--Related Party
Transactions."

     New production sharing contracts are entered into between CNOOC and
foreign partners primarily through bidding organized by CNOOC and, to a lesser
extent, through direct negotiation.

     Bidding Process

     The bidding process typically involves the following steps:

     o    CNOOC, with the approvals of the PRC government, determines which
          blocks are open for bidding and prepares geological information
          packages and bidding documentation for these blocks;

     o    CNOOC invites foreign enterprises to bid;

     o    potential bidders are required to provide information, including
          estimates of minimum work commitments, exploration costs and
          percentage of share oil payable to the PRC government; and

     o    CNOOC evaluates each bid and negotiates a production sharing
          contract with the successful bidder.

     Under CNOOC's undertaking with us, we may participate with CNOOC in all
negotiations of new production sharing contracts.

     The term of a production sharing contract typically lasts for less than
30 years and has three distinct phases:

     o    Exploration. The exploration period generally lasts for seven
          consecutive years depending on the size of the contract area, and
          may be extended with the consent of CNOOC. During this period,
          exploratory and appraisal work on the exploration block is conducted
          in order to discover petroleum and to enable the parties to
          determine the commercial viability of any petroleum discovery.

     o    Development. The development period begins on the date that the
          overall development plan, which outlines the recoverable reserves
          and schedule for developing the discovered petroleum reserves, is
          approved by the relevant PRC regulatory authorities. The development
          phase ends when the design, construction, installation, drilling and
          related research work for the realization of petroleum production
          have been completed.

     o    Production. The production period begins when commercial operations
          start and usually lasts for 15 years. The production period may be
          extended upon approval of the PRC government.

     Minimum Work Commitment

     Under production sharing contracts that involve exploration activities,
the foreign partners must complete a minimum amount of work during the
exploration period, generally including:

     o    drilling a minimum number of exploration wells;

     o    producing a fixed amount of seismic data; and



                                      62


<PAGE>


     o    incurring a minimum amount of exploration expenditures.

     Foreign partners are required to bear all exploration costs during the
exploration period. However, such exploration costs can be recovered according
to the production sharing formula after commercial discoveries are made and
production begins. During the exploration period, foreign partners are
required to return 25% of the contract area, excluding the development and
production area, to CNOOC at the end of each of the third year and fifth year
of the exploration period. At the end of the exploration period, all areas,
excluding the development areas, production areas and areas under evaluation,
must be returned to CNOOC.

     Participating Interests

     Under production sharing contracts, CNOOC has the right to take up to a
51% participating interest in any oil or gas field discovered in the contract
area and may exercise this right after the foreign partners have made
commercially viable discoveries. The foreign partners retain the remaining
participating interests.

     Production Sharing Formula

     A chart illustrating the production sharing formula under our production
sharing contracts is shown below.


<TABLE>
<CAPTION>

Percentage of
annual gross
Production                         Allocation
-------------                      ------------------------------------------------
<S>                                <C>
5.0%                               Production tax payable to the PRC government

0.0%-- 12.5% (1)                   Royalty oil payable to the PRC government

50.0%-- 62.5% (1)                  Cost recovery oil allocated according to the following priority:

                                      o  recovery of current year operating
                                         costs by us and foreign partner(s);

                                      o  recovery of earlier exploration costs
                                         by foreign partner(s);

                                      o  recovery of development costs by us
                                         and foreign partner(s) based on
                                         participating interests;(3) and

                                      o  any excess, distributed according to
                                         each partner's participating
                                         interest.(3)

32.5% (2)                          Remainder oil allocated according to the following formula:

                                      o  (1-X) multiplied by 32.5% represents
                                         share oil payable to the PRC
                                         government; and

                                      o  X multiplied by 32.5% represents
                                         remainder oil distributed according
                                         to each partner's participating
                                         interest.(3)
</TABLE>

----------
(1)   Assumes annual gross production of more than four million metric tons,
      approximately 30 million barrels of oil. For lower amounts of
      production, the royalty rate will be lower and the cost recovery will be
      greater than 50.0% by the amount that the royalty rate is less than
      12.5%.
(2)   The ratio "X" is agreed in each production sharing contract based on
      commercial considerations and ranges from 8% to 100%.
(3)   See "--Principal Oil and Gas Regions" for our participating interest
      percentage in each production sharing contract.



                                      63


<PAGE>


     The first 5.0% of the annual gross production is paid to the PRC
government as production tax. The PRC government is also entitled to a royalty
payment equal to the next 0% - 12.5% of the annual gross production based on
the following sliding scale:

Annual gross production of oil (1)               Royalty rate
-------------------------------------------      ------------
Less than 1 million tons...................          0.0%
1-1.5 million tons.........................          4.0%
1.5-2.0 million tons.......................          6.0%
2.0-3.0 million tons.......................          8.0%
3.0-4.0 million tons.......................         10.0%
Above 4 million tons.......................         12.5%
----------
(1) The sliding scale royalty for natural gas reaches a maximum at 3.0%.

     Depending on the percentage of the PRC government's royalty payment, an
amount equal to the next 50.0% to 62.5% of the annual gross production is
allocated to the partners for cost recovery purposes. This amount is allocated
according to the following priority schedule:

     o    recovery of operating costs incurred by the partners during the
          year;

     o    recovery of exploration costs, excluding interest accrued thereon,
          incurred but not yet recovered by foreign partners during the
          exploration period; and

     o    recovery of development investments incurred but not yet recovered,
          and interest accrued in the current year, according to each
          partner's participating interest.

     The remaining 32.5% of the annual gross production, which is referred to
as the remainder oil, is distributed to each of the PRC government, us and the
foreign partners according to a "ratio X" agreed to by CNOOC and the foreign
partners in the production sharing contract. An amount of oil and gas equal to
the product of the remainder oil and one minus the "ratio X" is first
distributed to the PRC government as share oil. The balance of the remainder
oil, which is referred to as the allocable remainder oil, is then distributed
to us and the foreign partners based on each party's participating interest.

     We pay an estimated production tax and royalty to the PRC government each
time we ship crude oil production, or on a monthly basis for natural gas
production. At the end of each annual period, we calculate the production tax
and royalty payable for the year and file this information with the PRC tax
bureau. We make adjustments for any overpayment or underpayment of production
tax and royalty at the end of the year.

     The foreign partners have the right to either take possession of their
crude oil for sale in the international market, or sell such crude oil to us
for resale in the PRC market.

     Management and Operator

     Under each production sharing contract, a party will be designated as an
operator to undertake the execution of the production sharing contract which
includes:

     o    preparing work programs and budgets;

     o    procuring equipment and materials relating to operations;

     o    establishing insurance programs; and

     o    issuing cash-call notices to the parties to the production sharing
          contract to raise funds.



                                      64


<PAGE>


     A joint management committee, which usually consists of six or eight
persons, is set up under each production sharing contract to perform
supervisory functions, and each of us and the foreign partners as a group has
the right to appoint an equal number of representatives to form the joint
management committee. The chairman of the joint management committee is the
chief representative designated by us and the vice chairman is the chief
representative designated by the foreign partners as a group. The joint
management committee has the authority to make decisions on matters including:

     o    reviewing and approving operational and budgetary plans;

     o    determining the commercial viability of each petroleum discovery;

     o    reviewing and adopting the overall development plan; and

     o    approving significant procurements and expenditures, and insurance
          coverage.

     Daily operations of a property subject to the respective production
sharing contract are carried out by the designated operator. The operator is
typically responsible for determining and executing operational and budgetary
plans and all routine operational matters. Upon discovery of petroleum
reserves, the operator is required to submit a detailed overall development
plan to the joint management committee.

     After the foreign partner has fully recovered its exploration and
development costs under production sharing contracts in which the foreign
partner is the operator, we have the exclusive right to take over the
operation of the particular oil or gas field. With the consent of the foreign
partner, we may also take over the operation before the foreign partner has
fully recovered its exploration and development costs.

     Ownership of Data and Assets

     All data, records, samples, vouchers and other original information
obtained by foreign partners in the process of exploring, developing and
producing offshore petroleum become the property of CNOOC as a state-owned
national oil company under PRC law. Through CNOOC, we have unlimited and
unrestricted access to the data.

     Our foreign partners and us have joint ownership in all of the assets
purchased, installed or constructed under the production sharing contract
until either:

     o the foreign partners have fully recovered their development costs, or

     o upon the expiration of the production sharing contract.

     After that, as a state-owned national oil company under PRC law, CNOOC
will assume ownership of all of the assets under the production sharing
contracts, our foreign partners and us retain the exclusive right to use the
assets during the production period.

     Abandonment Costs

     Any party to our production sharing contracts must give prior written
notice to the other party or parties if it plans to abandon production of the
oil or gas field within the contracted area. If the other party or parties
agrees to abandon production from the oil or gas field, all parties pay
abandonment costs in proportion to their respective percentage of
participating interests in the field. If we decide not to abandon production
upon notice from a foreign partner, all of such foreign partner's rights and
obligations under the production sharing contract in respect of the oil or gas
field, including the responsibilities for payment of abandonment costs,
terminate automatically. We bear the abandonment costs if we decide to abandon
production after an initial decision to proceed with production. In 2002, we
incurred abandonment costs of approximately Rmb 204.0 million.

     Production Tax

     The PRC production tax rate on the oil and natural gas produced under
production sharing contracts is currently 5%.



                                      65


<PAGE>


     Overseas

     In addition to our production sharing arrangements in the PRC, we also
have interests in production sharing contracts and a technical assistance
contract in Indonesia, including interests in the Malacca Strait, interests
from an acquisition we completed in April 2002 and interests in the Tangguh
LNG project we acquired in January 2003.

     Indonesian oil and gas activities are currently governed by Pertamina,
the Indonesian state-owned oil and gas company founded in 1968. Under
Indonesian law, Pertamina is currently the sole entity authorized to manage
Indonesia's oil and gas resources on behalf of the Indonesian government and
is empowered to enter into agreements with foreign and domestic companies.
Pertamina is expected to become a limited liability company in 2003 pursuant
to legislation enacted in 2001.

     Pertamina enters into production sharing arrangements with private energy
companies whereby such companies explore and develop oil and gas in specified
areas in exchange for a percentage interest in the production from the fields
in the applicable production sharing area. These production sharing
arrangements are mainly governed by production sharing contracts, as well as
by technical assistance contracts, each of which is described further below.
Upon entering into a production sharing arrangement, the operator commits to
spending a specified sum of capital to implement an agreed work program.

     Production sharing arrangements in Indonesia are based on the following
principles:

     o    contractors are responsible for all investments (exploration,
          development and production);

     o    a contractor's investment and production costs are recovered against
          production;

     o    the profit split between the Indonesian government and contractors
          is based on production after the cost recovery portion;

     o    ownership of tangible assets remains with the Indonesian government;
          and

     o    overall management control lies with Pertamina on behalf of the
          Indonesian government.

     An original production sharing contract is awarded to explore for and to
establish commercial hydrocarbon reserves in a specified area prior to
commercial production. The contract is awarded for a number of years depending
on the contract terms, subject to discovery of commercial quantities of oil
and gas within a certain period. The term of the exploration period can
generally be extended by agreement between the contractor and Pertamina. The
contractor is generally required to relinquish specified percentages of the
contract area by specified dates unless such designated areas correspond to
the surface area of any field in which oil and gas has been discovered.

     Pertamina is typically responsible for managing all production sharing
contract operations, assuming and discharging the contractor from all taxes
(other than Indonesian corporate taxes, taxes on interest, dividends and
royalties and others as set forth in the production sharing contract),
obtaining approvals and permits needed by the project and approving the
contractor's work program and budget. The responsibilities of a contractor
under a production sharing contract generally include advancing necessary
funds, furnishing technical aid and preparing and executing the work program
and budget. In return, the contractor may freely lift, dispose of and export
its share of crude oil and retain the proceeds obtained from its share.

     The contractor generally has the right to recover all finding and
developing costs, as well as operating costs, in each production sharing
contract against available revenues generated after deduction of first tranche
oil and gas, or FTP. Under FTP terms, the parties are entitled to take and
receive an annually agreed percentage of production from each production zone
or formation each year, prior to any deduction for recovery of operating
costs, investment credits and handling of production. FTP for each year is
generally shared between the Indonesian government and the contractor in
accordance with the standard sharing splits. The balance is available for cost
recovery. Post-cost recovery, the Indonesian government is entitled to a
specified profit share of crude oil production and of natural gas production.
Under each production sharing arrangement, the contractor is obligated to pay
Indonesian corporate taxes on its specified profit share at the Indonesian
corporate tax rate in effect at the time the agreement is executed.



                                      66


<PAGE>


     Production sharing contracts in Indonesia have long included a provision
known as the domestic market obligation, or DMO, under which a contractor must
sell a specified percentage of its crude oil to the local market at a reduced
price. After the first five years of a field's production, the contractor is
required to supply, the lesser of (i) 25% of the contractor's before-tax share
of total crude oil production or (ii) the contractor's share of profit oil.
This reduced price varies from contract to contract and is calculated at the
point of export.

     The new Oil and Gas Law, which came into force on November 23, 2001,
stipulates a gas DMO, under which the contractor must sell up to 25% of its
gas entitlement to the domestic market, although it is not clear at what price
this gas must be sold. Production sharing contract parties have stated that
they would prefer that this price be determined on the open market, and that
it be recognized that if there are pre-existing gas sale agreements, or if the
project produces LNG for export, the obligation to sell gas into the local
market may not be feasible.

     Technical assistance contracts are awarded when a field has prior or
existing production. The oil or gas production is divided into non-shareable
and shareable portions. The non-shareable portion represents the expected
production from the field at the time the technical assistance contract is
signed and is retained by Pertamina. The shareable portion represents the
additional production resulting from the operator's investment in the field
and is split in the same way as for an original production sharing contract as
described above.

Geophysical Survey Agreements

     Historically, we conducted our exploration operations through geophysical
survey agreements with leading international oil and gas companies as well as
independently and through production sharing contracts. As of December 31,
2002, we were not a party to any geophysical survey agreements, but may enter
such agreements in the future.

     Geophysical survey agreements are designed for foreign petroleum
companies to conduct certain geophysical exploration before they decide
whether to enter into production sharing contract negotiations with CNOOC.
Geophysical survey agreements usually have a term of less than two years.
International oil and gas companies must complete all of the work confirmed by
both parties in the agreements and bear all the costs and expenses. If a
foreign partner decides to enter into a production sharing contract with
CNOOC, the costs and expenses that the foreign partner incurs in conducting
geophysical survey may be recovered by the foreign partner in the production
period subject to our confirmation. CNOOC has the sole ownership of all data
and information obtained by the foreign partner during the geophysical survey,
and, through CNOOC, we have access to all such data.

     Under PRC law, the negotiation of a geophysical survey agreement is a
function that only a state-owned national company, such as CNOOC, can perform.
As part of its reorganization in 1999, CNOOC transferred to us all its
commercial rights under a geophysical survey agreement, which has since been
completed. In the future, CNOOC has agreed to assign to us all of its
commercial rights under any geophysical survey agreements it enters into with
international oil and gas companies.

Operating Hazards and Uninsured Risks

     Our operations are subject to hazards and risks inherent in the drilling,
production and transportation of crude oil and natural gas, including pipeline
ruptures and spills, fires, explosions, encountering formations with abnormal
pressures, blowouts, cratering and natural disasters, any of which can result
in loss of hydrocarbons, environmental pollution and other damage to our
properties and the properties of operators under production sharing contracts.
In addition, certain of our crude oil and natural gas operations are located
in areas that are subject to tropical weather disturbances, some of which can
be severe enough to cause substantial damage to facilities and interrupt
production.

            As protection against operating hazards, we maintain insurance
coverage against some, but not all, potential losses, including the loss of
wells, blowouts, pipeline leakage or other damage, certain costs of pollution
control and physical damages on certain assets. Our insurance coverage
includes oil and gas field properties and construction insurance, marine hull
insurance, protection and indemnity insurance, drilling equipment insurance,
marine cargo insurance and third party and comprehensive general liability
insurance. We also carry business interruption insurance for Pinghu Field. In
Indonesia, the operators of the production sharing contracts in which we
participate are required by local law to purchase insurance policies
customarily



                                      67
<PAGE>


taken out by international petroleum companies. As of December 31, 2002, we
maintained approximately Rmb 34 billion in insurance coverage and paid an
annual insurance premium of approximately Rmb 243 million to maintain that
coverage. We believe that our level of insurance is adequate and customary for
the PRC petroleum industry and international practices. However, we may not
have sufficient coverage for some of the risks we face, either because
insurance is not available or because of high premium costs. See "Item 3--Key
Information--Risk Factors--Risks relating to our business--Exploration,
development and production risks and natural disasters affect our operations
and could result in losses that are not covered by insurance."

     For the year ended December 31, 2002, the amount of our total losses not
covered by insurance was approximately Rmb 107 million.

Research and Development

     During each of the three years ended December 31, 2000, 2001 and 2002, we
used research and development services provided by CNOOC-affiliates, including
China Offshore Oil Research Center, as well as other international entities.
We are developing more efficient and effective approaches to explore for new
reserves. Our research efforts have focused on:

     o    advanced resolution enhancement technology;

     o    building up exploration and development data bases to improve the
          efficiency of our research efforts; and

     o    consolidating multi-discipline data to optimize the selection of
          exploration sites.

     We are also studying various ways of utilizing our existing reserves
including:

     o    building more accurate reservoir models;

     o    re-processing existing seismic and log data to locate potential
          areas near existing fields to be integrated into existing production
          facilities; and

     o    researching ways to reduce development risks for marginal fields and
          to group fields into joint developments to share common facilities.

     During the three years ended December 31, 2000, 2001 and 2002, we spent
approximately Rmb 104 million, Rmb 109 million and Rmb 110 million,
respectively, on general research and development activities.

     For further information regarding our agreement with the China Offshore
Oil Research Center, see "Item 7--Major Shareholders and Related Party
Transactions--Related Party Transactions--Categories of Connected
Transactions--Research and development services."

Regulatory Framework

   Government Control

     The PRC government owns all of China's petroleum resources and exercises
regulatory control over petroleum exploration and production activities in
China. Prior to March 2003, we were required to obtain various governmental
approvals, including those from the Ministry of Land and Resources, the State
Administration for Environmental Protection, the State Development and
Planning Commission and the Ministry of Foreign Trade and Economic Cooperation
before we were permitted to conduct production activities. For joint
exploration and production with foreign enterprises, we were required to
obtain various governmental approvals, through CNOOC, including those from:

     o    the Ministry of Land and Resources, for a permit for exploration
          blocks, an approval of a geological reserve report submitted through
          CNOOC and an exploration permit for the approved blocks;

     o    the Ministry of Land and Resources or the State Development and
          Planning Commission to designate such blocks as an area for foreign
          cooperation;



                                      68


<PAGE>


     o    the Ministry of Foreign Trade and Economic Cooperation for the
          production sharing contracts between CNOOC and the foreign
          enterprises;

     o    the State Administration for Environmental Protection for an
          environmental impact report submitted through CNOOC;

     o    the State Development and Planning Commission for an overall
          development plan submitted through CNOOC; and

     o    the Ministry of Land and Resources, for an extraction permit.

     Although our sales were coordinated by the State Development and Planning
Commission, historically we have been given flexibility to sell our crude oil
based on the international spot price and to determine where we sell our crude
oil.

     Since the conclusion of the meeting of the National People's Congress in
March 2003, the PRC government has undergone substantial reform. The State
Development and Planning Commission has been replaced by the State Development
and Reform Commission. The latter's mission is to propose economic and social
development policy and provide guidance to the various government ministries
on reform of the overall economic structure. The State Economic and Trade
Commission and the Ministry of Foreign Trade and Economic Cooperation have
been replaced by the Ministry of Commerce, whose functions include regulating
the domestic market, attracting foreign investment, and providing assistance
to domestic companies competing overseas. The newly formed State Asset
Commission is expected to exercise certain functions formerly held by the
State Economic and Trade Commission. The functions of these new administrative
bodies remain unclear, but it is believed that market-oriented reforms will
continue.

   Special Policies Applicable to the Offshore Petroleum Industry in China

     Since the early 1980s, the PRC government has adopted policies and
measures to encourage the development of the offshore petroleum industry.
These policies and measures, which were applicable to CNOOC's operations prior
to the reorganization, became applicable to our operations in accordance with
an undertaking agreement between us and CNOOC. As approved by the relevant PRC
government authorities, including the Ministry of Land and Resources and the
Ministry of Foreign Trade and Economic Cooperation, these policies and
measures have provided us with the following benefits:

     o    the exclusive right to explore for, develop and produce petroleum
          offshore China in cooperation with international oil and gas
          companies and to sell this petroleum in China;

     o    the flexibility to set our prices in accordance with international
          market prices and determine where to sell our crude oil, with only
          minimal supervision from the PRC government;

     o    a favorable 5% production tax on the crude oil and natural gas we
          produce both independently and under production sharing contracts,
          rather than the 17% rate generally applicable to the independent
          production of domestic petroleum companies in China; and

     o    production from one of our major gas fields, Yacheng 13-1, is exempt
          from the PRC royalties under an approval by the State Tax Bureau in
          May 1989 and the 5% production tax applicable to the oil and gas
          produced under other production sharing contracts in accordance with
          an approval by the Ministry of Finance in August 1985. Our natural
          gas revenues from Yacheng 13-1 for the six years ended December 31,
          1997, 1998, 1999, 2000, 2001 and 2002 represented approximately
          8.7%, 12.5%, 10.4%, 6.7%, 7.3% and 5.6%, respectively, of our total
          oil and natural gas sales in those years.

     Although we historically have benefited from the foregoing special
policies, we cannot assure you that such policies will continue in the future.
We are also regulated by the PRC government in various other aspects of our
business and operations, including required government approvals for new
independent exploration and production projects and new production sharing
contracts. For a further discussion of ways in which we are regulated by the
PRC government, see "--Government Control."



                                      69


<PAGE>


   Policies Applicable to International Oil and Gas Companies Operating in
Offshore China

     The PRC government encourages foreign participation in offshore petroleum
exploration and production through exclusive cooperation with CNOOC. In 1982,
the State Council promulgated the Regulation of the People's Republic of China
on Exploitation of Offshore Petroleum Resources in Cooperation with Foreign
Enterprises, which grants to CNOOC the exclusive right to enter into joint
cooperation arrangements with foreign enterprises for offshore petroleum
exploration and production. From 1982 to 2000, CNOOC successfully completed
several rounds of bidding for offshore petroleum exploration and production
projects, and many international oil and gas companies have been involved and
awarded exploration blocks for joint exploration, development and production
with CNOOC.

     In October 2001, the State Council amended the regulation referred to
above as a part of the comprehensive review of all business laws and
regulations by the Chinese government to ensure their compliance with its WTO
commitments. The amendment revised such terms in the law governing offshore
exploration as restrictive provisions on technology transfers and domestic
components requirements in procurement. The removal of these restrictions will
provide a level playing field for all oilfield service contractors, domestic
or international. These amendments are expected to benefit CNOOC's businesses
as well as our exploration and production business and further increase
production sharing contract activities offshore China. CNOOC will continue to
enjoy the exclusive right to conduct production sharing contract activities
with foreign contractors and is entitled to all rights and privileges under
the previous regulation. The regulation also states that CNOOC, as a
state-owned enterprise, is to be in charge of all efforts to exploit petroleum
resources with contractors in Chinese waters. Currently, international oil and
gas companies can only undertake offshore petroleum exploration and production
activities in China after they have entered into a production sharing contract
with CNOOC.

   Environmental Regulation

     Our operations in China are required to comply with various PRC
environmental laws and regulations administered by the central and local
government environmental protection bureaus. We are also subject to the
environmental rules introduced by the local PRC governments in whose
jurisdictions our onshore logistical support facilities are located. The State
Environmental Protection Bureau sets national environmental protection
standards and local environmental protection bureaus may set stricter local
standards.

     The relevant environment protection bureau must approve or review each
stage of a project. We must file an environmental impact statement or, in some
cases, an environmental impact assessment outline before an approval can be
issued. The filing must demonstrate that the project conforms to applicable
environmental standards. The relevant environmental protection bureau
generally issues approvals and permits for projects using modern pollution
control measurement technology.

     The PRC national and local environmental laws and regulations impose fees
for the discharge of waste substances above prescribed levels, require the
payment of fines for serious violations and provide that the PRC national and
local governments may at their own discretion close or suspend any facility
which fails to comply with orders requiring it to cease or cure operations
causing environmental damage.

     For the three year period ended December 31, 2002, we experienced a total
of two incidents of crude oil discharge with a total volume of approximately
240 barrels being wrongfully discharged and spilled offshore, for which fines
in an aggregate amount of Rmb 31,900 (US$3,853) were imposed. None of the
incidents nor the aggregate amount of such fines had a material adverse effect
on our business or results of operations.

     The PRC environmental laws do not currently require offshore petroleum
developers to pay abandonment costs. Our financial statements include
provisions for costs associated with the dismantlement of oil and gas fields
during the years ended December 31, 2000, 2001 and 2002 of approximately Rmb
104 million, Rmb 90 million and Rmb 126 million, respectively.

     Environmental protection and prevention costs and expenses in connection
with the operation of offshore petroleum exploitation are covered under each
individual production sharing contract. Environmental protection and
prevention costs and expenses represented approximately 1.425% of our average
operating costs relating to projects constructed offshore China during the
three years ended December 31, 2002. Each platform has its own environmental
protection and safety staff responsible for monitoring and operating the



                                      70
<PAGE>


environmental protection equipment. However, no assurance can be given that
the PRC government will not impose new or stricter regulations which would
require additional environmental protection expenditures.

     We are not currently involved in any environmental claims and believes
that our environmental protection systems and facilities are adequate for us
to comply with applicable national and local environmental protection
regulations.

Legal Proceedings

     We are not a defendant in any material litigation, claim or arbitration,
and know of no pending or threatened proceeding which would have a material
adverse effect on our financial condition.

Patents and Trademarks

     We own or have licenses to use two trademarks which are of value in the
conduct of our business. CNOOC is the owner of the "CNOOC" trademark. Under
two non-exclusive license agreements between CNOOC and us, we have obtained
the right to use this trademark for a nominal consideration.

Real Properties

     Our corporate headquarters is located in Hong Kong. We also lease several
other properties from CNOOC in China and Singapore. The rental payments under
these lease agreements are determined with reference to market rates. For
further details regarding the terms of these leases, see "Item 7--Major
Shareholders and Related Party Transactions--Related Party
Transactions--Categories of Connected Transactions--Lease agreement in respect
of the Nanshan Terminal," and "--Lease and property management services."

     We own the following property interests in the PRC:

     o    land, various buildings and structures at Xingcheng JZ 20-2 Natural
          Gas Separating Plant, Dongyao Village, Shuangsu Township, Xingcheng
          City, Liaoning Province;

     o    land, various buildings and structures located at Boxi Processing
          Plant, South of Jintang Subway, Tanggu District, Tianjin City;

     o    land, various buildings and structures at Weizhou Terminal
          Processing Plant, Weizhou Island, Weizhou Town, Beihai City, Guangxi
          Zhuang Autonomous Region; and

     o    a parcel of land at Suizhong 36-1 Base, Xiaolihuang Village, Gaoling
          Town, Suizhong County, Liaoning Province.

Employees and Employee Benefits

     During the years ended December 31, 2000, 2001 and 2002, we employed
1,007 persons, 1,081 persons and 2,047 persons, respectively. Our number of
employees increased significantly in 2002 due to the acquisition of our
interests in oil and gas projects in Indonesia during that year. Of the 2,047
employees we employed as of December 31, 2002, approximately 81.8% were
involved in petroleum exploration, development and production activities,
approximately 10.9% were involved in accounts and finance work and the
remainder were senior management, coordinators of production sharing contracts
and safety and environmental supervisors. Workers for the operation of the oil
and gas fields, maintenance personnel and ancillary service workers are hired
on a contract basis.

     We have a trade union that:

     o    protects employees' rights;

     o    organizes educational programs;

     o    assists in the fulfillment of economic objectives;



                                      71


<PAGE>


     o    encourages employee participation in management decisions; and

     o    assists in mediating disputes between us and individual employees.

     We have not been subjected to any strikes or other labor disturbances and
believe that relations with our employees are good.

     The total remuneration of employees includes salary, bonuses and
allowances. Bonus for any given period is based primarily on individual and
our performance. Employees also receive subsidized housing, health benefits
and other miscellaneous subsidies.

     We have implemented an occupational health and safety program similar to
that employed by other international oil and gas companies. Under this
program, we closely monitor and record health and safety incidents and
promptly report them to government agencies and organizations. On March 15,
2000, we finalized and implemented our occupational health and safety program.
We believe this program is broadly in line with the United States government's
Occupational Safety & Health Administration guidelines.

     All full-time employees in the PRC are covered by a government-regulated
pension. The PRC government is responsible for the pension of these retired
employees. We are required to contribute monthly an average of approximately
12% to 22.5% of our employees' basic salaries, with each employee contributing
4% to 7% of his or her base salary for retirement. The contributions vary from
region to region.

     Our Indonesian subsidiaries employ approximately 1,000 employees,
including approximately 30 managerial staff and technicians. We provide
employee benefits to expatriate staff that we believe to be in line with
customary international practices. Our non-expatriate employees in Indonesia
enjoy welfare benefits mandated by Indonesia labor laws.

     For further details regarding retirement benefits, see note 31 to our
consolidated financial statements attached to this annual report.

Health, Safety and Environmental Policy

     We place much importance on our health, safety and environmental, or HSE,
policy. In 2002, we implemented an overall HSE management system in each of
our production divisions offshore China and also established an HSE policy for
our overseas operations. The HSE policy for our operations offshore China
focuses on increasing our employees' awareness of health, safety and
environmental issues in the workplace. We regularly organize training courses
and conduct environmental and safety drills. We also closely monitor weather
forecasts and track hazardous weather conditions that may affect our
production facilities.

     The HSE policy for our overseas operations includes setting annual safety
targets, conducting year-end evaluations, creating emergency contact lists,
recording incidents accurately and reviewing management performance in this
area.

     In 2002, we established a "System for Determining Accountability in the
Event of a Major Production Accident," and implemented an "Evaluation System
for Health, Safety and Environmental Protection." We also launched a "Safety
Activity of the Month" program and, together with our production sharing
contract partners, hired a foreign professional to conduct safety inspects on
the helicopters used in our operations offshore China.

Human Resources Development

     As an oil and gas exploration and development company operating in highly
competitive markets, our success depends in large part on our employees'
abilities. We devote significant resources to training our technical
employees. During 2002, we held 388 training workshops, which were attended by
8,482 participants. We are also dedicated to developing the skills of our
senior management. In 2002, we partnered with the New York University Leonard
N. Stern School of Business to organize a financial training workshop for our
senior management. In addition, we organized an industry specific training
program with Oklahoma State University, and a management workshop for our
senior managers with the China-Europe International Business School.



                                      72


<PAGE>


ITEM 5. Operating and Financial Review and Prospects

A.   OPERATING RESULTS

     The following discussion and analysis should be read in conjunction with
our consolidated financial statements, selected historical consolidated
financial data and operating and reserves data, in each case together with the
accompanying notes, contained in this annual report. Our consolidated
financial statements have been prepared in accordance with Hong Kong GAAP,
which differ in certain material respects from U.S. GAAP. Note 38 to our
consolidated financial statements attached to this annual report provides an
explanation of our reconciliation to U.S. GAAP of net income and shareholders'
equity. Certain statements set forth below constitute "forward-looking
statements" within the meaning of the United States Private Securities
Litigation Reform Act of 1995. See "Forward-Looking Statements." On June 6,
2002, we terminated our engagement with Arthur Andersen & Co, our independent
public accountants prior to such date. For a discussion of the change of
accountants, see "--Change of Accountants" and "Item 3--Key Information--Risk
Factors-- Risks relating to our business--You may not be able to assert claims
against Arthur Andersen, our independent public accountants for periods prior
to December 31, 2001, nor may you be able to assert claims against our current
independent public accountants for financial statements previously audited by
Arthur Andersen."

Overview

     We are an oil and gas company engaged in the exploration, development,
production and sale of crude oil and natural gas primarily offshore China. We
are the dominant producer of crude oil and natural gas offshore China and the
only company permitted to conduct exploration and production activities with
international oil and gas companies offshore China. As of December 31, 2002,
we had estimated net proved reserves of 2,015.8 million BOE, comprised of
1,424.4 million barrels of crude oil and condensate and 3,547.9 billion cubic
feet of natural gas. For the year 2002, our net production averaged 298,625
barrels per day of crude oil, condensate and natural gas liquids and 272.6
million cubic feet per day of natural gas, which together totaled 346,639 BOE
per day.

     Our revenues and profitability are largely determined by our production
volume and the prices we charge for our crude oil and natural gas, as well as
the costs of our exploration and development activities. Although crude oil
prices depend on various market factors and have been volatile historically,
our production volume has increased steadily over the past few years.

     The following table sets forth our net production of crude oil,
condensate and natural gas liquids and net income for the periods indicated.

<TABLE>
<CAPTION>

                                                                       Year ended December 31,
                                                       --------------------------------------------------------
                                                         1999            2000            2001           2002
                                                       --------        --------         -------        --------
<S>                                                    <C>              <C>             <C>            <C>
Net production of crude oil, condensate and
   natural gas liquids (BOE/day)................       174,745          206,347         228,874        298,625
Net production of natural gas (mmcf/day)........           204.4            197.9           195.0          272.6
Net income (Rmb in millions)....................         4,111.1         10,296.6         7,957.6        9,232.8
</TABLE>


     Most of our crude oil production is sold in the PRC domestic market to
customers affiliated with Sinopec or PetroChina. Most of our natural gas
production is sold to Castle Peak Power Company Limited under a long-term
take-or-pay contract.

     For a further description of these factors and certain other factors
affecting our financial performance, see "Item 3--Key Information--Risk
Factors."

   Relationship with CNOOC

     Prior to the October 1999 reorganization of CNOOC, we did not exist as a
separate legal entity and our business and operations were conducted by CNOOC
and its various affiliates. In connection with the reorganization, CNOOC's oil
and gas exploration, development, production and sales business and operations
conducted both inside and outside China were transferred to us. See "Item
4--Information on the Company--History and Development--Corporate Structure,"
"Item 7--Major Shareholders and Related Party Transactions" and note 27 to our
consolidated financial statements attached to this annual report.



                                      73


<PAGE>


     Before the reorganization, certain PRC subsidiaries of CNOOC provided
various materials, utilities and ancillary services for CNOOC's exploration
and production activities. In connection with the reorganization, we entered
into various new agreements under which we continued to use various services
and properties provided by these CNOOC subsidiaries. These agreements include:
(i) a materials, utilities and ancillary services supply agreement; (ii)
technical service agreements; (iii) agreements for the sale of crude oil,
condensate oil and liquefied petroleum gas; (iv) various lease agreements with
other affiliates of CNOOC for office and residential premises used by us; and
(v) a research and development services agreement with China Offshore Oil
Research Center for the provision of general geophysical exploration services,
comprehensive exploration research services, information technology services
and seismic study. In 2002, CNOOC consolidated most of its oilfield services
operations and established China Oilfield Services Limited. This CNOOC
affiliate now provides most of the technical services to us.

     For a description of the services provided under these agreements, see
"Item 7--Major Shareholders and Related Party Transactions."

   Acquisitions and Overseas Activities

     On January 1, 2003, we acquired BP Muturi Limited, which owns a 44.0%
interest in the Muturi production sharing contract offshore Indonesia, and BP
Wiriagar Limited's 42.4% interest in the Wiriagar production sharing contract
offshore Indonesia for a total of approximately US$275 million. The Muturi
production sharing contract and Wiriagar production sharing contract, together
with the Berau production sharing contract, make up the Tangguh LNG project.
Our interests in these two production sharing contracts represent
approximately 12.5% of the total reserves and upstream production of the
Tangguh LNG project. The remaining interests are held by BP Berau (34.2%), BP
Muturi (0.2%), BP Wiriagar (2.7%), MI Berau (16.3%), Nippon (12.2%), BG
(10.7%), KG Berau (8.6%), KG Wiriagar (1.4%) and Indonesia Natural Gas
Resources Muturi (1.1%). The Tangguh LNG project is a greenfield project
located offshore Indonesia and represents one of the largest natural gas
projects in Asia.

     Before acquiring our interest in the Tangguh LNG project, the partners in
the Tangguh LNG project entered into a conditional 25-year supply contract
beginning in 2007 to provide up to 2.6 million tons of liquefied natural gas
per year to a liquefied natural gas terminal project in Fujian Province,
China.

     On October 21, 2002, we entered into a key terms agreement to acquire an
aggregate interest of approximately 5.56% in the reserves and upstream
production of Australia's North West Shelf Gas Project for approximately
US$365.6 million subject to certain adjustments. Under the terms of this
agreement, we will purchase our interest from the six current partners to this
project: BHP Billiton, BP, ChevronTexaco, Japan Australia LNG (MIMI), Shell
and Woodside Energy. Our estimated share of reserves from this project would
be approximately 1.2 trillion cubic feet of natural gas. Our share of natural
gas together with associated liquids would be approximately 210 million BOE.
Woodside Petroleum is the operator for the project.

     Under the terms of this agreement, we would also acquire a 25% interest
in the China LNG Joint Venture, which is being established by the six current
partners to supply liquefied natural gas from the North West Shelf Gas Project
to a liquefied natural gas terminal currently being developed by CNOOC, our
controlling shareholder, and various partners in Guangdong Province, China.
The terms of this transaction require us to pay the other partners in the
North West Shelf Gas Project for gas production and processing services
provided over the term of the China LNG Joint Venture. We expect to complete
our acquisition of the interests in the North West Shelf Gas Project and China
LNG Joint Venture in 2003. See "Item 4--Information on the Company--Business
Overview--Natural Gas Business--Overseas Activity."

     On April 19, 2002, we completed the acquisition of Repsol YPF, S.A.'s
interests in a portfolio of oil and gas production sharing and technical
assistance contracts in contract areas located offshore and onshore Indonesia.
The agreement took effect as of January 1, 2002. Under the terms of the
acquisition, we paid a consideration of US$585 million, subject to a final oil
price adjustment. See note 5 to our consolidated financial statements attached
to this annual report. The assets include a 65.3% interest in the South East
Sumatra production sharing contract, a 36.7% interest in the Offshore North
West Java production sharing contract, a direct 25.0% interest in the West
Madura production sharing contract, a 50.0% interest in the Poleng technical
assistance contract and a 16.7% interest in the Blora production sharing
contract.

     We completed our acquisition of the Repsol subsidiaries on April 19,
2002. For accounting purposes, the operations from these acquired subsidiaries
are included in our consolidated financial statements from



                                      74


<PAGE>


April 1, 2002. The profit accrued to us prior to April 1, 2002 has been
treated as a purchase price reduction. See note 5 to our consolidated
financial statements attached to this annual report.

     Further details of the Repsol acquisition are discussed under "Item
4--Information on the Company--Business Overview--Principal Oil and Gas
Regions--Overseas Activity."

   Production Sharing Contracts Offshore China

     We conduct a significant amount of our offshore China oil and gas
activities through production sharing contracts with international oil and gas
companies. Under these production sharing contracts, our foreign partners are
required to bear all exploration costs during the exploration period. The
parties to the contracts may recover exploration costs after commercial
discoveries are made and production begins. The amount of exploration costs
recoverable is derived from a production sharing formula set forth in each
contract. Our production sharing contracts provide us with the option to take
a participating interest in properties covered by the production sharing
contracts which we may exercise after the foreign partners have made viable
commercial discoveries. The foreign partners retain the remaining
participating interests. We and the foreign partners fund our development and
operating costs according to our respective participating interests. Based on
a formula contained in the applicable contract, we are entitled to allocate
specified amounts of the annual gross production of petroleum from those
producing fields . See "Item 4--Information on the Company--Business
Overview--Production Sharing Contracts--Offshore China--Production Sharing
Formula."

     Before we exercise our option to take a 51% participating interest in a
production sharing contract, we do not account for the exploration costs
incurred, as these costs were incurred by our foreign partners. After we
exercise the option to take a participating interest in a production sharing
contract, we account for the oil and gas properties using the "proportional
method" under which we recognize our share of development costs, revenues and
expenses from such operations based on our participating interest in the
production sharing contracts. See note 6 to our consolidated financial
statements attached to this annual report.

     The foreign partners have the right to either take possession of their
petroleum for sale in the international market or sell their petroleum to us
for resale in the PRC market. See "Item 4--Information on the
Company--Business Overview--Production Sharing Contracts--Offshore China." For
the years ended December 31, 2000, 2001 and 2002, the percentage of foreign
partners' oil that was resold by us in the PRC market amounted to
approximately 53%, 57% and 50%, respectively. The foreign partners sold the
remaining portion of their oil in the international markets.

     As described above, production of crude oil and natural gas is allocated
among us, our foreign partners and the PRC government according to a formula
contained in the production sharing contracts. We have excluded the
government's share oil from net sales in our historical consolidated financial
statements. Since our historical consolidated financial statements already
exclude the government's share oil from our net sales figure, we do not expect
any future share oil payments to affect our results of operations or operating
cash flow differently than the effects reflected in our historical
consolidated financial statement. For information regarding the historical
amounts of government share oil payable to the government, see note 8 to our
consolidated financial statements attached to this annual report. For
information regarding treatment of the PRC government's share oil, see "Item
4--Information on the Company--Business Overview--Production Sharing
Contracts--Offshore China--Production Sharing Formula."

     We have one associated company, Shanghai Petroleum and Natural Gas
Company Limited, which owns the Pinghu field. Our 30% equity interest in this
company is accounted for using the equity method, under which our
proportionate share of the net income or loss of Shanghai Petroleum and
Natural Gas Company Limited is included in our consolidated statements of
income as a share of income or loss of the associated company.

     Our cost structures for production sharing contracts and for independent
operations are different. The total expenses per unit of production under
production sharing contracts are generally higher due to our foreign partners'
use of expatriate staff, who generally command higher wages, as well as
administrative and overhead costs that may be allocated by the operators, a
higher percentage of capital expenditures and larger proportion of imported
equipment.



                                      75


<PAGE>


   Production from Independent Operations versus Production from Production
Sharing Contracts

     Historically we have cooperated with foreign partners under production
sharing contracts, which have provided us with the expertise to undertake our
independent operations more effectively. The percentage of our net production
arising from independent operations offshore China was 51.6%, 58.4% and 53.9%
for the years ended December 31, 2000, 2001 and 2002, respectively. Although
we will continue to focus on independent operations, we plan to continue
seeking appropriate opportunities to cooperate with foreign partners under
production sharing contracts.

   Provision for dismantlement

     Prior to 2002, we estimate future dismantlement costs for our oil and gas
properties and accrue the costs over the economic lives of the assets using
the unit-of-production method. We estimate future dismantlement costs for oil
and gas properties with reference to the estimates provided from either
internal and external engineers after taking into consideration the
anticipated method of dismantlement required in accordance with current
legislation and industry practice. During the year, we changed the method of
accounting for the provision for dismantlement in compliance with Hong Kong
Statement of Standard Accounting Practice or HK SSAP 28, "Provisions,
contingent liabilities and contingent assets." HK SSAP 28 requires the
provision to be recorded for a present obligation whether that obligation is
legal or constructive. The associated cost is capitalized and the liability is
discounted and accretion expense is recognized using the credit adjusted
risk-free rate in effect when the liability is initially recognized. The
dismantlement costs for the years ended December 31, 2000, 2001 and 2002 was
Rmb 103.6 million, Rmb 90.4 million and Rmb 126.1 million, respectively. The
accrued liability is reflected in our consolidated balance sheet under
"provision for dismantlement." See notes 3 and 28 to our consolidated
financial statements attached to this annual report.

   Production Imbalance

     We account for oil overlifts and underlifts using the entitlement method,
under which we record overlifts as liabilities and underlifts as assets. An
overlift occurs when we sell more than our percentage interest of oil from a
property subject to a production sharing contract. An underlift occurs when we
sell less than our participating interest of oil from a property under a
production sharing contract. During the historical periods presented in our
consolidated financial statements attached to this annual report, we had no
gas imbalances. We believe that production imbalance has not had a significant
effect on our operations, liquidity or capital resources.

   Allowances for Doubtful Accounts

     We evaluate our accounts receivable by considering the financial
condition of our customers, their past payment history and credit standing and
other specific factors, including whether the accounts receivable in question
are under dispute. We make provisions for accounts receivable when they are
overdue for six months and we are concerned about our ability to collect them.
For the years ended December 31, 2000, 2001 and 2002, allowances for doubtful
accounts were not material in the context of total operating expenses and did
not have a material effect on our results of operations or financial
condition.

   Non-GAAP Financial Measures

     We use a financial measure that we define as EBITDE to provide additional
information about our operating performance and our liquidity. EBITDE refers
to our earnings before the following items:

     o    interest income and interest expense;

     o    income taxes;

     o    depreciation, depletion and amortization;

     o    dismantlement, exploration expenses and impairment losses related to
          property, plant and equipment; and

     o    exchange gains or losses.



                                      76


<PAGE>


     EBITDE is not a standard measure under either U.S. or Hong Kong GAAP.
However, we believe the investor community commonly uses this type of
financial measure to assess the operating performance of oil and gas companies
like us and the ability of such companies to service debt obligations and meet
capital expenditure and working capital requirements.

     As a measure of our operating performance, we believe that the most
directly comparable U.S. and Hong Kong GAAP measure to EBITDE is net income.
We operate in a capital intensive industry. We use EBITDE in addition to net
income because net income includes many accounting items associated with
capital expenditures, such as depreciation, exploration expenses and
dismantlement costs. These accounting items may vary between companies
depending on the method of accounting adopted by a company. For example, we
use successful efforts method of accounting whereby we capitalize successful
exploration projects and expense unsuccessful efforts. Other companies may use
the full cost method whereby they capitalize all of their exploration costs
regardless of whether their exploration efforts prove successful. By
minimizing differences in capital expenditures and the associated depreciation
expenses and exploration expenses as well as reported exploratory success
rates, financial leverage and tax positions, EBITDE provides further
information about our operating performance and an additional measure for
comparing our operating performance with other companies' results.

     The following table reconciles our net income under U.S. GAAP to our
definition of EBITDE for the periods indicated.

<TABLE>
<CAPTION>


                                                                                        Year ended December 31,

                                                                       -----------------------------------------------------------
                                                                       -------------- -------------- ------------- --------------
                                                                           1998           1999           2000          2001
                                                                       -------------- -------------- ------------- --------------
                                                                            Rmb            Rmb           Rmb            Rmb
                                                                                              (in millions)
<S>                                                                            <C>            <C>          <C>             <C>
Net Income........................................................             1,549          4,113        10,302          7,920
   Tax ...........................................................               295            722         1,926          3,048
   Interest income and exchange gain/(loss), net..................               794          1,000         (143)          (436)
   Depreciation, depletion and amortization.......................             1,954          2,371         2,573          2,558
   Dismantlement costs............................................               188            177           104             90
   Exploration expenses...........................................               584            247           553          1,039
   Impairment losses related to property, plant and equipment.....
                                                                                  --             --            --            100
                                                                       -------------- -------------- ------------- --------------
EBITDE............................................................             5,364          8,630        15,315         14,319
                                                                       -------------- -------------- ------------- --------------


                                                                           Year ended December 31,
                                                                       -----------------------------
                                                                       -------------- --------------
                                                                            2002          2002
                                                                       -------------- --------------
                                                                               (in millions)
                                                                            Rmb            US$


Net Income........................................................             9,088          1,098
   Tax ...........................................................             3,482            421
   Interest and exchange gain/(loss), net.........................               261             30
   Depreciation, depletion and amortization.......................             4,011            485
   Dismantlement costs............................................               323             39
   Exploration expenses...........................................             1,318            159
   Impairment losses related to property, plant and equipment.....
                                                                                  --             --
                                                                       -------------- --------------
EBITDE............................................................            18,483          2,232
                                                                       -------------- --------------
</TABLE>


     As a measure of our liquidity, we believe that the most directly
comparable U.S. and Hong Kong GAAP measure to EBITDE is cash provided by
operating activities. We use EBITDE in addition to this standard measure
because EBITDE excludes exploration expenses, which depend on a company's
method of accounting for exploration activity and fluctuate based on the
company's reported success rate. EBITDE provides an additional measure for
comparing our cash provided by operating activities before accounting for
exploration expenses with other companies' figures.



                                      77


<PAGE>


     The following table reconciles our cash provided by operating activities
under U.S. GAAP to our definition of EBITDE for the periods indicated.

<TABLE>
<CAPTION>

                                                                                              Year ended December 31,

                                                                                   ---------------------------------------
                                                                                      1998         1999         2000
                                                                                   ------------ ------------ ------------
                                                                                       Rmb          Rmb          Rmb
                                                                                                   (in millions)

<S>                                                                                      <C>          <C>         <C>
Cash provided by operating activities.........................................           3,942        7,323       13,233
   plus/(less): movements in working capital..................................            (70)          164          326
   plus/(less): returns on investments and servicing of finance...............             598          651          317
   plus: taxation paid........................................................              52          198          880
   plus: short-term investment income.........................................              --           --           --
   plus/(less): recovery (provision) for doubtful debts.......................            (58)            5           58
   plus: share of profit of an associate......................................              --           13          218
   plus/(less): gain on sale/loss on disposals and write-off of property, plant
   and equipment..............................................................             575           --        (220)
   other adjustments..........................................................           (259)           29         (50)
   less: realized and unrealized holding gains from available-
       for-sale marketable securities.........................................              --           --           --
   plus: exploration expenses.................................................             584          247          553
                                                                                   ------------ ------------ ------------
EBITDE........................................................................           5,364        8,630       15,315
                                                                                   ------------ ------------ ------------


                                                                                              Year ended December 31,

                                                                                   ---------------------------------------
                                                                                       2001         2002         2002
                                                                                    ------------ ------------ ------------
                                                                                        Rmb          Rmb          US$
                                                                                                   (in millions)

Cash provided by operating activities.........................................           11,759       14,597        1,763
   plus/(less): movements in working capital..................................            (583)            4           --
   plus/(less): returns on investments and servicing of finance...............            (346)        (181)         (22)
   plus: taxation paid........................................................            2,611        2,846          343
   plus: short-term investment income.........................................              221          193           23
   plus/(less): recovery (provision) for doubtful debts.......................                5           --           --
   plus: share of profit of an associate......................................               90          165           20
   plus/(less): gain on sale/loss on disposals and write-off of property, plant
   and equipment..............................................................            (457)        (437)         (52)
   other adjustments..........................................................               23         (12)          (1)
   less: realized and unrealized holding gains from available-
       for-sale marketable securities.........................................             (43)         (10)          (1)
   plus: exploration expenses.................................................            1,039        1,318          159
                                                                                    ------------ ------------ ------------
EBITDE........................................................................           14,319       18,483        2,232
                                                                                    ------------ ------------ ------------
</TABLE>


     You should not consider our definition of EBITDE in isolation or construe
it as an alternative to net income, operating cash flows or any other measure
of performance or as an indicator of operating performance, liquidity or any
other standard measure under either U.S. or Hong Kong GAAP. Our definition of
EBITDE fails to account for taxes, interest expenses, other non-operating cash
expenses and exploration expenses. EBITDE also does not consider any
functional or legal requirements of our business that may require us to
allocate funds for purposes other than debt service or exploration and
development activities. Our EBITDE measures may not be comparable to similarly
titled measures used by other companies.

Critical Accounting Policies

     We prepare our consolidated financial statements in accordance with Hong
Kong GAAP. The preparation of these financial statements requires management
to make estimates and judgments that affect the reported amounts of our assets
and liabilities, the disclosure of our contingent assets and liabilities as of
the date of our financial statements and the reported amounts of our revenues
and expenses during the periods reported. Management makes these estimates and
judgments based on historical experience and other factors that are believed
to be reasonable under the circumstances. Actual results may differ from these
estimates under different assumptions or conditions. We believe that the
following significant accounting policies may involve a higher degree of
judgment in the preparation of our consolidated financial statements. For
additional discussion of our significant accounting policies, see note 4 to
our consolidated financial statements attached to this annual report.

   Oil and Gas Properties, Land and Buildings

     For oil and gas properties, we have adopted the successful efforts method
of accounting. As a result, we capitalize initial acquisition costs of oil and
gas properties and recognize impairment of initial acquisition costs based on
exploratory experience and management judgement. Upon discovery of commercial
reserves, we transfer acquisition costs to proved properties and capitalize
the costs of drilling and equipping successful exploratory wells, all
development costs, and the borrowing costs arising from borrowings used to
finance the development of oil and gas properties before they are
substantially ready for production. We treat the costs of unsuccessful
exploratory wells and all other related exploration costs as expenses when
incurred. We amortize capitalized acquisition costs of proved properties by
the unit-of-production method on a property-by-property basis based on the
total estimated units of proved reserves. We estimate future dismantlement
costs for oil and gas properties with reference to the estimates provided from
either internal or external engineers after taking into consideration the
anticipated method of dismantlement required in accordance with current
legislation and industry practices. The associated cost is capitalized and the
liability is discounted and an accretion expense is recognized using the
credit-adjusted risk-free interest rate in effect when the liability is
initially recognized.

     Land and buildings represent our onshore buildings and our land use
rights which are stated at valuation less accumulated depreciation and
accumulated impairment losses. Professional valuations are



                                      78


<PAGE>


performed periodically, our last valuation was performed on December 31, 2000.
In intervening years, our directors review the carrying value of land and
buildings and make adjustment where in their opinion there has been a material
change in value. Any increase in land and building valuation is credited to
the revaluation reserves; any decrease is first offset against an increase in
an earlier valuation in respect of the same property and is thereafter charged
to the income statement. Depreciation is calculated on the straight-line basis
at an annual rate estimated to write off the valuation of each asset over its
expected useful life, ranging from 30 to 50 years.

   Impairment of Assets

     We make an assessment whenever events or changes in circumstances
indicate that the carrying amount of an asset may not be recoverable, or when
there is any indication that an impairment loss previously recognized for an
asset in prior years may no longer exist or may have decreased. In any event,
we would make an estimate of the asset's recoverable amount, which is
calculated as the higher of the asset's value in use or its net selling price.
We recognize an impairment loss only if the carrying amount of an asset
exceeds its recoverable amount. We charge an impairment loss to the income
statement in the period in which it arises unless the asset is carried at a
revalued amount. For a revalued asset, we account for the impairment loss in
accordance with the relevant accounting policy for such revalued asset. A
previously recognized impairment loss is reversed only if there has been a
change in our estimates used to determine the recoverable amount of an asset.
However, no reversal may put the value of the asset higher than the carrying
amount that we would have determined (net of any depreciation/amortization)
had no impairment loss been recognized for the asset in prior years.

     A reversal of an impairment loss is credited to the income statement in
the period in which it arises, unless the asset is carried at a revalued
amount, when the reversal of the impairment loss is accounted for in
accordance with the relevant accounting policy for that revalued asset.

   Provisions

     We recognize a provision when a present obligation (legal or
constructive) has arisen as a result of a past event and it is probable that a
future outflow of resources will be required to settle the obligation so long
as a reliable estimate can be made of the amount of the obligation. When the
effect of discounting is material, the amount recognized for a provision is
the present value at the balance sheet date of the future expenditures
expected to be required to settle the obligation. The increase in the
discounted present value amount arising from the passage of time is included
in finance costs in the income statement. We make provisions for dismantlement
based on the present value of our future costs expected to be incurred, on a
site by site basis, in respect of our expected dismantlement costs at the end
of the related oil exploration and recovery activities.

   Deferred Tax

     Deferred tax is provided, using the liability method, on all significant
timing differences to the extent it is probable that the liability will
crystallize in the foreseeable future. We do not recognize a deferred tax
asset until its realization is assured beyond reasonable doubt.

   Recognition of Revenue from Oil and Gas Sales and Marketing

     We recognize revenue when it is probable that the economic benefits will
flow to us and when the revenue can be measured reliably. For oil and gas
sales, our revenues represent the invoiced value of sales of oil and gas
attributable to our interests, net of royalties and any government share oil
that is lifted and sold on behalf of the PRC government. Sales are recognized
when the significant risks and rewards of ownership of oil and gas have been
transferred to customers. Oil and gas lifted and sold by us above or below our
participating interests in any production sharing contract result in overlifts
and underlifts. We record these transactions in accordance with the
entitlement method under which overlifts are recorded as liabilities and
underlifts are recorded as assets at year-end oil prices. Settlement will be
in kind when the liftings are equalized or in cash when production ceases. We
enter into gas sales contracts with customers which typically contain
take-or-pay clauses. These clauses require our customers to take a specified
minimum volume of gas each year. If a customer fails to take the minimum
volume of gas, the customer must pay for the gas even though it did not take
the gas. The customer can offset the deficiency payment against any future
purchases in excess of the specified volume. We record any deficiency payment
as deferred revenue which is included in other payables until any make-up gas
is taken by the customer or the expiry of the contract. Our marketing revenues
represent sales of oil purchased from the foreign partners under our
production sharing contracts and



                                      79


<PAGE>


revenues from the trading of oil through our subsidiary in Singapore. The
title, together with the risks and rewards of the ownership of such oil
purchased from the foreign partners, are transferred to us from the foreign
partners and other unrelated oil and gas companies before we sell such oil to
our customers. The cost of the oil sold is included in crude oil and product
purchases.

Results of Operations

   Overview

     The following table summarizes the components of our revenues and net
production as percentages of our total revenues and total net production for
the periods indicated:
<TABLE>
<CAPTION>

                                                                   Year ended December 31,
                                      ---------------------------------------------------------------------------------------
                                                 2000                             2001                           2002
                                      ------------------------        -------------------------          --------------------
                                              (Rmb in millions, except percentages, production data and prices)

Revenues:
Oil and gas sales: (1)
<S>                                     <C>             <C>                <C>           <C>               <C>         <C>
   Crude oil....................        17,189          71.0%              15,916        76.4%             21,498      81.5%
   Natural gas..................         1,630           6.7                1,645         7.9               2,281       8.7
                                     ---------        -------           ---------      -------         ----------     ------
   Total oil and gas sales......        18,819          77.7%              17,561        84.3%             23,779      90.2%

Marketing revenues..............         5,126          21.2                2,537        12.2               2,377       9.0
Other income....................           279           1.1                  722         3.5                 217       0.8
                                     ---------        -------           ---------      -------         ----------     ------
   Total revenues...............        24,224         100.0%              20,820       100.0%             26,374     100.0%
                                     =========        =======           =========      =======         ==========     ======

Net production (million BOE):
Crude oil.......................          75.5          86.2%                83.5        87.5%              109.0      86.2%
Natural gas.....................          12.1          13.8                 11.9        12.5                17.5      13.8
                                     ---------        -------           ---------      -------         ----------     ------
   Total net production.........          87.6         100.0%                95.4       100.0%              126.5     100.0%
                                     =========        =======           =========      =======         ==========     ======
Average net realized prices:
   Crude oil (per bbl)..........      US$28.21                           US$23.34                        US$24.35
   Natural Gas (per mcf)........          3.09                               3.08                            2.98
</TABLE>

----------
(1) These figures do not include our revenues from the Pinghu gas field.



                                      80


<PAGE>


     The following table sets forth, for the periods indicated, certain income
and expense items in our consolidated income statements as a percentage of
total revenues:

<TABLE>
<CAPTION>
                                                                                     Year ended December 31,
                                                                       ---------------------------------------------------
                                                                           2000                  2001               2002
                                                                       ------------         -------------      -----------
<S>                                                                       <C>                   <C>                <C>
Operating Revenues:
      Oil and gas sales........................................           77.7%                 84.3%              90.2%
      Marketing revenues.......................................           21.1                  12.2                9.0
      Other income.............................................            1.2                   3.5                0.8
                                                                       ------------         ------------       -----------
            Total revenues.....................................          100.0%                100.0%             100.0%
                                                                       ============         ============       ===========
Expenses:
      Operating expenses.......................................           (8.8)%               (11.2)%            (14.3)%
      Production taxes.........................................           (4.3)                 (4.2)              (3.9)
      Exploration costs........................................           (2.3)                 (5.0)              (5.0)
      Depreciation, depletion and amortization.................          (10.6)                (12.3)             (15.2)
      Dismantlement ...........................................           (0.4)                 (0.4)              (0.5)
      Crude oil and product purchases..........................          (21.0)                (11.8)              (8.8)
      Selling and administrative expenses......................           (1.9)                 (3.0)              (3.8)
      Other....................................................           (0.9)                 (3.0)              (0.1)
                                                                        ----------           ----------         ----------
                                                                         (50.2)%               (50.9)%            (51.6)%
                                                                        ----------           ----------         ----------

Interest income................................................            1.0                   1.5                0.5
Interest expenses..............................................           (2.0)                 (0.5)              (1.1)
Exchange gain (loss), net......................................            1.6                   1.1               (0.4)
Investment income..............................................             --                   1.1                0.7
                                                                        ---------            ---------          ----------
Share of profit of an associate................................            0.9                   0.4                0.6
Non-operating profit (loss), net...............................           (0.8)                  0.2               (0.3)
                                                                        --------             ---------          ---------
Income before tax..............................................           50.5                  52.9               48.4
Tax............................................................           (8.0)                (14.6)             (13.4)
                                                                       --------              ---------          ---------
Net income.....................................................           42.5%                 38.3%              35.0%
                                                                       ========              =========          ==========
</TABLE>

   Calculation of Revenues

     China

     We report total revenues, which consist of oil and gas sales, marketing
revenues and other income, in our consolidated financial statements attached
to this annual report. With respect to revenues derived from our offshore
China operations, oil and gas sales represent gross oil and gas sales less
royalties and share oil payable to the PRC government. These amounts are
calculated as follows:

     o    gross oil and gas sales consist of our percentage interest in total
          oil and gas sales, comprised of (i) a 100% interest in our
          independent oil and gas properties and (ii) our participating
          interest in the properties covered under our production sharing
          contracts, less an adjustment for production allocable to foreign
          partners under our production sharing contracts as reimbursement for
          exploration expenses attributable to our participating interest;

     o    royalties represent royalties we pay to the PRC government on
          production with respect to each of our oil and gas fields. The
          amount of royalties varies from 0% up to 12.5% based on the annual
          production of the relevant property. We pay royalties on oil and gas
          we produce independently and under production sharing contracts;

     o    government share oil, which is only paid on oil and gas produced
          under production sharing contracts, is calculated as described under
          "--Overview--Production Sharing Contracts Offshore China;"



                                      81


<PAGE>


     o    other income mainly represents project management fees charged to
          our foreign partners and handling fees charged to end
          customers--both fees are recognized when the services are rendered;
          and

     o    we pay production taxes to the PRC government that are equal to 5%
          of the oil and gas we produce independently and under production
          sharing contracts. Before May 1, 2001, we paid an additional 0.5%
          local surcharge on the oil and gas that we produced independently.
          This surcharge no longer exists. Our oil and gas sales are not
          reduced by production taxes. Production taxes are included in our
          expenses under "production taxes."

     Marketing revenues represent our sales of our foreign partners' oil and
gas produced under our production sharing contract and purchased by us from
our foreign partners under such contracts as well as from international oil
and gas companies through our wholly owned subsidiary in Singapore. Net
marketing revenues represent the marketing revenues net of the cost of
purchasing oil and gas from foreign partners and from international oil and
gas companies. Our foreign partners have the right to either take possession
of their oil and gas for sale in the international market or to sell their oil
and gas to us for resale in the PRC market.

     Our share of the oil and gas sales of our associated company is not
included in our revenues, but our share of the profit or loss of our
associated company is included in our consolidated statements of income under
"share of profit of an associate."

     Indonesia

     The oil and gas sales from our subsidiaries in Indonesia consist of our
participating interest in the properties covered under the relevant production
sharing contracts, less adjustments for share oil payable under our Indonesian
production sharing contracts to Pertamina, the Indonesian state-owned oil and
gas company, and for a domestic market obligation under which the contractor
must sell a specified percentage of its crude oil to the local Indonesian
market at a reduced price.

   2002 versus 2001

     Our oil and gas sales for the year 2002 were Rmb 23,779.3 million
(US$2,871.9 million), an increase of Rmb 6,218.5 million (US$751.0 million),
or 35.4%, from Rmb 17,560.8 million in the year 2001. The increase primarily
reflects the rise in our production level, as well as the increase in global
crude oil prices during 2002. Of the increase in oil and gas sales, Rmb
5,417.0 million (US$654.2 million) was attributable to our increased
production volume, while Rmb 801.5 million (US$96.8 million) was attributable
to the rise in crude oil prices. In 2002, as a result of the commencement of
production in our new oil and gas properties as well as our successful
acquisition of overseas oil and gas properties, our production volume
increased significantly compared to 2001. Our net production level in 2002
increased by 33% compared to the same period last year, one of the highest
growth years in our history. The net crude oil and condensate production
volume per day was 298,625 barrels in 2002, compared to 228,873 barrels in
2001, an increase of 30.5%. Our Indonesian oil and gas operations accounted
for 15% of the increase in our production volume. Production volume increases
offshore China primarily resulted from the commencement of production at our
new oil and gas properties, including new platforms in Suizhong 36-1 (Phase
II), Qinhuangdao 32-6, Wenchang 13-1 and Wenchang 13-2. Our daily average
production for natural gas in 2002 was 272.6 million cubic feet, an increase
of 77.6 cubic feet, or 39.8%, from 195.0 million cubic feet in 2001. The
increase was primarily attributable to contributions from our Indonesian
operations. Our crude oil sales prices are determined in accordance with
international crude oil prices. The average realized price for our crude oil
was US$24.35 per barrel in 2002, an increase of US$1.01, or 4.3%, compared to
US$23.34 per barrel in 2001. The average realized price of natural gas was
US$2.98 per thousand cubic feet in 2002, a decrease of US$0.10, or 3.2%, from
US$3.08 per thousand cubic feet in 2001. The decrease was due to the lower
realized price of natural gas from our Indonesian properties relative to the
realized price of natural gas from our offshore China properties.

     Our marketing revenues in 2002 were Rmb 2,377.5 million (US$287.1
million), a decrease of Rmb 159.5 million (US$19.3 million), or 6.3%, from Rmb
2,537.0 million in 2001.

     Our other income, reported on a net basis in 2002, was Rmb 217.1 million
(US$26.2 million) and consisted primarily of project management and handling
fees. This was at a similar level to 2001. In 2001, our other income on a net
basis was Rmb 203.7 million, which was derived from our other income of Rmb
721.7 million less corresponding costs of Rmb 517.9 million.



                                      82


<PAGE>


     Our operating expenses were Rmb 3,775.3 million (US$456.0 million) in
2002, an increase of Rmb 1,446.2 million (US$174.7 million), or 62.1%, from
Rmb 2,329.1 million in 2001. The increase primarily resulted from operating
expenses in connection with the Indonesian oil and gas properties and the
commencement of operations in new properties offshore China. The operating
expenses for the Indonesian oil and gas properties were Rmb 1,237.8 million
(US$149.5 million) in 2002. On a unit of production basis, operating expenses
were Rmb 30.3 (US$3.66) per BOE in 2002, which were higher than operating
expenses of Rmb 24.9 per BOE in 2001. The increase was largely attributable to
the higher operating expenses on a unit of production basis for the Indonesian
oil and gas properties, resulting from the different fiscal regime applicable
to Indonesia. Our operating expenses excluding Indonesia in 2002 were Rmb 23.6
(US$2.85) per BOE.

     Our production taxes for the year 2002 were Rmb 1,023.0 million (US$123.6
million), an increase of 15.8%, or Rmb 139.2 million (US$16.8 million) from
Rmb 883.8 million in 2001. The increase was due to an increase in sales
revenues in 2002.

     Our exploration costs for the year 2002 were Rmb 1,318.3 million
(US$159.2 million), an increase of Rmb 279.0 million (US$33.7 million), or
26.8%, from Rmb 1,039.3 million in 2001. The increase primarily resulted from
a higher level of exploration activities.

     Our depreciation, depletion and amortization expenses for 2002 were Rmb
4,019.5 million (US$485.4 million), an increase of Rmb 1,452.6 million
(US$175.4 million), or 56.6%, from Rmb 2,566.9 million in 2001. On a unit of
production basis, depreciation, depletion and amortization expenses for the
year 2002 were Rmb 32.3 (US$3.90) per BOE, an increase of 17.5% compared to
Rmb 27.5 (US$3.32) per BOE in 2001. The primary reason for the increase was
the newly acquired Indonesian oil and gas properties, and the commencement of
production at new oil and gas properties offshore China.

     Our dismantlement costs for the year 2002 was Rmb 126.1 million (US$15.2
million), an increase of Rmb 35.7 million (US$4.3 million), or 39.5%, from Rmb
90.4 million in 2001. The increase was primarily due to an upward revision of
the estimated dismantlement costs and the commencement of production at new
oil and gas properties offshore China.

     We had no impairment losses related to oil and gas assets in 2002.

     Our crude oil and product purchases for the year 2002 were Rmb 2,326.3
million (US$281.0 million), a decrease of Rmb 127.0 million (US$15.3 million),
or 5.2%, from Rmb 2,453.3 million in 2001. We handle crude oil sales in China
for our foreign partners. Upon their request, we purchase their share of crude
oil for resale in China, since we are one of the only three companies
authorized to market and sell crude oil in the PRC. We do not have control
over our foreign partners' decisions regarding the sale of their share of
production, and therefore have no control over the volume that we may be asked
to handle in any particular period.

     Our selling and administrative expenses for the year 2002 were Rmb
1,006.5 million (US$121.6 million), an increase of Rmb 391.1 million (US$47.2
million), or 63.6%, from Rmb 615.4 million in 2001. On a unit of production
basis, selling and administrative expenses were Rmb 8.1 (US$0.98) per BOE in
2002, an increase of 22.7% from Rmb 6.6 per BOE in 2001. The primary reason
for the increase was the Rmb 272.1 million (US$32.9 million) selling and
administrative expenses incurred in connection with the acquisition of
Indonesian oil and gas properties and the commencement of production at the
new oil and gas properties offshore China. Our selling and administrative
expenses excluding Indonesia in 2002 were Rmb 6.8 (US$0.82) per BOE.

     Our net interest expense for 2002 was Rmb 146.9 million (US$17.7
million), an increase of Rmb 348.0 million (US$42.0 million) from a net
interest income of Rmb 201.1 million in 2001. This increase was primarily due
to interest expense associated with US$500 million guaranteed notes in 2002,
which led to an increase in interest expense of Rmb 135.0 million (US$16.3
million). Further, the net interest expenses recognized under SSAP 28, which
we adopted in 2002, relating to dismantlement costs were Rmb 77.9 million
(US$9.4 million).

     Our exchange loss for 2002 was Rmb 113.8 million (US$13.7 million)
compared with an exchange gain of Rmb 235.4 million in 2001. The decrease was
partly attributable to exchange rate fluctuations related to our Japanese
yen-denominated loans in 2002. On December 27, 2002, we prepaid a sum of JPY
21,162 million in Japanese yen-denominated loans, after which our outstanding
Japanese yen-denominated loans were



                                      83


<PAGE>


JPY 1,357 million. Since the outstanding amount of our Japanese
yen-denominated loans is hedged using foreign currency swaps, we do not expect
similar exchange gains or losses in the future.

     Our investment income for 2002 was Rmb 193.3 million (US$23.3 million), a
decrease of Rmb 27.4 million (US$3.3 million), or 12.4%, from Rmb 220.7
million in 2001. The decrease was primarily due to a decline in short-term
interest rates in 2002.

     Our share of profit of an associate for the year 2002 was Rmb 165.4
million (US$20.0 million), an increase of Rmb 75.4 million (US$9.1 million),
or 83.8%, from Rmb 90.0 million in 2001. This item reflected our share of
profit generated by Shanghai Petroleum and Natural Gas Company Limited, our
associated company. This company experienced a decrease in its amortization
cost resulting from an increase in exploitable reserves.

     Our non-operating loss for the year 2002 was Rmb 71.4 million (US$8.6
million), a decrease of Rmb 106.3 million (US$12.8 million) from non-operating
profit of Rmb 34.9 million in 2001, primarily due to the losses incurred in
the disposal of certain assets in 2002.

     Our taxation for the year 2002 was Rmb 3,541.4 million (US$427.7
million), an increase of Rmb 493.2 million (US$59.6 million), or 16.2%, from
Rmb 3,048.2 million in 2001. The primary reason for the increase was the
increase in profit before tax. The effective tax rate for both 2001 and 2002
was 27.2%. See "--Taxation."

     Our consolidated net income after tax was Rmb 9,232.8 million (US$1,115.4
million) in 2002, an increase of Rmb 1,275.2 million (US$154.0 million), or
16.0%, from Rmb 7,957.6 million in 2001.

   2001 versus 2000

     Our oil and gas sales for the year 2001 were Rmb 17,560.8 million, a
decrease of Rmb 1,258.5 million, or 6.7%, from Rmb 18,819.3 million in 2000.
Due to lower oil prices, our oil and gas sales from properties already
operating prior to 2001 decreased approximately Rmb 3,351.5 million, which was
partially offset by approximately Rmb 2,093.0 million in additional sales
brought on by the commencement of operations at new oil and gas properties in
2001. Our average net realized crude oil price was US$23.34 per barrel in
2001, a decrease of US$4.87, or 17.3%, from US$28.21 per barrel in 2000, due
to decreases in international oil prices. Our average net realized natural gas
price was US$3.08 per thousand cubic feet in 2001, essentially unchanged from
US$3.09 per thousand cubic feet in 2000. Net crude oil and condensate
production in 2001 averaged approximately 228,873 barrels per day, an increase
of 22,572 barrels, or 10.9% compared to 206,347 barrels per day in 2000. The
increase in production primarily resulted from the commencement of production
at new oil properties during 2001, including Suizhong 36-1 (Phase II), Qikou
17-2 and Qinhuangdao 32-6. Net natural gas production in 2001 averaged 195.0
million cubic feet per day, a decrease of approximately 2.9 million cubic
feet, or 1.5%, from 197.9 million cubic feet per day in 2000. This decrease
was primarily due to the increased thermal capacity of natural gas produced at
Yacheng 13-1, which caused lower consumption of such natural gas by the
contract user of Yacheng 13-1.

     Our marketing revenues for the year 2001 were Rmb 2,537.0 million, a
decrease of Rmb 2,589.0 million, or 50.5%, from Rmb 5,126.0 million in 2000.

     Our other income was Rmb 721.7 million in 2001, an increase of Rmb 443.1
million, or 159.0%, compared to Rmb 278.6 million in 2000. The increase in
other income primarily resulted from increases in project management fees and
handling fees for production sharing contract blocks.

     Our operating expenses for the year 2001 were Rmb 2,329.1 million, an
increase of Rmb 205.0 million, or 9.7%, from Rmb 2,124.1 million in 2000,
primarily due to increased costs associated with the commencement of
productions at new oil and gas properties. On a unit of production basis,
operating expenses in the year 2001 was Rmb 24.9 per BOE, compared to Rmb 24.8
per BOE in 2000.

     Our production taxes for the year 2001 were Rmb 883.8 million, a decrease
of Rmb 152.9 million, or 14.7%, from Rmb 1,036.7 million in 2000. The decrease
was primarily due to lower sales revenue caused by significant drops in oil
prices.

     Our exploration costs for the year 2001 were Rmb 1,039.3 million, an
increase of Rmb 486.4 million, or 88.0%, from Rmb 552.9 million in 2000
primarily due to the higher investment in significantly increasing



                                      84


<PAGE>


exploration work in 2001 and the writing-off of expenses associated with
exploration work on wells for uncertain reserves in earlier years.

     Our depreciation, depletion and amortization expenses for the year 2001
were Rmb 2,566.9 million, a decrease of Rmb 11.0 million, or 0.4%, from Rmb
2,577.9 million in 2000. On a unit of production basis, depreciation,
depletion and amortization expenses for the year 2001 was Rmb 27.5 per BOE, a
decrease of Rmb 2.5, or 8.3%, compared to Rmb 30.0 per BOE in 2000. The
primary reason for the decrease was that the increase in proved reserves in
certain high-production oil and gas fields resulted in a decrease in the unit
depreciation, depletion and amortization cost of those fields, thereby leading
to the decrease in our total depreciation, depletion and amortization cost.

     Our dismantlement costs for the year 2001 was Rmb 90.4 million, a
decrease of Rmb 13.2 million, or 12.7%, from Rmb 103.6 million in 2000. The
decrease was due to full provisioning of the allowance for certain mature
fields in earlier years.

     Our impairment losses related to oil and gas assets were Rmb 99.7 million
for the year 2001, which reflected the estimated impairment resulting from two
oilfields not being expected to fully recover their net book values through
future cash flow.

     Our crude oil and product purchases for the year 2001 were Rmb 2,453.3
million, a decrease of Rmb 2,644.5 million, or 51.9%, from Rmb 5,097.8 million
in 2000.

     Our selling and administrative expenses for the year 2001 were Rmb 615.4
million, an increase of Rmb 159.4 million, or 35.0%, from Rmb 456.0 million in
2000. On a unit of production basis, selling and administrative expenses were
Rmb 6.6 per BOE in 2001, an increase of Rmb 1.3, or 25.0% from Rmb 5.3 per BOE
in 2000. The relative increase resulted from a combination of the following
factors: in 2000, selling and administrative expenses were lower, in part due
to the recovery of Rmb 57.7 million in doubtful accounts; in 2001, we made a
Rmb 40.0 million provision for staff and workers bonus and welfare funds in
accordance with a resolution of our board of directors; there was an increase
of salary and staff benefits as a result of employee compensation reform; and
there was also an increase of public facilities, office administrative,
telecommunication and travelling expenses as a result of greater business
volume and higher office rents.

     Our net interest income for the year 2001 was Rmb 201.1 million, an
increase of Rmb 439.5 million, or 184.4%, from a net interest expense of Rmb
238.4 million in 2000. This increase was due to an increase in interest income
resulting from significantly higher cash balances after our initial public
offering in 2001 and lower interest expenses resulting from lower outstanding
balances in respect of long-term indebtedness.

     Our net exchange gain for the year 2001 was Rmb 235.4 million, a decrease
of Rmb 145.9 million compared to Rmb 381.3 million in 2000.

     Our investment income for 2001 was Rmb 220.7 million, which represented
the income generated from investing the unused net proceeds from our initial
public offering in low-risk short-term money market funds. There was no
investment income in 2000.

     Our share of profit of an associate for the year 2001 was Rmb 90.0
million, a decrease of Rmb 128.3 million, or 58.8%, compared to a gain of Rmb
218.3 million in 2000. Our associated company experienced a decrease in profit
in 2001 as compared to 2000 primarily due to an increase in its exploration
costs and an increase in its amortization cost resulting from lower
exploitable reserves, as well as a decline in 2001 in the realized price of
its condensate.

     Our net non-operating profit for the year 2001 was Rmb 34.9 million, an
increase of Rmb 230.9 million from a net non-operating loss of Rmb 196.0
million in 2000, primarily due to the losses incurred in the disposal of
certain assets in 2000.

     Our taxation for the year 2001 was Rmb 3,048.2 million, an increase of
Rmb 1,122.1 million, or 58.3%, from Rmb 1,926.1 million in 2000. The primary
reason for the increase was that the period for which our PRC subsidiary
enjoyed preferential enterprise income tax treatment expired after 2000 and
the applicable enterprise income tax rate for our PRC subsidiary was adjusted
from 15% to the normal rate of 30% for enterprises with foreign investment
under the Laws of the PRC for Joint Venture Using Chinese and Foreign
Investment with effect from 2001.



                                      85


<PAGE>


     Our consolidated net income was Rmb 7,957.6 million in 2001, a decrease
of Rmb 2,339.0 million, or 22.7%, from Rmb 10,296.6 million in 2000.

B.   LIQUIDITY AND CAPITAL RESOURCES

     The following table summarizes cash flow for the periods presented:

<TABLE>
<CAPTION>
                                                                               Year ended December 31,
                                                              -----------------------------------------------------
                                                                  2000                  2001               2002
                                                              -------------         ------------        -----------
                                                                                 (Rmb in millions)
<S>                                                              <C>                   <C>                <C>
Cash provided by (used for):
   Operating activities....................................      13,233                11,759             14,597
   Investing activities....................................      (7,861)              (11,366)           (11,724)
   Financing activities....................................      (3,454)                3,204             (1,428)
                                                              ------------            ----------       -----------
                                                                  1,918                 3,597              1,445
                                                              ============            ==========       ============
Net increase in cash and cash equivalents..................
</TABLE>



     Cash Provided by Operations

     Cash provided by operations in 2002 amounted to Rmb 17,262.0 million
(US$2,084.8 million), an increase of Rmb 3,237.0 million (US$390.9 million),
or 23.1%, from Rmb 14,025.0 million in 2001. In addition to an increase in
profit before tax of Rmb 1,768.4 million (US$213.6 million), the increase in
cash provided by operations was also due in part to adjustments related to an
increase in net interest expenses of Rmb 348.0 million (US$42.0 million), an
increase in net exchange loss of Rmb 375.1 million (US$45.3 million), an
increase in depreciation, depletion and amortization expenses of Rmb 1,452.6
million (US$175.4 million), an increase in dismantlement costs of Rmb 35.7
million (US$4.3 million), a decrease in short-term investment income of Rmb
27.4 million (US$3.3 million) and an increase in amortization of a discount
for long-term guaranteed notes of Rmb 6.1 million (US$0.7 million).

     The increase was partially offset by the growth in our share of income of
associated companies of Rmb 75.4 million (US$9.1 million), a decrease in
provision for impairment of property, plant and equipment of Rmb 99.7 million
(US$12.0 million) and a decrease in loss on disposals and write-off of
property, plant and equipment of Rmb 19.0 million (US$2.3 million).

     In addition, operating cash flow was adversely affected by an increase in
current liabilities from operating activities of Rmb 500.8 million (US$60.5
million), and a simultaneous increase in current assets excluding cash and
bank balances of Rmb 504.7 million (US$61.0 million). See note 32 to our
consolidated financial statements beginning on page F-1.

     Cash provided by operations in 2001 decreased Rmb 1,473.2 million, or
11.1%, to Rmb 11,759.5 million from Rmb 13,232.7 million in 2000. The decrease
resulted from a decrease in profit before tax of Rmb 1,216.8 million,
adjustments related to a decrease in net interest expenses of Rmb 439.5
million and an increase in short-term investment gains of Rmb 274.3 million.
The decrease in cash flow was partly offset by a non-cash write-off of
exploration dry hole expenses and disposal of fixed assets of Rmb 236.7
million, non-cash impairment losses related to oil and gas assets of Rmb 99.7
million, a decrease in share of profit of an associated company of Rmb 128.3
million and a decrease in unrealized foreign exchange gain of Rmb 62.9
million.

     In addition, operating cash flow was favorably affected by a net decrease
in working capital. The decrease in working capital resulted from an increase
of Rmb 268.4 million in accounts payable and accrued liabilities and a
decrease of Rmb 314.9 million in accounts receivable and other current assets.

     As of December 31, 2002, we had a working capital surplus of Rmb 17,352.1
million (US$2,095.7 million), an increase of Rmb 1,713.6 million (US$207.0
million) from Rmb 15,638.5 million (US$1,888.7 million) in 2001. The increase
mainly resulted from an increase in accounts receivable of Rmb 1,869.1 million
(US$225.8 million), an increase in inventory of Rmb 221.3 million (US$26.7
million), an increase in other receivables of Rmb 645.2 million (US$77.9
million) and a decrease in current portion of long-term bank loans of Rmb
934.3 million (US$112.8 million). Accounts receivable as of December 31, 2002
were significantly higher than the corresponding figures as of December 31,
2001 primarily as a result of significantly higher sales in December 2002
compared with December 2001. As we settle our crude oil sales



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<PAGE>


based on 30-day payment terms, which is the industry practice, our total sales
volume and sale prices on a rolling basis significantly affect accounts
receivable. This increase in working capital was partially offset by an
increase in accounts payable and accrued liabilities of Rmb 2,967.4 million
(US$358.5 million), an increase in taxes payable of Rmb 491.0 million (US$59.3
million) and an increase in amounts due to a related company and parent
company of Rmb 218.7 million (US$26.4 million). Our higher accounts payable as
of December 31, 2002, reflected increased purchases of materials and supplies
associated with our capital expenditure program and also included an accrual
for a routine payment obligation to operators of certain production sharing
contracts, which was paid subsequent to the date of the balance sheet.

     Capital Expenditures and Investments

     In line with our use of the successful efforts method of accounting,
historical capital expenditures and investments primarily include successful
exploration and development expenditures. Total capital expenditures were Rmb
11,566.9 million (US$1,397.0 million) in 2002, an increase of Rmb 7,224.3
million (US$872.5 million), or 166.4%, from Rmb 4,342.6 million (US$524.5
million) in 2001. The capital expenditure in 2002 included Rmb 585.6 million
(US$70.7 million) for capitalized exploration activities, Rmb 6,247.1 million
(US$754.5 million) for development activities, and Rmb 4,734.2 million
(US$517.8 million) for acquiring Indonesian oilfields. Our development
expenditures in 2002 related principally to the development of Suizhong 36-1
(Phase II), Qinhuangdao 32-6, Wenchang 13-1, Wenchang 13-2, Penglai 19-3 and
Panyu 4-2/5-1.

     Total capital expenditures were Rmb 4,342.6 million in 2001, a decrease
of Rmb 61.4 million, or 1.4%, from Rmb 4,404.0 million in 2000. The capital
expenditures in 2001 included Rmb 311.5 million for capitalized exploration
activities and Rmb 4,013.1 million for development activities. Our development
expenditures in 2001 related principally to the development of Suizhong 36-1
(Phase II) and Qinhuangdao 32-6 and Wenchang 13-1, Wenchang 13-2 and Dongfang
1-1.

     Our total capital expenditures for general exploration and development
activities for 2002 was approximately US$978 million. Over the next two years,
we have budgeted approximately US$3.5 billion for capital expenditures,
approximately US$308 million of which is budgeted for general exploration
activities offshore China and approximately US$2.7 billion is budgeted for
development activities offshore China.

     The following table sets forth actual or budgeted capital expenditures
for our key operating areas for the periods indicated.

<TABLE>
<CAPTION>
                                                                     Year ended December 31,
                                                         -----------------------------------------------
                                                           2002(1)            2003(2)           2004(2)
                                                         ----------         ----------        ----------
Operating Area:                                                        (US$ in millions)
<S>                                                         <C>              <C>                <C>
Bohai Bay
      Development..................................         261                588              1,080
      Exploration..................................          55                 63                 51
Western South China Sea
      Development..................................         269                158                258
      Exploration..................................          69                 25                 37
East China Sea
      Development..................................          52                137                116
      Exploration..................................          18                 20                 20
East South China Sea
      Development..................................         122                152                168
      Exploration..................................          42                 43                 49
Overseas
      Development..................................          90                359                140
                                                        ----------         ----------         ----------
            Total..................................         978              1,545              1,919
                                                        ==========         ==========         ==========
</TABLE>
----------
(1)  Figures for 2002 represent our actual spending for capital expenditure
     purposes.
(2)  Figures for 2003 and 2004 represent our budgeted capital expenditures.

     In addition to the budgeted development and exploration expenditures
relating to the oil and gas properties described above, we may make additional
capital expenditures and investments in these periods consistent with our
business strategy. For example, the above budgeted amounts do not include any



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<PAGE>


investments we may make in the liquefied natural gas project located in
Guangdong Province, other natural gas projects and overseas natural gas
properties. See "Item 4--Information on the Company--Business
Overview--Business Strategy."

     Our ability to maintain and grow our revenues, net income and cash flow
depends upon continued capital spending. We adjust our capital expenditure and
investment budget on an annual basis. Our capital expenditure plans are
subject to a number of risks, contingencies and other factors, some of which
are beyond our control. Therefore, our actual future capital expenditures and
investments will likely be different from our current planned amounts, and
such differences may be significant. See "Item 3--Key Information--Risk
Factors--Risks relating to our business--Our future prospects largely depend
on our capital expenditure plans, which are subject to various risks."

   Financing Activities

     We had net cash outflows from financing activities of Rmb 1,428.1 million
(US$172.5 million) in 2002, resulting primarily from our repayment of Rmb
3,367.3 million (US$406.7 million) in bank loans and dividend distributions of
Rmb 2,265.1 million (US$273.6 million). Of the total bank loans that we
repaid, we prepaid Rmb 2,956.0 million (US$357.0 million), including JPY
21,162 million in Japanese yen-denominated debt, US$103.4 million in
dollar-denominated debt and Rmb 639.0 million in Renminbi-denominated debt.
This cash outflow was offset by cash inflow of Rmb 4,059.3 million (US$490.3
million) resulting from our March 2002 offering of US$500 million in 6.375%
guaranteed notes due 2012.

     We have debt service obligations consisting of principal and interest
payments on our outstanding indebtedness. The following table summarizes the
maturities of our long-term debt outstanding as of December 31, 2002. As of
the date this annual report is filed, we have not incurred any material
long-term debt since December 31, 2002.
<TABLE>
<CAPTION>


                                                                                Debt maturities principal only
                                                  ---------------------------------------------------------------------------------
                                                                Original currency
                                                  -------------------------------------------       Total Rmb         Total US$
Due by December 31,                                    US$            JPY             Rmb          equivalents       equivalents
------------------                                -----------    ------------    ------------     -------------    ---------------
                                                                         (in millions, except percentages)

<S>                                                    <C>            <C>             <C>               <C>              <C>
2003........................................           31.4           271.5           18.9              297.5            35.9
2004-2006...................................          100.0           814.4           38.4              922.4           111.4
2007-2008...................................            --            271.5            --                18.7             2.3
2009 and beyond.............................          500.0             --             --             4,140.0           500.0
   Total....................................          631.4         1,357.4           57.3            5,378.6           649.6
Percentage of total debt....................           97.2%            1.7%           1.1%            100.0%           100.0%
</TABLE>

     In early 2003, we prepaid a further US$31.4 million in U.S.
dollar-denominated debt and all of our then existing Renminbi-denominated
debt. As of April 30, 2003, we had a total U.S. dollar debt of US$600.0
million and a total foreign currency debt of US$611.3 million. Through our
debt offering and prepayment of debt, we extended the average maturity of our
debt portfolio from three years to approximately eight years, and, through the
prepayment of the majority of our Japanese yen-denominated debt, largely
eliminated our Japanese yen exposure risk and improved our debt structure.

     In 2001, we had net cash inflows from financing activities of Rmb 3,204.1
million. Net cash flow from financing activities in 2001 resulted primarily
from Rmb 10,101.6 million in proceeds from our initial public offering,
including the exercise of the related over-allotment option, in early 2001 and
short-term bank loans of Rmb 2,500 million, offset in part by cash outflows of
Rmb 4,268.5 million for dividends paid, Rmb 3,497.5 million for repayment of
bank loans and Rmb 1,660.0 million for retirement fund payments to our parent
company. See "--Employee Benefits."

     After we became a separate entity as part of CNOOC's reorganization in
October 1999, we paid dividends of Rmb 1,045.4 million in March 2000 and
declared a dividend of Rmb 6,426.4 million on December 20, 2000, which was
paid in full prior to February 1, 2001. On August 27, 2001, we declared a
dividend of Rmb 871.8 million, which was paid in full prior to October 31,
2001. On June 6, 2002, we declared a dividend of Rmb 1,306.7 million (US$157.8
million), which was paid in full by June 19, 2002. On August 23, 2002, we
declared a divided of Rmb 958.3 million (US$115.7 million), which was paid in
full by September 27, 2002. The payment and the amount of any dividends in the
future will depend on our results of operations, cash flow, financial
condition, the payment by our subsidiaries of cash dividends to us, future



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<PAGE>


prospects and other factors which our directors may consider relevant. The
amount of dividends we paid historically is not indicative of the dividends
that we will pay in the future.

     We believe our future cash flow from operations, borrowing capacity and
the proceeds of our initial public offering will be sufficient to fund planned
capital expenditures and investments, debt maturities and working capital
requirements through at least 2004. Several large financial institutions have
expressed an interest in supporting our business development, although we have
not entered into any agreements for additional financing with these
institutions. However, our ability to obtain adequate financing to satisfy our
capital expenditure and debt service requirements may be limited by our
financial condition and results of operations and the liquidity of
international and domestic financial markets, including the following factors:

     o    Any failure by us to achieve timely rollover, extension or
          refinancing of our short-term debt may result in our inability to
          meet our obligations in connection with debt service, accounts
          payable and/or other liabilities when they become due and payable.

     o    Our primary operating subsidiary is a PRC incorporated company.
          Therefore, prior to accessing the international capital markets we
          will be subject to limitations imposed by various PRC government
          authorities, including the State Administration for Foreign Exchange
          and the People's Bank of China, depending on the type of
          international financing raised. We may also need to obtain PRC
          government support for any project involving significant capital
          investment in the operations of our PRC subsidiary.

     o    In addition, financing sources often look to similarly situated
          entities when determining whether, and at what rates, to provide
          financing. Successful or unsuccessful financings by Hong Kong and
          PRC entities similarly situated to us could have an impact on our
          ability to obtain external financing.

     See "Item 3--Key Information--Risk Factors--Risks relating to our
business--Our future prospects largely depend on our capital expenditure
plans, which are subject to various risks" and "--We may not be able to obtain
external financing that is acceptable to us for business development
purposes."

   Employee Benefits

     All of our full-time employees in the PRC are covered by a
government-regulated pension plan and are entitled to an annual pension at
their retirement dates. The PRC government is responsible for the pension
liabilities to these retired employees under this government pension plan. The
actual pension payable to each retiree is subject to a formula based on the
status of the individual pension account, general salary and inflation
movements. We are required to make annual contributions to the government
pension plan at rates ranging from 12% to 22.5% of our employees' base
salaries. The related pension costs are expensed as incurred.

     When we became a separate entity as part of CNOOC's reorganization in
October 1999, CNOOC retained all liabilities for retirement benefits for its
employees, both former and current, who had not been transferred to us. As
compensation for CNOOC's retention of liabilities for retirement benefits
payable to approximately 7,000 retired CNOOC employees who were previously
engaged in the oil and gas business that was transferred to us in the
reorganization, we made a one-time payment to CNOOC of Rmb 1,660.0 million in
2001.

     For the years ended December 31, 2000, 2001 and 2002, our retirement
expenses attributed to the current government plan were Rmb 12.8 million, Rmb
6.4 million and Rmb 7.0 million, respectively.

     The expenses attributable to mandatory contributions under the current
government pension plan are included in our historical consolidated statements
of income under either operating expenses for our production staff or selling
and administrative expenses for our administrative staff. We expect that,
under the current PRC rules and regulations regarding employee retirement
benefits, the future costs of the current government plan will be comparable
to our historical costs, subject to customary increases largely in line with
salary increases of our employees.

     Our Indonesian subsidiaries employ approximately 1,000 employees,
including approximately 30 managerial staff and technicians. We provide
expatriate staff with employee benefits that we believe to be in



                                      89


<PAGE>


line with customary international practices. Our non-expatriate employees in
Indonesia enjoy welfare benefits mandated by Indonesia labor laws.

   Holding Company Structure

     We are a holding company. Our entire petroleum exploration, development,
production and sales business in the PRC is owned and conducted by CNOOC China
Limited, our wholly foreign-owned enterprise in the PRC. Our entire petroleum
exploration, development and production business outside of the PRC is owned
and conducted by CNOOC International Limited, our wholly owned subsidiary
incorporated in the British Virgin Islands. International sales of crude oil
are conducted by China Offshore Oil (Singapore) International Pte. Ltd., our
wholly owned subsidiary incorporated in Singapore. Accordingly, our future
cash flow will consist principally of dividends from our subsidiaries. The
subsidiaries' ability to pay dividends to us is subject to various
restrictions, including legal restrictions in their jurisdictions of
incorporation. For example, legal restrictions in the PRC permit payment of
dividends only out of net income determined in accordance with PRC accounting
standards and regulations. In addition, under PRC law, CNOOC China Limited is
required to set aside a portion of its net income each year to fund certain
reserve funds. These reserves are not distributable as cash dividends.

Inflation/Deflation

     According to the China Statistical Bureau, China experienced an overall
national deflation rate in 2000, 2001 and 2002, as represented by the general
consumer price index, of 0.4%, 0.7% and 0.8%, respectively. The deflation has
not had a significant impact on our results of operations in those years.

U.S. GAAP Reconciliation

     Our consolidated financial statements are prepared in accordance with
Hong Kong GAAP, which differ in certain material respects from U.S. GAAP.
These differences relate primarily to the revaluation of properties and land
use rights performed in connection with the reorganization, the treatment of
impairment of long-lived assets, the treatment of stock compensation plans,
the treatment of unrealized holding gains from available-for-sale investments
in marketable securities and the provision for dismantlement liabilities.
Except for the accounting treatment of the property revaluation and the
recognition of stock compensation costs, the unrealized holding gains from
available-for-sale investments in marketable securities and the provision for
dismantlement liabilities, there are no material differences between Hong Kong
GAAP and U.S. GAAP that affect our net income or shareholders' equity. See
note 38 to our consolidated financial statements attached to this annual
report.

Taxation

     We are subject to income taxes on an entity basis on income arising in or
derived from the tax jurisdictions in which we and each of our subsidiaries
are domiciled and operate. We are not liable for income taxes in Hong Kong as
we currently do not have any assessable income from Hong Kong sources.
Pursuant to a notice issued by the State Administration of Taxation in March
2001, we will be entitled to all tax benefits conferred by Chinese law on
foreign invested enterprises.

     Our PRC subsidiary, absent exemptions, is subject to enterprise income
tax at the rate of 33%. Following the October 1999 reorganization, our PRC
subsidiary became a wholly foreign owned enterprise and accordingly was
exempted from 3% local surcharges, reducing its enterprise income tax rate to
the current rate of 30%. Moreover, entities now comprising our PRC subsidiary
were exempted from enterprise income taxes for two years starting from the
first year of profitable operation in 1996 and were entitled to a 50%
reduction of enterprise income taxes for three years beginning in 1998 and
ending on December 31, 2000. This tax exemption increased our earnings by Rmb
1,920.7 million during the year ended December 31, 2000. Since January 1,
2001, the PRC subsidiary has been subject to the 30% enterprise income tax
rate. The PRC enterprise income tax is levied based on taxable income
including income from operations as well as other components of earnings, as
determined in accordance with the generally accepted accounting principles in
the PRC, or PRC GAAP. Besides income taxes, our PRC subsidiary also pays
certain other taxes, including:

     o    production taxes equal to 5% of independent production and
          production under production sharing contracts; and

     o    business tax of 5% on other income.



                                      90


<PAGE>


     Our subsidiary in Singapore, China Offshore Oil (Singapore) International
Pte. Ltd., is subject to income tax at the rate of 10% and 26% for its oil
trading activities and other income-generating activities, respectively. Our
subsidiaries that own interests in oil properties in Indonesia along the
Malacca Strait are subject to corporate and branch profit tax of 44%. The nine
subsidiaries of Repsol-YPF, S.A. in Indonesia acquired by us during 2002 are
all subject to corporate and branch profit tax at a rate of 48%. None of our
other subsidiaries were subject to any income taxes in their respective
jurisdictions for the year presented.

     We calculate deferred taxation to account for timing differences between
our tax bases, which is used for income tax reporting and prepared in
accordance with applicable tax guidelines, and our accounting bases, which is
prepared in accordance with applicable financial reporting requirements. Major
timing differences include accelerated amortization allowances for oil and gas
properties, which are offset in part by provision for dismantlement and a
provision for impairment of property, plant and equipment and write-off of
unsuccessful exploratory drillings. As of December 31, 2001 and 2002, we had
Rmb 1,763.6 million (US$213.0) million and Rmb 6,141.1 million (US$741.9
million), respectively, in net deferred tax liabilities. The increase was
primarily due to the acquisition of the Indonesia properties. See note 14 to
our consolidated financial statements attached to this annual report.

Change of Accountants

     On June 6, 2002, we terminated the engagement of Arthur Andersen & Co as
our independent public accountants. Prior to such date, Arthur Andersen had
audited our consolidated financial statements, including financial statements
for the two-year period ended December 31, 2001 attached to this annual
report. On June 15, 2002, Arthur Andersen was convicted of federal obstruction
of justice charges in connection with the U.S. government's investigation of
Enron Corporation. On August 31, 2002, Arthur Andersen voluntarily
relinquished its licenses to practice public accountancy in all states of the
United States and, accordingly, cannot furnish any written consent to the
issue of this annual report with the inclusion of its reports in the form and
context in which they are included. For a discussion of risks related to
Arthur Andersen, see "Item 3--Key Information--Risk Factors--Risks relating to
our business--You may not be able to assert claims against Arthur Andersen,
our independent public accountants for periods prior to December 31, 2001, nor
may you be able to assert claims against our current independent public
accountants for financial statements previously audited by Arthur Andersen."

     On June 6, 2002, we appointed Ernst & Young as our independent
accountants. Ernst & Young audited our consolidated financial statements for
the year ended December 31, 2002 included in this annual report.

Recent Accounting Pronouncements

   United States

     SFAS No. 143 "Accounting for Asset Retirement Obligations"

     On August 15, 2001, SFAS No. 143 "Accounting for Asset Retirement
Obligations" was released and will be effective for the fiscal years beginning
after June 15, 2002. This statement requires that the fair value of a
liability for an asset retirement obligation be recognized in the period in
which it is incurred if a reasonable estimate of fair value can be made. The
associated asset retirement costs are capitalized as part of the carrying
amount of the long-lived assets. Further, under this statement, the liability
is discounted and accretion expense is recognized using the credit-adjusted
risk-free interest rate in effect when the liability was initially recognized.

     According to the existing accounting policies adopted to prepare the
financial statements, we estimate future dismantlement and site restoration
costs for oil and gas properties with reference to the estimates provided from
either internal or external engineers after taking into consideration the
anticipated method of dismantlement and the extent of site restoration
required in accordance with current legislation and industry practice. This
new practice also requires the liability to be discounted and the accretion
expenses to be recognized using the credit-adjusted risk-free interest rate in
effect when the liability was initially recognized.

     Adoption of the statement will likely result in increase in both our cost
of assets and total amount of liabilities as presented under U.S. GAAP. We are
currently assessing these matters and have not yet determined whether or the
extent to which they will affect the financial statements.



                                      91


<PAGE>


   Hong Kong

     The following recently-issued and revised Hong Kong Society of
Accountants Statements of Standard Accounting Practice, or SSAPs, are
effective for the first time for the current year's financial statements:

     o    SSAP 1 (Revised) - "Presentation of financial statements;"

     o    SSAP 11 (Revised) - "Foreign currency translation;"

     o    SSAP 15 (Revised) - "Cash flow statements;"

     o    SSAP 34 - "Employee benefits;"

     o    Interpretation 14 - "Evaluating the substance of transactions
          involving the legal form of a lease;"

     o    Interpretation 15 - "Business combinations - `Date of exchange' and
          fair value equity instruments;" and

     o    Interpretation 18 - "Consolidation and equity method - Potential
          voting rights and allocation of ownership interests."

     These SSAPs prescribe new accounting measurement and disclosure
practices. The major effects on our accounting policies and on the amounts
disclosed in these financial statements of adopting these SSAPs and
Interpretations are summarized as follows:

     SSAP 1 (Revised) prescribes the basis for the presentation of financial
statements and sets out guidelines for their structure and minimum
requirements for their content. The principal impact of the revision to this
SSAP is that a consolidated statement of changes in equity is now presented in
place of the consolidated statement of recognized gains and loses that was
previously required and in place of our reserves note.

     SSAP 11 (Revised) prescribes the basis for the translation of foreign
currency translations and financial statements. The principal impact of the
revision of this SSAP on our consolidated financial statements is that the
income statement of overseas subsidiaries is now translated into Renminbi at
the exchange rates on the date of the transaction, or at an approximation
thereto, whereas previously they were translated at the exchange rates at the
balance sheet date. The adoption of the revised SSAP 11 has had no material
effect on our financial statements.

     SSAP 15 (Revised) prescribes the revised format for the cash flow
statement. The principal impact of the revision of this SSAP is that the
consolidated cash flow statement now presents cash flow under three headings,
cash flow from operating, investing and financing activities, rather than the
five headings previously required. In addition, cash flow from overseas
subsidiaries arising during the year are now translated into Renminbi at the
exchange rates on the date of the transaction or at an approximation thereto,
whereas previously they were translated at the exchange rate on the balance
sheet date.

     SSAP 34 prescribes the principles to be applied for recognition,
measurement and disclosures for employee short-term and long-term benefits. In
addition, disclosure is now required in respect of our share option scheme
as detailed in note 29 to our consolidated financial statements. This share
option scheme disclosure is similar to the Hong Kong Stock Exchange
listing rules disclosure previously included in the report of the directors
which are now required to be included in the notes to the financial statements
as a consequence of the SSAP. The SSAP requirements have not had a material
effect on the amounts previously recorded in the financial statements,
therefore no prior year adjustment has been required.

     In addition, SSAP 12 (Revised) - "Income taxes" was recently issued as
revised and is effective for financial years beginning or after January 1,
2003. SSAP 12 (Revised) requires full provision for deferred taxes using the
liability method. Under this new approach, the tax is calculated using tax
rates expected to be in effect when the timing difference occurs. In prior
periods, we provided deferred taxes for timing differences only to the extent
that it was probable a liability or asset would crystallize in the foreseeable
future. The new method of accounting for deferred income tax is similar to the
method that has been used under U.S.



                                      92


<PAGE>


GAAP. For the year ended December 31, 2002, there was no difference in the
amount of deferred income tax we recognized under Hong Kong and U.S. GAAP. We
do not believe the revised SSAP will have a significant impact on our
financial position or results of operations under Hong Kong GAAP.



                                      93


<PAGE>


ITEM 6.  DIRECTORS, SENIOR MANAGEMENT AND EMPLOYEES

A.   DIRECTORS AND SENIOR MANAGEMENT

     In accordance with Hong Kong law and our articles of association, our
affairs are managed by our board of directors. The board of directors has nine
members, including four independent non-executive directors.

     Our current directors and senior officers are as follows:

<TABLE>
<CAPTION>

                                            Age as of
                                           December 31,
Name                                           2002          Position
---------------------------------------    ------------      -----------------------------------------------------------------
<S>                                             <C>          <C>
Liucheng Wei...........................         56           Chairman of the Board of Directors and Chief Executive Officer

Chengyu Fu.............................         51           Director

Longsheng Jiang........................         57           Director

Shouwei Zhou...........................         51           Director and President

Han Luo................................         49           Director

Chak Kwong So..........................         58           Independent Non-executive Director

Sung Hong Chiu.........................         56           Independent Non-executive Director

Kenneth Courtis........................         57           Independent Non-executive Director

Erwin Schurtenberger...................         63           Independent Non-executive Director

Ke Ru..................................         59           Executive Vice President

Yunshi Cao.............................         57           Senior Vice President, Company Secretary and General Counsel

Mark Qiu...............................         39           Chief Financial Officer and Senior Vice President

Hua Yang...............................         41           Senior Vice President

Wei Chen...............................         45           Senior Vice President

</TABLE>

     Mr. Kenneth Courtis and Dr. Erwin Schurtenberger, two of our independent
non-executive directors, were appointed in November 2002. Mr. Longsheng Jiang
and Mr. Han Luo were appointed in December 2000. All other directors,
including other independent non-executive directors, were appointed in
September 1999.

     We have a management team with extensive experience in the oil and gas
industry. As a result of our cooperation with international oil and gas
companies, the management team and staff have had the opportunity to work
closely with foreign partners both within and outside China. Such
opportunities, in conjunction with management exchange programs with foreign
partners, have provided valuable training to our personnel in international
management practices. A description of the business experience and present
position of each director and executive officer is provided below. Our
principal executive offices are located at 65th Floor, Bank of China Tower,
One Garden Road, Central, Hong Kong.

Directors

     Liucheng Wei received a B.S. degree from China Petroleum Institute and a
graduate degree in Business Administration from the Chinese Academy of Social
Sciences. He is a senior economist and has over 30 years' experience in the
oil industry in the PRC. He was appointed as Chairman of the Board of
Directors and Chief Executive Officer of our company in September 1999. Mr.
Wei is also the President of CNOOC, a



                                      94


<PAGE>


position he has held since November 1998. From 1993 to 1998, he served as Vice
President of CNOOC. He joined CNOOC in 1982.

     Chengyu Fu received a B.S. degree from Northeast Petroleum Institute in
China and a master's degree in petroleum engineering from the University of
Southern California in the United States. He has over 28 years' experience in
the petroleum industry in the PRC. He was appointed as director in September
1999 and previously served as our Chief Operating Officer and President. He
currently is a director and the Chief Executive Officer and Chairman of China
Oilfield Services Limited, another majority-owned subsidiary of CNOOC. Mr. Fu
is also a Vice President of CNOOC. In 1999, Mr. Fu was the General Manager of
China Offshore Oil Eastern South China Sea Corporation, a subsidiary of CNOOC.
From 1995 to 1999, he served as Vice President and General Manager of Xijiang
Operations of ConocoPhillips China Inc. From 1994 to 1995, he served as Deputy
General Manager of China Offshore Oil Eastern South China Sea Corporation. He
joined CNOOC in 1982.

     Longsheng Jiang received a B.S. degree from Beijing Petroleum Institute
in China. He has over 31 years' experience in the oil and gas industry in the
PRC. He was appointed as our director in December 2000. From 1982 to 1994, Mr.
Jiang served as chief engineer of China Offshore Oil Western South China Sea
Corporation. From 1995 to 1998, he was the general manager of China Offshore
Oil Southern Drilling Company. Mr. Jiang is a Vice President of CNOOC, a
position he has held since 1998. He joined CNOOC in 1982.

     Shouwei Zhou received a Ph.D. degree from Southwest China Petroleum
Institute and is a senior engineer. He was appointed as our director and
Executive Vice President in September 1999 and as President in August 2002.
Mr. Zhou is also a Vice President of CNOOC. From 1994 to 1999, Mr. Zhou was
the Deputy Manager of China Offshore Oil Bohai Corporation, a subsidiary of
CNOOC, and has been the President of China Offshore Oil Bohai Corporation
since 1999. He joined CNOOC in 1982.

     Han Luo received a doctor's degree from China Petroleum University. He
has over 26 years' experience in the oil industry in the PRC. He was appointed
as our director in December 2000. From 1993 to 1998, Mr. Luo served as Vice
President of China Offshore Oil Eastern South China Sea Corporation and
concurrently the chief representative of CNOOC in the CACT operating group,
and executive Vice President of China Offshore Oil East China Sea Corporation.
In 1999, he was the general manager of CNOOC China--Shanghai Branch. Mr. Luo
is a Vice President of CNOOC, a position he has held since 2000. He joined
CNOOC in 1982.

   Independent Non-executive Directors

     Chak Kwong So is the Chairman of the board of directors and chief
executive of the MTR Corporation Limited. He has been a Non-Executive Director
of The Hongkong and Shanghai Banking Corporation Limited since January 2000.
Mr. So began his career with the Hong Kong government. He joined the private
sector in 1978, serving in various posts in the securities, finance and
property industries. Mr. So also served as Executive Director of the Hong Kong
Trade Development Council from 1985 to 1992. Mr. So is the President of the
Chartered Institute of Logistics and Transport. He is also a Vice President of
the International Association of Public Transport and is the Chairman of its
Asia-Pacific Division. He also serves on a number of other committees and
organizations, including the Hong Kong/European Union Business Cooperation
Committee, Independent Commission Against Corruption--Operations Review
Committee, the Employers' Federation of Hong Kong, the Hong Kong Management
Association and the Community Chest of Hong Kong.

     Sung Hong Chiu received an LL.B. degree from the University of Sydney. He
is admitted as a solicitor of the Supreme Court of New South Wales and the
High Court of Australia. He has over 26 years' experience in legal practice
and is a director of a listed company in Australia. Mr. Chiu is the founding
member of the Board of Trustees of the Australian Nursing Home Foundation and
served as the General Secretary of the Australian Chinese Community
Association of New South Wales.

     Kenneth Courtis is Managing Director of Goldman Sachs and Vice Chairman
of Goldman Sachs Asia. He specializes in economics and strategy throughout the
Asia-Pacific region as well as in Europe and North America. After graduating
with honors from Glendon College in Toronto, Mr. Courtis received an M.A. in
international economics from Sussex University, England, an M.B.A. in finance
and strategy from the European Institute of Business Administration and a
Ph.D. degree from the Institute of Economic and Political



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<PAGE>


Studies in Paris. Prior to joining Goldman Sachs, he served as Chief Asia
Economist and Strategist for Deutsche Bank.

     Erwin Schurtenberger has served as the Ambassador of Switzerland to the
People's Republic of China, the Democratic People's Republic of Korea, the
Republic of Mongolia and the Republic of Iraq. He joined the Swiss Foreign
Services in 1969. He has also been an independent business advisor to various
European multinationals, American groups and humanitarian aid organizations
such as Credit Suisse Financial Services, Novartis and Bunge. Dr.
Schurtenberger currently serves on the board of directors of Robert Bosch
RBint., Buhler Group Switzerland, Firmenich, Sire Holding, CIBA China and
Winterthur Insurances (Asia). He is also a senior advisor to the China
Training Center for Senior Personnel Management Officials. Dr. Schurtenberger
received a Ph.D. degree in economics and was trained in political science and
philosophy.

Company Secretary

     Yunshi Cao is our Company Secretary, General Counsel and a Senior Vice
President. He is also the General Counsel and the Director of the Legal
Department of CNOOC, a position he has held since 1999. He joined CNOOC in
1982. Mr. Cao is a senior economist and licensed lawyer in the PRC. He has
extensive experience in production sharing contracts and over 30 years'
experience in the oil industry. He received a B.S. degree from the China
Petroleum Institute and studied law at Columbia University School of Law.

Senior Management

     Ke Ru serves as an Executive Vice President of our company and is
responsible for our offshore petroleum exploration. Mr. Ru is a geologist,
graduated from China Petroleum Institute and was a Visiting Scholar at the
University of Oklahoma. He has over 30 years' experience in exploration,
geophysical and geological research in China. He joined CNOOC in 1982 and was
President of the Research Institute of China Offshore Oil Western South China
Sea Corporation and Chief Geologist of CNOOC.

     Mark Qiu serves as our Chief Financial Officer and a Senior Vice
President. Prior to joining us, Dr. Qiu worked at Salomon Smith Barney and
last served as the Head of Oil and Gas Investment Banking Group Asia. Prior to
that, Dr. Qiu served as a Vice President at ARCO China Inc., a subsidiary of
Atlantic Richfield Corporation (ARCO) and later as a Corporate Federal
Government Relations Director of ARCO in Washington D.C. He was a Sloan Fellow
and received an MBA degree from Massachusetts Institute of Technology and a
doctoral and master degree in Decision Sciences from the University of Texas
at Arlington. Dr. Qiu joined CNOOC in 2001.

     Hua Yang is a Senior Vice President of our company and President of CNOOC
International Limited. He is a senior engineer and is responsible for our
overseas operations. He received his B.S. degree from China Petroleum
Institute. He has over 20 years' experience in petroleum exploration and
production. Mr. Yang joined CNOOC in 1982 and was Acting Director of the
Overseas Development Department of CNOOC.

     Wei Chen is a Senior Vice President and General Manager of our
Administration Department. He is a senior engineer and is responsible for our
administration, foreign affairs, human resources and material procurement. He
received his B.S. degree from China Petroleum University and holds an M.B.A.
degree from Tsinghua University. He has over 20 years' experience in petroleum
exploration and production. Mr. Chen joined CNOOC in 1984 and previously
served as the Deputy Manager for the development department of the CNOOC
Research Center, the Deputy Manager of the Overseas Research Department, the
Manager of the Information Department, the Deputy Director of the Research
Center and the General Manager of our Human Resources Department.

B.   COMPENSATION OF DIRECTORS AND OFFICERS

     Each of the directors (other than independent non-executive directors)
entered into a service contract with us for a term of three years made
effective as of February 28, 2001, the date on which our shares commenced
trading on the Hong Kong Stock Exchange, subject to termination by either
party by written notice given not less than three months prior to the
expiration of the end of the initial term or any subsequent calendar month.
Particulars of these contracts are in all material respects identical except
as indicated below:

     o    the annual salary for Mr. Liucheng Wei (the Chairman of the Board
          and Chief Executive Officer), Mr. Chengyu Fu (Director) and Mr.
          Shouwei Zhou (Director and President) during the



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<PAGE>


          initial three years shall be HK$2,480,000, HK$1,880,000 and
          HK$1,680,000, respectively, subject to an annual increase as
          determined by the board of directors not exceeding 15% of his then
          current salary;

     o    the Chairman of the Board and the other directors (other than
          independent non-executive directors) shall be entitled to a maximum
          annual paid leave of 30 days and 25 days, respectively;

     o    each of the directors (other than independent non-executive
          directors) is entitled to the use of an apartment as his residence
          and the use of a car provided free by us together with certain other
          benefits and reimbursements;

     o    the annual salary for each of the other directors (other than
          independent non-executive directors) during the initial three years
          shall be HK$388,000, subject to an annual increase as determined by
          the board of directors not exceeding 15% of his then current salary;
          and

     o    we may, at our sole discretion, pay an director (other than
          independent non-executive directors) a bonus in such amount as the
          board of directors may determine in respect of each complete
          financial year during which his appointment subsists.

     The aggregate amount of salaries, housing allowances, other allowances
and benefits in kind paid to our directors (other than independent
non-executive directors) during the years ended December 31, 2000, 2001 and
2002 was approximately Rmb 2.5 million (US$301,932), Rmb 8.3 million (US$1.0
million) and Rmb 9.5 million (US$1.1 million), respectively, while the amount
paid to our executive officers for the same periods was approximately Rmb 1.3
million (US$157,005), Rmb 5.2 million (US$628,019) and Rmb 8.0 million
(US$966,184) respectively. Under our pension contribution plan for 2002, we
set aside an aggregate amount of Rmb 210,000 (US$25,362) and Rmb 310,000
(US$37,440) for pension and similar benefits in kind for the directors (other
than independent non-executive directors) and executive officers respectively.
The directors (other than independent non-executive directors) and the
executive officers contributed an additional Rmb 50,000 (US$6,039) and Rmb
79,000 (US$9,541), respectively, to the pension contribution plan for 2002.
For further details regarding employee compensation, see "Item 4--Information
on the Company--Business Overview--Employees and Employee Benefits." For
further details regarding share options granted to our directors, officers and
other employees, see "--Share Ownership" below.

C.   BOARD PRACTICE

Audit and Other Committees

     The audit committee consists of two independent non-executive directors.
Its primary duties are to review and supervise the financial reporting process
and our internal control system.

     We have established a compensation committee. It consists of three
independent non-executive directors and one non-executive director. The
primary duties of the compensation committee are to manage share option
schemes and to formulate our remuneration policy.

International Advisory Board

     On October 29, 2001, we announced the establishment of an International
Advisory Board with globally well-respected political figures and corporate
leaders as members. The purpose of the International Advisory Board is to
provide the management with strategic advice on world events and macro issues
that may impact our development. Kenneth Courtis and Erwin Schurtenberger, two
of our independent non-executive directors, were members of the International
Advisory Board prior to their election to the board of directors in November
2002. On March 20, 2003, we announced that Peter Sutherland and Cornelius
Herkstroter have joined our International Advisory Board to fill the vacancies
created by the departures of Mr. Curtis and Mr. Schurtenberger.



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<PAGE>


     Set forth below is information on the current members of our
International Advisory Board.

<TABLE>
<CAPTION>

Name                                                       Biographical Information
-----------------------------       ----------------------------------------------------------------
<S>                                 <C>
Cornelius Herkstroter               Former Chairman of the Committee of Managing Directors of the
                                    Royal Dutch Shell Group of Companies and President of Royal
                                    Dutch Petroleum Company. He spent his entire career in the
                                    mineral and resources industry, primarily with Royal Dutch
                                    Shell. He holds various board and advisory positions with
                                    several global corporations and organizations.

Henry A. Kissinger                  56th Secretary of State of the United States and former
                                    Assistant to the President for National Security Affairs. Born
                                    in Germany in May 1923, he received his Ph.D. degree from
                                    Harvard University in 1954.

Simon Murray                        Former Executive Chairman of Asia Pacific for the Deutsche Bank
                                    Group. He was the founder of Davenham Investments, a project
                                    advisory company. He became the Group Managing Director of
                                    Hutchison Whampoa in 1984. He is currently a Director of a
                                    number of companies that include Hutchison Whampoa, Cheung Kong
                                    Holdings, Tommy Hilfiger in the United States and Vivendi
                                    Universal in France.

Edward S. Steinfeld                 Assistant professor at the MIT Sloan School of Management. He
                                    received both his undergraduate and doctoral training at
                                    Harvard University. A China specialist, he has conducted
                                    extensive firm-level research in China.

Peter Sutherland                    Chairman and Managing Director of Goldman Sachs International
                                    and non-executive Chairman of BP plc. He served as Director
                                    General of the World Trade Organization from 1993 to 1995 and
                                    is a distinguished leader in world trade and commerce. He holds
                                    various board and advisory positions with several global
                                    corporations and organizations.

</TABLE>

D.   EMPLOYEES

     See "Item 4--Information on the Company--Business Overview--Employees and
Employee Benefits."

E.   SHARE OWNERSHIP

     On June 6, 2002, we adopted a new share option scheme to comply with new
requirements issued by the Hong Kong Stock Exchange. Our new share option
scheme provides for the grant of options to our employees, including
non-executive directors. Under this share option scheme, the compensation
committee of our board of directors may from time to time propose to the board
of directors to award a specific member of share options to particular
employees. Options granted under this scheme are exercisable in accordance
with the following vesting schedule:

     o    one-third of the shares underlying the option vest on the first
          anniversary of the date of the grant;

     o    one-third of the shares underlying the option vest on the second
          anniversary of the date of the grant; and

     o    one-third of the shares underlying the option vest on the third
          anniversary of the date of the grant.

     The option period may commence on any day after the option is granted,
but must end within 10 years from the date of the grant. The maximum number of
shares to be issued under our share option scheme may not exceed 10% of our
issued share capital as of June 6, 2002. If we increase our share capital, our
shareholders in a general meeting may increase the maximum number of shares
that may be issued under our share option scheme provided such increase does
not exceed 10% of our issued share capital as of the date of such increase.
The total number of shares that may be issued upon exercise of all outstanding
options, however, may not exceed 30% of our issued share capital under any
circumstances.

     Unless separately approved by our shareholders in a general meeting with
the relevant participant and his or her associates abstaining from voting, the
maximum number of shares in respect of which options may



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<PAGE>


be granted to any participant together with any shares issued in respect of
options which have been exercised by that participant and any shares which
would be issued upon the exercise of the outstanding options granted to that
participant in any 12 month period up to the date of the latest grant may not
exceed 1% of our issued share capital.

     Under the new share option scheme, the consideration payable by a
participant for the grant of an option is HK$1.00. The exercise price for our
share options is determined by our board of directors at the grant date, but
may not be set below a minimum price which is the highest of:

     o    the closing price of our shares on the Hong Kong Stock Exchange as
          stated in its quotation sheets on the date of the grant of the
          options;

     o    the average closing price of our shares on the Hong Kong Stock
          Exchange as stated in its quotation sheets for the five trading days
          immediately preceding the date of the grant of the options; or

     o    the nominal value of one share.

     Any grant of share options to a connected person (as defined in the Hong
Kong Stock Exchange listing rules) must be approved by our independent
non-executive directors (excluding any independent non-executive director who
may be the recipient of the options).

     On March 12, 2001, our board of directors, under a pre-global offering
share option scheme adopted on February 4, 2001, granted options in 4,620,000
shares to directors and senior management at an exercise price of HK$5.95 per
share. The options granted under this scheme are exercisable in accordance
with the following vesting schedule:

     o    50% of the shares underlying the option vest 18 months after the
          date of the grant; and

     o    50% of the shares underlying the option vest 30 months after the
          date of the grant.

     On August 27, 2001, under the original share option scheme that was
adopted shortly after our initial public offering, our board of directors
granted options in 8,820,000 shares to directors and senior management at an
exercise price of HK$6.16 per share. The vesting schedule for these options is
the same as the vesting schedule under our current share option scheme. On
February 24, 2003, our board of directors granted options in 8,410,000 shares
to members of our senior management at an exercise price HK$10.54 per share.

     For further details about our share option scheme, see notes 29 and
37(ii) to our consolidated financial statements attached to this annual
report.



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<PAGE>


     As at December 31, 2002, our directors and employees had the following
personal interests in options to subscribe for shares granted under our share
option schemes:


<TABLE>
<CAPTION>

                    Number of shared involved in the options                           Closing price per share
                                Outstanding as of                                      immediately before the
                    ----------------------------------------                             date on which the           Exercise Price
Name of Grantee     January 1, 2002      December 31, 2002       Date of Grant          options were granted             (HK$)
-----------------   ---------------      -----------------      ----------------      -------------------------      --------------
Directors:
<S>                    <C>                  <C>                 <C>                             <C>                      <C>
Wei Liucheng             500,000              500,000           March 12, 2001                    --                      5.95
                         500,000              500,000           August 27, 2001                 7.30                      6.16

Fu Chengyu               350,000              350,000           March 12, 2001                    --                      5.95
                         350,000              350,000           August 27, 2001                 7.30                      6.16

Jiang Longsheng          280,000              280,000           March 12, 2001                    --                      5.95
                         230,000              230,000           August 27, 2001                 7.30                      6.16

Zhou Shouwei             280,000              280,000           March 12, 2001                    --                      5.95
                         350,000              350,000           August 27, 2001                 7.30                      6.16

Luo Han                  280,000              280,000           March 12, 2001                    --                      5.95
                         230,000              230,000           August 27, 2001                 7.30                      6.16


Employees:

Other Employees        2,930,000            2,930,000           March 12, 2001                    --                      5.95
                       7,160,000            7,160,000           August 27, 2001                 7.30                      6.16
</TABLE>


     As of December 31, 2002, no options grantender our share option scheme
and our pre-global offering share option scheme have been exercised.

     As of December 31, 2002, none of our officers and directors owned 1% or
more of our shares including the shares underlying the stock options granted
as of that date.



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<PAGE>


ITEM 7.  Major Shareholders and Related Party Transactions

A.   MAJOR SHAREHOLDERS

     The following table sets forth information regarding the ownership of our
outstanding shares by major shareholders as of December 31, 2002. As of April
30, 2003, there have been no changes in ownership of our outstanding shares by
major shareholders.

  Shareholder                   Number of Shares Owned           Percentage
  ---------------------     -----------------------------      --------------
  CNOOC................              5,800,000,000                  70.61%



B.   RELATED PARTY TRANSACTIONS

Overview

     We regularly enter into transactions with related parties, including
CNOOC and its subsidiaries. Since CNOOC indirectly owns an aggregate of
approximately 70.6% of our issued share capital, some of these transactions
constitute connected transactions under the Hong Kong Stock Exchange listing
rules and are regulated by the Hong Kong Stock Exchange.

     Under the Hong Kong Stock Exchange listing rules, each connected
transaction normally would require full disclosure and the prior approval of
our independent shareholders. However, since the connected transactions are
carried out in the ordinary and usual course of business and occur on a
regular basis on normal commercial terms and on terms that are fair and
reasonable as far as our shareholders are concerned, the Hong Kong Stock
Exchange has allowed us to apply for a waiver from strict compliance with the
listing rules to engage in these transactions. The waiver typically
categorizes and limits the value of our various connected transactions.

     We originally obtained a waiver from the Hong Kong Stock Exchange on
April 3, 2001, shortly after our shares were listed on the Hong Kong Stock
Exchange. This waiver expired on December 31, 2002, and we obtained a new
waiver from the Hong Kong Stock Exchange on January 7, 2003. The new waiver
covers the period from January 1, 2003 to December 31, 2005.

     The Hong Kong Stock Exchange required us to obtain the approval of our
independent shareholders for the proposed connected transactions before it
would grant us the new waiver. As an interested shareholder, CNOOC abstained
from the shareholder vote on the proposed connected transactions. We appointed
an independent board committee to advise the independent shareholders on
whether the terms of the proposed connected transactions were in our interest
and were fair and reasonable so far as the independent shareholders were
concerned. An independent financial advisor, Cazenove Asia Limited, advised
the independent board committee on the terms of the connected transactions.
Our independent shareholders approved the proposed connected transactions at
an extraordinary general meeting on December 23, 2002.

Categories of Connected Transactions

     Our ongoing connected transactions fall into the following eight
categories:

     o    Contracts with foreign petroleum companies;

     o    Trademark license agreements;

     o    Lease agreement in respect of the Nanshan terminal;

     o    Provision of materials, utilities and ancillary services;

     o    Technical services;

     o    Research and development services;

     o    Lease and property management services; and



                                     101
<PAGE>


     o    Sales of crude oil, condensate oil and liquefied petroleum gas.

     Contracts with foreign petroleum companies. As part of our restructuring,
and in preparation for our initial public offering, CNOOC transferred to us
all of its rights and obligations under all existing and any future production
sharing contracts with various international oil and gas companies. As
required by PRC law, CNOOC retained certain administrative functions and
remains and will remain a party to the production sharing contracts. PRC law
requires a State-run entity, such as CNOOC, to negotiate and conclude an
initial production sharing contract with a foreign partner offshore China. New
production sharing contracts continue to be entered into between CNOOC and
foreign partners, primarily through bidding organized by CNOOC and, to a
lesser extent, through direct negotiation.

     Trademark license agreements. CNOOC has licensed to us two "CNOOC"
trademarks under non-exclusive license agreements that will expire on
September 8, 2008. We paid a nominal amount of Rmb 1,000 for each of the
trademarks. The registrations for the two trademarks will expire on December
6, 2008 and April 20, 2009, respectively. CNOOC has undertaken that so long as
it is our controlling shareholder, it will renew the trademark registrations
to enable us to continue using them without any additional consideration.

     Lease agreement in respect of the Nanshan Terminal. Under an agreement
dated September 9, 1999, CNOOC has granted us the right to use the Nanshan
Terminal, Yacheng 13-1, free-of-charge for a period of 20 years. We use the
property to process natural gas.

     Provision of materials, utilities and ancillary services. Various CNOOC
subsidiaries provide us with the use of certain facilities and ancillary
services and products, including:

     o    materials for offshore oil and gas production (including cement,
          diesel oil, mud, fuels, barite and paint);

     o    oil and gas production labor services;

     o    warehousing and storage;

     o    road transportation services;

     o    telecommunication and network services;

     o    wharf services;

     o    construction services, including the construction of roads, piers,
          buildings, plants and embankment;

     o    major equipment maintenance and repair works;

     o    medical, child care and social welfare services;

     o    water, electricity and heat supply;

     o    security and fire services; technical training; accommodation;

     o    repair and maintenance of buildings; and

     o    catering services.

     Under agreements between these CNOOC subsidiaries and us, the facilities
and ancillary products and services are provided at:

     (i)   state-prescribed prices; or

     (ii)  where there is no state-prescribed price, market prices, including
           the local or national market prices; or



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<PAGE>


     (iii) when neither (i) nor (ii) is applicable, the cost to CNOOC's
           associates of providing the relevant materials, utilities and
           ancillary services, including the cost of sourcing or purchasing
           from third parties, plus a margin of not more than 5%, before any
           applicable taxes.

     The prices, volumes and other terms of the agreements are reviewed by the
parties annually. If any of the terms are amended, the parties must enter into
a supplemental agreement no later than 60 days prior to the end of the
financial year preceding the financial year in which the amendment takes
effect. If the parties fail to reach an agreement by then, the existing terms
of the supply agreement will continue to apply until the parties agree on the
terms of the supplemental agreement. We have undertaken to the Hong Kong Stock
Exchange that we will comply with the provisions of the listing rules with
respect to any supplemental agreements.

     For the three years ended December 31, 2002, the amounts we paid to CNOOC
subsidiaries for these services were approximately Rmb 793 million, Rmb 815
million and Rmb 789 million, respectively, representing 3.3%, 3.9% and 3.0%,
respectively, of our total revenues.

     Technical services. Various CNOOC subsidiaries, including China Oilfield
Services Limited and CNOOC Offshore Oil Engineering Company Limited, provide
us with technical and labor services for its offshore oil and gas production
activities, including:

     o    offshore drilling;

     o    ship tugging, oil tanker transportation and security services;

     o    well surveys, well logging, well cementing and other related
          technical services;

     o    collection of geophysical data, ocean geological prospecting, and
          data processing;

     o    platform fabrication service and maintenance; and

     o    design, construction, installation and test of offshore and onshore
          production facilities.

     For the three years ended December 31, 2002, the amounts we paid to CNOOC
subsidiaries for these services were approximately Rmb 2,038 million, Rmb
2,367 million and Rmb 3,280 million, respectively, representing 8.4%, 11.4%
and 12.4%, respectively, of our total revenue. We generally conduct an open
bidding process to select these services providers and the charges for these
services are based on arm's-length negotiations between the parties and
reflect considerations such as volume of sales, length of contracts, overall
customer relationship and other market factors.

     Research and development services. Various CNOOC subsidiaries and
affiliates, including the China Offshore Oil Research Center, provide us with
research and development services, including:

     o    geophysical exploration services;

     o    seismic data processing;

     o    comprehensive exploration research services; and

     o    information technology services.

     We pay the China Offshore Oil Research Center an annual fee of Rmb 110
million for general research and development services. We occasionally also
hire the Research Center through an open bidding process for specific research
and development projects. For specific projects during the three years ended
December 31, 2002, we paid the China Offshore Oil Research Center
approximately Rmb 52 million, Rmb 50 million and Rmb 57 million, respectively,
representing approximately 0.2%, 0.2% and 0.2%, respectively, of our total
revenues.

     Lease and property management services. We have entered into lease and
property management agreements with CNOOC and its subsidiaries for premises
located in Beijing, Tianjin, Zhanjiang, Shanghai and Shenzhen in the PRC and
in Singapore. Most of the premises are necessary for our operations, and the



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<PAGE>


agreements are based on normal commercial terms. For the three years ended
December 31, 2002, the aggregate rentals and management fees payable by us to
CNOOC and its subsidiaries were approximately Rmb 49 million, Rmb 46 million
and Rmb 54 million, respectively.

     Sales of crude oil, condensate oil and liquefied petroleum gas. We sell
crude oil, condensate oil and liquefied petroleum gas to CNOOC affiliates that
engage in the downstream petroleum business. The prices for these products are
based on prices in the international market. For the three years ended
December 31, 2002, CNOOC subsidiaries paid us approximately Rmb 508 million,
Rmb 1,814 million and Rmb 4,362 million, respectively, representing
approximately 2.1%, 8.7% and 16.5% of our total revenues for the respective
periods.

Waiver Conditions

     The new waiver granted to us by the Hong Kong Stock Exchange to us
contains the following typical conditions:

     i.   in relation to the ongoing connected transactions referred to in the
          paragraphs headed "Contracts with foreign petroleum companies,"
          "Trademark license agreements" and "Lease agreement in respect of
          the Nanshan Terminal" the transactions, and the respective
          agreements (if any) governing such transactions, must be on terms
          that are fair and reasonable so far as our shareholders are
          concerned and in relation to the ongoing connected transactions
          referred to in the paragraphs headed "Provision of materials,
          utilities and ancillary services," "Technical services," "Research
          and development services," "Lease and property management services"
          and "Sales of crude oil, condensate oil and liquefied petroleum gas"
          the transactions, and the respective agreements (if any) governing
          such transactions must be:

          a.   entered into by us in our ordinary and usual course of
               business;

          b.   either on normal commercial terms or, where there is no
               available comparison, on terms no less favorable than those
               available to or from independent third parties; and

          c.   on terms that are fair and reasonable so far as our
               shareholders are concerned;

     ii.  brief details of the ongoing connected transactions in each year as
          required by Rule 14.25(1)(A) to (D) of the Hong Kong Stock
          Exchange listing rules (i.e., the date or period of the
          transaction, the parties thereto and a description of their
          connected relationship, a brief description of the transaction and
          the purpose of the transaction, the total consideration and the
          terms, and the nature and the extent of the interest of the
          connected person in the transaction), must be disclosed in our
          annual report and accounts for the relevant year;

     iii. our independent non-executive directors must review annually the
          transactions and confirm, in our annual report and accounts for the
          year in question, that such transactions have been conducted in the
          manner stated in (i) above and, where applicable, within the annual
          limit stated in (v) below;

     iv.  our auditors must carry out review procedures annually in relation
          to the connected transactions and must confirm in writing whether
          the transactions:

          a.   received the approval of our board of directors;

          b.   have been entered into in accordance with the pricing policies
               as stated in our financial statements; and

          c.   have been entered into in accordance with the terms of the
               agreement governing the transactions or, where there is no
               agreement, on terms that are not less favorable than terms
               available to or from independent third parties.

     For the purpose of the above review by our auditors, CNOOC has undertaken
to us that it will provide the auditors with access to its relevant accounting
records;

     v.   the aggregate annual volume of transactions shall not exceed the
          proposed annual limits set out in the following table:



                                     104


<PAGE>


<TABLE>
<CAPTION>


          Transaction             Annual Limit                   Basis for Determining the Annual Limits
          -----------------------------------------------------------------------------------------------
          <S>                     <C>                            <C>
          Materials,              10% of our audited             Under our initial waiver, the annual
          utilities and           consolidated total             limit for this category was 3.91% of our
          ancillary               revenues in the                total revenues. The new annual limit is
          services supply         preceding financial year       based on past transaction amounts and
          agreements                                             future projections. We believe that new
                                                                 projects warrant the additional
                                                                 flexibility.

          Technical               In respect of the three        Our original waiver from the Hong Kong
          services                financial years ending         Stock Exchange limited this category of
                                  December 31, 2005, Rmb         connected transactions to Rmb 2,367
                                  5,853 million, Rmb 7,338       million for the year ended December 31,
                                  million and Rmb 4,880          2002. The new annual limits take into
                                  million, respectively          consideration continued expansion of
                                                                 existing oilfields and the development
                                                                 of two new oilfields in the Bohai Bay,
                                                                 which are expected to enter production
                                                                 by the end of year 2004.

          Research and            In respect of the three        Under our initial waiver, the limit for
          development             financial years ending         this category was Rmb 52 million per
          services for            December 31, 2005, Rmb         year. The new annual limits are based on
          particular              141 million, Rmb 148           the amounts in prior years and a
          projects                million and Rmb 153            projection of our future needs for such
                                  million, respectively          services.

          Sales of crude          In respect of the three        Our original waiver from the Hong Kong
          oil, condensate         financial years ending         Stock Exchange limited this category of
          oil and                 December 31, 2005, 42%,        transactions to Rmb 1,950 million
          liquefied               56% and 82%,                   (representing 18% of our audited
          petroleum gas           respectively, of our           consolidated revenues for the year ended
                                  audited consolidated           December 31, 2002). The new annual
                                  total revenues in the          limits are based on the amount of past
                                  preceding financial year       sales and expected increases in this
                                                                 category because of the ongoing
                                                                 development of existing oilfields and
                                                                 the development of two new oilfields in
                                                                 the Bohai Bay. The increases also
                                                                 reflect our anticipated need to use
                                                                 CNOOC's refining processes for heavy
                                                                 crude oil from new developments and the
                                                                 possibility that we may sell an
                                                                 increasing proportion of our oil and gas
                                                                 to CNOOC because of generally lower
                                                                 transportation costs.

          General                 Rmb 110 million                The annual limit for this category of
          research and                                           connected transactions is the same as
          development                                            the limit under the previous waiver from
          services                                               the Hong Kong Stock Exchange and takes
          agreement                                              into consideration our anticipated need
                                                                 for these services.

          Lease and              Rmb 78 million                  Under our initial waiver, the maximum
          management                                             amount of this category was Rmb 49
          services                                               million. The new waiver amount is based
                                                                 on possible future expansion and the
                                                                 unavailability of alternative providers.

</TABLE>

          The proposed increase in the annual limits for the transactions is
          primarily a result of the continued expansion in our business scope
          and operations, including the ongoing development of existing
          oilfields and the development of two new oilfields in the Bohai Bay.
          The proposed annual limits for the transactions take into
          consideration the two new oilfields in the Bohai Bay; and



                                     105


<PAGE>


          vi.  we will undertake that if any of the terms of the agreements or
               arrangements referred to above are altered or if we enter into
               any new agreements with any connected persons (within the
               meaning of the Hong Kong Stock Exchange's listing rules) in the
               future or if the limits stated in (v) above are exceeded, we
               will comply with the standard disclosure and shareholder
               approval provisions in the Hong Kong Stock Exchange's listing
               rules unless we apply for and obtain a separate waiver from the
               Hong Kong Stock Exchange.

     In addition to these connected transactions, from time to time we place
cash deposits with CNOOC Finance Corporation Limited, or CNOOC Finance. CNOOC
Finance is a wholly owned subsidiary of CNOOC and operates as a non-bank
finance company under the supervision of the People's Bank of China. As of
December 31, 2002, we had cash and cash equivalents and time deposits
aggregating Rmb 2,740 million placed with CNOOC Finance. Our interest income
from deposits placed with CNOOC Finance during the year 2002 was approximately
Rmb 3.5 million.

     For further information regarding related party transactions, see note 27
to our consolidated financial statements attached to this annual report.

Directors' Interests

     Our directors have no interest in any business which competes or might
compete with our businesses.

C.   INTERESTS OF EXPERTS AND COUNSEL

            Not applicable.



                                     106


<PAGE>


ITEM 8.  Financial Information

A.   CONSOLIDATED STATEMENTS AND OTHER FINANCIAL INFORMATION

     See pages beginning on page F-1 following Item 19.

Legal Proceedings

     We are not a defendant in any material litigation, claim or arbitration,
and we know of no pending or threatened proceeding which would have a material
adverse effect on our financial condition.

Dividend Distribution Policy

     We intend to declare and pay dividends in the future. The payment and the
amount of any dividends will depend on our results of operations, cash flow,
financial condition, the payment by our subsidiaries of cash dividends to us,
future prospects and other factors which our directors may consider relevant.
In addition, as our controlling shareholder, CNOOC will be able to influence
our dividend policy. Holders of our shares will be entitled to receive such
dividends declared by our board of directors pro rata according to the amounts
paid up or credited as paid up on the shares. Subject to the factors described
above, we currently intend to pursue a dividend policy consistent with other
international oil and gas exploration and production companies. Based on
current share prices and dividends of international oil and gas exploration
and production companies, we currently intend to target an initial dividend
yield of approximately 1% to 3%.

     Dividends may be paid only out of our distributable profits as permitted
under Hong Kong law, which does not restrict the payment of dividends to
nonresident holders of our securities. To the extent profits are distributed
as dividends, such portion of profits will not be available to be reinvested
in our operations.

     Holders of our ADSs will be entitled to receive dividends, subject to the
terms of the deposit agreement, to the same extent as holders of our shares,
less the fees and expenses payable under the deposit agreement. Cash dividends
will be paid to the depositary in Hong Kong dollars and, will be converted by
the depositary into U.S. dollars and paid to holders of ADSs. Stock dividends,
if any, will be distributed to the depositary and will be distributed by the
depositary, in the form of additional ADSs, to holders of the ADSs.

     Following the reorganization of CNOOC and our establishment as a separate
legal entity in October 1999, we paid dividends of Rmb 1,045.4 million in
March 2000 and declared a dividend of Rmb 6,426.4 million on December 20,
2000, which was paid in full prior to February 1, 2001. On August 27, 2001, we
declared a dividend of Rmb 871.8 million, which was paid in full prior to
October 31, 2001. On June 6, 2002, we declared a dividend of Rmb 1,306.7
million (US$157.8 million), which was paid in full by June 19, 2002. On August
23, 2002, we declared a divided of Rmb 958.3 million (US$115.7 million), which
was paid in full by September 27, 2002. The amount of dividends we paid
historically is not indicative of the dividends that we will pay in the
future.

     Substantially all our dividend payments result from dividends paid to us
by CNOOC China Limited. CNOOC China Limited must follow the laws and
regulations of the PRC and its articles of association in determining its
dividends. As a wholly foreign owned enterprise in China, CNOOC China has to
provide for a reserve fund and staff and workers' bonus and welfare fund, each
of which is appropriated from net profit after taxation but before dividend
distribution according to the prevailing accounting rules and regulations in
the PRC. CNOOC China is required to allocate at least 10% of its net profit to
the reserve fund until the balance of this fund has reached 50% of its
registered capital. Appropriations to the staff and workers' bonus and welfare
fund, which are determined at the discretion of CNOOC China's directors, are
charged to expense as incurred in the consolidated financial statements, which
were prepared under Hong Kong GAAP. None of CNOOC China's contributions to
these statutory funds may be used for dividend purposes.



                                     107


<PAGE>


     For the years ended December 31, 2000, 2001 and 2002, CNOOC China Limited
made the following appropriations to the statutory reserves:

<TABLE>
<CAPTION>

                                             For the year ended             For the year ended               For the year ended
                                             December 31, 2000               December 31, 2001               December 31, 2002
                                             -----------------               -----------------               -----------------
                                        Percentage         Rmb          Percentage         Rmb          Percentage         Rmb
                                      of Net Profits  (in millions)   of Net Profits  (in millions)   of Net Profits  (in millions)

<S>                                        <C>              <C>            <C>             <C>             <C>             <C>
Reserve fund......................         10%              847.5          10%             587.0           10%             697.1
Staff and workers' bonus and
welfare fund......................         --                --            0.7%             40.0           --               --
</TABLE>

     Prior to our reorganization, CNOOC China was not required to make
contributions to these reserve funds. Because the appropriations for these
funds are determined annually by CNOOC China's board of directors based on
year-end financial statements, there were no appropriations to these funds for
the year ended December 31, 2000.

B.   SIGNIFICANT CHANGES

Development and Production

     On February 27, 2003, we announced the drilling of a successful wildcat
well in Bozhong 34-1S-1 in southern Bohai Bay. The well was drilled on the
Bozhong 34-1S structure located about 3 kilometers southeast of the Bozhong
34-2 producing oilfield.

     On December 31, 2002, we began to produce oil from the Penglai 19-3
oilfield in the Bohai Bay. Penglai 19-3 is China's largest offshore oilfield.
As of December 31, 2002, our share of net proved reserves in the Penglai 19-3
field was 123 million BOE. The project is a production sharing contract
between ConocoPhillips and us. We hold a 51% participating interest in it.

     On July 11, 2002, we announced that we commenced commercial production at
our Wenchang project located in the Western South China Sea, approximately 400
kilometers southwest of Hong Kong and 140 kilometers east of Hainan Island,
China. The Wenchang project consists of the Wenchang 13-1 and 13-2 fields. We
are the operator of both fields and hold a 60% working interest in the
project. The average net production for 2002 from the Wenchang project was
19,794 BOE per day.

Acquisitions

     On March 7, 2003, we entered into an agreement with a subsidiary of the
BG Group to acquire an interest in the North Caspian Sea Project in
Kazakhstan, subject to certain conditions including the waiver of certain
preemptive rights held by the current partners to the project. On May 9, 2003,
some current partners to the project elected to exercise their preemptive
rights and, accordingly, we did not acquire any interest in the project.

     On January 1, 2003, we acquired BP Muturi Limited, which owns a 44.0%
interest in the Muturi production sharing contract, and BP Wiriagar Limited's
42.4% interest in the Wiriagar production sharing contract for a total of
approximately US$275 million. The Muturi and Wiriagar production sharing
contracts, together with the Berau production sharing contract, make up the
Tangguh LNG project. The Tangguh LNG project is a greenfield project located
offshore Indonesia and represents one of the largest natural gas projects in
Asia. Our interests in these two production sharing contracts represent
approximately 12.5% of the total reserves and upstream production of the
Tangguh LNG project. The remaining interests in the Tangguh LNG project are
held by BP Berau (34.2%), BP Muturi (0.2%), BP Wiriagar Ltd. (2.7%), MI Berau
(16.3%), Nippon (12.2%), BG (10.7%), KG Berau (8.6%), KG Wiriagar (1.4%) and
Indonesia Natural Gas Resources Muturi (1.1%).

     In October 2002, we entered into a key terms agreement to acquire an
aggregate interest of approximately 5.56% in the reserves and upstream
production of Australia's North West Shelf Gas Project for approximately
US$365.6 million, subject to certain adjustments. Under the terms of this
agreement, we would purchase our interest from the six current partners to
this project: BHP Billiton, BP, ChevronTexaco, Japan Australia LNG (MIMI),
Shell and Woodside Energy. Our estimated share of reserves from this project
would be approximately 1.2 trillion cubic feet of natural gas. Our share of
natural gas together with associated



                                     108


<PAGE>


liquids would be approximately 210 million BOE. Woodside Petroleum is the
operator for the project. Under the terms of the agreement, we would also
acquire a 25% interest in the China LNG Joint Venture, which is being
established by the six current partners to supply liquefied natural gas from
the North West Shelf Gas Project to a liquefied natural gas terminal currently
being developed by CNOOC and various partners in Guangdong Province, China. We
expect to complete our acquisition of the interests in the North West Shelf
Gas Project and China LNG Joint Venture in 2003. See "Item 4--Information on
the Company--Natural Gas Business--Overseas Activity."

First Quarter 2003 Financial and Operating Results

     On March 30, 2003, we announced certain information relating to our
revenues, expenditures and production results for the first quarter of 2003.
Our financial data for this period has not been audited by our independent
public accountants, and is presented here only for your information. You
should not unduly rely on this financial or production data.

     During the first quarter of 2003, our revenues from the sale of oil and
gas were Rmb 7.5 billion (US$905.8 million). Our daily average crude oil
production was 308,777 barrels per day during this period, compared to 298,625
barrels per day in 2002, while our daily average natural gas production was
242 million cubic feet per day, compared to 272.6 million cubic feet per day
in 2002. The average net realized price of our crude oil was US$30.33 per
barrel during the first quarter of 2003, compared to US$24.35 per barrel in
2002, while the average net realized price of our natural gas was US$2.99 per
thousand cubic feet, compared to US$2.98 per thousand cubic feet in 2002. The
higher average net realized price of our crude oil during the recent quarterly
period primarily reflected the impact of the Iraqi conflict on oil prices.



                                     109


<PAGE>


ITEM 9.  THE OFFER AND LISTING

     Not applicable, except for Item 9.A.4 and Item 9.C.

     Our H shares are listed on the Hong Kong Stock Exchange under the stock
code "883" and our ADSs, each representing 20 H shares, are listed on the New
York Stock Exchange under the symbol "CEO." The following table sets forth,
for the periods indicated, the high and low closing prices per H share, as
reported on the Hong Kong Stock Exchange, and per ADS, as reported on the New
York Stock Exchange.

<TABLE>
<CAPTION>


                                               Hong Kong Stock Exchange                        New York Stock Exchange
                                               ------------------------                        ------------------------
Period                                    High                          Low            High                           Low
                                                   (HK$ per share)                                (US$ per ADS)
<S>                                       <C>                           <C>           <C>                            <C>
2001*...............................      8.70                          6.00          22.00                          15.70
2002................................     11.65                          7.40          29.44                          19.01

2001 Financial Quarters

   1st Quarter*.....................      7.30                          6.80          18.48                          15.70
   2nd Quarter......................      8.70                          6.20          22.00                          16.00
   3rd Quarter......................      8.50                          7.00          21.75                          18.10
   4th Quarter......................      8.15                          6.90          20.70                          17.35
  2002 Financial Quarters

   1st Quarter......................      9.70                          7.40          24.92                          19.01
   2nd Quarter......................     10.95                          9.35          27.60                          23.84
   3rd Quarter......................     11.65                          9.60          29.44                          24.88
   4th Quarter......................     11.10                          9.35          28.48                          24.00
    2003 Financial Quarters

   1st Quarter......................     10.95                          9.80          28.15                          25.11

Last Six Months

   November 2002....................     10.10                          9.35          26.48                          24.00
   December 2002....................     10.50                          9.55          26.95                          24.21
   January 2003.....................     10.50                          9.80          26.93                          25.11
   February 2003....................     10.95                         10.15          27.87                          26.02
   March 2003.......................     10.90                         10.05          28.15                          25.75
   April 2003.......................     10.45                          9.90          26.96                          25.18

</TABLE>

*    We listed our H shares on the Hong Kong Stock Exchange and our ADSs on
     the New York Stock Exchange in February 2001.



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<PAGE>


ITEM 10.  ADDITIONAL INFORMATION

     A. SHARE CAPITAL

     Not applicable.

B.   MEMORANDUM AND ARTICLES OF ASSOCIATION

     We are incorporated with limited liability on August 20, 1999 in Hong
Kong under the Companies Ordinance. Our company registration number in Hong
Kong is 685974. Under section three of our memorandum of association, we have
the capacity and the rights, powers and privileges of a natural person and in
addition and without limit, we may do anything which we are permitted to do by
any enactment or rule of law. The following are summaries of provisions of our
memorandum of association and articles of association and the Companies
Ordinance (Chapter 32 of the Laws of Hong Kong). For further details, you
should read our memorandum of association and articles of association which
were filed as exhibits to our registration statement on Form F-1 (Registration
No. 333-10862) and we incorporate them in this annual report by reference.

   Issue of Shares

     Under the Companies Ordinance of Hong Kong, our directors may, without
prior approval of the shareholders, offer to issue new shares in our company
to existing shareholders pro rata. The directors may not issue new shares of
our company in any other manner without the prior approval of the shareholders
in a general meeting. Any approval given in a general meeting shall continue
in force until the earliest to occur of the following events:

     o    the conclusion of the following annual general meeting,

     o    the expiration of the period within which the next annual general
          meeting is required by law to be held, or

     o    when revoked or varied by an ordinary resolution of the
          shareholders, in a general meeting of our company.

If such approval is given, the unissued shares of our company shall be at the
disposal of the board of directors. The directors may offer, allot, grant
options over or otherwise dispose of the unissued shares to persons at such
times and for such consideration and upon such terms and conditions as the
directors may determine.

     In accordance with the listing rules of the Hong Kong Stock Exchange, any
such approval of the shareholders must be limited to shares with an aggregate
nominal value not exceeding 20% of the aggregate value of our share capital in
issue plus the aggregate nominal amount of share capital repurchased by us
since the granting of such approval.

   Dividends

     Subject to the Companies Ordinance of Hong Kong, the shareholders in a
general meeting may declare dividends to be paid to shareholders. However,
dividends will not be declared in excess of the amount recommended by the
board of directors.

     In addition to dividends declared in a general meeting, the board of
directors may declare and pay to the shareholders interim dividends as appear
to the board of directors to be justified by our financial position. The board
of directors may also pay any fixed dividend on any shares of our company on
any other dates, whenever our financial position, in their opinion, justifies
such payment.

   Winding Up

     If we are wound up, the liquidator may, with the sanction of a special
resolution, divide among our shareholders in specie or in kind the whole or
any part of our assets or vest any part of our assets in trustees upon such
trusts for the benefit of our shareholders or any of them as the resolution
shall provide.



                                     111


<PAGE>


   Voting Rights

     Under the Companies Ordinance of Hong Kong, any action to be taken by the
shareholders in a general meeting requires the affirmative vote of either an
ordinary or a special resolution passed at such meeting.

     o    An ordinary resolution is a resolution passed by the majority of
          shareholders that are entitled to, and do, vote in person or by
          proxy at a general meeting.

     o    A special resolution is a resolution passed by not less than 75% of
          shareholders that are entitled to, and do, vote in person or by
          proxy at a general meeting.

Generally, resolutions of shareholders are passed by ordinary resolution.
However, the Companies Ordinance of Hong Kong provides that some matters may
only be passed as special resolutions. These matters include:

     o    alteration of the object clause,

     o    alteration of the articles,

     o    change of a company's name,

     o    reduction of share capital, and

     o    voluntary winding up.

     Voting at any meeting of shareholders is by a show of hands unless a poll
is demanded. If voting is by a show of hands, every shareholder who is present
at the meeting in person or by proxy has one vote. On a poll, every
shareholder who is present in person or by proxy has one vote for every share
held or represented by him. A poll may be demanded in some circumstances by:

     o    the chairman of the meeting,

     o    at least three shareholders present in person or by proxy and
          entitled to vote at the meeting,

     o    shareholders present in person or by proxy who represent in the
          aggregate not less than 10% of the total voting rights of all
          shareholders having the right to attend and vote at the meeting, or

     o    shareholders present in person or by proxy and holding shares
          conferring a right to amend and vote at the meeting on which there
          have been paid up sums in the aggregate equal to not less than 10%
          of the total sum paid up on all shares conferring that right.

     Any action to be taken by the shareholders requires the affirmative vote
of the requisite majority of the shares at a meeting of shareholders. There
are no cumulative voting rights. Accordingly, the holders of a majority of the
shares voting for the election of directors can elect all the directors if
they choose to do so.

   Modification of Rights

     Subject to the Companies Ordinance of Hong Kong, any of the rights
attaching to any class of shares, unless otherwise provided for by the terms
of issue of the shares of that class, may be varied or abrogated with the
written consent of the holders of not less than 75% of the issued shares of
that class or with the sanction of a special resolution passed at a separate
general meeting of the holders of shares of that class.

   Borrowing Powers

     Our board of directors may exercise all the powers of our company to
borrow money and to mortgage or charge all or any part of our undertaking,
property and asserts, whether present or future, and uncalled capital. Our
board of directors may issue debentures, debenture stock, bonds or other
securities of our company, whether outright or as collateral security for any
debt, liability or obligation of our company or of any third party. These
borrowing powers are subject to variation by a special resolution of our
company.



                                     112


<PAGE>


C.   MATERIAL CONTRACTS

     Incorporated by reference to our registration statement on Form F-1
(Registration No. 333-10862), to which most of our current material contracts
were filed as exhibits. For additional information on our material contracts,
see "Item 7--Major Shareholders and Related Party Transactions--Related Party
Transactions" and "Item 19--Exhibits."

D.   EXCHANGE CONTROLS

     A portion of our Renminbi revenue may need to be converted into other
currencies by our wholly owned principal operating subsidiary in the PRC,
CNOOC China Limited, to meet our foreign currency obligations. We have
substantial requirements for foreign currency, including:

     o    debt service on foreign currency denominated debt;

     o    overseas acquisitions of oil and gas properties;

     o    purchases of imported equipment; and

     o    payment of dividends declared in respect of shares held by
          international investors.

     CNOOC China Limited may undertake current account foreign exchange
transactions without prior approval from the State Administration for Foreign
Exchange. It has access to current account foreign exchange so long as it can
produce commercial documents evidencing such transactions and provided that
they are processed through certain banks in China. Foreign exchange
transactions under the capital account, including principal payments with
respect to foreign currency denominated obligations, will be subject to the
registration requirements of the State Administration for Foreign Exchange.

     Since 1994, the conversion of Renminbi into Hong Kong and United States
dollars has been based on rates set by the People's Bank of China, which are
set daily based on the previous day's PRC interbank foreign exchange market
rate and current exchange rates on the world financial markets. The PRC
government has stated publicly that it intends to make Renminbi freely
convertible in the future. However, we cannot predict when the PRC government
will allow free conversion of Renminbi into foreign currencies. Renminbi
devaluation and fluctuations in exchange rates may adversely affect the value,
translated or converted into U.S. dollars or Hong Kong dollars, of our net
assets, earnings and any declared dividends. Renminbi devaluation and exchange
rate fluctuations may adversely affect our results of operations and financial
condition and may result in foreign exchange losses because of our substantial
U.S. dollar and Japanese yen-denominated debts, expenses and other
requirements. In addition, we may not be able to increase the Renminbi prices
of our domestic sales to offset fully any depreciation of the Renminbi due to
political, competitive or social pressures. We do not hedge exchange rate
fluctuations between the Renminbi and foreign currencies and currently have no
plans to do so. For further information on foreign exchange risks, foreign
exchange rates and hedging activities, see "Currencies and Exchange Rates" and
"Item 11--Qualitative and Quantitative Disclosure about Market Risk."

E.   TAXATION

     The taxation of income and capital gains of holders of our shares or ADSs
is subject to the laws and practices of Hong Kong and of jurisdictions in
which holders of our shares or ADSs are resident or otherwise subject to tax.
The following is a summary of taxation provisions that are anticipated to be
material based on current law and practice, is subject to change and does not
constitute legal or tax advice. The discussion does not deal with all possible
tax consequences relating to an investment in our shares or ADSs. In
particular, the discussion does not address the tax consequences under state,
local and other laws, such as non-Hong Kong and non-U.S. federal laws.
Accordingly, we urge you to consult your tax adviser regarding the tax
consequences of an investment in our shares and ADSs. The discussion is based
upon laws and relevant interpretations in effect as of the date of this annual
report, all of which are subject to changes. There is no reciprocal tax treaty
in effect between Hong Kong and the United States.



                                     113


<PAGE>


Hong Kong

   Tax on Dividends

     Under the current practices of the Hong Kong Inland Revenue Department,
no tax is payable in Hong Kong in connection with dividends paid by us.

   Profits Tax

     No tax is imposed in Hong Kong in respect of capital gains from the sale
of property, such as the shares and ADSs. Trading gains from the sale of
property by persons carrying on a trade, profession or business in Hong Kong
where such gains are derived from or arise in Hong Kong from such trade,
profession or business will be chargeable to Hong Kong profits tax which is
currently imposed at the rate of 16% on corporations and at a maximum rate of
15% on individuals. Gains from sales of the shares effected on the Hong Kong
Stock Exchange will be considered to be derived from or arise in Hong Kong.
Liability for Hong Kong profits tax would thus arise in respect of trading
gains from sales of shares or ADSs realized by persons carrying on a business
of trading or dealing in securities in Hong Kong.

   Stamp Duty

     Hong Kong stamp duty, currently charged at the rate of HK$1.125 per
HK$1,000 or part thereof on the higher of the consideration for or the value
of the shares, will be payable by the purchaser on every purchase and by the
seller on every sale of shares. For example, a total of HK$2.25 per HK$1,000
or part thereof is currently payable on a typical sale and purchase
transaction involving shares. In addition, a fixed duty of HK$5 is currently
payable on any instrument of transfer of shares. The withdrawal of shares upon
the surrender of ADRs, and the issuance of ADRs upon the deposit of shares,
will also attract stamp duty at the rate described above for sale and purchase
transactions unless the withdrawal or deposit does not result in a change in
the beneficial ownership of the shares under Hong Kong law. The issuance of
the ADRs upon the deposit of shares issued directly to the depositary or for
the account of the depositary does not attract stamp duty. No Hong Kong stamp
duty is payable upon the transfer of ADSs outside Hong Kong.

   Estate Duty

     The shares are Hong Kong property under Hong Kong law, and accordingly
such shares may be subject to estate duty on the death of the beneficial owner
of such shares, regardless of the place of the owner's residence, citizenship
or domicile. We cannot assure you that the Hong Kong Inland Revenue Department
will not treat the ADRs as Hong Kong property that may be subject to estate
duty on the death of the beneficial owner of the ADR even if the ADRs are
located outside Hong Kong at the date of such death. Hong Kong estate duty is
imposed on a progressive scale from 5% to 15%. The rate of and the threshold
for estate duty has, in the past, been adjusted on a fairly regular basis. No
estate duty is payable when the aggregate value of the dutiable estate does
not exceed HK$7.5 million, and the maximum rate of duty of 15% applies when
the aggregate value of the dutiable estate exceeds HK$10.5 million.

United States

   Federal Income Tax Considerations

     The following is a summary of United States federal income tax
considerations that are anticipated to be material for U.S. Holders, as
defined below. This summary is based upon existing United States federal
income tax law, which is subject to change, possibly with retroactive effect.
This summary does not discuss all aspects of United States federal income
taxation which may be important to particular investors in light of their
individual investment circumstances, such as investors subject to special tax
rules including: partnerships, financial institutions, insurance companies,
broker-dealers, tax-exempt organizations, and, except as described below,
non-U.S. Holders, or to persons that will hold our shares or ADSs as part of a
straddle, hedge, conversion, or constructive sale transaction for United
States federal income tax purposes or that have a functional currency other
than the United States dollar, all of whom may be subject to tax rules that
differ significantly from those summarized below. In addition, this summary
does not discuss any foreign, state, or local tax considerations. This summary
assumes that investors will hold our shares or ADSs as "capital assets"
(generally, property held for investment) under the United States Internal
Revenue Code. Each prospective



                                     114


<PAGE>


investor is urged to consult its tax advisor regarding the United States
federal, state, local, and foreign income and other tax considerations of the
purchase, ownership, and disposition of our shares or ADSs.

     For purposes of this summary, an U.S. Holder is a beneficial owner of
shares or ADSs that is for United States federal income tax purposes:

     o    an individual who is a citizen or resident of the United States;

     o    a corporation, or other entity that is taxable as a corporation
          created in or organized under the laws of the United States or any
          State or political subdivision thereof;

     o    an estate the income of which is includible in gross income for
          United States federal income tax purposes regardless of its source;

     o    a trust the administration of which is subject to the primary
          supervision of a United States court and which has one or more
          United States persons who have the authority to control all
          substantial decisions of the trust; or

     o    a trust that was in existence on August 20, 1996, was treated as a
          United States person, for United States federal income tax purposes,
          on the previous day, and elected to continue to be so treated.

     A beneficial owner of our shares or ADSs that is not a U.S. Holder is
referred to herein as a "Non-U.S. Holder."

     A foreign corporation will be treated as a "passive foreign investment
company" (a "PFIC"), for United States federal income tax purposes, if 75% or
more of its gross income consists of certain types of "passive" income or 50%
or more of its assets are passive. Based on our current and projected income,
assets, and activities, we presently believe that we are not a PFIC and do not
anticipate becoming a PFIC. This is, however, a factual determination made on
an annual basis. Because the classification of certain of our interests for
United States federal income tax purposes is uncertain and the PFIC rules are
subject to administrative interpretation, however, no assurance can be given
that we are not or will not be treated as a PFIC. The discussion below under
"U.S. Holders Dividends" and "U.S. Holders Sale or Other Disposition of Shares
or ADSs", assumes that we will not be subject to treatment as a PFIC for
United States federal income tax purposes.

   U.S. Holders

     For United States federal income tax purposes, a U.S. Holder of an ADS
will be treated as the owner of the proportionate interest of the shares held
by the depositary that is represented by an ADS and evidenced by such ADS.
Accordingly, no gain or loss will be recognized upon the exchange of an ADS
for the holders' proportionate interest in the shares. A U.S. Holder's tax
basis in the withdrawn shares will be the same as the tax basis in the ADS
surrendered therefore, and the holding period in the withdrawn shares will
include the period during which the holder held the surrendered ADS.

     Dividends. Any cash distributions paid by us out of our earnings and
profits, as determined under United States federal income tax principles, will
be subject to tax as ordinary dividend income and will be includible in the
gross income of a U.S. Holder upon receipt. Cash distributions paid by us in
excess of our earnings and profits will be treated as a tax-free return of
capital to the extent of the U.S. Holder's adjusted tax basis in our shares or
ADSs, and after that as gain from the sale or exchange of a capital asset.
Dividends paid in Hong Kong dollars will be includible in income in a United
States dollar amount based on the United States dollar to Hong Kong dollar
exchange rate prevailing at the time of receipt of such dividends by the
depositary, in the case of ADSs, or by the U.S. Holder, in the case of shares
held directly by such U.S. Holder. U.S. Holders should consult their tax
advisors regarding the United States federal income tax treatment of any
foreign currency gain or loss recognized on the subsequent conversion of Hong
Kong dollars received as dividends to United States dollars. Dividends
received on shares or ADSs will not be eligible for the dividends received
deduction allowed to corporations.

     Dividends received on shares or ADSs will be treated, for United States
federal income tax purposes, as foreign source income. A U.S. Holder may be
eligible, subject to a number of complex limitations, to claim a foreign tax
credit in respect of any foreign withholding taxes imposed on dividends
received on shares or



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<PAGE>


ADSs. U.S. Holders who do not elect to claim a foreign tax credit for federal
income tax withheld may instead claim a deduction, for United States federal
income tax purposes, in respect of such withholdings, but only for a year in
which the U.S. Holder elects to do so for all creditable foreign income taxes.

     In addition, the United States Treasury has expressed concerns that
parties to whom depositary shares are pre-released may be taking actions that
are inconsistent with the claiming of foreign tax credits by the holders of
ADSs. Accordingly, the analysis of the creditability of foreign withholding
taxes could be affected by future actions that may be taken by the United
States Treasury.

     Sale or Other Disposition of Shares or ADSs. A U.S. Holder will recognize
capital gain or loss upon the sale or other disposition of shares or ADSs in
an amount equal to the difference between the amount realized upon the
disposition and the U.S. Holder's adjusted tax basis in such shares or ADSs,
as each is determined in U.S. dollars. Any such capital gain or loss will be
long-term if the shares or ADSs have been held for more than one year and will
generally be United States source gain or loss. The claim of a deduction in
respect of a capital loss, for United States federal income tax purposes, may
be subject to limitations. If a U.S. Holder receives Hong Kong dollars for any
such disposition, such U.S. Holder should consult its tax advisor regarding
the United States federal income tax treatment of any foreign currency gain or
loss recognized on the subsequent conversion of the Hong Kong dollars to
United States dollars.

   PFIC Considerations

     If we were to be classified as a PFIC in any taxable year, a U.S. Holder
would be subject to special rules generally intended to reduce or eliminate
any benefits from the deferral of United States federal income tax that a U.S.
Holder could derive from investing in a foreign company that does not
distribute all of its earnings on a current basis. In such event, a U.S.
Holder of the shares or ADSs may be subject to tax at ordinary income tax
rates on (i) any gain recognized on the sales of the shares or ADSs and (ii)
any "excess distribution" paid on the shares or ADSs (generally, a
distribution in excess of 125% of the average annual distributions paid by us
in the three preceding taxable years). In addition, a U.S. Holder may be
subject to an interest charge on such gain or excess distribution. Prospective
investors are urged to consult their tax advisors regarding the potential tax
consequences to them if we are or do become a PFIC, as well as certain
elections that may be available to them to mitigate such consequences.

   Non-U.S. Holders

     An investment in shares or ADSs by a Non-U.S. Holder will not give rise
to any United States federal income tax consequences unless:

     o    the dividends received or gain recognized on the sale of the shares
          or ADSs by such person is treated as effectively connected with the
          conduct of a trade or business by such person in the United States
          as determined under United States federal income tax law, or

     o    in the case of gains recognized on a sale of shares or ADSs by an
          individual, such individual is present in the United States for 183
          days or more and certain other conditions are met.

     In order to avoid back-up withholding on dividend payments made in the
United States, a Non-U.S. Holder of the shares or ADSs may be required to
complete, and provide the payer with, an Internal Revenue Service Form W-8BEN,
or other documentary evidence, certifying that such holder is an exempt
foreign person.

F.   DIVIDENDS AND PAYING AGENTS

     Not applicable.

G.   STATEMENT BY EXPERTS

     Not applicable.



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<PAGE>


H.   DOCUMENTS ON DISPLAY

     We are also subject to the informational requirements of the Exchange Act
and accordingly file reports and other information with the Securities and
Exchange Commission. You may inspect and copy our reports and other
information we file with the Securities and Exchange Commission at the public
reference facilities maintained by the Securities and Exchange Commission at
Judiciary Plaza, 450 Fifth Street, Room 1024, N.W., Washington, D.C. 20549.
You may also inspect such documents at the office of the New York Stock
Exchange, Wall Street, New York, New York 10005. Copies of such material may
also be obtained from the Public Reference Section of the Securities and
Exchange Commission at 450 Fifth Street, N.W., Washington, D.C. 20549, at
prescribed rates. You may obtain information regarding the Washington D.C.
Public Reference Room by calling the Securities and Exchange Commission at
1-800-SEC-0330 or by contacting the Securities and Exchange Commission over
the internet at its website at http://www.sec.gov.

I.   SUBSIDIARY INFORMATION

     Not applicable.

ITEM 11.  QUALITATIVE AND QUANTITATIVE DISCLOSURES ABOUT MARKET RISK

     Our market risk exposures primarily consists of fluctuations in oil and
gas prices, exchange rates and interest rates.

   Commodity Price Risks

     We are exposed to fluctuations in prices of crude oil and natural gas,
which are commodities whose prices are determined by reference to
international market prices. International oil and gas prices are volatile and
this volatility has a significant effect on our net sales and net income. We
do not hedge market risk resulting from fluctuations in oil and gas prices.
See "--Overview" and "Item 3--Key Information--Risk Factors--Risks relating to
our business--Our business, revenues and profits fluctuate with changes in oil
and gas prices."

   Currency Risk

     Our foreign exchange exposure gives rise to market risk associated with
exchange rate movements.

     Substantially all of our oil and gas sales are denominated in Renminbi
and U.S. dollars. In the last nine years, the PRC government's policy of
maintaining a stable exchange rate and China's ample foreign reserves have
contributed to the stability of the Renminbi. Our domestic oil and gas prices
are quoted in U.S. dollars based on international U.S. dollar oil prices.
Therefore we believe we are largely able to offset Renminbi exchange rate
risk. In the past three years, our major foreign currency risk arose from our
Japanese yen-denominated loan. On December 31, 2002, the outstanding amount of
our Japanese yen-denominated loan was JPY 1,357 million. Since the outstanding
amount of our Japanese yen loan is hedged using foreign currency swaps, we do
not expect significant exchange gains or losses on this outstanding amount in
the future. For a discussion of our currency risk, see "Item 3--Key
Information--Risk Factors--Risks relating to the PRC--Government control of
currency conversion and future movements in exchange rates may adversely
affect our operations and financial condition."

   Interest Rate Risk

     We are exposed to interest rate risk arising from our loans. An upward
fluctuation in interest rates increases the cost of new debt. We may use
interest rate swap transactions, from time to time, to adjust our interest
rate exposure when considered appropriate, based on existing and anticipated
market conditions.

     As of December 31, 2002, our total outstanding debt, including both
foreign currency-denominated and Renminbi-denominated loans, was US$649.4
million, US$31.4 million of which was floating rate debt and US$618.0 million
of which was fixed rate debt. After our prepayment of certain debt in early
2003 and as of April 30, 2003, all of our outstanding long-term loans were
fixed rate debt.



                                     117


<PAGE>


     The following table sets for additional information about the expected
maturity dates of our outstanding debt as of December 31, 2002.

<TABLE>
<CAPTION>

                                                                                                                       Fair value
                                                                                                                         as of
                                                                                                  2008                December 31,
                                                    2003     2004    2005     2006     2007    and after     Total       2002
                                                   ------   -----   ------   ------   -----   -----------   -------  ------------
                                                                        (Rmb in millions, except percentages)

Long-term debt, including current portion
<S>                                                <C>      <C>     <C>      <C>      <C>        <C>         <C>        <C>
   Fixed rate..................................      76       19      19      846       19         --         979       1,389
   Average interest rate.......................    8.185%   8.495%  8.592%   8.692%   4.000%       --

   Variable rate...............................      260      --      --       --       --         --         260         260
   Average interest rate.......................    1.383%     --      --       --       --         --

6.375% long-term guaranteed notes
   Fixed rate..................................      --       --      --       --       --        4,140      4,140       4,482
   Average interest rate.......................    6.375%   6.375%  6.375%   6.375%   6.375%     6.375%

</TABLE>


     The above table takes into account our early repayment of certain loans
prior to May 13, 2003. For additional discussions of our market risks, see
"Item 3--Key Information--Risk Factors."

ITEM 12.  DESCRIPTION OF SECURITIES OTHER THAN EQUITY SECURITIES

     Not applicable.



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<PAGE>


                                    PART II

ITEM 13.  DEFAULTS, DIVIDEND ARREARAGES AND DELINQUENCIES

     None.

ITEM 14.  MATERIAL MODIFICATIONS TO THE RIGHTS OF SECURITY HOLDERS AND USE OF
          PROCEEDS

A.   MATERIAL MODIFICATIONS TO THE RIGHTS TO SECURITY HOLDERS

     None.

B.   USE OF PROCEEDS

     As of December 31, 2002, we had used all the net offering proceeds from
our initial public offering in February 2001 as follows:

     o    US$1,030 million to fund our capital expenditures and investments,
          including approximately US$570 million to finance our acquisition of
          Indonesian oil and gas assets from Repsol YPF, S.A.; and

     o    US$200 million to CNOOC in respect of retirement benefits payable to
          retired CNOOC employees.

     There was no material change in the use of proceeds as described in the
prospectus relating to our initial public offering.

     Further details of the Repsol acquisition are discussed under "Item
4--Information on the Company--Business Overview--Principal Oil and Gas
Regions--Overseas Activity."

ITEM 15.  CONTROLS AND PROCEDURES

     (a) Within the 90 days prior to the filing date of this annual report, we
carried out an evaluation under the supervision and with the participation of
our management, including our Chief Executive Officer and Chief Financial
Officer, of the effectiveness of the design and operation of our disclosure
controls and procedures. Based upon and as of the date of our evaluation, our
Chief Executive Officer and Chief Financial Officer concluded that our
disclosure controls and procedures were adequate and designed to ensure that
material information relating to us and our consolidated subsidiaries as
required to be disclosed in our reports filed or submitted under the Exchange
Act is recorded, processed, summarized and reported as and when required.

     (b) There were no significant changes in our internal controls or, to our
knowledge, in other factors that could significantly affect these controls
subsequent to the date of their evaluation.

ITEM 16.  RESERVED



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<PAGE>


                                   PART III

ITEM 17.  FINANCIAL STATEMENTS

     Not applicable.

ITEM 18.  FINANCIAL STATEMENTS

     See pages beginning on page F-1 following Item 19.

ITEM 19.  EXHIBITS

     The following documents are filed as part of this annual report:

Exhibit
Number             Document
-------            --------

1.1                Articles of Association of the Registrant, incorporated by
                   reference to Exhibit 3.1 to our Registration Statement on
                   Form F-1 filed with the Securities and Exchange Commission
                   (File Number: 333-10862).

1.2                Memorandum of Association of the Registrant, incorporated
                   by reference to Exhibit 3.2 to our Registration Statement
                   on Form F-1 filed with the Securities and Exchange
                   Commission (File Number: 333-10862).

2.1                Form of Indenture.

4.1                The Asset Swap Agreement dated July 20, 1999 between CNOOC
                   and Offshore Oil Company Limited, incorporated by reference
                   to Exhibit 10.1 to our Registration Statement on Form F-1
                   filed with the Securities and Exchange Commission (File
                   Number: 333-10862).

4.2                The Asset Allocation Agreement dated July 20, 1999 between
                   CNOOC and Offshore Oil Company Limited, incorporated by
                   reference to Exhibit 10.2 to our Registration Statement on
                   Form F-1 filed with the Securities and Exchange Commission
                   (File Number: 333-10862).

4.3                The Reorganization Agreement dated September 13, 1999
                   between CNOOC, Offshore Oil Company Limited and CNOOC
                   Limited, incorporated by reference to Exhibit 10.3 to our
                   Registration Statement on Form F-1 filed with the
                   Securities and Exchange Commission (File Number:
                   333-10862).

4.4                Form of the Equity Transfer Agreement between CNOOC and
                   CNOOC Limited, incorporated by reference to Exhibit 10.4 to
                   our Registration Statement on Form F-1 filed with the
                   Securities and Exchange Commission (File Number:
                   333-10862).

4.5                Form of the Transfer Agreement dated October 1, 1999
                   between CNOOC and Offshore Oil Company Limited regarding
                   the transfer of the rights and obligations of CNOOC under
                   the 37 production sharing contracts and one geophysical
                   exploration agreement, incorporated by reference to Exhibit
                   10.5 to our Registration Statement on Form F-1 filed with
                   the Securities and Exchange Commission (File Number:
                   333-10862).

4.6                Form of Equity Transfer Agreement between China Offshore
                   Oil East China Sea Corporation and Offshore Oil Company
                   Limited regarding the transfer of the rights and
                   obligations under Joint Venture Contract of Shanghai
                   Petroleum and Natural Gas Company Limited dated July 28,
                   1992 to Offshore Oil Company Limited, incorporated by
                   reference to Exhibit 10.6 to our Registration Statement on
                   Form F-1 filed with the Securities and Exchange Commission
                   (File Number: 333-10862).

4.7                Transfer Agreement dated September 9, 1999 between CNOOC
                   and Offshore Oil Company Limited regarding the transfer of
                   the rights and obligations of CNOOC under the Natural Gas
                   Sale and Purchase Contract dated December 22, 1992 to
                   Offshore Oil Company Limited, incorporated by reference to
                   Exhibit 10.7 to our Registration Statement on Form F-1
                   filed with the Securities and Exchange Commission (File
                   Number: 333-10862).



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<PAGE>


4.8                Transfer Agreement dated September 9, 1999 between CNOOC
                   and Offshore Oil Company Limited regarding the transfer of
                   the rights and obligations of CNOOC under the Natural Gas
                   Sale and Purchase Contract dated November 7, 1992 to
                   Offshore Oil Company Limited, incorporated by reference to
                   Exhibit 10.8 to our Registration Statement on Form F-1
                   filed with the Securities and Exchange Commission (File
                   Number: 333-10862).

4.9                Transfer Agreement dated September 9, 1999 among CNOOC,
                   Offshore Oil Company Limited, the four PRC subsidiaries and
                   CNOOC's affiliates regarding the transfer of the rights and
                   obligations of the technical services agreements to
                   Offshore Oil Company Limited, incorporated by reference to
                   Exhibit 10.9 to our Registration Statement on Form F-1
                   filed with the Securities and Exchange Commission (File
                   Number: 333-10862).

4.10               Nanshan Terminal Leasing Agreement dated September 9, 1999
                   between CNOOC, Hainan China Oil and Offshore Natural Gas
                   Company and Offshore Oil Company Limited, incorporated by
                   reference to Exhibit 10.10 to our Registration Statement on
                   Form F-1 filed with the Securities and Exchange Commission
                   (File Number: 333-10862).

4.11               Trademark License Agreement dated September 9, 1999 between
                   CNOOC, Offshore Oil Company Limited and CNOOC Limited,
                   incorporated by reference to Exhibit 10.11 to our
                   Registration Statement on Form F-1 filed with the
                   Securities and Exchange Commission (File Number:
                   333-10862).

4.12               Trademark License Agreement dated September 9, 1999 between
                   China Offshore Oil Marketing Company, CNOOC Limited and
                   Offshore Oil Company Limited and CNOOC Limited,
                   incorporated by reference to Exhibit 10.12 to our
                   Registration Statement on Form F-1 filed with the
                   Securities and Exchange Commission (File Number:
                   333-10862).

4.13               Agreement for provision of materials, facilities and
                   auxiliary services dated September 9, 1999 with CNOOC
                   affiliates, incorporated by reference to Exhibit 10.13 to
                   our Registration Statement on Form F-1 filed with the
                   Securities and Exchange Commission (File Number:
                   333-10862).

4.14               Agreement for provision of materials, facilities and
                   auxiliary services dated September 9, 1999 with CNOOC
                   affiliates, incorporated by reference to Exhibit 10.14 to
                   our Registration Statement on Form F-1 filed with the
                   Securities and Exchange Commission (File Number:
                   333-10862).

4.15               Agreement for provision of materials, facilities and
                   auxiliary services dated September 9, 1999 with CNOOC
                   affiliates, incorporated by reference to Exhibit 10.15 to
                   our Registration Statement on Form F-1 filed with the
                   Securities and Exchange Commission (File Number:
                   333-10862).

4.16               Agreement for provision of materials, facilities and
                   auxiliary services dated September 9, 1999 with CNOOC
                   affiliates, incorporated by reference to Exhibit 10.16 to
                   our Registration Statement on Form F-1 filed with the
                   Securities and Exchange Commission (File Number:
                   333-10862).

4.17               General Research and Development Agreement dated September
                   9, 1999 between China Ocean Oil Research Institute and
                   Offshore Oil Company Limited, incorporated by reference to
                   Exhibit 10.17 to our Registration Statement on Form F-1
                   filed with the Securities and Exchange Commission (File
                   Number: 333-10862).

4.18               Property Leasing Agreement dated September 9, 1999 between
                   Wui Hai Enterprise Company Limited and Offshore Oil Company
                   Limited in respect of the office premises at 6th, 7th and
                   8th Floors, CNOOC Plaza, No. 6 Dong Zhi Men Wai Xiao Jie,
                   Beijing, incorporated by reference to Exhibit 10.18 to our
                   Registration Statement on Form F-1 filed with the
                   Securities and Exchange Commission (File Number:
                   333-10862).

4.19               Property Leasing Agreement dated September 9, 1999 between
                   China Offshore Oil Western South China Sea Corporation and
                   Offshore Oil Company Limited in respect of the office
                   premises at 1st to 9th Floors, Nantiao Road, Potou District
                   Zhangjiang, Guangdong, incorporated by reference to Exhibit
                   10.19 to our Registration Statement on Form F-1 filed with
                   the Securities and Exchange Commission (File Number:
                   333-10862).

4.20               Property Leasing Agreement dated September 9, 1999 between
                   China Offshore Oil Bohai Corporation and Offshore Oil
                   Company Limited in respect of the office premises at 1st to
                   7th Floors and 9th Floor, 2-37 He Kou Jie, Tanggu District,
                   Tianjin, incorporated by reference to Exhibit 10.20 to our
                   Registration Statement on Form F-1 filed with the
                   Securities and Exchange Commission (File Number:
                   333-10862).



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<PAGE>


4.21               Property Leasing Agreement dated September 9, 1999 between
                   China Offshore Oil East China Sea Corporation and Offshore
                   Oil Company Limited in respect of the office premises at
                   20th, 22nd and 23rd Floors, 583 Ling Ling Road, Shanghai,
                   the PRC, incorporated by reference to Exhibit 10.21 to our
                   Registration Statement on Form F-1 filed with the
                   Securities and Exchange Commission (File Number:
                   333-10862).

4.22               Property Leasing Agreement dated September 9, 1999 between
                   China Offshore Oil Eastern South China Sea Corporation and
                   Offshore Oil Company Limited in respect of the office
                   premises at 3rd Floor and 6th to 11th Floors, 1 Second
                   Industrial Road, Shekou, Shenzhen, the PRC, incorporated by
                   reference to Exhibit 10.22 to our Registration Statement on
                   Form F-1 filed with the Securities and Exchange Commission
                   (File Number: 333-10862).

4.23               Property Leasing Agreement dated September 9, 1999 between
                   China Offshore Oil Bohai Corporation and Offshore Oil
                   Company Limited in respect of the Chengbei Warehouse,
                   Chengbei Road, Tanggu District, Tianjin City, the PRC,
                   incorporated by reference to Exhibit 10.23 to our
                   Registration Statement on Form F-1 filed with the
                   Securities and Exchange Commission (File Number:
                   333-10862).

4.24               Property Leasing Agreement dated September 9, 1999 between
                   Overseas Oil & Gas Corporation Ltd. and China Offshore Oil
                   (Singapore) International Pte. Ltd. in respect of the
                   residential premises at 10-01 and 17-002 Aquamarine Tower,
                   50 Bayshore Road, 13-05 Jade Tower, 60 Bayshore Road,
                   Singapore, incorporated by reference to Exhibit 10.24 to
                   our Registration Statement on Form F-1 filed with the
                   Securities and Exchange Commission (File Number:
                   333-10862).

4.25               Suizhong Pier Agreement dated September 9, 1999 between
                   Offshore Oil Company Limited and China Offshore Bohai
                   Corporation, incorporated by reference to Exhibit 10.25 to
                   our Registration Statement on Form F-1 filed with the
                   Securities and Exchange Commission (File Number:
                   333-10862).

4.26               Form of Novation Agreement among CNOOC, CNOOC China
                   Limited, the Banks and other financial institution and the
                   Fuji Bank Limited Hong Kong Branch, as agent, in respect of
                   the transfer of the US$110 million syndicated loan,
                   incorporated by reference to Exhibit 10.26 to our
                   Registration Statement on Form F-1 filed with the
                   Securities and Exchange Commission (File Number:
                   333-10862).

4.27               Form of the Undertaking Agreement between CNOOC and CNOOC
                   Limited, incorporated by reference to Exhibit 10.27 to our
                   Registration Statement on Form F-1 filed with the
                   Securities and Exchange Commission (File Number:
                   333-10862).

4.28               Employment Contract between CNOOC Limited and Liucheng Wei
                   (Service Agreement for Director, incorporated by reference
                   to Exhibit 10.28 to our Registration Statement on Form F-1
                   filed with the Securities and Exchange Commission (File
                   Number: 333-10862).

4.29               Employment Contract between CNOOC Limited and Chengyu Fu
                   (Service Agreement for Director, incorporated by reference
                   to Exhibit 10.29 to our Registration Statement on Form F-1
                   filed with the Securities and Exchange Commission (File
                   Number: 333-10862).

4.30               Employment Contract between CNOOC Limited and Shouwei Zhou
                   (Service Agreement for Director, incorporated by reference
                   to Exhibit 10.30 to our Registration Statement on Form F-1
                   filed with the Securities and Exchange Commission (File
                   Number: 333-10862).

4.31               Form of Pre-Global Offering Share Option Scheme for the
                   Senior Management of CNOOC Limited, incorporated by
                   reference to Exhibit 10.31 to our Registration Statement on
                   Form F-1 filed with the Securities and Exchange Commission
                   (File Number: 333-10862).

4.32               Form of Share Option Scheme for the Senior Management of
                   CNOOC Limited, incorporated by reference to Exhibit 10.32
                   to our Registration Statement on Form F-1 filed with the
                   Securities and Exchange Commission (File Number:
                   333-10862).

4.33               Subscription Agreement dated March 17, 2000 among CNOOC
                   Limited, CNOOC (BVI) Limited, Overseas Oil & Gas
                   Corporation, Ltd., et al., incorporated by reference to
                   Exhibit 10.33 to our Registration Statement on Form F-1
                   filed with the Securities and Exchange Commission (File
                   Number: 333-10862).



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<PAGE>


4.34               Subscription Agreement dated May 31, 2000 among CNOOC
                   Limited, CNOOC (BVI) Limited, Overseas Oil & Gas
                   Corporation, Ltd. and Hutchison International Limited,
                   incorporated by reference to Exhibit 10.34 to our
                   Registration Statement on Form F-1 filed with the
                   Securities and Exchange Commission (File Number:
                   333-10862).

4.35               Subscription Agreement dated May 31, 2000 among CNOOC
                   Limited, CNOOC (BVI) Limited, Overseas Oil & Gas
                   Corporation, Ltd. and Hongkong Electric Holdings Limited,
                   incorporated by reference to Exhibit 10.35 to our
                   Registration Statement on Form F-1 filed with the
                   Securities and Exchange Commission (File Number:
                   333-10862).

4.36               Subscription Agreement dated June 28, 2000 among CNOOC
                   Limited, CNOOC (BVI) Limited, Overseas Oil & Gas
                   Corporation, Ltd., et al., incorporated by reference to
                   Exhibit 10.36 to our Registration Statement on Form F-1
                   filed with the Securities and Exchange Commission (File
                   Number: 333-10862).

4.37               Corporation Placing Agreement dated February 6, 2001 among
                   CNOOC Limited, China National Offshore Oil Corporation,
                   Shell Eastern Petroleum (Pte) Limited and Merrill Lynch Far
                   East Limited, incorporated by reference to Exhibit 10.37 to
                   our Registration Statement on Form F-1 filed with the
                   Securities and Exchange Commission (File Number:
                   333-10862). 8 List of Subsidiaries.

10.1               Letter from CNOOC Limited dated May 23, 2002 regarding
                   receipt of certain representations from Arthur Andersen &
                   Co pursuant to the requirements of the Securities and
                   Exchange Commission, incorporated by reference to Exhibit
                   10 to our annual report on Form 20-F for fiscal year 2001
                   filed with the Securities and Exchange Commission (File
                   Number: 1-14966).

10.2               Sarbanes-Oxley Act of 2002 Section 906 Certification
                   furnished (not filed) to the Securities and Exchange
                   Commission.



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<PAGE>


                                   Signature

     The registrant hereby certifies that it meets all of the requirements for
filing on Form 20-F and that it has duly caused and authorized the undersigned
to sign this annual report of its behalf.

                           CNOOC Limited

                           By:    /s/ Yunshi Cao
                                 ---------------------------------------------
                                 Name:    Yunshi Cao
                                 Title:   Company Secretary, General Counsel
                                          and Senior Vice President

Date:  May 13 , 2003



                                     124


<PAGE>


                                 Certification

I, Liucheng Wei, Chairman and Chief Executive Officer of CNOOC Limited,
certify that:

1.   I have reviewed this annual report on Form 20-F of CNOOC Limited;

2.   Based on my knowledge, this annual report does not contain any untrue
     statement of a material fact or omit to state a material fact necessary
     to make the statements made, in light of the circumstances under which
     such statements were made, not misleading with respect to the period
     covered by this annual report;

3.   Based on my knowledge, the financial statements, and other financial
     information included in this annual report, fairly present in all
     material respects the financial condition, results of operations and cash
     flow of the registrant as of, and for, the periods presented in this
     annual report;

4.   The registrant's other certifying officers and I are responsible for
     establishing and maintaining disclosure controls and procedures (as
     defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant and
     have:

     (a)  designed such disclosure controls and procedures to ensure that
          material information relating to the registrant, including its
          consolidated subsidiaries, is made known to us by others within
          those entities, particularly during the period in which this annual
          report is being prepared;

     (b)  evaluated the effectiveness of the registrant's disclosure controls
          and procedures as of a date within 90 days prior to the filing date
          of this annual report (the "Evaluation Date"); and

     (c)  presented in this annual report our conclusions about the
          effectiveness of the disclosure controls and procedures based on our
          evaluation as of the Evaluation Date;

5.   The registrant's other certifying officers and I have disclosed, based on
     our most recent evaluation, to the registrant's auditors and the audit
     committee of registrant's board of directors (or persons performing the
     equivalent functions):

     (a)  all significant deficiencies in the design or operation of internal
          controls which could adversely affect the registrant's ability to
          record, process, summarize and report financial data and have
          identified for the registrant's auditors any material weaknesses in
          internal controls; and

     (b)  any fraud, whether or not material, that involves management or
          other employees who have a significant role in the registrant's
          internal controls; and

6.   The registrant's other certifying officers and I have indicated in this
     annual report whether there were significant changes in internal controls
     or in other factors that could significantly affect internal controls
     subsequent to the date of our most recent evaluation, including any
     corrective actions with regard to significant deficiencies and material
     weaknesses.

Date: May 13, 2003

                             By:    /s/ Liucheng Wei
                                   ------------------------------------------
                                   Name:   Liucheng Wei
                                   Title:  Chairman & Chief Executive Officer



                                     125


<PAGE>


                                 Certification

I, Mark Z.L. Qiu, Chief Financial Officer and Senior Vice President of CNOOC
Limited, certify that:

1.   I have reviewed this annual report on Form 20-F of CNOOC Limited;

2.   Based on my knowledge, this annual report does not contain any untrue
     statement of a material fact or omit to state a material fact necessary
     to make the statements made, in light of the circumstances under which
     such statements were made, not misleading with respect to the period
     covered by this annual report;

3.   Based on my knowledge, the financial statements, and other financial
     information included in this annual report, fairly present in all
     material respects the financial condition, results of operations and cash
     flow of the registrant as of, and for, the periods presented in this
     annual report;

4.   The registrant's other certifying officers and I are responsible for
     establishing and maintaining disclosure controls and procedures (as
     defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant and
     have:

     (a)  designed such disclosure controls and procedures to ensure that
          material information relating to the registrant, including its
          consolidated subsidiaries, is made known to us by others within
          those entities, particularly during the period in which this annual
          report is being prepared;

     (b)  evaluated the effectiveness of the registrant's disclosure controls
          and procedures as of a date within 90 days prior to the filing date
          of this annual report (the "Evaluation Date"); and

     (c)  presented in this annual report our conclusions about the
          effectiveness of the disclosure controls and procedures based on our
          evaluation as of the Evaluation Date;

5.   The registrant's other certifying officers and I have disclosed, based on
     our most recent evaluation, to the registrant's auditors and the audit
     committee of registrant's board of directors (or persons performing the
     equivalent functions):

     (a)  all significant deficiencies in the design or operation of internal
          controls which could adversely affect the registrant's ability to
          record, process, summarize and report financial data and have
          identified for the registrant's auditors any material weaknesses in
          internal controls; and

     (b)  any fraud, whether or not material, that involves management or
          other employees who have a significant role in the registrant's
          internal controls; and

6.   The registrant's other certifying officers and I have indicated in this
     annual report whether there were significant changes in internal controls
     or in other factors that could significantly affect internal controls
     subsequent to the date of our most recent evaluation, including any
     corrective actions with regard to significant deficiencies and material
     weaknesses.

Date: May 13, 2003

                                By:          /s/ Mark Z.L. Qiu
                                      ------------------------------------
                                      Name:   Mark Z.L. Qiu
                                      Title:  Chief Financial Officer
                                              and Senior Vice President



                                     126


<PAGE>


CNOOC LIMITED AND ITS SUBSIDIARIES

CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 2002, 2001 AND 2000
TOGETHER WITH REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS



                                     F-1


<PAGE>


<TABLE>
<CAPTION>
                                                    INDEX TO FINANCIAL STATEMENTS


                                                                                                                             Page
<S>                                                                                                                          <C>
CNOOC LIMITED AND ITS SUBSIDIARIES
   Report of Independent Public Accountants.................................................................................  F-3
   Copy of Report of Independent Public Accountants previously issued by
     Arthur Andersen & Co .................................................................................................   F-4
   Consolidated income statements for the years ended December 31, 2002, 2001,
     and 2000..............................................................................................................   F-5
   Consolidated balance sheets as of December 31, 2002 and 2001............................................................   F-7
   Consolidated statements of changes in equity for the years ended December 31, 2002,
     2001, and 2000........................................................................................................   F-8
   Consolidated cash flow statements for the years ended December 31, 2002,
     2001, and 2000........................................................................................................   F-9
   Notes to the consolidated financial statements..........................................................................  F-10
</TABLE>



                                                                F-2


<PAGE>


REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS

To the Shareholders of CNOOC Limited
(incorporated in Hong Kong with limited liability)

We have audited the accompanying consolidated balance sheet of CNOOC Limited
(the "Company") and its subsidiaries (the "Group") as of December 31, 2002,
and the related consolidated statement of income, changes in equity and cash
flows for the year then ended. These financial statements are the
responsibility of the management. Our responsibility is to express an opinion
on these consolidated financial statements based on our audits. The financial
statements of CNOOC Limited and its subsidiaries for the years ended December
31, 2000 and 2001 were audited by other auditors who have ceased operations
and whose report dated March 27, 2002 expressed an unqualified opinion on
those statements.

We conducted our audit in accordance with auditing standards generally
accepted in the United States of America and auditing standards established by
the Hong Kong Society of Accountants. Those standards require that we plan and
perform the audit to obtain reasonable assurance about whether the
consolidated financial statements are free of material misstatement. An audit
includes examining, on a test basis, evidence supporting the amounts and
disclosures in the consolidated financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement
presentation. We believe that our audit provides a reasonable basis for our
opinion.

In our opinion, the 2002 consolidated financial statements referred to above
present fairly, in all material respects, the financial position of CNOOC
Limited and its subsidiaries as of December 31, 2002 and the results of their
operations and their cash flows for the year then ended in conformity with
accounting principles generally accepted in Hong Kong ("Hong Kong GAAP").

Hong Kong GAAP does not conform to generally accepted accounting principles in
the United States of America. A description of the significant differences
between those two generally accepted accounting principles and the effect of
those differences on net income and shareholders' equity is set forth in Note
38 to the consolidated financial statements.




 /s/  Ernst & Young
----------------------------
Ernst & Young
Certified Public Accountants


Hong Kong
March 27, 2003



                                      F-3


<PAGE>


     The following is a copy of the report previously issued by Arthur
     Andersen & Co in connection with CNOOC Limited's Form 20-F Annual Report
     for fiscal year 2001 filed with the Securities and Exchange Commission

REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS

To the Shareholders of CNOOC Limited:

We have audited the accompanying consolidated balance sheets of CNOOC Limited
(established in the Hong Kong Special Administrative Region, the People's
Republic of China) and its subsidiaries as of December 31, 2001 and 2000, and
the related consolidated statements of income, recognised gains and losses and
cash flows for the years ended December 31, 2001, 2000 and 1999. These
financial statements are the responsibility of the management of CNOOC
Limited. Our responsibility is to express an opinion on these consolidated
financial statements based on our audits.

We conducted our audits in accordance with generally accepted auditing
standards in the United States of America and auditing standards established
by the Hong Kong Society of Accountants. Those standards require that we plan
and perform the audits to obtain reasonable assurance about whether the
consolidated financial statements are free of material misstatement. An audit
includes examining, on a test basis, evidence supporting the amounts and
disclosures in the consolidated financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable basis for our
opinion.

In our opinion, the accompanying consolidated financial statements referred to
above present fairly, in all material respects, the financial positions of
CNOOC Limited and its subsidiaries as of December 31, 2001 and 2000, and the
results of their operations and cash flows for the years ended December 31,
2001, 2000 and 1999 in conformity with accounting principles generally
accepted in Hong Kong ("Hong Kong GAAP").

Hong Kong GAAP does not conform to generally accepted accounting principles in
the United States of America. A description of the significant differences
between those two generally accepted accounting principles and the effect of
those differences on net income and shareholders' equity is set forth in Note
36 to the consolidated financial statements.





ARTHUR ANDERSEN & CO
Certified Public Accountants

Hong Kong
March 27, 2002



                                      F-4


<PAGE>


<TABLE>
<CAPTION>
                                                 CNOOC LIMITED AND ITS SUBSIDIARIES
                                                   CONSOLIDATED INCOME STATEMENTS
                                        FOR THE YEARS ENDED DECEMBER 31, 2002, 2001 AND 2000

                                     (All amounts expressed in thousands, except per share data)

                                                  Notes         2000               2001                2002                2002
                                                ---------   ------------       ------------       --------------       ------------
                                                              RMB'000            RMB'000            RMB'000             US$'000
<S>                                             <C>         <C>                <C>                <C>                  <C>
REVENUE
    Oil and gas sales                              8,27      18,819,323         17,560,788          23,779,294          2,871,895
    Marketing revenues                               9        5,126,015          2,537,032           2,377,469            287,134
    Other income                                                278,580            721,737             217,052             26,214
                                                            ------------       ------------       --------------       ------------

                                                             24,223,918         20,819,557          26,373,815          3,185,243
                                                            ------------       ------------       --------------       ------------
EXPENSES
    Operating expenses                                       (2,124,078)        (2,329,130)         (3,775,334)          (455,958)
    Production taxes                                         (1,036,729)          (883,768)         (1,023,049)          (123,557)
    Exploration expenses                                       (552,869)        (1,039,297)         (1,318,323)          (159,218)
    Depreciation, depletion and
       amortisation                                          (2,577,882)        (2,566,920)         (4,019,532)          (485,451)
    Dismantlement                                   28         (103,569)           (90,367)           (126,139)           (15,234)
    Impairment losses related to                   17
4        property, plant and equipment                               --            (99,675)                 --                --
    Crude oil and product purchases                 9        (5,097,765)        (2,453,312)         (2,326,338)          (280,959)
    Selling and administrative
        expenses                                   10          (456,002)          (615,389)         (1,006,540)          (121,563)
    Other                                                      (217,599)          (517,876)            (30,866)            (3,728)
                                                            ------------       ------------       --------------       ------------

                                                            (12,166,493)       (10,595,734)        (13,626,121)        (1,645,668)
                                                            ------------       ------------       --------------       ------------

PROFIT FROM OPERATING ACTIVITIES                             12,057,425         10,223,823          12,747,694          1,539,575

Interest income                                                 236,624            317,706             147,870             17,859
Interest expenses                                  11          (475,004)          (116,634)           (294,792)           (35,603)
Exchange (loss)/gain, net                                       381,336            235,409            (113,814)           (13,746)
Investment income                                                    --            220,650             193,277             23,343
Share of profit of an associate                                 218,326             89,963             165,387             19,974
Non-operating (loss)/income, net                               (196,031)            34,941             (71,379)            (8,621)
                                                            ------------       ------------       --------------       ------------

PROFIT BEFORE TAX                                            12,222,676         11,005,858          12,774,243          1,542,781

Tax                                                14        (1,926,076)        (3,048,227)        (3,541,416)           (427,707)
                                                            ------------       ------------       --------------       ------------

NET PROFIT                                                   10,296,600          7,957,631           9,232,827          1,115,074
                                                            ============       ============       ==============       ===========
</TABLE>


The accompanying notes are an integral part of these financial statements.



                                                                F-5


<PAGE>


                       CNOOC LIMITED AND ITS SUBSIDIARIES
                     CONSOLIDATED INCOME STATEMENTS (CONT'D)
              FOR THE YEARS ENDED DECEMBER 31, 2002, 2001 AND 2000

           (All amounts expressed in thousands, except per share data)


                      Notes       2000            2001       2002      2002
                     -------   -----------     ---------  ---------   -------
                                 RMB'000        RMB'000    RMB'000     US$'000

DIVIDENDS
      Final             15       6,426,424            --  1,306,740   157,819
      Interim           15              --       871,194    958,314   115,738
                               -----------     --------   ---------   -------
                                 6,426,424       871,194  2,265,054   273,557
                               ===========     =========  =========   =======

EARNINGS PER SHARE
      Basic             16     RMB   1.63      RMB  1.00  RMB  1.12   US$ 0.14
      Diluted           16     RMB   1.63      RMB  1.00  RMB  1.12   US$ 0.14

DIVIDEND PER SHARE
      Final             15     RMB   0.98           N/A   RMB  0.16   US$ 0.02
      Interim           15           N/A       RMB  0.11  RMB  0.12   US$ 0.01

EARNINGS PER ADS
       Basic            16     RMB   32.53     RMB 20.04  RMB 22.48   US$ 2.71
       Diluted          16     RMB   32.53     RMB 20.04  RMB 22.47   US$ 2.71


The accompanying notes are an integral part of these financial statements.



                                      F-6


<PAGE>


<TABLE>
<CAPTION>

                                    CNOOC LIMITED AND ITS SUBSIDIARIES
                                        CONSOLIDATED BALANCE SHEETS
                                     AS OF DECEMBER 31, 2002 AND 2001

                                   (All amounts expressed in thousands)

                                                   Notes             2001            2002          2002
                                                 ----------      -----------     ----------     ---------
                                                                   RMB'000         RMB'000       US$'000

<S>                                              <C>             <C>             <C>            <C>
NON-CURRENT ASSETS
Property, plant and equipment, net                  17            23,827,499     36,071,820     4,356,500
Investment in an associate                          18               461,990        537,377        64,901
                                                                 -----------     ----------     ---------
                                                                  24,289,489     36,609,197     4,421,401
                                                                 -----------     ----------     ---------

CURRENT ASSETS
Accounts receivable, net                            19             1,194,180      3,063,266       369,960
Inventories and supplies                            20               627,337        848,605       102,489
Due from related companies                          27               176,519        453,290        54,745
Other current assets                                                 692,595      1,060,955       128,135
Short-term investments                              21             8,895,804      6,531,278       788,801
Time deposits with maturities over three months     27             2,050,000      4,690,000       566,425
Cash and cash equivalents                           27             6,393,724      7,839,114       946,753
                                                                 -----------     ----------     ---------

                                                                  20,030,159     24,486,508     2,957,308
                                                                 -----------     ----------     ---------

TOTAL ASSETS                                                      44,319,648     61,095,705     7,378,709
                                                                 -----------     ----------     ---------

CURRENT LIABILITIES
Accounts payable                                    22               591,624      2,659,743       321,225
Other payables and accrued liabilities              23               813,146      1,712,408       206,813
Current portion of long-term bank loans             24             1,231,840        297,518        35,932
Due to the parent company                         26, 27             125,493        270,438        32,662
Due to related companies                            27               157,823        231,592        27,970
Tax payable                                                        1,471,750      1,962,765       237,049
                                                                 -----------     ----------     ---------

                                                                   4,391,676      7,134,464       861,651
                                                                 -----------     ----------     ---------

NON-CURRENT LIABILITIES
Long-term bank loans                                24             3,255,699        941,093       113,659
6.375% long-term guaranteed notes                   25                    --      4,071,184       491,689
Provision for dismantlement                         28             1,598,130      2,239,320       270,449
Deferred tax liabilities                            14             1,763,637      6,141,156       741,685
                                                                 -----------     ----------     ---------
                                                                   6,617,466     13,392,753     1,617,482
                                                                 -----------     ----------     ---------

CAPITAL AND RESERVES
Issued capital                                      29               876,978        876,978       105,915
Reserves                                            30            32,433,528     39,691,510     4,793,661
                                                                 -----------     ----------     ---------
                                                                  33,310,506     40,568,488     4,899,576
                                                                 -----------     ----------     ---------

TOTAL EQUITY AND LIABILITIES                                      44,319,648     61,095,705     7,378,709
                                                                  ==========     ==========     =========
</TABLE>

The accompanying notes are an integral part of these financial statements.



                                     F-7


<PAGE>


<TABLE>
<CAPTION>
                                               CNOOC LIMITED AND ITS SUBSIDIARIES
                                                 STATEMENTS OF CHANGES IN EQUITY
                                      FOR THE YEARS ENDED DECEMBER 31, 2002, 2001 AND 2000

                                        (All amounts expressed in thousands of Renminbi)

                                                                          Cumulative
                                     Share        Share     Revaluation    translation    Statutory      Retained
                                    capital      premium      reserve        reserve       reserve       earnings          Total
                                   ---------   ----------  ------------  --------------  ----------   ------------  ------------
<S>                                <C>         <C>         <C>           <C>             <C>          <C>            <C>
Balances at January 1, 2000          642,000    7,124,955       170,598              --     100,874       345,813     8,384,240
Net profit for the year                   --           --            --              --          --    10,296,600    10,296,600
Appropriation to statutory\
  reserve                                 --           --            --              --     847,464      (847,464)            --
Dividends (Note 15)                       --           --            --              --          --   ( 6,426,424)  ( 6,426,424)
Net proceeds from Private
  Placements                          59,181    3,710,483            --              --          --            --     3,769,664
Surplus on revaluation of  properties     --           --       104,073              --          --            --       104,073
Foreign currency translation
  differences                             --           --            --  (       6,350)          --            --    (    6,350)
                                   ---------   ----------  ------------  --------------  ----------   -----------   ------------
Net gain not recognised in the
  income statement                        --           --            --  (       6,350)          --            --    (    6,350)
                                   ---------   ----------  ------------  --------------  ----------   -----------   -----------

Balances at January  1, 2001         701,181   10,835,438       274,671  (       6,350)     948,338     3,368,525    16,121,803
Issuance of ordinary shares          175,797    9,925,767            --              --          --            --    10,101,564
Net profit for the year                   --           --            --              --          --     7,957,631     7,957,631
Appropriation to statutory
  reserve                                 --           --            --              --     587,022   (   587,022)            --
Dividends (Note 15)                       --           --            --              --          --   (   871,194)   (  871,194)
Foreign currency translation
  differences                             --           --            --            702           --            --           702
                                   ---------   ----------  ------------  --------------  ----------   -----------   ------------
Net gain not recognised in the
  income statement                        --           --            --            702           --            --           702
                                   ---------   ----------  ------------  --------------  ----------   -----------   ------------

Balances at January 1, 2002 as
  previously stated                  876,978   20,761,205       274,671  (       5,648)   1,535,360     9,867,940    33,310,506
Cumulative effect of change in
  accounting policy (Note 3)              --           --            --              --          --       298,157       298,157
                                   ---------   ----------  ------------  --------------  ----------   -----------   ------------

Balances at January 1, 2002
  as restated                        876,978   20,761,205       274,671         (5,648)   1,535,360    10,166,097    33,608,663
Net profit for the year                   --           --            --              --          --     9,232,827     9,232,827
Appropriation to statutory
  reserve                                 --           --            --              --     697,050   (   697,050)            --
Dividends (Note 15)                       --           --            --              --          --   ( 2,265,054)  ( 2,265,054)
Foreign currency translation
  differences                             --           --            --  (       7,948)          --            --   (     7,948)
                                   ---------   ----------  ------------  --------------  ----------   -----------   ------------
Net loss not recognised in the
 income statement                         --           --            --   (      7,948)          --            --   (     7,948)
                                   ---------   ----------  ------------  --------------  ----------   -----------   ------------

Balances at December 31, 2002        876,978   20,761,205       274,671   (     13,596)   2,232,410    16,436,820    40,568,488
                                   =========   ==========  ============  ==============  ==========  ============   ============
</TABLE>

The accompanying notes are an integral part of these financial statements.



                                                              F-8


<PAGE>


<TABLE>
<CAPTION>
                                         CNOOC LIMITED AND ITS SUBSIDIARIES
                                         CONSOLIDATED CASH FLOW STATEMENTS
                                FOR THE YEARS ENDED DECEMBER 31, 2002, 2001 AND 2000

                                        (All amounts expressed in thousands)

                                                  Notes           2000         2001         2002           2002
                                                 --------     -----------  ------------  ------------  -----------
                                                                RMB'000       RMB'000      RMB'000       US$'000
<S>                                              <C>          <C>          <C>           <C>           <C>
OPERATING ACTIVITIES
Cash generated from operations                     32(a)      14,429,703    14,024,982    17,261,970    2,084,779
Income taxes paid                                             (  880,080)  ( 2,611,450)  ( 3,013,279)  (  363,923)
Income tax refund                                                      --            --      167,065       20,177
Interest received                                                163,461       317,706       147,870       17,859
Dividends received                                                21,000        99,000        90,000       10,870
Short-term investment income received                                 --        53,641        79,679        9,623
Interest paid                                                 (  501,383)  (   124,422)  (   136,222)  (   16,452)
                                                              -----------  ------------  ------------  -----------

Net cash from operating activities                            13,232,701    11,759,457    14,597,083    1,762,933
                                                              -----------  ------------  ------------  -----------

INVESTING ACTIVITIES
Additions of property, plant and equipment                    (4,403,968)  ( 4,342,622)  ( 6,832,746)  (  825,211)
Proceeds from disposals of property, plant and
  equipment                                                       27,148         6,313           446           54
Acquisition of subsidiaries                        32(b)               --            --  ( 4,734,174)  (  571,760)
(Increase)/decrease in time deposits with
  maturities over three months                                (3,424,512)    1,374,512   ( 2,640,000)  (  318,841)
Additions of short-term investments                           (  300,000)  ( 8,699,312)  ( 3,399,413)  (  410,557)
Disposals of short-term investments                                    --      308,506     5,882,305      710,423
Increase in amounts due from related companies                   240,726   (    13,831)           --            --
                                                              -----------  ------------  ------------  -----------

Net cash used in investing activities                         (7,860,606)  (11,366,434)  (11,723,582)  (1,415,892)
                                                              -----------  ------------  ------------  -----------

FINANCING ACTIVITIES
Issue of 6.375% long-term guaranteed notes                             --            --    4,059,345      490,259
Net proceeds from Private Placement                            3,769,664             --            --           --
Repayment of bank loans                                       (3,371,657)  (  3,497,533) ( 3,367,347)  (  406,684)
Dividends paid                                                (4,074,466)  (  4,268,517) ( 2,265,054)  (  273,557)
Increase/ (decrease) in amount due to the parent
 company                                                          47,256   (  1,657,004)     144,945       17,505
Proceeds from issue of share capital                                   --    10,101,564           --            --
Proceeds from new bank loans                                     339,423      2,500,000           --            --
Increase in amounts due to related companies                  (  164,570)        25,564           --            --
                                                              -----------  ------------  ------------  -----------

Net cash (used in)/from financing activities                  (3,454,350)    3,204,074   ( 1,428,111) (   172,477)
                                                              -----------  ------------  ------------ -----------

NET INCREASE IN CASH AND CASH
  EQUIVALENTS                                                  1,917,745     3,597,097     1,445,390      174,564

Cash and cash equivalents at beginning of year                   878,882     2,796,627     6,393,724      772,189
                                                              -----------  ------------  ------------  -----------

CASH AND CASH EQUIVALENTS AT END OF YEAR                       2,796,627     6,393,724     7,839,114      946,753
                                                              ===========  ============  ============  ===========

ANALYSIS OF BALANCES OF CASH AND
  CASH EQUIVALENTS

Cash and bank balances                                         2,796,627     6,393,724     7,839,114      946,753
                                                              ===========  ============  ============  ===========
</TABLE>

The accompanying notes are an integral part of these financial statements.



                                                        F-9


<PAGE>


                      CNOOC LIMITED AND ITS SUBSIDIARIES
                NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

          (All amounts expressed in Renminbi unless otherwise stated)

1.   CORPORATE INFORMATION

     CNOOC Limited (the "Company") was incorporated in the Hong Kong Special
     Administrative Region ("Hong Kong"), the People's Republic of China (the
     "PRC") on August 20, 1999 to hold the interests in certain entities
     whereby creating a group comprising the Company and its subsidiaries.
     During the year, the Company and its subsidiaries (hereinafter
     collectively referred to as the "Group") were principally engaged in the
     exploration, development, production and sales of crude oil, natural gas
     and other petroleum.

     In the opinion of directors, the ultimate holding company is China
     National Offshore Oil Corporation ("CNOOC"), a company established in the
     PRC.

     As of December 31, 2002, we had direct or indirect interests in the
     following principal subsidiaries. All of these entities are private
     limited companies and were owned by the parent company upon their
     incorporation/establishment except for CNOOC International Limited and
     CNOOC Finance (2002) Limited which were owned by the Company upon its
     incorporation and nine subsidiaries which were newly acquired from
     Repsol-YPF, S.A. during the year.

     Particulars of the principal subsidiaries are as follows:
<TABLE>
<CAPTION>



                                           Place and date of     Nominal value       Percentage of
                                           incorporation/            of issued              equity
                                           registration and     ordinary share     attributable to
     Name                                  operations                  capital        the Company        Principal activities
     ---------------------------------     ------------------   --------------     ---------------       --------------------
     <S>                                   <C>                   <C>                 <C>                 <C>
     Directly held subsidiaries:

     CNOOC China Limited                   Tianjin, the PRC      RMB10 billion                100%       Offshore petroleum
                                           September 15, 1999                                            exploration, development,
                                                                                                         production and sales in
                                                                                                         the PRC

     CNOOC International Limited           British Virgin Islands         US$2                100%       Investment holding
                                           August 23, 1999

     China Offshore Oil                    Singapore               S$3 million                100%       Sales and marketing of
     (Singapore) International             May 14,1993                                                   petroleum outside of the
     Pte., Ltd.                                                                                          PRC

     CNOOC Finance (2002) Limited          British Virgin Islands     US$1,000                100%       Bond issuance
                                           January 24, 2002

     Indirectly held subsidiaries*:

     Malacca Petroleum Limited             Bermuda                   US$12,000                100%       Investment holding
                                           November 2, 1995

     OOGC America, Inc.                    State of Delaware,         US$1,000                100%       Investment holding
                                           United States of
                                           America
                                           September 2, 1997

     OOGC Malacca Limited                  Bermuda                   US$12,000                100%       Investment holding
                                           November 2, 1995



                                                        F-10

</TABLE>

<PAGE>

<TABLE>
<CAPTION>

                      CNOOC LIMITED AND ITS SUBSIDIARIES
                NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

          (All amounts expressed in Renminbi unless otherwise stated)

1.  CORPORATE INFORMATION (CONT'D)


                                        Place and date of incorporation/     Nominal value of issued
Name                                    registration and operations           ordinary share capital
----------------------------            --------------------------------     -----------------------

<S>                                     <C>                                        <C>
CNOOC Southeast Asia Limited            Bermuda                                    US$12,000
                                        May 16, 1997

CNOOC ONWJ Ltd.                         Labuan, F.T., Malaysia                          US$1
                                        March 27, 2002

CNOOC SES Ltd.                          Labuan, F.T., Malayisa                          US$1
                                        March 27, 2002

CNOOC Poleng Ltd.                       Labuan, F.T., Malayisa                          US$1
                                        March 27, 2002

CNOOC Madura Ltd.                       Labuan, F.T., Malayisa                          US$1
                                        March 27, 2002

CNOOC Blora Ltd.                        Labuan, F.T., Malayisa                          US$1
                                        March 27, 2002


                                        Percentage of equity
                                        attributable to the
Name                                    Company                     Principal activities
----------------------------            --------------------        ----------------------------------------

CNOOC Southeast Asia Limited                   100%                 Investment holding

CNOOC ONWJ Ltd.                                100%                 Offshore petroleum exploration,
                                                                    development and production in Indonesia

CNOOC SES Ltd.                                 100%                 Offshore petroleum exploration,
                                                                    development and production in Indonesia

CNOOC Poleng Ltd.                              100%                 Offshore petroleum exploration,
                                                                    development and production in Indonesia

CNOOC Madura Ltd.                              100%                 Offshore petroleum exploration,
                                                                    development and production in Indonesia

CNOOC Blora Ltd.                               100%                 Offshore petroleum exploration,
                                                                    development and production in Indonesia

</TABLE>

* Indirectly held through CNOOC International Limited.

During the year, the Group acquired nine subsidiaries of
Repsol-YPF, S.A. Subsequent to the acquisition, a restructuring
was performed whereby all the assets and liabilities acquired
from the subsidiaries of Repsol-YPF, S.A. were transferred to
the newly established companies in Labuan, F.T., Malaysia.
Further details of this acquisition are included in note 5 to
the financial statements.

The above table lists the subsidiaries of the Company which, in
the opinion of the directors, principally affected the results
for the year or formed a substantial portion of the net assets
of the Group. To give details of other subsidiaries would, in
the opinion of the directors, result in particulars of
excessive length.



                                     F-11

<PAGE>


                      CNOOC LIMITED AND ITS SUBSIDIARIES
                NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

          (All amounts expressed in Renminbi unless otherwise stated)

2. IMPACT OF NEW AND REVISED STATEMENTS OF STANDARD ACCOUNTING PRACTICE
   ("SSAPs")

The following recently-issued and revised SSAPs and related Interpretations
are effective for the first time for the current year's financial statements:

SSAP 1   (Revised)    :    "Presentation of financial statements"
SSAP 11 (Revised)     :    "Foreign currency translation"
SSAP 15 (Revised)     :    "Cash flow statements"
SSAP 34               :    "Employee benefits"
Interpretation 14     :    "Evaluating the substance of transactions involving
                               the legal form of a lease"
Interpretation 15     :    "Business combinations - "Date of exchange" and fair
                               value of equity instruments"
Interpretation 18     :    "Consolidation and equity method - Potential voting
                              rights and allocation of ownership interests"

These SSAPs prescribe new accounting measurement and disclosure
practices. The major effects on the Group's accounting policies
and on the amounts disclosed in these financial statements of
adopting these SSAPs and Interpretations are summarised as
follows:

SSAP 1 (Revised) prescribes the basis for the presentation of
financial statements and sets out guidelines for their
structure and minimum requirements for the content thereof. The
principal impact of the revision to this SSAP is that a
consolidated statement of changes in equity is now presented on
page F-8 of the financial statements in place of the
consolidated statement of recognised gains and losses that was
previously required and in place of the Group reserves note.

SSAP 11 (Revised) prescribes the basis for the translation of
foreign currency transactions and financial statements. The
principal impact of the revision of this SSAP on the
consolidated financial statements is that the income statement
of overseas subsidiaries are now translated to Renminbi at the
exchange rates at the dates of the transactions, or at an
approximation thereto, whereas previously they were translated
at the exchange rates at the balance sheet date. The adoption
of the revised SSAP 11 has had no material effect on the
financial statements.



                                     F-12


<PAGE>


                      CNOOC LIMITED AND ITS SUBSIDIARIES
                NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

          (All amounts expressed in Renminbi unless otherwise stated)

2. IMPACT OF NEW AND REVISED STATEMENTS OF STANDARD ACCOUNTING PRACTICE
   ("SSAPs") (CONT'D)

SSAP 15 (Revised) prescribes the revised format for the cash
flow statement. The principal impact of the revision of this
SSAP is that the consolidated cash flow statement now presents
cash flows under three headings, cash flows from operating,
investing and financing activities, rather than the five
headings previously required. In addition, cash flows from
overseas subsidiaries arising during the year are now
translated to Renminbi at the exchange rates at the dates of
the transactions, or at an approximation thereto, whereas
previously they were translated at the exchange rates at the
balance sheet date.

SSAP 34 prescribes the principles to be applied for
recognition, measurement and disclosures for employee
short-term and long-term benefits. In addition, disclosures are
now required in respect of the Company's share option scheme,
as detailed in Note 29 to the financial statements. These share
option scheme disclosures are similar to the Listing Rules
disclosures previously included in the Report of the Directors,
which are now required to be included in the notes to the
financial statements as a consequence of the SSAP. The SSAP
requirements have not had a material effect on the amounts
previously recorded in the financial statements, therefore no
prior year adjustment has been required.


3. CHANGE IN ACCOUNTING POLICY

During the year, the Group changed its method of accounting for
the provision for dismantlement to comply with SSAP 28
"Provisions, contingent liabilities and contingent assets".
SSAP 28 requires a provision to be recorded for a present
obligation whether that obligation is legal or constructive.
The associated cost is capitalised and the liability is
discounted and an accretion expense is recognised using the
credit-adjusted risk-free interest rate in effect when the
liability is initially recognised.

The effect of this change in accounting policy was to increase
retained earnings and property, plant and equipment, as of
January 1, 2002 by RMB298,156,268 and RMB736,848,177
respectively, and to increase the provision for dismantlement
and deferred tax liabilities as of January 1, 2002 by
RMB310,910,651 and RMB127,781,258 respectively. No adjustment
was made to the prior year amounts as the impact on the
financial statements for the year ended December 31, 2001 was
not material.


4. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Basis of preparation

These financial statements have been prepared in accordance
with Hong Kong Statements of Standard Accounting Practice,
accounting principles generally accepted in Hong Kong ("Hong
Kong GAAP") and the requirements of the Hong Kong Companies
Ordinance. They have been prepared under the historical cost
convention as modified by the revaluation of land and buildings
and short-term investments. The significant differences between
Hong Kong GAAP and generally accepted accounting principles in
the United States of America ("US GAAP") are set forth in Note
38 to the financial statements.



                                     F-13
<PAGE>


                      CNOOC LIMITED AND ITS SUBSIDIARIES
                NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

          (All amounts expressed in Renminbi unless otherwise stated)

4. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONT'D)

Basis of consolidation

The consolidated financial statements include the financial
statements of the Company and its subsidiaries for the year
ended December 31, 2002. The results of subsidiaries acquired
or disposed of during the year are consolidated from or to
their effective dates of acquisition or disposal, respectively.
All significant intercompany transactions and balances within
the Group are eliminated on consolidation.

Impairment of assets

An assessment is made whenever events or changes in
circumstances indicate that the carrying amount of an asset may
not be recoverable, or when there is any indication that an
impairment loss previously recognised for an asset in prior
years may no longer exist or may have decreased. If any such
indication exists, the asset's recoverable amount is estimated.
An asset's recoverable amount is calculated as the higher of
the asset's value in use or its net selling price.

An impairment loss is recognised only if the carrying amount of
an asset exceeds its recoverable amount. An impairment loss is
charged to the income statement in the period in which it
arises, unless the asset is carried at a revalued amount, when
the impairment loss is accounted for in accordance with the
relevant accounting policy for that revalued asset.

A previously recognised impairment loss is reversed only if
there has been a change in the estimates used to determine the
recoverable amount of an asset, however not to an amount higher
than the carrying amount that would have been determined (net
of any depreciation/amortisation), had no impairment loss been
recognised for the asset in prior years.

A reversal of an impairment loss is credited to the income
statement in the period in which it arises, unless the asset is
carried at a revalued amount, when the reversal of the
impairment loss is accounted for in accordance with the
relevant accounting policy for that revalued asset.



                                     F-14


<PAGE>


                      CNOOC LIMITED AND ITS SUBSIDIARIES
                NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

          (All amounts expressed in Renminbi unless otherwise stated)


4. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONT'D)

Property, plant and equipment

Property, plant and equipment comprise oil and gas properties, land and
buildings, and vehicles and office equipment.

(i) Oil and gas properties

    For oil and gas properties, the successful efforts method of accounting is
    adopted. The Group capitalises initial acquisition costs of oil and gas
    properties. Impairment of initial acquisition costs is recognised based on
    exploratory experience and management judgement. Upon discovery of
    commercial reserves, acquisition costs are transferred to proved
    properties. The costs of drilling and equipping successful exploratory
    wells, all development costs, including those renewals and betterments
    which extend the economic life of the assets, and the borrowing costs
    arising from borrowings used to finance the development of oil and gas
    properties before they are substantially ready for production are
    capitalised. The costs of unsuccessful exploratory wells and all other
    exploration costs are treated as expenses when incurred.

    Exploratory wells are evaluated for economic viability within one year of
    completion. Exploratory wells that discover potentially economic reserves
    in areas where major capital expenditures will be required before
    production would begin and when the major capital expenditure depends upon
    successful completion of further exploratory work remain capitalised and
    are reviewed periodically for impairment.

    Productive oil and gas properties and other tangible and intangible costs
    of producing properties are amortised using the unit-of-production method
    on a property-by-property basis under which the ratio of produced oil and
    gas to the estimated remaining proved developed reserves is used to
    determine the depreciation, depletion and amortisation provision. Costs
    associated with significant development projects are not depleted until
    commercial production commences and the reserves related to those costs
    are excluded from the calculation of depletion.

    Capitalised acquisition costs of proved properties are amortised by the
    unit-of-production method on a property-by-property basis computed based
    on the total estimated units of proved reserves.

    The Group estimates future dismantlement costs for oil and gas properties
    with reference to the estimates provided from either internal or external
    engineers after taking into consideration the anticipated method of
    dismantlement required in accordance with current legislation and industry
    practices. The associated cost is capitalised and the liability is
    discounted and an accretion expense is recognised using the
    credit-adjusted risk-free interest rate in effect when the liability is
    initially recognised.



                                     F-15
<PAGE>


                      CNOOC LIMITED AND ITS SUBSIDIARIES
                NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

          (All amounts expressed in Renminbi unless otherwise stated)

4. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONT'D)

Property, plant and equipment (cont'd)

(ii) Land and buildings

    Land and buildings represent the onshore buildings and the land use rights
    which are stated at valuation less accumulated depreciation and
    accumulated impairment losses. Professional valuations are performed
    periodically with the last valuation performed on December 31, 2000. In
    the intervening years, the directors review the carrying value of land and
    buildings and adjustment is made where in the directors' opinion there has
    been a material change in value. Any increase in land and building
    valuation is credited to the revaluation reserves; any decrease is first
    offset against an increase in earlier valuation in respect of the same
    property and is thereafter charged to the income statement. Depreciation
    is calculated on the straight-line basis at annual rate estimated to write
    off valuation of each asset over its expected useful life, ranging from 30
    to 50 years.

(iii) Vehicles and office equipment

    Vehicles and office equipment are stated at cost less accumulated
    depreciation and impairment losses. The straight-line method is adopted to
    depreciate the cost less any estimated residual value of these assets over
    their expected useful life. The Group estimates the useful lives of
    vehicles and office equipment to be 5 years.

The useful lives of assets and method of depreciation, depletion and
amortisation are reviewed periodically.

The gain or loss on disposal or retirement of property, plant and equipment
recognised in the income statement is the difference between the net sales
proceeds and the carrying amount of the relevant asset. Any revaluation
reserve relating to the fixed asset is transferred to retained earnings as a
reserve movement.

Subsidiaries

A subsidiary is a company in which the Company, directly or indirectly,
controls more than half of its voting power or issued share capital or
controls the composition of its board of directors.

The Company's interests in subsidiaries are stated at cost less any impairment
losses.

Associates

An associate is a company, not being a subsidiary or a jointly-controlled
entity, in which the Group has a long-term interest of generally not less than
20% of the equity voting rights and over which it is in a position to exercise
significant influence.

The Group's share of the post-acquisition results and reserves of the
associate is included in the consolidated income statement and consolidated
reserves, respectively. The Group's proportionate interests in the associate
are stated in the consolidated balance sheet at the Group's share of net
assets under the equity method of accounting, less any impairment losses.



                                     F-16


<PAGE>


                      CNOOC LIMITED AND ITS SUBSIDIARIES
                NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

          (All amounts expressed in Renminbi unless otherwise stated)


4.  SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONT'D)

Trade and other receivables

Trade and other receivables are stated at their cost, after provision for
doubtful accounts.

Inventories and supplies

Inventories consist primarily of oil and supplies consist
mainly of items for repair and maintenance of oil and gas
properties. Inventories are stated at the lower of cost and net
realisable value. Costs of inventories and supplies represent
purchase or production cost of goods and are determined on a
weighted average basis. Net realisable value is based on
estimated selling prices less any estimated costs to be
incurred to completion and disposal. Supplies are capitalised
to property, plant and equipment when used for renewals and
betterments of oil and gas properties and have resulted in an
increase in the future economic values of oil and gas
properties or are recognised as expenses when used.

Related parties

Parties are considered to be related if one party has the
ability, directly or indirectly, to control the other party or
exercise significant influence over the other party in making
financial and operating decisions. Parties are also considered
to be related if they are subject to common control or common
significant influence. Related parties may be individuals or
corporate entities.

Short-term investments

Short-term investments are investments in debt and equity
securities not intended to be held on a continuing basis and
are stated at their fair values at the balance sheet date, on
an individual investment basis. The gains or losses arising
from changes in the fair value of a security are credited or
charged to the income statement in the period in which they
arise.

Cash and cash equivalents

For the purpose of the consolidated cash flow statement, cash
and cash equivalents comprise cash on hand and demand deposits,
and short-term highly liquid investments which are readily
convertible into known amounts of cash and which are subject to
an insignificant risk of changes in value, and have a short
maturity of generally within three months when acquired, less
bank overdrafts which are payable on demand and form an
integral part of the Group's cash management. For the purpose
of the balance sheet, cash and cash equivalents comprise cash
on hand and at banks, and term deposits with maturities of
three months or less, and assets similar in nature to cash
which are not restricted to use.



                                     F-17


<PAGE>


                      CNOOC LIMITED AND ITS SUBSIDIARIES
                NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

          (All amounts expressed in Renminbi unless otherwise stated)

4. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONT'D)

 Provisions

 A provision is recognised when a present obligation (legal or
 constructive) has arisen as a result of a past event and it is
 probable that a future outflow of resources will be required to
 settle the obligation, provided that a reliable estimate can be
 made of the amount of the obligation.

 When the effect of discounting is material, the amount
 recognised for a provision is the present value at the balance
 sheet date of the future expenditures expected to be required
 to settle the obligation. The increase in the discounted
 present value amount arising from the passage of time is
 included in finance costs in the income statement.

 Provisions for dismantlement are made based on the present
 value of the future costs expected to be incurred, on a site by
 site basis, in respect of the Group's expected dismantlement
 costs at the end of the related oil exploration and recovery
 activities.

 Deferred tax

 Deferred tax is provided, using the liability method, on all
 significant timing differences to the extent it is probable
 that the liability will crystallise in the foreseeable future.
 A deferred tax asset is not recognised until its realisation is
 assured beyond reasonable doubt.

 Revenue recognition

 Revenue is recognised when it is probable that the economic benefits will flow
 to the Group and when the revenue can be measured reliably, on the following
 bases:

(i) Oil and gas sales

    Revenues represent the invoiced value of sales of oil and gas attributable
    to the interests of the Group, net of royalties and government share of
    allocable share oil that are lifted and sold on behalf of the PRC
    government. Sales are recognised when the significant risks and rewards of
    ownership of oil and gas have been transferred to customers.

    Oil and gas lifted and sold by the Group above or below the Group's
    participating interests in the production sharing contracts result in
    overlifts and underlifts. The Group records these transactions in
    accordance with the entitlement method under which overlifts are recorded
    as liabilities and underlifts are recorded as assets at year end oil
    prices. Settlement will be in kind when the liftings are equalised or in
    cash when production ceases.

    The Group entered into a gas sales contract with a customer which contains
    take-or-pay clauses. The clauses require the customer to take a specified
    minimum volume of gas each year. If the minimum volume of gas is not
    taken, the customer must pay for the deficiency gas, even though the gas
    is not taken. The customer can offset the deficiency payment against any
    future purchases in excess of the specified volume. The Group records any
    deficiency payments as deferred revenue which is included in other
    payables until any make-up gas is taken by the customer or the expiry of
    the contract.



                                     F-18


<PAGE>


                      CNOOC LIMITED AND ITS SUBSIDIARIES
                NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

          (All amounts expressed in Renminbi unless otherwise stated)

4. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONT'D)

   Revenue recognition (cont'd)

  (ii)  Marketing revenues

        Marketing revenues represent sales of oil
        purchased from the foreign partners under the
        production sharing contracts and revenues from
        the trading of oil through the Company's
        subsidiary in Singapore. The title, together with
        the risks and rewards of the ownership of such
        oil purchased from the foreign partners, are
        transferred to the Group from the foreign
        partners and other unrelated oil and gas
        companies before the Group sells such oil to its
        customers. The cost of the oil sold is included
        in crude oil and product purchases.

  (iii) Other income

        Other income mainly represents project management fees charged to the
        foreign partners and handling fees charged to customers and is
        recognised when the services are rendered.

 (iv)   Interest income

        Interest income from deposits placed with banks and other financial
        institutions is recognised on a time proportion basis taking into
        account the effective yield on the assets.

 (v)    Dividend income

        Dividend income is recognised when the right to receive payment has
        been established.

Borrowing costs

Borrowing costs directly attributable to the acquisition,
construction or production of qualifying assets, i.e. assets
that necessarily take a substantial period of time to get ready
for their intended use or sale, are capitalised as part of the
cost of those assets. The capitalisation of such borrowing
costs ceases when the assets are substantially ready for their
intended use or sale.

To the extent that funds are borrowed specifically for the
purpose of obtaining a qualifying asset, the amount of
borrowing costs eligible for capitalisation on that asset is
determined as the actual borrowing costs incurred on that
borrowing during the period less any investment income on the
temporary investment of those borrowings.

To the extent that funds are borrowed generally and used for
the purpose of obtaining a qualifying asset, the amount of
borrowing costs eligible for capitalisation is determined by
applying a capitalisation rate to the expenditures on that
asset. The capitalisation rate is the weighted average of the
borrowing costs applicable to the borrowings of the enterprise
that are outstanding during the period, other than borrowings
made specifically for the purpose of obtaining a qualifying
asset. The amount of borrowing costs capitalised incurred
during a period should not exceed the amount of borrowing cost
incurred during that period.

Borrowing costs include interest charges and other costs
incurred in connection with the borrowing of funds, including
amortisation of discounts or premiums relating to borrowings,
and amortisation of ancillary costs incurred in connection with
arranging borrowings.



                                     F-19


<PAGE>


                      CNOOC LIMITED AND ITS SUBSIDIARIES
                NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

          (All amounts expressed in Renminbi unless otherwise stated)

4. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONT'D)

 Research and development costs

 Research costs are charged to the income statement as incurred.

 Development expenditure (other than relating to oil and gas
 properties discussed above) incurred on projects is capitalised
 and deferred only when the projects are clearly defined; the
 expenditure is separately identifiable and can be measured
 reliably, and there is reasonable certainty that the projects
 are technically feasible and have commercial value. Development
 expenditure which does not meet these criteria is expensed when
 incurred. No development costs were capitalised during the
 year.

 Foreign currencies

 The books and records of the Company and its subsidiary in
 China are maintained in Renminbi ("RMB"). Foreign currency
 transactions are recorded at the applicable rates of exchange
 ruling at the transaction dates. Monetary assets and
 liabilities denominated in foreign currencies at the balance
 sheet date are translated at the applicable rates of exchange
 ruling at that date. Exchange differences are dealt with in the
 income statement.

 On consolidation, the financial statements of overseas
 subsidiaries and an associate are translated into RMB using the
 net investment method, whereby assets and liabilities are
 translated at the rates of exchange prevailing at the balance
 sheet date and income and expenses are translated at the
 weighted average rates of exchange during the year. Share
 capital, share premium account and retained earnings are
 translated at historical rates. The resulting translation
 differences are included in the cumulative translation reserve.

 For the convenience of the readers, translation of amounts from
 RMB into United States dollars ("US$") has been made at the
 rate of US$1.00=RMB8.28 on December 31, 2002. No representation
 is made that RMB amounts could have been, or could be,
 converted into US$ at the rate on December 31, 2002, or at any
 other rate.

 Retirement and termination benefits

 The Group provides defined contribution plans based on local
 laws and regulations for full-time employees in the PRC and
 other countries in which it operates. The plans provide for
 contributions ranging from 5% to 22.5% of employees' basic
 salaries. The Group's contributions to defined contribution
 plans are charged to expense in the year to which they relate.

 Share options scheme

 The Company operates share option schemes for the purpose of
 providing incentives and rewards to eligible participants who
 contribute to the success of the Group's operations. The
 financial impact of share options granted under the share
 option schemes is not recorded in the Company's or the Group's
 balance sheet until such time as the options are exercised, and
 no charge is recorded in the income statement or balance sheet
 for their cost. Upon the exercise of share options, the
 resulting shares issued are recorded by the Company as
 additional share capital at the nominal value of the shares,
 and the excess of the exercise price per share over the nominal
 value of the shares is recorded by the Company in the share
 premium account. Options which are cancelled prior to their
 exercise date, or which lapse, are deleted from the register of
 outstanding options.



                                     F-20


<PAGE>


                      CNOOC LIMITED AND ITS SUBSIDIARIES
                NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

          (All amounts expressed in Renminbi unless otherwise stated)

4. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONT'D)

Repairs, maintenance and overhaul costs

Repairs, maintenance and overhaul costs are normally charged to the income
statement as operating expenses in the period in which they are incurred.

 Financial instruments

 The Group has currency swap contracts with financial
 institutions which are not designated as hedging instruments
 and are carried at fair value, with any changes in fair value
 thereof included in the income statement.

 Dividends

 Final dividends proposed by the directors are classified as a
 separate allocation of retained earnings within capital and
 reserves in the balance sheet, until they have been approved by
 the shareholders in a general meeting. When these dividends
 have been approved by the shareholders and declared, they are
 recognised as a liability.

 Interim dividends are simultaneously proposed and declared,
 because the Company's memorandum and articles of association
 grant the directors the authority to declare interim dividends.
 Consequently, interim dividends are recognised immediately as a
 liability when they are proposed and declared.

 Operating leases

 Leases of assets under which substantially all the risks and
 rewards of ownership are retained by the lessor are classified
 as operating leases. Lease payments under an operating lease
 are recognised as an expense on a straight-line basis over the
 lease terms.

 Contingencies

 Contingent liabilities are not recognised in the financial statements. They
 are disclosed unless the possibility of an outflow of resources embodying
 economic benefits is remote.

 A contingent asset is not recognised in the financial statements, but are
 disclosed when an inflow of economic benefits is probable.

 Subsequent events

 Post-year-end events that provide additional information about
 the Company's position at the balance sheet date or those that
 indicate the going concern assumption is not appropriate
 (adjusting events) are reflected in the financial statements.
 Post-year-end events that are not adjusting events are
 disclosed in the notes when material.

 Use of estimates

 The preparation of financial statements in conformity with Hong
 Kong GAAP requires management to make estimates and assumptions
 that affect certain reported amounts and disclosures.
 Accordingly, actual results could differ from those estimates.



                                     F-21


<PAGE>


                      CNOOC LIMITED AND ITS SUBSIDIARIES
                NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

          (All amounts expressed in Renminbi unless otherwise stated)

5. ACQUISITION

During the year, the Company acquired nine subsidiaries of
Repsol-YPF, S.A. which holds a portfolio of operated and
non-operated interests in oil and gas production sharing and
technical assistance contracts in contract areas located
offshore and onshore of Indonesia. The assets acquired included
a 65.3% interest in the Offshore Southeast Sumatra Contract
Area production sharing contract, a 36.7% interest in the
Offshore Northwest Java Contract Area production sharing
contract, a 25.0% interest in the West Madura Offshore Block
production sharing contract, a 50.0% interest in the Poleng
Field technical assistance contract and a 16.7% interest in the
Blora Block production sharing contract. The aggregate cash
consideration for the acquisition was a total cash
consideration of US$585 million which was adjusted for a
working capital adjustment. The effective date of the purchase
agreement was January 1, 2002 and the profit of the acquired
companies would accrue to the Group from that date. The
acquisition was completed on April 19, 2002. For practical
reasons, the operations of the acquired companies are included
in the Company's consolidated financial statements from April
1, 2002. The profit that had accrued to the Group prior to
April 1, 2002 has been treated as a purchase price reduction.

Subsequent to the acquisition, the Company established five
companies in Labuan, Malaysia and transferred the assets and
liabilities of these nine subsidiaries of Repsol-YPF, S.A. to
the five companies established in Labuan.

The transfer of the assets and liabilities were completed by December 30,
2002. The Company was in the process of winding up the acquired companies as
of December 31, 2002.

The following unaudited pro forma consolidated financial information reflects
the results of the operation of the Company for the years ended December 31,
2002 and 2001, as if the acquisition described above had completed on January
1, 2001.

                                      Pro forma financial results
                                       2001                2002
                                    ----------          ----------
Total revenue                       24,953,612          27,306,093
Income before tax                   12,171,582          13,092,812
Profit after tax                     8,563,807           9,397,483
                                    ==========          ==========
Earnings per share - Basic             RMB1.04             RMB1.14
                                    ==========          ==========
                   - Diluted          RMB1.04             RMB1.14
                                    ==========          ==========



                                     F-22


<PAGE>


                      CNOOC LIMITED AND ITS SUBSIDIARIES
                NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

          (All amounts expressed in Renminbi unless otherwise stated)

6. PRODUCTION SHARING CONTRACTS

PRC

For production sharing contracts in the PRC, the foreign party to the
contracts ("foreign partners") are normally required to bear all exploration
costs during the exploration period and such exploration costs can be
recovered according to the production sharing formula after commercial
discoveries are made and production begins.

After the initial exploration stage, the development and operating costs are
funded by the Group and the foreign partners according to their respective
participating interest.

The Group has the option to take a participating interest as
mutually agreed by both participants in a production sharing
contract and may exercise such option after the foreign
partners have independently undertaken all the exploration
risks and costs and made viable commercial discoveries.

After the Group exercises its option to take a participating
interest in a production sharing contract, the Group accounts
for the oil and gas properties using the "proportional method"
under which the Group recognises its share of development
costs, revenues and expenses from such operations based on its
participating interest in the production sharing contract. The
Group does not account for either the exploration costs
incurred by its foreign partners or the foreign partners share
of development costs and revenues and expenses from such
operations.

Part of the annual gross production of oil and gas in the PRC
is distributed to the PRC government as settlement of royalties
which are payable pursuant to a sliding scale. The Group and
the foreign partners also pay a production tax to the tax
bureau at a pre-determined rate. In addition, there is a
pre-agreed portion of oil and gas designated to recover all
exploration costs, development costs, operating costs incurred
and related interests according to the participating interests
between the Group and the foreign partners. Any remaining oil
after the foregoing priority allocations is first distributed
to the PRC government as share oil on a pre-determined ratio
pursuant to a sliding scale, and then distributed to the Group
and the foreign partners based on their respective
participating interests. As the government share is not
included in the Group's interest in the annual production, the
net sales of the Group do not include the sales revenue of the
government share oil.

The foreign partners have the right either to take possession
of their allocable remainder oil for sale in the international
market, or to negotiate with the Group to sell their allocable
remainder oil to the Group for resale in the PRC market.



                                     F-23


<PAGE>


                      CNOOC LIMITED AND ITS SUBSIDIARIES
                NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

          (All amounts expressed in Renminbi unless otherwise stated)

6. PRODUCTION SHARING CONTRACTS (CONT'D)

Overseas

The Group and the other partners to the production sharing contracts in
Indonesia are required to bear all exploration, development and operating
costs according to their respective participating interests. Exploration,
development and operating costs which qualify for recovery can be recovered
according to the production sharing formula after commercial discoveries are
made and production begins.

The Group's net interest in the production sharing contracts in Indonesia
consists of its participating interest in the properties covered under the
relevant production sharing contracts, less oil and gas distributed to the
Indonesian government and the domestic market obligation.

7. SEGMENT INFORMATION

The Group is organised on a world-wide basis into three major operating
segments. Segment information is presented by way of two segment formats: (i)
on a primary reporting basis, by business segment; and (ii) on a secondary
segment reporting basis, by geographical segment.

Intersegment transactions: segment revenue, segment expenses and segment
performance include transfers between business segments and between
geographical segments. Such transfers are accounted for at cost. Those
transfers are eliminated on consolidation.

(a) Business segments

    The Group is involved in the upstream operating activities of the
    petroleum industry that comprise production sharing contracts with foreign
    partners, independent operations and trading business. These segments are
    determined primarily because the senior management makes key operating
    decisions and assesses performance of the segments separately. The Group
    evaluates performance based on profit or loss from operations before
    income taxes.



                                     F-24


<PAGE>


7. SEGMENT INFORMATION (CONT'D)

   (a) Business segments (cont'd)

    The following tables present revenue, profit and certain asset, liability
and expenditure information for the Group's business segments.


<TABLE>
<CAPTION>

                                                              Independent operations
                                                      ----------------------------------------
Segment revenue                                               2000        2001           2002
---------------
<S>                                                          <C>           <C>            <C>
                                                         RMB'000       RMB'000        RMB'000
Sales to external customers:
    Oil and gas sales                                  9,283,228     9,845,019     10,318,549
    Marketing revenues                                         -             -              -
Intersegment revenues                                          -             -              -

Other income                                             161,790       558,368         43,513
                                                         -------       -------         ------

Total                                                  9,445,018    10,403,387     10,362,062
                                                       ---------    ----------     ----------
Segment results
---------------
Operating expenses                                     (894,813)   (1,183,252)    (1,268,360)

Production taxes                                       (526,491)     (525,454)    (  556,583)

Exploration costs                                      (523,633)     (955,475)    (1,241,759)
Depreciation, depletion and amortisation             (1,443,045)   (1,531,184)    (1,635,131)

Dismantlement                                           (49,145)      (41,530)       (72,751)
Impairment losses related to property, plant and
   equipment                                                   -      (60,907)              -
Crude oil and product purchases                                -             -              -
Selling and administrative expenses                     (33,146)      (35,686)       (38,548)
Other                                                  (133,976)     (514,655)              -
Interest income                                                -             -              -
Interest expense                                       (262,274)      (69,437)       (62,081)
Exchange (loss)/gain, net                                      -             -              -
Investment income                                              -             -              -
Share of profit of an associate                                -             -              -
Non-operating (loss)/gain, net                         (221,442)        18,267       (85,414)

Tax                                                            -             -              -
                                                       ---------     ---------      ---------
Net profit                                             5,357,053     5,504,074      5,401,435
                                                       ---------     ---------      ---------
Other information
-----------------
Segment assets                                        15,592,100    15,422,016     16,899,455
Investment in an associate                                     -             -              -
Total assets                                          15,592,100    15,422,016     16,899,455
Segment liabilities                                   (4,795,521)  (4,254,418)    (3,033,327)

Capital expenditures                                   3,326,893     1,922,074      2,770,640
                                                       =========   ===========      =========



                                                           Production sharing contracts
                                                      ---------------------------------------
Segment revenue                                             2000           2001         2002
---------------
                                                         RMB'000        RMB'000      RMB'000
Sales to external customers:
    Oil and gas sales                                  8,859,606      7,023,926   13,460,745
    Marketing revenues                                         -              -            -
Intersegment revenues                                    676,489        691,843    1,023,547
                                                                              2
Other income                                             107,390        123,31       133,108
                                                         -------   ---- ------       -------
                                                                              1
Total                                                  9,643,485      7,839,08    14,617,400
                                                       ---------      --------    ----------
Segment results
---------------
Operating expenses                                    (1,229,265)   (1,145,878)  (2,506,974)
Production taxes                                       ( 510,238)    ( 355,544)   ( 466,466)
Exploration costs                                       (29,236)       (83,822      (76,564)
Depreciation, depletion and amortisation              (1,130,820)   (1,035,736)  (2,384,401)
Dismantlement                                           (54,424)       (48,837)     (53,388)
Impairment losses related to property, plant and
   equipment                                                   -       (38,768)           -
Crude oil and product purchases                                -              -  (1,023,547)
Selling and administrative expenses                         (99)          (100)    (553,537)
Other                                                          -              -     (30,866)
Interest income                                                -              -        3,831
Interest expense                                       (171,230)       (13,871)     (17,100)
Exchange (loss)/gain, net                                      -              -          794
Investment income                                              -              -            -
Share of profit of an associate                                -              -            -
Non-operating (loss)/gain, net                                 -              -        (220)

Tax                                                            -              -            -
                                                       ---------      --------     ---------
Net profit                                             6,518,173      5,116,52     7,508,962
                                                       ---------      --------     ---------
Other information
-----------------
Segment assets                                         9,829,861     10,295,857   22,446,447
Investment in an associate                                     -              -            -
Total assets                                           9,829,861     10,295,857   22,446,447
Segment liabilities                                   (3,878,273)   (3,372,175) (10,200,032)
Capital expenditures                                   1,244,159      2,398,60(1) 4,396,933
                                                       =========      ==========   =========




                                                                  Trading business
                                                       ----------------------------------------
Segment revenue                                              2000           2001          2002
---------------
                                                          RMB'000        RMB'000       RMB'000
Sales to external customers:
    Oil and gas sales                                           -              -             -
    Marketing revenues                                  5,802,504      3,228,875     2,377,469
Intersegment revenues                                           -              -             -

Other income                                                    -              -             -
                                                                -              -             -

Total                                                   5,802,504      3,228,875     2,377,469
                                                        ---------      ---------     ---------
Segment results
---------------
Operating expenses                                              -              -             -

Production taxes                                                -              -             -

Exploration costs                                               -              -             -
Depreciation, depletion and amortisation                        -              -             -

Dismantlement                                                   -              -             -
Impairment losses related to property, plant and
   equipment                                                    -              -             -
Crude oil and product purchases                        (5,774,254)    (3,145,155)   (2,326,338)
Selling and administrative expenses                             -              -             -
Other                                                           -              -             -
Interest income                                                 -              -             -
Interest expense                                                -              -             -
Exchange (loss)/gain, net                                       -              -             -
Investment income                                               -              -             -
Share of profit of an associate                                 -              -             -
Non-operating (loss)/gain, net                                  -              -             -

Tax                                                             -             -              -
                                                           ------         ------        ------
Net profit                                                 28,250         83,720        51,131
                                                           ------         ------        ------
Other information
-----------------
Segment assets                                                  -        368,670       630,704
Investment in an associate                                      -              -             -
Total assets                                                    -        368,670       630,704
Segment liabilities                                             -      (106,862)      (21,665)

Capital expenditures                                            -              -             -
                                                         =========      ========     =========




                                                                   Unallocated
                                                      ----------------------------------------
Segment revenue                                             2000           2001         2002
---------------
                                                         RMB'000        RMB'000      RMB'000
Sales to external customers:
    Oil and gas sales                                          -              -            -
    Marketing revenues                                         -              -            -
Intersegment revenues                                          -              -            -

Other income                                               9,400         40,057       40,431
                                                           -----         ------       ------

Total                                                      9,400         40,057       40,431
                                                           -----         ------       ------
Segment results
---------------
Operating expenses                                             -              -            -

Production taxes                                               -        (2,770)            -

Exploration costs                                              -              -            -
Depreciation, depletion and amortisation                 (4,017)              -            -

Dismantlement                                                  -              -            -
Impairment losses related to property, plant and
   equipment                                                   -              -            -
Crude oil and product purchases                                -              -            -
Selling and administrative expenses                    (422,757)      (579,603)    (414,455)
Other                                                   (83,623)        (3,221)            -
Interest income                                          236,624        317,706      144,039
Interest expense                                        (41,500)       (33,326)    (215,611)
Exchange (loss)/gain, net                                381,336        235,409    (114,608)
Investment income                                              -        220,650      193,277
Share of profit of an associate                          218,326         89,963      165,387
Non-operating (loss)/gain, net                            25,411         16,674       14,255

Tax                                                  (1,926,076)    (3,048,227)   (3,541,416)
                                                      ----------    -----------   -----------
Net profit                                           (1,606,876)    (2,746,688)   (3,728,701)
                                                      ----------    -----------   -----------
Other information
-----------------
Segment assets                                         6,704,417     17,771,115   20,581,722
Investment in an associate                               471,027        461,990      537,377
Total assets                                           7,175,444     18,233,105   21,119,099
Segment liabilities                                   7,801,808)    (3,275,687)   (7,272,193)

Capital expenditures                                      13,291         18,063       37,652
                                                       =========      ========     =========




                                                                    Eliminations
                                                        --------------------------------------
Segment revenue                                              2000          2001          2002
---------------
                                                          RMB'000       RMB'000       RMB'000
Sales to external customers:
    Oil and gas sales                                           -             -             -
    Marketing revenues                                          -             -             -
Intersegment revenues                                   (676,489)     (691,843)   (1,023,547)

Other income                                                    -             -             -


Total

Segment results
---------------
Operating expenses                                              -             -             -

Production taxes                                                -             -             -

Exploration costs                                               -             -             -
Depreciation, depletion and amortisation                        -             -             -

Dismantlement                                                   -             -             -
Impairment losses related to property, plant and
   equipment                                                    -             -             -
Crude oil and product purchases                           676,489       691,843     1,023,547
Selling and administrative expenses                             -             -             -
Other                                                           -             -             -
Interest income                                                 -             -             -
Interest expense                                                -             -             -
Exchange (loss)/gain, net                                       -             -             -
Investment income                                               -             -             -
Share of profit of an associate                                 -             -             -
Non-operating (loss)/gain, net                                  -             -             -

Tax                                                             -             -             -

Net profit

Other information
-----------------
Segment assets                                                  -             -             -
Investment in an associate                                      -             -             -
Total assets                                                    -             -             -
Segment liabilities                                             -             -             -

Capital expenditures                                            -             -             -





                                                                     Consolidated
                                                       ------------------------------------------
Segment revenue                                                2000           2001          2002
---------------
                                                            RMB'000        RMB'000       RMB'000
Sales to external customers:
    Oil and gas sales                                    18,142,834     16,868,945    23,779,294
    Marketing revenues                                    5,802,504      3,228,875     2,377,469
Intersegment revenues                                             -              -             -

Other income                                                278,580        721,737       217,052
                                                            -------        -------       -------

Total                                                    24,223,918     20,819,557    26,373,815
                                                         ----------     ----------    ----------
Segment results
---------------
Operating expenses                                      (2,124,078)    (2,329,130)   (3,775,334)

Production taxes                                        (1,036,729)   (   883,768)   (1,023,049)

Exploration costs                                         (552,869)    (1,039,297)   (1,318,323)
Depreciation, depletion and amortisation                (2,577,882)    (2,566,920)   (4,019,532)
Dismantlement                                             (103,569)       (90,367)     (126,139)
Impairment losses related to property, plant and
   equipment                                                      -       (99,675)             -
Crude oil and product purchases                         (5,097,765)    (2,453,312)   (2,326,338)
Selling and administrative expenses                       (456,002)      (615,389)   (1,006,540)
Other                                                     (217,599)      (517,876)      (30,866)
Interest income                                             236,624        317,706       147,870
Interest expense                                          (475,004)      (116,634)     (294,792)
Exchange (loss)/gain, net                                   381,336        235,409     (113,814)
Investment income                                                 -        220,650       193,277
Share of profit of an associate                             218,326         89,963       165,387
Non-operating (loss)/gain, net                            (196,031)         34,941      (71,379)

Tax                                                      (1,926,076)    (3,048,227)   (3,541,416)
                                                         ----------      ---------     ---------
Net profit                                               10,296,600      7,957,631     9,232,827
                                                         ----------      ---------     ---------
Other information
-----------------
Segment assets                                           32,126,378     43,857,658    60,558,328
Investment in an associate                                  471,027        461,990       537,377
Total assets                                             32,597,405     44,319,648    61,095,705
Segment liabilities                                    (16,475,602)   (11,009,142)   (20,527,217)

Capital expenditures                                      4,584,343      4,338,738     7,205,225
                                                          =========   ============     =========
</TABLE>



                                     F-25


<PAGE>


                      CNOOC LIMITED AND ITS SUBSIDIARIES
                NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

          (All amounts expressed in Renminbi unless otherwise stated)

7.  SEGMENT INFORMATION (CONT'D)

    (b) Geographical segments

    In determining the Group's geographical segments, revenues and results are
    attributed to the segments based on the location of the Group's customers,
    and assets are attributed to the segments based on the location of the
    Group's assets.

    The Group is an oil and gas entity mainly engaged in the exploration,
    development and production of crude oil and natural gas offshore China.
    Approximately 86% of the total revenue of the Group is contributed by PRC
    customers, therefore, the Group's activities are conducted predominantly
    in the PRC. An analysis by geographical segment is as follows:

<TABLE>
<CAPTION>

                                                   PRC                                        Outside PRC
                               -------------------------------------------     ----------------------------------------
                                 2000             2001            2002           2000           2001           2002
                               ----------      ----------       ----------     ---------      ---------     -----------
<S>                                <C>              <C>             <C>             <C>           <C>             <C>
                               RMB'000          RMB'000         RMB'000         RMB'000       RMB'000         RMB'000
External sales                 17,559,042      18,104,658       22,781,301     6,664,876      2,714,899       3,592,514
Segment assets                 32,432,338      43,783,409       50,647,452       165,067        536,239      10,448,253
Capital expenditures            4,566,554       4,311,241        6,453,798        17,789         27,497         751,427


                                                   Total
                               --------------------------------------------
                                 2000             2001             2002
                               ----------        ----------      ----------
                                RMB'000          RMB'000          RMB'000
External sales                 24,223,918        20,819,557      26,373,815
Segment assets                 32,597,405        44,319,648      61,095,705
Capital expenditures            4,584,343         4,338,738       7,205,225

</TABLE>


    (c) An analysis of sales to the major customers by business segment is as
        follows:

<TABLE>
<CAPTION>

                                                     2000                    2001                  2002
                                                  ----------               ---------            ----------
                                                    RMB'000                 RMB'000               RMB'000
Production sharing contracts
<S>                                                <C>                     <C>                   <C>
China Petroleum & Chemical Corporation             1,850,239               2,861,847             3,707,536
PetroChina Company Limited                           690,853               1,126,127             1,187,571
Castle Peak Power Company Limited                  1,199,090               1,205,649             1,247,639
                                                   ---------               ---------             ---------
                                                   3,740,182               5,193,623             6,142,746
                                                   ---------               ---------             ---------

Independent operations
China Petroleum & Chemical Corporation             4,474,822               3,420,685             3,183,341
PetroChina Company Limited                           767,576                 194,460                     -
                                                   ---------               ---------             ---------
                                                   5,242,398               3,615,145             3,183,341
                                                   ---------               ---------             ---------
                                                   8,982,580               8,808,768             9,326,087
                                                   =========               =========             =========

8. OIL AND GAS SALES

                                                     2000                    2001                  2002
                                                  ----------               ---------            ----------
                                                    RMB'000                 RMB'000               RMB'000

Gross sales                                        21,747,888            19,663,251            26,086,646
Royalties                                       (     208,885)         (    283,014)          (   464,113)
PRC government share oil                        (   2,719,680)         (  1,819,449)          ( 1,843,239)
                                                   ---------               ---------             ---------

                                                   18,819,323            17,560,788             23,779,294
                                                   =========            ============          ============
</TABLE>



                                     F-26


<PAGE>

<TABLE>
<CAPTION>

                      CNOOC LIMITED AND ITS SUBSIDIARIES
                NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

          (All amounts expressed in Renminbi unless otherwise stated)

9.   MARKETING PROFIT

                                                     2000                    2001                  2002
                                                  ----------               ---------            ----------
                                                    RMB'000                 RMB'000               RMB'000
     <S>                                       <C>                     <C>                   <C>
     Marketing revenues                            5,126,015               2,537,032            2,377,469
     Crude oil and product purchases          (   5,097,765)          (   2,453,312)        (  2,326,338)
                                               --------------          --------------       --------------
                                                      28,250                  83,720               51,131
                                               ==============          ==============       ===============


10.  SELLING AND ADMINISTRATIVE EXPENSES

                                                     2000                    2001                  2002
                                                  ----------               ---------            ----------
                                                    RMB'000                 RMB'000               RMB'000

     Salary and staff benefits                       172,593                 228,782              390,376
     Utility and office expenses                      70,069                  89,462              100,502
     Recovery of doubtful accounts                  (57,658)                 (4,966)                   -
     Transportation and entertainment                 60,682                  64,923               64,319
     Rentals and maintenance                          89,184                 121,483               75,738
     Selling expenses                                 36,481                  38,069               38,548
     Other                                            84,651                  77,636              337,057
                                                  ----------             ------------            ---------

                                                     456,002                 615,389            1,006,540
                                                  ==========             ============           ==========

</TABLE>

11.  INTEREST EXPENSES
<TABLE>
<CAPTION>

                                                          2000                    2001                  2002
                                                       ----------               ---------            ----------
                                                         RMB'000                 RMB'000               RMB'000

     <S>                                               <C>                      <C>                  <C>
     Interest on bank loans which are:
      - wholly repayable within five years                241,749                 219,045               177,156
      - not wholly repayable within five years            191,755                  81,634                     -
     Interest expense to the parent company                41,500                   8,415                     -
     Interest on long-term guaranteed notes                     -                       -               215,028
     Other borrowing costs                                      -                   6,510                12,426
                                                       ----------               ----------            ----------
     Total interest                                       475,004                 315,604               404,610

     Less: Amount capitalised in property, plant
           and equipment                                        -               ( 198,970)           (  187,714)
                                                       ----------               ----------            ----------
                                                          475,004                 116,634               216,896
     Other finance costs:
     Increase in discounted amount of provisions arising
       from the passage of time (note 28)                       -                       -                77,896
                                                       ----------               ----------            ----------
                                                          475,004                 116,634               294,792
                                                       ==========               ==========            ==========

     The interest rates used for interest capitalisation represented
     the cost of capital from raising the related borrowings and
     varied from 2.35% to 9.15% per annum for the year ended
     December 31, 2002 (2001: 2.35% to 9.15%, 2000: Nil).

                                     F-27

</TABLE>

<PAGE>


                      CNOOC LIMITED AND ITS SUBSIDIARIES
                NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

          (All amounts expressed in Renminbi unless otherwise stated)

12.  DIRECTORS' REMUNERATION

     Directors' remuneration disclosed pursuant to the Listing Rules
     and Section 161 of the Companies Ordinance is as follows:
<TABLE>
<CAPTION>

                                                     2000               2001             2002
                                                  ----------          ---------       ----------
                                                    RMB'000            RMB'000           RMB'000
     <S>                                          <C>                 <C>             <C>
     Fees for executive directors                         -                  -                 -
     Fees for non-executive directors                     -                890               890

     Other emoluments for executive directors
       - Basic salaries and allowances                  400              6,106             6,654
       - Bonus                                          440                560             1,109
       - Pension scheme contribution                    160                207               214
       - Other                                        1,500              1,500             1,500

     The number of directors whose remuneration fell within the following bands is as follows:

                                                                  Number of Directors
                                                 ------------------------------------------------
                                                     2000               2001             2002
                                                 ---------------   ---------------    -----------
     Nil to HK$1,000,000                                  7                  6                 8
     HK$1,000,001- HK$1,500,000                           -                  -                 -
     HK$1,500,001- HK$2,000,000                           -                  2                 2
     HK$2,000,001- HK$2,500,000                           -                  -                 1
     HK$2,500,001- HK$3,000,000                           -                  1                 -
                                                 ---------------   ----------------   -------------

                                                          7                  9                11
                                                 ===============   ================   =============

     There was no arrangement under which a director waived or
     agreed to waive any remuneration during the years ended December 31, 2002,
     2001 and 2000.


13.  FIVE HIGHEST PAID INDIVIDUALS

     The five highest paid individuals during the year are as follows:

                                                     2000               2001             2002
                                                 ---------------   ---------------    -----------
                                                   RMB'000            RMB'000           RMB'000
     Basic salaries and allowances                      400              7,280             8,227
     Bonus                                              440              1,280             2,518
     Pension scheme contributions                       160                416               505
     Other                                            1,500              1,500             2,732

     Number of directors                                  5                  4                 4
     Number of employees                                  -                  1                 1


</TABLE>

                                     F-28
<PAGE>


                      CNOOC LIMITED AND ITS SUBSIDIARIES
                NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

          (All amounts expressed in Renminbi unless otherwise stated)


13.  FIVE HIGHEST PAID INDIVIDUALS (CONT'D)

     The number of highest paid individuals whose remuneration fell
     within the following bands is as follows:

                                             Number of Senior Executives
                                   --------------------------------------------
                                   2000             2001               2002
                                   -----------      -----------   -------------

     Up to HK$1,000,000                      5                1               1
     HK$1,500,001 - HK$2,000,000             -                2               2
     HK$2,500,001 - HK$3,000,000             -                2               1
     HK$4,500,001 - HK$5,000,000             -                -               1
                                   -----------      -----------    ------------

                                             5                5               5
                                   ===========      ===========    ============


14.  TAX

     (i)    Income tax

             The Company and its subsidiaries are subject to income taxes on
             an entity basis on profit arising in or derived from the tax
             jurisdictions in which they are domiciled and operate. The
             Company is not liable for profits tax in Hong Kong as it does not
             have any assessable income currently sourced from Hong Kong.

             The Company's subsidiary, CNOOC China Limited, is a wholly
             foreign-owned enterprise established in the PRC. It is exempt
             from the 3% local surcharge and is subject to an enterprise
             income tax of 30% under the prevailing tax rules and regulations.
             Moreover, CNOOC China Limited was entitled to a 50% reduction of
             enterprise income tax for three years until end of year 2000.
             Starting from January 1, 2001, CNOOC China Limited is subject to
             enterprise income tax at the normal rate of 30%.

             The Company's subsidiary in Singapore, China Offshore Oil
             (Singapore) International Pte. Ltd., is subject to income tax at
             the rate of 10% and 26%, for its oil trading activities and other
             income generating activities respectively. The Company's
             subsidiaries owning interests in oil properties in Indonesia
             along the Malacca Strait are subject to corporate and dividend
             tax of 44%. The nine subsidiaries of Repsol-YPF, S.A. in
             Indonesia acquired by the Company during the year are all subject
             to corporate and branch profit tax at a rate of 48%. All of the
             Company's other subsidiaries are not subject to any income taxes
             in their respective jurisdictions for the year presented.


                                     F-29
<PAGE>
                      CNOOC LIMITED AND ITS SUBSIDIARIES
                NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

          (All amounts expressed in Renminbi unless otherwise stated)

14.  TAX (CONT'D)
<TABLE>
<CAPTION>

     (i)     Income tax (cont'd)

             An analysis of the provision for tax in the consolidated income
             statement was as follows:

                                                  2000              2001           2002
                                               ---------       -----------      -------
                                                RMB'000           RMB'000       RMB'000
             <S>                              <C>              <C>             <C>
             Overseas income taxes
              - Current                          43,873            20,401       406,493
              - Deferred                              -                 -        26,094
             PRC enterprise income tax
              - Current                       1,600,608         2,715,409     2,786,938
              - Deferred                        281,595           312,417       321,891
                                              -----------      -----------    ----------
             Tax charge for the year          1,926,076         3,048,227     3,541,416
                                              ===========      ===========    ==========
</TABLE>




             With the tax holiday exemption, current income tax liabilities of
             our subsidiary in the PRC were reduced by approximately
             RMB1,920,730,000 for the year ended December 31, 2000. The tax
             holiday exemption also increased the net income per share by
             RMB0.30 for the year ended December 31, 2000.

             The reconciliation of the statutory PRC enterprise income tax
             rate to the effective income tax rate of the Group was as
             follows:
<TABLE>
<CAPTION>

                                                                  2000               2001                   2002
                                                             --------------       -------------       --------------
                                                                          %                   %                   %
             <S>                                             <C>                  <C>                 <C>

             Statutory PRC enterprise income tax rate                  33.0                33.0                33.0
             Effect of tax holiday                                   (15.0)                   -                   -
             Effect of tax exemption granted                          (3.0)                (3.0)               (3.0)
             Effect of future tax rate changes on originating
               timing differences                                      1.2                    -                   -
             Effect of different tax rates for overseas
              subsidiaries                                             0.3                 (1.2)                0.2
             Tax effect of additional depreciation on
              revaluation and other permanent differences            (0.7)                 (1.1)              (0.4)
             Tax credit from government                                  -                    -               (2.1)
                                                             --------------        ------------       --------------

             Effective income tax rate                               15.8                  27.7               27.7
                                                             ==============        ============       ===============


                                     F-30

</TABLE>

<PAGE>


                      CNOOC LIMITED AND ITS SUBSIDIARIES
                NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

          (All amounts expressed in Renminbi unless otherwise stated)

14.  TAX (CONT'D)

     (i)    Income tax (cont'd)

            The tax effect of significant timing differences of the Group was
            as follows:
<TABLE>
<CAPTION>

                                                                                2001               2002
                                                                           ----------------       ----------
                                                                                RMB'000             RMB'000
            <S>                                                            <C>                    <C>
            Deferred tax assets
             - Provision for retirement and termination benefits                      -              86,602
             - Provision for dismantlement                                      479,439             671,796
             - Provision for impairment of property, plant and
                 equipment and write-off of unsuccessful
                 exploratory drillings                                        1,880,791             933,636
                                                                              ---------           ----------

                                                                              2,360,230           1,692,034
                                                                              ---------           ----------

            Deferred tax liabilities
             - Accelerated amortisation allowance for oil and gas
                properties                                                   (4,123,867)         (7,833,190)
                                                                              ----------         ----------
            Net deferred tax liabilities                                     (1,763,637)         (6,141,156)
                                                                             ===========         ===========

            There were no significant unprovided deferred taxes in respect of the year (2001: Nil ).
</TABLE>

      (ii)  Other taxes

            The Company's PRC subsidiary pays the following taxes:

            -      production taxes equal to 5% of independent production and
                   production under production sharing contracts; and

            -      business tax of 3% to 5% on other income.

15.  DIVIDENDS
<TABLE>
<CAPTION>

                                                              2000              2001         2002
                                                         ----------        -----------     ----------
                                                           RMB'000             RMB'000       RMB'000
     <S>                                                 <C>               <C>             <C>
     Final - HK$0.15 (2001: Nil; 2000: RMB0.98)
       per ordinary share                                6,426,424                   -     1,306,740
     Interim - HK$0.11 (2001: HK$0.10; 2000: Nil)
       per ordinary share                                        -             871,194       958,314
                                                        ------------       -----------     -----------
                                                         6,426,424             871,194     2,265,054
                                                       =============       ===========     ===========
</TABLE>

     The payment of future dividends will be determined by the Company's board
     of directors. The payment of dividends will depend upon, among other
     things, future earnings, capital requirements and financial condition and
     general business conditions of the Company. The Company's ability to pay
     dividends will also depend on the cash flows determined by the dividends,
     if any, received by the Company from its subsidiaries and associated
     company. As the controlling shareholder, CNOOC will be able to influence
     the Company's dividend policy.

                                     F-31
<PAGE>


                      CNOOC LIMITED AND ITS SUBSIDIARIES
                NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

          (All amounts expressed in Renminbi unless otherwise stated)


15.  DIVIDENDS (CONT'D)

     Cash dividends to the shareholders in Hong Kong will be paid in Hong Kong
     dollars and dividends to the ADS holders will be paid to the depositary
     in Hong Kong dollars and will be converted by the depositary into United
     States dollars and paid to the holders of ADSs.

     On December 20, 2000, our board of directors proposed a dividend of
     RMB0.98 per share, totalling approximately RMB6,426,424,000, to our
     shareholders for the year ended December 31, 2000. The dividend
     distribution was approved by the shareholders in their annual general
     meeting held on February 4, 2001.

     On August 27, 2001, the board of directors declared a 2001 interim
     dividend of HK$0.10 per share, totalling approximately RMB871,194,000 to
     its shareholders, which was paid in October 2001.

     On March 27, 2002, the board of directors proposed a final dividend of
     HK$0.15 per share, totalling approximately RMB1,306,740,000 to its
     shareholders for the year ended December 31, 2001. The dividend
     distribution was approved by the shareholders in an annual meeting held
     on June 6, 2002 and the dividend was paid in June 2002. On August 23,
     2002, the board of directors declared an interim dividend of HK$0.11 per
     share, totalling approximately RMB958,314,000 to its shareholders.


16.  EARNINGS PER SHARE AND PER ADS

     The calculations of basic and diluted earnings per share are based on:
<TABLE>
<CAPTION>


                                                     2000                     2001                2002
                                                 -------------------   -------------------  -----------------
     Earnings
     --------
     <S>                                           <C>                 <C>                   <C>
     Net profit attributable to shareholders,
       used in the basic and diluted earnings
       per share calculations                      RMB10,296,600,000      RMB7,957,631,000      RMB9,232,827,000

     Shares
     ------

     Weighted average number of ordinary shares
       in issue during the year used in basic
       earnings per share calculation                  6,331,114,421         7,941,383,305         8,214,165,655

     Weightedaverage number of ordinary shares
       assumed issued at no consideration on
       deemed exercise of all share options
       outstanding during the year                                -                905,498             5,119,729
                                                 -------------------   -------------------  ---------------------

     Weighted average number of ordinary shares
       used in diluted earnings per share
       calculation                                     6,331,114,421          7,942,288,803        8,219,285,384
                                                 ===================   ===================  ======================
</TABLE>


     Net income per ADS for the three years ended December 31, 2002
     has been computed by dividing net income by the number of ADS outstanding.
     Each ADS represented 20 shares.

                                     F-32
<PAGE>


                      CNOOC LIMITED AND ITS SUBSIDIARIES
                NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

          (All amounts expressed in Renminbi unless otherwise stated)

17.  PROPERTY, PLANT AND EQUIPMENT, NET

     Movements in property, plant and equipment were:
<TABLE>
<CAPTION>

                                                                                          2002
                                                           ------------------------------------------------------------------------
                                                                                                 Vehicles and
                                                             Oil and gas        Land and            office
                                                             properties         buildings          equipment               Total
                                                           ----------------- ---------------- --------------------   --------------
     <S>                                                   <C>               <C>              <C>                    <C>
                                                               RMB'000            RMB'000           RMB'000               RMB'000
     Cost or valuation:
     At beginning of the year
        As previously reported                                    41,177,459          824,781              57,900       42,060,140
        Cumulative effect of change in
          accounting policy (Note 3)                               1,515,088                -                   -        1,515,088
                                                           ----------------- ----------------- -------------------  ---------------
     At beginning of year as restated                             42,692,547           824,781             57,900       43,575,228
     Additions                                                     7,419,956                 -             37,653        7,457,609
     Acquisition of subsidiaries                                   8,646,487                 -                  -        8,646,487
     Disposals and write-offs                               (       438,011)                 -        (    2,011)  (      440,022)
     Exchange realignment                                               801                  -                178             979
                                                           ----------------- ----------------- -------------------  ---------------

     End of year                                                 58,321,780            824,781             93,720      59,240,281
                                                           ================= ================= ===================  ===============

     Analysis of cost or valuation
        At cost                                                  58,321,780                  -             93,720      58,415,500
        At revaluation                                                    -            824,781                  -         824,781
                                                           ----------------- ----------------- -------------------  ---------------
                                                                 58,321,780            824,781             93,720      59,240,281
                                                           ================= ================= ===================  ===============

     Accumulated depreciation, depletion and
        amortisation:
     At beginning of the year
        As previously reported                               (  18,154,653)       (    55,653)        (   22,335)    ( 18,232,641)
        Cumulative effect of change in
        accounting policy (Note 3)                        (       778,240)                   -                 -     (    778,240)
                                                           ----------------- ----------------- -------------------  ---------------
     At beginning of year as restated                       (  18,932,893)        (    55,653)        (   22,335)    ( 19,010,881)
     Depreciation provided during the year                  (   4,126,625)        (    25,374)        (    7,110)    (  4,159,109)
     Disposals                                                          -                    -             1,777            1,777
     Exchange realignment                                   (          82)                   -        (      166)    (        248)
                                                           ----------------- ----------------- -------------------  ---------------

     End of year                                            (  23,059,600)         (   81,027)        (   27,834)    ( 23,168,461)
                                                           ================= ================= ===================  ===============
     Net book value:
     Beginning of year as restated                             23,759,654             769,128             35,565        24,564,347
                                                           ================= ================= ===================  ===============

     End of year                                               35,262,180             743,754             65,886        36,071,820
                                                           ================= ================= ===================  ===============

     Had the property, plant and equipment
        been carried at cost less
        accumulated depreciation, depletion and
        amortisation, the carrying amount of
        each class would have been:
     Cost                                                      58,321,780             550,110             93,720       58,965,610
     Accumulated depreciation, depletion and
        amortisation                                      (    23,059,600)       (     55,131)       (    27,834)    ( 23,142,565)
                                                          ----------------- ----------------- -------------------  ---------------
                                                               35,262,180             494,979             65,886       35,823,045
                                                           ================= ================= ===================  ===============

</TABLE>

                                     F-33
<PAGE>


                      CNOOC LIMITED AND ITS SUBSIDIARIES
                NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

          (All amounts expressed in Renminbi unless otherwise stated)


17.  PROPERTY, PLANT AND EQUIPMENT, NET (CONT'D)
<TABLE>
<CAPTION>

                                                                                          2001
                                                           ------------------------------------------------------------------------
                                                                                                 Vehicles and
                                                             Oil and gas        Land and            office
                                                             properties         buildings          equipment               Total
                                                           ----------------- ---------------- --------------------   --------------
     <S>                                                   <C>               <C>              <C>                    <C>
                                                               RMB'000            RMB'000           RMB'000               RMB'000
     Cost or valuation:
     At beginning of year                                        37,319,924          824,781                39,837      38,184,542
     Additions                                                    4,320,675                -                18,063       4,338,738
     Disposals and write-offs                               (      463,140)                -                     -   (     463,140)
                                                           ----------------- ---------------- --------------------   --------------

     End of year                                                41,177,459           824,781                57,900      42,060,140
                                                           ----------------- ---------------- --------------------   --------------

     Analysis of cost or valuation
        At cost                                                 41,177,459                 -                57,900      41,235,359
        At revaluation                                                   -           824,781                     -         824,781
                                                           ----------------- ---------------- --------------------   --------------
                                                                41,177,459           824,781                57,900      42,060,140
                                                           ================= ================ ====================  ===============


     Accumulated depreciation,
        depletion and amortisation:
     At beginning of year                                     ( 15,482,082)        (  30,280)            ( 17,805)    ( 15,530,167)
     Depreciation provided during the year                    (  2,572,896)        (  25,373)            (  4,530)    (  2,602,799)
     Impairment during the year
        recognised in income statement                        (     99,675)                -                    -     (     99,675)
                                                           ----------------- ---------------- --------------------   --------------

     End of year                                              ( 18,154,653)        (  55,653)            ( 22,335)    ( 18,232,641)
                                                           ================= ================ ====================  ===============

     Net book value:

     Beginning of year                                          21,837,842           794,501               22,032       22,654,375
                                                           ================= ================ ====================  ===============
     End of year                                                23,022,806           769,128               35,565       23,827,499
                                                           ================= ================ ====================  ===============

     Had the property, plant and
        equipment been carried at
        cost less accumulated depreciation,
        depletion and amortisation, the
        carrying amount of each class
        would have been:
     Cost                                                       41,177,459           550,110               57,900       41,785,469
     Accumulated depreciation,
        depletion and amortisation                            ( 18,154,653)        (  38,914)            ( 22,335)    ( 18,215,902)
                                                           ----------------- ---------------- --------------------   --------------
                                                                23,022,806           511,196               35,565       23,569,567
                                                           ================= ================ ====================  ===============
</TABLE>

     Impairment loss for the year ended December 31, 2001, represented the
     estimated impairment resulting from downward revision of the reserves of
     certain oil fields.

     Land and buildings are held outside Hong Kong with lease terms of 50
     years.


                                     F-34
<PAGE>

                      CNOOC LIMITED AND ITS SUBSIDIARIES
                NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

          (All amounts expressed in Renminbi unless otherwise stated)

     The land and buildings were revalued by an independent valuer, Sallmanns
     (Far East) Limited, Chartered Surveyors (the "Valuer") as of December 31,
     2000 using a depreciated replacement cost approach. The depreciated
     replacement cost approach considers the cost to reproduce or replace in
     new condition the property being appraised in accordance with current
     construction costs for similar property in the locality with allowance
     for accrued depreciation as evidenced by observed condition or
     obsolescence present, whether arising from physical, functional or
     economic causes. The Valuer assumed that the assets would be used for the
     purposes for which they are presently used and did not consider
     alternative uses. Certain land use rights were previously granted by the
     PRC government at no cost.

     The revaluation surplus of approximately RMB104,073,000 arising from the
     revaluation of the land and buildings as at December 31, 2000 has been
     recorded by us.


                                     F-35
<PAGE>

                      CNOOC LIMITED AND ITS SUBSIDIARIES
                NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

          (All amounts expressed in Renminbi unless otherwise stated)

18.  INVESTMENT IN AN ASSOCIATE

     Investment in an associate represents a 30% equity interest of CNOOC
     China Limited in Shanghai Petroleum and Natural Gas Company Limited
     ("SPC"). SPC was incorporated on September 7, 1992 in the PRC with
     limited liability and is principally engaged in offshore petroleum
     exploration, development, production and sales in the South Yellow Sea
     and East China Sea areas. The issued and paid-up capital of SPC is
     RMB900,000,000.
<TABLE>
<CAPTION>

                                                                     2001                        2002
                                                            -------------------------   --------------------------
                                                                   RMB'000                            RMB'000
     <S>                                                        <C>                          <C>
     Unlisted shares, at cost                                                270,000                       270,000
     Accumulated share of profit                                             290,990                       357,377
     Dividends received                                                    (  99,000)                    (  90,000)
                                                                           ----------                    ----------
                                                                             461,990                        537,377
                                                                           ==========                    ==========

     The directors are of the opinion that the underlying value of the
     investment in an associate is not less than the carrying amount of the
     associate as of December 31, 2002 and 2001.


19.  ACCOUNTS RECEIVABLE, NET

                                                                     2001                        2002
                                                            -------------------------   --------------------------
                                                                   RMB'000                            RMB'000

     Trade receivables                                                     1,204,907                      3,063,266
     Less:  Provision for doubtful accounts                             (     10,727)                             -
                                                                         ------------                ---------------
                                                                           1,194,180                      3,063,266
                                                                         ============                ===============

     The Group's trading terms with its customers are mainly on credit, except
     for new customers, where payment in advance is normally required. The
     customers are required to make payment within 30 days after the delivery
     of oil and gas. As of December 31, 2002 and 2001, substantially all the
     accounts receivable were aged within six months.


20.  INVENTORIES AND SUPPLIES


                                                                     2001                        2002
                                                            -------------------------   --------------------------
                                                                   RMB'000                            RMB'000

     Materials and supplies                                                  428,991                        585,431
     Oil in tanks                                                            198,346                        263,174
                                                                          -----------                 --------------
                                                                             627,337                        848,605
                                                                          ============                ==============

</TABLE>


                                     F-36
<PAGE>



                      CNOOC LIMITED AND ITS SUBSIDIARIES
                NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

          (All amounts expressed in Renminbi unless otherwise stated)

21.  SHORT-TERM INVESTMENTS

     As of December 31, 2002 and 2001, short-term investments mainly
     represented investments in liquidity funds and were stated at fair value
     at the balance sheet date.

     Details were as follows:

<TABLE>
<CAPTION>

                                                                     2001                        2002
                                                            -------------------------   --------------------------
                                                                   RMB'000                            RMB'000
     <S>                                                        <C>                          <C>
     Liquidity funds                                                       7,675,622                    5,537,191
     Corporate bonds                                                       1,177,991                      951,876
     Common stock                                                             42,191                       42,211
                                                                         -----------                   ----------
                                                                           8,895,804                    6,531,278
                                                                         ===========                   ===========


22.  ACCOUNTS PAYABLE

     As of December 31, 2002 and 2001, substantially all the accounts payable
     were aged within six months.


23.  OTHER PAYABLES AND ACCRUED LIABILITIES


                                                                     2001                        2002
                                                            -------------------------   --------------------------
                                                                   RMB'000                            RMB'000

     Accrued payroll and welfare payable                                     132,773                      149,501
     Provision for retirement and termination benefit                              -                      211,321
     Accrued expenses                                                        434,766                      793,823
     Advances from customers                                                  86,301                       60,101
     Royalties payable                                                             -                      208,214
     Other payables                                                          159,306                      289,448
                                                                          ----------                    ----------

                                                                             813,146                    1,712,408
                                                                          ===========                   ==========

</TABLE>


     As of December 31, 2002, deferred revenue from gas sales contract
     amounted to approximately RMB5,582,000 (2001: RMB5,581,000) and was
     included in other payables.




                                     F-37
<PAGE>


                      CNOOC LIMITED AND ITS SUBSIDIARIES
                NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

          (All amounts expressed in Renminbi unless otherwise stated)

24.  LONG-TERM BANK LOANS

     As of December 31, 2002 and 2001, long-term bank loans of the Group were
     used primarily to finance the development of oil and gas properties and
     to meet working capital requirements.
<TABLE>
<CAPTION>

                               Interest rate and final maturity                             2001                2002
                           ----------------------------------------------------    -------------------     ---------------
                                                                                           RMB'000              RMB'000
     <S>                    <C>                                                     <C>                    <C>
     RMB denominated        Floating prevailing market rate adjusted
       bank loans             annually with maturities through 2006                            670,000                  -
                            Fixed interest rate at 5.94% per annum
                              through 2005                                                      66,270             57,270

     US$ denominated        Floating LIBOR rate with maturities
       bank loans             through 2003                                                   1,177,761            259,907
                            Fixed interest rate of 9.15% per annum with
                              maturities through 2006                                          827,660            827,730

     Japanese Yen           Fixed interest rate ranging from 2.35% to
       denominated            5.15% per annum, with maturities through 2007                  1,745,848             93,704
       bank loans                                                                   -------------------    ---------------
                                                                                             4,487,539          1,238,611
     Less: current portion of long-term bank loans                                         ( 1,231,840)        ( 297,518)
                                                                                    -------------------    ---------------
                                                                                             3,255,699           941,093
                                                                                    ===================    ===============
</TABLE>

     As of December 31, 2002, LIBOR was approximately 1.4% per annum (2001:
     2.0% per annum).

     As of December 31, 2002, all the bank loans of the Group were unsecured
     and approximately RMB259,907,000 (2001: RMB991,537,000) of the
     outstanding borrowings were guaranteed by CNOOC.

     The maturities of long-term bank loans are as follows:
<TABLE>
<CAPTION>


                                                                                2001                              2002
                                                                         ---------------------          -------------------
                                                                               RMB'000                           RMB'000
     <S>                                                                 <C>                             <C>
     Balances due:
     - Within one year                                                               1,231,840                     297,518
     - After one year but within two years                                             794,593                      27,541
     - After two years but within three years                                          462,564                      48,341
     - After three years but within four years                                         483,364                     846,471
     - After four years but within five years                                        1,231,423                      18,740
                                                                         ---------------------          -------------------
                                                                                     4,203,784                   1,238,611
     - More than five years                                                            283,755                           -
                                                                         ---------------------          -------------------
                                                                                     4,487,539                   1,238,611

     Amount due within one year shown under current liabilities                     (1,231,840)                   (297,518)
                                                                         ---------------------          -------------------

                                                                                     3,255,699                     941,093
                                                                         =====================          ==================

</TABLE>

                                     F-38
<PAGE>


                      CNOOC LIMITED AND ITS SUBSIDIARIES
                NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

          (All amounts expressed in Renminbi unless otherwise stated)

24.  LONG-TERM BANK LOANS (CONT'D)

     Supplemental information with respect to long-term bank loans:
<TABLE>
<CAPTION>


                                                                           Maximum
                                                       Weighted             amount         Average amount      Weighted average
     For the year ended      Balance at        average interest        outstanding            outstanding         interest rate
     December 31,              year end        rate at year end     during the year      during the year*     during the year**
     ---------------------  -------------  ----------------------  -------------------  -------------------  ----------------------
                               RMB'000                                    RMB'000                RMB'000
     <S>                    <C>                           <C>               <C>                   <C>                       <C>
     2000                      5,746,377                   6.28%            8,908,583             7,017,601                 6.18%
     2001                      4,487,539                   5.03%            5,746,377             5,116,958                 5.66%
     2002                      1,238,611                   7.19%            4,487,539             2,863,075                 6.11%

</TABLE>
     *   The average amount outstanding is computed by dividing the total of
         outstanding principal balances as of January 1 and December 31 by two.

     **  The weighted average interest rate is computed by dividing the total
         of weighted average interest rates as of January 1 and December 31 by
         two.


25.  6.375% LONG-TERM GUARANTEED NOTES

     On March 1, 2002, CNOOC Finance (2002) Limited, a company incorporated in
     the British Virgin Islands on January 24, 2002 and a wholly-owned
     subsidiary of the Company, issued US$500,000,000 principal amount of
     6.375% guaranteed notes due in 2012. The obligations of CNOOC Finance
     (2002) Limited in respect of the notes are unconditionally and
     irrevocably guaranteed by the Company.


26.  BALANCES WITH THE PARENT COMPANY

     As of December 31, 2002 and 2001, the balances with CNOOC were unsecured,
     interest-free and repayable on demand.


27.  RELATED PARTY TRANSACTIONS

     The Group has entered into several agreements with CNOOC and its
     affiliates, which govern the provision of materials, utilities and
     ancillary services, the provision of technical services, the provision of
     research and development services, the provision of bank guarantees and
     various other commercial arrangements.


                                     F-39
<PAGE>
                      CNOOC LIMITED AND ITS SUBSIDIARIES
                NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

          (All amounts expressed in Renminbi unless otherwise stated)


27.  RELATED PARTY TRANSACTIONS (CONT'D)

     In addition to the transactions and balances detailed elsewhere in these
     financial statements, the Group had the following material transactions
     with related parties during the year:
<TABLE>
<CAPTION>

                                                                          Notes              2000             2001            2002
                                                                                --------------------       -----------  -----------
                                                                                          RMB'000             RMB'000       RMB'000
     <S>                                                                 <C>             <C>               <C>          <C>
     Included in exploration costs:
        Provision of geological and geophysical services                   (ii)            55,295             139,659       100,738
        Provision of research and development services                    (iii)           109,880              89,999        95,507
        Provision of drilling services                                     (ii)           106,150             389,847       396,814

     Included in operating expenses:
        Provision of technical services                                    (ii)           254,276              44,044        68,130
        Provision of research and development services                    (iii)            51,853              29,587        46,226
        Provision of oil transportation services                            (i)           171,490              68,399       200,709
        Provision of production related services                            (i)           597,579             579,207       208,730
        Provision of materials, utilities and ancillary services            (i)           163,828             148,149       470,030

     Included in selling and administrative expenses:
        Rental of office lease                                             (iv)            49,089              45,524        54,421
        Provision of research and development services                    (iii)                 -              40,763        25,621
        Provision of other ancillary services                                              31,748              87,557       110,407

     Included in interest expense:
        Interest income from a related company                                                 25                  -             -
        Interest expense to CNOOC                                                          41,500              8,415             -

     Capitalised under property, plant and equipment:
        Provision of oil and gas property construction services            (ii)           865,549          1,341,545     1,837,573
        Provision of drilling services                                     (ii)           445,414            285,834       591,749
        Provision of well measurement services                             (ii)           140,065             97,633        83,883

</TABLE>

     (i)    Provision of materials, utilities and ancillary services

             CNOOC China Limited has entered into materials, utilities and
             ancillary services supply agreements with the affiliates of
             CNOOC. Under these agreements, the affiliates of CNOOC provide
             to CNOOC China Limited various materials, utilities and ancillary
             services for a term of three years from September 9, 1999.

                                     F-40
<PAGE>


                      CNOOC LIMITED AND ITS SUBSIDIARIES
                NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

          (All amounts expressed in Renminbi unless otherwise stated)

27.  RELATED PARTY TRANSACTIONS (CONT'D)

     (i)    Provision of materials, utilities and ancillary services (cont'd)

            The materials, utilities and ancillary services are provided at:

            -      state-prescribed prices; or

            -      where there is no state-prescribed price, market prices,
                   including the local or national market prices or the prices
                   at which CNOOC's affiliates previously provided the
                   relevant materials, utilities and ancillary services to
                   independent third parties, or

            -      where neither of the prices mentioned above is applicable,
                   the cost to CNOOC's affiliates of providing the relevant
                   materials, utilities and services, including the cost of
                   sourcing or purchasing from third parties, plus a margin of
                   not more than 5% before any applicable taxes.

            On December 5, 2002, the Group has renewed the agreement for the
            term of three years from December 31, 2002.

     (ii)   Technical services

            CNOOC China Limited has entered into technical service agreements
            with specialised companies formed by CNOOC.

            According to the agreements, the Group uses the technical services
            provided by these specialised companies, including:

            -   offshore drilling;
            -   ship tugging, oil tanker transportation and security services;
            -   well survey, well logging, well cementation and other related
                technical services;
            -   collection of geophysical data, ocean geological prospecting,
                and data processing;
            -   platform fabrication service and maintenance; and
            -   design, construction, installation and test of offshore and
                onshore production facilities.

            The technical services are provided by the related companies at
            prices on an arms-length negotiation on normal commercial terms or
            on terms no less favourable than those available to independent
            third parties, under prevailing market conditions.



                                     F-41
<PAGE>


                      CNOOC LIMITED AND ITS SUBSIDIARIES
                NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

          (All amounts expressed in Renminbi unless otherwise stated)

27.  RELATED PARTY TRANSACTIONS (CONT'D)

     (iii)  Research and development services

            Under the terms of a general research and development services
            agreement with CNOOC's subsidiary, China Offshore Oil Research
            Centre (the "Centre"), the Group pays the Centre for a term of
            three years from September 9, 1999, with an annual amount of
            RMB110,000,000, for the provision of such services, including:

            - geophysical exploration services;
            - seismic  data processing;
            - comprehensive exploration research services; and
            - information technology services.

            On December 5, 2002, the Company renewed the agreement for a term
            of three years from December 31, 2002. Under the agreement, the
            Group will pay the Centre RMB140,000,000, RMB150,000,000 and
            RMB160,000,000 respectively.

     (iv)   Lease agreements

            The Group has entered into lease agreements with affiliates of
            CNOOC for the leasing of various office, warehouse and residential
            premises for a three-year term commencing September 9, 1999. The
            lease charges were based on the prevailing market rates at the
            inception of the leases.

            On December 5, 2002, the Group has renewed the lease agreements
            for the terms of three years from December 31, 2002.

    ((v)    Sales of crude oil, condensate oil and liquefied petroleum gas

            The Group sells crude oil, condensate oil and liquefied petroleum
            gas to CNOOC's affiliates which engage in the downstream petroleum
            business at the international market price. For the year ended
            December 31, 2002, the total sales amounted to approximately RMB
            4,361,852,000 (2001: RMB1,814,197,000, 2000: RMB507,677,000).

     As of December 31, 2002, the Group had cash and cash equivalents and time
     deposits aggregating RMB2,740 million (2001: Nil) placed with CNOOC
     Finance Corporation Limited ("CNOOC Finance"), a wholly-owned subsidiary
     of CNOOC. CNOOC Finance is a non-bank finance company supervised by the
     People's Bank of China ("PBOC") and the Company is one of its customers.
     The interest rates offered by CNOOC Finance were same as the rates
     promulgated by the PBOC which were applicable to accounts deposits with
     PRC banks or finance companies. The interest income received for the year
     ended 31 December 2002 was approximately RMB3,516,000 (2001: Nil, 2000:
     Nil).


                                     F-42
<PAGE>


                      CNOOC LIMITED AND ITS SUBSIDIARIES
                NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

          (All amounts expressed in Renminbi unless otherwise stated)

27.  RELATED PARTY TRANSACTIONS (CONT'D)

     In addition to the recurring transactions described above, pursuant to a
     conditional agreement dated August 27, 2001, the Group will acquire
     interests in certain oil and natural gas fields in the Xihu Trough in the
     East China Sea of the PRC from CNOOC for a total consideration of
     US$45,000,000. As of December 31, 2002, the transaction had not been
     completed and the legal title of the reserves had not been passed to the
     Group. The amount paid for the interests is included in the property,
     plant and equipment in the balance sheet as of December 31, 2002.


28.  PROVISION FOR DISMANTLEMENT

     Provision for dismantlement represents the estimated costs of dismantling
     offshore oil platforms and abandoning oil and gas properties. Provision
     for dismantlement has been classified under long-term liabilities. As
     detailed in Note 3 above, the Group changed its method of accounting for
     the provision for dismantlement during the year. As such, the associated
     cost is capitalised and the liability is discounted and an accretion
     expense is recognised during the credit-adjusted risk-free interest rate
     in effect when the liability is initially recognised. The current year
     income statement charge represents the amortisation charge on the
     dismantlement liabilities capitalised in accordance with SSAP 28 and is
     included in the accumulated depreciation, depletion and amortisation in
     Note 17. The prior year income statement charges were calculated using
     the unit-of-production method on the estimated total undiscounted
     dismantlement costs.

     The details of the provision for dismantlement were as follows:

<TABLE>
<CAPTION>

                                                                           2001                      2002
                                                                   --------------------   -----------------------
                                                                          RMB'000                  RMB'000
     <S>                                                           <C>                    <C>
     At beginning of year:
       As previously reported                                                1,507,763                 1,598,130
       Cumulative effect of change in accounting policy (Note 3)                     -                   310,911
                                                                   --------------------   -----------------------
       As restated                                                           1,507,763                 1,909,041

     Additional provision based on unit-of-production method                    90,367                         -
     Additions during the year and capitalised in oil and gas
       properties                                                                    -                   252,383
     Increase in discounted amount of provisions arising from
       the passage of time                                                           -                    77,896
                                                                    ------------------     ----------------------
     End of year                                                             1,598,130                 2,239,320
                                                                    ===================   ========================

29.  SHARE CAPITAL

     Shares

                                                                      Number of Shares            Share capital
                                                                      ----------------            -------------
                                                                                                       HK$'000
     Authorised:
     Ordinary shares of HK$0.10 each at
      December 31, 2002 and 2001                                        15,000,000,000               1,500,000
                                                                      =================           =============
</TABLE>


                                     F-43
<PAGE>

                      CNOOC LIMITED AND ITS SUBSIDIARIES
                NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

          (All amounts expressed in Renminbi unless otherwise stated)

29.  SHARE CAPITAL (CONT'D)

     Shares (cont'd)
<TABLE>
<CAPTION>

                                                                                                                     Share capital
                                                                                Number of          Shares capital    equivalent of
                                                                                   Shares                 HK$'000          RMB'000
                                                                               ---------------     ---------------   --------------
     <S>                                                                        <C>                      <C>              <C>
     Issued and fully paid:
     Ordinary shares of HK$0.10 each at January 1, 2001                         6,557,575,755            655,758          701,181
     Issue of shares during the initial public offering (i)                     1,656,589,900            165,659          175,797
                                                                               ---------------     ---------------   --------------
     At December 31, 2001                                                       8,214,165,655            821,417          876,978
                                                                                ==============     ===============   ==============

     Ordinary shares of HK$0.10 each at January 1 and
     December 31, 2002                                                          8,214,165,655            821,417          876,978

</TABLE>

     (i)    The Company completed its initial public offering in 2001 and the
            details were as follow:

            -  issued 1,442,426,000 shares of HK$0.10 each at HK$6.01 per
               share and in the form of ADSs were listed on The Stock Exchange
               of Hong Kong Limited ("HKSE") and the New York Stock Exchange
               on February 28, 2001 and February 27, 2001, respectively; and

            -  issued 214,163,900 shares of HK$0.10 each at HK$6.01 per share
               on March 23, 2001 upon the exercise of an over-allotment option
               by the underwriters of the global offering.

            The net proceeds from the initial public offering (including the
            exercise of the over-allotment option) amounted to
            approximately RMB10,101,564,000, after deducting expenses of
            approximately RMB288,058,000.

     Share options

     The Company has share option schemes which provide for the grant of
     options to the Company's senior management. Under these share option
     schemes in accordance with SSAP 34, the remuneration committee of the
     Company's board of directors will from time to time propose for the
     board's approval the recipient of and number of shares underlying each
     option. These scheme provide for issuance of options exercisable for
     shares granted under these schemes as described below not exceeding 10%
     of the total number of the Company's outstanding shares, excluding shares
     issued upon exercise of options granted under the scheme from time to
     time.

     On February 4, 2001, the Company adopted a pre-global offering share
     option scheme (the "Pre-Global Offering Share Option Scheme"). Pursuant
     to the Pre-Global Offering Share Option Scheme:

     1.     options for an aggregate of 4,620,000 shares have been granted;

     2.     the subscription price per share is HK$5.95; and

     3.     the period during which an option may be exercised is as follows:

            (a)     50% of the shares underlying the option shall vest 18
                    months after the date of the grant; and

            (b)     50% of the shares underlying the option shall vest 30
                    months after the date of the grant.

                                     F-44
<PAGE>


                      CNOOC LIMITED AND ITS SUBSIDIARIES
                NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

          (All amounts expressed in Renminbi unless otherwise stated)

29.  SHARE CAPITAL (CONT'D)

     Share options (cont'd)

     The exercise period for options granted under the Pre-Global Offering
     Share Option Scheme shall end not later than 10 years from March 12,
     2001.

     On February 4, 2001, the Company adopted a share option scheme (the "2001
     Share Option Scheme") for the purposes of recognising the contribution
     that certain individuals had made to the Company and attracting and
     retaining the best available personnel to the Company. Pursuant to the
     2001 Share Option Scheme:

     1.   options for an aggregate of 8,820,000 shares have been granted;

     2.   the subscription price per share is HK$6.16; and

     3.   the period during which an option may be exercised is as follows:

         (a)  one-third of the shares underlying the option shall vest on the
              first anniversary of the date of the grant;

         (b)  one-third of the shares underlying the option shall vest on the
              second anniversary of the date of the grant; and

         (c)  one-third of the shares underlying the option shall vest on the
              third anniversary of the date of the grant.

     The exercise period for options granted under the 2001 Share Option
     Scheme shall end not later than 10 years from August 27, 2001.

     In view of the amendments to the relevant provisions of the Listing Rules
     regarding the requirements of share option schemes of a Hong Kong listed
     company effective on September 1, 2001, no further options will be
     granted under the 2001 Share Option Scheme.

     In June 2002, the Company adopted a new share option scheme (the "2002
     Share Option Scheme").

     Under the 2002 Share Option Scheme, the Directors of the Company may, at
     their discretion, invite employees, including executive directors, of the
     Company or any of its subsidiaries, to take up options to subscribe for
     shares. The maximum aggregate number of shares (including those that
     could be subscribed for under the Pre-Global Offering Share Option Scheme
     and the 2001 Share Option Scheme) which may be granted shall not exceed
     10% of the total issued share capital of the Company. The maximum number
     of shares which may be granted under the 2002 Share Option Scheme to any
     individual in any 12 months period up to the next grant shall not exceed
     1% of the total issued share capital of the Company from time to time.



                                     F-45
<PAGE>


                      CNOOC LIMITED AND ITS SUBSIDIARIES
                NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

          (All amounts expressed in Renminbi unless otherwise stated)

29.  SHARE CAPITAL (CONT'D)

     Share options (cont'd)

     According to the 2002 Share Option Scheme, the consideration payable by a
     participant for the grant of an option will be HK$1.00. The subscription
     price of a share payable by a participant upon the exercise of an option
     will be determined by the Directors at their discretion at the date of
     grant, except that such price may not be set below a minimum price which
     is the highest of:

     1.   the nominal value of a share;

     2.   the average closing price of the shares on the HKSE as stated in the
          HKSE's quotation sheets for the five trading days immediately
          preceding the date of grant of the option; and

     3.   the closing price of the shares on the HKSE as stated in the HKSE's
          quotation sheets on the date of grant of the option.

     The  period under which an option may be exercised is as follows:

     1.   one-third of the shares underlying the option shall vest on the
          first anniversary of the date of the grant;

     2.   one-third of the shares underlying the option shall vest on the
          second anniversary of the date of the grant; and

     3.   one-third of the shares underlying the option shall vest on the
          third anniversary of the date of the grant.

     The exercise period for options granted under the 2002 Share Option
     Scheme shall end not later than 10 years from the date on which the
     option is granted.

     No options granted under the share option scheme and the pre-global
     offering share option scheme have been exercised since the date of grant
     and up to the date when the board of directors approved the financial
     statements. The total number of options exercisable as of December 31,
     2002 was 9,864,167.


                                     F-46
<PAGE>


                      CNOOC LIMITED AND ITS SUBSIDIARIES
                NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

          (All amounts expressed in Renminbi unless otherwise stated)


30.  RESERVES

     According to the laws and regulations of the PRC and articles of
     association of CNOOC China Limited, CNOOC China Limited is required to
     provide for certain statutory funds, namely, general reserve fund and
     staff and workers' bonus and welfare funds, which are appropriated from
     net profit and after making good losses from previous years, but before
     dividend distribution. CNOOC China Limited is required to allocate at
     least 10% of its net profit as reported in accordance with the generally
     accepted accounting principles in the PRC ("PRC GAAP") to the general
     reserve fund until the balance of such fund has reached 50% of its
     registered capital. Appropriation to staff and workers' bonus and welfare
     funds, which is determined at the discretion of CNOOC China Limited's
     directors, is charged to expense as incurred under Hong Kong GAAP. The
     general reserve fund can only be used, upon approval by the relevant
     authority, to offset against accumulated losses or increase capital.
     Staff and workers' bonus and welfare fund can only be used for special
     bonuses or collective welfare of employees, and assets acquired through
     this fund shall not be taken as assets of CNOOC China Limited.

     As of December 31, 2002, the general reserve fund appropriated amounted
     to RMB2,232,410,000 (2001: RMB1,535,360,000), representing approximately
     22.3% (2001: 15.4%) of the total registered capital of CNOOC China
     Limited.

     As of December 31, 2002 and 2001, the distributable profits of the
     Company amounted to approximately RMB 2,939,757,000 and RMB220,127,000
     respectively.

     Included in retained earnings is an amount of RMB456,377,000 (2001:
     RMB311,990,000), being the retained earnings attributable to an
     associate.

     The cumulative translation reserves and revaluation reserves have been
     established and will be dealt with in accordance with the accounting
     policies adopted for foreign currency translation and the revaluation of
     land and buildings.

31.  RETIREMENT AND TERMINATION BENEFITS

     All the Group's full-time employees in the PRC are covered by a
     government regulated pension, and are entitled to an annual pension equal
     to their basic salaries at their retirement dates. The PRC government is
     responsible for the pension liabilities to these retired employees. The
     Group is required to make annual contributions to the
     government-regulated pension at rates ranging from 12% to 22.5% of the
     employees' basic salaries.

     The contribution made by the Group to the PRC government pension plan for
     the year ended December 31, 2002 amounted to approximately RMB7,042,000
     (2001: RMB6,392,000, 2000: RMB12,842,000).

     The Company is required to make contributions to a defined contribution
     of a mandatory provident fund at a rate of 5% of the basic salaries for
     all full time employees in Hong Kong. The related pension costs are
     treated expenses as incurred.


                                     F-47

<PAGE>
<PAGE>

                      CNOOC LIMITED AND ITS SUBSIDIARIES
                NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

          (All amounts expressed in Renminbi unless otherwise stated)

31.  RETIREMENT AND TERMINATION BENEFITS (CONT'D)

     The Group provides retirement and termination benefits for all local
     employees in Indonesia in accordance with Indonesia labour law, while the
     employee benefits provides to expatriate staff in accordance with the
     relevant employment contracts. The Company has adopted an accounting policy
     to record liabilities for the retirement and termination benefits. The
     provisions for retirement and termination benefits in Indonesia for the
     year ended December 31, 2002 amounted to approximately RMB46,350,000 (2001:
     Nil, 2000: Nil).


32.  NOTES TO THE CASH FLOW STATEMENT

     (a) Reconciliation of profit before tax to cash generated from operations

<TABLE>
<CAPTION>
                                                                          2000                2001              2002
                                                                      ------------        ------------      ------------
                                                                         RMB'000            RMB'000           RMB'000

<S>                                                                    <C>                 <C>               <C>
         Profit before tax                                             12,222,676          11,005,858        12,774,243

         Adjustments for:
           Interest income                                            (   236,624)        (   317,706)      (   147,870)
           Interest expense                                               475,004             116,634           294,792
           Exchange losses/(gains), net                               (   324,178)        (   261,305)          113,814
           Share of profit of an associate                            (   218,326)        (    89,963)      (   165,387)
           Short-term investment income                                         --        (   220,650)      (   193,277)
           Depreciation, depletion and amortisation                     2,577,882           2,566,920         4,019,532
           Provision for impairment of property, plant and
             equipment                                                          --             99,675                  --
           Recovery of doubtful accounts                              (    57,658)        (     4,966)                 --
           Loss on disposals and write-off of property,
             plant and equipment                                          220,146             456,827           437,799
           Dismantlement                                                  103,569              90,367           126,139
           Amortisation of discount of long-term
             guaranteed notes                                                   --                  --            6,100
                                                                      ------------        ------------      -------------

           Operating cash flows before movements in
             working capital                                           14,762,491          13,441,691        17,265,885

             Decrease in accounts receivables                           1,146,613             726,976           497,959
             (Increase)/decrease in inventories and supplies          (     2,438)             35,422       (    20,211)
             Increase in other current assets                         (    39,386)        (   447,473)      (   705,664)
             Increase in amounts due from related
               companies                                                        --                  --      (   276,771)
             Increase/(decrease) in accounts payable, other
               payables and accrued liabilities                       ( 1,440,278)            379,233            353,452
             Increase/(decrease) in other taxes payable                     2,701         (   110,867)            73,551
             Increase in amounts due to related companies                       --                  --            73,769
                                                                      ------------        ------------      -------------

           Cash generated from operations                              14,429,703          14,024,982        17,261,970
                                                                      ============        ============      =============
</TABLE>



                                                                F-48
<PAGE>

<TABLE>
<CAPTION>

                       CNOOC LIMITED AND ITS SUBSIDIARIES
                 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

           (All amounts expressed in Renminbi unless otherwise stated)

32.  NOTES TO THE CASH FLOW STATEMENT (CONT'D)

     (b)  Acquisition of subsidiaries

                                                                    2000             2001              2002
                                                                -----------       -----------       -----------
                                                                  RMB'000           RMB'000           RMB'000

<S>                                                             <C>               <C>               <C>
          Net assets acquired:
            Property, plant and equipment, net                           --                --         8,646,487
            Other current assets                                         --                --            35,175
            Inventories and supplies                                     --                --           187,619
            Accounts receivable                                          --                --         2,367,045
            Cash and bank balances                                       --                --             1,652
            Accounts payable                                             --                --       ( 1,577,214)
            Other payables and accrued liabilities                       --                --       (   952,911)
            Tax payable                                                  --                --       (    70,247)
            Deferred tax                                                 --                --       ( 3,901,780)
                                                                -----------       -----------       ------------

                                                                         --                --         4,735,826
                                                                ===========       ===========       ============
          Satisfied by:
            Cash                                                         --                --        4,735,826
                                                                ===========       ===========       ============
</TABLE>

          An analysis of the net outflow of cash and cash equivalents in
          respect of the acquisition of subsidiaries is as follows:

<TABLE>
<CAPTION>
                                                                    2000             2001              2002
                                                                -----------       -----------       -----------
                                                                  RMB'000           RMB'000           RMB'000

<S>                                                             <C>               <C>               <C>
          Cash consideration                                             --                --        4,735,826
          Cash and bank balances acquired                                --                --       (    1,652)
                                                                -----------       -----------       ------------

          Net outflow of cash and cash equivalents in
            respect of the acquisition of subsidiaries                   --                --        4,734,174
                                                                ===========       ===========       ============
</TABLE>

          On April 19, 2002, the Group acquired nine subsidiaries of
          Repsol-YPF, S.A. which held a portfolio of operated and non-operated
          interests in oil and gas production sharing and technical assistance
          contracts in contract areas located offshore and onshore Indonesia.
          Further details of the transaction are included in note 5 to the
          financial statements.

          The subsidiaries acquired during the year contributed RMB3,317
          million to turnover and RMB464 million to the consolidated profit
          after tax for the year ended December 31, 2002.

     (c)   Major non-cash transaction

          The cash generated from operations of RMB17,634,448,000 did not take
          into account of a transfer of prepayment of RMB372,479,000 recorded
          in 2001 to property, plant and equipment relating to acquisition of
          interests in certain oil and natural gas fields in the Xihu Trough
          in the East China Sea of the PRC from CNOOC for a total
          consideration of US$45,000,000.


                                     F-49
<PAGE>

                      CNOOC LIMITED AND ITS SUBSIDIARIES
                NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

          (All amounts expressed in Renminbi unless otherwise stated)

33. CONTINGENT LIABILITIES

    As of December 31, 2002 and 2001, there were no material contingent
    liabilities not provided for in the financial statements.


34. COMMITMENTS

    (i)   Capital commitments

          As of 31 December 2002 and 2001, the Group had the following capital
          commitments, principally for the construction and purchase of
          property, plant and equipment:

                                                       2001            2002
                                                  --------------   ------------
                                                     RMB'000         RMB'000

            Contracted for                             1,606,700      1,715,173
            Authorised, but not contracted for         5,183,690      9,060,722

          As of December 31, 2002, the Group had unutilised banking facilities
          amounted to approximately RMB31,646,389,000 (2001:
          RMB7,599,371,000).

    (ii)  General research and development commitments

          According to the general research and development services agreement
          with the Centre renewed on December 5, 2002, the Group agreed to pay
          the Centre for a term of three years from December 31, 2002, an
          annual amount of RMB140,000,000, RMB150,000,000 and RMB160,000,000
          respectively for provision of general geophysical exploration
          services, comprehensive exploration research services, information
          technology services and seismic data processing. As of December 31,
          2002, commitments for research and development services to be
          provided by the Centre amounted to approximately RMB450,000,000
          (2001: RMB83,382,500).

    (iii) Operating lease commitments

          Operating lease commitments as of December 31, 2002 amounted to
          approximately RMB50,645,000 (2001: RMB94,079,000) and were as
          follows:

<TABLE>
<CAPTION>
                                                                2001              2002
                                                            -------------      -----------
                                                               RMB'000          RMB'000

<S>                                                         <C>                <C>
          Commitment due:
            - Within one year                                     48,789            47,017
            - After one year but within two years                 45,290             2,131
            - After two years but within three years                  --             1,497
                                                             ------------        ----------

                                                                  94,079             50,645
                                                             ===========         ==========
</TABLE>


                                     F-50
<PAGE>


                       CNOOC LIMITED AND ITS SUBSIDIARIES
                 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

           (All amounts expressed in Renminbi unless otherwise stated)

34.  COMMITMENTS (CONT'D)

     (iv) Commitment to invest in an Australian gas project

          In August 2001, the Company signed a Memorandum of Understanding to
          explore the feasibility of acquiring an equity interest in certain oil
          and gas assets in a large natural gas field in Australia, and to
          develop the natural gas market in coastal China. In November 2001, the
          Company entered into a Heads of Agreement to establish a joint venture
          to develop Northwest Shelf gas in Australia. The Company has agreed to
          co-invest in the development of Australia's Northwest Shelf gas
          project and to produce and process liquefied natural gas to sell to
          the China markets, subject to the joint venture successfully bidding
          for the contract to supply liquefied natural gas to an import facility
          in Guangdong Province, in which CNOOC, the parent company, has an
          equity interest.

          On October 21, 2002, the Company entered into a definitive agreement
          with Northwest Shelf Venture partner to acquire an interest up to
          5.56% in the North West Shelf Gas Project ("NWS Gas Project") titles
          and assume a 25% interest in the China LNG Joint Venture for a total
          consideration of US$366 million.

     (v)  Commitments to invest in an Indonesian gas project

          In September 2002, the Company entered into a Heads of Agreement to
          acquire a participating interest in the reserves and upstream
          production of the proposed joint venture known as the Tangguh LNG
          project of Indonesia ("Tangguh LNG project"). The Heads of Agreement
          provides for the Company to acquire from BP an equivalent 12.5% stake
          in the Tangguh LNG project for approximately US$275 million through
          the acquisition of certain interests in PSCs. The Tangguh LNG project
          comprises three PSC areas: the Berau PSC, the Muturi PSC and the
          Wiriagar PSC. The Tangguh LNG project partners have signed a
          conditional 25-year LNG Supply Contract to provide up to 2.6 million
          tonnes per annum of LNG to the Fujian LNG terminal project in China,
          beginning in 2007. Subsequent to December 31, 2002, the Company
          completed the acquisition (which was effective as of January 1, 2003)
          for a consideration of US$275 million.

          In addition, a repurchase agreement was entered into whereby put
          options and call options are granted to the Company and the sellers,
          respectively, to sell or to repurchase the interests in the
          above-mentioned PSCs. The options are exercisable if

          1)   the LNG Supply Contract is terminated due to the non-satisfaction
                 of the conditions precedent to the LNG Supply Contract; or


          2)   the LNG Supply Contract is otherwise legally ineffective

          on or before December 31, 2004. The exercise prices of the options are
          determined based on the original consideration paid plus adjustments
          stipulated in the repurchase agreement.


                                      F-51

<PAGE>


                       CNOOC LIMITED AND ITS SUBSIDIARIES
                 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

           (All amounts expressed in Renminbi unless otherwise stated)

34.  COMMITMENTS (CONT'D)

     (vi) Financial instruments

          (a)  Currency swap contracts

               As of December 31, 2002 and 2001, the Group had currency swap
               contracts with a financial institution to sell United States
               dollars in exchange for Japanese Yen in order to hedge against
               future repayments of certain Japanese Yen denominated loans. The
               hedged Japanese Yen loans bore interest at fixed rate of 4.5% per
               annum. The interest stipulated in the swap contract for the
               United States dollars was floating LIBOR rate.

               The details are as follows:

<TABLE>
<CAPTION>
                                         2001                                2002
                                                  Weighted                          Weighted
                                                   average                           average
                             Notional          contractual         Notional      contractual
                      contract amount        exchange rate  contract amount    exchange rate
                            (JPY'000)            (JPY/US$)        (JPY'000)        (JPY/US$)
               Year
               <S>            <C>                    <C>            <C>                <C>
               2002           271,470                95.00               --               --
               2003           271,470                95.00          271,470            95.00
               2004           271,470                95.00          271,470            95.00
               2005           271,470                95.00          271,470            95.00
               2006           271,470                95.00          271,470            95.00
               2007           271,470                95.00          271,470            95.00
</TABLE>

          (b)  Fair value of financial instruments

                    The carrying amounts of cash and cash equivalents, time
                    deposits and short-term investments approximated fair value
                    due to the short maturity of these instruments.

                    The estimated fair value of long-term bank loans based on
                    current market interest rates was approximately
                    RMB1,388,720,000 as of December 31, 2002 and comparably
                    approximated their book value as of December 31, 2001.

                    The estimated fair value of 6.375% long-term guaranteed
                    notes based on current market interest rates was
                    approximately RMB4,482,378,000 as of December 31, 2002.


                                      F-52
<PAGE>


                       CNOOC LIMITED AND ITS SUBSIDIARIES
                 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

           (All amounts expressed in Renminbi unless otherwise stated)

35.  CONCENTRATION OF RISKS

     (a)  Credit risk

          The carrying amount of cash and cash equivalents, time deposits,
          liquidity funds and bond investments, accounts receivable and other
          receivables, and due from related parties and other current assets
          except for prepayments represents our maximum exposure to credit risk
          in relation to financial assets.

          The majority of our accounts receivable is related to sales of oil and
          natural gas to third party customers. We perform ongoing credit
          evaluations of our customers' financial condition and generally do not
          require collateral on accounts receivable. We maintain a provision for
          doubtful accounts and actual losses have been within management's
          expectation.

          No other financial assets carry a significant exposure to credit risk.

     (b)  Interest rate risk

          The directors of the Company believe that the exposure to interest
          rate risk of financial assets and liabilities as of December 31, 2002
          was not significant. The interest rates and terms of repayment of our
          long-term bank loans are disclosed in Note 24.

     (c)  Currency risk

          Substantially all of the revenue-generating operations of the Group
          are transacted in US$ for overseas sales and RMB for domestic sales.
          On January 1, 1994, the PRC government abolished the dual rate system
          and introduced single rate of exchange as quoted by the People's Bank
          of China. However, the unification of the exchange rate does not imply
          free convertibility of RMB into foreign currencies. As foreign
          exchange transactions continue to take place either through the
          People's Bank of China or other banks authorised to buy and sell
          foreign currencies at the exchange rates quoted by the People's Bank
          of China, approval of foreign currency payment by the People's Bank of
          China or other institution requires submitting a payment application
          form together with suppliers' invoices, shipping documents and signed
          contracts.

     (d)  Business risk

          The major operations are conducted in the PRC and Indonesia and
          accordingly are subject to special considerations and significant
          risks not typically associated with investments in equity securities
          of the United States of America and Western European companies. These
          include risks associated with, among others, the oil and gas industry,
          the political, economic and legal environments, influence of the
          national authorities over price setting and competition in the
          industry.


                                      F-53
<PAGE>

                       CNOOC LIMITED AND ITS SUBSIDIARIES
                 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

           (All amounts expressed in Renminbi unless otherwise stated)

35.  CONCENTRATION OF RISKS (CONT'D)

     (e)  Customer risk

          A substantial portion of the oil and gas sales of the Group is made to
          a small number of customers on an open account basis.

<TABLE>
<CAPTION>
                                                         2000             2001             2002
                                                         ----             ----             ----
                                                        RMB'000          RMB'000          RMB'000

<S>                                                    <C>              <C>              <C>
          China Petroleum & Chemical Corporation       6,325,061        6,282,532        6,890,877
          PetroChina Company Limited                   1,458,429        1,320,587        1,187,571
          Castle Peak Power Company Limited            1,199,090        1,205,649        1,247,639
</TABLE>

36.  ADDITIONAL FINANCIAL INFORMATION

               As of December 31, 2002, net current assets and total assets
               less current liabilities of the Group amounted to approximately
               RMB 17,352,044,000 and RMB 53,961,241,000 (2001: RMB
               15,638,483,000 and RMB39,927,972,000), respectively.

37.  SUBSEQUENT EVENTS

     (i)  Material acquisition

          Subsequent to the year end, on March 7, 2003, the Company entered into
          an agreement with BG International Limited ("BG"), a wholly-owned
          subsidiary of BG Group, to acquire from BG a 1/12th (8.33%) interest
          in the North Caspian Sea Project (the "Project") in Kazakhstan for
          US$615 million (subject to certain adjustments). The partners of the
          Project include ENI-Agip (operator), BG Group, ConocoPhillips,
          ExxonMobil, INPEX, Shell and TotalFinaElf. Completion of the
          acquisition is subject to a number of conditions including the wavier
          of certain pre-emption rights and receipt of governmental approvals.

     (ii) Share Options

          On February 24, 2003, the board of directors approved to grant options
          in respect of 8,410,000 shares to the Company's senior management
          under the share option scheme approved in June 2002. The exercise
          price for the options is HK$10.54 per share. Options granted under
          this scheme may be exercised, in whole or in part, in accordance with
          the following vesting schedule:

          -    one-third of the shares underlying the options shall vest on the
               first anniversary of the date of the grant;
          -    one-third of the shares underlying to the options shall vest on
               the second anniversary of the date of the grant; and
          -    one-third of the shares underlying the options shall vest on the
               third anniversary of the date of the grant.


                                      F-54
<PAGE>


                       CNOOC LIMITED AND ITS SUBSIDIARIES
                 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

           (All amounts expressed in Renminbi unless otherwise stated)

37.  SUBSEQUENT EVENT (CONT'D)

     (iii)  Dividends

            On March 27, 2003, the board of directors proposed a final
            dividend of HK$0.15 per share, totalling HK$1,232,124,848
            (equivalent of RMB1,307,407,676) and a special dividend of
            HK$0.15 per share, totalling HK$1,232,124,848 (equivalent to
            RMB1,307,407,676) to its shareholders for the year ended December
            31, 2002. The proposed dividend distribution is subject to
            shareholders approval in their forth coming annual general
            meeting.


38.  SIGNIFICANT DIFFERENCES BETWEEN HONG KONG GAAP AND US GAAP

     The accounting policies adopted by the Group conform to Hong Kong GAAP,
     which differ in certain respects from generally accepted accounting
     principles in the United States of America ("US GAAP").

     (a)  Net profit and net equity

          (i)  Revaluation of land and buildings

               The Group revalued certain land and buildings on August 31, 1999
               and December 31, 2000 and the related revaluation surplus was
               recorded on the respective dates. Under Hong Kong GAAP,
               revaluation of property, plant and equipment is permitted and
               depreciation, depletion and amortisation is based on the revalued
               amount. Additional depreciation arising from the revaluation for
               the year ended December 31, 2002 was approximately RMB9,156,000
               (2001: RMB9,156,000). Under US GAAP, property, plant and
               equipment is required to be stated at cost. Accordingly, no
               additional depreciation, depletion and amortisation from the
               revaluation is recognised under US GAAP.

          (ii) Short-term investments

               According to Hong Kong GAAP, available-for-sale investments in
               marketable securities are measured at fair value and related
               unrealised holding gains and losses are included in current
               period earnings. According to US GAAP, such investments are also
               measured at fair value and classified in accordance with
               Statement of Financial Accounting Standards ("SFAS") No.115.
               Under US GAAP, related unrealised gains and losses on
               available-for-sale securities are excluded from current period
               earnings and included in other comprehensive income.


                                      F-55
<PAGE>

                       CNOOC LIMITED AND ITS SUBSIDIARIES
                 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

           (All amounts expressed in Renminbi unless otherwise stated)


38.  SIGNIFICANT DIFFERENCES BETWEEN HONG KONG GAAP AND US GAAP (CONT'D)

     (a)  Net profit and net equity (cont'd)

          (iii) Impairment of long-lived assets

               Under Hong Kong GAAP, impairment charges are recognised when a
               long-lived asset's carrying amount exceeds the higher of an
               asset's net selling price and value in use, which incorporates
               discounting the asset's estimated future cash flows.

               Under US GAAP, long-lived assets are assessed for possible
               impairment in accordance with SFAS No.144, "Accounting for the
               impairment or disposal of long-lived assets". SFAS No. 144 was
               issued in August 2001 and is effective for fiscal years beginning
               after December 15, 2001. SFAS No. 144 retains the requirements of
               SFAS No. 121 to (a) recognise an impairment loss only if the
               carrying amount of a long-lived asset is not recoverable from its
               undiscounted cash flows and (b) measure an impairment loss as the
               difference between the carrying amount and fair value of the
               asset. SFAS No. 144 requires that a long-lived asset to be
               abandoned, exchanged for a similar productive asset, or
               distributed to owners in a spin-off be considered held and used
               until it is disposed of.

               SFAS 144 requires the Group to assess the need for an impairment
               of capitalised costs of proved oil and gas properties and the
               costs of wells and related equipment and facilities on a
               property-by-property basis. If an impairment is indicated based
               on undiscounted expected future cash flows, then an impairment is
               recognised to the extent that net capitalised costs exceed the
               estimated fair value of the property. Fair value of the property
               is estimated by the Group using the present value of future cash
               flows. The impairment was determined based on the difference
               between the carrying value of the assets and the present value of
               future cash flows. It is reasonably possible that a change in
               reserve or price estimates could occur in the near term and
               adversely impact management's estimate of future cash flows and
               consequently the carrying value of properties.

               For the year ended December 31, 2002, there were no impairment
               losses recognised under Hong Kong GAAP and US GAAP.

          (iv) Stock compensation plans

               As described in Note 29 to the financial statements, as of
               December 31, 2002, the Group had two stock option plans. The
               Group applies Accounting Principles Board Opinion 25 and related
               Interpretations in accounting for these stock option plans.
               Accordingly, compensation costs that have been recognised for the
               stock option plans were RMB5,631,500 for the year ended December
               31, 2002 (2001: RMB2,755,000). Had compensation costs for the
               Group's stock option plans been determined based on the fair
               value at the grant dates for awards under the plans consistent
               with the method of SFAS No. 123, the Group's net income and
               earnings per share for the year ended December 31, 2002 would
               have been reduced to the pro forma amounts indicated below:


                                      F-56
<PAGE>


                       CNOOC LIMITED AND ITS SUBSIDIARIES
                 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

           (All amounts expressed in Renminbi unless otherwise stated)


38.  SIGNIFICANT DIFFERENCES BETWEEN HONG KONG GAAP AND US GAAP (CONT'D)

     (a)  Net profit and net equity (cont'd)

          (iv) Stock compensation plans (cont'd)

                                                 Pro forma          As reported
                                          -------------------------------------
                                            2001           2002        2002
                                          ----------     ----------   ---------
                                           RMB'000       RMB'000      RMB'000

               Net income                 7,912,150     9,085,917    9,088,371
               Earnings per share
                 - Basic                   RMB1.00       RMB1.11      RMB1.11
                 - diluted                 RMB1.00       RMB1.11      RMB1.11

               Weighted average fair value of the options at the grant dates for
               awards under the plans was RMB3.10 per share which was estimated
               using the Black-Scholes model with the following assumptions:
               dividend yield of 2.0%, an expected life of five years; expected
               volatility of 44%; and risk-free interest rates of 5.25%.
               Weighted average exercise price of the stock options was HK$6.09
               per share.

          (v)  Provision for dismantlement

               HK GAAP require the provision of dismantlement to be recorded for
               a present obligation whether that obligation is legal or
               constructive. The associated cost is capitalised and the
               liability is discounted and accretion expense is recognised using
               the credit-adjusted risk-free interest rate in effect when the
               liability is initially recognised. However, under US GAAP, the
               provisions for dismantlement are provided on a unit-of-production
               basis over field lives, there is no corresponding tangible fixed
               asset.

               The impact on the consolidated balance sheet as of December 31,
               2002 is summarised below:

               Increase (Decrease) in caption heading          December 31, 2002
               --------------------------------------          -----------------
                                                                    RMB'000

               Property, plant and equipment, net                  (863,093)
               Provision for dismantlement                         (240,077)
               Deferred tax liabilities                            (186,904)
               Reserves                                            (436,112)


                                      F-57
<PAGE>

                       CNOOC LIMITED AND ITS SUBSIDIARIES
                 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

           (All amounts expressed in Renminbi unless otherwise stated)


38.  SIGNIFICANT DIFFERENCES BETWEEN HONG KONG GAAP AND US GAAP (CONT'D)

     (a)  Net profit and net equity (cont'd)

               Effects on net profit and net equity of differences between Hong
               Kong GAAP and US GAAP are summarised below:

<TABLE>
<CAPTION>
                                                                                                        Net profit
                                                                                    -----------------------------------------------
                                                                                         2000              2001           2002
                                                                                    --------------     -------------  -------------
                                                                                       RMB'000            RMB'000        RMB'000
<S>                                                                                    <C>                <C>            <C>
               As reported under Hong Kong GAAP                                        10,296,600         7,957,631      9,232,827
               Impact of US GAAP adjustments:
                   - Reversal of additional depreciation, depletion
                         and amortisation arising from the revaluation surplus
                         on land and buildings                                              5,687             9,156          9,156
                   - Unrealised holding gains from available-for-sale marketable
                         securities                                                            --        (   43,796)    (   36,965)
                    - Realised holding gains from available-for-sale marketable
                         securities                                                            --                --         26,940
                    - Additional dismantlement based on unit-of-production method              --                --     (  197,079)
                    - Impact of income tax                                                     --                --         59,124
                    - Recognition of stock compensation cost                                   --        (    2,755)    (    5,632)
                                                                                       ----------         ---------      ---------
                As restated under US GAAP                                              10,302,287         7,920,236      9,088,371
                                                                                       ==========         =========      =========

                Net income per share under US GAAP

                     - Basic                                                             RMB 1.63          RMB 1.00       RMB 1.11
                                                                                         ========          ========       ========
                     - Diluted                                                           RMB 1.63          RMB 1.00       RMB 1.11
                                                                                         ========          ========       ========
</TABLE>


                                      F-58
<PAGE>


                       CNOOC LIMITED AND ITS SUBSIDIARIES
                 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

           (All amounts expressed in Renminbi unless otherwise stated)

38.  SIGNIFICANT DIFFERENCES BETWEEN HONG KONG GAAP AND US GAAP (CONT'D)

     (a)  Net profit and net equity (cont'd)

<TABLE>
<CAPTION>
                                                                                          Net equity
                                                                                -----------------------------
                                                                                    2001             2002
                                                                                -----------      ------------
                                                                                  RMB'000          RMB'000

<S>                                                                              <C>             <C>
           As reported under Hong Kong GAAP                                      33,310,506       40,568,488
           Impact of US GAAP adjustments:
               - Reversal of revaluation surplus on land and buildings            ( 274,671)       ( 274,671)
               - Reversal of additional accumulated depreciation, depletion
                    and amortisation charges arising from the revaluation
                    surplus on land and buildings                                    16,739           25,895
               - Cumulative adjustment for provision for dismantlement                   --      (   436,112)
                                                                                 ----------       ----------

          As restated under US GAAP                                              33,052,574       39,883,600
                                                                                 ==========       ==========
</TABLE>

          There are no significant GAAP differences that affect classifications
          within the balance sheet or income statement but do not affect net
          income or shareholders' equity.

     (b)  Comprehensive income

          According to SFAS No. 130, it is required to include a statement of
          other comprehensive income for revenues and expenses, gains and losses
          that under US GAAP are included in comprehensive income and excluded
          from net income.

<TABLE>
<CAPTION>
                                                                     2000             2001            2002
                                                                  ----------      -----------      -----------
                                                                    RMB'000          RMB'000         RMB'000
<S>                                                                <C>              <C>            <C>
          Net income under US GAAP                                 10,302,287       7,920,236       9,088,371
          Other comprehensive income:
          Foreign currency translation adjustments                     (6,350)            702      (    7,948)
          Unrealised gains on short-term investments                                   43,796          36,965
          Less: reclassification adjustment for realised
             gains included in net income                                  --              --      (   26,940)
                                                                   ----------       ---------       ---------

          Comprehensive income under US GAAP                       10,295,937       7,964,734       9,090,448
                                                                   ==========       =========       =========
</TABLE>


                                      F-59
<PAGE>


                       CNOOC LIMITED AND ITS SUBSIDIARIES
                 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

           (All amounts expressed in Renminbi unless otherwise stated)

38.  SIGNIFICANT DIFFERENCES BETWEEN HONG KONG GAAP AND US GAAP (CONT'D)

     (b)  Comprehensive income (cont'd)

          Roll forward of accumulated other comprehensive income components are
          as follows:

<TABLE>
<CAPTION>
                                                            Foreign                           Accumulated
                                                           currency    Unrealised gains             other
                                                        translation       on short-term     comprehensive
                                                        adjustments         investments            income
                                                        -----------         -----------            ------
                                                            RMB'000             RMB'000           RMB'000
<S>                                                     <C>                   <C>               <C>
          Balance at January 1, 2001                    (    6,350)                  --         (   6,350)
          Current year change                                  702               43,796            44,498
                                                         ---------             --------          --------
          Balance at January 1, 2002                    (    5,648)              43,796            38,148

          Reversal of current year realised gains               --            (  26,940)        (  26,940)
          Current year change                           (    7,948)              36,965            29,017
                                                         ---------             --------          --------
          Balance at December 31, 2002                  (   13,596)              53,821            40,225
                                                         =========             ========          ========
</TABLE>

     (c)  Derivative instruments

          The Group had a currency swap contract with a financial institution to
          sell United States dollars in exchange for Japanese Yen in order to
          hedge certain Japanese Yen denominated loan repayments in the future.
          In accordance with SFAS No. 133, the derivative contract was recorded
          as "other current liabilities" in the consolidated balance sheet at
          fair value. For the year ended December 31, 2002, the Group recognised
          related changes in fair value, a gain of RMB14,485,000 (2001:
          RMB29,134,000), and included the amount in "exchange (loss)/gain, net"
          in the consolidated income statement.

     (d)  Accounting for asset retirement obligations

          On August 15, 2001, SFAS No. 143 "Accounting for asset retirement
          obligation" ("SFAS No. 143") was released and will be effective for
          the fiscal years beginning after June 15, 2002. The Statement requires
          that the fair value of a liability for an asset retirement obligation
          be recognised in the period in which it is incurred if a reasonable
          estimate of fair value can be made. The associated asset retirement
          costs are capitalised as part of the carrying amount of the long-lived
          assets. Further, under the Statement, the liability is discounted and
          accretion expense is recognised using the credit-adjusted risk-free
          interest rate in effect when the liability was initially recognised.

          Adoption of the statement will likely result in increase in both costs
          of assets and total liabilities. The Group is currently assessing
          these matters and has not yet determined whether or the extent to
          which they will affect the financial statements.


                                      F-60
<PAGE>


                       CNOOC LIMITED AND ITS SUBSIDIARIES
                 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

           (All amounts expressed in Renminbi unless otherwise stated)

38.  SIGNIFICANT DIFFERENCES BETWEEN HONG KONG GAAP AND US GAAP (CONT'D)

     (e)  Use of estimates in the preparation of financial statements

          The preparation of financial statements in conformity with accounting
          principles generally accepted in the United States of America requires
          management to make estimates and assumptions that affect the reported
          amounts of assets and liabilities and disclosure of contingent assets
          and liabilities at the date of the financial statements, and the
          reported amounts of revenues and expenses during the reporting period.
          The most significant estimates pertain to proved oil and gas reserve
          volumes and the future development, provision for dismantlement as
          well as estimates relating to certain oil and gas revenues and
          expenses. Actual amounts could differ from those estimates and
          assumptions.

     (f) Deferred income taxes

          Under Hong Kong GAAP, the Group provides deferred taxes for timing
          differences only to the extent that it is probable a liability or
          asset will crystallise in the foreseeable future. US GAAP requires
          full provision for deferred taxes under the asset and liability method
          on all temporary differences. In August 2002, a revised accounting
          standard SSAP 12 "Income Taxes" was issued in Hong Kong. The revised
          standard is effective for accounting periods beginning on or after
          January 1, 2003 and requires full provision for deferred taxes similar
          to US GAAP.

          For Hong Kong GAAP purposes, deferred taxes are provided using the
          liability method whereby it is calculated using tax rates estimated to
          be applicable when timing differences reverse.

          For US GAAP purposes, deferred tax assets and liabilities are
          recognised for the expected future tax consequences of existing
          differences between financial reporting and tax reporting bases of
          assets and liabilities, and loss or tax credit carry forwards using
          enacted tax rates expected to be in effect when these differences are
          realised. Valuation allowances are recorded for deferred tax assets
          for which it is more likely than not that such assets will be
          realised.

          For the year ended December 31, 2002, there was no difference on the
          amounts of deferred income taxes recognised under Hong Kong GAAP and
          US GAAP.

     (g)  Segment reporting

          The Group's segment information is based on the segmental operating
          results regularly reviewed by the Group's chief operating decision
          maker. The accounting policies used are the same as those used in the
          preparation of the Group's consolidated Hong Kong GAAP financial
          statements.


                                      F-61
<PAGE>


                                  CNOOC LIMITED
    SUPPLEMENTARY INFORMATION ON OIL AND GAS PRODUCING ACTIVITIES (UNAUDITED)

           (All amounts expressed in Renminbi unless otherwise stated)

The following disclosures are included in accordance with the United States
Statements of Financial Accounting Standards No. 69, "Disclosures about Oil and
Gas Producing Activities".

(a)  Reserve quantity information

     Crude oil and natural gas reserve estimates are determined through analysis
     of geological and engineering data which appear, with reasonable certainty,
     to be recoverable at commercial rates in the future from known oil and
     natural gas reservoirs under existing economic and operating conditions.

     Estimates of crude oil and natural gas reserve have been made by
     independent engineers. The Group's net proved reserves consist of its
     percentage interest in reserves, comprised of a 100% interest in its
     independent oil and gas properties and its participating interest in the
     properties covered under the production sharing contracts in PRC, less (a)
     an adjustment for the Group's share of royalties payable by the Group to
     the PRC government and the Group's participating interest in share oil
     payable to the PRC government under the production sharing contracts, and
     less (b) an adjustment for production allocable to foreign partners under
     the PRC production sharing contracts as reimbursement for exploration
     expenses attributable to the Group's participating interest, plus its
     participating interest in the properties covered under the production
     sharing contracts in Indonesia less an adjustment of share oil attributable
     to Indonesian government and the domestic market obligation.

     The proved developed and undeveloped reserves for Indonesia in 2000 and
     2001 were less than 1% to the total and no separate disclosure was
     presented.

     Proved developed and undeveloped reserves (net of royalties and government
     share oil):

<TABLE>
<CAPTION>
                                                       PRC                        (Indonesia)                   (Total)
                                                       -----                      -----------                   -------
                                                Oil    Natural gas            Oil    Natural gas            Oil    Natural gas
                                             (Mmbbls)         (Bcf)       (Mmbbls)         (Bcf)        (Mmbbls)          (Bcf)
                                             -------         -----        -------          -----        -------          -----
<S>                                           <C>            <C>           <C>            <C>            <C>             <C>
     December 31, 1999                        1,242          3,332             --             --          1,242          3,332
         Discoveries and extensions              76              5             --             --             76              5
         Sales of reserves                      (41)            --             --             --            (41)            --
         Production                             (75)           (72)            --             --            (75)           (72)
         Revisions of prior estimates            14            (15)            --             --             14            (15)
                                             ------         ------         ------         ------         ------         ------

     December 31, 2000                        1,216          3,250             --             --          1,216          3,250
         Discoveries and extensions             199            166             --             --            199            166
         Production                             (84)           (71)            --             --            (84)           (71)
         Revisions of prior estimates           (52)           (97)            --             --            (52)           (97)
                                             ------         ------         ------         ------         ------         ------

     December 31, 2001                        1,279          3,248             --             --          1,279          3,248
         Purchase of reserves                    --             --            143            241            143            241
         Discoveries and extensions             150            169             --             --            150            169
         Production                             (96)           (79)           (13)           (26)          (109)          (105)
         Revisions of prior estimates           (46)            (5)             8             --            (38)            (5)
                                             ------         ------         ------         ------         ------         ------
     December 31, 2002                        1,287          3,333            138            215          1,425          3,548
                                             ======         ======         ======         ======         ======         ======
</TABLE>


                                      F-62
<PAGE>

                                  CNOOC LIMITED
    SUPPLEMENTARY INFORMATION ON OIL AND GAS PRODUCING ACTIVITIES (UNAUDITED)

           (All amounts expressed in Renminbi unless otherwise stated)

(a)  Reserve quantity information (cont'd)

     Proved developed reserves:

<TABLE>
<CAPTION>
                                    PRC                       Indonesia                        Total
                                    ---------                 -----------                      ------
                              Oil    Natural Gas            Oil    Natural Gas            Oil    Natural Gas
                           (Mmbbls)        (Bcf)        (Mmbbls)          (Bcf)        (Mmbbls)         (Bcf)
                           -------         -----        -------          -----        -------          -----
<S>                           <C>            <C>            <C>           <C>             <C>            <C>
     December 31, 2000        546            558             --             --            546            558
     December 31, 2001        582            765             --             --            582            765
     December 31, 2002        542            724            115            101            657            825
</TABLE>

(b)  Results of operations

<TABLE>
<CAPTION>
                                                                                                    2002
                                       2000                2001               -----------------------------------------------
                                        PRC                 PRC                 PRC              Indonesia             Total
                                        ---                 ---                 ---              ---------             -----
                                      RMB'000             RMB'000             RMB'000             RMB'000             RMB'000
<S>                                  <C>                 <C>                 <C>                  <C>                <C>
     Net sales to customers          18,819,323          17,560,788          20,280,746           3,498,548          23,779,294
     Operating expenses              (2,124,078)         (2,329,130)         (2,440,210)         (1,335,124)         (3,775,334)
     Production taxes                (1,036,729)           (883,768)         (1,023,049)                 --          (1,023,049)
     Exploration                       (552,869)         (1,039,297)         (1,286,670)            (31,653)         (1,318,323)
     Depreciation, depletion
        and amortisation             (2,577,882)         (2,566,920)         (3,121,381)           (898,151)         (4,019,532)
                                    -----------         -----------         -----------         -----------         -----------
                                     12,527,765          10,741,673          12,409,436           1,233,620          13,643,056

     Income tax expenses             (2,265,847)         (3,992,578)         (3,816,008)           (592,138)         (4,408,146)
                                    -----------         -----------         -----------         -----------         -----------
     Result of operations            10,261,918           6,749,095           8,593,428             641,482           9,234,910
                                    ===========         ===========         ===========         ===========         ===========
</TABLE>

(c)  Capitalised costs

<TABLE>
<CAPTION>
                                                                                                      2002
                                          2000                2001               -----------------------------------------------
                                           PRC                 PRC                 PRC              Indonesia             Total
                                           ---                 ---                 ---              ---------             -----
                                         RMB'000             RMB'000             RMB'000             RMB'000             RMB'000
<S>                                    <C>                 <C>                 <C>                  <C>                <C>
     Proved oil and
       gas properties                  36,323,472          40,748,848          46,426,684           9,605,744          56,032,428

     Unproved oil and gas
       properties                         996,452             428,611             521,880                  --             521,880
     Accumulated depreciation,
       depletion and amortisation     (15,482,082)        (18,154,653)        (21,161,905)           (993,316)        (22,155,221)
                                      -----------         -----------         -----------         -----------         -----------
     Net capitalised costs             21,837,842          23,022,806          25,786,659           8,612,428          34,399,087
                                      ===========         ===========         ===========         ===========         ===========
</TABLE>


                                      F-63
<PAGE>

                                  CNOOC LIMITED
    SUPPLEMENTARY INFORMATION ON OIL AND GAS PRODUCING ACTIVITIES (UNAUDITED)

           (All amounts expressed in Renminbi unless otherwise stated)

(d)  Costs incurred

<TABLE>
<CAPTION>
                                                                                               2002
                                           2000           2001             --------------------------------------------
                                           PRC            PRC               PRC              Indonesia           Total
                                           ---            ---               ---              ---------           -----
                                         RMB'000        RMB'000           RMB'000             RMB'000           RMB'000
<S>                                   <C>               <C>               <C>               <C>               <C>
     Acquisition costs                       --                --                --         4,735,826         4,735,826
     Exploration costs                  610,159           996,121         1,519,683            32,405         1,552,088
     Development cost                 4,176,555         3,958,357         5,458,199           750,532         6,208,731
                                     ----------        ----------        ----------        ----------        ----------
     Total costs incurred             4,786,714         4,954,478         6,977,882         5,518,763        12,496,645
                                     ==========        ==========        ==========        ==========        ==========
</TABLE>

(e)  Standardised measure of discounted future net cash flows and changes
     therein

     In calculating the standardised measure of discounted future net cash
     flows, year-end constant price and cost assumptions were applied to the
     Group's estimated annual future production from proven reserves to
     determine future cash inflows. Year end average realised oil prices used in
     the estimation of proved reserves and calculation of the standardised
     measure were US$28 as of December 31, 2002 (2001: US$17; 2000: US$22).
     Future development costs are estimated based upon constant price
     assumptions and assume the continuation of existing economic, operating and
     regulatory conditions. Future income taxes are calculated by applying the
     year-end statutory rate to estimate future pre-tax cash flows after
     provision for the tax cost of the oil and natural gas properties based upon
     existing laws and regulations. The discount was computed by application of
     a 10% discount factor to the estimated future net cash flows.

     Management believes that this information does not represent the fair
     market value of the oil and natural gas reserves or the present value of
     estimated cash flows since no economic value is attributed to potential
     reserves, the use of a 10% discount rate is arbitrary, and prices change
     constantly from year-end levels.

     Present value of estimated future net cash flows:

<TABLE>
<CAPTION>
                                                                                                         2002
                                                        2000             2001            ---------------------------------------
                                       Notes            PRC              PRC              PRC          Indonesia           Total
                                       -----            ---              ---              ---          ---------           -----
                                                      RMB'000          RMB'000          RMB'000         RMB'000           RMB'000
<S>                                     <C>         <C>              <C>             <C>               <C>              <C>
     Future cash inflows                (1)         326,513,363      261,339,180     389,025,791       37,242,644       426,268,435
     Future production costs                        (73,402,341)     (74,404,378)    (89,657,677)     (22,386,603)     (112,044,280)
     Future development costs           (2)         (31,279,348)     (38,640,756)    (44,699,729)      (5,381,081)      (50,080,810)
     Future income taxes                            (30,833,803)     (39,097,483)    (73,757,925)      (4,301,926)      (78,059,851)
                                                    -----------      -----------     -----------       ----------       -----------
     Future net cash flows                          190,997,871      109,196,563     180,910,460        5,173,034       186,083,494
         10% discount factor            (3)         (97,607,274)     (58,114,105)    (84,478,856)      (1,463,589)      (85,942,445)
                                                    -----------      -----------     -----------       ----------       -----------
     Standardised measure                            93,390,597       51,082,458      96,431,604        3,709,445       100,141,049
                                                    ===========      ===========     ===========       ==========       ===========
</TABLE>


                                      F-64
<PAGE>

                                  CNOOC LIMITED
    SUPPLEMENTARY INFORMATION ON OIL AND GAS PRODUCING ACTIVITIES (UNAUDITED)

           (All amounts expressed in Renminbi unless otherwise stated)

(e)  Standardised measure of discounted future net cash flows and changes
     therein (cont'd)

     (1)  Future cash flows consist of the Group's 100% interest in the
          independent oil and gas properties and the Group's participating
          interest in the properties under production sharing contracts in PRC
          less (a) an adjustment for the royalties payable to the PRC government
          and share oil payable to the PRC under production sharing contracts
          and (b) an adjustment for production allocable to foreign partners
          under the PRC production sharing contracts for exploration costs
          attributable to the Group's participating interest, plus its
          participating interest in the properties covered under the production
          sharing contracts in Indonesia less an adjustment of share oil
          attributable to Indonesian government and the domestic market
          obligation.

     (2)  Future development costs include the estimated costs of drilling
          future development wells and building the production platforms.

     (3)  Future net cash flows have been prepared taking into consideration
          estimated future dismantlement costs of dismantling offshore oil
          platforms and gas properties.

     Changes in the standardised measure of discounted future net cash flows:

<TABLE>
<CAPTION>
                                                                       2000                 2001                 2002
                                                                       ----                 ----                 ----

<S>                                                                 <C>                  <C>                  <C>
     Standardised measure, beginning of year                        87,722,457           93,390,597           51,082,458
     Sales of production, net of royalties and production          (15,658,516)         (14,347,890)         (18,980,911)
       costs
     Net change in prices, net of royalties and production             578,121          (32,289,445)          58,471,355
       costs
     Extensions discoveries and improved recovery, net of            5,417,977            9,985,707           14,603,893
       related future costs
     Change in estimated future development costs                    3,433,517           (9,651,681)         (13,947,849)
     Development costs incurred during the year                      4,176,555            3,958,357            6,208,731
     Revisions in quantity estimates                                   830,236           (3,272,326)          (3,301,510)
     Accretion of discount                                          10,361,478           10,846,714            6,873,378
     Net change in income taxes                                        815,779           (3,241,861)         (23,296,206)
     Purchase of properties                                                 --                   --           15,899,375
     Sales of property                                              (2,865,132)                  --                   --
     Changes in timing and other                                    (1,421,875)          (4,295,714)           6,528,335
                                                                    ----------           ----------          -----------
     Standardised measure, end of year                              93,390,597           51,082,458          100,141,049
                                                                    ==========           ==========          ===========
</TABLE>


                                      F-65
<PAGE>

                                 EXHIBIT INDEX

<TABLE>
<CAPTION>


Exhibit
Number         Document                                                                                 Page
------         --------                                                                                 ----
<S>            <C>                                                                                      <C>
1.1            Articles of Association of the Registrant, incorporated by reference to Exhibit 3.1
               to our Registration Statement on Form F-1 filed with the Securities and Exchange
               Commission (File Number: 333-10862).

1.2            Memorandum of Association of the Registrant, incorporated by reference to Exhibit
               3.2 to our Registration Statement on Form F-1 filed with the Securities and Exchange
               Commission (File Number: 333-10862).

2.1            Form of Indenture.                                                                       Ex-6

4.1            The Asset Swap Agreement dated July 20, 1999 between CNOOC and Offshore Oil Company
               Limited, incorporated by reference to Exhibit 10.1 to our Registration Statement on
               Form F-1 filed with the Securities and Exchange Commission (File Number: 333-10862).

4.2            The Asset Allocation Agreement dated July 20, 1999 between CNOOC and Offshore Oil
               Company Limited, incorporated by reference to Exhibit 10.2 to our Registration
               Statement on Form F-1 filed with the Securities and Exchange Commission (File Number:
               333-10862).

4.3            The Reorganization Agreement dated September 13, 1999 between CNOOC, Offshore Oil
               Company Limited and CNOOC Limited, incorporated by reference to Exhibit 10.3 to our
               Registration Statement on Form F-1 filed with the Securities and Exchange Commission
               (File Number: 333-10862).

4.4            Form of the Equity Transfer Agreement between CNOOC and CNOOC Limited, incorporated by
               reference to Exhibit 10.4 to our Registration Statement on Form F-1 filed with the
               Securities and Exchange Commission (File Number: 333-10862).

4.5            Form of the Transfer Agreement dated October 1, 1999 between CNOOC and Offshore Oil
               Company Limited regarding the transfer of the rights and obligations of CNOOC under
               the 37 production sharing contracts and one geophysical exploration agreement,
               incorporated by reference to Exhibit 10.5 to our Registration Statement on Form F-1
               filed with the Securities and Exchange Commission (File Number: 333-10862).

4.6            Form of Equity Transfer Agreement between China Offshore Oil East China Sea
               Corporation and Offshore Oil Company Limited regarding the transfer of the rights
               and obligations under Joint Venture Contract of Shanghai Petroleum and Natural Gas
               Company Limited dated July 28, 1992 to Offshore Oil Company Limited, incorporated by
               reference to Exhibit 10.6 to our Registration Statement on Form F-1 filed with the
               Securities and Exchange Commission (File Number: 333-10862).



                                               Ex-1
<PAGE>

4.7            Transfer Agreement dated September 9, 1999 between CNOOC and Offshore Oil Company
               Limited regarding the transfer of the rights and obligations of CNOOC under the
               Natural Gas Sale and Purchase Contract dated December 22, 1992 to Offshore Oil
               Company Limited, incorporated by reference to Exhibit 10.7 to our Registration
               Statement on Form F-1 filed with the Securities and Exchange Commission (File
               Number: 333-10862).

4.8            Transfer Agreement dated September 9, 1999 between CNOOC and Offshore Oil Company
               Limited regarding the transfer of the rights and obligations of CNOOC under the
               Natural Gas Sale and Purchase Contract dated November 7, 1992 to Offshore Oil
               Company Limited, incorporated by reference to Exhibit 10.8 to our Registration
               Statement on Form F-1 filed with the Securities and Exchange Commission (File
               Number: 333-10862).

4.9            Transfer Agreement dated September 9, 1999 among CNOOC, Offshore Oil Company
               Limited, the four PRC subsidiaries and CNOOC's affiliates regarding the transfer of
               the rights and obligations of the technical services agreements to Offshore Oil
               Company Limited, incorporated by reference to Exhibit 10.9 to our Registration
               Statement on Form F-1 filed with the Securities and Exchange Commission (File
               Number: 333-10862).

4.10           Nanshan Terminal Leasing Agreement dated September 9, 1999 between CNOOC, Hainan
               China Oil and Offshore Natural Gas Company and Offshore Oil Company Limited,
               incorporated by reference to Exhibit 10.10 to our Registration Statement on Form F-1
               filed with the Securities and Exchange Commission (File Number: 333-10862).

4.11           Trademark License Agreement dated September 9, 1999 between CNOOC, Offshore Oil
               Company Limited and CNOOC Limited, incorporated by reference to Exhibit 10.11 to our
               Registration Statement on Form F-1 filed with the Securities and Exchange Commission
               (File Number: 333-10862).

4.12           Trademark License Agreement dated September 9, 1999 between China Offshore Oil
               Marketing Company, CNOOC Limited and Offshore Oil Company Limited and CNOOC Limited,
               incorporated by reference to Exhibit 10.12 to our Registration Statement on Form F-1
               filed with the Securities and Exchange Commission (File Number: 333-10862).

4.13           Agreement for provision of materials, facilities and auxiliary services dated
               September 9, 1999 with CNOOC affiliates, incorporated by reference to Exhibit 10.13
               to our Registration Statement on Form F-1 filed with the Securities and Exchange
               Commission (File Number: 333-10862).

4.14           Agreement for provision of materials, facilities and auxiliary services dated
               September 9, 1999 with CNOOC affiliates, incorporated by reference to Exhibit 10.14
               to our Registration Statement on Form F-1 filed with the Securities and Exchange
               Commission (File Number: 333-10862).

4.15           Agreement for provision of materials, facilities and auxiliary services dated
               September 9, 1999 with CNOOC affiliates, incorporated by reference to Exhibit 10.15
               to our Registration Statement on Form F-1 filed with the Securities and Exchange
               Commission (File Number: 333-10862).

4.16           Agreement for provision of materials, facilities and auxiliary services dated
               September 9, 1999 with CNOOC affiliates, incorporated by reference to Exhibit 10.16
               to our Registration Statement on Form F-1 filed with the Securities and Exchange
               Commission (File Number: 333-10862).



                                               Ex-2
<PAGE>

4.17           General Research and Development Agreement dated September 9, 1999 between China
               Ocean Oil Research Institute and Offshore Oil Company Limited, incorporated by
               reference to Exhibit 10.17 to our Registration Statement on Form F-1 filed with the
               Securities and Exchange Commission (File Number: 333-10862).

4.18           Property Leasing Agreement dated September 9, 1999 between Wui Hai Enterprise
               Company Limited and Offshore Oil Company Limited in respect of the office premises
               at 6th, 7th and 8th Floors, CNOOC Plaza, No. 6 Dong Zhi Men Wai Xiao Jie, Beijing,
               incorporated by reference to Exhibit 10.18 to our Registration Statement on Form F-1
               filed with the Securities and Exchange Commission (File Number: 333-10862).

4.19           Property Leasing Agreement dated September 9, 1999 between China Offshore Oil
               Western South China Sea Corporation and Offshore Oil Company Limited in respect of
               the office premises at 1st to 9th Floors, Nantiao Road, Potou District Zhangjiang,
               Guangdong, incorporated by reference to Exhibit 10.19 to our Registration Statement
               on Form F-1 filed with the Securities and Exchange Commission (File Number:
               333-10862).

4.20           Property Leasing Agreement dated September 9, 1999 between China Offshore Oil Bohai
               Corporation and Offshore Oil Company Limited in respect of the office premises at
               1st to 7th Floors and 9th Floor, 2-37 He Kou Jie, Tanggu District, Tianjin,
               incorporated by reference to Exhibit 10.20 to our Registration Statement on Form F-1
               filed with the Securities and Exchange Commission (File Number: 333-10862).

4.21           Property Leasing Agreement dated September 9, 1999 between China Offshore Oil East
               China Sea Corporation and Offshore Oil Company Limited in respect of the office
               premises at 20th, 22nd and 23rd Floors, 583 Ling Ling Road, Shanghai, the PRC,
               incorporated by reference to Exhibit 10.21 to our Registration Statement on Form F-1
               filed with the Securities and Exchange Commission (File Number: 333-10862).

4.22           Property Leasing Agreement dated September 9, 1999 between China Offshore Oil
               Eastern South China Sea Corporation and Offshore Oil Company Limited in respect of
               the office premises at 3rd Floor and 6th to 11th Floors, 1 Second Industrial Road,
               Shekou, Shenzhen, the PRC, incorporated by reference to Exhibit 10.22 to our
               Registration Statement on Form F-1 filed with the Securities and Exchange Commission
               (File Number: 333-10862).

4.23           Property Leasing Agreement dated September 9, 1999 between China Offshore Oil Bohai
               Corporation and Offshore Oil Company Limited in respect of the Chengbei Warehouse,
               Chengbei Road, Tanggu District, Tianjin City, the PRC, incorporated by reference to
               Exhibit 10.23 to our Registration Statement on Form F-1 filed with the Securities
               and Exchange Commission (File Number: 333-10862).

4.24           Property Leasing Agreement dated September 9, 1999 between Overseas Oil & Gas
               Corporation Ltd. and China Offshore Oil (Singapore) International Pte. Ltd. in
               respect of the residential premises at 10-01 and 17-002 Aquamarine Tower, 50
               Bayshore Road, 13-05 Jade Tower, 60 Bayshore Road, Singapore, incorporated by
               reference to Exhibit 10.24 to our Registration Statement on Form F-1 filed with the
               Securities and Exchange Commission (File Number: 333-10862).

4.25           Suizhong Pier Agreement dated September 9, 1999 between Offshore Oil Company Limited
               and China Offshore Bohai Corporation, incorporated by reference to Exhibit 10.25 to
               our Registration Statement on Form F-1 filed with the Securities and Exchange
               Commission (File Number: 333-10862).

                                               Ex-3
<PAGE>

4.26           Form of Novation Agreement among CNOOC, CNOOC China Limited, the Banks and other
               financial institution and the Fuji Bank Limited Hong Kong Branch, as agent, in
               respect of the transfer of the US$110 million syndicated loan, incorporated by
               reference to Exhibit 10.26 to our Registration Statement on Form F-1 filed with the
               Securities and Exchange Commission (File Number: 333-10862).

4.27           Form of the Undertaking Agreement between CNOOC and CNOOC Limited, incorporated by
               reference to Exhibit 10.27 to our Registration Statement on Form F-1 filed with the
               Securities and Exchange Commission (File Number: 333-10862).

4.28           Employment Contract between CNOOC Limited and Liucheng Wei (Service Agreement for
               Director, incorporated by reference to Exhibit 10.28 to our Registration Statement
               on Form F-1 filed with the Securities and Exchange Commission (File Number:
               333-10862).

4.29           Employment Contract between CNOOC Limited and Chengyu Fu (Service Agreement for
               Director, incorporated by reference to Exhibit 10.29 to our Registration Statement
               on Form F-1 filed with the Securities and Exchange Commission (File Number:
               333-10862).

4.30           Employment Contract between CNOOC Limited and Shouwei Zhou (Service Agreement for
               Director, incorporated by reference to Exhibit 10.30 to our Registration Statement
               on Form F-1 filed with the Securities and Exchange Commission (File Number:
               333-10862).

4.31           Form of Pre-Global Offering Share Option Scheme for the Senior Management of CNOOC
               Limited, incorporated by reference to Exhibit 10.31 to our Registration Statement on
               Form F-1 filed with the Securities and Exchange Commission (File Number: 333-10862).

4.32           Form of Share Option Scheme for the Senior Management of CNOOC Limited, incorporated
               by reference to Exhibit 10.32 to our Registration Statement on Form F-1 filed with
               the Securities and Exchange Commission (File Number: 333-10862).

4.33           Subscription Agreement dated March 17, 2000 among CNOOC Limited, CNOOC (BVI)
               Limited, Overseas Oil & Gas Corporation, Ltd., et al., incorporated by reference to
               Exhibit 10.33 to our Registration Statement on Form F-1 filed with the Securities
               and Exchange Commission (File Number: 333-10862).

4.34           Subscription Agreement dated May 31, 2000 among CNOOC Limited, CNOOC (BVI) Limited,
               Overseas Oil & Gas Corporation, Ltd. and Hutchison International Limited,
               incorporated by reference to Exhibit 10.34 to our Registration Statement on Form F-1
               filed with the Securities and Exchange Commission (File Number: 333-10862).

4.35           Subscription Agreement dated May 31, 2000 among CNOOC Limited, CNOOC (BVI) Limited,
               Overseas Oil & Gas Corporation, Ltd. and Hongkong Electric Holdings Limited,
               incorporated by reference to Exhibit 10.35 to our Registration Statement on Form F-1
               filed with the Securities and Exchange Commission (File Number: 333-10862).

4.36           Subscription Agreement dated June 28, 2000 among CNOOC Limited, CNOOC (BVI) Limited,
               Overseas Oil & Gas Corporation, Ltd., et al., incorporated by reference to Exhibit
               10.36 to our Registration Statement on Form F-1 filed with the Securities and
               Exchange Commission (File Number: 333-10862).



                                               Ex-4
<PAGE>

4.37           Corporation Placing Agreement dated February 6, 2001 among CNOOC Limited, China
               National Offshore Oil Corporation, Shell Eastern Petroleum (Pte) Limited and Merrill
               Lynch Far East Limited, incorporated by reference to Exhibit 10.37 to our Registration
               Statement on Form F-1 filed with the Securities and Exchange Commission (File Number:
               333-10862).

8              List of Subsidiaries.                                                                    Ex-61

10.1           Letter from CNOOC Limited dated May 23, 2002 regarding receipt of certain
               representations from Arthur Andersen & Co pursuant to the requirements of the
               Securities and Exchange Commission, incorporated by reference to Exhibit 10 to our
               annual report on Form 20-F for fiscal year 2001 filed with the Securities and
               Exchange Commission (File Number: 1-14966).

10.2           Sarbanes-Oxley Act of 2002 Section 906 Certification furnished (not filed) to the        Ex-62
               Securities and Exchange Commission




</TABLE>


                                               Ex-5