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, 2003
                                       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
                          [CHINESE CHARACTERS OMITTED]
             (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 each class                            Name of each exchange on which registered
                       -------------------                            -----------------------------------------
<S>                                                                   <C>
American depositary shares, each representing 100 shares of
   par value HK$0.02 per share....................................    New York Stock Exchange, Inc.*
Shares of par value HK$0.02 per share.............................    New York Stock Exchange, Inc.**

           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)
</TABLE>

    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............................41,061,951,275*

         Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
Registrant is 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|

______________________
* A 5-for-1 stock split went into effect on March 17, 2004 and since then each
American depositary share represents 100 shares, rather than 20 shares
previously. The number of shares outstanding immediately after the stock split
was 41,070,828,275. Due to buybacks by the registrant in May 2004, the number of
shares outstanding on June 10, 2004 was 41,061,951,275.
** Not for trading, but only in connection with the registration of American
depositary shares.

<PAGE>

<TABLE>
<CAPTION>
                                Table of Contents

                                                                                                               Page
                                                                                                               ----
<S>                                                                                                             <C>
TERMS AND CONVENTIONS.............................................................................................1
FORWARD-LOOKING STATEMENTS........................................................................................5

                                     PART I

   ITEM 1.      IDENTITY OF DIRECTORS, SENIOR MANAGEMENT AND ADVISERS.............................................6
   ITEM 2.      OFFER STATISTICS AND EXPECTED TIMETABLE...........................................................6
   ITEM 3.      KEY INFORMATION...................................................................................6
                A.  Selected Financial Data.......................................................................6
                B.  Capitalization and Indebtedness..............................................................10
                C.  Reasons for the Offer and Use of Proceeds....................................................10
                D.  Risk Factors.................................................................................11
   ITEM 4.      INFORMATION ON THE COMPANY.......................................................................21
                A.  History and Development......................................................................21
                B.  Business Overview............................................................................25
   ITEM 5.       OPERATING AND FINANCIAL REVIEW AND PROSPECTS....................................................72
                A.  Operating Results............................................................................72
                B.  Liquidity and Capital Resources..............................................................86
                C.  Research and Development, Patents and Licenses, etc..........................................94
                D.  Trend Information............................................................................94
                E.  Off- Balance Sheet Arrangements..............................................................95
                F.  Tabular Disclosure of Contractual Obligations................................................95
   ITEM 6.      DIRECTORS, SENIOR MANAGEMENT AND EMPLOYEES.......................................................96
                A.  Directors and Senior Management..............................................................96
                B.  Compensation of Directors and Officers.......................................................99
                C.  Board Practice..............................................................................100
                D.  Employees...................................................................................103
                E.  Share Ownership.............................................................................103
   ITEM 7.      MAJOR SHAREHOLDERS AND RELATED PARTY TRANSACTIONS...............................................106
                A.  Major Shareholders..........................................................................106
                B.  Related Party Transactions..................................................................106
                C.  Interests of Experts and Counsel............................................................112
   ITEM 8.      FINANCIAL INFORMATION...........................................................................112
                A.  Consolidated Statements and Other Financial Information.....................................112
                B.  Significant Changes.........................................................................113
   ITEM 9.      THE OFFER AND LISTING...........................................................................114
   ITEM 10.     ADDITIONAL INFORMATION..........................................................................115
                A.  Share Capital...............................................................................115
                B.  Memorandum and Articles of Association......................................................115
                C.  Material Contracts..........................................................................118
                D.  Exchange Controls...........................................................................118
                E.  Taxation....................................................................................119
                F.  Dividends and Paying Agents.................................................................122
                G.  Statement by Experts........................................................................122
                H.  Documents on Display........................................................................122
                I.  Subsidiary Information......................................................................123
   ITEM 11.     QUALITATIVE AND QUANTITATIVE DISCLOSURES ABOUT MARKET RISK......................................123
   ITEM 12.     DESCRIPTION OF SECURITIES OTHER THAN EQUITY SECURITIES..........................................124

                                     PART II

   ITEM 13.     DEFAULTS, DIVIDEND ARREARAGES AND DELINQUENCIES.................................................125


                                       i
<PAGE>

   ITEM 14.     MATERIAL MODIFICATIONS TO THE RIGHTS OF SECURITY HOLDERS AND USE OF PROCEEDS....................125
                A.  Material Modifications to the Rights to Security Holders....................................125
                B.  Use of Proceeds.............................................................................125
   ITEM 15.     CONTROLS AND PROCEDURES.........................................................................125
   ITEM 16A.    AUDIT COMMITTEE FINANCE EXPERT..................................................................125
   ITEM 16B.    CODE OF ETHICS..................................................................................125
   ITEM 16C.    PRINCIPAL ACCOUNTANT FEES AND SERVICES..........................................................126
   ITEM 16D.    EXEMPTIONS FROM THE LISTING STANDARDS FOR AUDIT COMMITTEES......................................127
   ITEM 16E.    PURCHASES OF EQUITY SECURITIES BY THE ISSUER AND
                AFFILIATED PURCHASERS...........................................................................127

                                    PART III

   ITEM 17.     FINANCIAL STATEMENTS............................................................................128
   ITEM 18.     FINANCIAL STATEMENTS............................................................................128
   ITEM 19.     EXHIBITS........................................................................................128
</TABLE>



                                       ii
<PAGE>

                              TERMS AND CONVENTIONS

Definitions

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

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

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

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

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

         o    "HK$" are to Hong Kong dollar, the legal currency of the Hong Kong
              Special Administrative Region;

         o    "JPY" are to Japanese yen, the legal currency of Japan;

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

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

         o    "US$" are to U.S. dollar, the legal 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, 2003 of US$1.00=Rmb 8.2767. We
have also translated amounts in Hong Kong dollars solely for the convenience of
the reader at the rate of HK$7.7988 to US$1.00, the linked exchange rate between
such currencies under policies of the Hong Kong government in effect on December
31, 2003. 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, 2003, or at all. For further information on exchange
rates, see Item 3 "Key Information--Selected Financial Data."

         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 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 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.



                                       1
<PAGE>

         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 overseas; 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 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 overseas production
              sharing contracts for any domestic market obligation under which
              the contractor must sell a specified percentage of its crude oil
              to the local overseas market (such as in Indonesia) 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.

         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    "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.



                                       2
<PAGE>

         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, purchases of reserves, and
              revisions of prior estimates of net proved reserves.

         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 further definitions relating to 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.



                                       3
<PAGE>

         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 appraisal 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);

         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.



                                       4
<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.



                                       5
<PAGE>

                                     PART I

ITEM 1.     IDENTITY OF DIRECTORS, SENIOR MANAGEMENT AND ADVISERS

         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 under Item 18 "Financial Statements" and "Item 5--Operating and Financial
Review and Prospects" in this annual report. The following selected income
statement data and cash flows data for the two years ended December 31, 2003 and
the selected balance sheet data as of December 31, 2002 and 2003 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 flows data for the three years ended December 31, 2001 and the
selected balance sheet data as of December 31, 1999, 2000 and 2001 have been
derived from our consolidated financial statements audited by Arthur Andersen &
Co, our independent public accountants prior to 2002.

         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 in this annual report reflects our October
1999 reorganization and has been prepared as if our current structure had been
in existence at the beginning of 1999. 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 37 to our consolidated financial statements under Item 18
"Financial Statements" in this annual report.




                                       6
<PAGE>

<TABLE>
<CAPTION>


                                                                          Year ended December 31,
                                                       ----------------------------------------------------------------
                                                         1999     2000      2001       2002        2003         2003
                                                       -------- -------- ---------- ---------- ------------  ----------
                                                         Rmb       Rmb      Rmb        Rmb         Rmb          US$
                                                       -------- -------- ---------- ---------- ------------  ----------
                                                                   (in millions, except per share data)
Income Statement Data:
Hong Kong GAAP
Operating revenues:
<S>                                                  <C>         <C>         <C>       <C>          <C>         <C>
   Oil and gas sales..............................    11,398      18,819     17,561     23,779      28,117       3,397
   Marketing revenues.............................     3,805       5,126      2,537      2,377      12,399       1,498
   Other income...................................       108         279        722        217         434          53
                                                     --------    --------   --------  ---------   ---------   ---------
   Total operating revenues.......................    15,311      24,224     20,820     26,374      40,950       4,948
                                                     --------    --------   --------  ---------   ---------   ---------

Expenses:
   Operating expenses.............................    (1,855)     (2,124)    (2,329)    (3,775)     (4,513)       (545)
   Production taxes...............................      (579)     (1,037)      (884)    (1,023)     (1,239)       (150)
   Exploration expenses...........................      (247)       (553)    (1,039)    (1,318)       (848)       (103)
   Depreciation, depletion and amortization.......    (2,373)     (2,578)    (2,567)    (4,020)     (4,643)       (561)
   Dismantlement..................................      (177)       (104)       (90)      (126)       (167)        (20)
   Crude oil and product purchases................    (3,737)     (5,098)    (2,453)    (2,326)    (12,295)     (1,485)
   Selling and administrative expenses............      (517)       (456)      (616)    (1,007)     (1,213)       (147)
   Other..........................................        (5)       (217)      (618)       (31)       (350)        (42)
                                                     --------    --------   --------  ---------   ---------   ---------
                                                      (9,490)    (12,167)   (10,596)   (13,626)    (25,268)     (3,053)
                                                     --------    --------   --------  ---------   ---------   ---------

Interest income...................................        54         237        318        148         184          22
Interest expenses.................................      (662)       (475)      (117)      (295)       (355)        (43)
Exchange gain (loss), net.........................      (432)        381        235       (114)         (7)         (1)

Short term investment income......................        --          --        221        193         124          15
Share of  profit of an associate..................        13         218         90        165         220          27
Non-operating profit (loss), net..................        (1)       (195)        35        (71)        315          38
                                                     --------    --------   --------  ---------   ---------   ---------

Income before tax.................................     4,833      12,223     11,006     12,774      16,163       1,953
Tax...............................................      (722)     (1,926)    (3,048)    (3,541)     (4,628)       (559)
                                                     --------    --------   --------  ---------   ---------   ---------
Net income........................................     4,111      10,297      7,958      9,233      11,535       1,394
                                                     ========    ========   ========  =========   =========   =========

Net income per share (basic)(a)(b)................      0.14        0.33       0.20       0.22        0.28        0.03
Net income per share (diluted)(a)(c)..............      0.14        0.33       0.20       0.22        0.28        0.03
Net income per ADS (basic)(a)(b)..................     13.70       32.53      20.04      22.48       28.09        3.39
Net income per ADS (diluted)(a)(c)................     13.70       32.53      20.04      22.47       28.06        3.38

Dividend per share(a)
   Interim........................................     0.060          --      0.022      0.024       0.030        0.004
   Interim (in US$)...............................     0.007                  0.003      0.003       0.004        0.004
   Special interim................................        --          --         --         --       0.038        0.005
   Special interim (in US$).......................        --          --         --         --       0.005        0.005
   Proposed final.................................        --       0.196      0.032      0.032       0.026        0.003
   Proposed final (in US$)........................        --       0.024      0.004      0.004       0.003        0.003
   Proposed special final.........................        --          --         --      0.032       0.038        0.005
   Proposed special final (in US$)................        --          --         --      0.004       0.005        0.005

U.S. GAAP
Operating revenues:
Oil and gas sales.................................    11,398      18,819     17,561     23,779      28,117       3,397
Marketing revenues................................     3,805       5,126      2,537      2,377      12,399       1,498
Other income......................................       108         279        722        217         434          53
                                                     --------    --------   --------  ---------   ---------   ---------
Total operating revenues..........................    15,311      24,224     20,820     26,374      40,950       4,948
                                                     --------    --------   --------  ---------   ---------   ---------
Net Income........................................     4,113      10,302      7,920      9,086      11,980       1,447

Net income per share (basic)(a)(b)................      0.14        0.33       0.20       0.22        0.29        0.03
Net income per share (diluted)(a)(c)..............      0.14        0.33       0.20       0.22        0.29        0.03
Net income per ADS (basic)(a)(b)..................     13.70       32.53      19.95      22.12       29.17        3.52
Net income per ADS (diluted)(a)(c)................     13.70       32.55      19.95      22.13       29.14        3.52
</TABLE>



                                       7
<PAGE>

______________
(a)      On March 17, 2004, our shareholders approved a five-for-one stock split
         of our shares. The stock split was effected by dividing each of our
         issued and unissued shares of HK$0.10 each into five shares of HK$0.02
         each, and to increase the board lot size for trading on the Hong Kong
         Stock Exchange from 500 shares of HK$0.10 each to 1,000 subdivided
         shares of HK$0.02 each. The ratio of our ADSs listed on the New York
         Stock Exchange also changed such that each ADS now represents 100
         subdivided shares of HK$0.02 each, as opposed to 20 shares of HK$0.10
         each prior to the stock split.

(b)      Net income per share (basic) and net income per ADS (basic) for the
         year ended December 31, 1999 have been computed by dividing net
         income by the number of shares and the number of ADSs of
         1,500,000,000 (based on a ratio of 100 shares to one ADS),
         outstanding immediately after our reorganization in 1999. Net income
         per share (basic) and net income per ADS (basic) for 2000 have been
         computed by dividing net income by the weighted average number of
         shares and the weighted average number of ADSs of 31,655,572,105 and
         316,555,721 respectively (based on a ratio of 100 shares to one ADS)
         for the period. Similarly, net income per share (basic) and net
         income per ADS (basic) for 2001 have been computed, without
         considering the dilutive effect of the shares underlying our share
         option scheme, by dividing net income by the weighted average number
         of shares and the weighted average number of ADSs of 39,706,916,525
         and 397,069,165 respectively (based on a ratio of 100 shares to one
         ADS) for the period. Net income per share (basic) and net income per
         ADS (basic) for 2002 have been computed, without considering the
         dilutive effect of the shares underlying our share option scheme, by
         dividing net income by the weighted average number of shares and the
         weighted average number of ADSs of 41,070,828,275 and 410,708,283
         respectively (based on a ratio of 100 shares to one ADS) for the
         period. Net income per share (basic) and net income per ADS (basic)
         for 2003 have been computed, without considering the dilutive effect
         of the shares underlying our share option scheme, by dividing net
         income by the weighted average number of shares and the weighted
         average number of ADSs of 41,070,828,275 and 410,708,283 respectively
         (based on a ratio of 100 shares to one ADS) for the period.

(c)      Net income per share (diluted) and net income per ADS (diluted) for
         the year ended December 31, 1999 have been computed by dividing net
         income by the number of shares and the number of ADSs of
         1,500,000,000 (based on a ratio of 100 shares to one ADS),
         outstanding immediately after our reorganization in 1999. Net income
         per share (diluted) and net income per ADS (diluted) for 2000 have
         been computed by dividing net income by the weighted average number
         of shares and the weighted average number of ADSs of 31,655,572,105
         and 316,555,721 respectively (based on a ratio of 100 shares to one
         ADS) for the period. Similarly, net income per share (diluted) and
         net income per ADS (diluted) for 2001 have been computed, after
         considering the dilutive effect of the shares underlying our share
         option scheme, using 39,711,444,015 and 397,114,440 respectively. Net
         income per share (diluted) and net income per ADS (diluted) for 2002
         have been computed, after considering the dilutive effect of the
         shares underlying our share option scheme, using 41,096,426,920 and
         410,964,269 respectively. Net income per share (diluted) and net
         income per ADS (diluted) for 2003 have been computed, after
         considering the dilutive effect of the shares underlying our share
         option scheme, by using 41,110,339,095 and 411,103,391 respectively.

<TABLE>
<CAPTION>
                                                                             As of December 31,
                                                      ----------------------------------------------------------------
                                                         1999       2000       2001       2002       2003       2003
                                                      ---------  ---------  ---------  ---------  ---------  ---------
                                                         Rmb        Rmb        Rmb        Rmb        Rmb        US$
                                                      ---------  ---------  ---------  ---------  ---------  ---------
                                                                                (in millions)
Balance Sheet Data:
Hong Kong GAAP
<S>                                                   <C>        <C>        <C>        <C>        <C>        <C>
Cash and cash equivalents.........................         879      2,797      6,394      7,839     14,400     1,740
Time deposits with maturities over three months...          --      3,425      2,050      4,690      2,323       281
Short term investments............................          --        300      8,896      6,531      5,684       687
Current assets....................................       4,987      9,472     20,030     24,487     29,263     3,536
Property, plant and equipment, net................      20,907     22,654     23,828     36,072     43,124     5,210
Investment in associates..........................         274        471        462        537      1,118       135
Total assets......................................      26,168     32,597     44,320     61,096     73,504     8,881
Current liabilities...............................       9,177      8,768      4,392      7,134      9,307     1,124
Long term bank loans, net of current portion......       6,033      4,749      3,256        941        890       107
Long term guaranteed notes .......................          --         --         --      4,071      8,142       984
Total long term liabilities.......................       8,607      7,707      6,617     13,393     17,461     2,110
Total liabilities.................................      17,784     16,475     11,009     20,527     26,768     3,234
Shareholders' equity..............................       8,384     16,122     33,311     40,568     46,737     5,647

U.S. GAAP
Total assets......................................      26,000     32,330     44,062     60,444     73,234     8,848
Total long term liabilities.......................       7,562      7,707      6,617     13,393     17,461     2,109
Shareholders' equity..............................       9,261     15,855     33,053     40,344     46,496     5,618
</TABLE>



                                       8
<PAGE>

<TABLE>
<CAPTION>
                                                                           Year ended December 31,
                                                      ----------------------------------------------------------------
                                                         1999       2000       2001       2002       2003       2003
                                                      ---------  ---------  ---------  ---------  ---------  ---------
                                                         Rmb        Rmb         Rmb        Rmb        Rmb        US$
                                                      ---------  ---------  ---------  ---------  ---------  ---------

                                                                (in millions, except percentages and ratios)
Other Financial Data:
Hong Kong GAAP
<S>                                                    <C>       <C>         <C>         <C>        <C>        <C>
Capital expenditures paid.........................      4,070      4,404      4,343      6,833      8,272        999
Cash provided by (used for):
     Operating activities.........................      7,323     13,233     11,759     14,742     17,819      2,153
     Investing activities.........................     (4,442)    (7,861)   (11,366)   (11,724)    (9,513)    (1,149)
     Financing activities.........................     (2,428)    (3,454)     3,204     (1,573)    (1,745)      (211)
Other Data
     EBITDE(1)....................................      8,630     15,315     14,366     18,499     21,998      2,658
     EBITDE margin(2).............................       56.4%      63.2%      69.0%      70.1%      53.7%      53.7%
     Ratio of EBITDE to gross interest expense(3).       12.3x      32.2x      45.5x      45.7x      43.4x      43.4x
     Ratio of total debt to EBITDE................        1.1x       0.4x       0.3x       0.3x       0.4x       0.4x
     Ratio of total debt to total capitalization(4)      63.1%      27.5%      12.3%      11.6%      16.2%      16.2%

U.S. GAAP
Cash provided by (used for):
     Operating activities(5)......................      7,323     13,233     11,759     14,742     17,819      2,153
     Investing activities.........................     (4,442)    (7,861)   (11,366)   (11,724)    (9,513)    (1,149)
     Financing activities.........................     (2,428)    (3,454)     3,204     (1,573)    (1,745)      (211)
Ratio of cash provided by operating activities to
   gross interest expense(3)(5)...................       10.5x      27.9x      37.2x      36.4x      35.1x      35.1x
Ratio of total debt to cash provided by operating
   activities(5)..................................        1.2x       0.4x       0.4x       0.4x       0.5x       0.5x
Net income(6).....................................      4,113     10,302      7,920       9,086     11,980      1,447
Net income margin(6)(7)...........................       26.9%      42.5%      38.0%      34.5%      29.3%      29.3%
Ratio of net income to gross interest expense(3)(6)       5.9x      21.7x      25.1x      22.4x      23.6x      23.6x
Ratio of total debt to net income(6)..............        2.2x       0.6x       0.6x       0.6x       0.8x       0.8x
Other Data
     EBITDE(1)....................................      8,630     15,315     14,319      18,483     21,998      2,658
     EBITDE margin(2).............................       56.4%      63.2%      68.8%      70.1%      53.7%      53.7%
     Ratio of EBITDE to gross interest expense(3).       12.3x      32.2x      45.4x      56.6x      43.3x      43.3x
     Ratio of total debt to EBITDE................        1.1x       0.4x       0.3x       0.3x       0.4x       0.4x
     Ratio of total debt to total capitalization(4)      59.5%      27.9%      12.4%      11.8%      24.2%      24.2%
</TABLE>
______________
(1)  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."
(2)  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. Our EBITDE as a percentage
     of oil and gas sales for the five years ended December 31, 2003 were 75.7%,
     81.4%, 81.8%, 77.8% and 78.2%, respectively.
(3)  Gross interest expense includes capitalized interest.
(4)  Total capitalization excludes current portion of long-term debt.
(5)  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.
(6)  We have included net income data 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 operating performance. EBITDE is not a standard measure under
     either Hong Kong or U.S. GAAP.
(7)  Net income margin represents net income as a percentage of our total
     operating revenues, as computed under U.S. GAAP.

         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 8.2767 to US$1.00, the noon buying rate as certified for customs
purposes by the Federal Reserve Bank of New York on December 31, 2003. 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 rates 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:



                                       9
<PAGE>

<TABLE>
<CAPTION>
                                                                     Noon Buying Rate
                                                                     ----------------
Period                                                 End      Average(1)       High          Low
------                                                 ---      ----------       -----         ---
                                                                     (Rmb per US$1.00)
<S>                                                    <C>          <C>        <C>           <C>
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
2003..............................................     8.2767     8.2771        8.2800       8.2765
December 2003.....................................     8.2767       --          8.2772       8.2765
January 2004......................................     8.2768       --          8.2772       8.2767
February 2004.....................................     8.2769       --          8.2773       8.2769
March 2004........................................     8.2771       --          8.2774       8.2768
April 2004........................................     8.2769       --          8.2772       8.2768
May 2004..........................................     8.2769       --          8.2773       8.2768
</TABLE>

______________
(1)      Determined by averaging the noon buying rates on the last business
         day of each month during the relevant period.

         As of June 10, 2004, the noon buying rate for cable transfers in
Renminbi as certified for customs purposes by the Federal Reserve Bank of New
York was Rmb 8.2767 to US$1.00.

         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 rates 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>
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
2003..............................................    7.7640      7.7864         7.8001       7.7285
December 2003.....................................    7.7640         --          7.7670       7.7628
January 2004......................................    7.7775         --          7.7775       7.7632
February 2004.....................................    7.7845         --          7.7845       7.7703
March 2004........................................    7.7960         --          7.7982       7.7827
April 2004........................................    7.7995         --          7.7996       7.7878
May 2004..........................................    7.7907         --          7.8003       7.7870
</TABLE>
______________
(1)      Determined by averaging the noon buying rates on the last business
day of each month during the relevant period.

         As of June 10, 2004, 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$7.7960 to US$1.00.

B.       CAPITALIZATION AND INDEBTEDNESS
         Not applicable.

C.       REASONS FOR THE OFFER AND USE OF PROCEEDS
         Not applicable.



                                       10
<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
five years, principally due to the volatility of world oil prices. Over the past
year, oil prices rose 1.47% from US$32.00 per barrel on January 1, 2003 to
US$32.47 per barrel on December 31, 2003. The conflict and turmoil in Iraq and
the Mid-East in 2003 raised concerns about the security and availability of
ample supplies to meet growing global demand. The international benchmark crude
oil, West Texas Intermediate, was US$38.48 per barrel on June 10, 2004. 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;



                                       11
<PAGE>

         o    extensive engineering judgments; and

         o    consistency in the PRC and Indonesian governments' 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 57% of our proved reserves were undeveloped as of
December 31, 2003. 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 US$1,251 million to
develop our oil and gas properties and US$247 million for independent
exploration in 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
flows 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 flows 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 flows 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, Indonesian and/or Australian 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, Hong Kong,
              Indonesia and Australia.

         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.



                                       12
<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 gasfields 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 and Australia. 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 the options to invest in CNOOC's liquefied
              natural gas projects in Guangdong, Fujian and Zhejiang. However,
              we have not decided whether to exercise these options. The
              options are 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 owned, through
CNOOC (BVI) Limited, its wholly owned subsidiary, an aggregate of 70.625% of our
shares as of June 10, 2004. 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



                                       13
<PAGE>

Services Limited and CNOOC Finance Corporation Limited. For the year ended
December 31, 2003, sales to CNOOC and its affiliates accounted for 20.3% 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 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 effect 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, 2001, 2002 and 2003, sales to Sinopec accounted for
30.2%, 26.1% and 17.0%, respectively, of our total operating revenues, while
sales to PetroChina were 6.3%, 4.5% and 3.5% 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, 2001, 2002 and 2003, sales to this customer were
5.8%, 4.7% and 2.0%, 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 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 in 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



                                       14
<PAGE>

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 risks 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;

         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 have acquired interests in oil and gas properties located offshore
Indonesia and Australia. See "Item 4--Information on the Company--Business
Overview--Principal Oil and Gas Regions--Overseas Activity," "--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.
We could face similar risks in Australia.

         The Tangguh LNG project and the North West Shelf project are greenfield
projects 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. In February 2004, we paid US$98.1 million to
increase our interest in the Tangguh LNG project to 16.96%. 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. The partners in the
Tangguh LNG project have



                                       15
<PAGE>

entered into a 25-year supply contract beginning in 2007 to provide up to 2.6
million tonnes of liquefied natural gas per year to a liquefied natural gas
terminal being developed by CNOOC, our controlling shareholder, in Fujian
Province of China and a 20-year supply contract beginning in 2005 to provide
up to 1.35 million tonnes of liquefied natural gas per year to two South
Korean companies, SK Power Company Limited and POSCO. The Tangguh LNG partners
have also signed contracts to provide liquefied natural gas to North America.
These contracts, however, may not be sufficient to make the project
commercially viable. In May 2003, we signed an agreement with the existing
Australian North West Shelf partners to acquire an interest in the upstream
production and reserves of the North West Shelf project for a consideration of
US$348 million. Under the terms of this agreement, we would also acquire a 25%
interest in a China LNG joint venture. The LNG joint venture would 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 of China. The acquisition is not yet complete. The North
West Shelf project is also a greenfield project with a limited operational
track record. We cannot assure you that the parties to the Tangguh LNG project
and the North West Shelf project will be able to secure sufficient contracts
to make the respective projects commercially viable. For further details of
our investment in the Tangguh LNG project and the North West Shelf 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;

         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 flows 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 year ended
December 31, 2001 attached to this annual report. Our selected historical
financial data for the years ended, and as of, December 31, 1999, 2000 and 2001
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,



                                       16
<PAGE>

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
effect 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 organizational reforms. We
cannot assure you that the legal regime affecting our businesses will remain
substantially unchanged. As of the date of this annual report, the State
Development and Reform Commission 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 primary coordinator for the petroleum industry was the State Economic
and Trade Commission, which has been merged partly into the State Development
and Reform Commission and partly into the Ministry of Commerce.

         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."

         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 penalized 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.



                                       17
<PAGE>

         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 25
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.

         Between March and June 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, adversely affected general commercial
activities. There could be other epidemics or recurrence of SARS in the future
that negatively impact commercial activities in China.

         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;



                                       18
<PAGE>

         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
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.

         In 2003, we prepaid most of our loans denominated in Japanese yen. We
also hedged the balance of these loans through currency swaps. For further
information on foreign exchange risks, foreign exchange rates and hedging
activities, see "Item 3--Key Information--Selected Financial Data" and "Item
11--Qualitative and Quantitative Disclosure about Market Risk."

         Certain legal restrictions on dividend distribution may have a material
adverse effect on our cash flows. We are a holding company. Our exploration,
development, production and sales business is owned and conducted by various
wholly owned subsidiaries, including CNOOC China Limited, our wholly
foreign-owned enterprise in the PRC. Accordingly, our future cash flows 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 the PRC that permit payment of dividends only out of net
income determined in accordance with PRC accounting standards and regulations.
In addition, under PRC laws, CNOOC China Limited is required to allocate at
least 10% of its net profit to a reserve fund until the balance of the fund has
reach 50% of its registered capital. Such reserve is not distributable as cash
dividends. Therefore, there is a risk that we could not maintain sufficient cash
flows due to these restrictions on dividend distribution.

         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. Because these laws, regulations and legal requirements are
relatively new, and because of the limited volume of published cases and
judicial 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 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.



                                       19
<PAGE>

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 June 10, 2004, CNOOC, through its wholly owned subsidiary, CNOOC (BVI)
Limited, held approximately 70.625% of our shares and the rest of our shares
were held by public investors, including institutional and corporate investors.
As of June 10, 2004, CNOOC (BVI) Limited had 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.

         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 prospectus 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.



                                       20
<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 of Hong Kong. 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, our controlling shareholder, 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;



                                       21
<PAGE>

         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

         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 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.

         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;



                                       22
<PAGE>

         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 to participate in other businesses related
              to natural gas in which CNOOC has invested or proposes to invest,
              and CNOOC will 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
70.625% of our shares as of June 10, 2004. There have been no changes to our
corporate structure since such date. 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 us, the management of our business will be
our directors' responsibility.




                                       23
<PAGE>

         The following chart sets forth our controlling entities and our
principal subsidiaries as of June 10, 2004.

<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 | \                                |  70.625%(1)
   |   Corporate Investors   |  \ 29.375%                       |
   |                         |   \                  ----------------------------
   ---------------------------    \                 |      CNOOC Limited       |
                                   \                |       (Hong Kong)        |
                                    ----------------|                          |
                                                    ----------------------------
                                                                 |
                                                                 |
              ----------------------------------------------------------------------------------------------------------
              |                            |                                           |                               |
              | 100%                       | 100%                                      | 100%                          | 100%
              |                            |                                           |                               |
----------------------------  ----------------------------              ------------------------------  ----------------------------
|          CNOOC           |  |                          |              |    China Offshore Oil      |  |         Finance          |
|      International       |  |       CNOOC China        |              |        (Singapore)         |  |      Subsidiaries(5)     |
|        Limited(2)        |  |        Limited(3)        |              | International Pte. Ltd.(4) |  | (British Virgin Islands) |
| (British Virgin Islands) |  |           (PRC)          |              |        (Singapore)         |  |                          |
----------------------------   ---------------------------              ------------------------------  ----------------------------
</TABLE>

         _________________
(1)      In May 2004, we repurchased a total of 8,877,000 shares in the open
         market based on the general mandate approved by our shareholders on May
         29, 2003. The repurchased shares have been cancelled. Due to the
         decrease of our total issued and outstanding shares, CNOOC (BVI)
         Limited's interest in us increased from 70.61% to 70.625%. For further
         details about our share buybacks, see "Item 16E--Purchases of Equity
         Securities by the Issuer and Affiliated Purchasers."
(2)      Owner of our overseas interests in petroleum exploration and production
         businesses and operations.
(3)      Owner of substantially all of our PRC petroleum exploration and
         production businesses, operations and  properties.
(4)      Business vehicle through which we engage in sales and marketing
         activities in the international markets.
(5)      Include CNOOC Finance (2002) Limited, the financing vehicle through
         which we issued our US$500 million 6.375% guaranteed notes due 2012,
         and CNOOC Finance (2003) Limited, the financing vehicle through which
         we issued our US$200 million 4.125% guaranteed notes due 2013 and
         US$300 million 5.5% guaranteed notes due 2033. Both finance
         companies are our wholly owned subsidiaries with our company as their
         sole corporate director.

Capital Expenditures

         Our capital expenditures in 2001, 2002 and 2003 amounted to Rmb 4,342.6
million, Rmb 11,566.9 million and Rmb 12,372.5 million (US$1,494.8 million),
respectively. For the year 2004, we have budgeted approximately US$1.8 billion
for capital expenditures, approximately US$247 million of which is budgeted for
general exploration activities offshore China and approximately US$1,251 million
is budgeted for development activities offshore China. We expect to fund our
capital expenditures with our cash flows from operations and our borrowings. For
further details about our capital expenditures, see "Item 5--Operating and
Financial Review and Prospects--Liquidity and Capital Resources--Capital
Expenditures and Investments."



                                       24
<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, 2003, we
had estimated net proved reserves of 2,128.5 million BOE, comprised of 1,436.1
million barrels of crude oil and condensate and 4,154.4 billion cubic feet of
natural gas. For the year 2003, our net production averaged 306,464 barrels per
day of crude oil, condensate and natural gas liquids and 291.0 million cubic
feet per day of natural gas, which together totaled 356,729 BOE per day.

         Our net proved reserves increased from 1,795.1 million BOE as of
December 31, 1999 to 2,128.5 million BOE as of December 31, 2003 which
represents a compound annual growth rate of 4.35%. 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, 2003, approximately 57% of
our net proved reserves were classified as net proved undeveloped. We plan to
spend US$1,251 million developing our reserves primarily offshore China and
US$247 million for independent exploration primarily offshore China in 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, 2003, independent
properties accounted for 55.7% of our total net proved reserves and independent
net proved undeveloped reserves accounted for 50.1% of our total net proved
undeveloped reserves. We are the operator of all of our independent producing
properties. For the year ended December 31, 2003, production from our
independent properties accounted for 44% of our total net production.

         Through our controlling shareholder, 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, 2003, we had approximately 29 foreign partners under
our production sharing contracts offshore China, all of which are international
oil and gas companies, including Unocal, Agip, BP, Burlington Resources,
ChevronTexaco, ConocoPhillips, Devon Energy, Husky, Kerr-McGee, Newfield
Exploration and Royal Dutch Shell. As of December 31, 2003, we were a party to
33 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 flows 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 three liquefied natural gas terminals
being constructed in Guangdong, Fujian and Zhejiang, China.



                                       25
<PAGE>

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, 2003 and average net daily
production for the year ended December 31, 2003, we had a reserve-to-production
ratio of 16 years. As of December 31, 2003, approximately 57% 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. 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 2003, a total of 721 exploration wells have been drilled offshore
China, including 460 wildcat wells with a success rate of approximately 36%.
Between the beginning of 1999 and December 31, 2003, we made 21 discoveries and
foreign parties made 18 discoveries offshore China.

         Successful independent exploration and development record. From the
inception of CNOOC in 1982 to December 31, 2003, we achieved a success rate of
approximately 46% on our 195 offshore China independent wildcat wells, while our
foreign partners achieved a success rate of approximately 29% on their 265
offshore China wildcat wells. As of December 31, 2003, independent properties
accounted for 55.7% of our total net proved reserves and independent net proved
undeveloped reserves accounted for 50.1% of our total net proved undeveloped
reserves. Between late 1995 and the end of 2003, we completed 10 of our major
independent development projects on time and under budget.

         Competitive cost structure. For the year ended December 31, 2003, our
total offshore China lifting costs were US$4.66 per BOE. Total lifting costs for
independent operations offshore China were US$4.78 per 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, 2003 was US$4.68 per BOE. We believe that such 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



                                       26
<PAGE>

advantage over other natural gas suppliers in China, whose natural gas
reserves are located primarily in northwest and southwest China. We have
natural gasfields 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, including three liquefied
natural gas terminals in Guangdong, Fujian and Zhejiang, 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, 2003, approximately 57% 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. We plan to spend approximately US$1,251 million in 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$247 million in 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
25 drilling prospects. In 2004, we plan to drill approximately 48.3
exploration wells, acquire approximately 15,200 kilometers of 2D seismic data
and acquire approximately 2,900 square kilometers of 3D seismic data
independently. Our foreign partners under existing production sharing
contracts plan to drill approximately 15 exploration wells, acquire
approximately



                                       27
<PAGE>

2,505 kilometers of 2D seismic data and acquire approximately 250 square
kilometers of 3D seismic data in 2004.

         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 efficient fuel. We plan to
capitalize on this growth potential through the following initiatives:

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

         o    evaluate whether to exercise the options to invest in the planned
              Guangdong, Fujian and Zhejiang liquefied natural gas projects;
              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 February 2003, we acquired a 12.5%
interest, which was increased to 16.96% a year later, in Indonesia's Tangguh LNG
project. In May 2003, we signed an agreement with the existing North West Shelf
partners to acquire an aggregate interest of 5.3% in the upstream production and
reserves of the North West Shelf project for a consideration of US$348 million
plus an upfront tariff payment relating to certain ING processing facilities
amounting to US$180 million. In October 2003, we entered into an agreement
with the participants in the Gorgon Joint Venture in Australia to purchase
certain equity stake in the Gorgon gas development, and our controlling
shareholder, CNOOC, will arrange to purchase LNG directly from Gorgon. 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 markets 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.

         Maintain financial flexibility through conservative financial
practices. Although we issued US$500 million guaranteed notes in 2002 and US$500
million guaranteed notes in 2003 in order to take advantage of the prevailing
low interest rate environment during this period, we will continue to
emphasize prudent 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



                                       28
<PAGE>

capital expenditures, cash flows 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 the time and for the periods indicated.
<TABLE>
<CAPTION>


                                                                              Year ended December 31,
                                                                 ----------------------------------------------------
                                                                       2001              2002              2003
                                                                 ----------------  ----------------  ----------------
<S>                                                              <C>               <C>               <C>
Net Production:
Oil (daily average bbls/day).............................            228,873            298,625            306,464
Gas (daily average mmcf/day).............................              195.0              272.6              291.0
Oil equivalent (BOE/day).................................            261,379            346,639            356,729
Average net realized prices:
     Oil (per bbl).......................................           US$23.34           US$24.35           US$28.11
     Gas (per mcf).......................................               3.08               2.98               2.87
Offshore China lifting costs (per BOE)(1)................               4.16               3.92               4.66
Overseas lifting costs (per BOE)(1)(2)...................                 --               9.06               9.27
Three-year average finding and development
  costs (per BOE)(3).....................................            US$4.86            US$4.59            US$4.68


Net Proved Reserves (end of period):
Oil (mmbbls).............................................            1,245.9            1,424.4            1,436.1
Gas (bcf)................................................            3,247.6            3,547.9            4,154.4
Total (million BOE)......................................            1,787.1            2,015.8            2,128.5
Proved developed reserves (million BOE)..................              710.0              794.3              914.6
Annual reserves replacement ratio........................                131%               281%               187%
Estimated reserves life (years)..........................               18.7               15.9               16.3
Present value of estimated future net revenues before
  income taxes (discounted at 10%) (million Rmb).........             69,860            140,798            152,450
Standardized measure of discounted future net cash
  flow (million Rmb).....................................             51,082            100,141            109,800
</TABLE>

______________
(1)  Includes operating expenses and production taxes. During the years ended
     December 31, 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 2001, 2002
     and 2003 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.

         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, 2001, 2002 and 2003. 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."



                                       29
<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, 2003
                                                -----------------------------   ---------------------------------------
                                                     2001           2002        Developed    Undeveloped      Total
                                                --------------  -------------   ----------  ---------------- ----------
Bohai Bay:
<S>                                             <C>             <C>             <C>          <C>             <C>
Crude oil (mmbbls).............................      961.3          992.5          319.6          670.7        990.4
Natural gas (bcf)..............................      629.1          598.6          157.8          408.8        566.6
                                                -------------   -------------   ----------  --------------- -----------
   Total (million BOE):........................    1,066.2        1,092.3          345.9          738.9      1,084.8
                                                =============   =============   ==========  ==============  ===========
     Independent (million BOE).................      689.7          595.1          279.6          276.7        556.3
     Production sharing contracts (million BOE)      376.5          497.2           66.4          462.2        528.5

Western South China Sea:
Crude oil (mmbbls).............................      131.6          160.4           75.4           98.3        173.7
Natural gas (bcf)..............................    2,421.5        2,511.2        1,858.1          705.9      2,564.0
                                                -------------   -------------   ----------  --------------- -----------
   Total (million BOE):........................      535.1          578.9          385.1          215.9        601.0
                                                =============   =============   ==========  =============== ===========
     Independent (million BOE).................      373.3          434.2          275.3          201.4        476.7
     Production sharing contracts (million BOE)      161.8          144.7          109.8           14.6        124.3

Eastern South China Sea:
Crude oil (mmbbls).............................      132.2          120.3           59.6           95.2        154.8
Natural gas (bcf)..............................        --            42.8            --            548.2       548.2
                                                -------------   -------------   ----------  --------------- -----------
   Total (million BOE):........................      132.2          127.5           59.6          186.6        246.1
                                                =============   =============   ==========  =============== ===========
     Independent (million BOE).................        --              --           13.5          127.6        141.1
     Production sharing contracts (million BOE)      132.2          127.5           46.0           59.0        105.0

East China Sea:
Crude oil (mmbbls).............................       12.4           12.5            3.9           10.0         13.9
Natural gas (bcf)..............................      197.0          179.4           38.4          236.9        275.3
                                                -------------   -------------   ----------  --------------- -----------
   Total (million BOE):........................       45.2           42.4           10.3           49.5         59.8
                                                =============   =============   ==========  =============== ===========
     Independent (million BOE).................       45.2           42.4           10.3            2.4         12.7
     Production sharing contracts (million BOE)        --              --             --           47.1         47.1

Overseas:
Crude oil (mmbbls).............................        8.4          138.7           91.3           12.1        103.4
Natural gas (bcf)..............................        --           215.9          134.5           65.8        200.3
                                                -------------   -------------   ----------  --------------- -----------
   Total (million BOE):........................        8.4          174.7          113.7           23.1        136.8
                                                =============   =============   ==========  =============== ===========
     Independent (million BOE).................        --              --             --             --          --
     Production sharing contracts (million BOE)        8.4          174.7          113.7           23.1        136.8

Total:
Total crude oil (mmbbls).......................    1,245.9        1,424.4          549.8          886.3      1,436.1
Total natural gas (bcf)........................    3,247.6        3,547.9        2,188.8        1,965.5      4,154.3
                                                -------------   -------------   ----------  --------------- -----------
   Total (million BOE):........................    1,787.1        2,015.8          914.6        1,213.9      2,128.5
                                                =============   =============   ==========  =============== ===========
     Independent (million BOE).................    1,108.2        1,071.7          578.8          608.1      1,186.9
     Production sharing contracts (million BOE)      678.9          944.1          335.8          605.8        941.6
</TABLE>



                                       30
<PAGE>

<TABLE>
<CAPTION>
New Contracts Signed in 2003

         In 2003, our controlling shareholder, CNOOC, signed seven petroleum
contracts as follows:


                                     New Oil Contracts Signed in 2003
                                                                        Interest
                                                                            of      Date of
No.      Basin                    Block                Partner          Partners   Agreement    Area (km2)
                                                                           (%)
--------------------------------------------------------------------------------------------------------------
<S>      <C>                    <C>             <C>                     <C>        <C>          <C>
1        Bohai                    09/06              Kerr-McGee             100%      6/17/03       1,788

2        East China Sea          Chunxiao               Shell               20        8/19/03
                                                        Unocal              20                      1,225
                                                 Sinopec (consignor)        30

3        East China Sea         Baoyunting              Shell               20        8/19/03
                                                        Unocal              20                        987
                                                 Sinopec (consignor)        30

4        East China Sea            12/21                Shell               50        8/19/03
                                                        Unocal              50                     10,175
                                                 Sinopec (consignor)

5        East China Sea           27/05                 Shell               50        8/19/03       5,349
                                                        Unocal              50
                                                 Sinopec (consignor)

6        East China Sea           20/14                 Shell               50        8/19/03       4,372
                                                        Unocal              50
                                                 Sinopec (consignor)

7        East China Sea           04/35                 Husky               100%      10/27/03      4,835
</TABLE>



                                       31
<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 and Australia. See "--Overseas Activity," "--Natural Gas
Business--Overseas Activity" and "Item 5--Operating and Financial Review and
Prospects--Operating Results--Acquisitions and Overseas Activities."

         As of December 31, 2003, we had estimated net proved reserves of
2,128.5 million BOE, comprised of 1,436.1 million barrels of crude oil and
condensate and 4,154.4 billion cubic feet of natural



                                       32
<PAGE>

gas. As of December 31, 2003, we had interests in 29 producing properties and
34 properties under development and appraisal offshore China. We are the
operator or joint operator of 17 oil and gas properties under production. In
2003, three properties offshore China commenced production. For the year 2003,
net production averaged 306,464 barrels per day of crude oil, condensate and
natural gas liquids and 291.0 million cubic feet per day of natural gas, which
together totaled 356,729 BOE per day, representing a 3% increase over the
annual average daily production for the year 2002.

         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 during 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, 2003, we were
not a party to any geophysical survey agreements, although we may enter into
such agreements in the future.

         The offshore China exploration area is approximately 1.3 million square
kilometers in size. We currently have rights to operate independently or in
conjunction with international oil and gas companies in 143 exploration blocks
covering approximately 670,635 square kilometers. We have access to 841,090
kilometers of 2D seismic data and 37,054 square kilometers of 3D seismic data.
From the beginning of CNOOC's operations in 1982 to December 31, 2003, a total
of 721 exploration wells have been drilled, including 460 wildcat wells, with a
success rate of approximately 36%. During this period we achieved a success rate
of approximately 46% on 195 exploration wildcat wells which were drilled
independently, while foreign partners achieved a success rate of approximately
29% on their 265 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, 2003, approximately 57% 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 overseas, 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 overseas production sharing contracts to foreign
governmental designees, and for any domestic market obligation under which the
contractor must sell a specified percentage of its crude oil to the local
overseas 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.



                                       33
<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,
2001, 2002 and 2003. 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, 2003
                                                 ----------------------------------------------------------------------
                                                     2001          2002        Developed     Undeveloped       Total
                                                 -------------  ------------  ------------- --------------  -----------
Offshore China
<S>                                              <C>            <C>           <C>           <C>             <C>
Independent
     Bohai Bay..............................          589.9          507.8         253.3         221.0          474.3
     Western South China Sea................           71.7          108.4          38.9          96.3          135.2
     Eastern South China Sea................           --               --          13.5          43.1           56.6
     East China Sea.........................           12.4           12.5           3.9           0.7            4.6
                                                 -------------  -------------  ------------  -------------  -----------
         Total..............................          674.0          628.7         309.6         361.1          670.8

Production Sharing Contracts
     Bohai Bay..............................          371.4          484.7          66.4         449.7          516.1
     Western South China Sea................           59.9           52.0          36.5           2.0           38.5
     Eastern South China Sea................          132.2          120.3          46.0          52.1           98.1
     East China Sea.........................           --              --            --            9.3            9.3
                                                 -------------  -------------  ------------  -------------  -----------
         Total..............................          563.5          657.0         148.9         513.1          662.0

Combined
     Bohai Bay..............................          961.3          992.5         319.6         670.7          990.4
     Western South China Sea................          131.6          160.4          75.4          98.3          173.7
     Eastern South China Sea................          132.2          120.3          59.6          95.2          154.8
     East China Sea.........................           12.4           12.5           3.9          10.0           13.9
                                                 -------------  -------------  ------------  -------------  -----------
         Total..............................        1,237.5        1,285.7         458.5         874.2        1,332.7

Overseas(1)
     Indonesia..............................            8.4          138.7          91.3          12.1          103.4
                                                 -------------  -------------  ------------  -------------  -----------
         Total..............................            8.4          138.7          91.3          12.1          103.4
                                                 -------------  -------------  ------------  -------------  -----------
Total.......................................        1,245.9        1,424.4         549.8         886.3        1,436.1
                                                 =============  =============  ============  =============  ===========
</TABLE>

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



                                       34
<PAGE>

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

                                                     As of December 31,               As of December 31, 2003
                                                   -------------------------   -------------------------------------
                                                       2001         2002        Developed    Undeveloped     Total
                                                   -----------   -----------   -----------  -------------  ---------
<S>                                                 <C>           <C>          <C>          <C>            <C>
Offshore China
Independent
     Bohai Bay..............................           598.9         524.2         157.8         334.1         491.9
     Western South China Sea................         1,809.2       1,954.2       1,418.6         630.7       2,049.3
     Eastern South China Sea................            --            --            --           506.9         506.9
     East China Sea.........................           197.0         179.4          38.4          10.2          48.7
                                                   -----------   -----------   -----------  -------------  ---------
         Total..............................         2,605.1       2,657.7       1,614.8       1,482.0       3,096.8

Production Sharing Contracts
     Bohai Bay..............................            30.2          74.5          --            74.7          74.7
     Western South China Sea................           612.3         557.0         439.5          75.2         514.7
     Eastern South China Sea................            --            42.8          --            41.2          41.2
     East China Sea.........................            --            --            --           226.7         226.7
                                                   -----------   -----------   -----------  -------------  ---------
         Total..............................           642.5         674.2         439.5         417.7         857.3

Combined
     Bohai Bay                                         629.1         598.6         157.8         408.8         566.6
     Western South China Sea................         2,421.5       2,511.2       1,858.1         705.9       2,564.0
     Eastern South China Sea................            --            42.8          --           548.2         548.2
     East China Sea.........................           197.0         179.4          38.4         236.9         275.3
                                                   -----------   -----------   -----------  -------------  ---------
         Total..............................         3,247.6       3,332.0       2,054.4       1,899.7       3,954.1

Overseas(1)
Indonesia...................................            --           216.0         134.5          65.8         200.3
                                                   -----------   -----------   -----------  -------------  ---------
         Total..............................            --           216.0         134.5          65.8         200.3
                                                   -----------   -----------   -----------  -------------  ---------
Total.......................................         3,247.6       3,547.9       2,188.8       1,965.5       4,154.4
                                                   ===========   ===========   ===========  =============  =========

</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 Reserves
                                                     (million BOE)

                                                     As of December 31,               As of December 31, 2003
                                                   -----------------------     -----------------------------------------
                                                     2001          2002         Developed    Undeveloped       Total
                                                   ---------     ---------     -----------   -----------    ------------
<S>                                                <C>           <C>           <C>           <C>            <C>
Offshore China
Independent
     Bohai Bay..............................          689.7         595.2         279.6         276.7           556.3
     Western South China Sea................          373.3         434.1         275.3         201.3           476.7
     Eastern South China Sea................           --            --            13.5         127.6           141.1
     East China Sea.........................           45.2          42.4          10.3           2.4            12.7
                                                   ---------     ---------     -----------   -----------    ------------
         Total..............................        1,108.2       1,071.7         578.8         608.1          1186.9

Production Sharing Contracts
     Bohai Bay..............................          376.5         497.1          66.4         462.2           528.5
     Western South China Sea................          161.8         144.8         109.8          14.6           124.3
     Eastern South China Sea................          132.2         127.5          46.0          59.0           105.0
     East China Sea.........................           --            --            --            47.1            47.1
                                                   ---------     ---------     -----------   -----------    ------------
         Total..............................          670.5         769.4         222.2         582.7           804.9

Combined
     Bohai Bay..............................        1,066.2       1,092.3         345.9         738.9         1,084.8
     Western South China Sea................          535.1         578.9         385.1         215.9           601.0
     Eastern South China Sea................          132.2         127.5          59.6         186.6           246.1
     East China Sea.........................           45.2          42.4          10.3          49.5            59.8
                                                   ---------     ---------     -----------   -----------    ------------
         Total..............................        1,778.7       1,841.0         800.9       1,190.8         1,991.7

Overseas(1)
     Indonesia..............................            8.4         174.7         113.7          23.1           136.7
                                                   ---------     ---------     -----------   -----------    ------------
         Total..............................            8.4         174.7         113.7          23.1           136.7
                                                   ---------     ---------     -----------   -----------    ------------
Total.......................................        1,787.1       2,015.8         914.6       1,213.9         2,128.5
                                                   =========     =========     ===========   ===========    ============
</TABLE>

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



                                       36
<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.

                                  Average Daily Net Production of Crude Oil
                                               (bbls per day)

<TABLE>
<CAPTION>

                                                                        Year ended December 31,
                                                     ----------------------------------------------------------------
                                                           2001                   2002                    2003
                                                     -----------------     -----------------     --------------------
<S>                                                  <C>                   <C>                   <C>
Offshore China
Independent
     Bohai Bay..............................               97,612                110,989                 98,790
     Western South China Sea................               40,377                 35,724                 27,547
     Eastern South China Sea................                   --                     --                 13,708
     East China Sea.........................                3,967                  3,223                  2,536
                                                     -----------------     ------------------    ---------------------
         Total..............................              141,956                149,936                142,581

Production Sharing Contracts
     Bohai Bay..............................                2,366                 16,767                 30,716
     Western South China Sea................                  900                 21,186                 33,397
     Eastern South China Sea................               81,404                 73,792                 59,273
     East China Sea.........................                   --                     --                     --
                                                     -----------------     ------------------    ---------------------
         Total..............................               84,670                111,745                123,386

Combined
     Bohai Bay..............................               99,978                127,756                129,506
     Western South China Sea................               41,277                 56,910                 60,944
     Eastern South China Sea................               81,404                 73,792                 72,981
     East China Sea.........................                3,967                  3,223                  2,536
                                                     -----------------     ------------------    ---------------------
         Total..............................              226,626                261,681                265,967

Overseas(1)
     Indonesia..............................                2,247                 36,944                 40,497
                                                     -----------------     ------------------    ---------------------
         Total..............................                2,247                 36,944                 40,497
                                                     -----------------     ------------------    ---------------------
Total.......................................              228,873                298,625                306,464
                                                     =================     ==================    =====================
</TABLE>

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



                                      37
<PAGE>

                                     Average Daily Net Production of Natural Gas
                                                   (mmcf per day)

<TABLE>
<CAPTION>
                                                                        Year ended December 31,
                                                    --------------------------------------------------------------
                                                          2001                   2002                    2003
                                                    -----------------     ------------------      -----------------
<S>                                                 <C>                   <C>                     <C>
Offshore China
Independent
     Bohai Bay..............................               46.2                    47.1                   47.1
     Western South China Sea................                --                      4.4                   29.1
     Eastern South China Sea................                --                      --                     --
     East China Sea.........................                9.8                    12.4                   14.2
                                                    -----------------     ------------------      -----------------
         Total..............................               56.0                    64.0                   90.4

Production Sharing Contracts
     Bohai Bay..............................                --                      --                     --
     Western South China Sea................              139.0                   137.9                   98.7
     Eastern South China Sea................                --                      --                     --
     East China Sea.........................                --                      --                     --
                                                    -----------------     ------------------      -----------------
         Total..............................              139.0                   137.9                   98.7

Combined
     Bohai Bay..............................               46.2                    47.1                   47.1
     Western South China Sea................              139.0                   142.3                  127.8
     Eastern South China Sea................                --                      --                     --
     East China Sea.........................                9.8                    12.4                   14.2
                                                    -----------------     ------------------      -----------------
         Total..............................              195.0                   201.8                  189.1

Overseas(1)

     Indonesia..............................                --                     70.8                  101.9
                                                    -----------------     ------------------      -----------------
         Total..............................                --                     70.8                  101.9
                                                    -----------------     ------------------      -----------------
Total.......................................              195.0                   272.6                  291.0
                                                    =================     ==================      =================
</TABLE>

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


                                      38
<PAGE>


                                            Average Daily Net Production
                                                    (BOE per day)
<TABLE>
<CAPTION>
                                                                        Year ended December 31,
                                                    ---------------------------------------------------------------
                                                           2001                  2002                    2003
                                                    -----------------     ------------------      -----------------
<S>                                                 <C>                   <C>                     <C>
Offshore China
Independent
     Bohai Bay..............................             105,322                118,845                106,637
     Western South China Sea................              40,377                 36,456                 32,391
     Eastern South China Sea................                  --                     --                 13,708
     East China Sea.........................               5,599                  5,283                  4,908
                                                    -----------------     ------------------      -----------------
         Total..............................             151,298                160,584                157,644

Production Sharing Contracts
     Bohai Bay..............................               2,366                 16,767                 30,716
     Western South China Sea................              24,063                 46,747                 51,619
     Eastern South China Sea................              81,404                 73,792                 59,274
     East China Sea.........................                  --                     --                     --
                                                    -----------------     ------------------      -----------------
         Total..............................             107,833                137,306                141,609

Combined
     Bohai Bay..............................             107,688                135,612                137,353
     Western South China Sea................              64,440                 83,203                 84,010
     Eastern South China Sea................              81,404                 73,792                 72,981
     East China Sea.........................               5,599                  5,283                  4,908
                                                    -----------------     ------------------      -----------------
         Total..............................             259,132                297,890                299,252

Overseas(1)
     Indonesia..............................               2,247                 48,749                 57,477
                                                    -----------------     ------------------      -----------------
         Total..............................               2,247                 48,749                 57,477
                                                    -----------------     ------------------      -----------------
Total.......................................             261,379                346,639                356,729
                                                    =================     ==================      -----------------
</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, 2003, 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, 2003, we
had rights to operate, independently or in conjunction with international oil
and gas companies, in 15 blocks covering approximately 43,501 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, 2003, net proved
reserves in this region were 990.4 million barrels of crude oil and condensate
and 566.6 billion cubic feet of natural gas, totaling 1,084.8 million BOE and
representing approximately 51% 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. Six discoveries were made in this area in
2003, including three by us and three by our foreign partners.



                                      39
<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, 2003. All
exploration licenses expiring prior to June 14, 2004 are being renewed.

<TABLE>
<CAPTION>
                                                                                  Exploration License
                                 Approximate                             ----------------------------------------
                                 block area                                 Commencement         Expiration
Block                               (km2)              Partner(s)               date                 date
------------------------------  ---------------  --------------------   --------------------   ------------------
<S>                             <C>              <C>                    <C>                    <C>
Independent
-----------------------------------------------------------------------------------------------------------------
Middle of Bohai Bay                5,310                  --                  08/16/02            08/16/04
-----------------------------------------------------------------------------------------------------------------
Southern Bohai Bay                 3,799                  --                  10/31/02            10/31/04
-----------------------------------------------------------------------------------------------------------------
Western Bohai Bay                  1,907                  --                   5/29/03            05/29/05
-----------------------------------------------------------------------------------------------------------------
Western Liaodong Bay               3,344                  --                  03/31/00            04/08/06
-----------------------------------------------------------------------------------------------------------------
Eastern Liaodong Bay               2,829                  --                  07/02/01            07/02/06
-----------------------------------------------------------------------------------------------------------------
Eastern Bozhong                    1,861                  --                  05/30/02            05/30/04
-----------------------------------------------------------------------------------------------------------------
06/17                              2,586                  --                  02/20/03            02/20/05
-----------------------------------------------------------------------------------------------------------------
02/31                              4,990                  --                  05/29/03            05/29/05
-----------------------------------------------------------------------------------------------------------------
Bohai 09/11                          843                  --                  04/05/02            04/05/04
-----------------------------------------------------------------------------------------------------------------

PSC
-----------------------------------------------------------------------------------------------------------------
05/36                              1,250         Kerr-McGee, Newfield,        02/10/02            02/10/04
                                                  Sino-American Energy
-----------------------------------------------------------------------------------------------------------------
Eastern Bohai 11/05                3,601             ConocoPhillips           08/16/02            02/10/04
-----------------------------------------------------------------------------------------------------------------
Western Bohai 11/05                4,076             ConocoPhillips           02/10/02            02/10/04
-----------------------------------------------------------------------------------------------------------------
11/19                              3,185             ChevronTexaco            05/29/03            05/29/05
-----------------------------------------------------------------------------------------------------------------
09/18                              2,226               Kerr-McGee             04/04/01            04/04/04
-----------------------------------------------------------------------------------------------------------------
04/36                              1,694              Kerr-McGee,             12/31/01            12/31/03
                                                  Sino-American Energy
-----------------------------------------------------------------------------------------------------------------
</TABLE>

     During the year ended December 31, 2003, we acquired 1,763.7 square
kilometers of 3D seismic data and our foreign partners acquired 310.8 square
kilometers of 3D seismic data in the Bohai Bay. We have independently acquired
an aggregate of approximately 171,100 kilometers and 7,991 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 66,903
kilometers and 8,786 square kilometers, respectively, of additional 2D and 3D
seismic data in this area. During the year of 2003, we drilled 11 wildcat
wells, three of which were successful, and five appraisal wells, three of
which were successful. During the same period, our production sharing contract
partners drilled seven wildcat wells, three of which were successful, and six
appraisal wells, four of which were successful. Our exploration capital
expenditures for 2003 were US$61.5 million. In 2004, we plan to drill 25
exploration wells in the Bohai Bay.

     For 2003, net production in this region averaged 129,506 barrels per day
of crude oil, condensate and natural gas liquids and 47.1 million cubic feet
per day of natural gas, representing approximately 38.5% of our total daily
net production. Our development capital expenditures for the Bohai Bay for
2003 were US$586.6 million.



                                      40
<PAGE>

     The following table sets forth our principal oil and gas properties under
production in the Bohai Bay as of December 31, 2003.


<TABLE>
<CAPTION>
                                                                           Average net      Net proved reserves
                                                                          production for     as of December 31,
                                                              Our            year 2003              2003
 Block/Field              Operator(s)       Partner(s)      interest       (BOE per day)        (million BOE)
---------------------  ------------------  --------------  ------------  -----------------  ---------------------
<S>                    <C>                 <C>             <C>           <C>                <C>
  Liaoxi
-----------------------------------------------------------------------------------------------------------------
  Suizhong 36-1          CNOOC Limited         --            100%            64,203               196.4
-----------------------------------------------------------------------------------------------------------------
  Jinzhou 9-3            CNOOC Limited         --            100%            13,679                32.3
-----------------------------------------------------------------------------------------------------------------
  Jinzhou 20-2           CNOOC Limited         --            100%             8,079                45.2
-----------------------------------------------------------------------------------------------------------------

  Boxi
-----------------------------------------------------------------------------------------------------------------
  Oilfields
-----------------------------------------------------------------------------------------------------------------
  Boxi Oilfields         CNOOC Limited         --            100%            14,020                11.3
-----------------------------------------------------------------------------------------------------------------
  Chengbei Oilfield      CNOOC Limited         --            100%             4,358                 9.1
-----------------------------------------------------------------------------------------------------------------
  Qinhuangdao 32-6       CNOOC Limited    ChevronTexaco      75.5%           22,444               104.1
-----------------------------------------------------------------------------------------------------------------

  Bonan
-----------------------------------------------------------------------------------------------------------------
  Bozhong 34-2/4         CNOOC Limited         --            100%             2,298                 4.3
-----------------------------------------------------------------------------------------------------------------

  11/05
-----------------------------------------------------------------------------------------------------------------
  Penglai 19-3          ConocoPhillips   ConocoPhillips       51%             8,272               136.2
-----------------------------------------------------------------------------------------------------------------
</TABLE>



                                      41
<PAGE>

     The following table sets forth our principal oil and gas properties under
development in the Bohai Bay as of December 31, 2003.


<TABLE>
<CAPTION>
                                                                                       Net proved reserves as of
                                                                         Our                December 31, 2003
 Block/Field               Operator(s)          Partner(s)             interest               (million BOE)
-------------------  ----------------------  ------------------  -------------------  ------------------------------
<S>                  <C>                     <C>                 <C>                  <C>
  Liaoxi
--------------------------------------------------------------------------------------------------------------------
  Luda 4-2/5-2/10-1      CNOOC Limited             --                    100%                     76.5
--------------------------------------------------------------------------------------------------------------------
  Jinzhou 21-1           CNOOC Limited             --                    100%                     13.8
--------------------------------------------------------------------------------------------------------------------

  Boxi
--------------------------------------------------------------------------------------------------------------------
  Qikou 18-9/18-2        CNOOC Limited             --                    100%                      9.6
--------------------------------------------------------------------------------------------------------------------

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

  Bonan
--------------------------------------------------------------------------------------------------------------------
  Bonan Oilfields        CNOOC Limited             --                    100%                     68.0
--------------------------------------------------------------------------------------------------------------------

--------------------------------------------------------------------------------------------------------------------
  Bozhong 25-1/25-1s     CNOOC Limited        ChevronTexaco             83.8%                    230.2
--------------------------------------------------------------------------------------------------------------------
  Bozhong 34-1/34-1s     CNOOC Limited             --                    100%                     12.3
--------------------------------------------------------------------------------------------------------------------

  11/05
--------------------------------------------------------------------------------------------------------------------
  Penglai 25-6          ConocoPhillips       ConocoPhillips              51%                      10.7
--------------------------------------------------------------------------------------------------------------------

  04/36
--------------------------------------------------------------------------------------------------------------------
  Caofeidian 11-1/11-2    Kerr-McGee      Sino-American Energy           51%                      47.4
--------------------------------------------------------------------------------------------------------------------

  262/281
--------------------------------------------------------------------------------------------------------------------
  Caofeidian 18-1        CNOOC Limited             --                    100%                      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, 2003. 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, 2003, we had rights to operate, independently or in conjunction
with international oil and gas companies, in 33 blocks covering approximately
178,034 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, 2003, we had net proved reserves of 173.7
million barrels of crude oil and condensate and 2,564.0 billion cubic feet of
natural gas in this region, totaling 601.0 million BOE and representing 28.24%
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, 2003, we drilled
three wildcat wells, one of which was successful, and two appraisal wells, two
of which were successful. Our production sharing contract partners drilled one
wildcat well and one appraisal well.



                                      42
<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,
2003.


<TABLE>
<CAPTION>
                                                                                   Exploration License
                                 Approximate                             ------------------------------------------
                                 block area                                  Commencement         Expiration
Block                               (km2)              Partner(s)                date                 date
------------------------------  ---------------  --------------------    --------------------   -------------------
<S>                             <C>              <C>                     <C>                    <C>
Independent
-------------------------------------------------------------------------------------------------------------------
Ledong 01                       6,543               --                   12/03/03                12/03/05
-------------------------------------------------------------------------------------------------------------------
Changjiang 25                   7,434               --                   11/05/03                11/05/05
-------------------------------------------------------------------------------------------------------------------
Weizhou 12                      6,980               --                   11/05/01                05/11/06
-------------------------------------------------------------------------------------------------------------------
Weizhou 26                      4,358               --                   11/05/03                05/11/06
-------------------------------------------------------------------------------------------------------------------
Yulin 35                        6,050               --                   05/11/01                05/11/06
-------------------------------------------------------------------------------------------------------------------
Qionghai 28                     5,208               --                   05/11/01                05/11/06
-------------------------------------------------------------------------------------------------------------------
Songtao 18                      2,566               --                   03/31/00                12/16/05
-------------------------------------------------------------------------------------------------------------------
Wenchang 20                     4,979               --                   05/11/01                05/11/06
-------------------------------------------------------------------------------------------------------------------
Lingao 15                       6,583               --                   11/05/03                05/11/06
-------------------------------------------------------------------------------------------------------------------
Ledong 17                       3,971               --                   05/11/01                05/11/06
-------------------------------------------------------------------------------------------------------------------
Yangjiang 31                    6,003               --                   12/03/03                12/03/05
-------------------------------------------------------------------------------------------------------------------
Yangjiang 32                    3,962               --                   12/03/01                05/11/06
-------------------------------------------------------------------------------------------------------------------

PSC
-------------------------------------------------------------------------------------------------------------------
Wanan North 21A                 6,801      Benton Offshore China         09/30/03                09/30/05
                                                  Company
-------------------------------------------------------------------------------------------------------------------
Wanan North 21B                 6,118      Benton Offshore China         09/30/03                09/30/05
                                                  Company
-------------------------------------------------------------------------------------------------------------------
Wanan North 21C                 6,372      Benton Offshore China         09/30/03                09/30/05
                                                  Company
-------------------------------------------------------------------------------------------------------------------
Wanan North 21D                 6,126      Benton Offshore China         09/30/03                09/30/05
                                                  Company
-------------------------------------------------------------------------------------------------------------------

-------------------------------------------------------------------------------------------------------------------
</TABLE>

     During the year ended December 31, 2003, we acquired 7,460.8 kilometers
of 2D seismic data and our foreign partners acquired 983.2 square kilometers
of 3D seismic data in the Western South China Sea. We have independently
acquired an aggregate of approximately 167,013 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 4,656 square kilometers of
additional 2D and 3D seismic data, respectively, in this area. Our exploration
capital expenditures for the Western South China Sea for 2003 were US$33.2
million. In 2004, we plan to drill twelve exploration wells in the Western
South China Sea area.

     For the year ended December 31, 2003, net production averaged 60,944
barrels per day of crude oil, condensate and natural gas liquids and 127.8
million cubic feet per day of natural gas, representing 23.6% of our total
daily net production. Our development capital expenditures for the Western
South China Sea for 2003 were US$160.6 million.



                                      43
<PAGE>

     The following table sets forth the principal oil and gas properties in
the Western South China Sea area that were under production as of December 31,
2003.


<TABLE>
<CAPTION>
                                                                           Average net      Net proved reserves
                                                                          production for     as of December 31,
                                                              Our            year 2003              2003
 Block/Field              Operator(s)       Partner(s)      interest       (BOE per day)        (million BOE)
---------------------  ------------------  --------------  ------------  -----------------  ---------------------
<S>                    <C>                 <C>             <C>           <C>                <C>
Yinggehai
-----------------------------------------------------------------------------------------------------------------
   Yacheng 13-1(1)         CNOOC Limited     Kufpec BPCEPC       51%            19,047             90.9
-----------------------------------------------------------------------------------------------------------------
Yulin 35
-----------------------------------------------------------------------------------------------------------------
   Weizhou Oilfields       CNOOC Limited          --            100%            28,462             55.2
-----------------------------------------------------------------------------------------------------------------
Wenchang 13-1/13-2
-----------------------------------------------------------------------------------------------------------------
   Wenchang 13-1/13-2      CNOOC Limited         Husky           60%            32,572             33.4
-----------------------------------------------------------------------------------------------------------------
Changjiang 25
-----------------------------------------------------------------------------------------------------------------
   Dongfang 1-1            CNOOC Limited          --            100%             3,929            234.7
-----------------------------------------------------------------------------------------------------------------
</TABLE>

______________
(1)  On January 1, 2004, we took over operation of Yacheng 13-1 from BP.


     The following table sets forth the principal oil and gas properties in
the Western South China Sea area that were under development as of December
31, 2003.

<TABLE>
<CAPTION>
                                                                                       Net proved reserves as of
                                                                         Our                December 31, 2003
 Block/Field               Operator(s)          Partner(s)             interest               (million BOE)
-------------------  ----------------------  ------------------  -------------------  -----------------------------
<S>                  <C>                     <C>                 <C>                  <C>
Yulin 35
-------------------------------------------------------------------------------------------------------------------
   Weizhou 11-1             CNOOC Limited            --                 100%                       9.5
-------------------------------------------------------------------------------------------------------------------
Yangjiang 31 and 32
-------------------------------------------------------------------------------------------------------------------
   Wenchang 8-3             CNOOC Limited            --                 100%                      11.6
-------------------------------------------------------------------------------------------------------------------
   Wenchang 19-1            CNOOC Limited            --                 100%                      26.1
-------------------------------------------------------------------------------------------------------------------
   Wenchang 15-1            CNOOC Limited            --                 100%                      22.9
-------------------------------------------------------------------------------------------------------------------
Yinggehai
-------------------------------------------------------------------------------------------------------------------
   Yacheng 13-4             CNOOC Limited            --                 100%                      22.4
-------------------------------------------------------------------------------------------------------------------
Ledong 01
-------------------------------------------------------------------------------------------------------------------
   Ledong                   CNOOC Limited            --                 100%                      83.2
-------------------------------------------------------------------------------------------------------------------
39/05
-------------------------------------------------------------------------------------------------------------------
   Wenchang 14-3            CNOOC Limited            --                 100%                      11.2
-------------------------------------------------------------------------------------------------------------------
</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, 2003, we had rights to operate,
independently or in conjunction with international oil and gas companies, in
38 blocks covering approximately 193,754 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, 2003, we had net proved reserves of
154.8 million barrels of crude oil and condensate and 548.2 billion cubic feet
of natural gas in this region, totaling 246.1 million BOE and representing
approximately 11.6% of our total net proved reserves.



                                      44
<PAGE>

     During the year ended December 31, 2003, we drilled four wildcat wells,
two of which were successful, and three appraisal wells, all of which were
successful. Our production sharing contract partners drilled three wildcat
wells.

     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, 2003.


<TABLE>
<CAPTION>
                                                                                    Exploration License
                                 Approximate                               -----------------------------------------
                                 block area                                   Commencement         Expiration
Block                               (km2)              Partner(s)                 date                 date
------------------------------  ---------------  --------------------     ---------------------   ------------------
<S>                             <C>              <C>                    <C>                    <C>
Independent
--------------------------------------------------------------------------------------------------------------------
Enping 15 (Pearl River Mouth)            5,833                   --                05/11/01           05/11/06
--------------------------------------------------------------------------------------------------------------------
Enping 10 (Pearl River Mouth)            6,547                   --                05/11/01           05/11/06
--------------------------------------------------------------------------------------------------------------------
Panyu 33 (Pearl River Mouth)             4,830                   --                05/11/01           05/11/06
--------------------------------------------------------------------------------------------------------------------
Liuhua 07 (Pearl River Mouth)            4,172                   --                05/11/01           05/11/06
--------------------------------------------------------------------------------------------------------------------
Xijiang 04 (Pearl River Mouth)           7,969                   --                05/11/01           05/11/06
--------------------------------------------------------------------------------------------------------------------
Lufeng 06 (Pearl River Mouth)            4,457                   --                05/11/01           05/11/06
--------------------------------------------------------------------------------------------------------------------
Lufeng 08 (Pearl River Mouth)            4,723                   --                05/11/01           05/11/06
--------------------------------------------------------------------------------------------------------------------
Huizhou 30 (Pearl River Mouth)           5,862                   --                05/11/01           05/11/06
--------------------------------------------------------------------------------------------------------------------
Huizhou 31 (Pearl River Mouth)           3,074                   --                05/11/01           05/11/06
--------------------------------------------------------------------------------------------------------------------
Chaozhou 03 (Pearl River Mouth)          4,490                   --                05/11/01           05/11/06
--------------------------------------------------------------------------------------------------------------------
Shantou 29 (Pearl River Mouth)           6,407                   --                05/11/01           05/11/06
--------------------------------------------------------------------------------------------------------------------
Kaiping 14 (Pearl River Mouth)           7,753                   --                05/11/01           05/11/06
--------------------------------------------------------------------------------------------------------------------
Huizhou 14 (Pearl River Mouth)             882                   --                05/29/03           05/29/05
--------------------------------------------------------------------------------------------------------------------
16/02 (Pearl River Mouth)                3,498                   --                03/31/00           03/31/07
--------------------------------------------------------------------------------------------------------------------
15/12 (Pearl River Mouth)                1,895                   --                10/16/00           10/16/06
--------------------------------------------------------------------------------------------------------------------
15/35 (Pearl River Mouth)                1,411                   --                02/20/03           02/20/05
--------------------------------------------------------------------------------------------------------------------
Nanhaichao (Pearl River Mouth)           7,834                   --                05/14/02           05/14/07
--------------------------------------------------------------------------------------------------------------------

PSC
--------------------------------------------------------------------------------------------------------------------
16/19                                      415                  Agip,              04/05/02          04/05/04(1)
                                                           ChevronTexaco
--------------------------------------------------------------------------------------------------------------------
15/34                                    4,984            Devon, Burlington        12/24/03           12/24/05
--------------------------------------------------------------------------------------------------------------------
</TABLE>

______________
(1)  Exploration license is being renewed.

     For the year ended December 31, 2003, we acquired 4,144.3 kilometers of
2D seismic data, while our foreign partners acquired 1,562.4 kilometers of 2D
seismic data and 344.9 square kilometers of 3D seismic data in the Eastern
South China Sea area. We have an aggregate of approximately 59,745 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 109,260 kilometers and 6,430 square
kilometers of additional 2D and 3D seismic data, respectively, in this area.
Our exploration capital expenditures for the Eastern South China Sea for 2003
were US$38.0 million. We plan to drill seven exploration wells in the Eastern
South China Sea in 2004.

     For the year ended December 31, 2003, net production averaged
approximately 72,981 barrels per day of crude oil, representing approximately
20.5% of our total daily net production. Our development capital expenditures
for this region for 2003 were US$230.2 million.



                                      45
<PAGE>

     The following table sets forth our principal oil and gas properties under
production in the Eastern South China Sea as of December 31, 2003.

<TABLE>
<CAPTION>
                                                                               Average net       Net proved reserves
                                                                              production for      as of December 31,
                                                                    Our         year 2003               2003
Production Block/Field         Operator(s)        Partner(s)      interest     (BOE per day)        (million BOE)
----------------------     ------------------   --------------  ------------  -----------------  --------------------
<S>                        <C>                   <C>             <C>           <C>                <C>
16/08
---------------------------------------------------------------------------------------------------------------------
Huizhou Oilfields                  CACT              Agip,           51%            24,551              25.0
                                                 ChevronTexaco
---------------------------------------------------------------------------------------------------------------------

15/11
---------------------------------------------------------------------------------------------------------------------
Xijiang 24-3                  CNOOC Limited,         Shell           51%            16,095              11.8
                              ConocoPhillips
---------------------------------------------------------------------------------------------------------------------

15/22
---------------------------------------------------------------------------------------------------------------------
Xijiang 30-2                  CNOOC Limited,         Shell           40%            12,775               6.7
                              ConocoPhillips
---------------------------------------------------------------------------------------------------------------------

29/04
---------------------------------------------------------------------------------------------------------------------
Liuhua 11-1                   CNOOC Limited           --            100%            13,708              13.5
---------------------------------------------------------------------------------------------------------------------

16/06
---------------------------------------------------------------------------------------------------------------------
Lufeng 13-1                        JHN                JHN            25%             2,931               1.9
---------------------------------------------------------------------------------------------------------------------

17/22
---------------------------------------------------------------------------------------------------------------------
Lufeng 22-1               CNOOC Limited, Statoil    Statoil          25%             1,312               0.5
---------------------------------------------------------------------------------------------------------------------
15/34
---------------------------------------------------------------------------------------------------------------------
Panyu 4-2/5-1                     Devon            Burlington        51%             1,609              33.4
---------------------------------------------------------------------------------------------------------------------
</TABLE>

     The following table sets forth our principal oil and gas properties under
development in the Eastern South China Sea as of December 31, 2003.

<TABLE>
<CAPTION>
                                                                                            Net proved reserves as of
                                                                              Our                December 31, 2003
 Block/Field                    Operator(s)          Partner(s)             interest               (million BOE)
-------------------       ----------------------  ------------------  -------------------  --------------------------
<S>                        <C>                     <C>                  <C>                  <C>
16/19
---------------------------------------------------------------------------------------------------------------------
Huizhou 19-1/19-2/19-3             CACT           Agip, ChevronTexaco          51%                   25.6
---------------------------------------------------------------------------------------------------------------------

Liuhua 07
---------------------------------------------------------------------------------------------------------------------
Panyu 30-1                     CNOOC Limited             --                   100%                   87.2
---------------------------------------------------------------------------------------------------------------------

Xijiang04
---------------------------------------------------------------------------------------------------------------------
Xijiang 23-1                   CNOOC Limited             --                   100%                   40.4
---------------------------------------------------------------------------------------------------------------------
</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, 2003, we had rights to operate, independently or in conjunction
with international oil and gas companies, in 57 blocks (excluding the Pinghu
block) covering approximately 255,347 square kilometers of the total East
China Sea. We also own a 30% working interest in the Xihu Trough area within
the East China Sea. We and our partners, Sinopec, Pecten Orient Company of the
United States (a subsidiary company of Shell) and Unocal reached an agreement
on August 19, 2003 to explore, develop and market natural gas, oil and
condensate in the East China sea. The agreement comprises three exploration
and two



                                      46
<PAGE>

development contract areas of the Xihu Trough covering approximately 22,000
square kilometers. The partners plan to explore actively in the area. Foreign
partners will assume 100% risk during the exploration stage. The first
development under the contracts will be in the Chunxiao development area which
is expected to come on stream in mid 2005. 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, 2003, our net proved reserves in the Xihu
Trough were 9.3 million barrels of crude oil and condensate and 226.6 billion
cubic feet of natural gas, totaling 47.1 million BOE and representing 2.4% of
our total net proved reserves. We acquired our interest in the project from
CNOOC and is the operator of the project.

     During the year ended December 31, 2003, we started drilling one wildcat
well in the East China Sea Area.

     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, 2003.

<TABLE>
<CAPTION>
                                                                                          Exploration License
                                           Approximate                           -----------------------------------
                                            block area                            Commencement         Expiration
Block                                          (km2)              Partner(s)          date                 date
------------------------------            ---------------  --------------------  -----------------   ---------------
<S>                                       <C>              <C>                   <C>                  <C>
Independent
---------------------------------------------------------------------------------------------------------------------
Xihu Tiantai 02                                 4,528               --               06/05/03          06/05/05
---------------------------------------------------------------------------------------------------------------------
Xihu Huangyan 04                                2,848               --               08/28/01          08/28/08
---------------------------------------------------------------------------------------------------------------------
Xihu Hangzhou 17                                4,227               --               08/28/01          08/28/08
---------------------------------------------------------------------------------------------------------------------
Xihu Hangzhou 26                                3,642               --               03/31/03          03/31/05
---------------------------------------------------------------------------------------------------------------------
Xihu Zhenhai 01                                 1,536               --               08/28/01          08/28/08
---------------------------------------------------------------------------------------------------------------------
Xihu Fuyang 27                                  2,526               --               08/28/01          08/28/08
---------------------------------------------------------------------------------------------------------------------
Lishui-Jiaojiang                                6,767               --               03/31/00          11/28/05
---------------------------------------------------------------------------------------------------------------------
Western Wunansha (South
Yellow Sea)                                       242               --               03/31/00          12/16/05
---------------------------------------------------------------------------------------------------------------------
North Yellow Sea                                6,471               --               05/25/01          05/25/06
---------------------------------------------------------------------------------------------------------------------
Zhucheng 14 (South
Yellow Sea)                                     5,659               --               05/11/01          05/11/06
---------------------------------------------------------------------------------------------------------------------
Lishui 30                                       4,085               --               07/01/02          07/01/09
---------------------------------------------------------------------------------------------------------------------
Qingdao 34                                      5,745               --               12/07/01          12/07/06
---------------------------------------------------------------------------------------------------------------------
Changshan 01 (North
Yellow Sea)                                     6,449               --               07/03/01          07/03/06
---------------------------------------------------------------------------------------------------------------------
Jiangning 32                                    7,136               --               11/05/03          12/30/04
---------------------------------------------------------------------------------------------------------------------
Tiantai 32                                      5,400               --               07/17/01          07/17/06
---------------------------------------------------------------------------------------------------------------------
Taibei 27                                       7,379               --               07/09/01          07/09/06
---------------------------------------------------------------------------------------------------------------------
Jinhua 12                                       6,931               --               05/11/01          05/11/06
---------------------------------------------------------------------------------------------------------------------
Kunshan 02                                      2,628               --               05/11/01          05/11/06
---------------------------------------------------------------------------------------------------------------------

PSC
---------------------------------------------------------------------------------------------------------------------
32/32                                             513      Primeline Petroleum       07/11/02          07/11/04
---------------------------------------------------------------------------------------------------------------------
</TABLE>

     During the year ended December 31, 2003, we acquired 4,500.3 kilometers
of 2D seismic data in this area. We have independently acquired an aggregate
of approximately 111,930 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 48,255
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 2003 were US$14.1 million. We plan to drill four exploration
wells in this area in 2004.




                                      47
<PAGE>

     For the year ended December 31, 2003, our net production in this region
averaged 2,536 barrels per day of crude oil, condensate and natural gas
liquids and 14.2 million cubic feet per day of natural gas, representing 1.4%
of our total daily net production. Our development capital expenditures for
the East China Sea for 2003 were US$80.4 million.

     The following table sets forth the principal oil and gas properties under
production or development in the East China Sea as of December 31, 2003.

<TABLE>
<CAPTION>
                                                                             Average net       Net proved reserves
                                                                            production for      as of December 31,
                                                              Our              year 2003               2003
 Block/Field              Operator(s)       Partner(s)      interest         (BOE per day)         (million BOE)
---------------------  ------------------  --------------  ------------  --------------------  ----------------------
<S>                      <C>                <C>             <C>           <C>                <C>
Production
---------------------------------------------------------------------------------------------------------------------
Pinghu(1)
---------------------------------------------------------------------------------------------------------------------
   Pinghu Gasfield     CNOOC Limited     Sinopec, Shell, Unocal      30%           4,908               12.7
---------------------------------------------------------------------------------------------------------------------
Development
---------------------------------------------------------------------------------------------------------------------
Xihu Trough
---------------------------------------------------------------------------------------------------------------------
   Canxue              CNOOC Limited     Sinopec, Shell, Unocal      30%            --                  6.8
---------------------------------------------------------------------------------------------------------------------
   Duanqiao            CNOOC Limited     Sinopec, Shell, Unocal      30%            --                  4.7
---------------------------------------------------------------------------------------------------------------------
   Chunxiao            CNOOC Limited     Sinopec, Shell, Unocal      30%            --                 18.3
---------------------------------------------------------------------------------------------------------------------
   Tianwaitian         CNOOC Limited     Sinopec, Shell, Unocal      30%            --                  3.2
---------------------------------------------------------------------------------------------------------------------
   Baoyunting          CNOOC Limited     Sinopec, Shell, Unocal      30%            --                 11.3
---------------------------------------------------------------------------------------------------------------------
   Wuyunting           CNOOC Limited     Sinopec, Shell, Unocal      30%            --                  2.8
---------------------------------------------------------------------------------------------------------------------
</TABLE>

______________
(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 and 2004, we acquired interests in the Tangguh LNG project
located in Indonesia. The Tangguh LNG partners have signed contracts to
provide liquefied natural gas to South Korea and North America. For further
details of these interests, see "--Natural Gas Business--Overseas Activity."

     In May 2003, we signed an equity sale and purchase agreement with the
existing North West Shelf partners 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 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, 2003 were approximately 136.7 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.



                                      48
<PAGE>

     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 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. Three new
          oil and gas discoveries were made in this area in 2003.

     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, 2003, our net proved reserves in our overseas
properties were 136.5 million barrels of crude oil. For 2003, net production
from our overseas properties averaged 57,477 barrels per day of crude oil,
condensate and natural gas liquids, representing approximately 16% of our
total daily net production. Our interests in the production sharing contracts
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 also engaged in oil trading
activities.



                                      49
<PAGE>

         The following table sets forth the principal oil and gas properties
under production in our overseas interests as of December 31, 2003.

<TABLE>
<CAPTION>
                                                                                           Average net        Net proved reserves
                                                                                          production for      as of December 31,
                                                                              Our            year 2003               2003
 PSC                      Operator(s)               Partner(s)             interest        (BOE per day)         (million BOE)
---------------------  ------------------         --------------         ------------  --------------------  --------------------
<S>                      <C>                      <C>                     <C>           <C>                   <C>
Repsol
----------------------------------------------------------------------------------------------------------------------------------
South East Sumatra        CNOOC Limited            INPEX Sumatra
                                                    KNOC Sumatra
                                                MC Oil & Gas Sumatra
                                              Paladin Indonesia (Sunda)       65.3%            29,762                  69.1
                                           Paladin UK (Southeast Sumatra)
                                             Paladin Resources (Bahamas)
                                                    CNOOC Limited
----------------------------------------------------------------------------------------------------------------------------------
Offshore North West Java       BP                    CNOOC ONWJ
                                                     INPEX Jaws
                                                MC Oil and Gas Java
                                                  C. ITOH Energy              36.7%            17,109                  46.2
                                              Paladin Resources (Sunda)
                                                    BP West Java
----------------------------------------------------------------------------------------------------------------------------------
West Madura                Kodeco Energy             Pertamina
                                                   CNOOC Madura               25.0%            2,844                    7.6
                                                   KODECO Energy
----------------------------------------------------------------------------------------------------------------------------------
Poleng(1)                Korea Development         CNOOC Poleng
                                                 Korea Development            50.0%            5,525                    6.9
----------------------------------------------------------------------------------------------------------------------------------
Blora                      Lundin Blora             CNOOC Blora
                                                 Paladin Resources
                                                    Amerada Hess              16.7%              --                      --
                                                    Lundin Blora
----------------------------------------------------------------------------------------------------------------------------------
Malacca
----------------------------------------------------------------------------------------------------------------------------------
Malacca Strait           Kondur Petroleum           CNOOC Limited
                                                    OOGC Mallaca
                                                  Mallaca Petroleum           39.5%             2,236                    7.1
                                                  Imbang Tata Alam
                                                  Kondur Petroleum
----------------------------------------------------------------------------------------------------------------------------------
</TABLE>

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



                                      50
<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,
                                                                                  ------------------------------------
                                                                                     2001        2002        2003
                                                                                  ----------- -----------  -----------
                                                                                     (US$)       (US$)       (US$)
<S>                                                                               <C>           <C>        <C>
Average Sales Prices of Petroleum Produced
Per Barrel of Crude Oil, Condensate and Natural Gas Liquid Sold............          23.34       24.35       28.11
Per Thousand Cubic Feet of Natural Gas Sold................................           3.08        2.98        2.87

Offshore China Average Lifting Costs per BOE Produced(1)
Independent................................................................           3.88        3.89        4.78
Production Sharing Contracts...............................................           4.51        3.95        4.53
Offshore China Average.....................................................           4.16        3.92        4.66

Overseas Average Lifting Costs per BOE Produced(1)
Net Entitlement............................................................            --         9.06        9.27
</TABLE>

______________
(1)  Our overseas operations during the year ended December 31, 2001 were not
     material and the related lifting costs have been included in our offshore
     China lifting costs for that year.


     Drilling and Productive Wells

     The following table sets forth our exploratory and productive wells
drilled offshore China as of December 31, 2003 by independent and production
sharing contract operations in each of our operating areas. It includes
exploratory and productive wells drilled offshore China prior to our inception
in 1982. 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, 2003
                                                     --------------------------------------------------------------
                                                       Total                      Western    Eastern
                                                     Offshore                      South      South      East China
                                                       China       Bohai Bay     China Sea   China Sea       Sea
                                                     ----------  ------------  ------------ ------------ ----------
<S>                                                  <C>         <C>           <C>          <C>          <C>
Independent
Net Exploratory Wells..........................         458.0       278.0          153.0         14.0      13.0
Net Productive Wells...........................         462.8       365.0           68.0         25.0       4.8
Crude Oil......................................         437.1       354.0           56.0         25.0       2.1
Natural Gas....................................          25.7        11.0           12.0          --        2.7

Production Sharing Contracts
Net Exploratory Wells..........................           2.0        --              --           --        2.0
Net Productive Wells...........................         204.2       124.0           18.2         62.0        --
Crude Oil......................................         197.6       124.0           12.6         61.0        --
Natural Gas....................................           6.6        --              5.6          1.0        --

Totals
Net Exploratory Wells..........................         460.0       278.0          153.0         14.0      15.0
Net Productive Wells...........................         667.0       489.0           86.2         87.0       4.8
Crude Oil......................................         634.7       478.0           69.0         86.0       2.1
Natural Gas....................................          32.3        11.0           17.6          1.0       2.7
</TABLE>



                                      51
<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 years ended December 31, 2003, 2002 and 2001.

<TABLE>
<CAPTION>
                                                                      Year ended December 31, 2003
                                                    ---------------------------------------------------------------
                                                                         Western    Eastern
                                                               Bohai      South      South      East
                                                     Total      Bay     China Sea  China Sea  China Sea   Overseas
                                                    --------- -------- ----------- ---------- ---------- -----------
<S>                                                 <C>       <C>      <C>         <C>        <C>        <C>
Independent
Net Exploratory Wells Drilled..................       28.0      16.0       5.0          7.0         --        --
   Successful..................................       14.0       6.0       3.0          5.0         --        --
   Dry.........................................       14.0      10.0       2.0          2.0         --        --
Net Development Wells Drilled..................       20.1      11.1       9.0           --         --        --
   Successful..................................       20.1      11.1       9.0           --         --        --
   Dry.........................................         --        --        --           --         --        --

Production Sharing Contracts
Net Exploratory Wells Drilled..................        3.5        --        --          0.5         --        3.0
   Successful..................................         --        --        --           --         --        --
   Dry.........................................        3.5        --        --          0.5         --        3.0
Net Development Wells Drilled..................       78.0      42.9        --          3.1         --       32.0
   Successful..................................       72.0      42.9        --          3.1         --       26.0
   Dry.........................................        6.0        --        --           --         --        6.0


                                                                      Year ended December 31, 2002
                                                    ---------------------------------------------------------------
                                                                         Western    Eastern
                                                               Bohai      South      South      East
                                                     Total      Bay     China Sea  China Sea  China Sea   Overseas
                                                    --------- -------- ----------- ---------- ---------- -----------
Independent
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



                                      52
<PAGE>

                                                                      Year ended December 31, 2001
                                                    ---------------------------------------------------------------
                                                                         Western    Eastern
                                                               Bohai      South      South      East
                                                     Total      Bay     China Sea  China Sea  China 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          --         --        --
</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. 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.

     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. 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 Holding Company and Hong
Kong & China Gas Company Limited, 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 tonnes per year, a 215-kilometer trunkline and two
branch trunklines with a total length of 111 kilometers. Project construction
began in the third quarter of 2003. The facility is scheduled to commence
operations in 2006. The total cost of the facility is estimated to be
approximately US$900 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.

     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



                                      53
<PAGE>

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 acquired an
interest in the Tangguh LNG project in Indonesia, which will supply liquefied
natural gas to this project. In August 2002, CNOOC announced that China's
second LNG terminal would be built in Fujian by CNOOC and its partners. CNOOC
owns a 60% interest in the project. Construction for the project began in the
third quarter of 2003. It is planned to commence operation in 2007, with an
initial annual capacity of 2.6 million tonnes of LNG.

     Zhejiang Development. 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 holds a 37% equity
interest in the joint venture company. The business scope of the joint venture
includes the construction, operation and management of natural gas pipelines,
the intra-provincial wholesale and distribution of natural gas, and the
development of gas-fired power plants and other natural gas related
infrastructure and projects. In March 2004, CNOOC signed an agreement with
Zhejiang provincial government to jointly develop China's third LNG terminal
in Zhejiang. The joint development will include construction of an LNG
re-gasification terminal, a gas trunk line and a gas fired power plant. CNOOC
is expected to take a 51% interest in the project.

     Shandong Pipeline. In September 2001, CNOOC signed an agreement with the
Development and Planning Commission of Shandong Province and Shandong
International Trust and Investment Company to participate in the planning of a
Shandong natural gas pipeline network for LNG imports. 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 around June 2004, 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.

     Overseas Activity

     On January 1, 2003, we acquired BP Muturi Limited, which owned 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. On May 13, 2004,
we completed our acquisition of an additional 20.767% interest in the Muturi
production sharing contract from BG Group.

     Our interests in these production sharing contracts represent 16.96% 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, BP
Muturi, BP Wiriagar, MI Berau, Nippon, KG Berau, KG Wiriagarand Indonesia
Natural Gas Resources Muturi. 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.

     In connection with our acquisition of interests in the Tangguh LNG
project, the partners in the Tangguh LNG project entered into a conditional
25-year supply contract to provide beginning in 2007 up to 2.6 million tonnes
of liquefied natural gas per year to a liquefied natural gas terminal project
in Fujian Province, China. In May 2003, two large South Korean companies
selected the Tangguh LNG project as their preferred supplier of up to 1.35
million tonnes per year of liquefied natural gas. The Tangguh LNG partners
have also signed contracts to provide liquefied natural gas to North America.
In addition, we entered into a repurchase agreement 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



                                      54
<PAGE>

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.

     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 May 2003, we signed an agreement with the existing North West Shelf
partners to acquire an aggregate interest of 5.56% in the reserves and
upstream production of Australia's North West Shelf gas project for a
consideration of US$348 million. 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. On October 24, 2003, we
entered into an agreement with the joint venture participants of the Gorgon
natural gas project in Australia based on a memorandum of understanding
previously entered into with them. According to that agreement, we will
acquire certain interest in the Gorgon natural gas project.

     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.

Segment Information

     The following table shows the breakdown of our total consolidated
operating revenues for each of the periods indicated and the percentage
contribution of each revenue component to our total operating revenues:

<TABLE>
<CAPTION>
                                                                Year ended December 31,
                                      -----------------------------------------------------------------------------
                                                2001                      2002                     2003
                                      ------------------------  --------------------------  -----------------------
                                          Rmb'000         %         Rmb'000         %         Rmb'000         %
                                      --------------  --------  ---------------  ---------  ------------  ---------
<S>                                   <C>             <C>       <C>              <C>        <C>           <C>
Independent operations.............     10,403,387       50.0       10,362,062      39.3     12,049,054      29.4
Production sharing contracts.......      7,839,081       37.7       14,617,400      55.4     20,231,534      49.4
Trading businesses.................      3,228,875       15.5        2,377,469       9.0     12,398,661      30.3
Unallocated and elimination........      (651,786)       (3.2)       (983,116)     (3.7)    (3,728,976)      (9.1)
                                      --------------  --------  ---------------  ---------  ------------  ---------
Total operating revenues...........     20,819,557      100.0       26,373,815     100.0     40,950,273     100.0
                                      ==============  ========  ===============  =========  ============  =========
</TABLE>

     We are mainly engaged in the exploration, development, production and
sale of crude oil and natural gas primarily offshore China. Approximately 62%
of our total revenue is contributed by PRC customers. We also conduct such
activities outside PRC in Indonesia, Australia and Singapore.



                                      55
<PAGE>

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 Development and Reform
Commission each year. Based on information provided by China's three crude oil
producers, PetroChina, Sinopec and us, the State Development and Reform
Commission compiles an overall national plan to coordinate sales. We have been
allowed to determine where we sell our products, both domestically and
internationally. Our sales of crude oil to the international market also
require us to obtain export licenses issued by the PRC Ministry of Commerce.
Historically, we have been able to obtain 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. 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,
                                                           --------------------------------------------------------
                                                                 2001                2002                 2003
                                                           ----------------  --------------------  ----------------
<S>                                                        <C>               <C>                   <C>
Sales and Marketing Volumes (benchmark)
   (mmbbls)(1)
Nanhai Light (APPI(2) Tapis(3)).....................             32.2                  26.4                 20.4
Medium Grade (Daqing OSP(4))........................             57.1                  64.7                 69.6
Heavy Crude (APPI(2) Duri(5)).......................             37.4                  52.7                 60.2

Average Realized Prices (US$/bbl)(6)
Nanhai Light........................................         US$24.96              US$24.79             US$30.27
Medium Grade........................................            24.16                 25.92                29.45
Heavy Crude.........................................            21.01                 22.79                26.56

Benchmark Prices (US$/bbl)
APPI(2) Tapis(3) ...................................         US$24.99              US$25.49             US$29.59
Daqing OSP(4) ......................................            23.92                 24.95                28.94
APPI(2) Duri(5) ....................................            21.26                 21.94                25.46
ICP(7) Cinta(8).....................................               --                 24.08                28.04
ICP Widuri(9).......................................               --                 24.08                28.05

West Texas Intermediate (US$/bbl)...................         US$25.89              US$26.16             US$31.07
</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.



                                      56
<PAGE>

     The international benchmark crude oil price, West Texas Intermediate, was
US$32.47 per barrel as of December 31, 2003 and US$38.48 per barrel as of June
10, 2004.
     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, 2001, 2002 and 2003, we sold approximately 79.9%, 85.1% and
73.5%, respectively, of our crude oil in the PRC, and exported approximately
20.1%, 14.9% and 26.5%, 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. For the years ended December 31,
2001, 2002 and 2003, sales to Sinopec were approximately 52.7%, 44.7% and
36.8%, respectively, and sales to PetroChina were approximately 13.8%, 7.7%
and 7.7%, respectively, of total crude oil sales in the PRC domestic market.
Together these two customers accounted for approximately 66.5%, 52.4% and
44.5%, respectively, of our total crude oil sales in the PRC domestic market.
For further information about our sales to CNOOC-affiliated companies, please
see note 26 to our consolidated financial statements attached to this annual
report.

     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,
                                                           ------------------------------------------------------
                                                                 2001               2002                 2003
                                                           ---------------  -------------------  ----------------
                                                                       (Rmb in millions, except percentages)
<S>                                                        <C>              <C>                  <C>
Revenues sourced in the PRC.........................           18,105             22,781              25,416
Revenues sourced outside the PRC....................            2,715              3,593              15,534
                                                           ---------------  -------------------  ----------------
Total revenues......................................           20,820             26,374              40,950
                                                           ===============  ===================  ================
% of revenues sourced outside the PRC...............             13.0%              13.6%               37.9%

</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, 2001, 2002 and 2003, the accounts
receivable turnover were approximately 32.3 days, 32.7 days and 47.5 days,
respectively. Doubtful accounts provision during the years ended December 31,
2001, 2002 and 2003 were Rmb 10.7 million, nil and Rmb 1.5 million,
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.



                                      57
<PAGE>

     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 to
Hong Kong. The remaining offshore China natural gas production is sold to
customers in mainland China. Of the 69.0 billion cubic feet of natural gas
that we produced offshore China in the year ended December 31, 2003, 36.0
billion cubic feet was produced from the Yacheng 13-1 gasfield in the Western
South China Sea. This field is governed by a 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 46.4% of our total offshore China natural gas
production for the year ended December 31, 2003. 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. We sold the remaining 53.6% of
our total offshore China natural gas production in 2003 to PRC customers,
including Hainan Fertilizer, Hainan Minsheng Gas, 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 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



                                      58
<PAGE>

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.

     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. 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, foreign
owned or foreign invested entities and other none-state-owned enterprises are
subject to certain import quotas.



                                      59
<PAGE>

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."

     We cannot give any assurance 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 Reform 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 then existing production sharing
contracts to us and our subsidiaries. It also undertook to transfer its future
production sharing contracts to us and our subsidiaries. As of December 31,
2003, we had 16 production sharing contracts in the production and development
stage, and 25 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



                                      60
<PAGE>

     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

     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



                                      61
<PAGE>

     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            Allocation
production
----------------------  --------------------------------------------------------------------------------------
<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:
                            recovery of current year operating costs by us and foreign partner(s);
                            recovery of earlier exploration costs by foreign partner(s);
                            recovery of development costs by us and foreign partner(s) based on
                                participating interests;(3) and
                            any excess, distributed according to each partner's participating interest.(3)

32.5%(2)                Remainder oil allocated according to the following formula:
                           (1-X) multiplied by 32.5% represents share oil payable to the PRC
                                government; and
                            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.


     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% to 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



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<PAGE>

     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.

     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



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<PAGE>

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
agree 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
gasfield, 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 2003, we
incurred abandonment costs of approximately Rmb 167.3 million.

     Production Tax

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

     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. 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 became 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:



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<PAGE>

     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.

     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 Indonesian 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



                                      65
<PAGE>

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,
2003, 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 taken out by
international petroleum companies. As of December 31, 2003, we paid an annual
insurance premium of approximately Rmb 236 million to maintain our insurance
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, 2003, we did not have any uninsured
losses.



                                      66
<PAGE>

Research and Development

     During the three years ended December 31, 2001, 2002 and 2003, we used
research and development services provided by CNOOC's affiliates, including
CNOOC Research Center, as well as other international research entities. In
July 2003, we established our own research center, CNOOC (China) Limited
Research Center. 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, 2001, 2002 and 2003, we paid
approximately Rmb 109 million, Rmb 110 million and Rmb 56 million,
respectively, to CNOOC Research Center for its provision of general research
and development services.

     For further information regarding our agreement with the CNOOC 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. We are 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 Reform Commission and the
Ministry of Commerce before we are permitted to conduct production activities.
For joint exploration and production with foreign enterprises, we are 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
          Reform Commission to designate such blocks as an area for foreign
          cooperation;

     o    the Ministry of Commerce 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;



                                      67
<PAGE>

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

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

     Although our sales are coordinated by the State Development and Reform
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. 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 Commerce, 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 gasfields, 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 five years ended December 31,
          2003 represented approximately 10.4%, 6.7%, 7.3%, 5.6% and 3.6%,
          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."

     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



                                      68
<PAGE>

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
Administration for Environmental Protection 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 year ended December 31, 2003, we did not experience any incident
of crude oil discharge.

     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, 2001, 2002 and 2003 of approximately Rmb
90.4 million, Rmb 126.1 million and Rmb 167.3 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 on average approximately 4% of our
annual operating costs relating to projects constructed offshore China during
the three years ended December 31, 2003. Each platform has its own
environmental protection and safety staff responsible for monitoring and
operating the 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 believe
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.



                                      69
<PAGE>

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, 2001, 2002 and 2003, we employed
1,081 persons, 2,047 persons and 2,447 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. Our number of
employees increased in 2003 mainly due to the establishment of our research
center, CNOOC (China) Limited Research Center, in July 2003. Of the 2,447
employees we employed as of December 31, 2003, approximately 71.35% were
involved in petroleum exploration, development and production activities,
approximately 8% 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;

     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.



                                      70
<PAGE>

     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 approximately 5% 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 40 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 30 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 inspections
on the helicopters used in our operations offshore China.

     In 2003, we further refined our HSE management requirements in order to
enhance our HSE system. We completed our senior management review of all
branches in China and CNOOC SES Ltd., established health management systems
for our offshore crew members and set our crisis management procedures. Such
procedures proved highly effective in withstanding the challenges during the
SARS period in early 2003. During the year, we further strengthened safety
management procedures for high risk activities such as those involving
helicopter and diving operations. We also launched the International
Association of Oil & Gas Producers (OGP) HSE management system as a commitment
to the safety of our contractors. In addition, we have made significant
progress in our application for the ISO14000 environmental management
qualification for our offshore oil and gas fields during 2003. Qinhuangdao
32-6 oilfield and Wenchang oilfields have begun operating under a standardized
environmental management system with proper documentation.

     In order to promote Bohai Bay oil spillage awareness, support the
establishment of the Bohai Oil



                                      71
<PAGE>

Spillage Awareness Center and strengthen crisis management capabilities in
offshore work sites, we took part in the "National Offshore Oil Spillage
Awareness Plan" seminar organized by the State Oceanic Administration, and
discussed with participating oil and gas companies issues relating to resource
sharing and risk assessment in case of oil spillage in Bohai Bay.

     In accordance with changes to OSHA's statistical requirements, we revised
our internal documentation procedures to keep abreast with OSHA's standard,
which uses OGP reporting methods to record the differences and standards of
particular incidents. We also adopted new OSHA and incident reporting forms in
order to better meet the requirements of international associations such as
OGP and API. We have been able to deliver working hour statistics and incident
reports to investors and API on a quarterly basis.

     In 2003, we recorded no major fatalities, contaminations or any safety
related liabilities that exceeded US$120,000 per incident. According to our
OSHA statistics, we achieved an above-average rating as compared with major
international oil companies.

Human Resources Development

     As an oil and gas exploration and production company operating in highly
competitive markets, we depend in large part on our employees' abilities for
successful operations. We devote significant resources to training our
technical employees. During 2003, we held 325 training workshops, which were
attended by 6,980 participants. To ensure the smooth implementation of our
overseas strategy, we have established an international human resources system
to attract and retain management and technical talents. We have adopted three
stock option schemes for our senior management since February 4, 2001, and
granted options under each of the schemes. In 2003, in line with our
development strategy, we carried out a systematic and in-depth review of our
recruitment and remuneration system with a view to reforming and strengthening
our internal human resources system. During the year, we established an
employee performance evaluation system, which aims at linking the individual's
development objectives with our operating targets. In connection with the new
employee performance evaluation system, we also conducted an advanced
management training for senior management and a management technique training
for mid-level managers.

ITEM 5. OPERATING AND FINANCIAL REVIEW AND PROSPECTS

A. OPERATING RESULTS

     You should read the following discussion and analysis 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 37 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 sales 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 production activities with



                                      72
<PAGE>

international oil and gas companies offshore China. As of December 31, 2003,
we had estimated net proved reserves of 2,128.5 million BOE, comprised of
1,436.1 million barrels of crude oil and condensate and 4,154.4 billion cubic
feet of natural gas. For the year 2003, our net production averaged 306,464
barrels per day of crude oil, condensate and natural gas liquids and 291.0
million cubic feet per day of natural gas, which together totaled 356,729 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         2003
                                                        ---------  -----------  ----------  ---------  -----------
<S>                                                     <C>        <C>          <C>         <C>        <C>
Net production of crude oil, condensate and
  natural gas liquids (BOE/day).....................     174,745      206,347    228,874     298,625      306,464
Net production of natural gas (mmcf/day)............       204.4        197.9      195.0       272.6        291.0
Net income (Rmb in millions)........................     4,111.1     10,296.6    7,957.6     9,232.8     11,535.5
</TABLE>

     We sell 44.5% of our crude oil production in 2003 to customers affiliated
with Sinopec or PetroChina in the PRC domestic market. We sell 46.4% of our
natural gas production offshore China in 2003 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 26 to our
consolidated financial statements attached to this annual report.

     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 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 CNOOC Research Center for the
provision of general geophysical exploration services, comprehensive
exploration research services, information technology services and seismic
study. We have renewed these agreements on substantially the same terms. 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."



                                      73
<PAGE>

     Acquisitions and Overseas Activities

     On January 1, 2003, we acquired BP Muturi Limited, which owned 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 consideration 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 production sharing contracts
represented approximately 12.5% of the total reserves and upstream production
of the Tangguh LNG project. On May 13, 2004, we completed our acquisition of
an additional 20.767% interest in the Muturi production sharing contract from
the BG Group. As a result, our interests in these production sharing contracts
now represent 16.96% of the total reserves and upstream production of the
Tangguh LNG project. The remaining interests are held by BP Berau, BP Muturi,
BP Wiriagar, MI Berau, Nippon, BG, KG Berau, KG Wiriagar and Indonesia Natural
Gas Resources Muturi. The Tangguh LNG project is a greenfield project located
offshore Indonesia and represents one of the largest natural gas projects in
Asia.

     In connection with our acquisition of interests in the Tangguh LNG
project, the partners in the Tangguh LNG project entered into a conditional
25-year supply contract to provide beginning in 2007 up to 2.6 million tonnes
of liquefied natural gas per year to a liquefied natural gas terminal project
in Fujian Province, China. In addition, we entered into a repurchase agreement
whereby put options and call options are granted to us and the sellers,
respectively, to sell or to repurchase the interests in the above-mentioned
PSCs. The options are exercisable if:

     o    the LNG supply contract is terminated due to the non-satisfaction of
          the conditions precedent to the LNG supply contract on or before
          December 31, 2004; or

     o    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.

     In July 2003, we increased our interest in Qinhuangdao 32-6, a PSC
oilfield in Bohai Bay, from 51% to 75.5% by acquiring the 24.5% interest from
BP China Exploration and Production Company for a cash consideration of US$150
million, plus working capital adjustments.

     In July 2003, we acquired the remaining 49% interest in Liuhua 11-1, a
PSC oilfield in Eastern South China Sea, from BP China Exploration and
Production Company and Kerr-McGee China Petroleum Limited, for a total cash
consideration of US$40 million, plus working capital adjustments.

     In 2003, we invested Rmb 450 million in the equity interest of CNOOC
Finance Corporation Limited, or CNOOC Finance, a subsidiary of our controlling
shareholder, CNOOC. Our investment represented 31.8% of the registered capital
of CNOOC Finance.

     In May, 2003, we entered into a purchase agreement with the partners of
the North West Shelf natural gas project for the acquisition of output and
reserves interest of its upstream oilfields. We also agreed to acquire a 25%
interest in the China LNG joint venture to be established by the North West
Shelf project partners to supply liquefied natural gas from the North West
Shelf project to a liquefied natural gas terminal currently being developed by
CNOOC, our controlling shareholder, and various partners in Guangdong
Province, China. The acquisition price for this project was US$348 million.
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. See "Item 4--Information on the
Company--Business Overview--Natural Gas Business--Overseas Activity."

     On October 24, 2003, we entered into an agreement with the joint venture
participants of the Gorgon natural gas project in Australia based on a
memorandum of understanding previously entered into with them. We agreed to
acquire certain interest in the Gorgon natural gas project.



                                      74
<PAGE>

     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 the 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 5 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, 2001, 2002 and 2003, the percentage of foreign
partners' oil that was resold by us in the PRC market amounted to
approximately 57%, 50% and 69%, 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 flows 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 7 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 offshore China versus Production
from Production Sharing Contracts offshore China

     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 58.4%, 53.9% and 52.7%
for the years ended December 31, 2001, 2002 and 2003, 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 estimated future dismantlement costs for our oil and
gas properties and accrued the costs over the economic lives of the assets
using the unit-of-production method. We estimated 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 then current
legislation and industry practice. In 2002, 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, 2001, 2002 and 2003 were
Rmb 90.4 million, Rmb 126.1 million and Rmb 167.3 million, respectively. The
accrued liability is reflected in our consolidated balance sheet under
"provision for dismantlement." See notes 3 and 27 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, 2001, 2002 and 2003, 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;



                                      76
<PAGE>

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

     o    exchange gains or losses.

     EBITDE is not a standard measure under either U.S. or Hong Kong GAAP. For
instance, it excludes our dismantlement and exploration expenses that may
require cash settlement upon occurrence or subject to provisioning. For
dismantlement costs, we are required under Hong Kong GAAP to make provision
for our dismantlement expenses and settle at the time of dismantlement. See
"--Provision for dismantlement" above. For exploration costs, we are required
to expense or accrue such costs on basis of whether the exploration was
successful under our successful efforts method of accounting for exploration.
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,
                                                     ---------------------------------------------------------------
                                                       1999       2000      2001       2002       2003      2003
                                                     ---------------------------------------------------------------
                                                        Rmb       Rmb        Rmb        Rmb       Rmb        US$
                                                                              (in millions)
<S>                                                  <C>        <C>         <C>        <C>      <C>         <C>
Net Income......................................         4,113    10,302      7,920      9,086    11,980      1,447
  Tax ..........................................           722     1,926      3,048      3,482     4,628        559
  Interest and exchange gain/(loss), net........         1,000     (143)      (436)        261       178         22
  Depreciation, depletion and amortization......         2,371     2,573      2,558      4,011     4,634        560
  Dismantlement costs...........................           177       104         90        323     (270)       (33)
  Exploration expenses..........................           247       553      1,039      1,318       848        102
  Impairment losses related to property, plant
    and equipment...............................            --        --        100         --        --         --
                                                     ---------------------------------------------------------------
EBITDE..........................................         8,630    15,315     14,319     18,481    21,999      2,657
                                                     ---------------------------------------------------------------
</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.

     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,
                                                              --------------------------------------------------------
                                                               1999      2000     2001      2002     2003      2003
                                                              --------------------------------------------------------
                                                                Rmb      Rmb       Rmb      Rmb       Rmb      US$
                                                                                   (in millions)



                                      77
<PAGE>

<S>                                                           <C>        <C>      <C>       <C>      <C>        <C>
Cash provided by operating activities........................   7,323    13,233   11,759    14,597   17,819     2,152
  plus/(less): movements in working capital..................     164       326     (583)        4      275        33
  plus/(less): returns on investments and servicing of
  finance....................................................     651       317    (346)     (181)    (191)      (23)
  plus: taxation paid........................................     198       880    2,611     2,846    3,515       425
  plus: short-term investment income.........................      --        --      221       193      123        15
  plus/(less): recovery (provision) for doubtful debts.......       5        58        5        --       --        --
  plus: share of profit of an associate......................      13       218       90       165      220        27
  plus/(less): gain on sale/loss on disposals and write-off
  of property, plant and equipment...........................      --      (220)    (457)     (437)    (438)      (53)
  other adjustments..........................................      29       (50)      23       (12)      --        --
  less: amortization of discount of long-term guaranteed notes     --        --       --        --      (11)       (1)
  plus or less: realized and unrealized holding gains from
  available-for-sale marketable securities...................      --        --      (43)      (10)      (6)       (1)
  less: recognition of stock compensation cost under U.S.          --        --       --        --       38         5
  GAAP
  plus: exploration expenses.................................     247       553    1,039     1,318      848       102
                                                              --------------------------------------------------------
EBITDE.......................................................   8,630    15,315   14,319    18,483   22,128     2,677
                                                              --------------------------------------------------------
</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 and dismantlement 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 3 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.



                                      78
<PAGE>

     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 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 temporary
differences at the balance sheet date between the tax bases of assets and
liabilities and their carrying amounts for financial reporting purposes.

     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



                                      79
<PAGE>

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 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,
                                                ----------------------------------------------------------------------
                                                       2001                      2002                    2003
                                                ----------------------  ----------------------  ----------------------
                                                   (Rmb in millions, except percentages, production data and prices)
<S>                                             <C>          <C>        <C>          <C>         <C>         <C>
Revenues:
Oil and gas sales: (1)
   Crude oil...........................            15,916       76.4%     21,498       81.5%      25,792       63.0%
   Natural gas.........................             1,645        7.9       2,281        8.7        2,325        5.7
                                                -----------  ---------  ----------  ----------  ----------  ----------
   Total oil and gas sales.............            17,561       84.3%     23,779       90.2%      28,117       68.7%

Marketing revenues.....................             2,537       12.2%      2,377        9.0%      12,398       30.3%
Other income...........................               722        3.5         217        0.8          435        1.1
                                                -----------  ---------  ----------  ----------  ----------  ----------
   Total revenues......................            20,820      100.0%     26,374      100.0%      40,950      100.0%
                                                ===========  =========  ==========  ==========  ==========  ==========

Net production (million BOE):
Crude oil..............................              83.5       87.5%      109.0       86.2%       111.9       85.9%
Natural gas............................              11.9       12.5        17.5       13.8         18.3       14.1
                                                -----------  ---------  ----------  ----------  ----------  ----------
   Total net production................              95.4      100.0%      126.5      100.0%       130.2      100.0%
                                                ===========  =========  ==========  ==========  ==========  ==========

Average net realized prices:
   Crude oil (per bbl).................           US$23.34               US$24.35                          US$28.11
   Natural Gas (per mcf)...............               3.08                   2.98                              2.87

</TABLE>

______________
(1)  These figures do not include our revenues from the Pinghu gasfield.

     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,
                                                                   ----------------------------------------------
                                                                       2001            2002             2003
                                                                   -------------  ---------------  --------------
<S>                                                                <C>            <C>              <C>
Operating Revenues:
     Oil and gas sales.......................................            84.3%           90.2%            68.7%
     Marketing revenues......................................            12.2             9.0             30.2
     Other income............................................             3.5             0.8              1.1
                                                                   -------------  ---------------  --------------
         Total revenues......................................           100.0%          100.0%           100.0%
                                                                   =============  ===============  ==============
Expenses:
     Operating expenses......................................           (11.2)%         (14.3)%          (11.0)%
     Production taxes........................................            (4.2)           (3.9)            (3.0)
     Exploration costs.......................................            (5.0)           (5.0)            (2.1)
     Depreciation, depletion and amortization................           (12.3)          (15.2)           (11.3)
     Dismantlement ..........................................            (0.4)           (0.5)            (0.7)



                                      80
<PAGE>

     Crude oil and product purchases.........................           (11.8)           (8.8)           (30.04)
     Selling and administrative expenses.....................            (3.0)           (3.8)            (3.1)
     Other...................................................            (3.0)           (0.1)            (0.9)
                                                                   -------------  ---------------  --------------
                                                                        (50.9)%         (51.6)%          (61.7)%
                                                                   -------------  ---------------  --------------

Interest income..............................................             1.5%            0.5%             0.4%
Interest expenses............................................            (0.5)           (1.1)            (0.9)
Exchange gain (loss), net....................................             1.1            (0.4)            (0.0)
Short term investment income.................................             1.1             0.7              0.3
Share of profit of an associate..............................             0.4             0.6              0.5
Non-operating profit (loss), net.............................             0.2            (0.3)             0.8
                                                                   -------------  ---------------  --------------
Income before tax............................................            52.9            48.4             39.5
Tax..........................................................           (14.6)          (13.4)           (11.3)
                                                                   -------------  ---------------  --------------
Net income...................................................            38.3%           35.0%            28.2%
                                                                   =============  ===============  ==============
</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;"

     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.



                                      81
<PAGE>

     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.

     2003 versus 2002

     Consolidated Net Profit

     Our consolidated net income after tax was Rmb 11,535.5 million
(US$1,393.6 million) in 2003, an increase of Rmb 2,302.7 million (US$278.2
million), or 24.9% from Rmb 9,232.8 million in 2002.

     Revenue

     Our oil and gas sales for the year 2003 were Rmb 28,116.8 million
(US$3,396.9 million), an increase of Rmb 4,337.5 million (US$524.0 million),
or 18.2% from Rmb 23,779.3 million in 2002. The increase primarily reflects
the rise in global crude oil prices and our production level. In 2003, as a
result of the commencement of production in our new oil and gas properties as
well as our successful acquisition of a portion of interests in Liuhua 11-1
and Qinhuangdao 32-6, our production volume increased compared to 2002. The
average net production volume per day was 356,729 barrels in 2003, compared to
346,639 barrels in 2002, an increase of 3%. In 2003, with the
higher-than-expected oil price, our Indonesian oil and gas operations had a
lower-than-expected net production volume based on the Indonesian oil
production sharing contract, which affected the production volume growth. Our
crude oil sales prices are determined in accordance with international crude
oil prices. The international oil price in 2003 rose sharply compared with
2002. The average realized price for our crude oil was US$28.11 per barrel in
2003, an increase of US$3.76, or 15.4% from US$24.35 per barrel in 2002. The
average realized price of natural gas was US$2.87 per thousand cubic feet in
2003, a decrease of US$0.11, or 3.7%, from US$2.98 per thousand cubic feet in
2002. The decrease was due to the lower natural gas price of our Indonesian
properties and the Dongfang gasfield.

     In 2003, our net marketing profit, which were derived from marketing
revenue less purchase cost of crude oil and oil products, were Rmb 103.4
million (US$12.5 million), an increase of Rmb 52.3 million (US$6.3 million),
or 102.3%, from Rmb 51.1 million in 2002. Since we are one of the three
companies that have the right to sell crude oil in China, upon request by our
production sharing contract partners, we may purchase the oil of these
partners for sale in China. However, the amount of oil we may sell in China
depends on our foreign partners and, therefore, we cannot control the amount
of crude oil that we are able to sell for any specific period.

     Our other income, reported on a net basis, was derived from our other
income less corresponding costs. In 2003, the total other income was Rmb 84.5
million (US$10.2 million), a decrease of Rmb 101.7 million (US$12.3 million)
from Rmb 186.2 million in 2002, resulting primarily from the decrease in
project management fees.

     Expenses

     Operating expenses. Our operating expenses were Rmb 4,512.8 million
(US$545.2 million) in 2003, an increase of Rmb 737.5 million (US$89.1
million), or 19.5%, from Rmb 3,775.3 million in 2002. The increase primarily
resulted from operating expenses in connection with the Indonesian oil and gas
properties, which were based on a full year's consolidated accounts as
compared to the nine months contributions in 2002, and the commencement of
operations in new properties. Operating expenses were



                                      82
<PAGE>

Rmb 35.1 (US$4.25) per BOE in 2003, which were higher than operating expenses
of Rmb 30.3 per BOE in 2002. The increase was, on the one hand, attributable
to the higher operating expenses on a unit of production basis for the
Indonesian oil and gas properties, resulting from the higher-than-expected oil
price and lower net production, and its increased weighting in us on an annual
production basis. On the other hand, the natural diminishing in old oilfield
production and the higher maintenance cost also resulted in the slight
increase in unit cost.

     Production taxes. Our production taxes for the year 2003 were Rmb 1,238.6
million (US$149.6 million), an increase of 21.1%, or Rmb 215.6 million
(US$26.0 million) from Rmb 1,023.0 million in 2002. The increase was due to
increase in oil and gas sales in 2003.

     Exploration costs. Our exploration costs for the year 2003 were Rmb 848.1
million (US$102.5 million), a decrease of Rmb 470.2 million (US$56.8 million),
or 35.7%, from Rmb 1,318.3 million in 2002. The decrease primarily resulted
from a higher successful rate of exploration and drilling activities.

     Depreciation, depletion and amortization expenses. Our depreciation,
depletion and amortization expenses for 2003 were Rmb 4,642.8 million
(US$560.9 million), an increase of Rmb 623.3 million (US$75.3 million), or
15.5%, from Rmb 4,019.5 million in 2002. On a unit of production basis,
depreciation, depletion and amortization expenses for the year 2003 were Rmb
36.2 (US$4.37) per BOE, an increase of 12.0% compared to Rmb 32.3 per BOE in
2002. The primary reason for the increase was the higher weighting for
Indonesian oil and gas properties, which had a higher amortization cost, and
the increase in amortization cost resulted from the reserve adjustment of some
old fields.

     Dismantlement costs. Our dismantlement costs for the year 2003 were Rmb
167.3 million (US$20.2 million), an increase of Rmb 41.2 million (US$5.0
million) from Rmb 126.1 million in 2002. The increase was primarily due to the
increased dismantlement costs resulting from the commencement of production at
new oil and gas properties. On a unit production basis, our dismantlement
costs were Rmb 1.3 (US$0.16) per BOE, an increase of 30.0% compared to Rmb 1.0
per BOE in 2002. The increase was primarily due to an upward revision of the
estimated dismantlement costs and the increase in dismantlement costs
resulting from the reserve adjustment of some old fields.

     Selling and administrative expenses. Our selling and administrative
expenses for the year 2003 were Rmb 1,212.5 million (US$146.5 million), an
increase of Rmb 206.0 million (US$24.9 million), or 20.5%, from Rmb 1,006.5
million in 2002. The primary reason for the increase was the selling and
administrative expenses incurred in connection with the Indonesian oil and gas
properties. On a unit of production basis, selling and administrative expenses
were Rmb 9.4 (US$1.14) per BOE in 2003, an increase of 16.0% from Rmb 8.1 per
BOE in 2002. The increase was primarily attributable to the higher selling and
administrative expenses on a unit of production basis for the Indonesian oil
and gas properties, resulting from the higher-than-expected oil price and
lower net production, and its increased weighting in us on an annual
production basis. Our selling and administrative expenses in China in 2003
were Rmb 6.6 (US$0.8) per BOE, in line with the previous year.

     Net interest expenses/income

     Our net interest expense for 2003 was Rmb 171.4 million (US$20.7
million), in line with the net interest expense of Rmb 146.9 million in 2002.

     Exchange Gain/Loss, net

     Our exchange loss for 2003 was Rmb 6.7 million (US$0.8 million), a
decrease of Rmb 107.1 million (US$12.9 million) when compared with an exchange
loss of Rmb 113.8 million in 2002. The loss in 2002 was mainly attributable to
exchange rate fluctuations related to our yen-denominated loans. Since we have
prepaid a large portion of yen-denominated loans on December 27, 2002, and the
outstanding amount of our yen-denominated loans is hedged using foreign
currency swaps, we do not expect similar exchange gains or losses for that
portion. Therefore, the exchange gain or loss this year was primarily
attributable to the exchange gain generated from day-to-day operating
activities.



                                      83
<PAGE>

     Short Term Investment Income

     Our short term investment income for 2003 was Rmb 123.5 million (US$14.9
million), a decrease of Rmb 69.8 million (US$8.4 million) or 36.1% from Rmb
193.3 million in 2002. The decrease was primarily due to a decline in short
term investment return in 2003.

     Share of Profit of an Associate

     Our share of profit of an associate for the year 2003 was Rmb 220.3
million (US$26.6 million), an increase of Rmb 54.9 million (US$6.6 million),
or 33.2%, from Rmb 165.4 million in 2002. This item reflected our share of
profit generated by Shanghai Petroleum and Natural Gas Company Limited, our
associated company. This company experienced an increase of profit in 2003
resulting from an increase in output and oil prices.

     Non-operating Income/Expenses, Net

     Our net non-operating income for the year 2003 was Rmb 315.0 million
(US$38.1 million), compared to non-operating expense for the year 2002 of Rmb
71.4 million. In 2003, the net non-operating income was mainly due to the tax
refund from re-investment.

     Tax

     Our taxation for the year 2003 was Rmb 4,627.8 million (US$559.1
million), an increase of Rmb 1,086.4 million (US$131.3 million) or 30.7% from
Rmb 3,541.4 million in 2002. The primary reason for the increase was the
increase in profit before tax. The effective tax rate for 2003 was 28.6%,
slightly higher than the effective rate of 27.7% in 2002.

     2002 versus 2001

     Our oil and gas sales for the year 2002 were Rmb 23,779.3 million, an
increase of Rmb 6,218.5 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 was attributable to our
increased production volume, while Rmb 801.5 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 in 2001, 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, a decrease of
Rmb 159.5 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
and consisted primarily of project management and handling fees. This was at a
similar level to 2001. In 2001, our



                                      84
<PAGE>

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.

     Our operating expenses were Rmb 3,775.3 million in 2002, an increase of
Rmb 1,446.2 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 in 2002. On a unit of production basis,
operating expenses were Rmb 30.3 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 per BOE.

     Our production taxes for the year 2002 were Rmb 1,023.0 million, an
increase of 15.8%, or Rmb 139.2 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, an
increase of Rmb 279.0 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, an increase of Rmb 1,452.6 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 per BOE,
an increase of 17.5% compared to Rmb 27.5 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 were Rmb 126.1 million, an
increase of Rmb 35.7 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, a decrease of Rmb 127.0 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, an increase of Rmb 391.1 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 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
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 per BOE.

     Our net interest expense for 2002 was Rmb 146.9 million, an increase of
Rmb 348.0 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. Further, the net interest expenses recognized under SSAP
28, which we adopted in 2002, relating to dismantlement costs were Rmb 77.9
million.



                                      85
<PAGE>

     Our exchange loss for 2002 was Rmb 113.8 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 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, a decrease of Rmb
27.4 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, an increase of Rmb 75.4 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, a decrease
of Rmb 106.3 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, an increase of
Rmb 493.2 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%.

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

B. LIQUIDITY AND CAPITAL RESOURCES

     The following table summarizes our cash flows for the periods presented:

<TABLE>
<CAPTION>
                                                                              Year ended December 31,
                                                                  -----------------------------------------------
                                                                       2001             2002            2003
                                                                  --------------  ---------------  --------------
                                                                                 (Rmb in millions)
<S>                                                               <C>             <C>              <C>
Cash provided by (used for):
   Operating activities.....................................          11,759           14,742          17,819
   Investing activities.....................................         (11,366)         (11,724)         (9,513)
   Financing activities.....................................           3,204           (1,573)          1,745
                                                                  --------------  ---------------  --------------
Net increase in cash and cash equivalents...................           3,597            1,445           6,561
                                                                  ==============  ===============  ==============
</TABLE>

     Cash Provided by Operations

     Cash provided by operations in 2003 amounted to Rmb 17,818.7 million
(US$2,152.8 million), an increase of Rmb 3,076.7 million (US$371.7 million),
or 20.9%, from Rmb 14,742.0 million in 2002. In addition to an increase in
profit before tax of Rmb 3,389.1 million (US$409.5 million), the increase in
cash provided by operations was also due in part to adjustments related to an
increase in depreciation, depletion and amortization expenses of Rmb 623.2
million (US$75.3 million), an increase in dismantlement costs of Rmb 41.2
million (US$5.0 million), provision of inventory obsolescence of Rmb 8.7
million (US$1.1 million), a decrease in return on short-term investments and
amortization of a discount for long-term guaranteed notes of Rmb 75.0 million
(US$9.1 million), and an increase in net interest of Rmb 24.4 million (US$2.9
million).

     The increase was partially offset by a net increase in income taxes of
Rmb 668.6 million (US$80.8 million), the growth in our share of income of
associated companies of Rmb 54.9 million (US$6.6 million), a decrease in
exchange loss of Rmb 107.1 million (US$12.9 million), and a decrease in



                                      86
<PAGE>

loss on disposal and write-off of property, plant and equipment of Rmb 398.0
million (US$48.1 million).

     In addition, operating cash flows increased in 2003 due to an increase in
current liabilities from operating activities of Rmb 935.0 million (US$113.0
million), and a simultaneous decrease in current assets excluding cash and
bank balances of Rmb 800.7 million (US$96.7 million). See note 31 to our
consolidated financial statements attached to this annual report.

     Cash provided by operations in 2002 amounted to Rmb 14,742.0 million, an
increase of Rmb 2,982.5 million, or 25.4%, from Rmb 11,759.5 million in 2001.
In addition to an increase in profit before tax of Rmb 1,768.4 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, an
increase in net exchange loss of Rmb 375.1 million, an increase in
depreciation, depletion and amortization expenses of Rmb 1,452.6 million, an
increase in dismantlement costs of Rmb 35.7 million, a decrease in short-term
investment income of Rmb 27.4 million and an increase in amortization of a
discount for long-term guaranteed notes of Rmb 6.1 million.

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

     In addition, operating cash flows was adversely affected by an increase
in current liabilities from operating activities of Rmb 500.8 million, and a
simultaneous increase in current assets excluding cash and bank balances of
Rmb 504.7 million. See note 34 to our consolidated financial statements
attached to this annual report.

     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
12,372.5 million (US$1,494.8 million) in 2003, an increase of Rmb 805.6
million (US$97.3 million), or 7.3%, from Rmb 11,566.9 million in 2002. The
capital expenditure in 2003 included Rmb 524.0 million (US$63.3 million) for
capitalized exploration activities, Rmb 7,747.6 million (US$936.0 million) for
development activities, and Rmb 4,100.9 million (US$495.5 million) for
acquiring the Tangguh LNG project, Qinhuangdao 32-6 and Liuhua 11-1 rights.
Our development expenditures in 2003 related principally to the development of
Bozhong 25-1, Bonan, Weizhou 12-1 North, Dongfang 1-1, CFD11-1, Panyu4-2/5-1
and Huizhou 19-2/19-3.

     Total capital expenditures were Rmb 11,566.9 million in 2002, an increase
of Rmb 7,224.3 million, or 166.4%, from Rmb 4,342.6 million in 2001. The
capital expenditure in 2002 included Rmb 585.6 million for capitalized
exploration activities, Rmb 6,247.1 million for development activities, and
Rmb 4,734.2 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.

     Our total capital expenditures for general exploration and development
activities for 2003 was approximately US$1,279 million. For the year 2004, we
have budgeted approximately US$1.8 billion for capital expenditures,
approximately US$247 million of which is budgeted for general exploration
activities offshore China and approximately US$1,251 million is budgeted for
development activities offshore China.

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

<TABLE>
<CAPTION>
                                                                                     Year ended December 31,
                                                                              -------------------------------------
                                                                                   2003(1)              2004(2)
                                                                              ------------------  -----------------



                                      87
<PAGE>

                                                                                        (US$ in millions)
<S>                                                                            <C>                <C>
Operating Area:
Bohai Bay
     Development........................................................             586.6                 692.0
     Exploration........................................................              61.5                  87.0
Western South China Sea
     Development........................................................             160.6                  88.0
     Exploration........................................................              33.2                  62.0
East China Sea
     Development........................................................              80.4                 166.0
     Exploration........................................................              14.1                  24.0
East South China Sea
     Development........................................................             230.2                 292.0
     Exploration........................................................              38.0                  54.0
Other Offshore China
     Development........................................................              --                    13.0
     Exploration........................................................              --                    20.0
Overseas
     Development........................................................              61.9                 196.0
     Exploration........................................................              12.3                  31.0
                                                                              ------------------  -----------------
         Total..........................................................           1,278.8               1,725.0
                                                                              ==================  =================
</TABLE>

______________
(1)  Figures for 2003 represent our actual spending for capital expenditure
     purposes. The acquisition cost of QHD32-6 and LH 11-1 has been included.
(2)  Figures for 2004 represent our budgeted capital expenditures.



                                      88
<PAGE>

     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
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 flows
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

     In 2003, through our wholly owned finance subsidiary, CNOOC Finance
(2003) Limited, we issued two tranches of guaranteed notes: US$200 million
4.125% guaranteed notes due 2013 and US$300 million 5.50% guaranteed notes due
2033. The notes were rated Baa1 with positive outlook by Moody's Investors
Services and "BBB" by Standard & Poor's Ratings Service at the time of
issuance. In October 2003, Moody's upgraded our long-term debt rating to A2
with stable outlook.

     We had net cash outflows from financing activities of Rmb 1,744.9 million
(US$210.8 million) in 2003, resulting primarily from our repayment of Rmb
336.9 million (US$40.7 million) in bank loans, dividend distributions of Rmb
5,403.7 million (US$652.8 million). This cash outflow was offset by cash
inflow of Rmb 3,995.8 million (US$482.8 million) resulting from our May 2003
offering of US$200 million in 4.125% guaranteed notes due 2013 and US$300
million in 5.5% guaranteed notes due 2033.

     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, 2003. As of
the date this annual report is filed, we have not incurred any material
long-term debt since December 31, 2003.

<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>
2004.........................................        --          271.5       --              21.0             2.5
2005-2007....................................        100.0       814.4       --             890.6           107.6
2008-2009....................................        --           --         --              --              --
2010 and beyond..............................      1,000.0        --         --           8,276.7         1,000.0
     Total...................................      1,100.0     1,085.9       --           9,188.3         1,110.0
Percentage of total debt.....................         99.1%        0.9%      --             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, 2004, we had a total U.S. dollar debt of US$1,100
million and a total foreign currency debt of US$1,110 million. Through our
debt offering and prepayment of debt, we extended the average maturity of our
debt portfolio from eight years to approximately fourteen years.

     We had net cash outflows from financing activities of Rmb 1,573.1 million
in 2002, resulting primarily from our repayment of Rmb 3,367.3 million in bank
loans and dividend distributions of Rmb 2,265.1 million. Of the total bank
loans that we repaid, we prepaid Rmb 2,956.0 million, including JPY 21,162
million in Japanese yen-denominated debt, US$103.4 million in U.S.
dollar-denominated debt and Rmb 639.0 million in Renminbi-denominated debt.
This cash outflow was offset by cash inflow of Rmb



                                      89
<PAGE>

4,059.3 million resulting from our March 2002 offering of US$500 million in
6.375% guaranteed notes due 2012.

     After we became a separate entity in October 1999, we paid a dividend of
Rmb 1,045.4 million for fiscal year 1999 and declared and paid a final
dividend of Rmb 6,426.4 million for fiscal year 2000. For fiscal year 2001, we
declared and paid a dividend of Rmb 871.1 million. For fiscal year 2002, we
declared and paid dividends of Rmb 2,265.1 million. For fiscal year 2003, we
declared and paid dividends of Rmb 2,788.9 million (US$337.0 million). The
payment and the amount of any dividends in the future will depend on our
results of operations, cash flows, financial condition, the payment by our
subsidiaries of cash dividends to us, future 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 flows from operations, borrowing capacity and
funds raised from our notes issuance 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 5% to 22.5% of our employees' base
salaries. The related pension costs are expensed as incurred.

     When we became a separate entity as a result 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



                                      90
<PAGE>

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, 2001, 2002 and 2003, our retirement
expenses attributed to the current government plan were Rmb 6.4 million, Rmb
7.0 million and Rmb 15.5 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.

     We are required to make contributions to a mandatory provident fund at a
rate of 5% of the base salaries for full-time employees in Hong Kong. The
costs are expensed as incurred.

     Our Indonesian subsidiaries employ approximately 1,000 employees,
including approximately 40 managerial staff and technicians. We provide
expatriate staff with employee benefits 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.

     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 flows 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, as represented by the general consumer price index,
of 0.7% in 2001, an overall inflation rate of 0.8% in 2002 and an overall
deflation rate of 1.2% in 2003. Neither the deflation nor the inflation have
had a significant impact on our results of operations in the respective 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 37 to our consolidated financial statements attached to this annual
report.



                                      91
<PAGE>

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.

     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 temporary 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
temporary 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 drilling. As of December 31, 2002 and 2003, we had
Rmb 6,141.1 million and 5,783.2 million (US$698.7 million), respectively, in
net deferred tax liabilities. See note 13 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 year 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



                                      92
<PAGE>

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 two-year period ended December 31, 2002 and 2003 included in this annual
report.

Recent Accounting Pronouncements

     U.S. GAAP

     SFAS No. 150 "Accounting for Certain Financial Instruments with
Characteristics of both Liabilities and Equity"

     In May 2003, the Financial Accounting Standards Board, or FASB, issued
Statements of Financial Accounting Standards No. 150, or SFAS 150, Accounting
for Certain Financial Instruments with Characteristics of both Liabilities and
Equity. This statement establishes standards for classifying and measuring as
liabilities certain financial instruments that embody obligations of the
issuer and have characteristics of both liabilities and equity. Instruments
that are indexed to and potentially settled in an issuer's own shares that are
not within the scope of SFAS 150 remain subject to existing guidance. SFAS150
must be applied immediately to instruments entered into or modified after May
31, 2003 and to all other instruments that exist as of the beginning of the
first interim financial reporting period beginning after June 15, 2003.
Certain provisions of this statement relating to noncontrolling interests in
limited-life subsidiaries were deferred indefinitely. We adopted SFAS150 and
there was no impact on our results of operations or financial position upon
the adoption of the new statement.  We continue to monitor the deferral status
of SFAS 150.

     FIN 46 "Consolidation of Variable Interest Entities, an Interpretation of
ARB No. 51"

     In January 2003, the FASB issued FASB Interpretation No. 146, or FIN 46,
Consolidation of Variable Interest Entities, an Interpretation of ARB No. 51.
In December 2003, the FASB modified FIN 46 to make certain technical
corrections and address certain implementation issues that had arisen. FIN 46
provides a new framework for identifying variable interest entities ("VIEs")
and determining when a company should include the assets, liabilities,
non-controlling interests and results of activities of a VIE in its
consolidated financial statements. In general, a VIE is a corporation,
partnership, limited liability corporation, trust, or any other legal
structure used to conduct activities or hold assets that either (i) has an
insufficient amount of equity to carry out its principal activities without
additional subordinated financial support, (ii) has a group of equity owners
that are unable to make significant decisions about its activities, or (iii)
has a group of equity owners that do not have the obligation to absorb losses
or the right to receive returns generated by its operations. FIN 46 requires a
VIE to be consolidated if a party with an ownership, contractual or other
financial interest in the VIE (a variable interest holder) is obligated to
absorb a majority of the risk of loss from the VIE's activities, is entitled
to receive a majority of the VIE's residual returns (if no party absorbs a
majority of the VIE's losses), or both. A variable interest holder that
consolidates the VIE is called the primary beneficiary. Upon consolidation,
the primary beneficiary generally must initially record all of the VIE's
assets, liabilities and non-controlling interests at fair value and
subsequently account for the VIE as if it were consolidated based on majority
voting interest. FIN 46 also requires disclosures about VIEs that the variable
interest holder is not required to consolidate but in which it has a
significant variable interest.

     FIN 46 was effective immediately for VIEs created after January 31, 2003
with the implementation required from January 1, 2004 as a cumulative effect
of accounting change. For all other entities created after January 31, 2003,
implementation of FIN 46 is required by June 30, 2004. We adopted the
provisions of FIN 46 and there was no impact on our results of operations or
financial position upon the adoption of the new statement.



                                      93
<PAGE>

     Reporting Investments in Mineral Interests in Oil and Gas Properties

     In June 2001, the FASB issued Statements of Financial Accounting
Standards, or SFAS, No. 141, Business Combinations and No. 142, Goodwill and
Other Intangible Assets. SFAS 141 and SFAS 142 became effective for us on July
1, 2001 and January 1, 2002, respectively. Currently, the Emerging Issues Task
Force , or EITF," is considering the issue of whether SFAS 141 and 142 require
interests held under oil, gas and mineral leases to be separately classified
as intangible assets on the balance sheets of companies in the extractive
industries. If such interests were deemed to be intangible assets by the EITF,
mineral rights to extract oil and gas for both undeveloped and developed
leaseholds would be classified separately from oil and gas properties as
intangible assets on the corporation's balance sheet. Historically we
capitalized the acquisition cost of oil and gas properties interests in
accordance with SFAS 19, Financial Accounting and Reporting by Oil and Gas
Producing Companies. Also, consistent with industry practice, we have reported
these assets as part of property, plant and equipment.

     This interpretation of SFAS 141 and142 would only affect the
classification of the acquisition costs of oil and gas properties on our
balance sheet, and would not affect total assets, net worth or cash flows. Our
results of operations would not be affected, since these acquisition costs
would continue to be amortized in accordance with SFAS19. The amount subject
to reclassification as of December 31, 2003 was Rmb 4,025 million and as of
December 31, 2002 was Rmb 8,646 million.

     Hong Kong

     The following new and revised SSAPs are effective for the first time for
the current year's financial statements:

     o    SSAP 12 (Revised): "Income taxes"

     o    SSAP 35: "Accounting for government grants and disclosure of
          government assistance"

The SSAP 12 (Revised) prescribes the basis for accounting for income taxes
payable or recoverable, arising from the taxable profit or loss for the
current period (current tax); and income taxes payable or recoverable in
future periods, principally arising from taxable and deductible temporary
differences and the carryforward of the unused tax losses (deferred tax).

     The SSAP has had no significant impact for these financial statements on
the amounts recorded for income taxes. However, the related note disclosures
are now more extensive than previously required. These are detailed in note 14
to the financial statement and include a reconciliation between the accounting
profit and the tax expense for the year.

     SSAP 35 prescribes the accounting for government grants and other forms
of government assistance.

     The adoption of the SSAP 35 has had no significant impact for these
financial statement.

C. RESEARCH AND DEVELOPMENT, PATENTS AND LICENSES, ETC.

     See "Item 4--Information on the Company--Business Overview--Research and
Development" and "Item 7--Major Shareholders and Related Party
Transactions--Related Party Transactions--Categories of Connected
Transactions--Research and Development Services."

D. TREND INFORMATION

     Crude oil price is a major driver of our results of operation. We price
our crude oil with reference to the international crude oil prices, which have
fluctuated considerably over the years. On January 1, 2003, the international
benchmark crude oil, West Texas Intermediate, was US$32 per barrel. As at June
10, 2004, it was US$38.48 per barrel. In addition, continued political and
economic uncertainties in Iraq and threat of terrorism worldwide raise
concerns about the security and availability of ample supplies to



                                      94
<PAGE>

meet growing demand. It is expected that crude oil price will remain
relatively high in 2004. For more information about crude oil prices, see
"Item 3--Key Information--Risk Factors--Risks Relating to Our Business--Our
business, revenues and profits fluctuate with changes in oil and gas prices,"
"Item 4--Information on the Company--Business Overview--Sales and
Marketing--Sales of Offshore Crude Oil--Pricing," and "Item 5--Operating and
Financial Review and Prospects--Operating Results--Results of Operations--2003
versus 2002."

     In additional to crude oil, natural gas is becoming an increasingly
important part of our business. The Chinese government promotes the use of
natural gas as a clean and efficient fuel. Demand for natural gas in the PRC
is likely to increase significantly. We have expanded and will continue to
expand our natural gas business and intend to exploit our natural reserves to
meet growing demand for natural gas. For more information about natural gas,
see "Item 3--Key Information--Risk Factors--Risks Relating to Our
Business--Any failure to implement our natural gas business strategy may
adversely affect our business and financial position," "--The infrastructure
and demand for natural gas in the PRC may proceed at a slower pace than our
planned increase in production," "Item 4--Information on the Company--Business
Overview--Competitive Strengths--Strategic Position in China's Growing Natural
Gas Market," and "--Natural Gas Business."

E. OFF- BALANCE SHEET ARRANGEMENTS

     We 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. The derivative
contract was recorded as "Other payable and accrued liabilities" in the
consolidated balance sheet at fair value. For the year ended December 31,
2003, we recognized related changes in fair value, a gain of Rmb 10,038,000
(compared to Rmb 14,485,000 in 2002), and included the amount in "Exchange
(loss)/gain, net" in the consolidated income statement.

     During 2003, we also entered into interest rate swap agreements to
partially hedge the fixed-rate debt securities for interest rate risk exposure
management purposes with notional contract amount of US$200 million. The
interest rate swap agreements utilized by us effectively modify our exposure
to interest risk by converting our fixed-rate debt to a floating rate. These
agreements involve the receipt of fixed rate amounts in exchange for floating
rate interest payments over the life of the agreement without an exchange of
the underlying principal amount. The net gain as of December 31, 2003 related
to the ineffective portion of the interest rate swap agreements was
approximately Rmb 938,000.

F. TABULAR DISCLOSURE OF CONTRACTUAL OBLIGATIONS

     The following table sets forth information regarding our contractual
obligations for the periods indicated.

<TABLE>
<CAPTION>
                                                                              Payments due by period
                                                        -------------------------------------------------------------------
                                                                        Less than                              More than
           Contractual Obligations                          Total         1 year      1-3 years   3-5 years     5 years
       ------------------------------                   -------------- ------------ ------------ ------------ -------------
                                                            Rmb'000      Rmb'000      Rmb'000      Rmb'000       Rmb'000
<S>                                                     <C>            <C>          <C>          <C>          <C>
Long-term debt obligations..........................       9,051,862      20,618      870,835       18,740      8,141,669
Operating lease obligations.........................          20,396      17,222        3,174           --             --
Other long-term liabilities reflected on our
    balance sheet under Hong Kong GAAP .............       2,646,800          --           --           --      2,646,800
                                                        -------------- ------------ ------------ ------------ -------------
         Total......................................      11,719,058      37,840      874,009       18,740     10,788,469
                                                        ============== ============ ============ ============ =============
</TABLE>



                                      95
<PAGE>

     As at December 31, 2003, we had the following capital commitments,
principally for the construction and purchase of property, plant and
equipment:

<TABLE>
<CAPTION>
Capital Commitments                                                                                2003             2002
-------------------                                                                         -----------        ---------
                                                                                                Rmb'000          Rmb'000
<S>                                                                                         <C>                <C>
Contracted for.......................................................................         2,534,468        1,715,173
Authorized, but not contracted for...................................................        17,489,791        9,060,722
</TABLE>


     As at December 31, 2003, we had unutilized banking facilities amounting
to approximately Rmb 32,455,229,500 as compared to Rmb 31,646,389,000 in 2002.

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
eight members, including four independent non-executive directors.

     Our current directors and senior officers are as follows:

<TABLE>
<CAPTION>
                                     Age as of
                                   December 31,
Name                                   2003            Position
----------------------------  -----------------------  ----------------------------------------------------------
<S>                           <C>                      <C>
Chengyu Fu..................            52             Chairman of Board of Directors and Chief Executive Officer

Longsheng Jiang.............            58             Director

Shouwei Zhou................            52             Director and President

Han Luo.....................            50             Director

Evert Henkes................            60             Independent Non-executive Director

Sung Hong Chiu..............            57             Independent Non-executive Director

Kenneth S. Courtis..........            58             Independent Non-executive Director

Erwin Schurtenberger........            64             Independent Non-executive Director

Yunshi Cao..................            58             Senior Vice President, Company Secretary and General Counsel

Mark Qiu....................            40             Chief Financial Officer and Senior Vice President

Hua Yang....................            42             Senior Vice President

Wei Chen....................            46             Senior Vice President and Director of CNOOC (China) Limited
                                                       Research Center

Guohua Zhang................            42             Senior Vice President and General Manager of Exploration
                                                       Department



                                      96
<PAGE>

Jian Liu....................            46             Senior Vice President and General Manager of Development and
                                                       Production Department

Ning Li.....................            40             Senior Vice President and General Manager of Engineering and
                                                       Project Department

</TABLE>

     In October 2003, our former Chairman and CEO left our company, and Mr.
Chengyu Fu was elected by the board of directors as our Chairman and CEO. Mr.
Guohua Zhang was appointed Senior Vice President of our company and ceased to
be an Assistant to General Manager of CNOOC China Limited as of March 2003. He
was also named the General Manager of Exploration Department as of April 2003.
As of May 2003, Mr. Jian Liu and Mr. Ning Li were appointed Senior Vice
Presidents. They were also named General Manager of Development and Production
Department and General Manager of Engineering and Project Department,
respectively. Mr. Evert Henkes was appointed independent non-executive
director of our company in September 2003. Mr. Chak Kwong So resigned in 2003
from our board of directors following his appointment as Deputy Chairman and
Group Managing Director of PCCW Limited.

     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

     Chengyu Fu received a B.S. degree in geology from the 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 29 years
of experience in the oil industry in the PRC. He previously worked in China's
Daqing, Liaohe and Huabei oilfields. He joined CNOOC in 1982 and has since
been appointed Chairman of the Management Committee formed through a joint
venture between CNOOC, BP Amoco, Chevron, Texaco, Phillips Petroleum, Shell
and Agip. From 1994 to 1995, Mr. Fu was the Deputy General Manager of China
Offshore Oil Eastern South China Sea Corporation, a subsidiary of CNOOC. In
December 1995, he was appointed Vice President of Phillips China Inc. and
General Manager of the Xijiang Development Project. In 1999, Mr. Fu was the
General Manager of China Offshore Oil Eastern South China Sea Corporation. In
2000, Mr. Fu was appointed Deputy General Manager of CNOOC. Subsequently, he
was appointed Director, Executive Vice President, President and Chief
Operating Officer of our company in 2001. In August 2002 he became the
Chairman and Chief Executive Officer of our affiliate, China Oilfield Services
Limited. In October 2003, Mr. Fu was appointed President of CNOOC. He was also
appointed Chairman of the Board of Directors and Chief Executive Officer of
our company, effective October 16, 2003. In November 2003, Mr. Fu resigned his
Chief Executive Officer position from China Oilfield Services Limited.

     Longsheng Jiang received a B.S. degree from the Beijing Petroleum
Institute in China. He has over 34 years of experience in the oil industry in
the PRC. He was appointed Director of our company in December 2000 and has
been the Vice President of CNOOC since 1998. From 1994 to 1998, he was the
General Manager of China Offshore Oil Southern Drilling Company. From 1991 to
1994, Mr. Jiang served as the Deputy Chief Drilling Engineer and was later
appointed Chief Drilling Engineer of China Offshore Oil Western South China
Sea Corporation. He joined CNOOC in 1982.

     Shouwei Zhou received a doctorate degree from the Southwest China
Petroleum Institute and is a senior engineer. He was appointed Director and
Executive Vice President of our company in September 1999 and is responsible
for the management and operation of CNOOC China Limited. Mr. Zhou was
appointed President of our company in August 2002. Mr. Zhou is also a Vice
President of CNOOC. Mr. Zhou was the Deputy General Manager and later promoted
to become General Manager of China



                                      97
<PAGE>

Offshore Oil Bohai Corporation and China Offshore Oil Tianjin Corporation,
both subsidiaries of CNOOC. He joined CNOOC in 1982.

     Han Luo received a doctorate degree from China Petroleum University. He
has over 29 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 Chairman 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

     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 28 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. Mr. Chiu was appointed as one of the
independent non-executive directors of CNOOC in September 1999.

     Kenneth S. Courtis is the 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. from the Institute of Economic and Political
Studies in Paris. Prior to joining Goldman Sachs, he served as Chief Asia
Economist and Strategist for Deutsche Bank.

     Erwin Schurtenberger was the Ambassador of Switzerland to the People's
Republic of China, the Democratic People's Republic of Korea and the Republic
of Mongolia from 1988 to 1995. He joined the Swiss Foreign Services in 1969.
Over the years, he held various diplomatic positions in Bangkok, Hong Kong,
Beijing and Tokyo. He also served as the Ambassador of Switzerland to Iraq. He
has been an independent business advisor to various European multinationals,
American groups and humanitarian aid organizations. He was the President of
the Swiss-Asia Foundation. He serves on the boards of directors of ROBERT
BOSCH RBint and its International Advisory Board, BUHLER GROUP Switzerland,
FIRMENICH-China, TAIKANG Life Insurance, WINTERTHUR Insurances (Asia). Dr.
Schurtenberger is also a senior advisor to the China Training Center for
Senior Personnel Management Officials. He received a Ph.D. Degree in Economics
and was trained in political science and philosophy. Dr. Schurtenberger is
presently Chairman of our International Advisory Board.

     Evert Henkes served as the CEO of Shell global chemical business from
1998 to 2003. Since joining Shell in 1973, he held various executive positions
worldwide, including Managing Director of Shell Chemicals UK Ltd., Managing
Director of Shell UK, President of Billiton Metals, Shell's Metals
Coordinator, Shell's Chemical Coordinator, and Director of Strategy & Business
Services of Shell International Chemicals Ltd. He also served as directors in
regional and global industrial bodies, including CEFIC and ICCA. He is also a
director of Tate & Lyle Plc, BPB Plc, SembCorp Industries Ltd. and
OutokumpuOy.

Company Secretary

     Yunshi Cao is our Company Secretary, General Counsel and a Senior Vice
President. He is also the General Counsel 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 Beijing Petroleum Institute and studied law at Columbia
University School of Law.

Senior Management



                                      98
<PAGE>

     Mark Qiu is our Chief Financial Officer and Senior Vice President. He
worked for Salomon Smith Barney before joining us, last served as the head of
its Asia Oil & Gas Investment Banking group. He previously held several
management positions at Atlantic Richfield Corporation (ARCO) of United
States. He was the Federal Government Relations Director of ARCO in
Washington, D.C. Prior to that, he was a Vice President of ARCO China Ltd.,
ARCO's subsidiary in China. He was a consultant with the leadership succession
planning consulting firm of RHR International. Mr. Qiu received a MBA degree
from the Sloan School of Management at Massachusetts Institute of Technology
as a Sloan Fellow. He also has a Master degree and a Ph.D. degree in Decision
Sciences from the University of Texas at Arlington. Mr. Qiu is also a director
of CNOOC Finance Corporation Limited, a majority-owned subsidiary of CNOOC.

     Hua Yang is a Senior Vice President of our company and the President of
CNOOC International Limited. He is a senior engineer. He received his B.S.
degree from China Petroleum Institute. He has over 21 years' experience in
petroleum exploration and production. Mr. Yang joined CNOOC in 1982 and was an
Acting Director of the Overseas Development Department of CNOOC.

     Wei Chen is a Senior Vice President of our company and Director of the
CNOOC (China) Limited Research Center. 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 CNOOC Research Center and the General Manager of our Human
Resources Department and Administration Department.

     Guohua Zhang is a Senior Vice President of our company and General
Manager of our Exploration Department. Mr. Zhang is a geologist. He graduated
from Qingdao Oceanographic Institute with a B.S. degree. He studied in Alberta
Business College in Canada in 2001. He joined CNOOC in 1982 and served as
General Manager of the Exploration Department of China Offshore Oil Western
South China Sea Corporation, Chief Geologist of CNOOC Research Center and
Assistant to General Manager of CNOOC China Limited.

     Jian Liu is the Senior Vice President and General Manager of the
Department of Development and Production at CNOOC. He graduated from Huazhong
University of Science and Technology with a B.S. degree and received his MBA
degree from Tianjin University in 2000. Mr. Liu joined CNOOC in 1982. He
served as the manager of CNOOC Bohai Exploitation Company, and Vice General
Manager of the Tianjin Branch and Zhanjiang Branch at certain times.

     Ning Li is the Senior Vice President and General Manager of the
Engineering Department of our company. He is a senior engineer, responsible
for the project management for the development of oil, gas and oilfields. He
graduated from East China Petroleum Institute in 1983 and was dispatched to
CNOOC Bohai Company. He participated in the design for the development of oil,
gas and oilfields in Bohai, Donghai and South China Sea. He held such
positions as Vice Director of the Design Section, Project Manager and Vice
General Manager of a design company. He was appointed as Vice General Manager
of CNOOC Design Company in 1994, Vice General Manager of the Engineering
Department of CNOOC in 1998 and General manager of the Engineering Department
of CNOOC Limited in 2001.In April 2003, he was appointed as Senior Vice
President and General Manager of the Engineering Department of CNOOC. Mr. Li
received an MBA degree from Tianjin University in 2000.

B. COMPENSATION OF DIRECTORS AND OFFICERS

     Each of the directors entered into a service contract with us for an
initial term of three years, 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:



                                      99
<PAGE>

     o    the annual salaries for Mr. Chengyu Fu (Chairman of the Board and
          Chief Executive Officer) and Mr. Shouwei Zhou (Director and
          President) during the initial three years are 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 their
          respective salaries for the previous year;

     o    the Chairman of the Board and each other director (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 of charge 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
          is 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 completed
          financial year.

     The aggregate amounts 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, 2001, 2002 and
2003 were approximately Rmb 8.3 million, Rmb 9.5 million and Rmb 10.7 million
(US$1,292,270), respectively, while the amounts paid to our executive officers
for the same periods were approximately Rmb 5.2 million, Rmb 8.0 million and
Rmb 11.0 million (US$1,328,502), respectively. Under our pension plan for
2003, we set aside an aggregate amount of Rmb 207,000 (US$25,000) and Rmb
286,700 (US$34,626) for pension and similar benefits in kind for our directors
(other than independent non-executive directors) and our executive officers
respectively. Our directors (other than independent non-executive directors)
and executive officers contributed an additional Rmb 54,340 (US$6,563) and Rmb
86,250 (US$10,417), respectively, to the pension plan for 2003. 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
employees, see "--Share Ownership" below.

C. BOARD PRACTICE

Audit and Other Committees

     Our audit committee consists of two independent non-executive directors.
The committee meets at least twice a year and is responsible for reviewing the
completeness, accuracy and fairness of the our accounts, evaluating our
auditing scope and procedures, and evaluating internal control systems. The
committee is also responsible for setting up internal monitoring systems so as
to allow our board of directors to monitor our financial position, protect our
assets, and prevent major errors resulting from financial reporting or loss.
Our board of directors is responsible for these systems and appropriate
delegations and guidance have been made. In addition, the chairman of the
audit committee will each year present a report to the board of directors
describing the committees' major activities during the year. As of December
31, 2003, our audit committee was composed of Mr. Sung Hong Chiu and Dr.
Kenneth S. Courtis.

     We have established a remuneration committee. It consists of three
independent non-executive directors. The primary duties of the remuneration
committee are to manage our share option schemes and to formulate our
remuneration policy. As of December 31, 2003, our remuneration committee was
composed of Mr. Sung Hong Chiu, Dr. Erwin Schurternberger and Mr. Evert
Henkes.

     We have also established a nomination committee. It consists of one
executive director and two independent non-executive directors. Its primary
responsibilities include nominating candidates for directors subject to our
board of directors' approval, conducting routine examination of the structure,



                                     100
<PAGE>

scale and composition of our board of directors, and review the leadership
capabilities of our directors in order to ensure that we remain competitive.
As of December 31, 2003, our nomination committee was composed of Mr. Han Luo,
Mr. Sung Hong Chiu and Dr. Erwin Schurternberger.

     For information on our audit committee finance expert and our code of
ethics, see "Item 16A--Audit Committee Finance Expert," and "Item 16B--Code of
Ethics."

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. Erwin Schurtenberger, our independent
non-executive director, is the Chairman of the International Advisory Board.
On March 20, 2003, Peter Sutherland and Cornelius Herkstroter joined our
International Advisory Board. In March 2004, US Ambassador Charles W. Freeman
Jr. also joined the International Advisory Board.



                                     101
<PAGE>

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

<TABLE>
<CAPTION>
Name                                                     Biographical Information
--------------------    --------------------------------------------------------------------------------------------
<S>                     <C>
Erwin                   The Ambassador of Switzerland to the People's Republic of China, the Democratic People's
Schurtenberger          Republic of Korea and the Republic of Mongolia from 1988 to 1995. He joined the Swiss
                        Foreign Services in 1969. Over the years, he held various diplomatic positions in
                        Bangkok, Hong Kong, Beijing and Tokyo. He also served as the Ambassador of Switzerland to
                        Iraq. He has been an independent business advisor to various European multinationals,
                        American groups and humanitarian aid organizations. He was the President of the
                        Swiss-Asia Foundation. He serves on the Boards of ROBERT BOSCH RBint and its
                        International Advisory Board, BUHLER GROUP Switzerland, FIRMENICH-China, TAIKANG Life
                        Insurance, WINTERTHUR Insurances (Asia). Dr. Schurtenberger is also a senior advisor to
                        the China Training Center for Senior Personnel Management Officials. He received a Ph.D.
                        Degree in Economics and was trained in political science and philosophy. Dr.
                        Schurtenberger is presently Chairman of our International Advisory Board.

Cornelius               Former Chairman of the Committee of Managing Directors of the Royal Dutch Shell Group of
Herkstroter             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.

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. As 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.

Charles W. Freeman      Became Chairman of Projects International, Inc. in 1995, after an extensive career in the
                        U.S. Government spanning three decades and numerous senior positions, including U.S.
                        Ambassador to Saudi Arabia and Assistant Secretary of Defense for International Security
                        Affairs.  He is currently president of the Middle East Policy  Council, co-chair of the
                        U.S. China Policy Foundation, vice-chair of the Atlantic Council, and a trustee of the
                        Institute for Defense Analyses, among other positions.  Ambassador Freeman attended the
                        National Autonomous University of Mexico and received his A.B. from Yale  University as
                        well as a J.D. from the Harvard Law School.  He is the author of two widely circulated
                        books on statecraft and diplomacy:  The Diplomat's Dictionary and Arts of Power.
</TABLE>



                                                       102
<PAGE>

D. EMPLOYEES

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

E. SHARE OWNERSHIP

     We have adopted share option schemes which provide for the grant of
options to our senior management. Under these share option schemes, the
remuneration committee of our board of directors will from time to time
propose for the board's approval for the recipient of and the number of shares
underlying each option. These schemes provide for issuance of options
exercisable for shares granted under these schemes as described below not
exceeding 10% of the total number of our outstanding shares, excluding shares
issued upon exercise of options granted under the schemes from time to time.

     On February 4, 2001 we adopted a pre-global offering share option scheme,
or the Pre-Global Offering Share Option Scheme. Pursuant to the Pre-Global
Offering Share Option Scheme:

     o    options for an aggregate of 4,620,000 shares have been granted;

     o    the subscription price per share is HK$5.95; and

     o    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.

     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, we adopted a share option scheme, or the 2001 Share
Option Scheme, for the purpose of recognizing the contribution that certain
individuals had made to us and attracting and retaining the best available
personnel.

     Pursuant to the 2001 Share Option Scheme:

     o    options for an aggregate of 8,820,000 shares have been granted;

     o    the subscription price per share is HK$6.16; and

     o    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 Hong Kong Stock Exchange listing
rules regarding the requirements of the 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.



                                     103
<PAGE>

     In June 2002, we adopted a new share option scheme, or the 2002 Share
Option Scheme. Under the 2002 Share Option Scheme, our directors may, at their
discretion, invite employees, including executive directors, of our company or
any of our 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 our total issued
share capital. 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 our total issued share capital from time to
time.

     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 our 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:

     o    the nominal value of a share;

     o    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

     o    the closing price of our shares on the HKSE as stated in the HKSE's
          quotation sheets on the date of grant of the option.

     On February 24, 2003, our board of directors approved to grant options in
respect of 8,410,000 shares to our senior management under the 2002 Share
Option Scheme. The exercise price for the options is HK$10.54 per share. The
market price was HK$10.55 per share preceding the options granted. Options
granted under the 2002 Share Option Scheme may be exercised, in whole or in
part, in accordance with the following vesting schedule:

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

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

     o    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.

     As at December 31, 2003, our directors and employees had the following
personal interests in options to subscribe for shares granted under our share
option schemes:

<TABLE>
<CAPTION>
                                                                                Closing price per
                                                                                share immediately
                                                                                before the date on
                        Number of shares involved in the                         which the options
                            options outstanding as of                              were granted        Exercise Price
                     ---------------------------------------                   ---------------------  -----------------
Name of Grantee        January 1, 2003    December 31, 2003     Date of Grant          (HK$)               (HK$)
-------------------  ------------------  -------------------  ---------------- ---------------------  -----------------
<S>                  <C>                 <C>                  <C>              <C>                    <C>
Directors:

Chengyu Fu                  350,000            350,000        March 12, 2001             --                 5.95
                            350,000            350,000        August 27, 2001          7.30                 6.16
                                               230,000       February 24, 2003        10.45                10.54

Shouwei Zhou                280,000            280,000        March 12, 2001             --                 5.95
                            350,000            350,000        August 27, 2001          7.30                 6.16
                                               350,000       February 24, 2003        10.45                10.54

Longsheng Jiang             280,000            280,000        March 12, 2001             --                 5.95



                                     104
<PAGE>

                            230,000            230,000        August 27, 2001          7.30                 6.16
                                               230,000       February 24, 2003        10.45                10.54

Han Luo                     280,000            280,000        March 12, 2001             --                 5.95
                            230,000            230,000        August 27, 2001          7.30                 6.16
                                               230,000       February 24, 2003        10.45                10.54


Employees:

Other Employees           3,430,000          3,430,000        March 12, 2001             --                 5.95
                          7,660,000          7,660,000        August 27, 2001          7.30                 6.16
                                             7,370,000       February 24, 2003        10.45                10.54
</TABLE>

     As of December 31, 2003, no options granted under our share option
schemes have been exercised.

     The weighted average fair value of the options granted under the
Pre-Global Offering Share Option Scheme, the 2001 Share Option Scheme and the
2002 Share Option Scheme at the grant dates was Rmb 3.40. This was estimated
using the Black-Scholes option pricing model under the following assumptions:
risk-free interest rates of 5.25%, expected volatility of 44%, an expected
life of five years and an expected dividend yield of 2.0%. The assumptions on
which the option pricing model is based represent the subjective estimations
of our directors as to the circumstances existing at the time the options were
granted.

     On February 5, 2004, our board of directors approved a grant of options
in respect of 10,140,000 shares to our senior management under the 2002 Share
Option Scheme. The exercise price for the options is HK$15.76 per share. For
further details about our share option schemes, see notes 28 and 36 to our
consolidated financial statements attached to this annual report.

     As of June 10, 2004, 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.



                                     105
<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 June 10, 2004.

<TABLE>
<CAPTION>
  Shareholder                                    Number of Shares Owned                  Percentage
-----------------------------------------  ---------------------------------  --------------------------------
<S>                                        <C>                                <C>
  CNOOC(1)..............................            29,000,000,000(2)                    70.625%(3)

</TABLE>

______________
(1)  CNOOC owns our shares indirectly through its wholly owned subsidiary,
     CNOOC (BVI) Limited.
(2)  On March 17, 2004, our shareholders approved a five-for-one stock split
     of our shares. The stock split was effected by dividing our shares of
     HK$0.10 each into the shares of HK$0.02 each. Accordingly, the number of
     shares owned by CNOOC changed from 5,800,000,000 to 29,000,000,000 as a
     result of the stock split.
(3)  In May 2004, we repurchased a total of 8,877,000 shares in the open
     market based on the general mandate approved by our shareholders on May
     29, 2003. For further details about our share buybacks, see "Item
     16E--Purchases of Equity Securities by the Issuer and Affiliated
     Purchasers."

     Our major shareholder listed above does not have different voting rights.
Except as set forth in the above table, we are not aware of any holders of
more than 5% of our shares. Nor are we aware of any significant changes in the
percentage ownership of our major shareholder over the course of the past
three years. To our knowledge, no arrangements are currently in place that
could lead to a change of control of our company.

     As of May 31, 2004, 11,385,465 American depositary shares were
outstanding in the United States, representing approximately 9.44% of our then
outstanding shares. At such date, the number of registered American depositary
share holders in the United States was 12.

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 70.625% 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, many of these connected
transactions 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 some of these transactions. The waiver 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 continuing connected transactions
before it would grant us the new waiver. As an interested shareholder, CNOOC
abstained from the shareholder vote on the proposed continuing connected
transactions. We appointed an independent board committee to advise the
independent shareholders on whether the terms of the proposed continuing
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



                                     106
<PAGE>

continuing 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 in respect of which we received a
waiver 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

     o    Sales of crude oil, condensate oil and liquefied petroleum gas.

     Contracts with foreign petroleum companies. 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 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;



                                     107
<PAGE>

     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) government-prescribed prices; or

     (ii) where there is no government-prescribed price, market prices,
          including the local or national market prices; or

    (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 its listing rules with
respect to any supplemental agreements.

     For the three years ended December 31, 2003, the amounts we paid to CNOOC
subsidiaries for these services were approximately Rmb 815 million, Rmb 789
million and Rmb1,018 million, respectively, representing 3.9%, 3.0% and 2.5%,
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 our 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.



                                     108
<PAGE>

     For the three years ended December 31, 2003, the amounts we paid to CNOOC
subsidiaries for these services were approximately Rmb 2,367 million, Rmb
3,280 million and Rmb 3,828 million, respectively, representing 11.4%, 12.4%
and 9.3%, 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 CNOOC 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.

     During the three years ended December 31, 2001, 2002 and 2003, we paid
approximately Rmb 109 million, Rmb 110 million and Rmb 56 million,
respectively, to CNOOC Research Center for its provision of general research
and development services. We occasionally also hired research institutes,
including CNOOC Research Center, through an open bidding process for specific
research and development projects. For such specific projects during the three
years ended December 31, 2003, we paid the CNOOC Research Center approximately
Rmb 50 million, Rmb 57 million and Rmb 27 million.

     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
agreements are based on normal commercial terms. For the three years ended
December 31, 2003, the aggregate rentals and management fees payable by us to
CNOOC and its subsidiaries were approximately Rmb 46 million, Rmb 54 million
and Rmb 57 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, 2003, CNOOC subsidiaries paid us approximately Rmb 1,814 million,
Rmb 4,362 million and Rmb 8,324 million, respectively, representing
approximately 8.7%,16.5% and 20.3% of our total revenues for the respective
periods.

Waiver Conditions

     The waiver granted by the Hong Kong Stock Exchange to us in January 2003
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;



                                     109
<PAGE>

          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 continuing 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:

<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 limit for
          utilities and       consolidated total           this category was 3.91% of our total revenues.
          ancillary           revenues in the preceding    The new annual limit is based on past transaction
          services supply     financial year               amounts and future projections.  We believe that
          agreements                                       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 million
                              5,853 million, Rmb 7,338     for the year ended December 31, 2002. The new
                              million and Rmb 4,880        annual limits take into consideration continued
                              million, respectively        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 this
          development         financial years ending       category was Rmb 52 million per year. The
          services for        December 31, 2005,           new annual limits are based on the amounts in



                                     110
<PAGE>

          ------------------- ---------------------------- ----------------------------------------------------
          particular          Rmb 141 million, Rmb         prior years and a projection of our future
          projects            148 million and Rmb          needs for such services.
                              153 million, respectively
          ------------------- ---------------------------- ----------------------------------------------------
          Sales of crude      In respect of the three      Our original waiver from the Hong Kong Stock
          oil,                financial years ending       Exchange limited this category of transactions to
          condensate oil      December 31, 2005, 42%,      Rmb 1,950 million (representing 18% of our audited
          and liquefied       56% and 82%, respectively,   consolidated revenues for the year ended December
          petroleum gas       of our audited               31, 2002). The new annual limits are based on the
                              consolidated total           amount of past sales and expected increases in
                              revenues in the              this category because of the ongoing development
                              preceding financial          of existing oilfields and the development of two
                              year                         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 research    Rmb 110 million              The annual limit for this category of connected
          and development                                  transactions is the same as the limit under the
          services agreement                               previous waiver from the Hong Kong Stock Exchange
                                                           and takes into consideration our anticipated need
                                                           for these services.
          ------------------- ---------------------------- ----------------------------------------------------
          Lease and           Rmb 78 million               Under our initial waiver, the maximum amount of
          management                                       this category was Rmb 49 million. The new waiver
          services                                         amount is based on possible future expansion and
                                                           the unavailability of alternative providers.
          ------------------- ---------------------------- ----------------------------------------------------
</TABLE>

     vi.  we undertook 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 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 listing rules unless we apply for and obtain a
          separate waiver from the Hong Kong Stock Exchange.

     In addition to the connected transactions disclosed above, from time to
time we place cash deposits with CNOOC Finance Corporation Limited, or CNOOC
Finance. CNOOC Finance is a majority-owned subsidiary of CNOOC and operates as
a non-bank finance company under the supervision of the People's Bank of
China, or PBOC, the PRC central bank. We acquired a 31.8% interest in CNOOC
Finance in September 2003. The interest rates offered by CNOOC Finance were
the same as the rates promulgated by the PBOC which were applicable to account
deposits with PRC banks or finance companies and ranged from 1.44% to 1.89%
per annum. As of December 31, 2003, we had cash and cash equivalents and time
deposits aggregating Rmb 3,898,000 placed with CNOOC Finance. On April 8,
2004, we entered into a framework agreement with CNOOC Finance. Pursuant to
the framework agreement, we and our subsidiaries will from time to time
utilize financial services from CNOOC Finance, including placing of cash
deposits and other settlement services. The maximum outstanding balance for
deposits, including interest receipts in respect of these deposits, placed
with CNOOC Finance during the term of the framework agreement will not exceed
Rmb 6,800 million. Such



                                     111
<PAGE>

arrangement with CNOOC Finance was approved in the extraordinary general
meeting of our shareholders on April 28, 2004.

     During 2003, we also imported oil into the PRC for trading, using CNOOC's
import license. As of December 31, 2003, total sales to our customers through
such arrangements amounted to approximately Rmb 1,470,832,000 (2002: Nil). The
commission paid by the third party customers to CNOOC for the year amounted to
approximately Rmb 8,825,000 (2002: Nil).

     For further information regarding related party transactions, see note 26
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.

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.



                                     112
<PAGE>

     Following the reorganization of CNOOC and our establishment as a separate
legal entity in October 1999, we paid a dividend of Rmb 1,045.4 million for
fiscal year 1999 and declared and paid a final dividend of Rmb 6,426.4 million
for fiscal year 2000. For fiscal year 2001, we declared and paid a dividend of
Rmb 871.1 million. For fiscal year 2002, we declared and paid dividends of Rmb
2,265.1 million. For fiscal year 2003, we declared and paid dividends of Rmb
5,415.0 million (US$654.2 million). 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.

     For the years ended December 31, 2001, 2002 and 2003, 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, 2001         December 31, 2002        December 31, 2003
                                          -----------------         -----------------        -----------------
                                        Percentage                Percentage               Percentage
                                          of Net         Rmb        of Net         Rmb       of Net         Rmb
                                          Profits   (in millions)  Profits   (in millions)  Profits   (in millions)
                                        ----------  ------------- ---------- ------------- ---------- -------------
<S>                                     <C>         <C>           <C>        <C>           <C>        <C>
Reserve fund...........................    10%         587.0        10%         697.1         10%         818.1
Staff and workers' bonus and
   welfare fund........................   0.7%          40.0        --           --           --           --
</TABLE>

B. SIGNIFICANT CHANGES

First Quarter 2004 Financial and Operating Results

     During the first quarter of 2004, our unaudited revenues from the sale of
oil and gas were Rmb 7.7 billion. Our daily average crude oil production was
306,980 barrels per day during this period, compared to 308,777 barrels per
day in 2003, while our daily average natural gas production was 323 million
cubic feet per day, compared to 242 million cubic feet per day in 2003. The
average net realized price of our crude oil was US$29.79 per barrel during the
first quarter of 2004, compared to US$30.33 per barrel in 2003, while the
average net realized price of our natural gas was US$2.80 per thousand cubic
feet, compared to US$2.99 per thousand cubic feet in 2003.

Stock Split

     On March 17, 2004, our shareholders approved a five-for-one stock split
of our shares. The stock split was effected by dividing each of our issued and
unissued shares of HK$0.10 each into five shares of HK$0.02 each. Our
shareholders also approved an increase in the board lot size for trading on
the Hong Kong Stock Exchange from 500 shares of HK$0.10 each to 1,000
subdivided shares of HK$0.02 each. The ratio of our American depositary
receipts listed on the New York Stock Exchange also changed such that each ADR
now represents 100 subdivided shares of HK$0.02 each, as opposed to 20 shares
of HK$0.10 each prior to the stock split.



                                     113
<PAGE>

ITEM 9. THE OFFER AND LISTING

     Not applicable, except for Item 9.A.4 and Item 9.C.

     We listed our shares on the Hong Kong Stock Exchange and our ADSs on the
New York Stock Exchange in February 2001. Our shares are listed on the Hong
Kong Stock Exchange under the stock code "883" and our ADSs are listed on the
New York Stock Exchange under the symbol "CEO." On March 17, 2004, our
shareholders approved a five-for-one stock split of our shares. The stock
split was effected by dividing each of our issued and unissued shares of
HK$0.10 each into five shares of HK$0.02 each. The ratio of our American
depositary shares listed on the New York Stock Exchange also changed such that
each ADS now represents 100 subdivided shares of HK$0.02 each, as opposed to
20 shares of HK$0.10 each prior to the stock split. The following table sets
forth, for the periods indicated, the high and low closing prices per share,
as reported on the Hong Kong Stock Exchange and adjusted retroactively to
reflect the stock split, 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.......................            1.74                    1.20           22.00                  15.70
2002.......................            2.33                    1.48           29.44                  19.01
2003.......................            3.54                    1.96           42.78                  23.83

2002 Financial Quarters
   1st Quarter.............            1.94                    1.48           24.92                  19.01
   2nd Quarter.............            2.19                    1.87           27.60                  23.84
   3rd Quarter.............            2.33                    1.92           29.44                  24.88
   4th Quarter.............            2.22                    1.87           28.48                  24.00

2003 Financial Quarters
   1st Quarter.............            2.19                    1.96           26.72                  23.83
   2nd Quarter.............            2.32                    1.98           29.00                  24.11
   3rd Quarter.............            2.92                    2.28           37.45                  30.18
   4th Quarter.............            3.54                    2.66           42.78                  34.52

2004 Financial Quarter
   1st Quarter.............            3.42                    3.02           46.80                  39.52

Last Six Months
   December 2003...........            3.54                    3.04           42.78                  38.80
   January 2004............            3.38                    3.02           46.80                  39.32
   February 2004...........            3.28                    3.09           42.60                  39.48
   March 2004..............            3.42                    3.05           43.70                  40.26
   April 2004..............            3.40                    2.67           43.60                  35.84
   May 2004................            3.40                    2.55           42.96                  34.40
</TABLE>



                                     114
<PAGE>

ITEM 10. ADDITIONAL INFORMATION

A. SHARE CAPITAL

     Not applicable.

B. MEMORANDUM AND ARTICLES OF ASSOCIATION

     We were incorporated with limited liability on August 20, 1999 in Hong
Kong under the Companies Ordinance of Hong Kong. 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 which was
filed as an exhibit to our registration statement on Form F-1 (Registration
No. 333-10862) and our articles of association, as amended, which is filed as
an exhibit to this annual report.

     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.



                                     115
<PAGE>

     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.

     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.



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<PAGE>

     General Meetings

     We are required to hold an annual general meeting of shareholders each
year within 15 months from the date of our last annual general meeting. We may
also hold extraordinary general meetings of shareholders from time to time.
Our board of directors may convene an extraordinary general meeting at will,
and shall on requisition in accordance with the Companies Ordinance of Hong
Kong, proceed to convene an extraordinary general meeting. Our annual general
meeting and any extraordinary general meeting called for the purpose of
passing a special resolution requires at least 21 days' prior notice, and any
other general meeting requires at least 14 days' prior notice. The notice must
specify the place, day and time of the meeting and, in the case of special
business, the general nature of that business. The quorum for a general
meeting is two shareholders present in person or by proxy. If within thirty
minutes from the time appointed for the meeting a quorum is not present, the
meeting, if convened upon requisition in accordance with the Companies
Ordinance of Hong Kong, must be dissolved; but in any other case it must stand
adjourned to the same day in the next week at the same time and place, or to
such other day, time and place as the Chairman of the meeting may determine.
If at such adjourned meeting a quorum is not present within thirty minutes
from the time appointed for the meeting, the member or members present in
person or by proxy shall be a quorum and may transact the business for which
the meeting is called.

     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.

     Interested Transactions

     Subject to the exceptions described below, none of our directors may vote
on any contract, arrangement or proposal in which the director or any of his
or her associates is materially interested. For this purpose, existence of
material interest is presumed if a company, in which the director and/or his
or her associates beneficially own 5% or more of any class of its shares or
voting rights, is materially interested in the transaction. Our directors may,
however, vote on the following matters:

     o    any contract or arrangement to give security or indemnity to the
          director or his or her associates for money lent or obligations
          undertaken by such director or his or her associates at the request
          of or for the benefit of our company or subsidiaries;

     o    any contract or arrangement to give security or indemnity to a third
          party for our debts or debts of our subsidiaries for which such
          director or his or her associates assumed responsibility by giving
          guarantee or security;

     o    any contract or arrangement concerning offering of securities by us
          (or any company which we may promote or be interested in purchasing)
          for which the director or his or her associates participate in the
          underwriting or sub-underwriting;



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<PAGE>

     o    any contract or arrangement in which the director or his or her
          associates are interested only by virtue of their interest in our
          securities;

     o    any contract or arrangement concerning any other company in which
          the director or his or her associates are interested as an officer
          or executive or a shareholder in which the director or his or her
          associates are beneficially interested in shares of that company
          other than a company in which they in aggregate beneficially own
          more than 5% of the issued shares of any class or voting rights;

     o    any proposal or arrangement concerning employee benefits that do not
          provide privileges to our directors or their associates, including
          employee share schemes and retirement, death or disability benefits
          schemes; and

     o    any proposal or arrangement concerning the adoption, modification or
          operation of any employees' share scheme involving the issue or
          grant of options over shares or other securities by us to, or for
          the benefit of, our employees or employees of our subsidiaries under
          which the director or his or her associates may benefit.

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



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<PAGE>

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 "Item 3--Key Information--Selected Financial Data"
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.

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



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<PAGE>

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 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" or "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



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<PAGE>

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.

     Under current law, "qualified dividend income" received by an individual
after December 31, 2002 and before January 1, 2009 is subject to United States
federal income tax rates lower than those applicable to ordinary income. The
top federal income tax rate on such qualifying dividends received by an
individual is 15%, or 5% for those individuals whose incomes fall in the 10-
or 15 percent brackets. Based upon our existing and anticipated future
operations and current assets, we believe that we are a "qualified foreign
corporation" and that our dividends paid to U.S. Holders who are individuals
will be eligible to be treated as "qualified dividend income" provided that
such Holders satisfy applicable holding period requirements with respect to
the ADSs and other application requirements. Dividends paid by foreign
corporations that are classified as PFICs are not "qualified dividend income".
See "PFIC Considerations" below.

     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 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



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<PAGE>

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.

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.



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<PAGE>

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 ten 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. Recently, there has been wide
expectation in the international market that the Chinese government will
deregulate the Renminbi exchange rate. However, the Chinese government has not
yet determined if or when the exchange rate will be deregulated. Currently,
the Renminbi exchange rate remains stable. In case of any Renminbi exchange
rate deregulation going forward, our existing assets denominated in U.S.
dollars will face book conversion risks from the appreciation of Renminbi. As
we prepaid majority of our Yen-denominated loans in 2002, the balance over
Yen-denominated loans as of the end of 2003 was only 1.09 billion yen.
Currently, since this outstanding of our Yen loans is hedged against foreign
currency swaps, we do not expect any exchange risks relating to Japanese Yen
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 the end of 2003, all our foreign currency debts are at fixed
interest rates. To balance our overall debt interest structure and to reduce
our financial cost benefiting from the low interest rate market environment,
during the period from July to September 2003, we arranged for an interest
rate swap with three financial institutions by swapping the new offering of
US$200 million 10-year global guaranteed notes in 2003 into floating interest
rate. After the swap, we received fixed interest rate of 4.125% and paid
floating interest rate at LIBOR minus 0.771% (weighted average interest rate).
During the first interest swap in November 2003, LIBOR was approximately 1.2%.
Through this swap, we made interest savings of US$2.02 million.

     Based on the series of robust economic data announced by the US in late
2003, we believed that the US economy had entered into a rapid growth period,
with interest rate taking an upward trend. In January 2004, we captured the
opportunity of significant drop of US treasury yield with the US's



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<PAGE>

announcement of the poor performance of certain economic data, and terminated
the above interest swap arrangement with net gains of US$10 million. This, in
addition to the interest savings of US$2.02 million for the year 2003,
resulted in cumulative net gains of US$12.02 million, representing the
reduction of interest rate of the US$200 million guaranteed notes from 4.125%
to 3.53%. As of December 31, 2003, our total outstanding debt, including both
foreign currency-denominated and Renminbi-denominated loans, was US$110.0
million, all of which were fixed rate debts.

    The following table sets forth additional information about the expected
maturity dates of our outstanding debt as of December 31, 2003.

<TABLE>
<CAPTION>
                                                                                                                 Fair value
                                                                                                                   as of
                                                                                              2009                December
                                            2004     2005      2006       2007       2008   and after   Total     31, 2003
                                          -------   -------   -------   --------  --------  ---------  --------  -----------
                                                                  (Rmb in millions, except percentages)
<S>                                       <C>       <C>       <C>       <C>       <C>       <C>        <C>       <C>
Long-term debt, including current
   portion
   Fixed rate.......................         21       21        88         21         --       --         911      1,065
   Average interest rate............       8.685%   8.783%    8.906%     4.100%       --       --

Long-term guaranteed notes
   Fixed rate.......................          --       --        --         --        --      8,277     8,277      8,304
   Average interest rate............       5.666%   5.666%    5.666%     5.666%    5.666%     5.666%
</TABLE>

     The above table takes into account our early repayment of certain loans
in 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

     Not applicable.

ITEM 15. CONTROLS AND PROCEDURES

     (a) We have 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 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 16A. AUDIT COMMITTEE FINANCIAL EXPERT

     Our board of directors has determined that Mr. Kenneth S. Courtis, our
independent non-executive director, is an audit committee financial expert
serving on our audit committee. Mr. Courtis is independent as defined in the
listing standards of the New York Stock Exchange.

ITEM 16B. CODE OF ETHICS

     Our board of directors adopted a Code of Ethics on August 28, 2003 as a
guide to sensitize our senior managers to significant legal and ethical issues
and to the mechanisms available to report illegal or unethical conduct. The
Code is available on our internet website, www.cnoocltd.com. The Code
addresses areas including regulatory compliance, insider trading, market
misconduct, conflict of interest, corporate opportunities, protection and
proper use of company assets, and public company reporting responsibility. All
our senior managers must know and follow these principles of conduct to ensure
our business is conducted with integrity and in compliance with the law. Any
violation of our Code of Ethics is subject to disciplinary action, up to and
including termination.

     Our Code of Ethics may be amended, modified or waived only by our board
of directors. Any change or waiver, explicit or implicit, with respect to our
Code of Ethics must be disclosed to our stockholders either in our annual
report or on our internet website, www.cnoocltd.com.cn.



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ITEM 16C. PRINCIPAL ACCOUNTANT FEES AND SERVICES

     Audit Fees

     The aggregate fees billed for professional services rendered by our
principal accountant for the audit of our annual financial statements or
services that are normally provided by the accountant in connection with
statutory and regulatory filings or engagements were Rmb 4,500,000 for fiscal
year 2002 and Rmb 5,790,000 (US$699,554) for fiscal year 2003.

     Audit-Related Fees

     The aggregate fees billed for assurance and related services by our
principal accountant that are reasonably related to the performance of the
audit or review of the our financial statements and are not reported under
"Audit Fees" were Rmb 1,560,000 for fiscal year 2002 and Rmb 2,044,345
(US$247,000) for fiscal year 2003. The audit-related services provided
included accounting advice, transaction support services and assistance in the
implementation of Section 404 of the Sarbanes-Oxley Act.

     Tax Fees

     The aggregate fees billed for professional service rendered by the
principal accountant for tax compliance, tax advice and tax planning were nil
for fiscal year 2002 and Rmb 778,000 (US$94,000) for fiscal year 2003.

     All other fees

     The aggregate fees billed for products and services provided by our
principal accountant, other than the services reported above, were nil for
fiscal year 2002 and Rmb 420,000 (US$50,000) for fiscal year 2003.

     Audit Committee's pre-approval policies and procedures

     The audit committee of our board of directors is responsible for the
appointment, compensation and oversight of the work of our independent
auditor. In 2003, our audit committee adopted a policy calling for the audit
committee's pre-approval for the engagement of independent auditor for audit
and permitted non-audit services. Our board of directors has also ratified the
policy and procedures. Under this audit committee policy, proposed services
may be pre-approved by the audit committee either on an annual basis or on a
case-by-case basis. Appendices to the audit committee policy sets forth (1)
the audit, audit-related, tax and other services that may be subject to the
general annual pre-approval of the audit committee; (2) non-audit services of
a routine and recurring nature that may be subject to specific pre-approval
from the audit committee on a case-by-case basis; and (3) a list of prohibited
non-audit services. The audit committee will periodically review and revise
these attached lists based on its subsequent determinations. The audit
committee policy also provides for procedures to establish annual fee levels
or budgets for pre-approved services and ratios between different categories
of pre-approved services. In addition, the audit committee policy contains
provisions that deal with compliance, monitoring, reporting and other related
matters.

     During 2003, 40.9% of the audit-related services, 4.5% of tax fees and
13.6% of all other fees paid to our principal accountant were approved by the
audit committee. Our principal accountant audited our financial statements for
2003 solely through its full-time, permanent employees, without involvement of
its part-time or temporary employees.



                                     126
<PAGE>

ITEM 16D. EXEMPTIONS FROM THE LISTING STANDARDS FOR AUDIT COMMITTEES

     Not applicable.

ITEM 16E. PURCHASES OF EQUITY SECURITIES BY THE ISSUER AND AFFILIATED
          PURCHASERS

     On May 17, 2004, our board of directors approved a management proposal
that allowed us to repurchase shares in the open market based on the general
mandate approved by shareholders on May 29, 2003. The authorization permits
the purchase of up to 10% of the issued share capital on the Hong Kong Stock
Exchange in conformity with relevant regulatory conditions. Shares purchased
under the program will be canceled. We have made the following purchases:

<TABLE>
<CAPTION>
                                      Issuer Purchases of Equity Securities

                                                                            Total Number of
                                                                          Shares Purchased as     Maximum Number of
                                                                           Part of Publicly      Shares that May Yet
                             Total Number of       Average Price Paid     Announced Plans or     Be Purchased Under
Period                      Shares Purchased           per Share               Programs         the Plans or Programs
---------------------  -----------------------  -----------------------  --------------------  -------------------------
<S>                    <C>                      <C>                      <C>                   <C>
May 18, 2004                     5,427,000               HK$2.8615             5,427,000              41,058,501

May 24, 2004                     3,450,000               HK$3.0875             8,877,000              41,061,951

</TABLE>



                                     127
<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.

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, incorporated by reference to Exhibit 2.1 to
               our Annual Report on Form 20-F filed with the Securities and
               Exchange Commission (File Number: 1-14966).

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).



                                     128
<PAGE>

Exhibit
Number         Document
------         --------

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).

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).



                                     129
<PAGE>

Exhibit
Number         Document
------         --------

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).

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).



                                     130
<PAGE>

Exhibit
Number         Document
------         --------

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).



                                     131
<PAGE>

Exhibit
Number         Document
------         --------

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).

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).

4.38           Equity Transfer Agreement dated September 5, 2003 between CNOOC
               China Limited and CNOOC (Summary Translation).

4.39           Framework Agreement dated April 8, 2004 with CNOOC Finance
               Corporation Limited (Summary Translation).

8.1            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).

12.1           Certification by the Chief Executive Officer in accordance with
               Section 302 of the Sarbanes-Orley Act of 2002.

12.2           Certification by the Chief Financial Officer in accordance with
               Section 302 of the Sarbanes-Orley Act of 2002.

13.1           Sarbanes-Oxley Act of 2002 Section 906 Certification furnished
               to (not filed with) the Securities and Exchange Commission.



                                     132
<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 on its behalf.


                                  CNOOC Limited



                                  By:      /s/ Yunshi Cao
                                      ---------------------------------
                                      Name:    Yunshi Cao
                                      Title:   Company Secretary,
                                               General Counsel and
                                               Senior Vice President


Dated:  June 14, 2004



                                     133
<PAGE>

CNOOC LIMITED AND ITS SUBSIDIARIES

CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 2003, 2002 AND 2001
TOGETHER WITH REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS



                                      F-1
<PAGE>

<TABLE>
<CAPTION>
                                      INDEX TO FINANCIAL STATEMENTS

                                                                                                     Page
CNOOC LIMITED AND ITS SUBSIDIARIES
<S>                                                                                                <C>
    Report of Independent Public Accountants...................................................      F-3
    Copy of Report of Independent Public Accountants previously issued by
      Arthur Andersen & Co ....................................................................      F-5
    Consolidated income statements for the years ended December 31, 2003, 2002,
      and 2001.................................................................................      F-6
    Consolidated balance sheets as of December 31, 2003 and 2002...............................      F-8
    Consolidated statements of changes in equity for the years ended December 31, 2003, 2002,
      and 2001.................................................................................      F-9
    Consolidated cash flow statements for the years ended December 31, 2003,
      2002, and 2001...........................................................................      F-10
    Notes to the consolidated financial statements.............................................      F-11
</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 sheets of CNOOC Limited
(the "Company") and its subsidiaries (the "Group") as of December 31, 2003 and
2002, and the related consolidated statements of income, changes in
shareholders' equity and cash flows for each of the two years in the period
ended December 31, 2003. 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 year ended December
31, 2001 were audited by other auditors who have ceased operations and whose
report dated March 27, 2002 expressed an unqualified opinion on those
statements before the restatement adjustments described in notes 3, 15, 28 and
37.

We conducted our audits in accordance with the standards of the Public Company
Accounting Oversight Board (United States) 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 audits provide a reasonable basis for our
opinion.

As discussed above, the financial statements of the Group as of December 31,
2001 and for the year then ended were audited by other auditors who have
ceased operations. As described in note 3, in 2004, the Company's Board of
Directors approved a five-for-one stock split, and all references to number of
shares and per share information in the financial statements have been
adjusted to reflect the stock split on a retroactive basis. We audited the
adjustments that were applied to restate the number of shares and per share
information in the 2001 financial statements. Our procedures included (a)
agreeing the authorisation for the five-for-one stock split to the Company's
underlying records obtained from management, and (b) testing the mathematical
accuracy of the restated number of shares, basic and diluted earnings per
share. In our opinion, such adjustments are appropriate and have been properly
applied. However, we were not engaged to audit, review, or apply any
procedures to the 2001 financial statements of the Group other than with
respect to such adjustments and, accordingly, we do not express an opinion or
any other form of assurance on the 2001 financial statements taken as a whole.

In addition, as described in note 37, the financial statements of the Group as
of December 31, 2001 have been revised to include the transitional disclosures
required by Statement of Financial Accounting Standards (Statement) No. 143,
Accounting for Assets Retirement Obligations, which was adopted by the Company
as of January 1 2003. Our audit procedures with respect to the disclosures in
note 37 with respect to 2001 included (a) agreeing the previously reported
amount of net income and the liability for asset retirement obligation to the
previously issued financial statements and the adjustments to pro forma
amounts of net income and the liability for asset retirement obligation as a
result of initially applying Statement No. 143 to the Company's underlying
records obtained from management , and (b) testing the mathematical accuracy
of the reconciliation of the previously reported amount of net income and the
liability for asset obligation to the pro forma amounts of net income and the
liability for asset retirement obligation, and the related earnings per share
amounts. In our opinion, the disclosures for 2001 in note 37 are appropriate.
However, we were not engaged to audit, review, or apply any procedures to the
2001 financial statements of the Company other than with respect to such
disclosures, and accordingly, we do not express an opinion or any other form
of assurance on the 2001 financial statements taken as a whole.

In our opinion, the 2003 and 2002 consolidated financial statements referred
to above present fairly, in all material respects, the consolidated financial
position of the Group as of December 31, 2003 and 2002 and the



                                      F-3
<PAGE>

consolidated results of their operations and their cash flows for each of the
two years in the period ended December 31, 2003, in conformity with accounting
principles generally accepted in Hong Kong ("Hong Kong GAAP").

Accounting principles generally accepted in Hong Kong vary in certain
significant respects from accounting principles generally accepted in the
United States of America. Information relating to the nature and effect of
such differences is presented in note 37 to the consolidated financial
statements.







 /s/  Ernst & Young
------------------------------------------------
Ernst & Young
Certified Public Accountants


Hong Kong
March 15, 2004, except notes 3, 15, 28 and 37, which are as of March 17, 2004.



                                     F-4

<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
(incorporated in Hong Kong with limited liability)

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
39 to the consolidated financial statements.



ARTHUR ANDERSEN & CO
Certified Public Accountants

Hong Kong
March 27, 2002



                                      F-5
<PAGE>

<TABLE>
<CAPTION>
                                                CNOOC LIMITED AND ITS SUBSIDIARIES
                                                  CONSOLIDATED INCOME STATEMENTS
                                       FOR THE YEARS ENDED DECEMBER 31, 2003, 2002 AND 2001

                                   (All amounts expressed in thousands, except per share data)

                                        Notes             2001                 2002                 2003               2003
                                      ----------    -----------------    -----------------    -----------------    --------------
                                                        RMB'000              RMB'000              RMB'000             US$'000
REVENUE
<S>                                   <C>           <C>                  <C>                  <C>                  <C>
   Oil and gas sales                    7,26              17,560,788           23,779,294           28,116,831         3,397,106
   Marketing revenues                      8               2,537,032            2,377,469           12,398,661         1,498,020
   Other income                                              721,737              217,052              434,781            52,531
                                                    -----------------    -----------------    -----------------    --------------

                                                          20,819,557           26,373,815           40,950,273         4,947,657
                                                    -----------------    -----------------    -----------------    --------------
EXPENSES
   Operating expenses                                     (2,329,130)          (3,775,334)          (4,512,809)         (542,242)
   Production taxes                                         (883,768)          (1,023,049)          (1,238,598)         (149,649)
   Exploration expenses                                   (1,039,297)          (1,318,323)            (848,072)         (102,465)
   Depreciation, depletion and
      amortisation                                        (2,566,920)          (4,019,532)          (4,642,753)         (560,943)
   Dismantlement                         27                  (90,367)            (126,139)            (167,326)          (20,217)
   Impairment losses related to
     property, plant and equipment       16                  (99,675)                   -                    -                 -
   Crude oil and product purchases        8               (2,453,312)          (2,326,338)         (12,295,238)       (1,485,524)
   Selling and administrative
     expenses                             9                 (615,389)          (1,006,540)          (1,212,523)         (146,498)
   Other                                                    (517,876)             (30,866)            (350,232)          (42,315)
                                                    -----------------    -----------------    -----------------    --------------

                                                         (10,595,734)         (13,626,121)         (25,267,551)       (3,052,853)
                                                    -----------------    -----------------    -----------------    --------------

PROFIT FROM OPERATING ACTIVITIES                          10,223,823           12,747,694           15,682,722         1,894,804

Interest income                                              317,706              147,870              183,576            22,180
Interest expenses                        10                 (116,634)            (294,792)            (354,940)          (42,884)
Exchange (loss)/gain, net                                    235,409             (113,814)              (6,746)             (815)
Short term investment income                                 220,650              193,277              123,483            14,919
Share of profit of an associate                               89,963              165,387              220,263            26,612
Non-operating (expense)/income, net                           34,941              (71,379)             314,968            38,055
                                                    -----------------    -----------------    -----------------    --------------

PROFIT BEFORE TAX                                         11,005,858           12,774,243           16,163,326         1,952,871

Tax                                      13               (3,048,227)          (3,541,416)          (4,627,836)         (559,140)
                                                    -----------------    -----------------    -----------------    --------------

NET PROFIT                                                 7,957,631            9,232,827           11,535,490         1,393,731
                                                    =================    =================    =================    ==============


The accompanying notes are an integral part of these financial statements.
</TABLE>



                                                               F-6
<PAGE>

<TABLE>
<CAPTION>

                                             CNOOC LIMITED AND ITS SUBSIDIARIES
                                           CONSOLIDATED INCOME STATEMENTS (CONT'D)
                                    FOR THE YEARS ENDED DECEMBER 31, 2003, 2002 AND 2001

                                 (All amounts expressed in thousands, except per share data)


                                       Notes            2001                2002                2003              2003
                                      ---------    ----------------    ---------------     ---------------    --------------
                                                       RMB'000            RMB'000             RMB'000            US$'000

DIVIDENDS
<S>                                     <C>             <C>                <C>                 <C>                 <C>
    Interim                              14                871,194            958,314           1,220,132           147,418
    Special interim                      14                      -                  -           1,568,741           189,537
    Proposed final                       14              1,306,740          1,307,408           1,050,460           126,918
    Proposed special final               14                      -          1,307,408           1,575,691           190,376
                                                   ----------------    ---------------     ---------------    --------------
                                                         2,177,934          3,573,130           5,415,024           654,249
                                                   ================    ===============     ===============    ==============

DIVIDENDS PER SHARE (after Stock Split)
    Interim                              14              RMB 0.022          RMB 0.024           RMB 0.030         US$ 0.004
    Special interim                      14                    N/A                N/A           RMB 0.038         US$ 0.005
    Proposed final                       14              RMB 0.032          RMB 0.032           RMB 0.026         US$ 0.003
    Proposed special final               14                    N/A          RMB 0.032           RMB 0.038         US$ 0.005

EARNINGS PER SHARE (after Stock Split)
    Basic                                15               RMB 0.20           RMB 0.22            RMB 0.28          US$ 0.03
    Diluted                              15               RMB 0.20           RMB 0.22            RMB 0.28          US$ 0.03

EARNINGS PER ADS (after Stock Split)
    Basic                                15              RMB 20.05          RMB 22.48           RMB 28.09          US$ 3.38
    Diluted                              15              RMB 20.04          RMB 22.47           RMB 28.06          US$ 3.38


The accompanying notes are an integral part of these financial statements.
</TABLE>



                                                               F-7
<PAGE>

<TABLE>
<CAPTION>
                                             CNOOC LIMITED AND ITS SUBSIDIARIES
                                                CONSOLIDATED BALANCE SHEETS
                                       FOR THE YEARS ENDED DECEMBER 31, 2003 AND 2002

                                            (All amounts expressed in thousands)

                                               Notes                2002                  2003                  2003
                                           --------------    --------------------   ------------------    -----------------
                                                                   RMB'000               RMB'000              US$'000

NON-CURRENT ASSETS
<S>                                          <C>                     <C>                  <C>                   <C>
Property, plant and equipment, net              16                    36,071,820           43,123,801            5,210,265
Investments in associates                       17                       537,377            1,117,640              135,034
                                                             --------------------   ------------------    -----------------
                                                                      36,609,197           44,241,441            5,345,299
                                                             --------------------   ------------------    -----------------

CURRENT ASSETS
Accounts receivable, net                        18                     3,063,266            4,248,570              513,317
Inventories and supplies                        19                       848,605            1,092,926              132,049
Due from related companies                      26                       453,290              756,283               91,375
Other current assets                                                   1,060,955              757,355               91,504
Short term investments                          20                     6,531,278            5,684,333              686,787
Time deposits with maturities over three
  months                                                               4,690,000            2,323,000              280,667
Cash and cash equivalents                       26                     7,839,114           14,400,394            1,739,871
                                                             --------------------   ------------------    -----------------
                                                                      24,486,508           29,262,861            3,535,570
                                                             --------------------   ------------------    -----------------

TOTAL ASSETS                                                          61,095,705           73,504,302            8,880,869
                                                             ====================   ==================    =================

CURRENT LIABILITIES
Accounts payable                                21                     2,659,743            3,969,922              479,650
Other payables and accrued liabilities          22                     1,712,408            1,955,783              236,300
Current portion of long term bank loans         23                       297,518               20,618                2,491
Due to the parent company                     25, 26                     270,438              164,653               19,894
Due to related companies                        26                       231,592              474,223               57,296
Tax payable                                                            1,962,765            2,721,331              328,794
                                                             --------------------   ------------------    -----------------
                                                                       7,134,464            9,306,530            1,124,425
                                                             --------------------   ------------------    -----------------

NON-CURRENT LIABILITIES
Long term bank loans                            23                       941,093              889,575              107,479
Long term guaranteed notes                      24                     4,071,184            8,141,669              983,685
Provision for dismantlement                     27                     2,239,320            2,646,800              319,789
Deferred tax liabilities                        13                     6,141,156            5,783,196              698,732
                                                             --------------------   ------------------    -----------------
                                                                      13,392,753           17,461,240            2,109,685
                                                             --------------------   ------------------    -----------------

CAPITAL AND RESERVES
Issued capital                                  28                       876,978              876,978              105,957
Reserves                                        29                    39,691,510           45,859,554            5,540,802
                                                             --------------------   ------------------    -----------------
                                                                      40,568,488           46,736,532            5,646,759
                                                             --------------------   ------------------    -----------------

TOTAL EQUITY AND LIABILITIES                                          61,095,705           73,504,302            8,880,869
                                                             ====================   ==================    =================

The accompanying notes are an integral part of these financial statements.
</TABLE>



                                                            F-8
<PAGE>

<TABLE>
<CAPTION>
                                              CNOOC LIMITED AND ITS SUBSIDIARIES
                                                STATEMENTS OF CHANGES IN EQUITY
                                     FOR THE YEARS ENDED DECEMBER 31, 2003, 2002 AND 2001

                                             (All amounts expressed in thousands)

                                                                                         Statutory
                                                                           Cumulative     and non-
                                      Share        Share    Revaluation   translation  distributive    Retained
                                    capital      premium        reserve       reserve      reserve     earnings      Total
                                 ----------  -----------  ------------- -------------  -----------   -----------  ------------
                                    RMB'000      RMB'000        RMB'000       RMB'000      RMB'000       RMB'000       RMB'000
<S>                              <C>         <C>          <C>           <C>            <C>           <C>          <C>
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 14)                       -            -              -             -            -      (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                       -            -              -             -            -       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 14)                       -            -              -             -            -    (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 January 1, 2003         876,978   20,761,205        274,671       (13,596)   2,232,410    16,436,820    40,568,488
Net profit for the year
Appropriation to statutory                -            -              -             -            -    11,535,490    11,535,490
   reserve                                -            -              -             -      818,079      (818,079)            -
Dividends (Note 14)
Transfer to/(from) reserve                -            -              -             -            -    (5,403,689)   (5,403,689)
  (Note 1)                                -            -              -             -    5,000,000    (5,000,000)            -
Foreign currency translation
  differences                             -            -              -        36,243            -             -        36,243
                                 ----------  -----------  ------------- -------------  -----------   -----------  ------------

Net gains not recognised in
  the income statement                    -            -              -        36,243            -             -        36,243
                                 ----------  -----------  ------------- -------------  -----------   -----------  ------------

Balances at 31 December 2003        876,978   20,761,205        274,671        22,647    8,050,489    16,750,542    46,736,532
                                 ==========  ===========  ============= =============  ===========   ===========  ============
</TABLE>

Note 1:  During the year, one of the Company's subsidiaries - CNOOC China
         Limited increased its share capital through the reinvestment of its
         retained earnings from prior periods. The reinvestment was approved
         by the relevant government authorities in October 2003.

*        These reserve accounts comprise the consolidated reserves of RMB
         45,859,554,000 (2002: RMB 39,691,510,000) on the consolidated balance
         sheet.

The accompanying notes are an integral part of these financial statements.



                                                            F-9
<PAGE>

<TABLE>
<CAPTION>
                                            CNOOC LIMITED AND ITS SUBSIDIARIES
                                            CONSOLIDATED CASH FLOW STATEMENTS
                                   FOR THE YEARS ENDED DECEMBER 31, 2003, 2002 AND 2001

                                           (All amounts expressed in thousands)

                                                  Notes        2001             2002            2003            2003
                                                 -------  ---------------    -----------    -------------   --------------
                                                              RMB'000         RMB'000         RMB'000         US$'000
OPERATING ACTIVITIES
<S>                                              <C>       <C>              <C>              <C>              <C>
Cash generated from operations                    31(a)        14,024,982      17,406,915      21,142,911       2,554,510
Income taxes paid                                              (2,611,450)     (3,013,279)     (3,514,807)       (424,663)
Income tax refund                                                       -         167,065               -               -
Interest received                                                 317,706         147,870         183,576          22,180
Dividends received                                                 99,000          90,000          90,000          10,874
Short-term investment income received                              53,641          79,679          55,840           6,747
Interest paid                                                    (124,422)       (136,222)       (138,801)        (16,770)
                                                          ---------------    -----------    -------------   --------------
Net cash from operating activities                             11,759,457      14,742,028      17,818,719       2,152,878
                                                          ---------------    ------------   -------------   --------------

INVESTING ACTIVITIES

Acquisition of and prepayment for oil and gas
     properties                                   31(b)                 -      (4,734,174)     (4,100,900)       (495,475)
Additions of property, plant and equipment                     (4,342,622)     (6,832,746)     (8,271,564)       (999,379)
Proceeds from disposals of property, plant and
  equipment                                                         6,313             446               -               -
Investment in an associate                                              -               -        (450,000)        (54,370)
(Increase)/decrease in time deposits with
  maturities over three months                                  1,374,512      (2,640,000)      2,367,000         285,983
Additions of short term investments                            (8,699,312)     (3,399,413)     (8,144,702)       (984,052)
Disposals of short term investments                               308,506       5,882,305       9,087,581       1,097,971
Increase in amounts due from related companies                    (13,831)              -               -               -
                                                          ---------------    ------------   -------------   --------------

Net cash used in investing activities                         (11,366,434)    (11,723,582)     (9,512,585)     (1,149,322)
                                                          ---------------    ------------   -------------   --------------

FINANCING ACTIVITIES
Issue of long term guaranteed notes                                     -       4,059,345       3,995,773         482,774
Repayment of bank loans                                        (3,497,533)     (3,367,347)       (336,938)        (40,709)
Dividends paid                                                 (4,268,517)     (2,265,054)     (5,403,689)       (652,880)
Increase/ (decrease) in amount due to the
  parent company                                               (1,657,004)              -               -               -
Proceeds from issue of share capital                           10,101,564               -               -               -
Proceeds from new bank loans                                    2,500,000               -               -               -
Increase in amounts due to related companies                       25,564               -               -               -
                                                          ---------------    ------------   -------------   --------------

Net cash (used in)/from financing activities                    3,204,074      (1,573,056)     (1,744,854)       (210,815)
                                                          ---------------    ------------   -------------   --------------


NET INCREASE IN CASH AND CASH EQUIVALENTS                       3,597,097       1,445,390       6,561,280         792,741

Cash and cash equivalents at beginning of year                  2,796,627       6,393,724       7,839,114         947,130
                                                          ---------------    ------------   -------------   --------------


CASH AND CASH EQUIVALENTS AT END OF YEAR                        6,393,724       7,839,114      14,400,394       1,739,871
                                                          ---------------    ------------    ------------   --------------

ANALYSIS OF BALANCES OF CASH AND CASH
  EQUIVALENTS

Cash and bank balances                                          6,393,724       7,839,114      14,400,394       1,739,871
                                                          ===============    ============   =============   ==============

The accompanying notes are an integral part of these financial statements.
</TABLE>



                                                           F-10
<PAGE>

                      CNOOC LIMITED AND ITS SUBSIDIARIES
                         NOTES TO 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 thereby 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
         sale of crude oil, natural gas and other petroleum.

         In the opinion of the directors, the ultimate holding company is
         China National Offshore Oil Corporation ("CNOOC"), a company
         established in the PRC.

         Particulars of the principal subsidiaries are as follows:

<TABLE>
<CAPTION>
                                     Place and date of                             Percentage of
                                     incorporation/           Nominal value of            equity
                                     registration and          issued ordinary   attributable to
         Name                        operations                  share capital       the Company   Principal activities
         -------------------------   ---------------------       --------------  ---------------  ---------------------
         Directly held subsidiaries:

<S>     <C>                         <C>                         <C>                        <C>     <C>
         CNOOC China Limited         Tianjin, the PRC            RMB15 billion              100%     Offshore petroleum
                                     September 15, 1999                                                    exploration,
                                                                                                           development,
                                                                                                    production and sale
                                                                                                             in the PRC

         CNOOC International         British Virgin                       US$2              100%     Investment holding
         Limited                     Islands
                                     August 23, 1999

         China Offshore Oil          Singapore                     S$3 million              100%     Sale and marketing
         (Singapore) International   May 14, 1993                                                  of petroleum outside
         Pte., Ltd.                                                                                          of the PRC

         CNOOC Finance (2002)        British Virgin                   US$1,000              100%          Bond issuance
         Limited                     Islands
                                     January 24, 2002

         CNOOC Finance (2003)        British Virgin                   US$1,000              100%          Bond issuance
         Limited                     Islands
                                     April 2, 2003


         Indirectly held subsidiaries*:

         Malacca Petroleum Limited   Bermuda                         US$12,000              100%     Offshore petroleum
                                     November 2, 1995                                                      exploration,
                                                                                                        development and
                                                                                                          production in
                                                                                                              Indonesia


         OOGC America, Inc.          State of Delaware,               US$1,000              100%     Investment holding
                                     United States of
                                     America
                                     September 2, 1997
</TABLE>



                                                          F-11
<PAGE>

                      CNOOC LIMITED AND ITS SUBSIDIARIES
                         NOTES TO FINANCIAL STATEMENTS
          (All amounts expressed in Renminbi unless otherwise stated)

1.       CORPORATE INFORMATION (CONT'D)

<TABLE>
<CAPTION>
                                     Place and date of                             Percentage of
                                     incorporation/           Nominal value of            equity
                                     registration and          issued ordinary   attributable to
         Name                        operations                  share capital       the Company   Principal activities
         -------------------------   ---------------------       --------------  ---------------  ---------------------
         Indirectly held subsidiaries* (cont'd):

<S>     <C>                         <C>                         <C>                        <C>     <C>
         OOGC Malacca Limited        Bermuda                         US$12,000              100%     Offshore petroleum
                                     November 2, 1995                                                      exploration,
                                                                                                        development and
                                                                                                          production in
                                                                                                              Indonesia

         CNOOC Southeast Asia        Bermuda                         US$12,000              100%     Investment holding
         Limited                     May 16, 1997

         CNOOC ONWJ Ltd.             Labuan, F.T.,                        US$1              100%     Offshore petroleum
                                     Malaysia                                                              exploration,
                                     March 27, 2002                                                     development and
                                                                                                          production in
                                                                                                              Indonesia

         CNOOC SES Ltd.              Labuan, F.T.,                        US$1              100%     Offshore petroleum
                                     Malaysia                                                              exploration,
                                     March 27, 2002                                                     development and
                                                                                                          production in
                                                                                                              Indonesia

         CNOOC Poleng Ltd.           Labuan, F.T.,                        US$1              100%     Offshore petroleum
                                     Malaysia                                                              exploration,
                                     March 27, 2002                                                     development and
                                                                                                          production in
                                                                                                              Indonesia

         CNOOC Madura Ltd.           Labuan, F.T.,                        US$1              100%     Offshore petroleum
                                     Malaysia                                                              exploration,
                                     March 27, 2002                                                     development and
                                                                                                          production in
                                                                                                              Indonesia

         CNOOC Blora Ltd.            Labuan, F.T.,                        US$1              100%      Onshore petroleum
                                     Malaysia                                                              exploration,
                                     March 27, 2002                                                     development and
                                                                                                          production in
                                                                                                              Indonesia

*        Indirectly held through CNOOC International Limited.

</TABLE>



                                                          F-12
<PAGE>

                      CNOOC LIMITED AND ITS SUBSIDIARIES
                         NOTES TO FINANCIAL STATEMENTS
          (All amounts expressed in Renminbi unless otherwise stated)

2.       IMPACT OF NEW AND REVISED STATEMENTS OF STANDARD ACCOUNTING PRACTICE
         ("SSAPs")

         The following new and revised SSAPs are effective for the first time
         for the current year's financial statements:

         o   SSAP 12 (Revised): "Income taxes"
         o   SSAP 35: "Accounting for government grants and disclosure of
             government assistance"

         SSAP 12 (Revised) prescribes the basis for accounting for income
         taxes payable or recoverable, arising from the taxable profit or loss
         for the current period (current tax); and income taxes payable or
         recoverable in future periods, principally arising from taxable and
         deductible temporary differences and the carryforward of the unused
         tax losses (deferred tax).

         The SSAP 12 (Revised) has had no significant impact for these
         financial statements on the amounts recorded for income taxes.
         However, the related note disclosures are now more extensive than
         previously required. These are detailed in note 13 to the financial
         statements and include a reconciliation between the accounting profit
         and the tax expense for the year.

         SSAP 35 prescribes the accounting for government grants and other
         forms of government assistance.

         The adoption of the SSAP 35 has had no significant impact for these
         financial statements.


3.       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.

         Basis of consolidation
         ----------------------


         The consolidated financial statements include the financial
         statements of the Company and its subsidiaries for the year ended
         December 31, 2003. 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.

         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 results of subsidiaries are included in the Company's income
         statement to the extent of dividends received and receivable. The
         Company's interests in subsidiaries are stated at cost less any
         impairment losses.



                                     F-13
<PAGE>

                      CNOOC LIMITED AND ITS SUBSIDIARIES
                         NOTES TO FINANCIAL STATEMENTS
          (All amounts expressed in Renminbi unless otherwise stated)

3.       SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONT'D)

         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 associates 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. The results of the associate
         are included in the Company's income statement to the extent of
         dividend received and receivable.

         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.

         Impairment of assets
         --------------------

         An assessment is made whenever events or changes in circumstances
         indicate that there is any indication of impairment of any assets, 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.

         Property, plant and equipment
         -----------------------------

         Property, plant and equipment comprise oil and gas properties, land
         and buildings, and vehicles and office equipment.



                                     F-14
<PAGE>

                      CNOOC LIMITED AND ITS SUBSIDIARIES
                         NOTES TO FINANCIAL STATEMENTS
          (All amounts expressed in Renminbi unless otherwise stated)

3.       SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONT'D)

         Property, plant and equipment (cont'd)
         --------------------------------------

         (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 lives 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 expensed
              as 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
              expenditure 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.

         (ii) Land and buildings

              Land and buildings represent the onshore buildings and the land
              use rights and 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
              the valuation of each asset over its expected useful life,
              ranging from 30 to 50 years.



                                     F-15
<PAGE>

                      CNOOC LIMITED AND ITS SUBSIDIARIES
                         NOTES TO FINANCIAL STATEMENTS
          (All amounts expressed in Renminbi unless otherwise stated)

3.       SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONT'D)

         Property, plant and equipment (cont'd)

         (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 lives. The Group estimates the useful lives of vehicles
               and office equipment to be five 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.

         Research and development costs

         All 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; 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.

         Trade and other receivables

         Trade and other receivables are stated at their cost, after provision
         for doubtful accounts.

         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.

         Inventories and supplies

         Inventories consist primarily of oil and supplies consist mainly of
         items for repairs 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.



                                     F-16
<PAGE>

                      CNOOC LIMITED AND ITS SUBSIDIARIES
                         NOTES TO FINANCIAL STATEMENTS
          (All amounts expressed in Renminbi unless otherwise stated)

3.        SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONT'D)

          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 which are not restricted to
          use.

          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 property-by-property
          basis, in respect of the Group's expected dismantlement and
          abandonment costs at the end of the related oil exploration and
          recovery activities.

          Income tax

          Income tax comprises current and deferred tax. Income tax is
          recognised in the income statement or in equity if it relates to
          items that are recognised in same or a different period directly in
          equity.

          Deferred tax is provided, using the liability method, on all
          temporary differences at the balance sheet date between the tax
          bases of assets and liabilities and their carrying amounts for
          financial reporting purposes.

          Deferred tax liabilities are recognised for all taxable temporary
          differences:

          o    except where the deferred tax liability arises from the initial
               recognition of an asset or liability and, at the time of the
               transaction, affects neither the accounting profit nor taxable
               profit or loss; and

          o    in respect of taxable temporary differences associated with
               investments in subsidiaries and associates, except where the
               timing of the reversal of the temporary differences can be
               controlled and it is probable that the temporary differences
               will not reverse in the foreseeable future.

          Deferred tax assets are recognised for all deductible temporary
          differences, carryforward of unused tax assets and unused tax
          losses, to the extent that it is probable that taxable profit will
          be available against which the deductible temporary differences, and
          the carryforward of unused tax assets and unused tax losses can be
          utilised:

          o    except where the deferred tax asset relating to the deductible
               temporary differences arises from the initial recognition of an
               asset or liability and, at the time of the transaction, affects
               neither the accounting profit nor taxable profit or loss; and



                                     F-17

<PAGE>

                      CNOOC LIMITED AND ITS SUBSIDIARIES
                         NOTES TO FINANCIAL STATEMENTS
          (All amounts expressed in Renminbi unless otherwise stated)

3.        SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONT'D)

          Income tax (cont'd)

          o    in respect of deductible temporary differences associated with
               investments in subsidiaries and associates, deferred tax assets
               are only recognised to the extent that it is probable that the
               temporary differences will reverse in the foreseeable future
               and taxable profit will be available against which the
               temporary differences can be utilised.

          The carrying amount of deferred tax assets is reviewed at each
          balance sheet date and reduced to the extent that it is no longer
          probable that sufficient taxable profit will be available to allow
          all or part of the deferred tax asset to be utilised. Conversely,
          previously unrecognised deferred tax assets are recognised to the
          extent that it is probable that sufficient taxable profit will be
          available to allow all or part of the deferred tax asset to be
          utilised.

          Deferred tax assets and liabilities are measured at the tax rates
          that are expected to apply to the period when the asset is realised
          or the liability is settled, based on tax rates (and tax laws) that
          have been enacted or substantially enacted at the balance sheet
          date.

          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 results 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 has 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.

          (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, is 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.



                                     F-18

<PAGE>

                      CNOOC LIMITED AND ITS SUBSIDIARIES
                         NOTES TO FINANCIAL STATEMENTS
          (All amounts expressed in Renminbi unless otherwise stated)

3.        SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONT'D)

          Revenue recognition (cont'd)

          (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.

          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 these defined contribution plans are charged to
          expense in the year to which they relate.

          Share option schemes

          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.

          Dividends

          Final and final special dividends proposed by the directors are
          classified as a separate allocation of retained earnings within the
          capital and reserves section of 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 and interim special 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.

          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.



                                     F-19

<PAGE>

                      CNOOC LIMITED AND ITS SUBSIDIARIES
                         NOTES TO FINANCIAL STATEMENTS
          (All amounts expressed in Renminbi unless otherwise stated)

3.        SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONT'D)

          Borrowing costs (cont'd)

          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.

          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 exchange rates 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
          are translated into RMB using the net investment method. The income
          statements of overseas subsidiaries are translated into RMB at the
          weighted average exchange rates for the year, and their balance
          sheets are translated into RMB at the exchange rate ruling at the
          balance sheet date. The resulting translation differences are
          included in the cumulative translation reserve.

          For the purpose of the consolidated cash flow statement, the cash
          flows of overseas subsidiaries are translated into RMB at the
          exchange rates ruling at the dates of the cash flows. Frequently
          recurring cash flows of overseas subsidiaries which arise throughout
          the year are translated into RMB at the weighted average exchange
          rates for the year.

          Repairs, maintenance and overhaul costs

          Repairs, maintenances 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 interest rate and currency swap contracts with
          financial institutions. Those financial instruments not designated
          as hedging instruments are carried at fair value, with any changes
          in fair value thereof included in the income statement.



                                     F-20

<PAGE>

                      CNOOC LIMITED AND ITS SUBSIDIARIES
                         NOTES TO FINANCIAL STATEMENTS
          (All amounts expressed in Renminbi unless otherwise stated)

3.        SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONT'D)

          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.

          Stock Split

          On March 17, 2004, the Company's shareholders approved a
          five-for-one share split of the Company's shares (the "Stock
          Split"). The Stock Split was effected by dividing each of the
          Company's issued and unissued shares of HK$0.10 each into five
          shares of HK$0.02 each, and to increase the board lot size for
          trading on the Stock Exchange of Hong Kong Limited from 500 shares
          of HK$0.10 each to 1,000 subdivided shares of HK$0.02 each. The
          ratio of the Company's ADR listed on the New York Stock Exchange
          also changed such that each ADR now represents 100 subdivided common
          shares of HK$0.02 each, as opposed to 20 common shares of HK$0.10
          each prior to the Stock Split. All references in the consolidated
          financial statements referring to share, share option and per share
          amounts of the shares of the Company have been adjusted
          retroactively for the Stock Split.



                                     F-21
<PAGE>

                      CNOOC LIMITED AND ITS SUBSIDIARIES
                         NOTES TO FINANCIAL STATEMENTS
         (All amounts expressed in Renminbi unless otherwise stated)

4.       ACQUISITIONS

         (i)   During the year, the Company acquired from British Petroleum
               ("BP") an equivalent of 12.5% stake in the proposed joint
               venture known as the Tangguh LNG Project of Indonesia ("Tangguh
               LNG Project") for approximately US$275 million through the
               acquisition of certain interests in production sharing
               contracts ("PSCs") which was effective as at January 1, 2003
               (the "Tangguh Acquisition"). 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 Liquefied Natural Gas ("LNG") Supply Contract (the "LNG
               Supply Contract") to provide up to 2.6 million tons per annum
               of LNG to the Fujian LNG terminal project in the PRC, beginning
               in 2007. The Company completed the Tangguh Acquisition on
               February 8, 2003. CNOOC has an equity interest in the Fujian
               LNG terminal project.

               In addition, a repurchase agreement (the "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 on or before December 31, 2004; 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.

               The consideration paid of approximately US$275 million
               (equivalent to approximately RMB2,276,578,000) and subsequent
               cash calls paid are included as a prepayment in property, plant
               and equipment as at December 31, 2003.

         (ii)  In addition, the Company increased its interest in Qinhuangdao
               32-6, a PSC oilfield in Bohai Bay, from 51% to 75.5% by
               acquiring the 24.5% interest of BP China Exploration and
               Production Company for a cash consideration of US$150 million,
               plus working capital adjustments . The acquisition was
               completed in July 2003.

         (iii) The Company also acquired the remaining 49% interest in Liuhua
               11-1, a PSC oilfield in Southern China, from BP China
               Exploration and Production Company and Kerr-McGee China
               Petroleum Limited, for a total cash consideration of US$40
               million, plus working capital adjustments. The acquisition was
               completed in July 2003.

         (iv)  Pursuant to a conditional agreement dated August 27, 2001, the
               Group finalised the agreement to acquire a 30% interest in
               certain oil and gas fields in the Xihu Trough in the East China
               Sea of the PRC from CNOOC. The total consideration of US$45
               million was paid in 2001 and the transaction was completed in
               August 2003.

         (v)   During the year, the Company invested RMB450 million in CNOOC
               Finance Corporation Limited ("CNOOC Finance"), a share treasury
               operation of its parent company, China National Offshore Oil
               Corporation and other affiliated group companies. The Company's
               investment represents 31.8% share of the registered capital of
               CNOOC Finance. The consideration was paid in full on December
               31, 2003.



                                     F-22
<PAGE>

                      CNOOC LIMITED AND ITS SUBSIDIARIES
                         NOTES TO FINANCIAL STATEMENTS
          (All amounts expressed in Renminbi unless otherwise stated)

5.        PRODUCTION SHARING CONTRACTS

          PRC

          For production sharing contracts in the PRC, the foreign parties 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 Group's 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 government 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.

          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.



                                     F-23
<PAGE>

                      CNOOC LIMITED AND ITS SUBSIDIARIES
                         NOTES TO FINANCIAL STATEMENTS
          (All amounts expressed in Renminbi unless otherwise stated)

6.        SEGMENT INFORMATION

          The Group is organised on a worldwide 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>

<TABLE>
<CAPTION>
                      CNOOC LIMITED AND ITS SUBSIDIARIES
                         NOTES TO FINANCIAL STATEMENTS
         (All amounts expressed in Renminbi unless otherwise stated)

6.       SEGMENT INFORMATION (CONT'D)

(a)      Business segments (continued)

      The following tables present revenues, profit and certain assets, liabilities and expenditures information for the Group's
business segments.



                                                    Independent operations                  Production sharing contracts
                                          ------------------------------------------------------------------------------------
Segment revenue                                  2001           2002          2003           2001         2002           2003
---------------
                                              RMB'000        RMB'000       RMB'000        RMB'000      RMB'000        RMB'000
<S>                                        <C>            <C>           <C>             <C>         <C>            <C>
Sales to external customers:

    Oil and gas sales                       9,845,019     10,318,549    12,040,587      7,023,926   13,460,745     16,076,244

    Marketing revenues                              -              -             -              -            -              -

Intersegment revenues                               -              -             -        691,843    1,023,547      3,730,797

Other income                                  558,368         43,513         8,468        123,312      133,108        424,493
                                           -----------   ------------   -----------    -----------  -----------  -------------
Total                                      10,403,387     10,362,062    12,049,055      7,839,081   14,617,400     20,231,534
                                           -----------   ------------   -----------    -----------  -----------  -------------

Segment results
---------------

Operating expenses                         (1,183,252)    (1,268,360)   (1,597,004)    (1,145,878)  (2,506,974)    (2,933,805)

Production taxes                             (525,454)      (556,583)     (626,897)      (355,544)    (466,466)      (611,701)

Exploration costs                            (955,475)    (1,241,759)     (590,541)       (83,822)     (76,564)      (257,531)

Depreciation, depletion and
   amortisation                            (1,531,184)    (1,635,131)   (1,855,983)    (1,035,736)  (2,384,401)    (2,786,770)
Dismantlement                                 (41,530)       (72,751)      (96,206)       (48,837)     (53,388)       (71,120)
Impairment losses related to
   property, plant and equipment              (60,907)             -             -        (38,768)           -              -

Crude oil and product purchases                     -              -             -              -   (1,023,547)    (3,730,797)

Selling and administrative expenses           (35,686)       (38,548)      (62,247)          (100)    (553,537)      (666,369)

Other                                        (514,655)             -       (36,406)             -      (30,866)      (313,826)

Interest income                                     -              -             -              -        3,831         14,302

Interest expense                              (69,437)       (62,081)      (60,358)       (13,871)     (17,100)       (20,817)

Exchange (loss)/gain, net                           -              -             -              -          794            124

Short term investment income                        -              -             -              -            -              -

Share of profit of an associate                     -              -             -              -            -              -

Non-operating (expense)/income, net            18,267        (85,414)            -              -         (220)             -

Tax                                                 -              -             -              -            -              -
                                           -----------   ------------   -----------    -----------  -----------  -------------

Net profit                                  5,504,074      5,401,435     7,141,413      5,116,525    7,508,962      8,853,224
                                           -----------   ------------   -----------    -----------  -----------  -------------

Other information
-----------------

Segment assets                             15,422,016     16,899,455    36,087,581     10,295,857   22,446,447     26,821,223

Investment in an associate                                         -             -              -            -              -

Total assets                               15,422,016     16,899,455    36,087,581     10,295,857   22,446,447     26,821,223

Segment liabilities                        (4,254,418)    (3,033,327)   (3,554,720)    (3,372,175) (10,200,032)   (12,620,113)

Capital expenditures                        1,922,074      2,770,640     5,960,071      2,398,601    4,396,933      2,264,625
                                           ===========    ===========    ==========    ===========  ============  ============

<CAPTION>

                                               Trading business                                    Unallocated
                                     ----------------------------------------------------------------------------------------------
Segment revenue                               2001          2002          2003          2001           2002          2003
---------------
                                            RMB'000       RMB'000       RMB'000       RMB'000        RMB'000       RMB'000
<S>                                         <C>            <C>          <C>           <C>            <C>           <C>
Sales to external customers:

    Oil and gas sales                               -              -             -              -            -              -

    Marketing revenues                      3,228,875      2,377,469    12,398,661              -            -              -

Intersegment revenues                               -              -             -              -            -              -

Other income                                        -             -              -         40,057       40,431          1,820
                                            ---------   ------------   -----------    -----------  -----------   -------------

Total                                       3,228,875      2,377,469    12,398,661         40,057       40,431          1,820
                                          -----------   ------------   -----------    -----------  -----------   -------------

Segment results
---------------

Operating expenses                                  -              -             -              -            -              -

Production taxes                                    -              -             -         (2,770)           -              -

Exploration costs                                   -              -             -              -            -              -
Depreciation, depletion
    and amortisation                                -              -             -              -            -              -
Dismantlement                                       -              -             -              -            -              -
Impairment losses related to
    property, plant and equipment                   -              -             -              -            -              -

Crude oil and product purchases            (3,145,155)    (2,326,338)  (12,295,238)             -            -              -

Selling and administrative
    expenses                                        -              -             -       (579,603)    (414,455)      (483,907)

Other                                               -              -             -         (3,221)           -              -

Interest income                                     -              -             -        317,706      144,039        169,274

Interest expense                                    -              -             -        (33,326)    (215,611)      (273,765)

Exchange (loss)/gain, net                           -              -             -        235,409     (114,608)        (6,870)

Short term investment income                        -              -             -        220,650      193,277        123,483

Share of profit of an associate                     -              -             -         89,963      165,387        220,263

Non-operating (expense)/income, net                 -              -             -         16,674       14,255        314,968

Tax                                                 -              -             -     (3,048,227)  (3,541,416)    (4,627,836)
                                          -----------   ------------   -----------    -----------  -----------  -------------

Net profit                                     83,720         51,131       103,423     (2,746,688)  (3,728,701)    (4,562,570)
                                          -----------   ------------   -----------    -----------  -----------   -------------

Other information
-----------------

Segment assets                                368,670        630,704     2,629,009     17,771,115   20,581,722      6,848,849

Investment in an associate                          -              -             -        461,990      537,377      1,117,640

Total assets                                  368,670        630,704     2,629,009     18,233,105   21,119,099      7,966,489

Segment liabilities                          (106,862)       (21,665)   (2,173,828)    (3,275,687)  (7,272,193)    (8,419,109)

Capital expenditures                                -              -             -         18,063       37,652         46,868
                                         ============   ============  ============   ============  ===========    ============

<CAPTION>

                                                         Eliminations                               Consolidated
                                        ------------------------------------------------------------------------------------------
                                                   2001         2002          2003            2001          2002            2003
Segment revenue                                 RMB'000      RMB'000       RMB'000         RMB'000       RMB'000         RMB'000
---------------

<S>                                           <C>         <C>           <C>             <C>           <C>             <C>
Sales to external customers:

    Oil and gas sales                                 -            -             -      16,868,945    23,779,294      28,116,831

    Marketing revenues                                -            -             -       3,228,875     2,377,469      12,398,661

Intersegment revenues                          (691,843)  (1,023,547)   (3,730,797)              -             -               -

Other income                                          -            -             -         721,737       217,052         434,781
                                              ----------  -----------   -----------    -----------  -------------  --------------

Total                                          (691,843)  (1,023,547)   (3,730,797)     20,819,557    26,373,815      40,950,273
                                              ----------  -----------   -----------    -----------  -------------  --------------


Segment results
---------------

Operating expenses                                    -            -             -      (2,329,130)   (3,775,334)     (4,512,809)

Production taxes                                      -            -             -        (883,768)   (1,023,049)     (1,238,598)

Exploration costs                                     -            -             -      (1,039,297)   (1,318,323)       (848,072)
Depreciation, depletion and amortisation              -            -             -      (2,566,920)   (4,019,532)     (4,642,753)
Dismantlement                                         -            -             -         (90,367)     (126,139)       (167,326)
Impairment losses related to property,
    plant and equipment                               -            -             -         (99,675)            -               -

Crude oil and product purchases                 691,843    1,023,547     3,730,797      (2,453,312)   (2,326,338)    (12,295,238)

Selling and administrative expenses                   -            -             -        (615,389)   (1,006,540)     (1,212,523)

Other                                                 -            -             -        (517,876)      (30,866)       (350,232)

Interest income                                       -            -             -         317,706       147,870         183,576

Interest expense                                      -            -             -        (116,634)     (294,792)       (354,940)

Exchange (loss)/gain, net                             -            -             -         235,409      (113,814)         (6,746)

Short term investment income                          -            -             -         220,650       193,277         123,483

Share of profit of an associate                       -            -             -          89,963       165,387         220,263

Non-operating (expense)/income, net                   -            -             -          34,941       (71,379)        314,968

Tax                                                   -            -             -      (3,048,227)   (3,541,416)     (4,627,836)
                                              ----------  -----------   -----------    -----------  -------------  --------------
Net profit                                                                               7,957,631     9,232,827      11,535,490
                                              ----------  -----------   -----------    -----------  -------------  --------------

Other information
-----------------

Segment assets                                        -            -             -      43,857,658    60,558,328      72,386,622

Investment in an associate                            -            -             -         461,990       537,377       1,117,640

Total assets                                          -            -             -      44,319,648    61,095,705      73,504,302

Segment liabilities                                   -            -             -     (11,009,142)  (20,527,217)    (26,767,770)

Capital expenditures                                  -            -             -       4,338,738     7,205,225       8,271,564
                                              ==========  ===========   ===========    ===========  =============  ==============



                                                                     F-25
</TABLE>

<PAGE>

                      CNOOC LIMITED AND ITS SUBSIDIARIES
                         NOTES TO FINANCIAL STATEMENTS
          (All amounts expressed in Renminbi unless otherwise stated)

6.        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 mainly engaged in the exploration, development and
               production of crude oil and natural gas in offshore China.
               Approximately 62% of the total revenue of the Group is
               contributed by PRC customers, and therefore, the Group's
               activities are conducted predominantly in the PRC. Any
               activities outside PRC are conducted in Indonesia and
               Singapore. An analysis by geographical segment is as follows:

<TABLE>
<CAPTION>
                                           PRC                           Outside PRC                          Total
                            -----------------------------      ------------------------------      ------------------------------
                              2001        2002      2003         2001       2002         2003        2001        2002       2003
                            -------     -------   -------      -------     -------     -------     -------     -------    -------
                            RMB'000     RMB'000   RMB'000      RMB'000     RMB'000     RMB'000     RMB'000     RMB'000    RMB'000
<S>                       <C>         <C>         <C>         <C>         <C>        <C>         <C>         <C>        <C>
          External sales  18,104,658  22,781,301  25,416,466  2,714,899   3,592,514  15,533,807  20,819,557  26,373,815 40,950,273
          Segment assets  43,783,409  50,647,452  61,357,931    536,239  10,448,253  12,146,371  44,319,648  61,095,705 73,504,302
          Capital
            expenditures   4,311,241   6,453,798   7,727,171     27,497     751,427     544,393   4,338,738   7,205,225  8,271,564
</TABLE>

          (c)  An analysis of sales to major customers by business segment is
               as follows:

<TABLE>
<CAPTION>
                                                                2001                2002                 2003
                                                           ----------------    ----------------    -----------------
                                                               RMB'000             RMB'000             RMB'000
<S>                                                           <C>                 <C>                  <C>
               Production sharing contracts
               China Petroleum & Chemical Corporation         2,861,847           3,707,536            3,848,361
               PetroChina Company Limited                     1,126,127           1,187,571            1,446,169
               Castle Peak Power Company Limited              1,205,649           1,247,639              841,285
                                                           ------------        ------------        -------------
                                                              5,193,623           6,142,746            6,135,815
                                                           ------------        ------------        -------------

               Independent operations
               China Petroleum & Chemical Corporation         3,420,685           3,183,341            3,126,708
               PetroChina Company Limited                       194,460                   -                    -
                                                           ------------        ------------        -------------
                                                              3,615,145           3,183,341            3,126,708
                                                           ------------        ------------        -------------
                                                              8,808,768           9,326,087            9,262,523
                                                           ============        ============        =============

7.        OIL AND GAS SALES

                                                                2001                2002                 2003
                                                           ----------------    ----------------    -----------------
                                                               RMB'000             RMB'000             RMB'000
          Gross sales                                        19,663,251          26,086,646           30,556,967
          Royalties                                            (283,014)           (464,113)            (478,454)
          PRC government share oil                           (1,819,449)         (1,843,239)          (1,961,682)
                                                           ------------        ------------        -------------

                                                             17,560,788          23,779,294           28,116,831
                                                           ============        ============        =============

</TABLE>



                                     F-26
<PAGE>

                      CNOOC LIMITED AND ITS SUBSIDIARIES
                         NOTES TO FINANCIAL STATEMENTS
          (All amounts expressed in Renminbi unless otherwise stated)

8.        MARKETING PROFIT
<TABLE>
<CAPTION>
                                                                2001                2002                 2003
                                                           ----------------    ----------------    -----------------
                                                               RMB'000             RMB'000             RMB'000

<S>                                                           <C>                 <C>                 <C>
          Marketing revenues                                  2,537,032           2,377,469           12,398,661
          Crude oil and product purchases                    (2,453,312)         (2,326,338)         (12,295,238)
                                                           ------------        ------------        -------------
                                                                 83,720              51,131              103,423
                                                           ============        ============        =============


9.        SELLING AND ADMINISTRATIVE EXPENSES

                                                                2001                2002                 2003
                                                           ----------------    ----------------    -----------------
                                                               RMB'000             RMB'000             RMB'000
          Salary and staff benefits                             228,782             390,376              393,165
          Utility and office expenses                            89,462             100,502               90,801
          Recovery of doubtful accounts                          (4,966)                  -                    -
          Transportation and entertainment                       64,923              64,319               74,218
          Rentals and maintenance                               121,483              75,738              107,310
          Management fee                                              -             151,860              219,771
          Selling expenses                                       38,069              38,548               30,686
          Provision for  inventory obsolescence                       -                   -                8,745
          Other                                                  77,636             185,197              287,827
                                                           ------------        ------------        -------------
                                                                615,389           1,006,540            1,212,523
                                                           ============        ============        =============

10.      INTEREST EXPENSES

                                                                2001                2002                 2003
                                                           ----------------    ----------------    -----------------
                                                               RMB'000             RMB'000             RMB'000
          Interest on bank loans which are:
             - wholly repayable within five years               219,045             177,156               81,539
             - not wholly repayable within five years            81,634                   -                    -
          Interest expense to the parent company                  8,415                   -                    -
          Interest on long term guaranteed notes                      -             215,028              391,005
          Other borrowing costs                                   6,510              12,426               34,933
                                                           ------------        ------------        -------------
          Total interest                                        315,604             404,610              507,477

          Less: Amount capitalised in property, plant
                      and equipment (note 16)                  (198,970)           (187,714)            (245,783)
                                                           ------------        ------------        -------------
                                                                116,634             216,896              261,694
          Other finance costs:
          Increase in discounted amount of provisions
            arising from the passage of time (note 27)                -              77,896               93,246
                                                           ------------        ------------        -------------
                                                                116,634             294,792              354,940
                                                           ============        ============        =============
</TABLE>

          The interest rates used for interest capitalisation represented the
          cost of capital from raising the related borrowings and varied from
          4.1% to 9.15% per annum for the year ended December 31, 2003. (2002:
          2.35% to 9.15%, 2001: 2.35% to 9.15%).



                                     F-27
<PAGE>

                      CNOOC LIMITED AND ITS SUBSIDIARIES
                         NOTES TO FINANCIAL STATEMENTS
          (All amounts expressed in Renminbi unless otherwise stated)

11.       DIRECTORS' REMUNERATION

          Directors' remuneration for the years disclosed pursuant to the
          Listing Rules and Section 161 of the Companies Ordinance, is as
          follows:
<TABLE>
<CAPTION>
                                                                2001                2002                 2003
                                                           ----------------    ----------------    -----------------
                                                               RMB'000             RMB'000             RMB'000

<S>                                                        <C>                 <C>                  <C>
          Fees for executive directors                                -                   -                    -
          Fees for non-executive directors                          890                 890                1,000

          Other emoluments for executive directors
             - Basic salaries and allowances                      6,106               6,654                6,327
             - Bonus                                                560               1,109                2,100
             - Pension scheme contribution                          207                 214                  207
             - Other                                              1,500               1,500                1,425
</TABLE>

          The number of directors whose remuneration fell within the following
          bands is as follows:

<TABLE>
<CAPTION>
                                                                              Number of Directors
                                                           ---------------------------------------------------------
                                                                2001                2002                 2003
                                                           ----------------    ----------------    -----------------
<S>                                                        <C>                 <C>                  <C>
          Nil to HK$1,000,000                                         6                   8                    6
          HK$1,000,001- HK$1,500,000                                  -                   -                    1
          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                   -                    2
                                                           ------------        ------------        -------------
                                                                      9                  11                    9
                                                           ============        ============        =============
</TABLE>

          There was no arrangement under which a director waived or agreed to
          waive any remuneration during the year.

          No value in respect of the share options granted during the year
          (note 28) has been charged to the income statement, or is otherwise
          included in the above directors' remuneration disclosures.

12.       FIVE HIGHEST PAID EMPLOYEES

          Details of the remuneration of the five highest paid employees
          during the year are as follows:

<TABLE>
<CAPTION>
                                                                2001                2002                 2003
                                                           ----------------    ----------------    -----------------
                                                               RMB'000             RMB'000             RMB'000
<S>                                                        <C>                 <C>                  <C>
          Basic salaries and allowances                           7,280               8,227               15,857
          Bonus                                                   1,280               2,518                2,550
          Pension scheme contributions                              416                 505                1,332
          Other                                                   1,500               2,732                2,743

          Number of directors                                         4                   4                    -
          Number of employees                                         1                   1                    5
</TABLE>



                                     F-28
<PAGE>

                      CNOOC LIMITED AND ITS SUBSIDIARIES
                         NOTES TO FINANCIAL STATEMENTS
          (All amounts expressed in Renminbi unless otherwise stated)

12.       FIVE HIGHEST PAID EMPLOYEES (CONT'D)

          The number of highest paid employees whose remuneration fell within
          the following bands is as follows:
<TABLE>
<CAPTION>
                                                                              Number of Employees
                                                           ---------------------------------------------------------
                                                                2001                2002                 2003
                                                           ----------------    ----------------    -----------------
<S>                                                        <C>                 <C>                 <C>
          Nil to HK$1,000,000                                         1                   1                    -
          HK$1,500,001- HK$2,000,000                                  2                   2                    -
          HK$2,500,001- HK$3,000,000                                  2                   1                    -
          HK$3,500,001- HK$4,000,000                                  -                   -                    3
          HK$4,500,001- HK$5,000,000                                  -                   1                    -
          HK$5,000,001- HK$5,500,000                                  -                   -                    2
                                                           ----------------    ----------------    -----------------
                                                                      5                   5                    5
                                                           ================    ================    =================
</TABLE>

         No value in respect of the share options granted during the year
         (note 28) has been charged to the income statement, or is otherwise
         included in the above five highest paid employees disclosures.

13.      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 operated.
                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.

                The Company's subsidiary in Singapore, China Offshore Oil
                (Singapore) International Pte Ltd., is subject to income tax
                at rates of 10% and 22%, for its oil trading activities and
                other income generating activities, respectively. The
                Company's subsidiaries owning interests in oil and gas
                properties in Indonesia along the Malacca Strait are subject
                to corporate and dividend tax at the rate of 44%. The
                Company's subsidiaries owning interests in oil and gas
                properties in Indonesia acquired from Repsol YPF, S.A. are
                subject to corporate and dividend tax at the rate of 43.125%
                instead of the standard rate of 48% after the application of
                the Malaysian Tax Treaty as recognised by the Indonesian tax
                authorities. 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 FINANCIAL STATEMENTS
          (All amounts expressed in Renminbi unless otherwise stated)

13.      TAX (CONT'D)

         (i)    Income tax (cont'd)

                An analysis of the provision for tax in the consolidated
                income statement was as follows:

<TABLE>
<CAPTION>

                                                                   2001               2002             2003
                                                              ----------------    -------------    -------------
                                                                  RMB'000            RMB'000          RMB'000
                  <S>                                         <C>                 <C>              <C>
                  Overseas income taxes
                      - Current                                        20,401          406,493          654,988
                      - Deferred                                            -           26,094         (179,134)
                  PRC enterprise income tax
                      - Current                                     2,715,409        2,786,938        3,623,157
                      - Deferred                                      312,417          321,891          528,825
                                                              ----------------    -------------    -------------

                  Tax charge for the year                           3,048,227        3,541,416        4,627,836
                                                              ================    =============    =============
</TABLE>

                  A reconciliation of the statutory PRC enterprise income tax
                  rate to the effective income tax rate of the Group is as
                  follows:

<TABLE>
<CAPTION>
                                                                            2001          2002         2003
                                                                         ----------    ----------   ----------
                <S>                                                     <C>            <C>           <C>
                                                                                 %             %            %
                Statutory PRC enterprise income tax rate                    33.0          33.0         33.0
                Effect of tax exemption granted                             (3.0)         (3.0)        (3.0)
                Effect of different tax rates for overseas
                subsidiaries                                                (1.2)          0.2         (0.1)
                Tax credit from government                                     -          (2.1)        (1.5)
                Tax effect on other permanent differences                   (1.1)         (0.4)         0.2
                                                                         ----------    ----------   ----------
                Effective income tax rate                                   27.7          27.7         28.6
                                                                         ----------    ----------   ----------
</TABLE>

                  The tax effect of significant temporary differences of the
                  Group was as follows:

<TABLE>
<CAPTION>
                                                                                           2002                 2003
                                                                                      ---------            ---------
                                                                                        RMB'000              RMB'000
                  <S>                                                                 <C>                 <C>
                  Deferred tax assets
                      - Provision for retirement and termination benefits                86,602              114,758
                      - Provision for dismantlement                                     671,796              775,725
                      - Provision for impairment of property, plant
                            and equipment and write-off of unsuccessful
                            exploratory drillings                                       933,636              759,454
                                                                                      ---------            ---------
                                                                                      1,692,034            1,649,937
                                                                                      ---------            ---------

                  Deferred tax liabilities
                      - Accelerated amortisation allowance for oil
                             and gas properties                                      (7,833,190)          (7,433,133)
                                                                                      ---------            ---------

                  Net deferred tax liabilities                                       (6,141,156)          (5,783,196)
                                                                                      =========            =========
</TABLE>



                                     F-30
<PAGE>

                      CNOOC LIMITED AND ITS SUBSIDIARIES
                         NOTES TO FINANCIAL STATEMENTS
          (All amounts expressed in Renminbi unless otherwise stated)

13.      TAX (CONT'D)

         (i) Income tax (cont'd)

             As at December 31, 2003, there was no significant
             unrecognised deferred tax liability (2002: Nil) for taxes
             that would be payable on the unremitted earnings of certain
             of the Group's subsidiaries and associates as the Group had
             no liability to additional tax should such amounts be
             remitted.

             There are no income tax consequences attaching to the
             payment of dividends by the Company to its shareholders.

             SSAP 12 (Revised) was adopted during the year, as further
             explained in note 2 to the financial statements. There was
             no material impact on the Group's financial statements upon
             the adoption of the SSAP.

        (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.

14.      DIVIDENDS

         Dividends per share are calculated after Stock Split.

         The directors have recommended a final dividend of HK$0.024 per
         ordinary share totalling HK$985,699,879 (approximately equivalent to
         RMB1,050,460,000) and a special final dividend of HK$0.036 per
         ordinary share totalling HK$1,478,549,818 (approximately equivalent to
         RMB1,575,691,000) for the year ended December 31, 2003.

         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
         conditions 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 companies. As the controlling
         shareholder, CNOOC will be able to influence the Company's dividend
         policy.

         Cash dividends to the shareholders in Hong Kong will be paid in Hong
         Kong dollars and dividends to the American Depositary Share ("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.



                                     F-31
<PAGE>

                      CNOOC LIMITED AND ITS SUBSIDIARIES
                         NOTES TO FINANCIAL STATEMENTS
          (All amounts expressed in Renminbi unless otherwise stated)

15.      EARNINGS PER SHARE

         The calculations of basic and diluted earnings per share after Stock
         Split are based on:

<TABLE>
<CAPTION>
                                                              2001                      2002                  2003
                                                      ----------------------      ------------------   -------------------
                                                             RMB'000                   RMB'000              RMB'000
         Earnings
         --------
         <S>                                           <C>                        <C>                  <C>
         Net profit attributable to shareholders,
             used in the basic and diluted earnings
             per share calculations                             7,957,631                 9,232,827           11,535,490

         Shares (after Stock Split)                                            Number of shares
         --------------------------                   --------------------------------------------------------------------
                                                              2001                      2002                  2003
                                                      ----------------------      ------------------   -------------------
         Weighted average number of ordinary shares
              in issue during the year used in
              basic earnings per share calculation         39,706,916,525            41,070,828,275       41,070,828,275

         Weighted average number of ordinary shares
              assumed issued at no consideration on
              deemed exercise of all share options
              outstanding during the year                       4,527,490                25,598,645          39,510,820
                                                      ----------------------      ------------------   -------------------

         Weighted average number of ordinary shares
              used in diluted earnings per share
              calculation                                  39,711,444,015            41,096,426,920      41,110,339,095
                                                      ======================      ==================   ===================
</TABLE>


         Net income per ADS for the three years ended December 31, 2003 has
         been computed by dividing net income by the number of ADS
         outstanding. Each ADS represented 100 shares.



                                     F-32
<PAGE>

                      CNOOC LIMITED AND ITS SUBSIDIARIES
                         NOTES TO FINANCIAL STATEMENTS
          (All amounts expressed in Renminbi unless otherwise stated)

16.      PROPERTY, PLANT AND EQUIPMENT, NET

         Movements in the property, plant and equipment of the Group are as
         follows:

<TABLE>
<CAPTION>
                                                                              2003
                                              ----------------------------------------------------------------------
                                                                                  Vehicles and
                                                 Oil and gas        Land and         office
                                                 properties         buildings       equipment           Total
                                              ------------------    -----------   ---------------  -----------------
                                                   RMB'000          RMB'000          RMB'000             RMB'000
         <S>                                  <C>                   <C>           <C>              <C>
         Cost or valuation:
         At beginning of year                      58,321,780         824,781           93,720         59,240,281
         Purchase price allocation adjustment        (707,623)              -                -           (707,623)
         Additions                                  8,538,930               -           46,868          8,585,798
         Acquisition (including prepayments)        4,025,441               -                -          4,025,441
         Disposals and write-off                      (39,798)              -             (604)           (40,402)
         Exchange realignment                            (902)              -              (82)              (984)
                                              ------------------    -----------   ---------------  -----------------

         End of year                               70,137,828         824,781          139,902         71,102,511
                                              ==================    ===========   ===============  =================

         Analysis of cost or valuation
         At cost                                   70,137,828               -          139,902         70,277,730
         At revaluation                                     -         824,781                -            824,781
                                              ------------------    -----------   ---------------  -----------------
                                                   70,137,828         824,781          139,902         71,102,511
                                              ==================    ===========   ===============  =================

         Accumulated depreciation, depletion
            and amortisation:
         At beginning of year                     (23,059,600)        (81,027)         (27,834)       (23,168,461)
         Depreciation provided during the
            year                                   (4,779,271)        (25,374)          (6,045)        (4,810,690)
         Disposals                                          -               -              584                584
         Exchange realignment                            (234)              -               91               (143)
                                              ------------------    -----------   ---------------  -----------------

         End of year                              (27,839,105)       (106,401)         (33,204)       (27,978,710)
                                              ==================    ===========   ===============  =================

         Net book value:
         Beginning of year                         35,262,180         743,754           65,886         36,071,820
                                              ==================    ===========   ===============  =================

         End of year                               42,298,723         718,380          106,698         43,123,801
                                              ==================    ===========   ===============  =================

         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                                      70,137,828         550,110          139,902         70,827,840
         Accumulated depreciation,
           depletion and amortisation             (27,839,105)        (71,348)         (33,204)       (27,943,657)
                                              ------------------    -----------   ---------------  -----------------
                                                   42,298,723         478,762          106,698         42,884,183
                                              ==================    ===========   ===============  =================
</TABLE>



                                     F-33
<PAGE>

<TABLE>
<CAPTION>
                      CNOOC LIMITED AND ITS SUBSIDIARIES
                         NOTES TO FINANCIAL STATEMENTS
          (All amounts expressed in Renminbi unless otherwise stated)

16.      PROPERTY, PLANT AND EQUIPMENT, NET (CONT'D)

                                                                                 2002
                                                  ---------------------------------------------------------------------
                                                                                      Vehicles and
                                                    Oil and gas       Land and           office
                                                    properties       buildings          equipment            Total
                                                  ---------------  ---------------  -----------------  ----------------
                                                      RMB'000          RMB'000            RMB'000           RMB'000
         <S>                                      <C>               <C>              <C>                <C>
         Cost or valuation:
         At beginning of year as restated            42,692,547        824,781            57,900           43,575,228
         Purchase price allocation adjustment                 -              -                 -                    -
         Additions                                    7,419,956              -            37,653            7,457,609
         Acquisition (including prepayments)          8,646,487              -                 -            8,646,487
         Disposals and write-off                       (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 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>

         During the year, the Company finalised the purchase price allocation
         for the oil and gas properties acquired as a result of the
         acquisition of the subsidiaries from Repsol YPF, S.A. in April 2002
         and an adjustment of approximately RMB707 million was made to reduce
         the fair value of the oil and gas properties acquired with a
         corresponding adjustment made to reduce the deferred tax liabilities.



                                     F-34
<PAGE>

                      CNOOC LIMITED AND ITS SUBSIDIARIES
                         NOTES TO FINANCIAL STATEMENTS
          (All amounts expressed in Renminbi unless otherwise stated)

16.      PROPERTY, PLANT AND EQUIPMENT, NET (CONT'D)

         The consideration paid of US$275 millions (equivalent to
         approximately RMB2,276,578,000) and subsequent cash paid of
         approximately US$19,200,000 for the Tangguh LNG Project (see note
         4(i)) has been included as a prepayment in oil and gas properties as
         at December 31, 2003.

         Included in the current year additions represented an amount of RMB
         245,783,000 (2002: RMB187,714,000) in respect of interest capitalised
         in property, plant and equipment.

         The land and buildings of the Group are held outside Hong Kong with
         lease terms of 50 years.

         The land and buildings were revalued by an independent valuer,
         Sallmanns (Far East) Limited, Chartered Surveyors (the "Valuer") as
         at 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
         which were previously granted by the PRC government at no cost.

17.      INVESTMENTS IN ASSOCIATES

         Investments in associates represent (1) 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 sale in the South
         Yellow Sea and East China Sea areas. The issued and paid-up capital
         of SPC is RMB900 million; and (2) a 31.8% equity interest of CNOOC
         China Limited in CNOOC Finance Corporation Limited ("CNOOC Finance").
         CNOOC Finance was incorporated on May 13, 2002 in the PRC with
         limited liability and is principally engaged in deposit-takings and
         money lending activities for the CNOOC Group. The issued and paid-up
         capital of CNOOC Finance is RMB1,415 million.

                                            2002                    2003
                                  -----------------------  -------------------
                                           RMB'000                 RMB' 000
                                  -----------------------   ------------------
         Share of net assets               537,377                1,117,640
                                  =======================   ==================

         The directors are of the opinion that the underlying value of the
         investments in associates is not less than the carrying amount of the
         associates as at December 31, 2003 and 2002.

18.      ACCOUNTS RECEIVABLE, NET

         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 at December 31, 2003 and 2002,
         substantially all the accounts receivable were aged within six
         months.



                                     F-35
<PAGE>

<TABLE>
<CAPTION>
                      CNOOC LIMITED AND ITS SUBSIDIARIES
                         NOTES TO FINANCIAL STATEMENTS
          (All amounts expressed in Renminbi unless otherwise stated)

19.      INVENTORIES AND SUPPLIES

                                                                             2002                 2003
                                                                       ------------------  --------------
                                                                           RMB'000              RMB'000
          <S>                                                          <C>                 <C>
          Materials and supplies                                             585,431            809,827
          Oil in tanks                                                       263,174            291,844
          Less: Provision for inventories obsolescence                             -             (8,745)
                                                                       ------------------  ---------------
                                                                             848,605          1,092,926
                                                                       ==================  ===============
</TABLE>

<TABLE>
<CAPTION>
20.      SHORT TERM INVESTMENTS

         As at December 31, 2003 and 2002, short term investments mainly
         represented investments in liquidity funds and were stated at fair
         value at the balance sheet date. Details of the short term
         investments were as follows:

                                                                                      2002               2003
                                                                              -----------------  ----------------
                                                                                    RMB'000            RMB'000
          <S>                                                                    <C>                 <C>
          Unlisted investments, at fair value
              Liquidity funds                                                     5,537,191          3,767,179
              Corporate bonds                                                       951,876          1,876,880
              Common stock                                                           42,211             40,274
                                                                              -----------------  -----------------
                                                                                  6,531,278          5,684,333
                                                                              =================  =================
</TABLE>

21.      ACCOUNTS PAYABLE

         As at December 31, 2003 and 2002, substantially all the accounts
         payable were aged within six months.


22.      OTHER PAYABLES AND ACCRUED LIABILITIES

<TABLE>
<CAPTION>
                                                                                2002                  2003
                                                                         ----------------     -----------------
                                                                               RMB'000              RMB'000
          <S>                                                            <C>                  <C>
          Accrued payroll and welfare payable                                   149,501              149,532
          Provision for retirement and termination benefits                     211,321              290,955
          Accrued expenses                                                      793,823              926,867
          Advances from customers                                                60,101               10,864
          Royalties payable                                                     208,214              205,113
          Other payables                                                        289,448              372,452
                                                                         ----------------     -----------------
                                                                              1,712,408            1,955,783
                                                                         ================     =================
</TABLE>

         As at December 31, 2003, deferred revenue from gas sales contracts
         amounted to approximately RMB1,208,000 (2002: RMB5,582,000) and was
         included in other payables.



                                     F-36
<PAGE>

                      CNOOC LIMITED AND ITS SUBSIDIARIES
                         NOTES TO FINANCIAL STATEMENTS
          (All amounts expressed in Renminbi unless otherwise stated)

<TABLE>
<CAPTION>

23.      LONG TERM BANK LOANS

         As at December 31, 2003, the 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.

                                   Interest rate and final maturity                        2002               2003
                                   ------------------------------------------------    -------------      -------------
                                                                                           RMB'000           RMB'000
           <S>                      <C>                                                <C>                <C>
           RMB denominated bank     Fixed interest rate at 5.94% per annum
            loans                    through to 2005                                         57,270                  -

           US$ denominated bank     Floating LIBOR rate with maturities through
            loans                    to 2003                                                259,907                  -

                                    Fixed interest rate of 9.15% per annum with
                                     maturities through 2006                                827,730            827,615

           Japanese Yen
            denominated bank        Fixed interest rate of 4.1% per annum with
            loans                    maturities through to 2007                              93,704             82,578
                                                                                       -------------      -------------
                                                                                          1,238,611            910,193

           Less: Current portion of long term bank loans                                   (297,518)           (20,618)
                                                                                       -------------      -------------
                                                                                            941,093            889,575
                                                                                       =============      =============

         As at December 31, 2003, all the bank loans of the Group were
         unsecured and none (2002: RMB259,907,000) of the outstanding
         borrowings were guaranteed by CNOOC.

         The maturities of the long term bank loans are as follows:

                                                                                            2002                 2003
                                                                                       -------------      -------------
                                                                                            RMB'000            RMB'000
          Balances due:
         - Within one year                                                                  297,518             20,618
         - After one year but within two years                                               27,541             24,364
         - After two years but within three years                                            48,341            846,471
         - After three years but within four years                                          846,471             18,740
         - After four years but within five years                                            18,740                  -
                                                                                       -------------      -------------
                                                                                          1,238,611            910,193

         Amount due within one year shown under current liabilities                        (297,518)           (20,618)
                                                                                       -------------      -------------
                                                                                            941,093            889,575
                                                                                       =============      =============
</TABLE>



                                     F-37
<PAGE>

                      CNOOC LIMITED AND ITS SUBSIDIARIES
                         NOTES TO FINANCIAL STATEMENTS
          (All amounts expressed in Renminbi unless otherwise stated)

23.      LONG TERM BANK LOANS (CONT'D)

<TABLE>
<CAPTION>
         Supplemental information with respect to long term bank loans:

                                                                            Maximum         Average         Weighted
                                                           Weighted          amount          amount          average
                                                            average     outstanding     outstanding    interest rate
                                           Balance    interest rate      during the      during the       during the
         For the year ended            at year end      at year end            year           year*           year**
         31 December                       RMB'000                          RMB'000         RMB'000
         --------------------         ------------    -------------    ------------     -----------    -------------
         <S>                          <C>             <C>              <C>              <C>            <C>
         2003                              910,193            8.69%       1,238,611       1,074,403            7.94%
         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 at 1 January and
               31 December by two.

         **    The weighted average interest rate is computed by dividing the
               total of weighted average interest rates as at 1 January and 31
               December by two.

24.      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 million of
         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.

         On May 21, 2003, CNOOC Finance (2003) Limited, a company incorporated
         in the British Virgin Islands on April 2, 2003 and a wholly-owned
         subsidiary of the Company, issued US$200 million of principal amount
         of 4.125% guaranteed notes due in 2013 and US$300 million of
         principal amount of 5.500% guaranteed notes due in 2033. The
         obligations of CNOOC Finance (2003) Limited in respect of the notes
         are unconditionally and irrevocably guaranteed by the Company.

25.      BALANCES WITH THE PARENT COMPANY

         As at December 31, 2003 and 2002, the balances with CNOOC were
         unsecured, interest-free and were repayable on demand.

26.      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-38
<PAGE>

                      CNOOC LIMITED AND ITS SUBSIDIARIES
                         NOTES TO FINANCIAL STATEMENTS
          (All amounts expressed in Renminbi unless otherwise stated)

26.      RELATED PARTY TRANSACTIONS (CONT'D)

<TABLE>
<CAPTION>
         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:

                                                            Notes        2001           2002          2003
                                                           --------  -----------   ------------  ------------
                                                                        RMB'000       RMB'000       RMB'000
         <S>                                               <C>        <C>           <C>           <C>
         Materials, utilities and ancillary services        (i)         814,913       789,167     1,018,066
         Technical services                                 (ii)      2,366,961     3,279,596     3,828,282
         Research and development services                  (iii)       160,349       167,354        83,280
         Lease and property management services             (iv)         45,524        54,421        56,867

         Included in:
            Exploration expenses                                        619,505       593,059       487,293
            Operating expenses                                          869,386       993,825     1,176,601
            Selling and administrative expenses                         173,844       190,449       191,349

         Capitalised under property, plant and equipment              1,725,012     2,513,205     3,131,252
</TABLE>

         (i)      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.

                  The materials, utilities and ancillary services are provided
                  at:

                  -        state-prescribed prices; or
                  -        where there is no state-prescribed price, at 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, at 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.

         (ii)     Technical services

                  CNOOC China Limited has entered into technical service
                  agreements with certain affiliates of CNOOC. According to
                  the agreements, the Group uses the technical services
                  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.



                                     F-39
<PAGE>

                      CNOOC LIMITED AND ITS SUBSIDIARIES
                         NOTES TO FINANCIAL STATEMENTS
          (All amounts expressed in Renminbi unless otherwise stated)


26.      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 December 31, 2002,
                  with an annual amount of RMB110 million. In addition, the
                  Group also pays the Centre for research and development for
                  particular projects. The services include the following:

                  -        geophysical exploration services;
                  -        seismic data processing;
                  -        comprehensive exploration research services; and
                  -        information technology services.

         (iv)     Lease and property management services

                  The Group has entered into lease and property agreements
                  with the affiliates of CNOOC for the leasing of various
                  office, warehouse and residential premises. The lease
                  charges are based on the prevailing market rates.

         (v)      Sales of crude oil, condensated 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, 2003, the total sales
                  amounted to approximately RMB8,324,108,000 (2002:
                  RMB4,361,852,000).

         During the year, the Group placed certain deposits with CNOOC Finance
         Corporation Limited ("CNOOC Finance"), a subsidiary of CNOOC. CNOOC
         Finance is a non-bank finance company supervised by the People's Bank
         of China (the "PBOC") and the Company is one of its customers. In the
         PRC, deposit rate is set by PBOC which is applicable to all financial
         institutions. The interest rates offered by CNOOC Finance were the
         same as the rates promulgated by the PBOC which were applicable to
         account deposits with PRC banks or finance companies and ranged from
         1.44% to 1.89% per annum. The deposits placed with CNOOC Finance as
         at December 31, 2003 amounted to approximately RMB3,898,000. As
         explained in note 4 to the financial statements, the Company also
         acquired a 31.8% interests in CNOOC Finance as at December 31, 2003.

         During the year, the Company, through its wholly-owned subsidiary,
         China Offshore Oil (Singapore) International Pte Ltd., imported oil
         into the PRC for trading, using CNOOC's import licence. For year
         ended December 31, 2003, the total sales to its customers through
         such arrangements amounted to approximately RMB1,470,832,000 (2002:
         Nil). The commission paid by the third party customers to CNOOC for
         the year amounted to approximately RMB 8,825,000 (2002: Nil).



                                     F-40
<PAGE>

                      CNOOC LIMITED AND ITS SUBSIDIARIES
                         NOTES TO FINANCIAL STATEMENTS
          (All amounts expressed in Renminbi unless otherwise stated)

27.      PROVISION FOR DISMANTLEMENT

         Provision for dismantlement represents the estimated costs of
         dismantling offshore oil platforms and abandoning oil and gas
         properties. The provision for dismantlement has been classified under
         long term liabilities. 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 16.

<TABLE>
<CAPTION>
         The details of the provision for dismantlement are as follows:
                                                                                      2002                  2003
                                                                                  -------------    -------------------
                                                                                      RMB'000               RMB'000
         <S>                                                                         <C>                   <C>
         At beginning of year:                                                       1,909,041              2,239,320
         Additional during the year and capitalised in oil and gas properties          252,383                314,234
         Increase in discounted amount of provisions arising from the
             passage of time                                                            77,896                 93,246
                                                                                  ------------     -------------------
         End of year                                                                 2,239,320              2,646,800
                                                                                  =============    ===================
</TABLE>

<TABLE>
<CAPTION>
28.      SHARE CAPITAL

         Shares (before stock split)
         ---------------------------
                                                                        Number of Shares          Share capital
                                                                        -----------------      -----------------
                                                                                                     HK$'000
         <S>                                                            <C>                    <C>
         Authorised:
         Ordinary shares of HK$0.10 each at December 31, 2003 and
             2002                                                        15,000,000,000             1,500,000
                                                                        =================       =================
</TABLE>

<TABLE>
<CAPTION>

                                                                                                          Share capital
                                                                       Number of      Share capital       equivalent of
                                                                          Shares            HK$'000            RMB'000
                                                                   -------------      -------------       --------------
         <S>                                                       <C>                <C>                 <C>
         Issued and fully paid:
         Ordinary shares of HK$0.10 each at December 31,
             2003 and 2002                                         8,214,165,655            821,417             876,978
                                                                   =============      =============       ==============

</TABLE>

<TABLE>
<CAPTION>
         Shares (after stock split)
         --------------------------
                                                                       Number of Shares          Share capital
                                                                       ----------------          --------------
                                                                                                       HK$'000
         <S>                                                           <C>                       <C>
         Authorised:
         Ordinary  shares of HK$0.02  each at December 31, 2003
             and 2002                                                    75,000,000,000             1,500,000
                                                                       ================          ==============
</TABLE>

<TABLE>
<CAPTION>
                                                                                                               Share capital
                                                                                          Share capital        equivalent of
                                                                   Number of Shares             HK$'000              RMB'000
                                                                   ----------------       -------------        -------------
         <S>                                                       <C>                    <C>                  <C>
         Issued and fully paid:
         Ordinary  shares of HK$0.02  each at December 31,
             2003 and 2002                                           41,070,828,275             821,417             876,978
                                                                   ================       ==============       ==============
</TABLE>



                                     F-41
<PAGE>

                      CNOOC LIMITED AND ITS SUBSIDIARIES
                         NOTES TO FINANCIAL STATEMENTS
          (All amounts expressed in Renminbi unless otherwise stated)

28.      SHARE CAPITAL (CONT'D)

         Share options scheme

         The Company has adopted share option schemes which provide for the
         grant for options to the Company's senior management. Under these
         share option schemes, the remuneration committee of the Company's
         board of directors will from time to time propose for the board's
         approval for the recipient of and number of shares underlying each
         option. These schemes 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
         schemes 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 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.

         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 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.



                                     F-42
<PAGE>

                      CNOOC LIMITED AND ITS SUBSIDIARIES
                         NOTES TO FINANCIAL STATEMENTS
          (All amounts expressed in Renminbi unless otherwise stated)

28.      SHARE CAPITAL (CONT'D)

         Share options scheme (cont'd)

         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 in the Company. 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-month period up to the next grant of share options shall not
         exceed 1% of the total issued share capital of the Company from time
         to time.

         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 the grant, except that such price may not
         be set below a minimum price which is the highest of:

              1.  the nominal value of shares;

              2.  the average closing price of the shares on The Stock
                  Exchange of Hong Kong Limited (the "HKSE") as stated in the
                  HKSE's quotation sheets for the five trading days
                  immediately preceding the date of the grant of the option;
                  and

              3.  the closing price of the shares on the HKSE as stated in the
                  HKSE's quotation sheet on the date of the grant of the
                  option.

         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 2002 Share Option Scheme. The exercise price for
         the options is HK$10.54 per share. The market price was HK$10.55 per
         share preceding the options granted. Options granted under the 2002
         Share Option Scheme may be exercised, in whole or in part, in
         accordance with the following vesting schedule;

         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.



                                     F-43
<PAGE>

                      CNOOC LIMITED AND ITS SUBSIDIARIES
                         NOTES TO FINANCIAL STATEMENTS
          (All amounts expressed in Renminbi unless otherwise stated)

28.      SHARE CAPITAL (CONT'D)

         Share options scheme (cont'd)

         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
         the 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, 2003 was 10,500,000.

29.      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, the 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 expensed 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. The 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 at December 31, 2003, the general reserve fund appropriated
         amounted to RMB3,050,489,000 (2002: RMB2,232,410,000), representing
         approximately 20.4% (2002: 22.3%) of the total registered capital of
         CNOOC China Limited.

         Included in retained earnings is an amount of RMB577,640,000 (2002:
         RMB456,377,000), being the retained earnings attributable to an
         associate.

         The cumulative translation reserves and revaluation reserves are
         accounted for in accordance with the accounting policies adopted for
         foreign currency translation and the revaluation of land and
         buildings.

         As at December 31, 2003, the distributable profits of the Company
         amounted to approximately RMB2,573,082,000 (2002: RMB2,945,280,000;
         2001: RMB220,127,000).

30.      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, 2003 amounted to approximately
         RMB15,513,000 (2002: RMB7,042,000, 2001: RMB6,392,000).



                                     F-44
<PAGE>

                      CNOOC LIMITED AND ITS SUBSIDIARIES
                         NOTES TO FINANCIAL STATEMENTS
          (All amounts expressed in Renminbi unless otherwise stated)

30.      RETIREMENT AND TERMINATION BENEFITS (CONT'D)

         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 expensed as incurred.

         The Group provides retirement and termination benefits for all local
         employees in Indonesia in accordance with Indonesia labour law, and
         provides employee benefits to expatriate staff in accordance with the
         relevant employment contracts. The Group 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 31 December 2003 amounted to
         approximately RMB79,634,000 (2002: RMB46,350,000, 2001: Nil).

31.      NOTES TO THE CONSOLIDATED CASH FLOW STATEMENT

         (a) Reconciliation of profit before tax to cash generated from
             operations

<TABLE>
<CAPTION>
                                                                             2001           2002           2003
                                                                         ------------   ------------   ------------
                                                                             RMB'000        RMB'000        RMB'000
                 <S>                                                    <C>             <C>             <C>
                 Profit before tax                                        11,005,858     12,774,243     16,163,326

                 Adjustments for:
                     Interest income                                        (317,706)      (147,870)      (183,576)
                     Interest expense                                        116,634        294,792        354,940
                     Exchange losses/(gains), net                           (261,305)       113,814          6,746
                     Share of profit of an associate                         (89,963)      (165,387)      (220,263)
                     Short term investment income                           (220,650)      (193,277)      (123,483)
                     Provision for inventory obsolescence                         -               -          8,745
                     Depreciation, depletion and amortisation              2,566,920      4,019,532      4,642,753
                     Provision for impairment of property, plant and
                       equipment                                              99,675              -              -
                     Recovery of doubtful accounts                            (4,966)             -              -
                     Loss on disposals and write-off of property,
                       plant and equipment                                   456,827        437,799         39,818
                     Dismantlement                                            90,367        126,139        167,326
                     Amortisation of discount of long term
                       guaranteed notes                                            -          6,100         11,276
                                                                         ------------   ------------   ------------

                  Operating cash flows before movements in working
                     capital                                              13,441,691     17,265,885     20,867,608

                     (Increase)/decrease in accounts receivables             726,976        497,959     (1,185,304)
                     Increase in inventories and supplies                     35,422        (20,211)      (129,678)
                     Decrease/(increase) in other current assets            (447,473)      (705,664)       312,559

                     Increase in amounts due from related companies                -       (276,771)      (302,993)
                     (Decrease)/increase in an amount due to the
                       parent company                                              -        144,945       (105,785)

                     Increase in accounts payable, other payables
                       and accrued liabilities                               379,233        353,452      1,448,645
                     Increase/(decrease) in other taxes payable             (110,867)        73,551         (4,772)
                     Increase in amounts due to related companies                  -         73,769        242,631
                                                                         ------------   ------------   ------------

                  Cash generated from operations                          14,024,982     17,406,915     21,142,911
                                                                         ============   ============   ============
</TABLE>



                                     F-45
<PAGE>

                      CNOOC LIMITED AND ITS SUBSIDIARIES
                         NOTES TO FINANCIAL STATEMENTS
          (All amounts expressed in Renminbi unless otherwise stated)

31.      NOTES TO THE CONSOLIDATED CASH FLOW STATEMENT (CONT'D)

<TABLE>
<CAPTION>
         (b)     Acquisitions and prepayment of oil and gas properties

                                                                       2001              2002              2003
                                                                ---------------  ----------------  --------------------
                                                                     RMB'000           RMB'000            RMB'000
                 <S>                                            <C>              <C>               <C>
                 Acquisitions
                 ------------
                 Net assets acquired:
                 Property, plant and equipment, net                        --                --          1,579,726
                 Other current assets                                      --                --              8,959
                 Inventories and supplies                                  --                --            122,777
                 Cash and bank balances                                    --                --             17,580
                 Accounts payable                                          --                --             (8,294)
                 Other payables and accrued liabilities                    --                --            (47,983)
                                                                ---------------  ----------------  --------------------
                                                                           --                --          1,672,765
                 Prepayment for Tangguh Project                            --                --          2,445,715
                                                                ---------------  ----------------  --------------------
                 Satisfied by:
                 Cash                                                      --                --          4,118,480
                                                                ===============  ================  ====================

         (c)     Acquisition of subsidiaries

</TABLE>

<TABLE>
<CAPTION>
                                                                            2001             2002              2003
                                                                       --------------    -------------    --------------
                                                                          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>

<TABLE>
<CAPTION>
                  An analysis of the net outflow of cash and cash equivalents
                  in respect of the acquisition is as follows:

                                                                             2001           2002          2003
                                                                        -------------  -------------  ------------
                                                                         RMB' 000       RMB' 000        RMB' 000
                  <S>                                                   <C>            <C>            <C>
                  Cash consideration                                           --        4,735,826      4,118,480
                  Cash and bank balances acquired                              --           (1,652)       (17,580)
                                                                        -------------  -------------  ------------
                  Net outflow of cash and cash equivalents in
                      respect of the acquisition of subsidiaries               --        4,734,174      4,100,900
                                                                        =============  =============  =============
</TABLE>



                                     F-46
<PAGE>

                      CNOOC LIMITED AND ITS SUBSIDIARIES
                         NOTES TO FINANCIAL STATEMENTS
          (All amounts expressed in Renminbi unless otherwise stated)

31.      NOTES TO THE CONSOLIDATED CASH FLOW STATEMENT (CONT'D)

         (c)      Acquisition of subsidiaries (cont'd)

         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.

         The subsidiaries acquired in 2002 contributed to RMB3,317 million to
         turnover and RMB464 million to the consolidated profit after tax for
         the year ended December 31, 2002.

         In July 2003, the Group acquired a 24.5% interest in Qinhuangdao
         32-6, a PSC oilfield in Bohai Bay and a 49% interest in Liuhua 11-1,
         a PSC oilfield in Southern China. Further details of these
         transactions are included in note 4 to the financial statements.

         (d)      Major non-cash transaction

         The cash generated from operations in 2002 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.

32.      CONTINGENT LIABILITIES

         As of December 2003 and 2002, there were no material contingent
         liabilities not provided for in the financial statements.

33.      COMMITMENTS

         (i)      Capital commitments

                  As at December 31, 2003, the Group and the Company had the
                  following capital commitments, principally for the
                  construction and purchase of property, plant and equipment:

<TABLE>
<CAPTION>
                                                                                 2002                  2003
                                                                             ------------          ------------
                                                                                RMB'000               RMB'000
                  <S>                                                        <C>                    <C>
                  Contracted for                                               1,715,173             2,534,468
                  Authorised, but not contracted for                           9,060,722            17,489,791
</TABLE>

                  As at December 31, 2003, the Group had unutilised  banking
                  facilities  amounting to approximately  RMB32,455,229,500
                  (2002: RMB31,646,389,000).

         (ii)     General research and development services commitments

                  The remaining commitments for research and development
                  services to be provided by the Centre (note 26(iii)) as at
                  December 31, 2003 amounted to approximately RMB220,000,000
                  (2002: RMB450,000,000).



                                     F-47
<PAGE>

                      CNOOC LIMITED AND ITS SUBSIDIARIES
                         NOTES TO FINANCIAL STATEMENTS
          (All amounts expressed in Renminbi unless otherwise stated)

33.      COMMITMENTS (CONT'D)

         (iii)    Operating lease commitments

                  Operating lease commitments as at December 31, 2003 amounted
                  to approximately RMB20,396,000(2002: RMB50,645,000) and were
                  as follows:

<TABLE>
<CAPTION>
                                                                        2002              2003
                                                                      ---------         ---------
                                                                       RMB'000           RMB'000
                  <S>                                                 <C>               <C>
                  Commitments due:
                      - Within one year                                 47,017            17,222
                      - After one year but within two years              2,131             3,174
                      - After two years but within three years           1,497                 -
                                                                      ---------         ---------

                                                                        50,645            20,396
                                                                      =========         =========
</TABLE>

         (iv)     Commitment to invest in Australia's project

                  On May 15, 2003, the Company entered into an Equity Sale and
                  Purchase Agreement and a Gas Production and Processing
                  Agreement (the "Agreements") with the existing North West
                  Shelf partners to acquire an interest in the upstream
                  production and reserves of Australia's North West Shelf
                  Project (the "NWS Project"). Under the Agreement, the
                  Company will acquire an interest of approximately 5.3% in
                  the NWS Project and a 25% stake in the China LNG Joint
                  Venture, a new joint venture to be established within the
                  NWS Project. According to the Agreements, the Company has
                  the right to acquire further interests in the NWS Project
                  should the final quantity of LNG committed under the LNG
                  supply agreement to the facilities in Guangdong Province be
                  increased. The total consideration of the acquisition is
                  US$348 million, subject to certain conditions, including the
                  LNG supply agreement to Guangdong becoming unconditional,
                  being fulfilled. In addition, the Company will be required
                  to make an upfront tariff payment relating to certain LNG
                  processing facilities amounting to US$180 million. CNOOC has
                  an equity interest in the Guangdong Province LNG project.

                  On December 23, 2003, the Company signed a Deed of Amendment
                  to the Equity Sale and Purchase Agreement and a Deed of
                  Amendment to the Gas Production and Processing Agreements
                  (the "Deed") and agreed to pay US$483,577,000 representing a
                  90% deposit of the consideration and tariff payment, to the
                  NWS Project participants by January 2, 2004. The payment was
                  made by the Company on January 2, 2004 and such amount will
                  be refunded to the Company if the acquisition is not
                  completed by June 30, 2004.

         (v)      Commitment to invest in Gorgon Joint Venture

                  In October 2003, the Company entered into an agreement with
                  the participants in Gorgon Joint Venture to place a
                  significant volume of Gorgon LNG to supply the growing
                  Chinese market. Subject to the completion of formal
                  contracts, the Company will purchase a certain equity stake
                  in the Gorgon gas development and its parent company, CNOOC,
                  will arrange to purchase LNG directly from Gorgon.



                                     F-48
<PAGE>

                      CNOOC LIMITED AND ITS SUBSIDIARIES
                         NOTES TO FINANCIAL STATEMENTS
          (All amounts expressed in Renminbi unless otherwise stated)

33.      COMMITMENTS (CONT'D)

         (vii)    Financial instruments

                  (a) Currency swap contracts

                  As at December 31, 2003, 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
                  against future repayments of certain Japanese Yen
                  denominated loans. The hedged Japanese Yen loans bore
                  interest at a fixed rate of 4.5% per annum. The interest
                  stipulated in the swap contract for the United States
                  dollars was the floating LIBOR rate.

                  The details are as follows:

<TABLE>
<CAPTION>
                                                                    2002                             2003
                                                          -------------------------      --------------------------
                                                                          Weighted                         Weighted
                                                          Notional         average         Notional         average
                                                          contract     contractual         contract     contractual
                                                            amount   exchange rate           amount   exchange rate
                                                          (JPY'000)      (JPY/US$)         (JPY'000)      (JPY/US$)
                  <S>                                     <C>        <C>                   <C>        <C>
                  Year
                  2003                                     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) Interest rate swap contracts

                  During the year, the Group also entered into interest rate
                  swap agreements with three financial institution to
                  partially hedge the fixed-rate debt for interest rate risk
                  exposure management purposes with notional contract amount
                  of US$200 million. The interest rate swap agreement utilised
                  by the Company effectively modifies the Company's exposure
                  to interest risk by converting the Company's fixed-rate debt
                  to a floating rate. This agreement involves the receipt of
                  fixed rate amounts in exchange for floating rate interest
                  payments over the life of the agreement without an exchange
                  of the underlying principal amount.

                  (c) 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
                  RMB1,064,895,000 as at December 31, 2003 (2002:
                  RMB1,388,720,000).

                  The estimated fair value of long term guaranteed notes based
                  on current market interest rates was approximately
                  RMB8,304,647,000 as at December 31, 2003 (2002:
                  RMB4,482,378,000).



                                     F-49
<PAGE>

                      CNOOC LIMITED AND ITS SUBSIDIARIES
                         NOTES TO FINANCIAL STATEMENTS
          (All amounts expressed in Renminbi unless otherwise stated)

34.      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, 2003
         was not significant. The interest rates and terms of repayment of our
         long term bank loans are disclosed in Note 23.

(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.

         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. Details of
         the sales to these customers are as follows:

<TABLE>
<CAPTION>
                                                                 2001             2002              2003
                                                            --------------    -------------    --------------
                                                                 RMB'000          RMB'000           RMB'000
       <S>                                                  <C>               <C>              <C>
        China Petroleum & Chemical Corporation                 6,282,532        6,890,877         6,975,069
        PetroChina Company Limited                             1,320,587        1,187,571         1,446,169
        Castle Peak Power Company Limited                      1,205,649        1,247,639           841,285
</TABLE>



                                     F-50
<PAGE>

                      CNOOC LIMITED AND ITS SUBSIDIARIES
                         NOTES TO FINANCIAL STATEMENTS
          (All amounts expressed in Renminbi unless otherwise stated)

35.      ADDITIONAL FINANCIAL INFORMATION

         As at December 31, 2003, net current assets and total assets less
         current liabilities of the Group amounted to approximately
         RMB19,956,331,000 and RMB64,197,772,000 (2002: RMB17,352,044,000 and
         RMB53,961,241,000), respectively.

         As at December 31, 2003, net current assets and total assets less
         current liabilities of the Company amounted to approximately
         RMB7,649,024,000 and RMB24,211,265,000 (2002: RMB10,584,649,000 and
         RMB24,583,463,000), respectively.

36.      SUBSEQUENT EVENTS

         (i)      On January 27, 2004, the Company proposed for a 5-for-1
                  stock split where each share in the Company will be split
                  into five new shares.  The Company will submit to
                  shareholders for approval a proposal to subdivide each of the
                  existing issued and unissued shares of HK$0.10 each in the
                  capital of the Company into five shares of HK$0.02 each,
                  and to increase the board lot size for trading on the Stock
                  Exchange of Hong Kong Limited from 500 shares at HK$0.10
                  each to 1,000 subdivided shares of HK$0.02 each in the
                  coming extraordinary general meeting.  It is also proposed
                  that upon the share subdivision proposal becoming effective,
                  the ratio of the Company's American Depository Receipts
                  (ADR) listed on the New York Stock Exchange will also be
                  changed such that the ADR, which currently represents 20
                  shares of HK$0.10 each to 100 subdivided shares of HK$0.02
                  each.  The stock split has been approved on March 17, 2004.

         (ii)     On February 2, 2004, one of the Company's subsidiary signed
                  a sale and purchase agreement with the BG Group to acquire a
                  20.767% interest in the Muturi Production Sharing Contract
                  ("Muturi PSC") for a consideration of US$98.1 million
                  pursuant to the exercise of its pre-emption rights. The
                  purchase will increase the Company's interest in the "Muturi
                  PSC" to 64.767%, and its interest in the Tangguh LNG Project
                  will increase from 12.5% to 16.96%.

         (iii)    On February 5, 2004, the board of directors approved a grant
                  of options in respect of 10,140,000 shares to the Company's
                  senior management under the 2002 Share Option Scheme. The
                  exercise price for the options is HK$15.76 per share.
                  Options granted under the 2002 Share Option Scheme may be
                  exercised, in whole or in part, in accordance with the
                  following vesting schedule:

                  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.



                                     F-51
<PAGE>

                      CNOOC LIMITED AND ITS SUBSIDIARIES
                         NOTES TO FINANCIAL STATEMENTS
          (All amounts expressed in Renminbi unless otherwise stated)

37.      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 are based
                           on the revalued amount. Additional depreciation
                           arising from the revaluation for the year ended
                           December 31, 2003 was approximately RMB9,156,000
                           (2002: RMB9,156,000). Under US GAAP, property,
                           plant and equipment are 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 the current period's
                           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 the current period's
                           earnings and included in other comprehensive
                           income.

                  (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 requires the Group
                           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.



                                     F-52
<PAGE>

                      CNOOC LIMITED AND ITS SUBSIDIARIES
                         NOTES TO FINANCIAL STATEMENTS
          (All amounts expressed in Renminbi unless otherwise stated)

37.      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 (cont'd)

                           SFAS No. 144 also 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.

                           In addition, under Hong Kong GAAP, a subsequent
                           increase in the recoverable amount of assets is
                           reversed to the income statement to the extent that
                           an impairment loss on the same asset was previously
                           recognised as an expense when the circumstances and
                           events that led to write-down or write-off cease to
                           exist. The reversal is reduced by the amount that
                           would have been recognised as depreciation had the
                           write-off not occurred. Under US GAAP, an
                           impairment loss establishes a new cost basis for
                           the impaired asset and the new cost basis should
                           not be adjusted subsequently other than for further
                           impairment losses.

                           For the year ended December 31, 2003, there were no
                           impairment losses recognised under Hong Kong GAAP
                           and US GAAP.

                  (iv)     Stock compensation schemes

                           As at December 31, 2003, the Company has three
                           stock based employee compensation plans, which are
                           described more fully in Note 28. Prior to 2003, the
                           Company accounted for those plans under the
                           recognition and measurement provisions of APB
                           Opinion No.25, "Accounting for Stock Issued to
                           Employees", and related interpretations. Since
                           certain of the options granted under those plans
                           had an exercise price below the market value of the
                           underlying common stock on the date of grant,
                           stock-based employee compensation costs of
                           RMB2,755,000 and RMB5,632,000 for the years ended
                           December 31, 2001 and 2002, respectively, were
                           reflected in previously reported results. During
                           2003, the Company adopted the fair value
                           recognition provisions of FASB Statement No.123,
                           "Accounting for Stock-Based Compensation", for
                           stock-based employee compensation. All prior
                           periods presented have been restated to reflect the
                           compensation cost that would have been recognised
                           had the recognition provisions of Statement 123
                           been applied to all awards granted to employees
                           after January 1, 1995.



                                     F-53
<PAGE>

                      CNOOC LIMITED AND ITS SUBSIDIARIES
                         NOTES TO FINANCIAL STATEMENTS
          (All amounts expressed in Renminbi unless otherwise stated)

37.      SIGNIFICANT DIFFERENCES BETWEEN HONG KONG GAAP AND US GAAP (CONT'D)

         (a)      Net profit and net equity (cont'd)

                  (iv)     Stock compensation schemes (cont'd)

                           Weighted average fair value of the options at the
                           grant dates for awards under the schemes was
                           RMB3.40 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$7.80 per share.

                  (v)      Provision for dismantlement

                           Hong Kong GAAP requires the provision for
                           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.

                           On August 15, 2001, SFAS No. 143 "Accounting for
                           asset retirement obligation" was released and is
                           effective for the fiscal years beginning after June
                           15, 2002. SFAS No. 143 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 SFAS No. 143, 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.

                           The company adopted SFAS No. 143 on January 1,
                           2003, which resulted in an increase in net
                           property, plant and equipment of RMB863,093,000, an
                           increase in the provision for dismantlement of
                           RMB240,077,000, and increase in retained earnings
                           of RMB436,112,000 and an increase in deferred
                           income tax liabilities of RMB186,904,000 to
                           recognise the cumulative effect of retrospectively
                           applying the new accounting standard.



                                     F-54
<PAGE>

                      CNOOC LIMITED AND ITS SUBSIDIARIES
                         NOTES TO FINANCIAL STATEMENTS
          (All amounts expressed in Renminbi unless otherwise stated)

37.      SIGNIFICANT DIFFERENCES BETWEEN HONG KONG GAAP AND US GAAP (CONT'D)

         (a)      Net profit and net equity (cont'd)

                  (v)      Provision for dismantlement (cont'd)

                           This adjustment is due to the difference in the
                           method of accruing for dismantlement costs under
                           SFAS No. 143 compared with the method required by
                           SFAS No. 19 "Financial accounting and reporting by
                           oil and gas producing companies", the accounting
                           standard that the Company has been adopted since
                           its establishment. Under SFAS No. 19, the
                           dismantlement costs are accrued on a
                           unit-of-production basis of accounting as the oil
                           and gas is produced. The SFAS No. 19 method matches
                           the accruals with the revenues generated from
                           production and results in most of the costs being
                           accrued early in field life, when production is at
                           the highest level. Because SFAS No. 143 requires
                           accretion of the liability as a result of the
                           passage of time using an interest method of
                           allocation, the majority of the costs will be
                           accrued towards the end of field life, when
                           production is at the lowest level. The cumulative
                           income adjustment described above resulted from
                           reversing the higher liability accumulated under
                           SFAS No. 19 in order to adjust it to the lower
                           present value amount resulting from transition to
                           SFAS No. 143. This amount being reversed in
                           transition, which was previously charged to the
                           income statement under SFAS No. 19, will again be
                           charged to the income statement under SFAS No. 143
                           in future years.

                           The pro forma asset retirement obligation liability
                           balances as if Statement 143 had been adopted on
                           January 1, 2001 (rather than January 1, 2003) are
                           as follows:

<TABLE>
<CAPTION>
                                                                                     2002              2003
                                                                                    RMB'000          RMB'000
                          <S>                                                      <C>              <C>
                          Pro forma amounts of liability for asset
                          retirement obligation at beginning of year               1,909,041        2,239,320
                          Pro forma amounts of liability for asset
                          retirement obligation at end of year                     2,239,320        2,646,800


                           A summary of the changes in the asset retirement
                           obligation during the year is included in the table
                           below:

                                                                                                         2003
                                                                                                ----------------
                                                                                                       RMB'000

                          Asset retirement obligation upon adoption of
                            SFAS No., 143 on January 1, 2003                                        2,239,320
                          Addition of dismantlement cost                                              314,234
                          Accretion expenses                                                           93,246
                                                                                               ------------------
                          Asset retirement obligation at December 31, 2003                          2,646,800
                                                                                               ==================
</TABLE>



                                     F-55
<PAGE>

                      CNOOC LIMITED AND ITS SUBSIDIARIES
                         NOTES TO FINANCIAL STATEMENTS
          (All amounts expressed in Renminbi unless otherwise stated)

37.      SIGNIFICANT DIFFERENCES BETWEEN HONG KONG GAAP AND US GAAP (CONT'D)

         (a)      Net profit and net equity (cont'd)

                         The pro forma effects of the application of SFAS
                         No.143 as if it had been adopted on January 1, 2002
                         (rather than January 1, 2003) are presented below:

<TABLE>
<CAPTION>
                                                      Pro forma               Pro forma              As Reported
                                              December 31, 2001       December 31, 2002       December 31,  2003
                                                                             (Restated)
                                            --------------------    --------------------    ---------------------
                                                        RMB'000                 RMB'000                  RMB'000
                         <S>                <C>                     <C>                     <C>
                         Net income                   7,817,931               9,223,477               11,543,397

                         Earnings per share
                         (after Stock Split)
                           - Basic                     RMB 0.20                RMB 0.22                 RMB 0.28
                           - Diluted                   RMB 0.20                RMB 0.22                 RMB 0.28
</TABLE>

                  (vi)   Acquisition of CNOOC Finance

                         Under HK GAAP, the Company adopted the purchase
                         method to account for the acquisition of 31.8% equity
                         interest in CNOOC Finance in December 2003. Under the
                         purchase method, the acquired results are included in
                         the consolidated results of operations of the Company
                         from the date of the acquisition.

                         As the Company and CNOOC Finance are under common
                         control of CNOOC, under US GAAP, the acquisition is
                         considered to be a transfer of businesses under
                         common control and the acquired assets and
                         liabilities are accounted at historical cost in a
                         manner similar to the pooling of interests method.
                         Accordingly, the consolidated financial statements
                         for all periods presented have been retroactively
                         restated as if the current structure and operations
                         had been in existence since inception. The cash
                         consideration paid by the Company is treated as an
                         equity transaction in the year of the acquisition for
                         US GAAP purpose.



                                     F-56
<PAGE>

                      CNOOC LIMITED AND ITS SUBSIDIARIES
                         NOTES TO FINANCIAL STATEMENTS
          (All amounts expressed in Renminbi unless otherwise stated)

37.      SIGNIFICANT DIFFERENCES BETWEEN HONG KONG GAAP AND US GAAP (CONT'D)

         (a)      Net profit and net equity (cont'd)

                  (vi) Acquisition of CNOOC Finance (cont'd)

                  The effects on net profit and equity of the above
                  significant differences between Hong Kong GAAP and US GAAP
                  are summarized below:

<TABLE>
<CAPTION>
                                                                                      Net Profit
                                                                       --------------------------------------------
                                                                             2001           2002           2003
                                                                       --------------  -------------  -------------
                                                                            RMB'000       RMB'000         RMB'000
                                                                                       (Restated)
                  <S>                                                  <C>             <C>            <C>
                  As reported under Hong Kong GAAP                        7,957,631      9,232,827     11,535,490

                  Impact of U.S. GAAP adjustments:
                  -Reversal of additional depreciation, depletion
                     and amortisation charges arising from the
                     revaluation surplus on land and buildings                9,156          9,156          9,156
                  -Equity accounting for the results of CNOOC
                     Finance                                                      -         10,663         30,913
                  -Unrealised holding gains from
                     available-for-sale investments in marketable
                     securities                                             (43,796)       (36,965)       (21,503)
                  -Realised  holding gains from  available-for-sale
                     marketable securities                                        -         26,940         27,088
                  -Additional dismantlement based on
                     unit-of-production method                                    -       (197,079)             -
                  -Impact of income tax                                           -         59,124              -
                  -Recognition of stock compensation cost                    (2,755)       (19,144)       (37,747)
                                                                       --------------  -------------  -------------

                  Income before cumulative effect of change in
                    accounting policy                                     7,920,236      9,085,522     11,543,397

                  Cumulative  effect of change in accounting policy
                    for dismantlement liabilities                                 -              -        436,112
                                                                       --------------  -------------  -------------

                  Net profit under US GAAP                                7,920,236      9,085,522     11,979,509
                                                                       ==============  =============  =============

                  Net profit per share under US GAAP

                  -Basic

                    Before cumulative effect of change in
                     accounting policy for dismantlement
                     liabilities                                            RMB0.20       RMB0.22         RMB0.28
                    Cumulative effect of change in accounting
                     policy for dismantlement liabilities                         -             -         RMB0.01
                                                                       --------------  -------------  -------------
                                                                            RMB0.20       RMB0.22         RMB0.29
                                                                       ==============  =============  =============
                  -Diluted

                    Before cumulative effect of change in
                     accounting policy for dismantlement
                     liabilities                                            RMB0.20       RMB0.22         RMB0.28

                    Cumulative effect of change in accounting
                     policy for dismantlement liabilities                         -             -         RMB0.01
                                                                       --------------  -------------  -------------
                                                                            RMB0.20       RMB0.22         RMB0.29
                                                                       ==============  =============  =============
</TABLE>



                                     F-57
<PAGE>

<TABLE>
<CAPTION>
                      CNOOC LIMITED AND ITS SUBSIDIARIES
                         NOTES TO FINANCIAL STATEMENTS
          (All amounts expressed in Renminbi unless otherwise stated)

37.      SIGNIFICANT DIFFERENCES BETWEEN HONG KONG GAAP AND US GAAP (CONT'D)

         (a)      Net profit and net equity (cont'd)

                                                                                          Net Equity
                                                                           ------------------------------------------
                                                                                           2002                 2003
                                                                           ---------------------  -------------------
                                                                                        RMB'000              RMB'000
                                                                                     (Restated)
                  <S>                                                              <C>                   <C>
                  As reported under Hong Kong GAAP
                                                                                     40,568,488           46,736,532
                  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 arising from the
                          revaluation surplus on land and buildings                      25,895               35,051

                    -   Equity accounting for the results of CNOOC
                          Finance                                                        10,663               41,576
                    -   Contribution from CNOOC in respect of CNOOC
                          Finance                                                       450,000                    -
                                                                           ---------------------  -------------------
                    -   Dividend distribution made by CNOOC Finance to
                          CNOOC                                                               -              (41,576)
                                                                           ---------------------  -------------------
                    -   Cumulative adjustment for provision for
                          dismantlement                                                (436,112)                   -
                                                                           ---------------------  -------------------


                  Net equity under US GAAP                                           40,344,263           46,496,912
                                                                           ---------------------  -------------------
</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, "Reporting Comprehensive Income",
                  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>
                                                                         2001          2002           2003
                                                                     -----------   --------------  -----------
                                                                        RMB'000       RMB'000        RMB'000
                                                                                     (Restated)
                 <S>                                                   <C>           <C>           <C>
                 Net income under US GAAP                              7,920,236     9,085,522     11,979,509
                 Other comprehensive income:
                 Foreign currency translation adjustments                    702        (7,948)        36,243
                 Unrealised gains on short-term investments               43,796        36,965         21,503
                 Less: reclassification adjustment for realised
                    gains included in net income                               -       (26,940)       (27,088)
                                                                     -----------   --------------  -----------

                 Comprehensive income under US GAAP                    7,964,734     9,087,599     12,010,167
                                                                     ===========   ==============  ===========
</TABLE>



                                     F-58
<PAGE>

                      CNOOC LIMITED AND ITS SUBSIDIARIES
                         NOTES TO FINANCIAL STATEMENTS
          (All amounts expressed in Renminbi unless otherwise stated)

37.      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          Unrealised          Accumulated
                                                                   currency            gains on                other
                                                                translation          short-term        comprehensive
                                                                adjustments          investment               income
                                                              -------------        ------------    -----------------
                                                                    RMB'000             RMB'000              RMB'000
                  <S>                                         <C>                  <C>             <C>
                  Balance at January 1, 2002                         (5,648)             43,796               38,148
                  Current year change                                (7,948)             10,025                2,077
                                                              -------------        ------------    -----------------
                  Balance at January 1, 2003                        (13,596)             53,821               40,225

                  Reversal of current year realised gains                 -             (27,088)             (27,088)

                  Current year change                                36,243              21,503               57,746
                                                              -------------        ------------    -----------------

                  Balance at December 31, 2003                       22,647              48,236               70,883
                                                              =============        ============    =================
</TABLE>

                  The gross realised gains on sales of short-term investments
                  totalled RMB27,088, RMB26,940,000 and Nil in 2003, 2002 and
                  2001, respectively. The cost of securities sold is determined
                  on weighted-average costing method.

         (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. The derivative
                  contract was recorded as "Other payable and accrued
                  liabilities" in the consolidated balance sheet at fair
                  value. For the year ended December 31, 2003, the Group
                  recognised related changes in fair value, a gain of
                  RMB10,038,000 (2002: RMB14,485,000), and included the amount
                  in "Exchange (loss)/gain, net" in the consolidated income
                  statement.

                  During the year, the Group also entered into an interest
                  rate swap agreements with a financial institution to
                  partially hedge the fixed-rate debt for interest rate risk
                  exposure management purposes with notional contract amount
                  of US$200 million. The interest rate swap agreements
                  utilised by the Company effectively modifies the Company's
                  exposure to interest risk by converting the Company's
                  fixed-rate debt to a floating rate. These agreements involve
                  the receipt of fixed rate amounts in exchange for floating
                  rate interest payments over the life of the agreement
                  without an exchange of the underlying principal amount. The
                  Company has designated the interest rate swap agreements as
                  a fair value hedge. The fair value of the swap contracts at
                  December 31, 2003 totalled Rmb36,554,000. The net gain as of
                  December 31, 2003 related to the ineffective portion of the
                  interest rate swap agreements was approximately Rmb938,000
                  (2002: Nil) and was not included in the income statement as
                  the impact was insignificant.



                                     F-59
<PAGE>

                      CNOOC LIMITED AND ITS SUBSIDIARIES
                         NOTES TO FINANCIAL STATEMENTS
          (All amounts expressed in Renminbi unless otherwise stated)

37.      SIGNIFICANT DIFFERENCES BETWEEN HONG KONG GAAP AND US GAAP (CONT'D)

         (d)      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.

         (e)      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)      Reporting investments in mineral interests in oil and gas
                   properties

                  Statements of Financial Accounting Standards No. 141,
                  "Business Combinations" and No. 142, "Goodwill and Other
                  Intangible Assets", were issued by the Financial Accounting
                  Standards Board in June 2001 and became effective for the
                  Group on July1, 2001 and January 1, 2002, respectively.
                  Currently, the Emerging Issues Task Force (EITF) is
                  considering the issue of whether FAS 141 and 142 require
                  interests held under oil, gas and mineral leases to be
                  separately classified as intangible assets on the balance
                  sheets of companies in the extractive industries. If such
                  interests were deemed to be intangible assets by the EITF,
                  mineral rights to extract oil and gas for both undeveloped
                  and developed leaseholds would be classified separately from
                  oil and gas properties as intangible assets on the
                  corporation's balance sheet. Historically the Croup has
                  capitalized the acquisition cost of oil and gas properties
                  interests in accordance with statement of Financial
                  Accounting Standard No. 19, "Financial Accounting and
                  Reporting by Oil and Gas Producing Companies". Also,
                  consistent with industry practice, the Group has reported
                  these assets as part of property, plant and equipment.

                  This interpretation of FAS 141 and 142 would only affect the
                  classification of the acquisition costs of oil and gas
                  properties on the Group's balance sheet, and would not
                  affect total assets, net worth or cash flows. The Group's
                  results of operations would not be affected, since these
                  acquisition costs would continue to be amortized in
                  accordance with FAS 19. The amount that is subject to
                  reclassification as of December 31, 2003 was RMB4,025
                  million and as of December 31, 2002 was RMB8,646 million.



                                     F-60
<PAGE>

                      CNOOC LIMITED AND ITS SUBSIDIARIES
                         NOTES TO FINANCIAL STATEMENTS
          (All amounts expressed in Renminbi unless otherwise stated)


37.      SIGNIFICANT DIFFERENCES BETWEEN HONG KONG GAAP AND US GAAP (CONT'D)

         (g)      Impact of recently issued accounting standards

                  In May 2003, the FASB issued SFAS 150, Accounting for
                  Certain Financial Instruments with Characteristics of both
                  Liabilities and Equity. This statement establishes standards
                  for classifying and measuring as liabilities certain
                  financial instruments that embody obligations of the issuer
                  and have characteristics of both liabilities and equity.
                  Instruments that are indexed to and potentially settled in
                  an issuer's own shares that are not within the scope of SFAS
                  150 remain subject to existing guidance. SFAS 150 must be
                  applied immediately to instruments entered into or modified
                  after May 31, 2003 and to all other instruments that exist
                  as of the beginning of the first interim financial reporting
                  period beginning after June 15, 2003. Certain provisions of
                  this statement relating to noncontrolling interests in
                  limited-life subsidiaries were deferred indefinitely. The
                  Company adopted SFAS 150 and there was no impact on the
                  Company's results of operations or financial position upon
                  the adoption of the new statement. We continue to monitor
                  the deferral status of SFAS 150.

                  In January 2003, the FASB issued FIN 46. In December 2003,
                  the FASB modified FIN 46 to make certain technical
                  corrections and address certain implementation issues that
                  had arisen. FIN 46 provides a new framework for identifying
                  variable interest entities ("VIEs") and determining when a
                  company should include the assets, liabilities,
                  non-controlling interests and results of activities of a VIE
                  in its consolidated financial statements. In general, a VIE
                  is a corporation, partnership, limited liability
                  corporation, trust, or any other legal structure used to
                  conduct activities or hold assets that either (i) has an
                  insufficient amount of equity to carry out its principal
                  activities without additional subordinated financial
                  support, (ii) has a group of equity owners that are unable
                  to make significant decisions about its activities, or (iii)
                  has a group of equity owners that do not have the obligation
                  to absorb losses or the right to receive returns generated
                  by its operations. FIN 46 requires a VIE to be consolidated
                  if a party with an ownership, contractual or other financial
                  interest in the VIE (a variable interest holder) is
                  obligated to absorb a majority of the risk of loss from the
                  VIE's activities, is entitled to receive a majority of the
                  VIE's residual returns (if no party absorbs a majority of
                  the VIE's losses), or both. A variable interest holder that
                  consolidates the VIE is called the primary beneficiary. Upon
                  consolidation, the primary beneficiary generally must
                  initially record all of the VIE's assets, liabilities and
                  non-controlling interests at fair value and subsequently
                  account for the VIE as if it were consolidated based on
                  majority voting interest. FIN 46 also requires disclosures
                  about VIEs that the variable interest holder is not required
                  to consolidate but in which it has a significant variable
                  interest.

                  FIN 46 was effective immediately for VIEs created after
                  January 31, 2003 with implementation required from January 1,
                  2004 as a cumulative effect of accounting change. For all
                  other entities created after January 1, 2004, the
                  implementation of FIN46 is required by June 30, 2004. The
                  Company adopted the provisions of FIN46 and there was no
                  impact on the Company's results of operations or financial
                  position upon the adoption of the new statement.



                                     F-61
<PAGE>

                      CNOOC LIMITED AND ITS SUBSIDIARIES
         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 date 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, and 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 2001
         were less than 1% to the total and no separate disclosure was made.

         Proved developed and undeveloped reserves (net of royalties and PRC
         government share oil):

<TABLE>
<CAPTION>
                                                       PRC                   Indonesia                    Total
                                              --------------------    -----------------------    -----------------------
                                                Oil    Natural gas      Oil       Natural gas     Oil       Natural gas
                                              (mmbls)    (bcf)        (mmbls)        (bcf)       (mmbls)        (bcf)
                                              -------  -----------    -------     -----------    -------     -----------
         <S>                                  <C>      <C>            <C>          <C>            <C>         <C>
         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


           Purchase of reserves                   53         142           -             -           53           142
           Discoveries and extensions            114         506           1             2          115           508
           Production                            (97)        (69)        (15)          (37)        (112)         (106)
           Revisions of prior estimates          (24)         42         (21)           20          (45)           62
                                              -------  -----------    -------     -----------    -------     -----------

         December 31, 2003                     1,333       3,954        103            200        1,436         4,154
                                              =======  ===========    =======     ===========    =======     ===========

</TABLE>



                                     F-62
<PAGE>

                      CNOOC LIMITED AND ITS SUBSIDIARIES
   SUPPLEMENTARY INFORMATION ON OIL AND GAS PRODUCING ACTIVITIES
                                 (UNAUDITED)
          (All amounts expressed in Renminbi unless otherwise stated)

<TABLE>
<CAPTION>
(a)      Reserve quantity information (cont'd)

         Proved developed reserves:
                                                      PRC                     Indonesia                    Total
                                             -----------------------    -----------------------    ----------------------
                                               Oil       Natural gas      Oil      Natural gas       Oil       Natural gas
                                             (mmbls)        (bcf)        (mmbls)      (bcf)        (mmbls)        (bcf)
                                             -------     -----------    -------     -----------    -------     -----------
         <S>                                 <C>         <C>            <C>         <C>            <C>         <C>
         December 31, 2001                      582           765           -             -          582            765
         December 31, 2002                      542           724         115           101          657            825
         December 31, 2003                      459         2,054          91           135          550          2,189
</TABLE>

<TABLE>
<CAPTION>
(b)      Results of operations

                                         2001                      2002                                      2003
                                     ------------  -------------------------------------   ----------------------------------------
                                         PRC          PRC       Indonesia       Total          PRC        Indonesia        Total
                                     ------------  -----------  -----------  -----------   -----------   -----------    -----------
                                        RMB'000      RMB'000      RMB'000      RMB'000       RMB'000        RMB'000       RMB'000
          <S>                        <C>           <C>          <C>          <C>           <C>           <C>           <C>
          Net sales to customers      17,560,788   20,280,746    3,498,548   23,779,294    23,644,659      4,472,172    28,116,831
          Operating expenses          (2,329,130)  (2,440,210)  (1,335,124)  (3,775,334)   (2,903,094)    (1,609,715)   (4,512,809)
          Production taxes              (883,768)  (1,023,049)           -   (1,023,049)   (1,238,598)             -    (1,238,598)
          Exploration                 (1,039,297)  (1,286,670)     (31,653)  (1,318,323)     (764,165)       (83,907)     (848,072)
          Accretion expense                    -            -            -            -       (93,246)             -       (93,246)
          Depreciation, depletion
            and amortisation          (2,566,920)  (3,121,381)    (898,151)  (4,019,532)   (3,700,349)    (1,109,730)   (4,810,079)
                                     ------------  -----------  -----------  -----------   -----------   -----------    -----------
                                      10,741,673   12,409,436    1,233,620   13,643,056    14,945,207      1,668,820    16,614,027

          Income tax expenses         (3,992,578)  (3,816,008)    (592,138)  (4,408,146)   (4,483,562)      (719,695)   (5,203,257)
                                     ------------  -----------  -----------  -----------   -----------   -----------    -----------

          Result of operations         6,749,095    8,593,428      641,482    9,234,910    10,461,645        949,125    11,410,770
                                     ------------  -----------  -----------  -----------   -----------   -----------    -----------

(c)       Capitalised costs
                                          2001                     2002                                   2003
                                     ------------  -------------------------------------   ----------------------------------------
                                          PRC          PRC       Indonesia      Total          PRC       Indonesia*        Total
                                     ------------  -----------  -----------  -----------   -----------   -----------    -----------
                                         RMB'000      RMB'000      RMB'000      RMB'000       RMB'000        RMB'000       RMB'000

          Proved oil and gas          40,748,848   46,426,684    9,605,744   56,032,428    57,537,676      9,440,843    66,978,519
            properties
          Unproved oil and gas           428,611      521,880            -      521,880       713,594             -        713,594
              properties
          Accumulated depreciation,
            depletion and
            amortisation             (18,154,653) (21,161,905)    (993,316) (22,155,221)  (25,740,836)    (2,098,269)  (27,839,105)
                                     ------------  -----------  -----------  -----------   -----------   -----------    -----------

          Net capitalised costs       23,022,806   25,786,659    8,612,428   34,399,087    32,510,434      7,342,574    39,853,008
                                     ============  ===========  ===========  ===========   ===========   ===========    ===========

</TABLE>



                                     F-63
<PAGE>

<TABLE>
<CAPTION>

                      CNOOC LIMITED AND ITS SUBSIDIARIES
         SUPPLEMENTARY INFORMATION ON OIL AND GAS PRODUCING ACTIVITIES
                                  (UNAUDITED)
          (All amounts expressed in Renminbi unless otherwise stated)


(d)       Costs incurred
                                     2001                     2002                                   2003
                                              ------------------------------------   -------------------------------------
                                      PRC         PRC       Indonesia      Total          PRC      Indonesia*      Total
                                  ---------    ---------    ---------    ---------     ---------    ---------    ---------
                                    RMB'000      RMB'000      RMB'000      RMB'000       RMB'000      RMB'000      RMB'000
          <S>                     <C>          <C>          <C>          <C>           <C>            <C>        <C>
          Acquisition costs               -            -    4,735,826    4,735,826     1,579,726            -    1,579,726
          Exploration costs         996,121    1,519,683       32,405    1,552,088     1,225,926      102,067    1,327,993
          Development cost**      3,958,357    5,458,199      750,532    6,208,731     7,489,472      512,064    8,001,536
                                  ---------    ---------    ---------    ---------     ---------    ---------    ---------

          Total costs incurred    4,954,478    6,977,882    5,518,763   12,496,645    10,295,124      614,131   10,909,255
                                  =========    =========    =========    =========     =========    =========   ==========
</TABLE>

         *   The amounts do not include prepayments and subsequent cash calls
             made for the Tangguh Project of RMB2,445,715,000.

         **  The development costs include estimated future dismantlement
             costs of dismantling offshore oil platforms and gas properties.

(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$30 as at December 31, 2003 (2002:
         US$28; 2001: US$17). 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>
                                     2001                         2002                                      2003
                                                 -----------------------------------------   --------------------------------------
                            Notes     PRC             PRC        Indonesia       Total           PRC        Indonesia     Total
                                  ------------   ------------  ------------  -------------   ------------  ----------- ------------
                                    RMB'000       RMB'000        RMB'000        RMB'000         RMB'000      RMB'000      RMB'000
         <S>                  <C> <C>            <C>           <C>           <C>            <C>           <C>          <C>
         Future cash inflows  (1) 261,339,180    389,025,791    37,242,644    426,268,435    422,329,692   30,135,721   452,465,413
         Future production
            costs                 (74,404,378)   (89,657,677)  (22,386,603)  (112,044,280)  (106,854,167) (17,532,095) (124,386,262)
         Future development
            costs             (2) (38,640,756)   (44,699,729)   (5,381,081)   (50,080,810)   (52,917,280)  (4,114,091)  (57,031,371)
         Future income taxes      (39,097,483)   (73,757,925)   (4,301,926)   (78,059,851)   (72,124,755)  (3,346,547)  (75,471,302)
                                  ------------   ------------  ------------  -------------   ------------  ----------- ------------

         Future net cash flows(3) 109,196,563    180,910,460     5,173,034    186,083,494    190,433,490    5,142,988   195,576,478
          10% discount factor     (58,114,105)   (84,478,856)   (1,463,589)   (85,942,445)   (84,550,531)  (1,226,300)  (85,776,831)
                                  ------------   ------------  ------------  -------------   ------------  ----------- ------------

          Standardized measure     51,082,458     96,431,604     3,709,445    100,141,049    105,882,959    3,916,688   109,799,647
                                  ============   ============  ============  =============   ============  =========== ============
</TABLE>



                                     F-64
<PAGE>

                      CNOOC LIMITED AND ITS SUBSIDIARIES
   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 government 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>
                                                                            2001            2002              2003
                                                                      --------------  ----------------  ---------------
                                                                       RMB '000         RMB '000          RMB '000
                  <S>                                                 <C>             <C>               <C>
                  Standardised measure, beginning of year                93,390,597       51,082,458       100,141,049
                  Sales of production, net of royalties and
                      production costs                                  (14,347,890)     (18,980,911)      (22,345,781)
                  Net change in prices, net of royalties and
                      production costs                                  (32,289,445)      58,471,355        22,321,949
                  Extensions discoveries and improved recovery,
                      net of related future costs                         9,985,707       14,603,893        13,790,936
                  Change in estimated future development costs           (9,651,681)     (13,947,849)      (14,673,054)
                  Development costs incurred during the year              3,958,357        6,208,731         7,718,863
                  Revisions in quantity estimates                        (3,272,326)      (3,301,510)       (2,942,902)
                  Accretion of discount                                  10,846,714        6,873,378        13,428,654
                  Net change in income taxes                             (3,241,861)     (23,296,206)       (6,290,099)
                  Purchase of properties                                          -       15,899,375         5,363,142
                  Changes in timing and other                            (4,295,714)       6,528,335        (6,713,110)
                                                                      --------------  ----------------  ---------------
                  Standardised measure, end of year                      51,082,458      100,141,049       109,799,647
                                                                      ==============  ================  ===============
</TABLE>



                                     F-65
<PAGE>

                                 EXHIBIT INDEX

Exhibit
Number         Document                                                   Page
------         --------                                                   ----

1.1            Articles of Association of the Registrant.                  Ex-6

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, incorporated by reference to Exhibit 2.1 to
               our Annual Report on Form 20-F filed with the Securities and
               Exchange Commission (File Number: 1-14966).

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).



                                     Ex-1
<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).



                                     Ex-2
<PAGE>

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).

4.38           Equity Transfer Agreement dated September 5, 2003          Ex-45
               between CNOOC China Limited and CNOOC (Summary
               Translation).

4.39           Framework Agreement dated April 8, 2004 with CNOOC         Ex-49
               Finance Corporation Limited (Summary Translation).

8.1            List of Subsidiaries.                                      Ex-54

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).

12.1           Certification by the Chief Executive Officer in            Ex-55
               accordance with Section 302 of the Sarbanes-Oxley Act
               of 2002

12.2           Certification by the Chief Financial Officer in            Ex-56
               accordance with Section 302 of the Sarbanes-Oxley Act
               of 2002

13.1           Sarbanes-Oxley Act of 2002 Section 906 Certification       Ex-57
               furnished to (not filed with) the Securities and
               Exchange Commission.



                                     Ex-5
<PAGE>

                                                                  EXHIBIT 1.1

                     THE COMPANIES ORDINANCE (CHAPTER 32)

                           Company Limited by Shares

                          NEW ARTICLES OF ASSOCIATION

                                      OF

                                 CNOOC LIMITED
                          [CHINESE CHARACTERS OMITTED]


                                  PRELIMINARY

1.       The regulations in Table A in the First Schedule to the Ordinance
         shall not apply to the Company.

                                INTERPRETATION

2.       (a)  In these Articles save where the context otherwise requires:

              Associate shall have the meaning ascribed to it under the
              Listing Rules as amended from time to time;

              Auditors means the Auditors of the Company for the time being;

              Chairman means the Chairman presiding at any meeting of members
              or the Board;

              Company means the above-named Company;

              Ordinance means the Companies Ordinance (Chapter 32 of the Laws
              of Hong Kong), and includes every other ordinance incorporated
              therewith or substituted therefor, and in the case of any such
              substitution the references in these Articles to the provisions
              of the Ordinance shall be read as references to the provisions
              substituted therefor in the new ordinance;

              Board and Directors means the directors for the time being of
              the Company or the Directors present at a duly convened meeting
              of directors at which a quorum is present;

              call includes any instalment of a call and, in the application
              of provisions of these Articles to forfeiture of shares, a sum
              which, by the terms of issue of a share, is payable at a fixed
              time either in respect of the nominal value of the share or by
              way of premium;

              capital means the share capital from time to time of the
              Company;

              Clearing House shall mean a recognised clearing house within the
              meaning of Part 1 of Schedule 1 to the Securities and Futures
              Ordinance (Chapter 571) as amended from time to time;

              Dividend includes distributions in specie or in kind, capital
              distributions and capitalisation issues;



                                     Ex-6
<PAGE>

              Dollars and $ means dollars in the lawful currency of Hong Kong;

              Hong Kong means the Hong Kong Special Administrative Region of
              the People's Republic of China;

              Listing Rules means the Rules Governing the Listing of
              Securities on the Stock Exchange of Hong Kong Limited as amended
              from time to time;

              month means calendar month;

              Office means the registered office of the Company for the time
              being;

              paid up includes credited as paid up;

              Register means the register of members of the Company kept
              pursuant to the Ordinance and includes any branch register kept
              pursuant to the Ordinance;

              Seal means the common seal of the Company or any official seal
              that the Company may have as permitted by the Ordinance;

              Secretary means the person or persons appointed for the time
              being to perform for the Company the duties of a secretary;

              share means a share in the capital of the Company and includes
              stock except where a distinction between stock and shares is
              expressed or implied;

              Stock Exchange means The Stock Exchange of Hong Kong Limited;

              Subsidiary and holding company shall have the meanings ascribed
              to them under the Listing Rules;

              these Articles means these Articles of Association in their
              present form or as altered from time to time;

              in writing and written includes facsimile and telex messages and
              any mode of reproducing words in a legible and non-transitory
              form.

         (b)  In these Articles, if not inconsistent with the subject or
              context, words importing the singular number only shall include
              the plural number and vice versa, words importing any gender
              shall include all other genders and references to persons shall
              include corporations (acting, where applicable, by their duly
              authorised representatives).

         (c)  Subject as aforesaid, any words defined in the Ordinance shall,
              if not inconsistent with the subject or context, bear the same
              meaning in these Articles.

         (d)  The headings and any marginal notes are inserted for convenience
              only and shall not affect the construction of these Articles.

                                  THE OFFICE

3.       The Office shall be at such place in Hong Kong as the Directors shall
         from time to time appoint.



                                     Ex-7
<PAGE>

                                    SHARES

4.       Shares may be issued with a preferential or qualified right to
         dividends and in the distribution of assets of the Company and with a
         special, or without any, right of voting.

5.       Without prejudice to any special rights, privileges or restrictions
         for the time being attached to any issued shares, any unissued or
         forfeited shares may be issued or re-issued upon such terms and
         conditions, and with such rights, privileges and restrictions
         attached thereto, whether in regard to dividends, voting, repayment
         or redemption of share capital, or otherwise, as the Company may,
         subject to the Ordinance, from time to time determine or, in the
         absence of any such determination, as the Directors shall determine.

6.       The Board may, subject to the approval by the members in general
         meeting, issue warrants to subscribe for any class of shares or
         securities of the Company on such terms as the Board may from time to
         time determine. Where warrants are issued to bearer, no certificate
         thereof shall be issued to replace one that has been lost unless the
         Board is satisfied beyond reasonable doubt that the original
         certificate thereof has been destroyed and the Company has received
         an indemnity in such form as the Board shall think fit with regard to
         the issue of any such replacement certificate.

7.       Save as provided by contract or the Ordinance or these Articles to
         the contrary, all unissued shares shall be at the disposal of the
         Directors who may allot, grant options over or otherwise deal with or
         dispose of the same to such persons, at such times, for such
         consideration and generally upon such terms and conditions as they
         shall in their absolute discretion think fit, provided that no shares
         of any class shall be issued at a discount except in accordance with
         section 50 of the Ordinance.

8.       The Company may make arrangements on the issue of shares for a
         difference between the holders of such shares in the amount of calls
         to be paid and the time of payment of such calls.

9.       If by the conditions of allotment of any shares the whole or part of
         the issue price thereof shall be payable by instalments, every such
         instalment shall, when due, be paid to the Company by the person who
         for the time being and from time to time shall be the registered
         holder of the shares, or his legal personal representative.

10.      Subject to the provisions of section 49 of the Ordinance, any
         preference share may, with the sanction of a special resolution, be
         issued on the terms that it is, or at the option of the Company is
         liable, to be redeemed.

11.      Subject to the provisions of these Articles, except as required by
         law or ordered by a court of competent jurisdiction, no person shall
         be recognised by the Company as holding any share upon any trust, and
         except as aforesaid, the Company shall not be bound by or required in
         any way to recognise any contingent, future, partial or equitable
         interest in any share or in any fractional part of a share or any
         other right in respect of any share or any other claim to or in
         respect of any such share on the part of any person (even when having
         notice thereof) except an absolute right to the entirety thereof in
         the registered holder.

12.      The Company may in connection with the issue of any shares exercise
         all powers of paying interest out of capital and of paying commission
         and brokerage conferred or permitted by the Ordinance.

13.      No person shall become a member until his name shall have been
         entered into the Register.



                                     Ex-8
<PAGE>

                            JOINT HOLDERS OF SHARES

14.      Where two or more persons are registered as the holders of any share
         they shall be deemed to hold the same as joint tenants with the
         benefit of survivorship, subject to the following provisions:

         (a)  the Company shall not be bound to register more than four
              persons as the holders of any shares except in the case of the
              legal personal representatives of a deceased member;

         (b)  the joint holders of any shares shall be liable severally as
              well as jointly in respect of all payments which ought to be
              made in respect of such shares;

         (c)  on the death of any one of such joint holders the survivor or
              survivors shall be the only person or persons recognised by the
              Company as having any title to such shares, but the Directors
              may require such evidence of death as they may deem fit;

         (d)  any one of such joint holders may give effectual receipts for
              any dividend, bonus or return of capital payable to such joint
              holders; and

         (e)  the Company shall be at liberty to treat the person whose name
              stands first in the Register as one of the joint holders of any
              shares as solely entitled to delivery of the certificate
              relating to such shares, or to receive notices from the Company,
              or to attend or vote at general meetings of the Company, and any
              notice given to such person shall be deemed notice to all the
              joint holders; but any one of such joint holders may be
              appointed the proxy of the persons entitled to vote on behalf of
              such joint holders, and as such proxy to attend and vote at
              general meetings of the Company, but if more than one of such
              joint holders be present at any meeting personally or by proxy
              that one so present whose name stands first in the Register in
              respect of such shares shall alone be entitled to vote in
              respect thereof.

                              SHARE CERTIFICATES

15.      Every person whose name is entered as a member in the Register shall
         be entitled without payment to receive within two months after
         allotment or lodgment of an instrument of transfer duly stamped, or
         within such other period as the conditions of issue shall provide,
         one certificate for all his shares of any particular class, or if he
         shall so request, upon payment of a fee (not exceeding HK$2.50 or
         such greater sum as the Stock Exchange may from time to time permit)
         for every certificate after the first, as the Directors shall from
         time to time determine, such number of certificates for shares in
         Stock Exchange board lots or multiples thereof as he shall request
         and one for the balance (if any) of the shares in question, provided
         that in the event of a member transferring part of the shares
         represented by a certificate in his name a new certificate in respect
         of the balance thereof shall be issued in his name without payment
         and, in the case of a share or shares held jointly by several persons
         the Company shall not be bound to issue a certificate or certificates
         to each such person, and the issue and delivery of a certificate or
         certificates to one of several joint holders shall be sufficient
         delivery to all such holders. In any event, the Company shall, within
         10 business days (being any day on which a recognised stock market is
         open for the business of dealing in securities) after the date on
         which a transfer of any of its shares, debentures or debenture stock
         is lodged with the Company, complete and have ready for delivery the
         certificates of all shares, the debentures and the certificates of
         all debenture stock so transferred, unless the conditions of issue of
         the shares, debentures or debenture stock otherwise provide.

16.      Every share certificate shall be issued under the Seal (which for
         this purpose may be any official seal as permitted by section 73A of
         the Ordinance) and shall specify the number and



                                     Ex-9
<PAGE>

         class of shares and, if required, the distinctive numbers thereof, to
         which the certificate relates, and the amount paid up thereon and may
         otherwise be in such form as the Board may from time to time
         determine. If at any time the share capital of the Company is divided
         into different classes of shares, every share certificate issued at
         that time shall comply with section 57A of the Ordinance, and no
         certificate shall be issued in respect of more than one class of
         shares.

17.      Subject to section 71A of the Ordinance, if any share certificate
         shall be worn out, defaced, destroyed or lost, it may be replaced on
         payment of such fee, if any (not exceeding HK$2.50 or such greater
         sum as the Stock Exchange may from time to time permit), on such
         evidence being produced as the Directors shall require, and in case
         of wearing out or defacement, on delivery up of the old certificate,
         and in case of destruction or loss, on the execution of such
         indemnity (if any), as the Directors may require. In case of
         destruction or loss, the person to whom such replacement certificate
         is given shall also bear and pay to the Company all expenses
         incidental to the investigation by the Company of the evidence of
         such destruction or loss and of the production of such indemnity.

                                CALLS ON SHARES

18.      (a)  The Directors may from time to time make calls upon the members
              in respect of all moneys unpaid on their shares whether on
              account of the nominal value of the shares or by way of premium
              but subject always to the terms of issue of such shares, and any
              such call may be made payable by instalments.

         (b)  Each member shall, subject to receiving at least fourteen days'
              notice specifying the time or times and place of payment, pay to
              the Company the amount called on his shares and at the time or
              times and place so specified. The non-receipt of a notice of any
              call by, or the accidental omission to give notice of a call to,
              any of the members shall not invalidate the call.

19.      A call shall be deemed to have been made at the time when the
         resolution of the Directors authorising such call was passed. A call
         may be revoked, varied or postponed as to all or any of the members
         liable therefor as the Directors may determine. A person on whom a
         call is made will remain liable for calls made upon him
         notwithstanding the subsequent transfer of the shares in respect
         whereof the call was made.

20.      If any part of a call is not paid before or on the day appointed for
         payment thereof, the person from whom the payment is due shall be
         liable to pay all costs, charges and expenses that the Company may
         have incurred by reason of such non-payment together with interest on
         the outstanding part thereof at such rate as the Directors shall
         determine (not exceeding twenty per cent. per annum) from the day
         appointed for the payment of such call or instalment to the time of
         discharge thereof in full; but the Directors may, if they shall think
         fit, waive the payment of such costs, charges, expenses or interest
         or any part thereof.

21.      If, by the terms of the issue of any shares or otherwise, any amount
         is made payable upon allotment or at any fixed time, whether on
         account of the nominal amount of the shares or by way of premium,
         every such amount shall be payable as if it were a call duly made and
         payable on the date on which by the terms of issue the same becomes
         payable; and all the provisions hereof with respect to the payment of
         calls and interest thereon, or to the forfeiture of shares for
         non-payment of calls, shall apply to every such amount and the shares
         in respect of which it is payable in the case of non-payment thereof.

22.      The Directors may, if they shall think fit, receive from any member
         willing to advance the same (either in money or money's worth) all or
         any part of the moneys uncalled and unpaid or instalments payable
         upon any shares held by him; and upon all or any of the moneys so
         paid



                                    Ex-10
<PAGE>

         in advance the Directors may (until the same would, but for such
         payment in advance, become presently payable) pay interest at such
         rate as may be agreed upon between the member paying the moneys in
         advance and the Directors (not exceeding twenty per cent. per annum).
         But a payment in advance of a call shall not entitle the member to
         receive any dividend or to exercise any other rights or privileges as
         a member in respect of the share or the due portion of the shares
         upon which payment has been advanced by such member before it is
         called. The Directors may also at any time repay the amount so
         advanced upon giving to such member one month's notice in writing
         unless before the expiration of such notice the amount so advanced
         shall have been called up on the shares in respect of which it was
         advanced.

23.      On the trial or hearing of any action for the recovery of any money
         due for any call, it shall be sufficient to prove that the name of
         the member sued is entered in the Register as the holder, or one of
         the holders, of the shares in respect of which such money is due;
         that the resolution making the call is duly recorded in the minute
         book of the Company; and that notice of such call was duly given to
         the member sued in pursuance of these Articles, and it shall not be
         necessary to prove the appointment of the Directors who made such
         call, nor any other matter whatsoever, but the proof of the matters
         aforesaid shall be conclusive evidence that the money is due.

24.      No member shall, unless the Directors otherwise determine, be
         entitled to receive any dividend or bonus, or to receive notice of or
         to be present or vote at any general meeting, either personally or
         (save as proxy for another member) by proxy, or to exercise any
         privileges as a member, or be reckoned in a quorum, until he shall
         have paid all calls or other sums for the time being due and payable
         on every share held by him, whether alone or jointly with any other
         person, together with interest and expenses (if any).

                                  FORFEITURE

25.      If any member fails to pay in full any call or any instalment of a
         call on the day appointed for payment thereof, the Directors may at
         any time thereafter, during such time as any part of the call remains
         unpaid without prejudice to the provisions of Article 24, serve a
         notice on him requiring him to pay so much of the call as is unpaid
         together with interest accrued and any expenses incurred by reason of
         such non-payment.

26.      The notice shall name a further day (not being less than fourteen
         days from the date of the notice) on or before which such call or
         part thereof and all interest accrued and expenses incurred by reason
         of such non-payment are to be paid, and it shall also name the place
         where payment is to be made, such place being either the Office, or
         some other place at which calls of the Company are usually made
         payable. The notice shall also state that, in the event of
         non-payment at or before the time and at the place appointed, the
         shares in respect of which such call is payable will be liable to
         forfeiture.

27.      If the requirements with regard to payment of any such notice as
         aforesaid are not complied with, any shares in respect of which such
         notice has been given may, at any time thereafter and before the
         payment required by the notice has been made, be forfeited by a
         resolution of the Directors to that effect, and any such forfeiture
         shall extend to all dividends and bonuses declared in respect of the
         shares so forfeited but not payable until after such forfeiture. The
         Directors may accept surrender of any shares liable to be forfeited
         hereunder and in such cases references in the Articles to forfeiture
         shall include surrender.

28.      Any shares so forfeited shall be deemed for the purposes of this
         Article to be the property of the Company and may be sold,
         re-allotted or otherwise disposed of either subject to or discharged
         from all calls made prior to the forfeiture, to any person, upon such
         terms as to subscription price and otherwise and in such manner and
         at such time or times as the



                                    Ex-11
<PAGE>

         Directors think fit. For the purpose of giving effect to any such
         sale or other disposition the Directors may authorise the transfer of
         the shares so sold or otherwise disposed of to the purchaser thereof
         or any other person becoming entitled thereto. The Directors shall
         account to the person whose shares have been forfeited with the
         balance (if any) of monies received by the Company in respect of
         those shares after deduction of expenses of forfeiture, sale or
         disposal of the shares and any amount due to the Company in respect
         of the shares.

29.      The Directors may, at any time before any shares so forfeited shall
         have been sold, re-allotted or otherwise disposed of, annul the
         forfeiture thereof upon such conditions as they think fit or permit
         the share forfeited to be redeemed upon the terms of payment of all
         calls and interest due thereon and all expenses incurred in respect
         of the share, and upon such further terms (if any) they think fit.

30.      Any person whose shares have been forfeited shall cease to be a
         member in respect of the forfeited shares but shall notwithstanding
         the forfeiture be and remain liable to pay to the Company all moneys
         which, at the date of forfeiture, were payable by him to the Company
         in respect of the shares, together with interest thereon from the
         date of forfeiture until payment at such rate as the Directors may
         prescribe (not exceeding twenty per cent. per annum), and the
         Directors may enforce the payment of such moneys or any part thereof
         and without any deduction or allowance for the value of the shares at
         the date of forfeiture, but his liability shall cease if and when the
         Company shall have received payment in full of all such moneys in
         respect of the shares. For the purposes of this Article any sum
         which, by the terms of issue of a share payable thereon at a fixed
         time which is subsequent to the date of forfeiture, whether on
         account of the nominal value of the share or by way of premium, shall
         notwithstanding that that time has not yet arrived be deemed to be
         payable at the date of forfeiture, and the same shall become due and
         payable immediately upon the forfeiture, but interest thereon shall
         only be payable in respect of any period between the said fixed time
         and the date of actual payment.

31.      When any shares have been forfeited, notice of the resolution shall
         be given to the member in whose name it stood immediately prior to
         the forfeiture and an entry shall be made in the Register recording
         the forfeiture and the date thereof but no forfeiture shall be in any
         manner invalidated by any omission or neglect to give such notice or
         make any such entry, and so soon as the shares so forfeited have been
         sold or otherwise disposed of an entry shall also be made of the
         manner and date of the sale or disposal thereof.

                                     LIEN

32.      The Company shall have a first and paramount lien on every share (not
         being a fully paid-up share) for all moneys outstanding in respect of
         such share whether presently payable or not, and the Company shall
         also have a first and paramount lien on every share (other than fully
         paid-up shares) standing registered in the name of a member, whether
         singly or jointly with any other person or persons, for all the debts
         and liabilities of such member or his estate to the Company, whether
         the same shall have been incurred before or after notice has been
         given to the Company of any interest of any person other than such
         member, and whether the time for the payment or discharge of the same
         shall have already arrived or not, and notwithstanding that the same
         are joint debts or liabilities of such member or his estate and any
         other person, whether a member or not. The Company's lien on a share
         shall extend to all dividends payable thereon. The Directors may at
         any time either generally or in any particular case waive any lien
         that has arisen, or declare any share to be wholly or in part exempt
         from the provisions of this Article.

33.      The Company may sell in such manner as the Directors think fit any
         share on which the Company has a lien, but no sale shall be made
         unless some sum in respect of which the lien exists is presently
         payable or the liability or engagement in respect of such lien exists
         is liable



                                    Ex-12
<PAGE>

         to be presently fulfilled or discharged, nor until the expiration of
         fourteen days after a notice in writing stating and demanding payment
         of the sum presently payable and giving notice of intention to sell
         in default shall have been given to the holder for the time being of
         the share or the person entitled thereto by reason of his death,
         bankruptcy or winding-up or otherwise by operation of law or court
         order.

34.      The net proceeds of such sale after payment of the costs of such sale
         shall be applied in or towards payment or satisfaction of the debts
         or liabilities in respect whereof the lien exists so far as the same
         are presently payable and any residue shall (subject to a like lien
         for debts or liabilities not presently payable as existed upon the
         shares prior to the sale) be paid to the person entitled to the
         shares at the time of the sale. For giving effect to any such sale
         the Directors may authorise some person to transfer the shares so
         sold to the purchaser thereof and may enter the purchaser's name in
         the Register as holder of the shares, and the purchaser shall not be
         bound to see to the application of the purchase money, nor shall his
         title to the shares be affected by any irregularity or invalidity in
         the proceedings in reference to the sale.

35.      A statutory declaration in writing that the declarant is a Director
         or the Secretary of the Company and that a share has been duly
         forfeited or surrendered or sold on a date stated in the declaration
         shall be conclusive evidence of the facts therein stated as against
         all persons claiming to be entitled to the share. Such declaration
         and the receipt of the Company for the consideration (if any) given
         for the share on the sale, re-allocation or disposal thereof together
         with the share certificate delivered to a purchaser or allottee
         thereof shall (subject to the execution of a transfer if the same be
         required) constitute a good title to the share and the person to whom
         the share is sold, re-allotted or disposed of shall be registered as
         the holder of the share and shall not be bound to see to the
         application of the purchase money (if any) nor shall his title to the
         share be affected by any irregularity or invalidity in the
         proceedings in reference to the forfeiture, surrender, sale,
         re-allotment or disposal of the share.

                              TRANSFER OF SHARES

36.      The instrument of transfer of any shares in the Company shall be in
         writing in the usual common form or in such other form as the Board
         may accept and may be under hand only or, if the transferor or
         transferee is a Clearing House (or its nominee), by hand or by
         machine imprinted signature or by such other manner of execution as
         the Board may approve from time to time and shall be executed by or
         on behalf of the transferor and by or on behalf of the transferee.
         The transferor shall remain the holder of the shares concerned until
         the name of the transferee is entered in the Register in respect
         thereof. Nothing in these Articles shall preclude the Board from
         recognising a renunciation of the allotment or provisional allotment
         of any share by the allottee in favour of some other person.

37.      Every instrument of transfer shall be lodged at the Office for
         registration (or at such other place the Board may appoint for such
         purpose) accompanied by the certificate relating to the shares to be
         transferred and such other evidence as the Directors may require in
         relation thereto. All instruments of transfer which shall be
         registered shall be retained by the Company, but save where fraud is
         suspected any instrument of transfer which the Directors may decline
         to register shall, on demand, be returned to the person depositing
         the same.

38.      There shall be paid to the Company in respect of the registration of
         a transfer and of any Grant of Probate or Letters of Administration,
         Certificate of Marriage or Death, Power of Attorney or other document
         relating to or affecting the title to any share or for making of any
         entry in the Register affecting the title to any share such fee (if
         any) as the Directors may from time to time require or prescribe (but
         not exceeding HK$2.50 or such greater sum as the Stock Exchange may
         from time to time permit).



                                    Ex-13
<PAGE>

39.      The registration of transfers may be suspended at such times and for
         such periods as the Directors may, in accordance with section 99 of
         the Ordinance, from time to time determine and either generally or in
         respect of any class of shares.

40.      The Directors may, subject to section 69 of the Ordinance, at any
         time in their absolute discretion and without assigning any reason
         therefor decline to register any transfer of any share (not being a
         fully paid-up share). If the Directors refuse to register a transfer
         they shall, within two months after the date on which the transfer
         was lodged with the Company, send to the transferor and transferee
         notice of the refusal.

41.      The Directors may also decline to register any transfer unless:

         (a)  the instrument of transfer is in respect of only one class of
              share;

         (b)  in the case of a transfer to joint holders, the number of
              transferees does not exceed four;

         (c)  the shares concerned are free of any lien in favour of the
              Company;

         (d)  the instrument of transfer is properly stamped;

         (e)  such other conditions as the Directors may from time to time
              impose for the purpose of guarding against losses arising from
              forgery are satisfied;

         (f)  a fee not exceeding the maximum fee prescribed or permitted from
              time to time by the Stock Exchange is paid to the Company in
              respect thereof;

         (g)  the instrument of transfer is accompanied by the certificate of
              the shares to which it relates, and such other evidence as the
              Board may reasonably require to show the right of the transferor
              to make the transfer.

42.      No transfer may be made to an infant or to a person of unsound mind
         or under other legal disability.

                            TRANSMISSION OF SHARES

43.      In the case of the death of a member, the survivor or survivors where
         the deceased was a joint holder, and the legal personal
         representatives of the deceased where he was a sole or only surviving
         holder, shall be the only persons recognised by the Company as having
         any title to his shares; but nothing herein contained shall release
         the estate of a deceased holder, whether sole or joint, from any
         liability in respect of any share solely or jointly held by him.

44.      Any person becoming entitled to shares in the Company in consequence
         of the death, bankruptcy or winding-up of any member or otherwise by
         operation of law or by court order shall, upon procuring such
         evidence of his title as the Directors may require, have the right
         either to be registered himself as the holder of the shares upon
         giving to the Company notice in writing of such his desire or to
         transfer such shares to some other person. All the limitations,
         restrictions and provisions of these Articles and the Ordinance
         relating to the right to transfer and the registration of transfers
         of shares shall be applicable to any such notice or transfer as if
         the same were a transfer of shares by a member, including the
         Directors' right to refuse or suspend registration.

45.      A person becoming entitled to shares in the Company in consequence of
         the death, bankruptcy or winding-up of any member or otherwise by
         operation of law or by court order shall have the right to receive
         and give a discharge for any dividends or other moneys payable



                                    Ex-14
<PAGE>

         in respect of the shares, provided always that the Directors may at
         any time give notice requiring any such person to elect to be
         registered himself or to transfer the shares, and if the notice is
         not complied with within sixty days, the Directors may thereafter
         withhold payment of all dividends or other moneys payable in respect
         of the shares until the requirements of the notice have been complied
         with but, subject to the requirements of Article 76 being met, such a
         person may vote at meetings.

                                     STOCK

46.      The Company may from time to time by ordinary resolution convert any
         fully paid-up shares into stock and may reconvert any stock into
         fully paid-up shares of any denomination. After the passing of any
         resolution converting all the fully paid-up shares of any class in
         the capital of the Company into stock, any shares of that class which
         subsequently become fully paid-up and rank pari passu in all other
         respects with such shares shall, by virtue of this Article and such
         resolution, be converted into stock transferable in the same units as
         the shares already converted.

47.      The holders of stock may transfer the same or any part thereof in the
         same manner and subject to the same regulations as the shares from
         which the stock arose might prior to conversion have been transferred
         or as near thereto as circumstances admit. The Directors may from
         time to time fix the minimum amount of stock transferable and
         restrict or forbid the transfer of fractions of such minimum, but the
         minimum shall not, without the sanction of an ordinary resolution of
         the Company, exceed the nominal amount of each of the shares from
         which the stock arose. No warrants to bearer shall be issued in
         respect of any stock.

48.      The holders of stock shall, according to the amount of the stock held
         by them, have the same rights as regards dividends, participation in
         assets on a winding-up, voting at general meetings of the Company and
         other matters as if they held the shares from which the stock arose,
         but no such right (except as to participation in dividends, profits
         and in assets on a reduction of capital or a winding-up) shall be
         conferred by an amount of stock which would not, if existing in
         shares, have conferred such right.

49.      Such of these Articles as are applicable to fully paid-up shares
         shall apply mutatis mutandis to stock, and the words "share" and
         "shareholder" shall include "stock" and "stockholder".

                INCREASE OF CAPITAL AND PURCHASE OF OWN SHARES

50.      The Company may, from time to time, by ordinary resolution increase
         its authorised capital by such sum divided into shares of such
         amounts as the resolution shall prescribe.

51.      The general meeting resolving upon the creation of any new shares may
         direct that the same or any of them shall be offered in the first
         instance, and either at par or at a premium or (subject to the
         provisions of the Ordinance) at a discount, to all the holders for
         the time being of any class of shares in the capital of the Company,
         in proportion to the number of shares of such class held by them
         respectively, or make any other provisions as to the issue and
         allotment of the new shares, and in default of any such direction, or
         so far as the same shall not extend, the new shares shall be at the
         disposal of the Directors, and Article 7 shall apply thereto. The
         Company may exercise any powers conferred or permitted by the
         Ordinance or any other ordinance from time to time to purchase or
         otherwise acquire its own shares and warrants (including any
         redeemable shares) at any price or to give, directly or indirectly,
         by means of a loan, guarantee, the provision of security or
         otherwise, financial assistance for the purpose of or in connection
         with a purchase or other acquisition made or to be made by any person
         of any shares or warrants in the Company and should the Company
         purchase or otherwise acquire its own shares or warrants neither the
         Company nor the Board shall be required to select the shares or
         warrants to be purchased or otherwise acquired rateably or in



                                    Ex-15
<PAGE>

         any other particular manner as between the holders of shares or
         warrants of the same class or as between them and the holders of
         shares or warrants of any other class or in accordance with the
         rights as to dividends or capital conferred by any class of shares
         provided always that (a) purchases not made through the market or by
         tender shall be limited to a maximum price, and (b) if purchases are
         by tender, tenders shall be available to all shareholders alike and
         provided further that any such purchase or other acquisition or
         financial assistance shall only be made or given in accordance with
         any relevant rules or regulations issued by the Stock Exchange or the
         Securities and Futures Commission from time to time in force.

52.      Subject to any direction or determination that may be given or made
         in accordance with the powers contained in these Articles, all new
         shares created pursuant to Article 50 shall be subject to the same
         provisions herein contained with reference to the payment of calls,
         transfer, transmission, forfeiture, lien and otherwise as the
         existing shares of the Company.

                          ALTERATION OF SHARE CAPITAL

53.           The Company may by ordinary resolution:

         (a)  subdivide its existing shares or any of them into shares of
              smaller amount than is fixed by the Memorandum of Association of
              the Company, provided that in the subdivision of an existing
              share the proportion between the amount paid and the amount (if
              any) unpaid on each reduced share shall be the same as it was in
              the case of the share from which the reduced share is derived,
              and that the resolution whereby any share is subdivided may
              determine that as between the holders of the shares resulting
              from such subdivision one or more of the shares may, as compared
              with the others, have any such preferred, deferred or other
              special rights or be subject to any such restrictions as the
              Company has power to attach to unissued or new shares;

         (b)  divide its shares into several classes and attach thereto
              respectively any preferential, deferred, qualified or special
              rights, privileges or conditions;

         (c)  consolidate and divide its share capital or any part thereof
              into shares of larger amount than its existing shares;

         (d)  cancel any shares which at the date of the passing of the
              resolution have not been taken or agreed to be taken by any
              person and diminish the amount of its authorised capital by the
              amount of the shares so cancelled; or

         (e)  make provision for the issue and allotment of shares which do
              not carry any voting rights.

54.      The Company may by special resolution reduce its share capital and
         any capital redemption reserve fund or any share premium account in
         any manner allowed by law.

55.      Where any difficulty arises in regard to any consolidation and
         division under paragraph (c) of Article 53, the Directors may settle
         the same as they think expedient and in particular may arrange for
         the sale of the shares representing fractions and the distribution of
         the net proceeds of sale in due proportion amongst the members who
         would have been entitled to the fractions, and for this purpose the
         Directors may authorise some person to transfer the shares
         representing fractions to the purchaser thereof, who shall not be
         bound to see to the application of the purchase money nor shall his
         title to the shares be affected by any irregularity or invalidity in
         the proceedings relating to the sale.



                                    Ex-16
<PAGE>

                            MODIFICATION OF RIGHTS

56.      All or any of the special rights attached to any class of shares
         (unless otherwise provided for by the terms of issue of the shares of
         that class) for the time being in issue may subject to the provisions
         of the Ordinance, at any time, as well before as during liquidation,
         be altered or abrogated either with the consent in writing of the
         holders of not less than three-fourths 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, and
         all the provisions contained in these Articles relating to general
         meetings shall mutatis mutandis apply to every such meeting but so
         that the quorum thereof shall be not less than two persons holding or
         representing by proxy one-third in nominal value of the issued shares
         of the class, and that any holder of shares of that class present in
         person or by proxy may demand a poll.

57.      The provisions of the foregoing Article shall apply to the variation
         or abrogation of the special rights attached to some only of the
         shares of any class as if each group of shares of the class
         differently treated formed a separate class the rights whereof are to
         be varied.

58.      The special rights conferred upon the holders of shares or any class
         of shares shall not, unless otherwise expressly provided in the
         rights attaching to or the terms of issue of such shares, be deemed
         to be altered by the creation or issue of further shares ranking pari
         passu therewith.

                               GENERAL MEETINGS

59.      The Company shall in each year hold a general meeting as its annual
         general meeting in addition to any other meetings in that year. The
         annual general meeting shall be held at such time (within a period of
         not more than fifteen months, or such longer period as the Registrar
         of Companies may authorise in writing, after the holding of the last
         preceding annual general meeting) and place as may be determined by
         the Directors. All other general meetings shall be called
         extraordinary general meetings.

60.      The Directors may wherever they think fit, and shall on requisition
         in accordance with the Ordinance, proceed to convene an extraordinary
         general meeting.

                          NOTICE OF GENERAL MEETINGS

61.      Subject to section 116C of the Ordinance, an annual general meeting
         and a meeting called for the passing of a special resolution shall be
         called by not less than twenty-one days' notice in writing, and any
         other general meeting shall be called by not less than fourteen days'
         notice in writing. The notice shall specify the place, date and time
         of meeting, and, in the case of special business, the general nature
         of that business. The notice convening an annual general meeting
         shall specify the meeting as such, and the notice convening a meeting
         to pass a special resolution shall specify the intention to propose
         the resolution as a special resolution. There shall appear on every
         such notice with reasonable prominence a statement that a member
         entitled to attend and vote is entitled to appoint one or more
         proxies to attend and vote instead of him and that a proxy need not
         be a member of the Company.

62.      Notwithstanding that a meeting of the Company is called by shorter
         notice than that specified in these Articles or required by the
         Ordinance, it shall be deemed to have been duly called if it is so
         agreed:

         (a)  in the case of a meeting called as the annual general meeting,
              by all the members entitled to attend and vote thereat; and



                                    Ex-17
<PAGE>

         (b)  in the case of any other meeting, by a majority in number of the
              members having the right to attend and vote at the meeting,
              being a majority together holding not less than 95 per cent. in
              nominal value of the shares giving that right.

63.      The accidental omission to give notice of a meeting or (in cases
         where instruments of proxy are sent out with the notice) the
         accidental omission to send such instrument of proxy to, or the
         non-receipt of notice of a meeting or such instrument of proxy by,
         any person entitled to receive such notice shall not invalidate the
         proceedings at that meeting.

                        PROCEEDINGS AT GENERAL MEETINGS

64.      All business shall be deemed special that is transacted at an
         extraordinary general meeting and at an annual general meeting with
         the exception of:

         (a)  the receipt of the accounts and balance sheet and the reports of
              the Directors and other documents required to be annexed to the
              accounts;

         (b)  the declaration and sanction of dividends;

         (c)  the election of Directors in place of those retiring (if any);

         (d)  the election or re-election of the Auditors of the Company; and

         (e)  the fixing of, or the determination of the method of fixing, the
              remuneration or extra remuneration of the Directors and of the
              Auditors of the Company.

65.      No business save the election of a Chairman of the meeting shall be
         transacted at any general meeting unless a quorum is present when the
         meeting proceeds to business. Two members present in person or by
         proxy and entitled to vote shall be a quorum for all purposes.

66.      If, within thirty minutes from the time appointed for the meeting a
         quorum be not present, the meeting, if convened upon requisition in
         accordance with the Ordinance, shall be dissolved; but in any other
         case it shall stand adjourned to the same day in the next week at the
         same time and place, or to such other day, time and place as the
         Chairman of the meeting may determine. If at such adjourned meeting a
         quorum be not present within thirty minutes from the time appointed
         for the meeting, the member or members present in person or by proxy
         shall be a quorum and may transact the business for which the meeting
         is called.

67.      The Chairman (if any) of the Board shall preside as Chairman at every
         general meeting. If there is no such Chairman or if at any meeting
         the Chairman is not present within fifteen minutes after the time
         appointed for holding the meeting, or if the Chairman is not willing
         to act as Chairman at the meeting, the Directors present shall choose
         one of their number to act, or if one Director only is present he
         shall preside as Chairman if willing to act. If no Director is
         present, or if each of the Directors present declines to act as
         Chairman, the persons present and entitled to vote shall elect one of
         their number to be Chairman of the meeting.

68.      The Chairman of any general meeting at which a quorum is present may,
         with the consent of the meeting, and shall, if so directed by the
         meeting, adjourn the meeting from time to time and from place to
         place or sine die; but no business shall be transacted at any
         adjourned meeting other than business which might have been
         transacted at the meeting from which the adjournment took place
         unless due notice thereof is given or such notice is waived in the
         manner prescribed by these Articles. When a meeting is adjourned for
         thirty days or more, or sine die, notice of the adjourned meeting
         shall be given as in the case of an original meeting. Save as
         aforesaid, it shall not be necessary to give any notice of an
         adjourned meeting or the



                                    Ex-18
<PAGE>

         business to be transacted thereat. Where a meeting is adjourned sine
         die the time and place for the adjourned meeting shall be fixed by the
         Directors.

                                    VOTING

69.      (a)  At any general meeting a resolution put to the vote of the
              meeting shall be decided on a show of hands unless (before or on
              the declaration of the result of the show of hands or on the
              withdrawal of any other demand for a poll) a poll is demanded
              by:

              (i)    the Chairman of the meeting; or

              (ii)   at least three members present in person (or in the case
                     of a member being a corporation, by its duly authorised
                     representative) or by proxy and entitled to vote at the
                     meeting; or

              (iii)  any member or members present in person (or in the case
                     of a member being a corporation, by its duly authorised
                     representative) or by proxy and representing in the
                     aggregate not less than one-tenth of the total voting
                     rights of all members having the right to attend and vote
                     at the meeting; or

              (iv)   any member or members present in person (or in the case
                     of a member being a corporation, by its duly authorised
                     representative) or by proxy and holding shares conferring
                     a right to attend and vote at the meeting on which there
                     have been paid up sums in the aggregate equal to not less
                     than one-tenth of the total sum paid up on all shares
                     conferring that right.

         (b)  Unless a poll is so demanded and the demand is not withdrawn, a
              declaration by the Chairman that a resolution has, on a show of
              hands, been carried unanimously or by a particular majority or
              lost shall be final and conclusive, and an entry to that effect
              in the minute book of the Company shall be conclusive evidence
              of the fact without proof of the number or proportion of the
              votes recorded for or against such resolution.

70.      A demand for a poll may be withdrawn only with the approval of the
         Chairman of the meeting, at any time before the close of the meeting
         or the taking of the poll, whichever is earlier. If a poll be
         directed or demanded in the manner (including the use of ballot or
         voting papers or tickets) above mentioned it shall (subject to the
         provisions of Article 72 hereof) be taken at such time (being not
         later than thirty days after the date of the demand) and in such
         manner as the Chairman of the meeting may appoint. No notice need be
         given of a poll not taken immediately. The result of such poll shall
         be deemed for all purposes to be the resolution of the meeting at
         which the poll was so directed or demanded.

71.      In the case of an equality of votes at any general meeting, whether
         upon a show of hands or on a poll, the Chairman of the meeting shall
         be entitled to a second or casting vote.

72.      A poll demanded upon the election of a Chairman or upon a question of
         adjournment shall be taken forthwith. Any business, other than that
         upon which a poll has been demanded, may be proceeded with pending
         the taking of the poll.

73.      (a)  Save as expressly provided in these Articles, no person other
              than a member duly registered and who shall have paid everything
              for the time being due from him payable to the Company in
              respect of his shares shall be entitled to be present or to vote
              (save as proxy for another member) either personally or by
              proxy, or to be reckoned in a quorum at any general meeting.



                                    Ex-19
<PAGE>

         (b)  No objection shall be made to the validity of any vote except at
              a meeting at which such vote shall be tendered and every vote
              whether given personally or by proxy not disallowed at such
              meeting shall be deemed valid for all purposes whatsoever of
              such meeting or poll.

         (c)  In case of any dispute as to voting the Chairman shall determine
              the same, and such determination shall be final and conclusive.

74.      Subject to the provisions of the Ordinance, a resolution in writing
         signed by all the members for the time being entitled to receive
         notice of and to attend and vote at general meetings shall be as
         valid and effective as if the same had been passed at a general
         meeting of the Company duly convened and held. A written notice of
         confirmation of such resolution in writing signed by or on behalf of
         a member shall be deemed to be his signature to such resolution in
         writing for the purposes of this Article. Such resolution in writing
         may consist of several documents each signed by or on behalf of one
         or more members.

                               VOTES OF MEMBERS

75.      Subject to Article 85 and to any special rights, privileges or
         restrictions as to voting for the time being attached to any class or
         classes of shares, every member who (being an individual) is present
         in person or (being a corporation) is present by a representative
         duly authorised under section 115 of the Ordinance at any general
         meeting shall be entitled, on a show of hands, to one vote only and,
         on a poll, to one vote for every fully paid-up share of which he is
         the holder.

76.      Any person entitled under Article 45 to be registered as the holder
         of any shares may vote at any general meeting in respect thereof in
         the same manner as if he were the registered holder of such shares,
         provided that at least 48 hours before the time of the holding of the
         meeting or adjourned meeting (as the case may be) at which he
         proposes to vote, he shall satisfy the Board of his right to be
         registered as the holder of such shares or the Board shall have
         previously admitted his right to vote at such meeting in respect
         thereof.

77.      On a poll, votes may be given either personally or by proxy and a
         member entitled to more than one vote need not use all his votes or
         cast all the votes he uses in the same way.

78.      A member of unsound mind, or in respect of whom an order has been
         made by any court having jurisdiction in lunacy, may vote, whether on
         a show of hands or on a poll, by his committee, curator bonis or
         other person in the nature of a committee or curator bonis appointed
         by that court, and such committee, curator bonis or other person may
         on a poll, vote by proxy. If any member be a minor he may vote by his
         guardian or one of his guardians who may give their votes personally
         or by proxy. Where a member is, under the Listing Rules, required to
         abstain from voting on any particular resolution or restricted to
         voting only for or only against any particular resolution, any votes
         cast by or on behalf of such member in contravention of such
         requirement or restriction shall not be counted.

                                    PROXIES

79.      (a)  A proxy need not be a member of the Company.

         (b)  An instrument appointing a proxy shall be in writing in any
              usual or common form or in any other form which the Directors
              may accept, and shall be deemed, subject to the proviso
              hereinafter contained, to confer authority upon the proxy to
              vote on any resolution (or amendment thereto) put to the meeting
              for which it is given as the proxy thinks fit.



                                    Ex-20
<PAGE>

              Provided that any form issued to a member for use by him for
              appointing a proxy to attend and vote at an extraordinary
              general meeting or at an annual general meeting at which special
              business (determined as provided in Article 64) is to be
              transacted shall be such as to enable the member according to
              his intention to instruct the proxy to vote in favour of or
              against (or, in default of instructions, to exercise his
              discretion in respect of) each resolution dealing with any such
              special business and shall, unless the contrary is stated
              therein, be valid as well for any adjournment of the meeting as
              for the meeting to which it relates.

80.      The instrument appointing a proxy shall be signed by the appointor,
         or his duly authorised attorney, of if such appointor be a
         corporation, under its common seal or signed by some officer,
         attorney or other person duly authorised in that behalf.

81.      The instrument appointing a proxy and the power of attorney or other
         authority (if any) under which it is signed, or a notarially
         certified copy of such power or authority, shall be deposited at the
         Office at least forty-eight hours before the time fixed for holding
         the meeting at which the person named in such instrument proposes to
         attend and vote or, in the case of a poll, at least thirty-six hours
         before the time appointed for the taking of the poll; otherwise the
         person so named shall not be entitled to vote at that meeting (or as
         the case may be) except with the approval of the Chairman of the
         meeting. No instrument appointing a proxy shall be valid after the
         expiration of twelve months from the date of its execution, except at
         an adjourned meeting or on a poll demanded at a meeting or an
         adjourned meeting in cases where the meeting was originally held
         within twelve months from such date. Delivery of an instrument
         appointing a proxy shall not preclude a member from attending and
         voting in person at the meeting or poll concerned and, in such event,
         the instrument appointing a proxy shall be deemed to be revoked.

82.      Any member may by power of attorney appoint any person to be his
         attorney for the purpose of attending and voting at any meeting, and
         such power may be a special power limited to any particular meeting
         or a general power extending to all meetings at which such member is
         entitled to vote. Every such power shall be deposited at the Office
         at least thirty-six hours before the time fixed for holding the
         meeting at which such attorney proposes to attend and vote or, in the
         case of a poll, at least twenty-four hours before the time appointed
         for the taking of the poll; otherwise the attorney shall not be
         entitled to vote at that meeting (or as the case may be) except with
         the approval of the Chairman of the meeting.

83.      (a)  An instrument of proxy may be revoked by forwarding to the
              Office written notification of such revocation signed by or on
              behalf of the person who issued or authorised the issue of the
              instrument of proxy.

         (b)  A vote given in accordance with the terms of an instrument of
              proxy or power of attorney or by the duly authorised
              representative of a corporation shall be valid notwithstanding
              the previous death or insanity of the principal, or revocation
              of the proxy or power of attorney or other authority, or
              transfer of the shares in respect of which the proxy is given,
              provided no intimation in writing of the death, insanity,
              revocation or transfer shall have been received at the Office at
              least twenty-four hours before the time fixed for holding the
              meeting, or adjourned meeting, or the taking of the poll, at
              which the instrument of proxy is used.

84.      Any corporation which is a member of the Company may, by resolution
         of its directors or other governing body or by power of attorney,
         authorise such persons at it thinks fit to act as its representative
         at any meeting of the Company or of any class of members of the
         Company, and the person so authorised shall be entitled to exercise
         the same powers on behalf of the corporation which he represents as
         that corporation could exercise if it were an individual member of
         the Company. References in these Articles to a member present in
         person at a



                                    Ex-21
<PAGE>

         meeting shall, unless the context otherwise requires, include a
         corporation which is a member represented at the meeting by such duly
         authorised representative.

85.      Without prejudice to the generality of Article 84 if a Clearing House
         (or its nominee) is a member of the Company, it (or, as the case may
         be, its nominee) may authorise such person or persons as it thinks
         fit to act as its proxy and proxies or representative or
         representatives at any meeting of the Company or at any meeting of
         any class of members of the Company provided that, if more than one
         person is so authorised, the proxy form or authorisation shall
         specify the number and class of shares in respect of which each such
         person is so authorised. A person so authorised under the provisions
         of this Article shall be entitled to exercise the same powers on
         behalf of the Clearing House (or its nominee) which he represents as
         that Clearing House (or its nominee) could exercise if it were an
         individual member of the Company and, on a show of hands, each such
         person shall be entitled to a separate vote.

                                   DIRECTORS

86.      Unless and until otherwise determined by an ordinary resolution of
         the Company, the Directors shall be not fewer than two in number, and
         there shall be no maximum number of Directors.

87.      The Company shall keep in accordance with the Ordinance a register
         containing the names and addresses and occupations of its Directors
         and shall from time to time notify to the Registrar of Companies any
         change that takes place in such Directors as required by the
         Ordinance.

88.      A Director need not hold any shares in the Company. If invited by the
         Company, a Director who is not a member of the Company shall
         nevertheless be entitled to attend and speak at general meetings.

                            DIRECTORS' REMUNERATION

89.      (a)  The Directors shall be entitled to receive by way of
              remuneration for their services such sum not exceeding in
              aggregate HK$1,000,000 per annum or such higher amount as the
              Company may from time to time by ordinary resolution determine
              which (unless otherwise directed by resolution by which it is
              voted) is to be divided amongst the Directors in such
              proportions and in such manner as the Board may agree, except
              that in such event any Director holding office for less than the
              whole of the relevant period in respect of which the
              remuneration is paid shall only rank in such division in
              proportion to the time during such period for which he has held
              office. The foregoing shall not apply to a Director who holds
              any salaried employment or office in the Company except in the
              case of sums paid in respect of directors' fees.

         (b)  The Directors shall also be entitled to be repaid their
              reasonable travelling, hotel and other expenses incurred by them
              in or about the performance of their duties as Directors,
              including their expenses of travelling to and from board
              meetings, committee meetings or general meetings or otherwise
              incurred whilst engaged on the business of the Company or on the
              discharge of their duties as directors.

90.      The Directors may award special remuneration out of the funds of the
         Company (by way of salary, commission or otherwise as the Directors
         may determine) to any Director who performs services which in the
         opinion of the Directors are outside the scope of the ordinary duties
         of a Director.



                                    Ex-22
<PAGE>

                              POWERS OF DIRECTORS

91.      The Directors may establish any local boards or agencies for managing
         any of the affairs of the Company, either in Hong Kong or elsewhere,
         and may appoint any persons to be members of such local boards, or
         any managers or agents for the Company, and may fix their
         remuneration, and may delegate (with or without power to sub-delegate
         as the Directors shall determine) to any local board, manager or
         agent any of the powers, authorities and discretions vested in the
         Directors, and may authorise the members of any local boards, or any
         of them, to fill any vacancies therein, and to act notwithstanding
         vacancies, and such appointment or delegation may be made upon such
         terms and subject to such conditions as the Directors may think fit,
         and the Directors may remove any person so appointed and may annul or
         vary any such delegation, but no person dealing in good faith and
         without notice of any such annulment or variation shall be affected
         thereby.

92.      The Directors may from time to time and at any time by power of
         attorney or other instrument appoint any company, firm or person or
         any fluctuating body of persons, whether nominated directly or
         indirectly by the Board, to be the attorney or attorneys of the
         Company for such purposes and with such powers, authorities and
         discretions (not exceeding those vested in or exercisable by the
         Directors under these Articles) and for such period and subject to
         such conditions as they may think fit, and any such power of attorney
         or other instrument may contain such provisions for the protection
         and convenience of persons dealing with any such attorney as the
         Directors may think fit, and may also authorise any such attorney to
         sub-delegate all or any of the powers, authorities and discretions
         vested in him. The Company may, by writing under its seal, empower
         any person, either generally or in respect of any specified matter,
         as its attorney to execute deeds and instruments on its behalf and to
         enter into contracts and sign the same on its behalf and every deed
         signed by such attorney on behalf of the Company and under his seal
         shall bind the Company and have the same effect as if it were under
         the seal of the Company.

93.      Subject to and to the extent permitted by the Ordinance, the Company
         or the Directors on behalf of the Company, may cause to be kept in
         any territory a Branch Register of members resident in such
         territory, and the Directors may make and vary such regulations as
         they may think fit respecting the keeping of any such Branch
         Register.

94.      All cheques, promissory notes, drafts, bills of exchange, and other
         negotiable or transferable instruments, and all receipts for moneys
         paid to the Company, shall be signed, drawn, accepted, endorsed, or
         otherwise executed, as the case may be, in such manner as the
         Directors shall from time to time by resolution determine. The
         Company's bank accounts shall be kept with such banker or bankers as
         the Board shall from time to time determine.

95.      (a)  The Directors may exercise all the powers of the Company to
              borrow money and to mortgage or charge all or any part of the
              undertaking, property and assets (present and future) and
              uncalled capital of the Company and to issue debentures,
              debenture stocks, bonds and other securities, whether outright
              or as collateral security for any debt, liability or obligation
              of the Company or of any third party. Debentures, debenture
              stocks, bonds and other securities of the Company may be made
              assignable free from any equities between the Company and the
              person to which the same may be issued, and may be issued at a
              discount, premium or otherwise and with any special privileges
              as to redemption, surrender, drawings, allotment of shares,
              attending and voting at general meetings of the Company,
              appointment of Directors and otherwise.

         (b)  The Directors shall cause a proper register to be kept, in
              accordance with the provisions of the Ordinance, of all
              mortgages and charges affecting the property of the Company and
              shall duly comply with the requirements of the Ordinance in
              regard



                                    Ex-23
<PAGE>

              to the registration of mortgages and charges therein specified
              and otherwise. Where any uncalled capital of the Company is
              charged, all persons taking any subsequent charge thereon shall
              take the same subject to such prior charge, and shall not be
              entitled, by notice to the members or otherwise, to obtain
              priority over such prior charge.

96.      The Board may establish and maintain or procure the establishment and
         maintenance of any contributory or non-contributory pension or
         superannuation funds for the benefit of, or give or procure the
         giving of donations, gratuities, pensions, allowances or emoluments
         to, any persons who are or were at any time in the employment or
         service of the Company, or of any company which is a subsidiary of
         the Company, or is allied or associated with the Company or with any
         such subsidiary company, or who are or were at any time directors or
         officers of the Company or of any such other company as aforesaid,
         and holding or who have held any salaried employment or office in the
         Company or such other company, and the wives, widows, families and
         dependants of any such persons. The Board may also establish and
         subsidise or subscribe to any institutions, associations, clubs or
         funds calculated to be for the benefit of or to advance the interests
         and well being of the Company or of any such other company as
         aforesaid or of any such persons as aforesaid, and may make payments
         for or towards the insurance of any such persons as aforesaid, and
         subscribe or guarantee money for charitable or benevolent objects or
         for any exhibition or for any public, general or useful object. The
         Board may do any of the matters aforesaid, either alone or in
         conjunction with any such other company as aforesaid. Any Director
         holding any such employment or office shall be entitled to
         participate in and retain for his own benefit any such donation,
         gratuity, pension, allowance or emolument.

                     APPOINTMENT AND REMOVAL OF DIRECTORS

97.      At each annual general meeting one-third of the Directors for the
         time being, or, if their number is not three or a multiple of three,
         then the number nearest one-third, shall retire from office by
         rotation save any Director holding office as Chairman or Chief
         Executive Officer. The Directors to retire in every year shall be
         those who have been longest in office since their last election but
         as between persons who became Directors on the same day shall (unless
         they otherwise agree between themselves) be determined by lot. The
         retiring Directors shall be eligible for re-election. The Company at
         any general meeting at which any Directors retire may fill the
         vacated offices. No person other than a Director retiring at the
         meeting, shall, unless recommended by the Directors for election, be
         eligible for election as a Director at any general meeting unless
         there shall have been lodged at the Office or at the head office of
         the Company within the period referred to in the next succeeding
         sentence a notice signed by a member (other than the person to be
         proposed) duly qualified to attend and vote at the meeting for which
         such notice is given of his intention to propose such person for
         election and also a notice signed by the person to be proposed of his
         willingness to be elected. The period for lodgement of such notices
         shall commence on (and include) the day after the despatch of the
         notice of meeting appointed for such election and end on (and
         exclude) the date that is seven (7) days before the date appointed
         for the meeting.

98.      If at any general meeting at which an election of Directors ought to
         take place the places of the retiring Directors are not filled, the
         retiring Directors or such of them as have not had their places
         filled shall be deemed to have been re-elected and shall, if willing,
         continue in office until the next annual general meeting and so on
         from year to year until their places are filled, unless:

         (a)  it shall be determined at such meeting to reduce the number of
              Directors;

         (b)  it is expressly resolved at such meeting not to fill such
              vacated offices;



                                    Ex-24
<PAGE>

         (c)  in any such case the resolution for re-election of a Director is
              put to the meeting and lost; or

         (d)  such Director has given notice in writing to the Company that he
              is not willing to be re-elected.

99.      The Company may, from time to time, by ordinary resolution elect any
         person to be a Director either to fill a casual vacancy or as an
         addition to the Board.

100.     The Company may by ordinary resolution remove any Director
         notwithstanding anything in these Articles or in any agreement
         between him and the Company (but without prejudice to any right to
         damages for termination of such agreement not in accordance with the
         terms thereof), and may, if thought fit, by ordinary resolution
         appoint another person in his stead. Special notice is required of a
         resolution to remove a Director, or to appoint somebody in place of a
         Director so removed at the meeting at which he is removed, in
         accordance with the Ordinance. Any person so elected shall hold
         office for such time only as the Director in whose place he is
         elected would have held the office if he had not been removed.

101.     The Directors shall have power, exercisable at any time and from time
         to time, to appoint any other person as a Director, either to fill a
         casual vacancy or as an addition to the Board but so that the number
         of Directors so appointed shall not exceed the maximum number
         determined from time to time (if any) by the shareholders in general
         meeting and any directors so appointed shall hold office only until
         the next following annual general meeting of the Company and shall
         then be eligible for re-election, but shall not be taken into account
         in determining the Directors or the number of Directors who are to
         retire by rotation at each annual general meeting.

102.     The continuing Directors may act notwithstanding any vacancy in their
         body, but if and so long as the number of Directors is reduced below
         the number fixed by or pursuant to these Articles as the necessary
         quorum of Directors, the continuing Directors may act for the purpose
         of increasing the number of Directors to that number, or of summoning
         a general meeting of the Company, but for no other purpose. If there
         shall be no Directors able or willing to act, then any two members
         may summon a general meeting for the purpose of appointing Directors.

103.     No person other than a retiring Director shall, unless recommended by
         the Board for re-election, be eligible for election to the office of
         Director at any annual general meeting unless notice in writing of
         the intention to propose that person for election as a Director and
         notice in writing by that person of his consent to be elected shall
         have been lodged at the Office or head office of the Company. The
         period for lodgement of such notices shall commence on (and include)
         the day after the despatch of the notice of meeting appointed for
         such election and end on (and exclude) the date that is seven (7)
         days before the date appointed for the meeting.

                              ALTERNATE DIRECTORS

104.     Each Director may by written notification to the Company nominate any
         other person to act as alternate Director in his place for a
         specified period and at his discretion in similar manner remove such
         alternate Director. If such person is not another Director, such
         appointment, unless previously approved by the Board, shall have
         effect only upon and subject to being so approved. The alternate
         Director shall (except as regards the power to appoint an alternate)
         be subject in all respects to the terms and conditions existing with
         reference to the other Directors of the Company; and each alternate
         Director, whilst acting as such, shall exercise and discharge all the
         functions, powers and duties of the Director he represents, but shall
         look to such Director solely for his remuneration as alternate
         Director. Every person acting as an



                                    Ex-25
<PAGE>

         alternate Director shall (except when absent from Hong Kong) be
         entitled to receive notices of meetings of the Board and shall have
         one vote for each Director for whom he acts as alternate at any such
         meeting at which the Director appointing him is not personally
         present (in addition to his own vote if he is also a Director). The
         signature of an alternate Director to any resolution in writing of
         the Board or a committee of the Board shall, unless the notice of his
         appointment provides to the contrary, be as effective as the
         signature of his appointor. Any person appointed as an alternate
         Director shall vacate his office as such alternate Director if and
         when the Director by whom he has been appointed removes him or
         vacates office as Director. An alternate Director shall be
         responsible and liable for his own acts, omissions and defaults. An
         alternate Director shall not be deemed to be an agent of the Director
         who appoints him. The Director who appoints the alternate Director
         shall not be vicariously liable for any acts or omissions, including
         but not limited to any tort, committed by or of the alternate
         Director while acting in the capacity of alternate Director. To such
         extent as the Board may from time to time determine in relation to
         any committee of the Board, the foregoing provisions of this
         paragraph shall also apply mutatis mutandis to any meeting of any
         committee of which his appointor is a member. An alternate Director
         shall not, save as aforesaid, have power to act as a Director nor
         shall he be deemed to be a Director for the purposes of these
         Articles.

                         DISQUALIFICATION OF DIRECTORS

105.     The office of a Director shall ipso facto be vacated:

         (a)  if he becomes prohibited by law or court order from being a
              Director;

         (b)  if a receiving order is made against him or he makes any
              arrangement or composition with his creditors;

         (c)  if he becomes of unsound mind;

         (d)  if he absents himself from the meetings of the Board during a
              continuous period of six months, without special leave of
              absence from the Board, and his alternate Director (if any)
              shall not during such period have attended in his stead, and the
              Board passes a resolution that he has by reason of such absence
              vacated his office;

         (e)  if he shall be removed from office by notice in writing served
              upon him signed by all his co-directors;

         (f)  if he resigns his office;

         (g)  if he is removed by a special resolution of the Company; or

         (h)  if he is convicted of an indictable offence.

                             DIRECTORS' INTERESTS

106.     A Director who is in any way, whether directly or indirectly,
         interested in a contract or proposed contract with the Company shall
         declare the nature of his interest in accordance with the provisions
         of the Ordinance. A general notice given to the Directors by a
         Director to the effect that he is a member or a director of a
         specified company or firm, and is to be regarded as interested in any
         contract, arrangement or dealing which may, after the date of the
         notice, be entered into or made with that company or firm, shall, for
         the purpose of this Article, be deemed to be a sufficient disclosure
         of interest in relation to any contract, arrangement or dealing so
         entered into or made. Without prejudice to the generality of the



                                    Ex-26
<PAGE>

         foregoing, a Director shall give notice to the Company of such
         matters relating to himself as may be necessary for the purposes of
         sections 155B, 158, 161 and 161B of the Ordinance.

107.     A Director may hold any other office or place of profit under the
         Company (other than the office of Auditor), and he or any firm of
         which he is a member may act in a professional capacity for the
         Company in conjunction with his office of Director, for such period
         and on such terms (as to remuneration and otherwise) as the Directors
         may determine and such extra remuneration shall be in addition to any
         remuneration provided for by or pursuant to any other Article. No
         Director or intended Director shall be disqualified by his office
         from contracting with the Company, nor shall any contract or
         arrangement entered into by or on behalf of the Company with any
         Director or any firm or company in which any Director is in any way
         interested be liable to be avoided, nor shall any Director so
         contracting or being so interested be liable to account to the
         Company for any profit, remuneration or other benefits realised by
         any such contract or arrangement by reason only of such Director
         holding that office or of any fiduciary relationship thereby
         established, provided that such Director shall disclose the nature of
         his interest in any contract or arrangement in which he is interested
         at the meeting of the Board at which the question of entering into
         the contract or arrangement is first taken into consideration, if he
         knows his interest then exists, or in any other case at the first
         meeting of the Board after he knows that he is or has become so
         interested.

108.     A Director shall not vote (nor shall he be counted in the quorum) on
         any resolution of the Board in respect of any contract or arrangement
         or proposal in which he is or any of his associates are materially
         interested, and if he shall do so his vote shall not be counted (nor
         shall he be counted in the quorum for that resolution), but this
         prohibition shall not apply to any of the following matters, namely:

         (a)  any contract or arrangement for the giving by the Company of any
              security or indemnity to the Director or his associate(s) in
              respect of money lent or obligations incurred or undertaken by
              him or any of them at the request of or for the benefit of the
              Company or any of its subsidiaries;

         (b)  any contract or arrangement for the giving by the Company of any
              security or indemnity to a third party in respect of a debt or
              obligation of the Company or any of its subsidiaries for which
              the Director or his associate(s) has himself/themselves assumed
              responsibility, or guaranteed or secured in whole or in part
              whether alone or jointly;

         (c)  any contract or arrangement concerning an offer of the shares or
              debentures or other securities of or by the Company or any other
              company which the Company may promote or be interested in for
              subscription or purchase where the Director or his associate(s)
              is/are or is/are to be interested as a participant in the
              underwriting or sub-underwriting of the offer;

         (d)  any contract or arrangement in which the Director or his
              associate(s) is/are interested in the same manner as other
              holders of shares or debentures or other securities of the
              Company by virtue only of his/their interest in shares or
              debentures or other securities of the Company;

         (e)  any contract or arrangement concerning any other company in
              which the Director or his associate(s) is/are interested whether
              directly or indirectly as an officer or executive or a
              shareholder or in which the Director or his associate(s) is/are
              beneficially interested in shares of that company other than a
              company in which the Director and any of his associates are in
              aggregate beneficially interested 5% or more of the issued
              shares of any class of the equity share capital of such company
              (or of any third company through which his interest or that of
              his associates is derived) or of



                                    Ex-27
<PAGE>

              the voting rights (excluding for the purpose of calculating such
              five per cent. interest any indirect interest of such Director
              or his associates by virtue of an interest of the Company in such
              company);

         (f)  any proposal or arrangement for the benefit of employees of the
              Company or its subsidiaries including the adoption, modification
              or operation of a pension fund or retirement, death or
              disability benefit scheme which relates both to Directors, his
              associate(s) and employees of the Company or of any of its
              subsidiaries and does not give in respect of any Director, or
              his associate(s), as such any privilege or advantage not
              generally accorded to the class of persons to whom such scheme
              or fund relates;

         (g)  any proposal or arrangement concerning the adoption,
              modification or operation of any employees' share scheme
              involving the issue or grant of options over shares or other
              securities by the Company to, or for the benefit of, the
              employees of the Company or its subsidiaries under which the
              Director or his associate(s) may benefit.

         A company shall be deemed to be a company in which a Director and/or
         his associate(s) owns 5% or more if and so long as (but only if and
         so long as) he and/or his associate(s) (either directly or
         indirectly) is/are the holders of or beneficially interested in 5% or
         more of any class of the equity share capital of such company or of
         the voting rights available to members of such company (or any third
         company through which his/their interest or that of any of his
         associates is derived) or of the voting rights of any class of shares
         available to shareholders of the Company. For the purpose of this
         paragraph there shall be disregarded any shares held by a Director or
         his associate(s) as bare or custodian trustee and in which he or any
         of them has no beneficial interest, any shares comprised in a trust
         in which the interest of the Director or his associate(s) is/are in
         reversion or remainder if and so long as some other person is
         entitled to receive the income thereof, and any shares comprised in
         an authorised unit trust scheme in which the Director or his
         associate(s) is interested only as a unit holder and any shares which
         carry no voting right at general meetings and restrict dividend and
         return of capital rights.

         Where a company in which a Director and/or his associate(s) holds 5%
         or more of any class of the equity share capital of such company or
         of the voting rights of any class of shares available to shareholders
         of the Company is/are materially interested in a transaction, then
         that Director shall also be deemed materially interested in such
         transaction.

         If any question shall arise at any meeting of the Board as to the
         materiality of the interest of a Director (other than the Chairman of
         the meeting) or as to the entitlement of any Director (other than
         such Chairman) to vote or be counted in the quorum and such question
         is not resolved by his voluntarily agreeing to abstain from voting or
         not to be counted in the quorum, such question shall be referred to
         the Chairman of the meeting and his ruling in relation to such other
         Director shall be final and conclusive except in a case where the
         nature or extent of the interest of the Director as known to such
         Director has not been fairly disclosed to the Board. If any question
         as aforesaid shall arise in respect of the Chairman of the meeting
         such question shall be decided by a resolution of the Board (for
         which purpose such Chairman shall not be counted in the quorum and
         shall not vote thereon) and such resolution shall be final and
         conclusive except in a case where the nature or extent of the
         interest of such Chairman as known to such Chairman has not been
         fairly disclosed to the Board.

109.     A Director may continue to be or become a director, managing
         director, joint managing director, deputy managing director,
         executive director, chief executive officer or manager or other
         officer or member of any other company in which the Company is
         interested, and (unless otherwise agreed) shall not be liable to
         account to the Company for any remuneration or other benefits
         received by him as a director, managing director, joint managing
         director,



                                    Ex-28
<PAGE>

         deputy managing director, executive director, chief executive
         officer, manager or other officer or member of any such other
         company. The Board may exercise the voting powers conferred by the
         shares in any other company held or owned by the Company or
         exercisable by it as directors of such other company in such manner
         as in all respects as the Board thinks fit (including the exercise
         thereof in favour of any resolution appointing themselves or any of
         them directors, chief executive officers, managing directors, joint
         managing directors, deputy managing directors, executive directors,
         managers or other officers of such company) and any director may vote
         in favour of the exercise of such voting rights in manner aforesaid
         notwithstanding that he may be, or be about to be, appointed a
         director, managing director, joint managing director, deputy managing
         director, executive director, chief executive officer, manager or
         other officer of such a company, and that as such he is or may become
         interested in the exercise of such voting rights in manner aforesaid.
         A Director of the Company may be or become a director of any company
         promoted by the Company or in which it may be interested as a vendor,
         shareholder or otherwise and no such Director will be accountable for
         any benefits received as a director or member of such company. A
         Director of the Company or his firm may not act as auditor of the
         Company.

                CHIEF EXECUTIVE OFFICERS AND OTHER APPOINTMENTS

110.     The Directors may, from time to time, appoint one or more of their
         number to be Chief Executive Officer or Chief Operating Officer of
         the Company, or to hold such office in the management, administration
         or conduct of the business of the Company as they may decide, and for
         such period and upon such terms and for such remuneration as the
         Directors shall think fit, and the Directors may also, from time to
         time (subject to the provisions of any agreement between him or them
         and the Company) remove him or them from office, and appoint another
         or others in his or their place or places.

111.     A Chief Executive Officer or a Chief Operating Officer (subject to
         the provisions of any agreement between him and the Company) shall be
         subject to the same provisions as to resignation and removal as the
         other Directors of the Company, and shall ipso facto and immediately
         cease to be Chief Executive Officer or Chief Operating Officer if he
         shall cease to hold the office of Director.

112.     The Directors may, from time to time, entrust to and confer upon any
         Chief Executive Officer, Chief Operating Officer or Director, holding
         any other office in the management, administration or conduct of the
         business of the Company, such of the powers exercisable under these
         Articles by the Directors as they may think fit, and may confer such
         powers for such time, and to be exercised for such objects and
         purposes, and upon such terms and conditions and with such
         restrictions as they may consider expedient, and may from time to
         time revoke, withdraw, alter or vary all or any of such powers.

                           PROCEEDINGS OF DIRECTORS

113.     The Directors may meet together for the despatch of business, adjourn
         and otherwise regulate their meetings as they think fit, and
         determine the quorum necessary for the transaction of business. Until
         otherwise determined by the Board, two Directors shall constitute a
         quorum. For the purpose of this Article an alternate Director shall
         be counted in a quorum but, notwithstanding that an alternate
         Director is also a Director or is an alternate for more than one
         Director, he shall for quorum purposes count as only one Director.
         Matters arising at any meeting shall be decided by a majority of
         votes. In case of an equality of votes the Chairman of the meeting
         shall have a second or casting vote. A Director or the Secretary may,
         at any time, summon a meeting of the Directors. A meeting of the
         Board or any committee of the Board may be held by means of such
         telephone, electronic or other communication facilities as permit all
         persons participating in the meeting to communicate with each other



                                    Ex-29
<PAGE>

         simultaneously and instantaneously, and participation in such a
         meeting shall constitute presence in person at such meeting.

114.     Notice of a meeting of Directors shall be deemed to be duly given to
         a Director if it is given to him personally, in writing or by word of
         mouth, or sent to him at his last known address or any other address
         given by him to the Company for this purpose. A Director may waive
         notice of any meeting and any such waiver may be retrospective.

115.     The Directors may elect a Chairman of the Board and determine the
         period for which he is to hold office; but if no such Chairman be
         elected, or if at any meeting the Chairman be not present within five
         minutes after the time appointed for holding the same, the Directors
         present shall choose one of their number to be Chairman of such
         meeting.

116.     A resolution in writing signed by all the Directors except such as
         are temporarily unable to act through ill health or disability (or
         their alternate Directors) shall (so long as they constitute a
         quorum) be as effective for all purposes as a resolution of the
         Directors passed at a meeting duly convened, held and constituted. A
         written notification of confirmation of such resolution in writing
         signed by a Director shall be deemed to be his signature to such
         resolution in writing for the purposes of this Article. Such
         resolution in writing may consist of several documents, each signed
         by one or more Directors or alternate Directors and for this purpose,
         a facsimile signature of a Director or an alternate Director shall be
         treated as valid.

117.     A meeting of the Directors at which a quorum is present shall be
         competent to exercise all the powers, authorities and discretions for
         the time being vested in or exercisable by the Board generally.

118.     The Directors may, from time to time, appoint committees consisting
         of such one or more persons as they think fit, and may delegate any
         of their powers to any such committee and, from time to time, revoke
         any such delegation and discharge any such committee wholly or in
         part. Any committee so appointed shall, in the exercise of the powers
         so delegated, conform to any regulations that may, from time to time,
         be imposed upon it by the Directors. All acts done by any such
         committee in conformity with such regulations and in fulfilment of
         the purposes for which it is appointed, but not otherwise, shall have
         the like force and effect as if done by the Board, and the Board
         shall have power, with the consent of the Company in general meeting,
         to remunerate the members of any special committee, and charge such
         remuneration to the current expenses of the Company.

119.     The meetings and proceedings of any such committee consisting of two
         or more members shall be governed mutatis mutandis by the provisions
         of these Articles regulating the meetings and proceedings of the
         Directors, insofar as the same are not superseded by any regulations
         made by the Directors under the last preceding Article.

120.     All acts done bona fide by any meeting of the Directors or of a
         committee of Directors, or by any persons acting as Directors, shall,
         notwithstanding that there was some defect in the appointment of any
         such Directors or persons acting as aforesaid, or that they or any of
         them were disqualified, or had vacated office, be as valid as if
         every such person had been duly appointed and was qualified and
         continued to be a Director.

                                    MINUTES

121.     The Directors shall cause to be entered and kept in books provided
         for the purpose minutes of the following:

         (a)  all appointments of officers;



                                    Ex-30
<PAGE>

         (b)  all the names of the Directors and any alternate Director who is
              not also a Director present at each meeting of the Directors and
              of any committee; and

         (c)  all resolutions and proceedings of general meetings and of
              meetings of the Directors and committees.

         Any such minutes of any meeting of the Directors, or of any
         committee, or of the Company, if purporting to be signed by the
         Chairman of such meeting, or by the Chairman of the next succeeding
         meeting, shall be receivable as evidence of the proceedings of such
         meeting.

                                   THE SEAL

122.     The Directors shall procure a common seal to be made for the Company,
         and shall provide for the safe custody thereof. The Seal shall not be
         affixed to any instrument except by the authority of the Directors or
         a committee authorised by the Board in that behalf, and every
         instrument to which the Seal shall be affixed shall be signed by one
         Director or some other person nominated by the Directors for the
         purpose, provided that the Board may either generally or in any
         particular case or cases resolve (subject to such restrictions as to
         the manner in which the Seal may be affixed as the Board may
         determine) that such signature may be affixed to certificates for
         shares or debentures or representing any other form of security by
         some mechanical means other than autographic to be specified in such
         resolution or that such certificates need not be signed by any
         person. Every instrument executed in the manner provided by this
         Article shall be deemed to be sealed and executed with the authority
         of the Directors previously given.

123.     The Company may have an official seal for use for sealing
         certificates for shares or other securities, with the addition of the
         word `Securities' on its face or in such other form as the Board may
         approve, issued by the Company as permitted by section 73A of the
         Ordinance (and no signature of any Director, officer or other person
         and no mechanical reproduction thereof shall be required on any such
         certificates or other document to which such official seal is affixed
         and such certificates or other document shall be valid and deemed to
         have been sealed and executed with the authority of the Board
         notwithstanding the absence of any such signature or mechanical
         reproduction as aforesaid) and an official seal for use abroad under
         the provisions of the Ordinance where and as the Board shall
         determine, and the Company may by writing under the Seal appoint any
         agents or agent, committees or committee abroad to be the duly
         authorised agents of the Company for the purpose of affixing and
         using such official seal and may impose such restrictions on the use
         thereof as may be thought fit. Wherever in these Articles reference
         is made to the Seal, the reference shall, when and so far as may be
         applicable, be deemed to include any such official seal as aforesaid.

124.     The Company may exercise all the powers of having official seals
         conferred by the Ordinance and such powers shall be vested in the
         Directors.

                                   SECRETARY

125.     The Directors shall appoint such person, persons or entities to be
         Secretary or Joint Secretaries of the Company for such period, at
         such remuneration and upon such conditions as they may think fit, and
         any Secretary or Joint Secretaries so appointed may be removed by
         them. Anything by the Ordinance or these Articles required or
         authorised to be done by or to the Secretary or Joint Secretaries, if
         the office is vacant or there is for any other reason no person
         capable of acting in the capacity as Secretary or Joint Secretaries,
         may be done by or to any assistant or deputy Secretary, or if there
         is no assistant or deputy Secretary capable of acting, by or to any
         officer of the Company authorised generally or specially in that
         behalf by the Board.



                                    Ex-31
<PAGE>

                            DIVIDENDS AND RESERVES

126.     The Company may by ordinary resolution declare dividends but no such
         dividend shall exceed the amount recommended by the Directors.

127.     Unless and to the extent that the rights attached to any shares or
         the terms of issue thereof otherwise provide, all dividends shall (as
         regards any shares not fully paid throughout the period in respect of
         which the dividend is paid) be apportioned and paid pro rata
         according to the amounts paid on the shares during any portion or
         portions of the period in respect of which the dividend is paid. For
         the purposes of this Article no amount paid on a share in advance of
         calls shall be treated as paid on the share.

128.     The Directors may retain any dividend or other monies payable on or
         in respect of a share on which the Company has a lien, and may apply
         the same in or towards satisfaction of the debts and liabilities in
         respect of which the lien exists. The Board may deduct from any
         dividend or bonus payable to any member all sums of money (if any)
         presently payable by him to the Company on account of calls,
         instalments or otherwise.

129.     Any resolution declaring a dividend on shares of any class, whether a
         resolution of the Company in general meeting or a resolution of the
         Directors, may specify that the same shall be payable to the persons
         registered as the holders of such shares at the close of business on
         a particular date, notwithstanding that it may be a date prior to
         that on which the resolution is passed, and thereupon the dividend
         shall be payable to them in accordance with their respective holdings
         so registered, but without prejudice to the rights inter se in
         respect of such dividend of transferors and transferees of any such
         shares. The provisions of this Article shall mutatis mutandis apply
         to capitalisations to be effected in pursuance of these Articles.

130.     Any general meeting sanctioning a dividend may make a call on the
         members of such amount as the meeting fixes, but so that the call on
         each member shall not exceed the dividend payable to him, and so that
         the call shall be made payable at the same time as the dividend, and
         the dividend may, if so arranged between the Company and the member,
         be set off against the call.

131.     (a)  In respect of any dividend which the Board has resolved to pay
              or any dividend declared or sanctioned or proposed to be
              declared or sanctioned by the Board or by the Company in general
              meeting, the Board may determine and announce, prior to or
              contemporaneously with the announcement, declaration or sanction
              of the dividend in question:

              either

              (i)    that members entitled thereto will receive in lieu of
                     such dividend (or such part thereof as the Board may
                     think fit) an allotment of shares credited as fully paid
                     provided that the members are at the same time accorded
                     the right to elect to receive such dividend (or part
                     thereof as the case may be) in cash in lieu of such
                     allotment. In such case, the following provisions shall
                     apply:

                     (A)  the basis of any such allotment shall be determined
                          by the Board;

                     (B)  the Board, after determining the basis of allotment
                          and notwithstanding that the number of shares to be
                          allotted may not be calculated until after notice to
                          the members has been given as required by the
                          provisions of this sub-paragraph and subject to the
                          provisions of sub-paragraph (D) below, shall give
                          notice in writing to the members of the right of
                          election accorded to them and shall send



                                    Ex-32
<PAGE>

                          with such notice forms of election and specify the
                          procedure to be followed and the place at which and
                          the latest date and time by which duly completed
                          forms of election must be lodged in order to be
                          effective which shall be not less than two weeks
                          from the date on which the notice above referred to
                          was despatched to the members;

                     (C)  the right of election accorded to members as
                          aforesaid may be exercised in whole or in part;

                     (D)  the Board may resolve:

                          (I)   that the right of election accorded to members
                                as aforesaid may be exercised so as to take
                                effect on all future occasions (if any) when
                                the Board makes a determination pursuant to
                                sub-paragraph (i) of this paragraph (a);
                                and/or

                          (II)  that a member who does not exercise the right
                                of election accorded to him as aforesaid
                                either in whole or in part may notify the
                                Company that he will not exercise the right of
                                election accorded to him in respect of all
                                future occasions (if any) when the Board makes
                                a determination pursuant to sub-paragraph (i)
                                of this paragraph (a) of this Article.

                          Provided that a member may exercise such election or
                          give such notice in respect of all but not, some of
                          the shares held by him and may at any time give
                          seven days notice in writing to the Company of the
                          revocation of such an election or such a notice
                          which revocation shall take effect at the expiry of
                          such seven days, and until such revocation has taken
                          effect, the Board shall not be obligated to give to
                          such member notice of the right of election accorded
                          to him or send to him any form of election;

                     (E)  the dividend (or that part of the dividend in lieu
                          of which an allotment of shares is to be made as
                          aforesaid) shall not be payable in cash on shares in
                          respect whereof the cash election has not been duly
                          exercised (the "Non-Elected Shares") and in lieu
                          thereof shares shall be allotted credited as fully
                          paid to the holders of the Non-Elected Shares on the
                          basis of allotment determined as aforesaid and for
                          such purpose the Board shall capitalise and apply
                          out of the amount standing to the credit of share
                          premium account or out of any part of the undivided
                          profits of the Company (including profits carried
                          and standing to the credit of any reserve or
                          reserves or other special account) as the Board may
                          determine, a sum equal to the aggregate nominal
                          amount of shares to be allotted on such basis and
                          apply the same in paying up in full the appropriate
                          number of unissued shares for allotment and
                          distribution to and amongst the holders of the
                          Non-Elected Shares on such basis;

                     (F)  the Board may resolve that the shares to be allotted
                          shall be allotted at a premium provided that the
                          premium is credited as fully paid up and in such
                          case the Board shall in addition to the amount to be
                          capitalised and applied pursuant to sub-paragraph
                          (E) above, and for the purposes therein set out,
                          capitalise and apply out of the amount standing to
                          the credit of the share premium account or out of
                          any part of the undivided profits of the Company
                          (including profits carried



                                    Ex-33
<PAGE>

                          and standing to the credit of any reserve or
                          reserves or other special account) as the Directors
                          may determine, a sum equal to the aggregate amount
                          of the premium on the shares to be allotted and
                          shall apply the same together with the sum to be
                          applied pursuant to sub-paragraph (E) above and on
                          the basis therein set out in paying up in full the
                          appropriate number of unissued shares for allotment
                          and distribution to and amongst the holders of the
                          Non-Elected Shares;

              or

              (ii)   that members entitled to such dividend be entitled to
                     elect to receive an allotment of shares credited as fully
                     paid in lieu of the whole or such part of the dividend as
                     the Board may think fit. In such case, the following
                     provisions shall apply:

                     (A)  the basis of any such allotment shall be determined
                          by the Board;

                     (B)  the Board, after determining the basis of allotment
                          and notwithstanding that the number of shares to be
                          allotted may not be calculated until after notice to
                          the members has been given as required by the
                          provisions of this sub-paragraph and subject to the
                          provisions of sub-paragraph (D) below, shall give
                          notice in writing to the members of the right of
                          election accorded to them and shall send with such
                          notice forms of election and specify the procedure
                          to be followed and the place at which and the latest
                          date and time by which duly completed forms of
                          election must be lodged in order to be effective
                          which shall be not less than two weeks from the date
                          on which the notice above referred to was despatched
                          to the members;

                     (C)  the right of election accorded to members as
                          aforesaid may be exercised in whole or in part;

                     (D)  the Board may resolve;

                          (I)   that the right of election accorded to members
                                as aforesaid may be exercised so as to take
                                effect on all future occasions (if any) when
                                the Board makes a determination pursuant to
                                sub-paragraph (ii) of this paragraph (a);
                                and/or

                          (II)  that a member who does not exercise the right
                                of election accorded to him as aforesaid
                                either in whole or in part may notify the
                                Company that he will not exercise the right of
                                election accorded to him in respect of all
                                future occasions (if any) when the Board makes
                                determination pursuant to sub-paragraph (ii)
                                of paragraph (a).

                          Provided that a member may exercise such election or
                          give such notice in respect of all but not some of
                          the shares held by him and may at any time give
                          seven days' notice in writing to the Company of the
                          revocation of such an election or such a notice
                          which revocation shall take effect at the expiry of
                          such seven days, and until revocation has taken
                          effect, the Board shall not be obliged to give to
                          such member notice of the right of election accorded
                          to him or send to him any form of election;



                                    Ex-34
<PAGE>

                     (E)  the dividend (or that part of the dividend in
                          respect of which a right of election has been
                          accorded) shall not be payable on shares in respect
                          whereof the share election has been duly exercised
                          (the Elected Shares) and in lieu thereof shares
                          shall be allotted credited as fully paid to the
                          holders of the Elected Shares on the basis of
                          allotment determined as aforesaid and for such
                          purpose the Board shall capitalise and apply out of
                          the amount standing to the credit of share premium
                          account or out of any part of the undivided profits
                          of the Company (including profits carried and
                          standing to the credit of any reserve or reserves or
                          other special account) as the Board may determine, a
                          sum equal to the aggregate nominal amount of shares
                          to be allotted on such basis and apply the same in
                          paying up in full the appropriate number of unissued
                          shares for allotment and distribution to and amongst
                          the holders of the Elected Shares on such basis;

                     (F)  the Board may resolve that the shares to be allotted
                          shall be allotted at a premium provided that the
                          premium is credited as fully paid up and in such
                          case the Board shall in addition to the amount to be
                          capitalised and applied pursuant to sub-paragraph
                          (E) above, and for the purpose therein set out,
                          capitalise and apply out of the amount standing to
                          the credit of the share premium account or out of
                          any part of the undivided profits of the Company
                          (including profits carried and standing to the
                          credit of any reserve or reserves or other special
                          account) as the Board may determine, a sum equal to
                          the aggregate amount of the premium on the shares to
                          be allotted and shall apply the same together with
                          the sum to be applied pursuant to sub-paragraph (E)
                          above and on the basis therein set out in paying up
                          in full the appropriate number of unissued shares
                          for allotment and distribution to and amongst
                          holders of the Elected Shares.

         (b)  The shares allotted pursuant to the provisions of paragraph (a)
              of this Article shall rank pari passu in all respects with the
              fully paid shares then in issue save only as regards
              participation:

              (i)    in the relevant dividend (or the right to receive or to
                     elect to receive an allotment of shares in lieu thereof
                     as aforesaid); or

              (ii)   in any other distributions, bonuses or rights paid, made,
                     declared or announced prior to or contemporaneously with
                     the payment or declaration of the relevant dividend

              unless, contemporaneously with the announcement by the Board of
              its proposal to apply the provisions of sub-paragraph (i) or
              (ii) of paragraph (a) of this Article in relation to the
              relevant dividend or contemporaneously with their announcement
              of the distribution, bonus or rights in question, the Board
              shall specify that the shares to be allotted pursuant to the
              provisions of paragraph (a) of this Article shall rank for
              participation in such distribution, bonus or rights.

         (c)  The Board may do all acts and things considered necessary or
              expedient to give effect to any capitalisation pursuant to the
              provisions of paragraph (a) of this Article with full power to
              the Board to make such provisions as they think fit in the case
              of shares becoming distributable in fractions (including
              provisions whereby, in whole or in part, fractional entitlements
              are aggregated and sold and the net proceeds distributed to
              those entitled, or are disregarded or rounded up or down or
              whereby the benefit of fractional entitlements accrues to the
              Company rather than to the members



                                    Ex-35
<PAGE>

              concerned). The Board may authorise any person to enter into on
              behalf of all members interested, an agreement with the Company
              providing for such capitalisation and matters incidental thereto
              and any agreement made pursuant to such authority shall be
              effective and binding on all concerned.

         (d)  The Company may upon the recommendation of the Board by ordinary
              resolution resolve in respect of any one particular dividend of
              the Company that notwithstanding the provisions of paragraph (a)
              of this Article a dividend may be satisfied wholly in the form
              of an allotment of shares credited as fully paid up without
              offering any right to shares to elect such dividend in cash in
              lieu of such allotment.

         (e)  The Board may on any occasion when it makes a determination
              pursuant to paragraph (a) of this Article, resolve that no
              allotment of shares or rights of election for shares to be
              issued pursuant to such determination shall be made available or
              made to any members with registered addresses in any particular
              territory or territories or to a Depositary where the allotment
              of shares or the circulation of an offer of such rights of
              election would or might, in the opinion of the Board, be
              unlawful or would or might, in the opinion of the Board, be
              unlawful in the absence of a registration statement or other
              special formalities, and in such event the provision aforesaid
              shall be read and construed subject to such resolution and the
              only entitlement of members in any such territory or territories
              shall be to receive in cash the relevant dividend resolved to be
              paid or declared. "Depositary" means a custodian or other person
              (or a nominee for such custodian or other person) appointed
              under contractual arrangements with the Company or other
              arrangements approved by the Board whereby such custodian or
              other person or nominee holds or is interested in shares of the
              Company or rights or interests in shares of the Company and
              issues securities or other documents of title or otherwise
              evidencing the entitlement of the holder thereof to or to
              receive such shares, rights or interests, provided and to the
              extent that such arrangements have been approved by the Board
              for the purpose of these Articles and shall include, where
              approved by the Board, the trustees (acting in their capacity as
              such) of any employees' share scheme established by the Company
              or any other scheme or arrangements principally for the benefit
              of employees of the Company and/or its subsidiaries which have
              been approved by the Board.

         (f)  The Board may at any time resolve to cancel all (but not some
              only) of the elections made and the notices given by the members
              pursuant to sub-paragraphs (i)(D) and (ii)(D) of paragraph (a)
              of this Article by giving seven days' notice in writing to the
              relevant members.

         (g)  The Board may on any occasion determine that rights of election
              under paragraph (a) of this Article shall not be made available
              to members who are registered in the Register, or in respect of
              shares the transfer of which is registered, after a date fixed
              by the Board and in such event the provisions aforesaid shall be
              read and construed subject to such determination.

132.     No dividend shall be payable except out of the profits or other
         distributable reserves of the Company, and no dividend shall bear
         interest as against the Company.

133.     The Directors may, if they think fit, from time to time, resolve to
         pay to the members such interim dividends as appear to the Directors
         to be justified by the reserves of the Company. If at any time the
         share capital of the Company is divided into different classes the
         Directors may resolve to pay such interim dividends in respect of
         those shares in the capital of the Company which confer on the
         holders thereof deferred or non-preferred rights as well as in
         respect of those shares which confer on the holders thereof
         preferential or special rights in regard to dividend, and provided
         that the Directors act bona fide they shall not incur any



                                    Ex-36
<PAGE>

         responsibility to the holders of shares conferring a preference for
         any damage that they may suffer by reason of the payment of an
         interim dividend on any shares having deferred or non-preferred
         rights. The Directors may also resolve to pay at half-yearly or at
         other suitable intervals to be settled by them any dividend which may
         be payable at a fixed rate if they are of the opinion that the
         reserves of the Company justify the payment.

134.     All dividends unclaimed for one year after having become payable may
         be invested or otherwise made use of by the Directors for the benefit
         of the Company until claimed, and all dividends unclaimed for six
         years after having become payable may be forfeited by the Directors
         and shall revert to the Company. The payment into a separate account
         of any monies payable in respect of a dividend shall not constitute
         the Company a trustee in respect thereof for any person.

135.     Unless otherwise directed any dividend or other monies payable in
         cash on or in respect of a share may be paid by cheque or warrant
         sent through the post to the registered address of the member or
         person entitled, or, in the case of joint holders, to the registered
         address of that one whose name stands first on the Register in
         respect of the joint holding, or addressed to such person at such
         address as the holder or joint holders shall direct. The Company
         shall not be liable or responsible for any cheque or warrant lost in
         transmission nor for any dividend or other monies lost to the member
         or person entitled thereto by the forged endorsement of any cheque or
         warrant. Payment of the cheque or warrant by the banker on whom it is
         drawn shall be a good discharge to the Company.

136.     The Directors may distribute in specie or in kind among the members
         in satisfaction in whole or in part of any dividend any of the assets
         of the Company, and in particular any shares or securities of other
         companies to which the Company is entitled and where any difficulty
         arises in regard to the distribution the Board may settle the same as
         it thinks expedient, and in particular may issue fractional
         certificates, disregard fractional entitlements or round the same up
         or down, and may fix the value for distribution of such specific
         assets, or any part thereof, and may determine that cash payments
         shall be made to any members upon the footing of the value so fixed
         in order to adjust the rights of all parties, and may vest any such
         specific assets in trustees as may seem expedient to the Board and
         may appoint any person to sign any requisite instruments of transfer
         and other documents on behalf of the persons entitled to the dividend
         and such appointment shall be effective. Where required, a contract
         shall be filed in accordance with the provisions of the Ordinance and
         the Board may appoint any person to sign such contract on behalf of
         the persons entitled to the dividend and such appointment shall be
         effective.

137.     Before recommending a dividend the Directors may set aside any part
         of the net profits of the Company to one or more reserves, and may
         apply the same either by employing it in the business of the Company
         or by investing it in such manner as they shall think fit and the
         income arising from such reserves shall be treated as part of the
         profits of the Company. Such reserves may be applied for the purpose
         of maintaining the property of the Company, replacing wasting assets,
         meeting contingencies, forming an insurance fund, equalising
         dividends, paying special dividends, or for any other purpose for
         which the undivided profits of the Company may lawfully be used, and
         until the same shall be so applied it shall be deemed to remain
         undivided profit. The Directors may also carry forward as undivided
         profit any profit or balance of profit which they shall not think fit
         to recommend as dividend or to place to reserve.

                          AUTHENTICATION OF DOCUMENTS

138.     Any Director or the Secretary or other authorised officer of the
         Company shall have power to authenticate any documents affecting the
         constitution of the Company and any resolutions passed by the Company
         or the Directors or any committee, and any books, records,



                                    Ex-37
<PAGE>

         documents and accounts relating to the business of the Company, and
         to certify copies thereof or extracts therefrom as true copies of
         extracts; and where any books, records, documents or accounts are
         elsewhere than at the Office, the local manager or such other officer
         of the Company having the custody thereof shall be deemed to be the
         authorised officer of the Company as aforesaid. A document purporting
         to be a copy of a resolution or an extract from the minutes of a
         meeting of the Company or of the Directors or any local board or
         committee which is certified as aforesaid shall be conclusive
         evidence in favour of all persons dealing with the Company upon the
         faith thereof that such resolution has been duly passed or, as the
         case may be, that any minute so extracted is a true and accurate
         record of proceedings at a duly constituted meeting.

                        CAPITALISATION OF RESERVES ETC.

139.     The Company in general meeting may upon the recommendation of the
         Directors resolve to capitalise any part of the Company's reserves or
         undivided profits not required for the payment or provision of the
         dividend on any shares with a preferential right to a dividend, and
         accordingly that such part be divided amongst the members who would
         have been entitled thereto if distributed by way of dividend and in
         the same proportions, on condition that the same be not paid in cash
         but be applied as a capitalisation issue either in or towards paying
         up any amounts for the time being unpaid on any shares held by such
         members respectively or paying up in full unissued shares or
         debentures or other securities of the Company to be allotted and
         distributed credited as fully paid to and amongst such members in the
         proportion aforesaid, or partly in one way and partly in the other:

         Provided that any amount standing to the credit of a share premium
         account or a capital redemption reserve fund may, for the purposes of
         this Article, only be applied in the paying up of unissued shares to
         be issued to members of the Company as fully paid-up shares.

140.     Whenever such a resolution as aforesaid shall have been passed the
         Directors shall make all appropriations and applications of the
         reserves and undivided profits resolved to be capitalised thereby,
         and all allotments and issues of fully paid-up shares, debentures or
         other securities and generally shall do all acts and things required
         to give effect thereto.

141.     For the purpose of giving effect to any resolution under Articles 136
         and 139 hereof the Directors may settle any difficulty which may
         arise in regard to the distribution or capitalisation issue as they
         think expedient, and in particular may issue fractional certificates,
         and may fix the value for distribution of any specific assets, and
         may determine that cash payments shall be made to any members based
         upon the value so fixed or that fractions of such value as the
         Directors may determine may be disregarded in order to adjust the
         rights of all parties, and may vest any such cash or specific assets
         in trustees upon such trusts for the persons entitled to the
         distribution or capitalisation issue as may seem expedient to the
         Directors. The provisions of the Ordinance in relation to the filing
         of contracts for allotment shall be observed, and the Directors may
         appoint any person to sign such contract on behalf of the persons
         entitled to share in the distribution or capitalisation issue, and
         such appointment shall be effective and binding upon all concerned,
         and the contract may provide for the acceptance by such persons of
         the shares, debentures or other securities to be allotted and
         distributed to them respectively in satisfaction of their claims in
         respect of the sum so capitalised.

                             ACCOUNTS AND AUDITORS

142.     The Directors shall cause proper books of account to be kept with
         respect to:

         (a)  all sums of money received and expended by the Company and the
              matters in respect of which such receipt and expenditure take
              place; and



                                    Ex-38
<PAGE>

         (b)  the assets and liabilities of the Company.

         Proper books shall not be deemed to be kept if there are not kept
         such books of accounts as are necessary to give a true and fair view
         of the transactions.

143.     The Directors shall from time to time, in accordance with the
         provisions of the Ordinance, cause to be prepared and to be laid
         before the Company in general meeting such profit and loss accounts,
         balance sheets, group accounts (if any) and reports as are required
         by the Ordinance.

144.     A copy of every balance sheet (including every document required by
         law to be annexed thereto) which is to be laid before the Company in
         general meeting, together with a copy of the Directors' report and a
         copy of the Auditors' report, shall not less than twenty-one days
         before the date of the meeting be sent to every member of, and every
         holder of debentures of, the Company and all persons other than
         members or holders of debentures of the Company, being persons
         entitled to receive notices of general meetings of the Company:

         Provided that this Article shall be subject to Article 144B and shall
         not require a copy of those documents to be sent to any person of
         whose address the Company is not aware, to more than one of the joint
         holders of any shares or debentures, nor to any person to whom the
         Company has duly sent a copy of a summary financial report (as
         defined in the Ordinance) in accordance with the provisions of the
         Ordinance and Article 144A.

144A     Subject to Article 144B, a copy of a summary financial report in the
         form and containing the contents as required by the Ordinance shall
         be sent by the Company in accordance with the provisions of the
         Ordinance to a person who has been offered and agrees, in accordance
         with the provisions of the Ordinance, to be sent a copy of such
         summary financial report.

144B     Where a person has, in accordance with the provisions of the
         Ordinance where applicable, consented to treat the publication or the
         making available of the relevant financial documents and/or the
         summary financial report (each as defined in the Ordinance) on a
         computer network or by such other means as discharging the Company's
         obligation under the Ordinance to send a copy of the relevant
         financial documents and/or the summary financial report (each as
         defined in the Ordinance), then the publication or the making
         available by the Company, in accordance with the provisions of the
         Ordinance where applicable, on such computer network or by such other
         means of the relevant financial documents or the summary financial
         report (each as defined in the Ordinance) shall, in relation to each
         consenting person, be deemed to discharge the Company's obligations
         under Article 144 and/or Article 144A.

145.     Auditors shall be appointed and their duties regulated in the manner
         provided by the Ordinance.

146.     Subject as otherwise provided by the Ordinance the remuneration of
         the Auditors shall be fixed by the Company in general meeting
         provided always that in respect of any particular year the Company in
         general meeting may delegate the fixing of such remuneration to the
         Board.

147.     Every statement of accounts audited by the Company's Auditors and
         presented by the Board at a general meeting shall after approval at
         such meeting be conclusive except as regards any error discovered
         therein within three months of the approval thereof. Whenever any
         such error is discovered within that period, it shall forthwith be
         corrected, and the statement of accounts amended in respect of the
         error shall be conclusive.



                                    Ex-39
<PAGE>

                                    NOTICES

148.     Any notice, document or communication to be given or issued to the
         members shall be in writing in any one or more languages, may be
         served by the Company upon any member either personally or by sending
         it by mail, postage prepaid, addressed to such member at his
         registered address, and, in any case where the registered address of
         such member is outside Hong Kong, by prepaid airmail, or by
         delivering, sending or otherwise making available through electronic
         or other means to such member.

149.     Any notice sent by mail shall be deemed to have been served in the
         case where the member's registered address is in Hong Kong on the day
         following that on which the notice is mailed in Hong Kong and in any
         other case on the fifth day after the day of mailing. In proving such
         service it shall be sufficient to prove that the notice was properly
         addressed and mailed, postage prepaid.

150.     Any person who, by operation of law, transfer or other means
         whatsoever, shall become entitled to any share shall be bound by
         every notice in respect of such share which, previously to his name
         and address being entered in the Register, shall be duly given to the
         person from whom he derives his title to such share.

151.     Any notice, document or communication delivered or sent by mail to,
         or left at the registered address of, or made available through
         electronic or other means to, any member, in pursuance of these
         Articles, shall, notwithstanding such member be then deceased or
         bankrupt, and whether or not the Company have notice of his death or
         bankruptcy, be deemed to have been duly served in respect of any
         shares held by such member, whether held solely or jointly with other
         persons by such member, until some other person be registered in his
         stead as the holder or joint holder thereof, and such service shall
         for all purposes of these Articles be deemed a sufficient service of
         such notice, document or communication on his executors,
         administrators or assigns and all persons (if any) jointly interested
         with him in any such share.

152.     Any summons, notice, order or other document required to be sent to
         or served upon the Company, or upon any officer of the Company, may
         be sent or served by leaving the same or sending it through the post
         in a prepaid letter, envelope or wrapper, addressed to the Company or
         to such officer at the Office.

153.     The signature to any notice to be given by the Company may be written
         or printed.

154.     Subject to any special provisions contained in these Articles or in
         the Ordinance, all notices required to be given by advertisement
         shall be advertised in at least one daily Chinese and one daily
         English newspaper circulating in Hong Kong.

155.     In reckoning the period for any notice given under these Articles,
         the day on which notice is served, or deemed to be served, and the
         day for which such notice is given shall be excluded.

                                  WINDING UP

156.     If the Company shall be wound up, the surplus assets remaining after
         payment to all creditors shall be divided among the members in
         proportion to the capital paid up on the shares held by them
         respectively, and if such surplus assets shall be insufficient to
         repay the whole of the paid-up capital, they shall be distributed so
         that, as nearly as may be, the losses shall be borne by the members
         in proportion to the capital paid upon on the shares held by them
         respectively. This Article is, however, subject to the rights of the
         holders of any shares which may be issued on special terms or
         conditions.



                                    Ex-40
<PAGE>

157.     If the Company shall be wound up, the liquidator (whether voluntary
         or official) may, with the sanction of a special resolution, divide
         among the members in specie or kind the whole or any part of the
         assets of the Company or vest any part of the assets of the Company
         in trustees upon such trusts for the benefit of the members or any of
         them as the resolution shall provide. Any such resolution may provide
         for and sanction a distribution of any specific assets amongst
         different classes of members otherwise than in accordance with their
         existing rights, but each member shall in that event have a right of
         dissent and other ancillary rights in the same manner as if such
         resolution were a special resolution passed pursuant to section 237
         of the Ordinance.

158.     In the event of a winding-up of the Company in Hong Kong, every
         member of the Company who is not for the time being in Hong Kong
         shall be bound, within fourteen days after the passing of an
         effective resolution to wind up the Company voluntarily, or within
         the like period after the making of an order for the winding up of
         the Company, to serve notice in writing on the Company appointing
         some person resident in Hong Kong upon whom all summonses, notices,
         processes, orders and judgements in relation to or under the winding
         up of the Company may be served and, in default of such nomination,
         the liquidator of the Company shall be at liberty on behalf of such
         member to appoint some such person, and service upon any such
         appointee shall be deemed to be a good personal service on such
         member for all purposes, and where the liquidator makes any such
         appointment he shall, with all convenient speed, give notice thereof
         to such member by advertising in such English language daily
         newspaper circulating in Hong Kong as he shall deem appropriate or by
         a registered letter sent through the post and addressed to such
         member at his address as appearing in the Register, and such notice
         shall be deemed to be served on the day on which the advertisement
         appears or the letter is posted.

                                   INDEMNITY

159.     Subject to the provisions of the Ordinance, every Director or other
         officer of the Company shall be indemnified out of the assets of the
         Company against all costs, charges, expenses, losses and liabilities
         which he may sustain or incur in or about the execution of his office
         or otherwise in relation thereto and in particular and without
         prejudice to the generality of the foregoing every Director and other
         officer of the Company shall be indemnified by the Company against,
         and it shall be the duty of the Directors out of the funds of the
         Company to pay all costs, losses and expenses which any such Director
         and other officer may incur or become liable for by reason of any
         contract entered into, or act or thing done by him or them as such
         Director and other officer, or in any way in the discharge of their
         or his duties, including travelling expenses; and the amount for
         which such indemnity is provided shall immediately attach as a lien
         on the property of the Company, and have priority as between the
         members over all other claims. Any person who is a Director or other
         officer of the Company shall not be liable (except in consequence of
         his own dishonesty) for the acts, receipts, neglects or defaults of
         any other Director or other officer of the Company or for any losses
         or expenses incurred by the Company through the insufficiency or
         deficiency of title to any property acquired by order of the
         Directors for or on behalf of the Company, or for the insufficiency
         or deficiency of any security in or upon which any of the moneys of
         the Company shall be invested, or for any loss or damage arising from
         the bankruptcy, insolvency or tortuous act of any person with whom
         any moneys, securities or effects of the Company shall be deposited
         or for any loss occasioned by any error of judgement, omission,
         default or oversight on their or his part, or for any other loss,
         damage or misfortune whatever which shall happen in the execution of
         the duties of his office or in relation thereto. Each member of the
         Company agrees to waive any claim or right of action he might have,
         whether individually or by or in the right of the Company, against
         any Director on account of any action taken by such Director, or the
         failure of such Director to take any action in the performance of his
         duties with or for the Company; provided that such waiver shall not
         extend to any matter in respect of any fraud or dishonesty which may
         attach to such Director.



                                    Ex-41
<PAGE>

159A.    Subject to Article 159 and the provisions of and so far as may be
         permitted by the Ordinance, the Company may purchase and maintain for
         any officer of the Company:

         (i)  insurance against any liability to the Company, a related
              company or any other party in respect of any negligence,
              default, breach of duty or breach of trust (save for fraud) of
              which he may be guilty in relation to the Company or a related
              company; and

         (ii) insurance against any liability incurred by him in defending any
              proceedings, whether civil or criminal, taken against him for
              any negligence, default, breach of duty or breach of trust
              (including fraud) of which he may be guilty in relation to the
              Company or a related company.

         In this Article 159A, "related company" in relation to the Company
         means any company that is the Company's subsidiary or holding company
         or a subsidiary of the Company's holding company.

                           DESTRUCTION OF DOCUMENTS

160      (a) Subject to the Ordinance, the Company may destroy:

              (i)    any share certificate which has been cancelled at any
                     time after the expiry of one year from the date of such
                     cancellation;

              (ii)   any dividend mandate or any variation or cancellation
                     thereof or any notification of change of name or address
                     at any time after the expiry of two years from the date
                     on which such mandate, variation, cancellation or
                     notification was recorded by the Company;

              (iii)  any instrument of transfer of shares which has been
                     registered at any time after the expiry of six years from
                     the date of registration; and

              (iv)   any other document, on the basis of which any entry in
                     the register is made, at any time after the expiry of six
                     years from the date on which an entry in the register was
                     first made in respect of it;

              and it shall conclusively be presumed in favour of the Company
              that every share certificate so destroyed was a valid
              certificate duly and properly cancelled and that every
              instrument of transfer so destroyed was a valid and effective
              instrument duly and properly registered and that every other
              document destroyed hereunder was a valid and effective document
              in accordance with the recorded particulars thereof in the books
              or records of the Company. Provided always that:

              (1)    the foregoing provisions of this Article shall apply only
                     to the destruction of a document in good faith and
                     without express notice to the Company that the
                     preservation of such document was relevant to a claim;

              (2)    nothing contained in this Article shall be construed as
                     imposing upon the Company any liability in respect of the
                     destruction of any such document earlier than as
                     aforesaid or in any case where the conditions of proviso
                     (1) above are not fulfilled; and

              (3)    references in this Article to the destruction of any
                     document include reference to its disposal in any manner.



                                    Ex-42
<PAGE>

         (b)  Notwithstanding any provision contained in these Articles, the
              Directors may, if permitted by applicable law, authorise the
              destruction of documents set out in sub-paragraph (a)(i) to (iv)
              of this Article and any other documents in relation to share
              registration which have been microfilmed or electronically
              stored by the Company or by the share registrar on its behalf
              provided always that this Article shall apply only to the
              destruction of a document in good faith and without express
              notice to the Company and its share registrar that the
              preservation of such document was relevant to a claim.

                              UNTRACEABLE MEMBERS

161.     Without prejudice to the rights of the Company, the Company may cease
         sending such cheques for dividend entitlements or dividend warrants
         by post if such cheques or warrants have been left uncashed on two
         consecutive occasions. However, the Company may exercise the power to
         cease sending cheques for dividend entitlements or dividend warrants
         after the first occasion on which such a cheque or warrant is
         returned undelivered.

162.     The Company shall have the power to sell, in such manner as the Board
         thinks fit, any shares of a member who is untraceable, but no such
         sale shall be made unless:

         (a)  all cheques or warrants, being not less than three in total
              number, for any sum payable in cash to the holder of such shares
              in respect of them sent during the relevant period in the manner
              authorised by the Articles of Association of the Company have
              remained uncashed;

         (b)  so far as it is aware at the end of the relevant period, the
              Company has not at any time, during the relevant period received
              any indication of the existence of the member who is the holder
              of such shares or of a person entitled to such shares by death,
              bankruptcy or operation of law;

         (c)  the Company has caused an advertisement to be inserted in
              English in one English language daily newspaper and in Chinese
              in one Chinese language daily newspaper (provided that the
              aforesaid daily newspapers shall be included in the list of
              newspapers issued and published in the Hong Kong Government
              Gazette for the purpose of section 71A of the Ordinance)
              advertising its intention to sell such shares and a period of
              three months has elapsed since the date of such advertisement;
              and

         (d)  the Company has notified the stock exchange in the relevant
              territory of its intention to effect such sale.

         For the purpose of the foregoing, "relevant period" means the period
         commencing twelve years before the date of publication of the
         advertisement referred to in paragraph (c) of this Article and ending
         at the expiry of the period referred to in that paragraph.

         The manner, timing and terms of any sale of shares pursuant to this
         Article (including but not limited to the price or prices at which
         the same is made) shall be such as the Board determines, based upon
         advice from such bankers, brokers or other persons as the Board
         considers appropriate consulted by it for the purposes, to be
         reasonably practicable having regard to all the circumstances
         including the number of shares to be disposed of and the requirement
         that the disposal be made without delay and the Board shall not be
         liable to any person for any of the consequences of reliance on such
         advice.

163.     To give effect to any such sale pursuant to Article 162 the Board may
         authorise any person to transfer the said shares and the instrument
         of transfer signed or otherwise executed by or on behalf of such
         person shall be as effective as if it had been executed by the
         registered holder



                                    Ex-43
<PAGE>

         or the person entitled by transmission to such shares, and the
         purchaser shall not be bound to see to the application of the
         purchase money nor shall his title to the shares be affected by any
         irregularity or invalidity in the proceedings relating to the sale.
         The net proceeds of the sale will belong to the Company and, upon
         receipt by the Company of such proceeds, it shall become indebted to
         the former member by carrying all moneys in respect thereof to a
         separate account for an amount equal to such net proceeds. No trusts
         shall be created in respect of such debt and no interest shall be
         payable in respect of it and the Company shall not be required to
         account for any money earned from the net proceeds which may be
         employed in the business of the Company or as it thinks fit. Any sale
         under this Article shall include any additional shares which during
         the relevant period or during any period ending on the date when all
         the requirements of sub-paragraphs (a) to (d) of Article 162 have
         been satisfied have been issued in respect of those held at the
         beginning of such relevant period and shall be valid and effective
         notwithstanding that the member holding the shares sold is dead,
         bankrupt or otherwise under any legal disability or incapacity.

                                  INFORMATION

164.     No member of the Company shall be entitled to require discovery of or
         any information in respect of any detail of the Company's trading and
         any matter which is or may be in the nature of a trade secret or
         secret process which may relate to the conduct of the business of the
         Company and which in the opinion of the Directors it will be
         inexpedient in the interests of the members of the Company to
         communicate to the public.



                                    Ex-44
<PAGE>

                                                                 Exhibit 4.38



                             (Summary Translation)



                           EQUITY TRANSFER AGREEMENT

                                    between

                              CNOOC CHINA LIMITED

                                      and

                    CHINA NATIONAL OFFSHORE OIL CORPORATION



                               September 5, 2003



                                    Ex-45
<PAGE>

                           EQUITY TRANSFER AGREEMENT

This Agreement is entered into by and between the following parties in
Beijing, the People's Republic of China ("China") on September 5, 2003:

1.       CNOOC China Limited, a wholly foreign-owned enterprise established
         and existing under the laws of China, with its address at New Oil
         Town, Tanggu, Tianjin, China (hereinafter the "CNOOC China"); and

2.       China National Offshore Oil Corporation, a state-owned enterprise
         established and existing under the laws of China, with its address at
         9th Floor, CNOOC Building, No. 6 Dong Zhi Men Wai Xiao Jie, Dong
         Cheng District, Beijing, China (hereinafter "CNOOC").


WHEREAS:

1.       CNOOC holds 94.70% of the registered capital of CNOOC Finance
         Corporation Limited (hereinafter the "Company"), China Offshore Oil &
         Gas Development and Utilization Corporation (hereinafter "CNOOC Oil &
         Gas") holds 3.53% of the Company's registered capital and CNOOC
         Engineering Limited (hereinafter "CNOOC Engineering") holds 1.77% of
         the Company's registered capital; and

2.       CNOOC desires to transfer 31.80% of the Company's registered capital
         it holds to CNOOC China (hereinafter the "Transferred Interest").

NOW THEREFORE, on the basis of equality and mutual benefits and upon friendly
negotiations, the parties hereby agree as follows:

Article 1.     Definitions

1.1      As used in this Agreement, and unless otherwise provided in this
         agreement, the following terms shall have the meanings indicated:

<TABLE>
<CAPTION>
<S>                                  <C>
         "Financial reports"         shall mean the balance sheet as at
                                     December 31, 2002, the income statement,
                                     the statement of changes in equity, and
                                     the cash flow statement for fiscal year
                                     2002 audited by the independent auditor
                                     Xiamen Tianjian Huatian Accountant Firm;

         "Rmb"                       shall mean the legal currency of China;

         "Articles of Association"   shall mean the Company's articles of
                                     association;

         "Consideration"             shall have the meaning given to such term
                                     in Article 3 herein;

         "Conditions Precedent"      shall have the meaning given to such term
                                     in Article 4 herein;

         "Completion"                shall have the meaning given to such term in Article 5 herein.
</TABLE>

1.2      In this agreement:

         (i)    agreement or other documents shall mean the related agreement
                and documents, as may be amended, supplemented or modified
                from time to time;



                                    Ex-46
<PAGE>

         (ii)   unless otherwise provided, provisions, exhibits and schedules
                referred to herein shall mean the provisions, exhibits and
                schedules of this agreement, which constitute an indispensable
                part of thereof.

Article 2.     Equity Transfer

2.       CNOOC agrees to sell to CNOOC China, and CNOOC China agrees to
         purchase from CNOOC the Transferred Interest pursuant to the terms
         and conditions of this agreement. Immediately after the transfer,
         CNOOC will hold 62.90% of the Company's registered capital, CNOOC
         China will hold 31.80% of the Company's registered capital, CNOOC Oil
         & Gas will hold 3.53% of the Company's registered capital, and CNOOC
         Engineering will hold 1.77% of the Company's registered capital.

Article 3.     Consideration

3.       CNOOC China shall pay to CNOOC Rmb 450,000,000 in cash payment
         pursuant to the terms of this agreement as the consideration for the
         Transferred Interest .

Article 4.     Conditions Precedent

4.1      The conditions precedent to the Completion are:

         (i)    all requisite consents or approvals from relevant regulatory
                authorities or government agencies, including the China
                Banking Regulatory Commission, have been obtained;

         (ii)   consents or approvals have been obtained from related
                third-parties; and

         (iii)  all procedural requirements have been satisfied pursuant to
                applicable laws and regulations.

         All the conditions precedent shall have been met prior to December
         31, 2002, or such other date the parties mutually agree, otherwise
         this agreement will terminate automatically.

4.2      CNOOC undertakes to CNOOC China that it will make every effort to
         cause the satisfaction of the conditions precedent, and will notify
         CNOOC China once such conditions precedent have been satisfied.

Article 5.     Completion

5.       Upon satisfaction of the conditions precedent, the parties will
         complete the equity transfer within five (5) business days, or such
         other date the parties mutually agree, pursuant to the Articles of
         Association. CNOOC China shall pay to CNOOC the sum of the
         consideration, and CNOOC shall complete the necessary procedures for
         the transfer of the equity interest.

Article 6.     Representations and Warranties

6.       CNOOC undertakes to CNOOC China that its representations and
         warranties provided to CNOOC China in relation to this equity
         transfer are true, correct and not misleading. CNOOC will be liable
         for any losses incurred by CNOOC China due to any incorrectness of
         such representations and warranties.



                                    Ex-47
<PAGE>

Article 7.     Dispute Resolution

7.       In the event that a dispute arises, the parties shall resolve the
         dispute by virtue of friendly negotiation or mediation through their
         representatives. If the dispute cannot be so resolved within 90 days,
         either party may bring a suit in a court having jurisdiction.

Article 8.     Notice

8.1      All notices relating to this agreement shall be given in writing, and
         shall be delivered by one party to the other party by email, or by
         telegram or facsimile to the addresses listed in the preamble of this
         agreement or such other addresses the parties designate from time to
         time.

8.2      If the notice is given by personal delivery, notice is deemed
         received when the delivery is made; if by mail or telegram, notice is
         deemed received on the date of the acknowledge receipt; if by
         facsimile, notice is deemed received when transmission starts.

Article 9.     Governing Law

9.       This agreement shall be governed by the laws of China and should be
         construed and executed under the Laws of China.

Article 10.    Language

10.      This agreement is written in the Chinese Language.

Article 11.    Effective Date

11.      This agreement will become effective after it has been signed by the
         authorized representatives of the parties.



CNOOC China Limited

Authorized representative:

/s/  Shouwei Zhou
-------------------------------




China National Offshore Oil Corporation

Authorized representative:

/s/  Weizhi Xie
-------------------------------



                                    Ex-48
<PAGE>

                                                                 Exhibit 4.39



                             (Summary Translation)



                              FRAMEWORK AGREEMENT



                                    between

                       CNOOC FINANCE CORPORATION LIMITED

                                      and

                                 CNOOC LIMITED





                                 April 8, 2004



                                    Ex-49
<PAGE>

                              FRAMEWORK AGREEMENT

This Agreement is entered into by and between the following parties in
Beijing, the People's Republic of China ("China") on April 8, 2004:

CNOOC Finance Corporation Limited, a limited liability company established and
existing under the laws of China, with its address at 6th Floor, CNOOC
Building, No. 6 Dong Zhi Men Wai Xiao Jie, Dong Cheng District, Beijing, China
(hereinafter the "Finance Company" or "Party A"); and

CNOOC Limited, a company established and existing under the laws of Hong Kong,
with its address at 9th Floor, CNOOC Building, No. 6 Dong Zhi Men Wai Xiao
Jie, Dong Cheng District, Beijing, China (hereinafter "Party B"); and


WHEREAS:

1.       Party A is a non-bank finance company, and its businesses include,
         among others, providing financial services to member companies of the
         China National Ocean Oil Corporation (CNOOC);

2.       Party B is a member company of CNOOC and desires to use the financial
         services provided by Party A; and

3.       The Parties desire to make fair and reasonable arrangements for the
         services to be provided to each other.

Now Therefore, on the basis of equality and mutual benefits and upon friendly
negotiations, the Parties hereby agree as follows:

Article 1.     Basic Principles


1.1      In accordance with the terms hereof and the pricing principles and
         fee standards set forth herein, Party A agrees to provide certain
         financial services (hereinafter the "Financial Services") to Party B,
         and Party B agrees to pay the relevant fees (hereinafter the "Service
         Fees") to Party A.

1.2      If necessary, the Parties will enter into separate agreements in
         writing for the Financial Services to be provided hereunder.

Article 2.     Basic Contents of the Financial Services

2.1      The Financial Services to be mutually provided by the Parties under
         this Agreement shall include the following:

         The Finance Company agrees to provide to Party B such services as
         financial settlements, and deposits and loans among CNOOC and its
         member companies. The rights and obligations of the Parties in
         connection with Party B's provision of the Financial Services shall
         be subject to a separate agreement to be entered into by the Parties
         based on the principles agreed upon herein.

2.2      Party A will provide services to Party B and its subsidiaries under
         normal commercial terms and terms not less favorable than what Party
         B can obtain from independent third parties;.



                                    Ex-50
<PAGE>

Article 3.     Pricing Principles and Payment

3.1      The pricing principles and/or standards for the Service Fees under
         this Agreement shall be as follows:

         Where the State stipulates the relevant prices or fee standards
         (including any prices or fee standards set by the People's Bank of
         China), the services to be provided by Party A to Party B pursuant to
         this Agreement shall be subject to such prices or standards.

3.2      Party B shall timely pay the Service Fees for the relevant services
         it has received from Party A pursuant to the pricing principles and
         standards set forth herein.

Article 4.     Term

4.1      The term of this Agreement (hereinafter the "Term") shall be three
         years, starting from the effective date to April 7, 2007.

4.2      Subject to the laws and relevant stipulations of the State, the Term
         of this Agreement shall be automatically renewed for three years upon
         expiration of the Term or its renewal, unless Party B notifies Party
         A of its intention not to renew this Agreement with 60 days' prior
         written notice, and such intention is approved by the relevant
         independent shareholders pursuant to the Listing Rules of the Stock
         Exchange of Hong Kong.

Article 5.     Representations, Warranties and Covenants

Each Party hereby makes the following representations, warranties and
covenants to the other Party:

5.1      It has the full power and authority (including but not limited to
         having obtained approvals, consents or permissions from the relevant
         government authorities) to enter into this Agreement and its
         appendix;

5.2      Once signed and stamped pursuant to the terms herein, this Agreement
         shall become valid and binding, and enforceable in accordance with
         its terms; and


5.3      None of the terms herein violates any charter or similar documents of
         the Parties or Chinese law or regulations.

Article 6.     Force majeure

If either Party under this contract is unable to perform the obligations
pursuant to the terms hereof under this Agreement or any relevant appendix
hereto due to unforeseeable force majeure events, the occurrence or
consequence of which cannot be avoided and overcome, such Party shall
immediately notify the other Party of the circumstance, and, within 15 days,
provide detailed information and evidential documents effectively proving the
reasons for the inability or partial inability to perform under the Agreement
or any appendix, or the reason for any need for a delay of such performance.
Based on the extent of the effect of the force majeure events on such
performance, the Parties shall consult with each other to decide whether to
terminate, partially exempt or delay the Party's performance.

Article 7.     Confidentiality

Except as otherwise required by the law, relevant regulatory authorities or
stock exchange, without the written permission of the other Party, neither
Party shall provide or disclose to any company,



                                    Ex-51
<PAGE>

enterprise, organization or individual any materials or information related to
the other Party's business.

Article 8.     Assignment

Neither Party shall transfer any rights or obligations under this agreement
without the prior written consent of the other Party.

Article 9.     No waiver

Except as otherwise required by law, any inability or delay by either Party to
exercise any rights, powers or privileges under this agreement should not be
viewed as a waiver of such rights, powers or privileges. Any partial exercise
of any such rights, powers or privileges shall not affect the future exercise
of such rights, powers and privileges.

Article 10.    Notice

All notices related to this agreement shall be in writing, and shall be
delivered by one Party under this Agreement to the other Party by courier,
facsimile or mail. If by courier, notice is deemed received when the delivery
is made; if by facsimile, notice is deemed received when the sender's fax
machine shows that the fax has been sent; if by mail, notice is deemed
received three business days (legal holidays not included) after mailing. A
notice becomes effective once it is received.

The addresses of the Parties are as follows:

         CNOOC Finance Corporation Ltd.
         Attn: Xie Wei Zhi
         6th Floor, CNOOC Building
         No. 6 Dong Zhi Men Wai Xiao Jie
         Dong Cheng District, Beijing 100027
         Telephone: (86-10) 8452 1218
         Facsimile: (86-10) 6460 2486

         CNOOC Limited
         Attn: Cheng Chi
         9th Floor, CNOOC Building
         No. 6 Dong Zhi Men Wai Xiao Jie
         Dong Cheng District, Beijing 100027
         Telephone: (86-10) 8452 1471
         Facsimile: (86-10) 8452 1512

Article 11.    Applicable law

This agreement shall be governed by the laws of China and should be explained
and executed under the Chinese law.

Article 12.    Dispute resolution

If the Parties under this Agreement have any disputes over the effectiveness,
explanation or performance of this Agreement, the parties shall first try to
resolve the dispute through friendly discussions. If the dispute is not
resolved within thirty days after its occurrence, either Party can file a
lawsuit in a court with jurisdiction.



                                    Ex-52
<PAGE>

Article 13.    Effectiveness and others

13.1     This agreement shall become effective after it has been signed and
         stamped by the legal or authorized representative of the Parties.

13.2     This Agreement shall be the complete Agreement between the parties on
         the matters contemplated under this Agreement, and supercedes all
         prior Agreements (written or oral) or understanding between the
         parties related to the matters under this Agreement.

13.3     This Agreement or any appendix hereto can be amended or supplemented
         if both parties agree after consultation with each other. All
         amendments or supplements must be signed and stamped by the legal or
         authorized representatives of the Parties in order to become
         effective.

13.4     This Agreement is dividable. If any provision of this Agreement or
         any appendix thereto is viewed as illegal or incapable of
         enforcement, it should not affect the effectiveness and performance
         of the other provisions under this Agreement or any appendix thereto.

13.5     This Agreement shall have two originals, one kept by each Party. The
         two originals shall have equal legal effects.



CNOOC Finance Corporation Limited

Authorized representative:

/s/  Chengyu Fu
-------------------------------






CNOOC Limited

Authorized representative:

/s/  Chengyu Fu
-------------------------------



                                    Ex-53
<PAGE>

                                                                  EXHIBIT 8.1

                                 SUBSIDIARIES

         As of December 31, 2003, we owned, directly or indirectly, 100% of
the equity interests in the following subsidiaries. All of these entities are
private limited liability companies and they do business in their corporate
names.

<TABLE>
<CAPTION>
         Name                                                           Jurisdiction of incorporation
         --------------------------------------------------------------------------------------------1
<S>                                                                     <C>
         CNOOC China Limited                                            Tianjin, PRC

         CNOOC International Limited                                    British Virgin Islands

         China Offshore Oil (Singapore) International Pte., Ltd.        Singapore

         CNOOC Finance (2002) Limited                                   British Virgin Islands

         CNOOC Finance (2003) Limited                                   British Virgin Islands

         Malacca Petroleum Limited                                      Bermuda

         OOGC America, Inc.                                             Delaware, USA

         OOGC Malacca Limited                                           Bermuda

         CNOOC Southeast Asia Limited                                   Bermuda

         CNOOC ONWJ Ltd.                                                Labuan, F.T., Malaysia

         CNOOC SES Ltd.                                                 Labuan, F.T., Malaysia

         CNOOC Poleng Ltd.                                              Labuan, F.T., Malaysia

         CNOOC Madura Ltd.                                              Labuan, F.T., Malaysia

         CNOOC Blora Ltd.                                               Labuan, F.T., Malaysia
</TABLE>



                                    Ex-54
<PAGE>

                                                                 EXHIBIT 12.1


                                 Certification

I, Chengyu Fu, 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 flows 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-15(e) and 15d-15(e)) for the
         registrant and have:

         (a)  designed such disclosure controls and procedures, or caused such
              disclosure controls and procedures to be designed under our
              supervision, 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 and presented in this annual report our
              conclusions about the effectiveness of the disclosure controls
              and procedures, as of the end of the period covered by this
              annual report based on such evaluation; and

         (c)  disclosed in this annual report any change in the registrant's
              internal control over financial reporting that occurred during
              the period covered by this annual report that has materially
              affected, or is reasonably likely to materially affect, the
              registrant's internal control over financial reporting; and

5.       The registrant's other certifying officers and I have disclosed,
         based on our most recent evaluation of internal control over
         financial reporting, 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 and material weaknesses in the
              design or operation of internal control over financial reporting
              which are reasonably likely to adversely affect the registrant's
              ability to record, process, summarize and report financial
              information; and

         (b)  any fraud, whether or not material, that involves management or
              other employees who have a significant role in the registrant's
              internal control over financial reporting.



Dated:  June 14, 2004



                                  By:     /s/ Chengyu Fu
                                     ------------------------------------------
                                     Name:   Chengyu Fu
                                     Title:  Chairman & Chief Executive Officer



                                    Ex-55
<PAGE>

                                                                  EXHIBIT 12.2


                                 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 flows 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-15(e) and 15d-15(e)) for the
         registrant and have:

         (a)  designed such disclosure controls and procedures, or caused such
              disclosure controls and procedures to be designed under our
              supervision, 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 and presented in this annual report our
              conclusions about the effectiveness of the disclosure controls
              and procedures, as of the end of the period covered by this
              annual report based on such evaluation; and

         (c)  disclosed in this annual report any change in the registrant's
              internal control over financial reporting that occurred during
              the period covered by this annual report that has materially
              affected, or is reasonably likely to materially affect, the
              registrant's internal control over financial reporting; and

5.       The registrant's other certifying officers and I have disclosed,
         based on our most recent evaluation of internal control over
         financial reporting, 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 and material weaknesses in the
              design or operation of internal control over financial reporting
              which are reasonably likely to adversely affect the registrant's
              ability to record, process, summarize and report financial
              information; and

         (b)  any fraud, whether or not material, that involves management or
              other employees who have a significant role in the registrant's
              internal control over financial reporting.



Dated:         June 14, 2004



                                  By:     /s/ Mark Z. L. Qiu
                                     ----------------------------------------
                                     Name:   Mark Z.L. Qiu
                                     Title:  Chief Financial Officer and
                                             Senior Vice President



                                    Ex-56
<PAGE>

                                                                  EXHIBIT 13.1


                 Sarbanes-Oxley Act Section 906 Certification

         The following Sarbanes-Oxley Act of 2002 Section 906 Certification is
furnished to (not file with) the Securities and Exchange Commission:

         In connection with this annual report on Form 20-F of CNOOC Limited,
we, Chengyu Fu, Chairman and Chief Executive Officer, and Mark Z.L. Qiu, Chief
Financial Officer and Senior Vice President, of CNOOC Limited certify,
pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that:

1.       This annual report fully complies with the requirements of Section
         13(a) or 15(d) of the Securities Exchange Act of 1934; and

2.       The information contained in this annual report fairly presents, in
         all material respects, the financial condition and results of
         operations of CNOOC Limited.



Date:  June 14, 2004



                                   By:     /s/  Chengyu Fu
                                           ---------------------------------
                                   Name:   Chengyu Fu
                                   Title:  Chairman & Chief Executive Officer



                                   By:     /s/  Mark Z.L. Qiu
                                           ---------------------------------
                                   Name:   Mark Z.L. Qiu
                                   Title:  Chief Financial Officer
                                           and Senior Vice President









Note:    A signed original of this written statement required by Section 906
         of the Sarbanes-Oxley Act of 2002 has been provided to CNOOC Limited
         and will be retained by CNOOC Limited and furnished to the Securities
         and Exchange Commission or its staff upon request.



                                    Ex-57