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

| | ý | ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 2015
| | - | --------------------------------------------------------------------------------------------------------------------------------



OR



| |  ̈ | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
| | - | ----------------------------------------------------------------------------------------



| |  | For the transition period from _________________ to _______________
| |  | -------------------------------------------------------------------



OR



| |  ̈ | SHELL COMPANY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
| | - | -------------------------------------------------------------------------------------------



| |  | Date of event requiring this shell company report ________________
| |  | ------------------------------------------------------------------



Commission File Number 1-14966



CNOOC
LIMITED

中國海洋石油有限公司



(Exact name of Registrant as specified
in its charter)



N/A



(Translation of Registrant’s name
into English)





|
|

Hong Kong



(Jurisdiction of incorporation or organization)



|
|

65th Floor, Bank of China Tower



One Garden Road, Central



Hong Kong



(Address of principal executive offices)



|
|

Jiewen Li



65th Floor, Bank of China Tower



One Garden Road, Central

Hong Kong



Tel +852 2213 2500



Fax +852 2525 9322



(Name, telephone, e-mail and/or facsimile
number and address of company contact person)



|
|

Securities registered or to be registered
pursuant to Section 12(b) of the Act.



|Title of each class                                                              | Name of each exchange on which registered                             
|-------------------------------------------------------------------------------- | ----------------------------------------------------------------------
|American depositary shares, each representing 100 shares
        
        Shares | New York Stock Exchange, Inc.
        New York Stock Exchange, Inc.(1)



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

(Title of Class)



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

(Title of Class)



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





|Shares | 44,647,455,984
|------ | --------------











Indicate by check mark
if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act.



Yes ý
No  ̈



If this report is an
annual or transition report, indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or
15(d) of the Securities Exchange Act of 1934.



Yes  ̈No ý

Note – Checking
the box above will not relieve any registrant required to file reports pursuant to Section 13 or 15(d) of the Securities Exchange
Act of 1934 from their obligations under those Sections.



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 ýNo  ̈

Indicate by check mark
whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required
to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months
(or for such shorter period that the registrant was required to submit and post such files).



Yes  ̈No ý

Indicate by check mark
whether the registrant is a large accelerated filer, an accelerated filer, or a non-accelerated filer. See definition of “accelerated
filer and large accelerated filer” in Rule 12b-2 of the Exchange Act. (Check one):



Large accelerated filer ýAccelerated filer  ̈ Non-accelerated filer  ̈

Indicate by check mark
which basis of accounting the registrant has used to prepare the financial statements included in this filing:



U.S. GAAP  ̈
International Financial Reporting Standards as issued by the International Accounting Standards Board ý
Other  ̈

If “Other”
has been checked in response to the previous question, indicate by check mark which financial statement item the Registrant has
elected to follow.



Item 17  ̈
Item 18  ̈



If this is an annual
report, indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).



Yes  ̈No ý

__________(1)	Not for trading, but only in connection with the registration of American depositary shares.









Table of Contents



Page



|TERMS AND CONVENTIONS                                                                                         |    | 4 
|------------------------------------------------------------------------------------------------------------- | -- | --
|FORWARD-LOOKING STATEMENTS                                                                                    |    | 9 
|SPECIAL NOTE ON THE FINANCIAL INFORMATION AND CERTAIN STATISTICAL INFORMATION PRESENTED IN THIS ANNUAL REPORT | 10
|ITEM 1. IDENTITY OF DIRECTORS, SENIOR MANAGEMENT AND ADVISERS                                                 |    | 11
|ITEM 2. OFFER STATISTICS AND EXPECTED TIMETABLE                                                               |    | 11
|ITEM 3. KEY INFORMATION                                                                                       |    | 11



|A. | Selected Financial Data                   | 11
|-- | ----------------------------------------- | --
|B. | Capitalization and Indebtedness           | 15
|C. | Reasons for the Offer and Use of Proceeds | 15
|D. | Risk Factors                              | 15



|ITEM 4. INFORMATION ON THE COMPANY |  | 20
|---------------------------------- |  | --



|A. | History and Development        | 20
|-- | ------------------------------ | --
|B. | Business Overview              | 21
|C. | Organizational Structure       | 56
|D. | Property, plants and equipment | 57



|ITEM 4A. unresolved
    staff comments               |  | 57
|---------------------------------------------------- |  | --
|ITEM 5. OPERATING AND FINANCIAL REVIEW AND PROSPECTS |  | 58



|A. | Operating Results                                    | 58
|-- | ---------------------------------------------------- | --
|B. | Liquidity and Capital Resources                      | 70
|C. | Research and Development, Patents and Licenses, etc. | 73
|D. | Trend Information                                    | 73
|E. | Off-Balance Sheet Arrangements                       | 73
|F. | Tabular Disclosure of Contractual Obligations        | 74
|G. | SAFE HARBOR                                          | 74



|ITEM 6. DIRECTORS, SENIOR MANAGEMENT AND EMPLOYEES |  | 74
|-------------------------------------------------- |  | --



|A. | Directors and Senior Management | 74
|-- | ------------------------------- | --
|B. | Compensation                    | 82
|C. | Board Practice                  | 83
|D. | Employees                       | 85
|E. | Share Ownership                 | 86



|ITEM 7. MAJOR SHAREHOLDERS AND RELATED PARTY TRANSACTIONS |  | 87
|--------------------------------------------------------- |  | --



|A. | Major Shareholders               | 87
|-- | -------------------------------- | --
|B. | Related Party Transactions       | 87
|C. | Interests of Experts and Counsel | 91



|ITEM 8. FINANCIAL INFORMATION |  | 91
|----------------------------- |  | --



|A. | Consolidated Statements and Other Financial Information | 91
|-- | ------------------------------------------------------- | --
|B. | Significant Changes                                     | 93



|ITEM 9. THE OFFER AND LISTING   |  | 93
|------------------------------- |  | --
|ITEM 10. ADDITIONAL INFORMATION |  | 94



|A. | Share Capital                          | 94 
|-- | -------------------------------------- | ---
|B. | Memorandum and Articles of Association | 94 
|C. | Material Contracts                     | 97 
|D. | Exchange Controls                      | 98 
|E. | Taxation                               | 98 
|F. | Dividends and Paying Agents            | 102
|G. | Statement by Experts                   | 102
|H. | Documents on Display                   | 102
|I. | Subsidiary Information                 | 102



|ITEM 11. QUALITATIVE AND QUANTITATIVE DISCLOSURES ABOUT MARKET RISK |  | 102
|------------------------------------------------------------------- |  | ---
|ITEM 12.  DESCRIPTION OF SECURITIES OTHER THAN EQUITY SECURITIES    |  | 104



|A. | DEBT SECURITIES            | 104
|-- | -------------------------- | ---
|B. | WARRANTS AND RIGHTS        | 104
|C. | OTHER SECURITIES           | 104
|D. | American Depositary shares | 104



|PART II                                                                               |  | 106
|------------------------------------------------------------------------------------- |  | ---
|ITEM 13. DEFAULTS, DIVIDEND ARREARAGES AND DELINQUENCIES                              |  | 106
|ITEM 14. MATERIAL MODIFICATIONS TO THE RIGHTS OF SECURITY HOLDERS AND USE OF PROCEEDS |  | 106









2









|A. | MATERIAL MODIFICATIONS TO THE INSTRUMENTS DEFINING THE RIGHTS OF SECURITY HOLDERS                                   | 106
|-- | ------------------------------------------------------------------------------------------------------------------- | ---
|B. | MATERIAL MODIFICATIONS TO THE RIGHTS OF REGISTERED SECURITIES BY ISSUING OR MODIFYING ANY OTHER CLASS OF SECURITIES | 106
|C. | WITHDRAWAL OR SUBSTITUTION OF A MATERIAL AMOUNT OF THE ASSETS SECURING ANY REGISTERED SECURITIES                    | 106
|D. | CHANGE OF TRUSTEES OR PAYING AGENTS FOR ANY REGISTERED SECURITIES                                                   | 106
|E. | USE OF PROCEEDS                                                                                                     | 106



|ITEM 15. CONTROLS AND PROCEDURES                                                 |  | 106
|-------------------------------------------------------------------------------- |  | ---
|ITEM 16A. AUDIT COMMITTEE FINANCIAL EXPERT                                       |  | 107
|ITEM 16B. CODE OF ETHICS                                                         |  | 107
|ITEM 16C. PRINCIPAL ACCOUNTANT FEES AND SERVICES                                 |  | 107
|ITEM 16D. EXEMPTIONS FROM THE LISTING STANDARDS FOR AUDIT COMMITTEES             |  | 108
|ITEM 16E. PURCHASES OF EQUITY SECURITIES BY THE ISSUER AND AFFILIATED PURCHASERS |  | 108
|ITEM 16f. Change in Registrant’s Certifying Accountant                           |  | 108
|ITEM 16g. Corporate
    Governance                                               |  | 108
|Item 16H. MINE SAFETY DISCLOSURE                                                 |  | 109
|PART III                                                                         |  | 109
|ITEM 17. FINANCIAL STATEMENTS                                                    |  | 109
|ITEM 18. FINANCIAL STATEMENTS                                                    |  | 109
|ITEM 19. EXHIBITS                                                                |  | 109







3


Table of Contents


TERMS AND CONVENTIONS



Definitions



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



| | l | “CNOOC”
                                         are to our controlling shareholder, China National Offshore Oil Corporation, a PRC state-owned
                                         enterprise, or China National Offshore Oil Corporation and its subsidiaries (excluding
                                         us and our subsidiaries) ,as the case may be;
| | - | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | l | “CNOOC
                                         Limited” are to CNOOC Limited, a Hong Kong limited liability company and the registrant
                                         of this annual report;
| | - | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | l | “Our
                                         company”, “Company”, “Group”, “we”, “our”
                                         or “us” are to CNOOC Limited and its subsidiaries;
| | - | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | l | “ADRs”
                                         are to the American depositary receipts that evidence our ADSs;
| | - | ---------------------------------------------------------------------------------------------------------------



| | l | “ADSs”
                                         are to our American depositary shares, each of which represents 100 shares;
| | - | ---------------------------------------------------------------------------------------------------------------------------



| | l | “Cdn$”
                                         are to Canadian dollar, the legal currency of Canada;
| | - | -----------------------------------------------------------------------------------------------------



| | l | “China”
                                         or “PRC” are to the People’s Republic of China, excluding for purposes
                                         of geographical reference in this annual report, the Hong Kong Special Administrative
                                         Region, the Macau Special Administrative Region and Taiwan;
| | - | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | l | “Hong
                                         Kong” are to the Hong Kong Special Administrative Region of the People’s
                                         Republic of China;
| | - | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | l | “Hong
                                         Kong Stock Exchange” or “HKSE” are to The Stock Exchange of Hong Kong
                                         Limited;
| | - | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | l | “HK$”
                                         are to Hong Kong dollar, the legal currency of the Hong Kong Special Administrative Region;
| | - | ------------------------------------------------------------------------------------------------------------------------------------------



| | l | “HKICPA”
                                         are to the Hong Kong Institute of Certified Public Accountants;
| | - | -----------------------------------------------------------------------------------------------------------------



| | l | “HKFRS”
                                         are to all Hong Kong Financial Reporting Standards and Hong Kong Accounting Standards
                                         and Interpretations approved by the Council of the HKICPA;
| | - | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | l | “IASB”
                                         are to the International Accounting Standards Board;
| | - | ----------------------------------------------------------------------------------------------------



| | l | “IFRS”
                                         are to all International Financial Reporting Standards, including International Accounting
                                         Standards and Interpretations, as issued by the International Accounting Standards Board;
| | - | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | l | “Nexen”
                                         are to Nexen Energy ULC and the companies under its management, unless otherwise expressly
                                         provided or the context of this annual report otherwise requires;
| | - | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | l | “NYSE”
                                         are to the New York Stock Exchange;
| | - | -----------------------------------------------------------------------------------



| | l | “Rmb”
                                         are to Renminbi, the legal currency of the PRC;
| | - | ----------------------------------------------------------------------------------------------



| | l | “TSX”
                                         are to the Toronto Stock Exchange; and
| | - | -------------------------------------------------------------------------------------



| | l | “US$”
                                         are to U.S. dollar, the legal currency of the United States of America.
| | - | ----------------------------------------------------------------------------------------------------------------------



4


Table of Contents


Conventions



We publish
our financial statements in Renminbi. Unless otherwise indicated, we have translated amounts from Renminbi into U.S. dollars solely
for the convenience of the reader at the noon buying rate for cable transfers of Renminbi per U.S. dollar certified for customs
purposes by the Federal Reserve Bank of New York, as set forth in the H.10 weekly statistical release of the Federal Reserve Board
on December 31, 2015 of US$1.00=Rmb 6.4778. We have translated amounts in Hong Kong dollars solely for the convenience of the
reader at the noon buying rate for cable transfers of Hong Kong dollars per U.S. dollar certified for customs purposes by the
Federal Reserve Bank of New York, as set forth in the H.10 weekly statistical release of the Federal Reserve Board on December
31, 2015 of US$1.00=HK$ 7.7507. We have also translated amounts in Canadian dollars solely for the convenience of the reader at
the noon buying rate for cable transfers of Canadian dollars per U.S. dollar certified for customs purposes by the Federal Reserve
Bank of New York, as set forth in the H.10 weekly statistical release of the Federal Reserve Board on December 31, 2015 of US$1.00=Cdn$
1.3839. We make no representation that the Renminbi amounts, Hong Kong dollar amounts or Canadian dollar amounts could have been,
or could be, converted into U.S. dollars at those rates on December 31, 2015, 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 add correctly due to rounding of numbers.



For the years
2013, 2014 and 2015, approximately 52%, 52% and 62%, respectively, of our reserves were evaluated by our internal reserve evaluation
staff, and the remaining were based upon estimates prepared by independent petroleum engineering consulting companies and reviewed
by us. Our reserve data for 2013, 2014 and 2015 were prepared in accordance with the SEC’s final rules on “Modernization
of Oil and Gas Reporting”, which became effective for accounting periods ended on or after December 31, 2009. Except as
otherwise stated, all amounts of reserve and production in this report include our interests in equity method investees.



In calculating
barrels-of-oil equivalent amounts, we have assumed that 6,000 cubic feet of natural gas equals one BOE, with the exception of
natural gas from South America, Oceania, SES and Tangguh projects in Indonesia in Asia and Yacheng 13-1/13-4 gas field in the
Western South China Sea, where we have used energy equivalence for such conversion purpose.



Glossary of Technical Terms



Unless otherwise
indicated in the context, references to:



| | l | “API
                                         gravity” means the American Petroleum Institute’s scale for specific gravity
                                         for liquid hydrocarbons, measured in degrees.
| | - | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | l | “appraisal
                                         well” means an exploratory well drilled after a successful wildcat well to gain
                                         more information on a newly discovered oil or gas reserve.
| | - | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | l | “developed
                                         oil and gas reserves” are reserves of any category that can be expected to be recovered:
| | - | --------------------------------------------------------------------------------------------------------------------------------------------



(i)
through existing wells with existing equipment and operating methods or in which the cost of the required equipment is relatively
minor compared to the cost of a new well; and



(ii)
through installed extraction equipment and infrastructure operational at the time of the reserves estimate if the extraction is
by means not involving any well.



| | l | “exploratory
                                         well” means a well drilled to find either a new field or a new reservoir in a field
                                         previously found to be productive of oil or gas in another reservoir. Generally, an exploratory
                                         well is any well that is not a development well, an extension well, a service well, or
                                         a stratigraphic test well.
| | - | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



5


Table of Contents


| | l | “LNG”
                                         means liquefied natural gas.
| | - | ---------------------------------------------------------------------------



| | l | “net
                                         wells” means a party’s working interests in wells.
| | - | ------------------------------------------------------------------------------------------------



| | l | “proved
                                         oil and gas reserves” means those quantities of oil and gas, which, by analysis
                                         of geoscience and engineering data, can be estimated with reasonable certainty to be
                                         economically producible—from a given date forward, from known reservoirs, and under
                                         existing economic conditions, operating methods, and government regulations— prior
                                         to the time at which contracts providing the right to operate expire, unless evidence
                                         indicates that renewal is reasonably certain, regardless of whether deterministic or
                                         probabilistic methods are used for the estimation. The project to extract the hydrocarbons
                                         must have commenced or the operator must be reasonably certain that it will commence
                                         the project within a reasonable time.
| | - | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



(i)
The area of the reservoir considered as proved includes: (A) The area identified by drilling and limited by fluid contacts, if
any, and (B) Adjacent undrilled portions of the reservoir that can, with reasonable certainty, be judged to be continuous with
it and to contain economically producible oil or gas on the basis of available geosciences and engineering data.



(ii)
In the absence of data on fluid contacts, proved quantities in a reservoir are limited by the lowest known hydrocarbons (LKH)
as seen in a well penetration unless geosciences, engineering, or performance data and reliable technology establishes a lower
contact with reasonable certainty.



(iii)
Where direct observation from well penetrations has defined a highest known oil (HKO) elevation and the potential exists for an
associated gas cap, proved oil reserves may be assigned in the structurally higher portions of the reservoir only if geosciences,
engineering, or performance data and reliable technology establish the higher contact with reasonable certainty.



(iv)
Reserves which can be produced economically through application of improved recovery techniques (including, but not limited to,
fluid injection) are included in the proved classification when: (A) Successful testing by a pilot project in an area of the reservoir
with properties no more favorable than in the reservoir as a whole, the operation of an installed program in the reservoir or
an analogous reservoir, or other evidence using reliable technology establishes the reasonable certainty of the engineering analysis
on which the project or program was based; and (B) The project has been approved for development by all necessary parties and
entities, including governmental entities.



(v)
Existing economic conditions include prices and costs at which economic producibility from a reservoir is to be determined. The
price shall be the average price during the 12-month period prior to the ending date of the period covered by the report, determined
as an unweighted arithmetic average of the first-day-of-the-month price for each month within such period, unless prices are defined
by contractual arrangements, excluding escalations based upon future conditions.



| | l | “PSC”
                                         means production sharing contract. For more information about PSC, see “Item 4—Information
                                         on the Company—Business Overview—Regulatory Framework in the PRC.”
| | - | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | l | “share
                                         oil” means the portion of production that must be allocated to the relevant government
                                         entity under our PSCs in the PRC.
| | - | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | l | “undeveloped
                                         oil and gas reserves” means reserves of any category that are expected to be recovered
                                         from new wells on undrilled acreage, or from existing wells where a relatively major
                                         expenditure is required for recompletion.
| | - | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



6


Table of Contents


(i)
Reserves on undrilled acreage shall be limited to those directly offsetting development spacing areas that are reasonably certain
of production when drilled, unless evidence using reliable technology exists that establishes reasonable certainty of economic
producibility at greater distances.



(ii)
Undrilled locations can be classified as having undeveloped reserves only if a development plan has been adopted indicating that
they are scheduled to be drilled within five years, unless the specific circumstances, justify a longer time.



(iii)
Under no circumstances shall estimates for undeveloped reserves be attributable to any acreage for which an application of fluid
injection or other improved recovery technique is contemplated, unless such techniques have been proved effective by actual projects
in the same reservoir or an analogous reservoir, or by other evidence using reliable technology establishing reasonable certainty.



For further
definitions relating to reserves:



| | l | “reserve
                                         replacement ratio” means, for a given year, total additions to proved reserves,
                                         which consist of additions from purchases, discoveries and extensions and revisions of
                                         prior reserve estimates, divided by production during the year. Reserve additions used
                                         in this calculation are proved developed and proved undeveloped reserves; unproved reserve
                                         additions are not used. Data used in the calculation of reserve replacement ratio is
                                         derived directly from the reserve quantity reconciliation prepared in accordance with
                                         U.S. Accounting Standards Codification 932-235-50, which reconciliation is included in
                                         “Supplementary Information on Oil and Gas Producing Activities” beginning
                                         on page F-79 of this annual report.
                                         Our reserve replacement ratio reflects our ability to replace proved reserves. A rate
                                         higher than 100% indicates that more reserves were added than produced in the period.
                                         However, this measure has limitations, including its predictive and comparative value.
                                         Reserve replacement ratio measures past performance only and fluctuates from year to
                                         year due to differences in the extent and timing of new discoveries and acquisitions.
                                         It is also not an indicator of profitability because it does not reflect the cost or
                                         timing of future production of reserve additions. It does not distinguish between reserve
                                         additions that are developed and those that will require additional time and funding
                                         to develop. As such, reserve replacement ratio is only one of the indices used by our
                                         management in formulating its acquisition, exploration and development plans.
| | - | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | l | “reserve
                                         life” means the ratio of proved reserves to annual production of crude oil or,
                                         with respect to natural gas, to wellhead production excluding flared gas, also known
                                         as reserve-to-production ratio.
| | - | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | l | “seismic
                                         data” means data recorded in either two-dimensional (2D) or three-dimensional (3D)
                                         form from sound wave reflections off of subsurface geology.
| | - | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | l | “success”
                                         means a discovery of oil or gas by an exploratory well. Such an exploratory well is a
                                         successful well and is also known as a discovery. A successful well is commercial, which
                                         means there are enough hydrocarbon deposits discovered for economical recovery.
| | - | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | l | “wildcat
                                         well” means an exploratory well drilled on any rock formation for the purpose of
                                         searching for petroleum accumulations in an area or rock formation that has no known
                                         reserves or previous discoveries.
| | - | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



References
to:



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



| | l | mmbbls
                                         means million barrels;
| | - | ----------------------------------------------------------------------



7


Table of Contents


| | l | BOE
                                         means barrels-of-oil equivalent;
| | - | -----------------------------------------------------------------------------



| | l | mcf
                                         means thousand cubic feet;
| | - | -----------------------------------------------------------------------



| | l | mmcf
                                         means million cubic feet;
| | - | -----------------------------------------------------------------------



| | l | bcf
                                         means billion cubic feet, which is equivalent to approximately 28.32 million cubic meters;
                                         and
| | - | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | l | BTU
                                         means British Thermal Unit, a universal measurement of energy.
| | - | -----------------------------------------------------------------------------------------------------------



8


Table of Contents


FORWARD-LOOKING
STATEMENTS



This annual
report includes “forward-looking statements” within the meaning of the United States Private Securities Litigation
Reform Act of 1995, including statements regarding expected future events, business prospects or financial results. The words
“expect”, “anticipate”, “continue”, “estimate”, “objective”, “ongoing”,
“may”, “will”, “project”, “should”, “believe”, “plans”,
“intends” and similar expressions are intended to identify such forward-looking statements.



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



| | · | the
                                         amount and nature of future exploration, development and other capital expenditures,
| | - | ---------------------------------------------------------------------------------------------------------------------------------



| | · | wells
                                         to be drilled or reworked,
| | - | -------------------------------------------------------------------------



| | · | development
                                         projects,
| | - | --------------------------------------------------------------



| | · | exploration
                                         prospects,
| | - | ---------------------------------------------------------------



| | · | estimates
                                         of proved oil and gas reserves,
| | - | ----------------------------------------------------------------------------------



| | · | development
                                         and drilling potential,
| | - | ----------------------------------------------------------------------------



| | · | expansion
                                         and other development trends of the oil and gas industry,
| | - | ------------------------------------------------------------------------------------------------------------



| | · | business
                                         strategy,
| | - | -----------------------------------------------------------



| | · | production
                                         of oil and gas,
| | - | -------------------------------------------------------------------



| | · | development
                                         of undeveloped reserves,
| | - | -----------------------------------------------------------------------------



| | · | expansion
                                         and growth of our business and operations,
| | - | ---------------------------------------------------------------------------------------------



| | · | oil
                                         and gas prices and demand,
| | - | -----------------------------------------------------------------------



| | · | future
                                         earnings and cash flow, and
| | - | ---------------------------------------------------------------------------



| | · | our
                                         estimated financial information.
| | - | -----------------------------------------------------------------------------



These statements
are based on assumptions and analysis 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 expectations, including but
not limited to those associated with fluctuations in crude oil and natural gas prices, our exploration or development activities,
our capital expenditure requirements, our business strategy, whether the transactions entered into by us can complete on schedule
pursuant to their terms and timetable or at all, the highly competitive nature of the oil and natural gas industry, our foreign
operations, environmental liabilities and compliance requirements, and economic and political conditions in the PRC and overseas.
For a description of these and other 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
that the results or developments anticipated by us will be realized or, even if substantially realized, that they will have the
expected effect on us, our business or our operations.



9


Table of Contents


SPECIAL
NOTE ON THE FINANCIAL INFORMATION AND CERTAIN STATISTICAL INFORMATION PRESENTED IN THIS ANNUAL REPORT



Our consolidated
financial statements for the years ended December 31, 2013, 2014 and 2015 included in this annual report on Form 20-F have been
prepared in accordance with International Financial Reporting Standards, or IFRSs, as issued by the International Accounting Standards
Board.



In accordance
with rule amendments adopted by the U.S. Securities and Exchange Commission, or the SEC, which became effective on March 4, 2008,
we are not required to provide reconciliation to Generally Accepted Accounting Principles in the United States.



The statistical
information set forth in this annual report on Form 20-F relating to China is taken or derived from various publicly available
government publications that have not been prepared or independently verified by us. This statistical information may not be consistent
with other statistical information from other sources within or outside China.



10


Table of Contents


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
| | -- | -----------------------



The following
tables present selected historical financial data of our company as of and for the years ended December 31, 2011, 2012, 2013,
2014 and 2015. Except for amounts presented in U.S. dollars, the selected historical consolidated statement of financial position
data and consolidated statement of profit or loss and other comprehensive income data as of and for the years ended December 31,
2011, 2012, 2013, 2014 and 2015 set forth below are derived from, should be read in conjunction with, and are qualified in their
entirety by reference to, 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. As disclosed above under “Special
Note on the Financial Information and Certain Statistical Information Presented in This Annual Report”, our consolidated
financial statements as of and for the years ended December 31, 2011, 2012, 2013, 2014 and 2015 have been prepared and presented
in accordance with IFRS.



|                                                                 |  | Year ended December 31,                         
|---------------------------------------------------------------- |  | ------------------------------------------------
|                                                                 |  | 2011                                            
|                                                                 |  | Rmb                                             
|                                                                 |  | (in millions, except per share and per ADS data)
|Statement of profit or loss and other Comprehensive Income Data: |  |                                                 
|Operating revenues:                                              |  |                                                 
|Oil and gas sales                                                |  |                                                 
|Marketing revenues                                               |  |                                                 
|Other income                                                     |  |                                                 
|Total operating revenues                                         |  |                                                 
|                                                                 |  |                                                 
|Expenses:                                                        |  |                                                 
|Operating expenses                                               |  |                                                 
|Taxes other than income tax                                      |  |                                                 
|Exploration expenses                                             |  |                                                 
|Depreciation, depletion and amortization                         |  |                                                 
|Special oil gain levy                                            |  |                                                 
|Impairment and provision                                         |  |                                                 
|Crude oil and product purchases                                  |  |                                                 
|Selling and administrative expenses                              |  |                                                 
|Others                                                           |  |                                                 
|Total expenses                                                   |  |                                                 
|                                                                 |  |                                                 
|Profit from operating activities                                 |  |                                                 
|Interest income                                                  |  |                                                 
|Finance costs                                                    |  |                                                 
|Exchange gains, net                                              |  |                                                 
|Investment income                                                |  |                                                 
|Share of profits of associates                                   |  |                                                 
|Share of profits/(losses) of a joint venture                     |  |                                                 
|Non-operating income/(expenses), net                             |  |                                                 
|                                                                 |  |                                                 





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|                                 |  | Year ended December 31,                         
|-------------------------------- |  | ------------------------------------------------
|                                 |  | 2011                                            
|                                 |  | Rmb                                             
|                                 |  | (in millions, except per share and per ADS data)
|                                 |  |                                                 
|Profit before tax                |  |                                                 
|Income tax expense               |  |                                                 
|Profit for the year              |  |                                                 
|                                 |  |                                                 
|Earnings per share (basic)(2)    |  |                                                 
|Earnings per share (diluted) (3) |  |                                                 
|Earnings per ADS (basic) (2)     |  |                                                 
|Earnings per ADS (diluted) (3)   |  |                                                 
|                                 |  |                                                 
|Dividend per share               |  |                                                 
|Interim                          |  |                                                 
|Proposed final                   |  |                                                 
|                                 |  |                                                 







|                                       |  | As of December 31,
|-------------------------------------- |  | ------------------
|                                       |  | 2011              
|                                       |  | Rmb               
|                                       |  | (in millions)     
|Statement of Financial Position Data:  |  |                   
|Cash and cash equivalents              |  |                   
|Available-for sale financial assets(1) |  |                   
|Other financial assets(1)              |  |                   
|Held-to-maturity financial assets      |  |                   
|Current assets                         |  |                   
|Property, plant and equipment, net     |  |                   
|Investments in associates              |  |                   
|Investments in a joint venture         |  |                   
|Intangible assets                      |  |                   
|Available-for-sale financial assets    |  |                   
|Equity investments(1)                  |  |                   
|Total assets                           |  |                   
|Current loans and borrowings           |  |                   
|Current liabilities                    |  |                   
|Long term loans and borrowings         |  |                   
|Total non-current liabilities          |  |                   
|Total liabilities                      |  |                   
|Capital stock                          |  |                   
|Shareholders’ equity                   |  |                   
|                                       |  |                   



__________



| | (1) | From January 1, 2015, the Company
                                         early adopted IFRS/HKFRS 9 (2009) - Financial Instruments. Certain financial assets have
                                         been classified into new categories. For details, please refer to notes 2.2 to our consolidated
                                         financial statements included elsewhere in this annual report.
| | --- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | (2) | Earnings per share (basic) and earnings
                                         per ADS (basic) for each year from 2011 to 2015 have been computed, without considering
                                         the dilutive effect of the shares underlying our share option schemes by dividing profit
                                         by the weighted average number of shares and the weighted average number of ADSs of 44,668,570,359
                                         and 446,685,704, respectively, for 2011, 44,646,305,984 and 446,463,060, respectively,
                                         for 2012, 44,646,825,847 and 446,468,258, respectively, for 2013, and 44,647,455,984
                                         and 446,474,560, respectively, for 2014, and44,647,455,984 and 446,474,560, respectively,
                                         for 2015, in each case based on a ratio of 100 shares to one ADS.
| | --- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | (3) | Earnings
                                         per share (diluted) and earnings per ADS (diluted) for each year from 2011 to 2015 have
                                         been computed, after considering the dilutive effect of the shares underlying our share
                                         option schemes by using 44,853,615,010 shares and 448,536,150 ADSs for 2011, 44,808,042,330
                                         shares and 448,080,423 ADSs for 2012, 44,787,119,089 shares and 447,871,191 ADSs for
                                         2013, and 44,734,774,504 shares and 447,347,745 ADSs for 2014 and 44,684,819,053 shares
                                         and 446,848,191 ADSs for 2015.
| | --- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|                             |  | Year ended December 31,                     
|---------------------------- |  | --------------------------------------------
|                             |  | 2011                                        
|                             |  | Rmb                                         
|                             |  | (in millions, except percentages and ratios)
|Other Financial Data:        |  |                                             
|Capital expenditures paid(1) |  |                                             

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|Cash provided by/(used for): |  |  |         |   |  |  |         |   |  |  |          |  
|---------------------------- |  |  | ------- | - |  |  | ------- | - |  |  | -------- | -
|Operating activities         |  |  | 116,171 |   |  |  | 92,574  |   |  |  | 110,891  |  
|Investing activities         |  |  | (99,036 | ) |  |  | (63,797 | ) |  |  | (170,032 | )
|Financing activities         |  |  | (20,246 | ) |  |  | 2,584   |   |  |  | 18,601   |  
|Gearing ratio(2)             |  |  | 12.6    | % |  |  | 15.7    | % |  |  | 27.8     | %

__________



| | (1) | Capital expenditures paid
exclude those relating to acquisition of oil and gas properties.
| | --- | ------------------------------------------------------------------------------------------



| | (2) | Interest bearing debt divided
by the sum of interest bearing debt and equity.
| | --- | -----------------------------------------------------------------------------



The following
table sets forth the noon buying rates between U.S. dollars and Renminbi as set forth in the H.10 weekly statistical release of
the Federal Reserve Board for the periods indicated:



|              | Noon Buying Rate 
|------------- | -----------------
|Period        | End              
|              | (Rmb per US$1.00)
|2011          | 6.2939           
|2012          | 6.2301           
|2013          | 6.0537           
|2014          | 6.2046           
|2015          | 6.4778           
|October 2015  | 6.3180           
|November 2015 | 6.3883           
|December 2015 | 6.4778           
|January 2016  | 6.5752           
|February 2016 | 6.5525           
|March 2016    | 6.4480           

__________

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



On
March 31, 2016, the noon buying rate between U.S. dollars and Renminbi as set forth in the H.10 weekly statistical release of
the Federal Reserve Board was Rmb 6.4480 to US$1.00.



The following
table sets forth the noon buying rates between U.S. dollars and Hong Kong dollars as set forth in the H.10 weekly statistical
release of the Federal Reserve Board for the periods indicated.



13


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|              |  | Noon Buying Rate 
|------------- |  | -----------------
|Period        |  | End              
|              |  | (HK$ per US$1.00)
|2011          |  |                  
|2012          |  |                  
|2013          |  |                  
|2014          |  |                  
|2015          |  |                  
|October 2015  |  |                  
|November 2015 |  |                  
|December 2015 |  |                  
|January 2016  |  |                  
|February 2016 |  |                  
|March 2016    |  |                  

__________

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



On March
31, 2016, the noon buying rate between U.S. dollars and Hong Kong dollars as set forth in the H.10 weekly statistical release
of the Federal Reserve Board was HK$7.7563 to US$1.00.



The following
table sets forth the noon buying rates between U.S. dollars and Canadian dollars as set forth in the H.10 weekly statistical release
of the Federal Reserve Board for the periods indicated.



14


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|              | Noon Buying Rate  
|------------- | ------------------
|Period        | End               
|              | (Cdn$ per US$1.00)
|2011          | 1.0168            
|2012          | 0.9958            
|2013          | 1.0637            
|2014          | 1.1601            
|2015          | 1.3839            
|October 2015  | 1.3082            
|November 2015 | 1.3332            
|December 2015 | 1.3839            
|January 2016  | 1.4074            
|February 2016 | 1.3522            
|March 2016    | 1.2969            

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



On March
31, 2016, the noon buying rate between U.S. dollars and Canadian dollars as set forth in the H.10 weekly statistical release of
the Federal Reserve Board was Cdn$1.2969 to US$1.00.



| | B. | Capitalization and Indebtedness
| | -- | -------------------------------



Not applicable.



| | C. | Reasons for the Offer and Use of Proceeds
| | -- | -----------------------------------------



Not applicable.



| | D. | Risk Factors
| | -- | ------------



Although
we have established the risk management system to identify, analyze, evaluate and respond to risks, our business activities are
subject to the following risks, which could have material effects on our strategy, operations, compliance and financial condition.
We urge you to carefully consider the risks described below.



Our
business, cash flows and profits fluctuate with changes in oil and gas prices.



Prices for
crude oil, natural gas and oil products may fluctuate widely in response to relative changes in the supply and demand for oil
and natural gas, market uncertainty and various other factors beyond our control, including, but not limited to overall economic
conditions, political instability, armed conflict and acts of terrorism, economic conditions and actions by major oil-producing
countries, the price and availability of other energy sources, domestic and foreign government regulations, natural disasters
and weather conditions. Changes in oil and gas prices could have a material effect on our business, cash flows and earnings.



Low oil
and natural gas prices may adversely affect our business, revenue and earnings. Lower oil and natural gas prices may result in
the write-off of higher cost reserves and other assets, reduction of the amount of oil and natural gas we can produce economically
and termination of existing contracts that have become uneconomic. The prolonged slump in oil and natural gas prices may also
impact our long-term investment strategy and operation capability for our projects.



Our
business and strategy may be substantially affected by complex macro economy, politically instability, war and terrorism and changes
in policy and fiscal and tax regimes.



Economic
conditions, energy costs, geopolitical issues and the availability and cost of credit resulted in a severe and prolonged global
economic downturn period. The complex economic outlook may materially and adversely affect our business and financial conditions.



Some of
the countries in which we operate may be considered politically and economically unstable. As a result, our financial condition
and operating results could be adversely affected by associated international activities, domestic civil unrest and general strikes,
political instability, war and acts of terrorism. Any changes in regime or social instability, or other political, economic or
diplomatic developments, or changes in fiscal and tax regime are not within our control. Our operations, existing



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assets or
future investments may be materially and adversely affected by these changes as well as potential trade and economic sanctions
due to deteriorated relations between different countries.



Our financial
performance is subject to the tax and fiscal regime of host countries in which we operate. Any changes in the tax and fiscal regime
in these countries may increase our tax burden and have an adverse effect on our financial performance. For example, in October
2015, Organization for Economic Co-operation and Development (OECD) published the "Base Erosion and Profit Shifting Project"
(BEPS Project) final report with 15 action items, to enhance multilateral cooperation, pursuant to which the participating countries
will amend their tax laws and tax treaties, and strengthen their supervision on the corporate tax planning and transfer pricing
activities, which may cause risks to the Company on global transfer pricing activities.



Oil
and natural gas industry are very competitive.



We compete
in the PRC and international markets with national oil companies, major integrated oil and gas companies and various other independent
oil and gas companies for access to oil and gas resources, products, alternative energy, customers, capital financing, technology
and equipment, personnel and business opportunities. Competition may result in shortage of these resources or over-supply of oil
and gas, which could increase our cost or reduce our earnings, and adversely impact our business, financial condition and results
of operations. For example, the over-supply of natural gas in China may negatively impact our development, operation and revenue
of natural gas projects.



In addition
to competition, as we need to obtain various approvals from governmental and other regulatory authorities in order to maintain
our operations, we may face unfavorable results such as project delays and cost overruns, which may further impact the realization
of our strategies and adversely impact our financial condition.



Our
ability to deliver competitive returns and pursue commercial opportunities depends in part on the robustness and the long-lasting
accuracy of our price assumptions.



We review
the oil and natural gas price assumptions on a periodic basis when evaluating project decisions and business opportunities. We
generally test projects and other business opportunities against a long-term price range. While we believe our current long-term
price assumptions are prudent, if such assumptions proved to be incorrect, it could have a material adverse effect. For short-term
planning purposes, we stress test the project feasibility against a wider range of prices.



Rising
climate change concerns could lead to additional regulatory measures that may result in project delays and higher costs.



It is expected
that the CO2 emissions will increase as our production grows. CO2 emissions from flaring will increase as
long as there are no gas gathering systems in place. Over time, we expect that a growing share of our CO2 emissions
will be subject to supervision and result in an increase in our costs. Furthermore, the public’s continued and increased
attention to climate changes, including activities organized by non-governmental and political organizations, is likely to lead
to implementation of additional regulations on reducing greenhouse gas emissions. If we are unable to find economically viable
and publicly acceptable solutions that could reduce our CO2 emissions for new and existing projects, we may experience
additional costs, project delays, reduced production and reduced demand for hydrocarbons.



Mergers,
acquisitions and divestments may expose us to additional risks and uncertainties, and we may not be able to realize the anticipated
benefits from acquisitions and divestments.



Mergers
and acquisitions may not succeed due to various reasons, such as difficulties in integrating activities and realising synergies,
outcomes differing from key assumptions, host governments reacting or responding in a different manner from that envisaged, or
liabilities and costs being underestimated. Any of these would reduce our ability to realise the anticipated benefits. We may
not be able to successfully divest non-core assets at acceptable prices, resulting in increased pressure on our cash



16


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position. In the case of divestments,
we may be held liable for past acts, or failures to act or perform responsibilities. We may also be subject to liabilities if
a purchaser fails to fulfil all of its commitments. These risks may result in an increase in our costs and inability to achieve
our business goals.



The
nature of our operations exposes us and the communities in which we work to a wide range of health, safety, security and environment
risks.



Every aspect
of our daily operations exposes us to health, safety, security and environmental (HSSE) risks given the geographical area, operational
diversity and technical complexity of our operations. Our operations include productions and transportations of oil and gas in
difficult geographic or climate zones, as well as environmentally sensitive regions, such as Canada, the basins in Uganda or offshore,
especially in deep water area. Our operations expose us and the areas in which we operate to a number of risks, including major
process safety incidents, natural disasters, earthquakes, social unrest, health and safety lapses and crimes. If a major HSSE
risk materialises, such as an explosion or hydrocarbon spill, this could result in casualties, environmental damage disruption
of business activities and, depending on their cause and severity, material damage to our reputation, exclusion from bidding on
mineral rights and eventually loss of our licence to operate. In certain circumstances, liabilities could be imposed without regard
to our fault in the matter. Regulatory requirements for HSSE change constantly and may become more stringent over time. In the
future, we may incur significant additional costs in complying with such requirements or bear liabilities such as fines, penalties,
clean-up costs and third-party claims, as a result of breach of laws and regulations relating to HSSE matter. Our reputation may
be adversely affected.



We maintain
various insurance policies for our operations against potential losses. For detailed information on our insurance coverage, see
“Item 4—Information on the Company—Business Overview—Operating Hazards and Uninsured Risks.” However,
our ability to insure against our risks is subject to the availability of relevant insurance products in the market. In addition,
we cannot ensure you that our insurance coverage is sufficient to cover any losses that we may incur, or that we will be able
to successfully claim our losses under our existing insurance policies on a timely basis, or at all. If any of our losses are
not covered by our insurance coverage, or if the insurance compensation is less than our losses or the claim is not paid on a
timely basis, our business, financial condition and results of operations could be materially and adversely affected.



Violations
of anti-fraud, corruption and corporate governance laws may expose us to various risks.



Laws and
regulations of the host countries or regions in which we operate, such as laws on anti-corruption, anti-fraud and corporate governance,
are constantly changing and strengthening, especially in the United States, United Kingdom, Canada and China. The compliance with
these laws and regulations may increase our cost. If the Company, our employees, executives or directors fail to comply with any
of such laws and regulations, it may expose us to prosecution or punishment, damage to our brand and reputations, the ability
to obtain new resources and/or access to the capital markets, and it may even expose us to civil or criminal liabilities.



The
current or future activities of our controlling shareholder, CNOOC, or its affiliates in certain countries that are the subject
of U.S. sanctions could result in negative media and investor attention and possible imposition of sanctions on CNOOC, which could
materially and adversely affect our shareholders.



We cannot
predict the interpretation or implementation of government policies at the U.S. federal, state or local levels with respect to
any current or future activities by CNOOC or its affiliates in countries or with individuals or entities that are the subject
of U.S. sanctions. As a result of such activities by CNOOC, we could be prohibited from engaging in business activities in the
U.S. or with U.S. individuals or entities, and U.S. transactions in our securities and distributions to U.S. individuals and entities
with respect to our securities could also be prohibited. Pension or endowment funds of certain U.S. state and local governments
or universities may sell our securities due to certain restrictions on investments in companies that engage in activities in sanctioned
countries, such as Iran and Sudan. We may also be



17


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subject to negative media or
investor attention, which may distract management, consume internal resources and affect investors’ perception of our company
and investment in our company.



As required
by the Iran Threat Reduction and Syria Human Rights Act of 2012, which added a disclosure requirement to the Securities Exchange
Act of 1934, we are providing certain information regarding our non-controlled affiliates’ activities. To our knowledge,
in 2015, China Oilfield Services Limited (COSL), one of our non-controlled affiliates, continued to provide certain drilling and
other related services in Iran under renewed subcontracting agreements entered into in 2009, as it did in 2014. We cannot predict
at this time whether U.S. sanctions will be imposed on any of our affiliates.



Any
failure to replace reserves and develop our proved undeveloped reserves could adversely affect our business and our financial
position.



Our exploration
and development activities involve inherent risks, including the risk of not discovering commercially productive oil or gas reservoirs
and that the wells we drill may not be able to commence production or may not be sufficiently productive to generate a return
of our partial or full investments. In addition, approximately 55.0% of our proved reserves were undeveloped as of December 31,
2015. Our future success depends on our ability to develop these reserves in a timely and cost-effective manner. There are various
risks in developing reserves, mainly including construction, operational, geophysical, geological and regulatory risks.



The reliability
of reserve estimates depends on a number of factors, including the quality and quantity of technical and economic data, the market
prices of our oil and gas products, the production performance of reservoirs, extensive engineering judgments, comprehensive judgement
of engineers and the fiscal and tax regime in the countries where we have operations or assets.



Many of
the factors, assumptions and variables involved in estimating reserves are beyond our control and may prove be incorrect over
time. Consequently, the results of drilling, testing, production and changes in the price of oil and gas may require substantial
upward or downward revisions to our initial reserve data.



If
we fail to develop or gain access to appropriate technologies, or to deploy them effectively, the realization of our strategies
as well as our competitiveness and ability to operate may be adversely affected.



Technology
and innovation are vital for us in meeting the global energy demands in a competitive environment. For example, we strive to rely
on technologies and innovations to enhance our competiveness in the development of unconventional oil and gas resources, including
oil sands, shale oil and gas and coalbed methane, and deep water exploration and development. In the context of an operating environment
with stricter environmental compliance standards and requirements, although current knowledge recognise these newly developed
technologies as safe to the environment, there still exists unknown or unpredictable elements that may have an impact on the environment.
This may in turn harm our reputation and operation, increase our costs or even result in litigations and sanctions. We may face
risks in failing to meet the required environmental standards if our technologies in unconventional oil and gas operations are
not sophisticated.



Breach
of our cyber security or break down of our IT infrastructure could damage our operations and our reputation.



Intentional
attacks on our cyber system, negligent management of our cyber security and IT system management and other factors may cause damage
or break down to our IT infrastructure, which may disrupt our operations, result in loss or misuse of data or sensitive information,
cause injuries, environmental harm or damages in assets, violate laws or regulations and result in potential legal liability.
These actions could result in significant costs or damage to our reputational.



CNOOC
largely controls us and we regularly enter into related party transactions with CNOOC and its affiliates.



18


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CNOOC indirectly
owns or controls 64.44% of our shares as of March 31, 2016. As a result, CNOOC is able to control our board composition, or our
Board, determine the time and amount in dividend payments, and controls us in various aspects. Under current PRC laws, CNOOC has
the exclusive right to enter into PSCs with foreign enterprises for the petroleum resources exploitation in offshore China. Although
CNOOC has undertaken to transfer all of its rights and obligations under any new PSCs to us (except for those relating to administrative
functions as a state-owned company), our strategies, results of operations and financial position may be adversely affected in
the event CNOOC takes actions that favour its own interests over ours.



In addition,
we regularly enter into connected transactions with CNOOC and its affiliates. Certain connected transactions require a review
by the Hong Kong Stock Exchange and are subject to prior approvals by the independent shareholders. If these transactions are
not approved, the Company may not be able to proceed as planned and it may adversely affect our business and financial condition.



Oil
and natural gas transportation may expose us to financial loss and reputation harm.



Our oil
and gas transportation involves marine, land and pipeline transportation, which are subject to hazards such as capsizing, collision,
acts of piracy and damage or loss from severe weather conditions, explosions, oil and gas spills and leakages. These hazards could
result in serious personal injury or loss of human life, significant damage to property and equipment, environmental pollution,
impairment of operations, risk of financial loss and reputation harm. We may not be insured against all of these risks and uninsured
losses and liabilities arising from these hazards could reduce the funds available to us for financing, exploration and investment,
which may have a material adverse effect on our business, financial condition and results of operations.



We
face various risks with regard to our business and operations in North America.



Transportation
and export infrastructure in North America is limited, and without the construction of new transportation and export infrastructure,
our oil and natural gas production capacity may be affected. In addition, we may be required to sell our products into the North
American markets at lower prices than in other markets, which could materially and adversely affect our financial performance.



Aboriginal
people in Canada have claimed aboriginal title and rights to the lands and mineral resources in substantial portion of western
Canada. As a result, negotiations with aboriginal people on surface activities are required and may result in timing uncertainties
or delays of future development activities. Declaration by aboriginal people, if successful, could have a significant adverse
effect on our business in Canada.



We
may have limited control over our investments in joint ventures and our operations with partners.



A portion
of our operations are conducted in the forms of partnerships or in joint ventures in which we may have limited ability to influence
and control their operation or future development. Our limited ability to influence and control the operation or future development
of such joint ventures could materially and adversely affect the realization of our target returns on capital investment and lead
to unexpected future costs.



If
we depend heavily on key customers or suppliers, our business, results of operations and financial condition could be adversely
affected.



Key sales
customers - if any of our key customers reduced their crude oil purchases from us significantly, our results of operation could
be adversely affected. In order to reduce reliance on a single customer, we adopt measures including signing annual sales contracts,
developing sales plans, and participating in market competition so as to maintain a stable cooperation with customers.



Key suppliers
- we have strengthened our communication in business with our key suppliers in order to maintain a good working relationship.
We have also established strategic partnerships through



19


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communications and a consensus
in corporate cultures and win-win cooperation Further, we actively explore new suppliers to ensure adequacy and foster competition.



We
face currency risks and liquidity risks.



Currency
risks – The Company’s oil and gas sales are substantially denominated in Renminbi and U.S. dollars. The depreciation
of the Renminbi against the U.S. dollar may result in double effects. The appreciation of the U.S. dollar against the Renminbi
may increase the Company’s revenue in the sales of oil and gas, but it may increase our costs of equipment and import of
raw materials in the meantime.



Liquidity
risks – Certain restrictions on dividend distribution imposed by the laws of the host countries in which we operate may
adversely and materially affect our cash flows. For instance, as the dividend of our wholly owned subsidiaries in the PRC shall
be distributed pursuant to the laws of the PRC and the articles and association, and we may face risks of not obtaining adequate
cash flows from such subsidiaries. In addition, a ratings downgrade could potentially increase financing costs and adversely impact
our ability to access financing, which could put pressure on the Company’s liquidity.





The
audit reports included in this annual report have been prepared by our independent registered public accounting firm whose work
may not be inspected fully by the Public Company Accounting Oversight Board and, as such, you may be deprived of the benefits
of such inspection.



Our
independent registered public accounting firm that issues the audit reports included in our annual report filed with the SEC,
as auditors of companies that are traded publicly in the United States and a firm registered with the U.S. Public Company
Accounting Oversight Board, or the PCAOB, is required by the laws of the United States to undergo regular inspections by
the PCAOB to assess its compliance with the laws of the United States and professional standards.



Because
we have substantial operations within China and, without the approval of PRC authorities, the PCAOB is currently unable to conduct
inspections of the work of our independent registered public accounting firm as it relates to those operations, our independent
registered public accounting firm is not currently inspected fully by the PCAOB. This lack of PCAOB inspections in China prevents
the PCAOB from regularly evaluating our independent registered public accounting firm’s audits and its quality control procedures.
As a result, investors may be deprived of the benefits of PCAOB inspections.



Inspections
of other firms that the PCAOB has conducted outside China have identified deficiencies in those firms’ audit procedures
and quality control procedures, which may be addressed as part of the inspection process to improve future audit quality. The
inability of the PCAOB to conduct full inspections of auditors in China makes it more difficult to evaluate the effectiveness
of our independent registered public accounting firm’s audit procedures or quality control procedures as compared to auditors
outside of China that are subject to PCAOB inspections. Investors may lose confidence in our reported financial information and
procedures and the quality of our financial statements.







ITEM
4. INFORMATION ON THE COMPANY



| | A. | History and Development
| | -- | -----------------------



We were incorporated
with limited liability on August 20, 1999 in Hong Kong under the Companies Ordinance (Chapter 32 of the Laws of Hong Kong, the
predecessor to Chapter 622 of the Laws of Hong Kong, or the Hong Kong Companies Ordinance, which came into effect on March 3,
2014). Our company registration number in Hong Kong is 685974. Under the Hong Kong Companies Ordinance, we have the capacity,
rights, powers and privileges of a natural person of full age and may do anything which we are permitted or required to do by
our articles of association or any enactment or rule of law. Our registered office is located at 65th Floor, Bank of
China Tower, One Garden Road, Central, Hong Kong, and our telephone number is 852-2213-2500.



The PRC government
established CNOOC, our controlling shareholder, as a state-owned offshore petroleum company in 1982 under the Regulation of the
PRC on the Exploitation of Offshore Petroleum Resources in Cooperation with Foreign Enterprises. CNOOC assumed certain responsibility
for the administration and development of PRC offshore petroleum operations with foreign oil and gas companies.



Prior to
CNOOC’s reorganization in 1999, CNOOC and its various subsidiaries performed both commercial and administrative functions
relating to oil and natural gas exploration and development in offshore China.



In 1999,
CNOOC transferred all of its then current operational and commercial interests in its offshore petroleum business, including the
related assets and liabilities, to us. As a result and subject to the undertakings below, we and our subsidiaries are the only
vehicles through which CNOOC engages in oil and gas exploration, development, production and sales activities both in and outside
the PRC.



CNOOC retained
its commercial interests in operations and projects not related to oil and gas exploration and production, as well as all of the
administrative functions it performed prior to the reorganization.



CNOOC has
undertaken to us that:



| | · | we
                                         will enjoy the exclusive right to exercise all of CNOOC’s commercial and operational
                                         rights under PRC laws and regulations relating to the exploration, development, production
                                         and sales of oil and natural gas in offshore China;
| | - | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | · | it
                                         will transfer to us all of its rights and obligations under any new PSCs and geophysical
                                         exploration operations, except those relating to its administrative functions;
| | - | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



20


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| | · | it
                                         will not engage or be interested, directly or indirectly, in oil and natural gas exploration,
                                         development, production and sales in or outside the PRC;
| | - | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | · | we
                                         will be able to participate jointly with CNOOC in negotiating new PSCs and to set out
                                         our views to CNOOC on the proposed terms of new PSCs;
| | - | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | · | 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;
| | - | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | · | we
                                         will have an option to invest in LNG projects in which CNOOC invested or proposed 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
| | - | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | · | we
                                         will have an option to participate in other businesses related to natural gas in which
                                         CNOOC invested or proposed 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:



| | · | if
                                         we become a wholly owned subsidiary of CNOOC;
| | - | -----------------------------------------------------------------------------------------



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



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



For
information on our capital expenditures, see “Item 5—Operating and Financial Review and Prospects—Liquidity
and Capital Resources—Cash Used in Investing Activities.”



| | B. | Business Overview
| | -- | -----------------



Overview



We are an
upstream company specializing in the exploration, development and production of oil and natural gas. We are the dominant oil and
natural gas producer in offshore China and, in terms of reserves and production, we are also one of the largest independent oil
and natural gas exploration and production companies in the world. As of the end of 2015, we had net proved reserves of approximately
4.32 billion BOE (including approximately 0.3 billion BOE in our equity method investees). In 2015, we had a total net oil and
gas production of 1,358,022 BOE per day (including net oil and gas production of approximately 50,357 BOE per day in our equity
method investees).



Competitive Strengths



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



| | · | large
                                         and diversified asset base with significant exploitation opportunities;
| | - | ----------------------------------------------------------------------------------------------------------------------



| | · | sizable
                                         operating areas in offshore China with demonstrated exploration potential;
| | - | ---------------------------------------------------------------------------------------------------------------------------



| | · | successful
                                         independent exploration and development track record;
| | - | ---------------------------------------------------------------------------------------------------------



| | · | access
                                         to capital and technology and reduced risks through PSCs in offshore China; and
| | - | -------------------------------------------------------------------------------------------------------------------------------



| | · | experienced
                                         management team and a high level of corporate governance standard.
| | - | -----------------------------------------------------------------------------------------------------------------------



Large
and diversified asset base with significant exploitation opportunities



21


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We have a
large net proved reserve base spread across offshore China and globally. As of December 31, 2015, we had approximately 4.32 billion
BOE of net proved reserves. Our core operating area, offshore China, contributed to approximately 53.9% of our net proved reserves,
while overseas contributed to the balance of 46.1%.



In addition
to offshore China, we have a diversified global portfolio which provides us with further exploration and exploitation potential.
We have a strong track record of successfully acquiring and operating many quality overseas upstream assets worldwide. Currently,
we have assets in resource rich countries such as Indonesia, Australia, Nigeria, Uganda, the United States, Canada, the United
Kingdom and Brazil.



As of December
31, 2015, approximately 55.0% of our net proved reserves were classified as net proved undeveloped. Our large proved reserve base
gives us the opportunity to achieve substantial production growth.



Sizable
operating areas in offshore China with demonstrated exploration potential



We are the
dominant oil and gas producer in offshore China, a region that we believe has substantial exploration upside. As of December 31,
2015, our total major exploration areas acreage in offshore China was approximately 257,292 thousand km2. We believe
that offshore China is relatively underexplored, compared to other prolific offshore exploration areas such as the shallow water
of the U.S. Gulf of Mexico, providing us with substantial exploration upside.



We have maintained
an active drilling exploration program, which continues to demonstrate the exploration potential of offshore China. During 2015,
we and our foreign partners have together drilled a total of 123 exploratory wells in offshore China, of which 64 were wildcat
wells. During the same year, we and our foreign partners made 14 new discoveries in offshore China.



Successful
independent exploration and development track record



We have a
strong record of growing our reserves base for oil and natural gas, both independently and with our foreign partners through PSCs.
In recent years, we have been adding reserves and production mainly through independent exploration and development. As of the
end of 2015, in offshore China, approximately 85.7% of our net proved reserves were independent and approximately 73.8% of our
production came from independent projects.



In 2015,
in offshore China, our independent exploration resulted in 14 new discoveries. We also successfully appraised 20 oil and gas structures.
On the development front, our major new development projects progressed smoothly with 5 new projects on stream in offshore China.



Access
to capital and technology and reduced risks through PSCs in offshore China



CNOOC holds
exclusive right from the PRC government to enter into PSCs with foreign enterprises relating to the petroleum resources exploitation
in offshore China. CNOOC assigned us all of its rights and obligations under then-existing PSCs in 1999 and has undertaken to
assign to us its future PSCs except for those relating to its administrative functions. PSCs 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 under the usual case. Our foreign partners recover their exploration costs only when a commercially viable discovery
is made and production begins.



For more
information about PSC, see “Item 4—Information on the Company—Business Overview—Regulatory Framework in
the PRC.”



Experienced
management team and a high level of corporate governance standard



Our senior
management team has extensive experience in the oil and gas industry. Most of our executives have been with CNOOC, our controlling
shareholder, since its inception in 1982. Many of our



22


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management
team and staff members have worked closely with international partners both within and outside China through numerous joint operations.



We have a
proven track record of complying with a high level of corporate governance standard, which was recognized by the industry. For
example, we were awarded the “2015 Best CSR” and “2015 Best Investor Relations Company” by Corporate Governance
Asia Magazine and the “2015 Corporate Governance awards – Platinum” by The Asset in 2015.



Business Strategy



We intend
to continue expanding our oil and gas exploration and production activities. The principal components of our strategy are as follows:



| | · | focus
                                         on reserve and production growth;
| | - | --------------------------------------------------------------------------------



| | · | develop
                                         natural gas business; and
| | - | --------------------------------------------------------------------------



| | · | maintain
                                         a prudent financial policy.
| | - | -----------------------------------------------------------------------------



Focus
on reserve and production growth



As an upstream
company specializing in the exploration, development, production and sales of oil and natural gas, we consider reserve and production
growth as our top priorities. We plan to increase our reserves and production through drill bits and value-driven acquisitions.
We will continue to concentrate our independent exploration efforts on major operating areas, especially offshore China. In the
meantime, we will continue to cooperate with our partners through production sharing contracts to lower capital requirements and
exploration risks.



We increase
our production primarily through the development of proved undeveloped reserves. As of 31 December 2015, approximately 55.0% of
our proved reserves were classified as proved undeveloped, which provides a solid resource base for maintaining stable production
in the future.



Develop
natural gas business



We
will continue to develop the natural gas market, and continue to explore and develop natural gas fields. In the event that we
invest in businesses and geographic areas where we have limited experience and expertise, we plan to structure our investments
in the form of alliances or partnerships with partners possessing the relevant experience and expertise.



Maintain
a prudent financial policy



We will continue
to maintain our prudent financial policy. As an essential part of our corporate culture, we continue to promote cost consciousness
among both our management team and employees. Also, in our performance evaluation system, cost control has been one of the most
important key performance indicators.



Aiming to
reduce operating cost, we plan to actively promote the regional development of oil and gas fields and apply cutting-edge offshore
engineering, drilling and production technologies to our operations.In 2015, we emphasized the “Year of Quality and Efficiency” program, with efforts to control costs and increase
efficiency. Operating expense per BOE lowered for the second consecutive year.



Currently,
we have a healthy financial position. Under low oil price environment, we attached more importance to cash flow management and
continued to balance capex, dividend payment and debt financing.



23


Table of Contents


Selected Operating and Reserves
Data



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



Our reserve
data for 2013, 2014 and 2015 were prepared in accordance with the SEC’s final rules on “Modernization of Oil and Gas
Reporting”, which became effective for accounting periods ended on or after December 31, 2009.



|                                                                        |  | Year ended December 31,
|----------------------------------------------------------------------- |  | -----------------------
|                                                                        |  | 2013                   
|Net Production(2):                                                      |  |                        
|Oil (daily average bbls/day)                                            |  |                        
|Gas (daily average mmcf/day)                                            |  |                        
|Oil equivalent (BOE/day)                                                |  |                        
|                                                                        |  |                        
|Net Proved Reserves (end of period):                                    |  |                        
|Oil (mmbbls)                                                            |  |                        
|Gas (bcf)                                                               |  |                        
|Synthetic Oil (mmbbls)                                                  |  |                        
|Bitumen (mmbbls)                                                        |  |                        
|Total (million BOE)                                                     |  |                        
|Total with equity method investees (million BOE)(2)                     |  |                        
|Annual reserve replacement ratio(1)                                     |  |                        
|Annual reserve replacement ratio(2)                                     |  |                        
|Estimated reserve life (years)                                          |  |                        
|Estimated reserve life (years)(2)                                       |  |                        
|Standardized measure of discounted future net cash   flow (million Rmb) |  |                        

__________

| | (1) | For information on the calculation
                                         of this ratio, see “Terms and Conventions—Glossary of Technical Terms—reserve
                                         replacement ratio.”
| | --- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | (2) | Including our interest in equity
                                         method investees.
| | --- | -------------------------------------------------------------------------------------------



For further
information regarding our reserves, see “Item 3—Key Information—Risk Factors—Risks Relating to Our Operations—The
oil and gas reserve estimates in this annual report may require substantial revision as a result of future drilling, testing,
production and oil and gas price changes” and “Item 4—Information on the Company—Business Overview—Exploration,
Development and Production.”



Summary of Oil and Gas
Reserves



24


Table of Contents


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



|                                   |  | Net proved reserves at December 31, |         | Net proved reserves at December 31, 2015
|---------------------------------- |  | ----------------------------------- | ------- | ----------------------------------------
|                                   |  |                                     |         |                                         
|                                   |  | 2013                                |         | 2014                                    
|                                   |  | (mmboe)                             |         | (mmboe)                                 
|Developed                          |  |                                     |         |                                         
|Offshore China                     |  |                                     |         |                                         
|Bohai                              |  |                                     | 533.7   |                                         
|Western South China Sea            |  |                                     | 210.8   |                                         
|Eastern South China Sea            |  |                                     | 176.4   |                                         
|East China Sea                     |  |                                     | 5.9     |                                         
|Subtotal                           |  |                                     | 926.8   |                                         
|Overseas                           |  |                                     |         |                                         
|Asia (excluding China)             |  |                                     | 98.9    |                                         
|Oceania                            |  |                                     | 44.4    |                                         
|Africa                             |  |                                     | 58.9    |                                         
|North America (excluding Canada)   |  |                                     | 116.7   |                                         
|Canada                             |  |                                     | 241.4   |                                         
|South America                      |  |                                     | 1.7     |                                         
|Europe                             |  |                                     | 132.6   |                                         
|Subtotal                           |  |                                     | 694.6   |                                         
|Total Developed                    |  |                                     | 1,621.3 |                                         
|                                   |  |                                     |         |                                         
|Undeveloped                        |  |                                     |         |                                         
|Offshore China                     |  |                                     |         |                                         
|Bohai                              |  |                                     | 646.1   |                                         
|Western South China Sea            |  |                                     | 438.7   |                                         
|Eastern South China Sea            |  |                                     | 366.3   |                                         
|East China Sea                     |  |                                     | 64.4    |                                         
|Subtotal                           |  |                                     | 1,515.5 |                                         
|Overseas                           |  |                                     |         |                                         
|Asia (excluding China)             |  |                                     | 141.7   |                                         
|Oceania                            |  |                                     | 47.7    |                                         
|Africa                             |  |                                     | 96.5    |                                         
|North America (excluding Canada)   |  |                                     | 116.5   |                                         
|Canada                             |  |                                     | 561.4   |                                         
|Europe                             |  |                                     | 38.0    |                                         
|Subtotal                           |  |                                     | 1,001.8 |                                         
|Total Undeveloped                  |  |                                     | 2,517.3 |                                         
|                                   |  |                                     |         |                                         
|TOTAL PROVED                       |  |                                     | 4,138.7 |                                         
|Equity method investees            |  |                                     | 288.9   |                                         
|Total with equity method investees |  |                                     | 4,427.6 |                                         

25


Table of Contents


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 non-independent operations in each of our operating areas.



Total
Net Proved Crude and Liquids Reserves(mmbbls)



|                                   |  | As of December 31, |         | As of December 31, 2015
|---------------------------------- |  | ------------------ | ------- | -----------------------
|                                   |  | 2013               |         | 2014                   
|Offshore China                     |  |                    |         |                        
|Bohai                              |  |                    | 1,087.6 |                        
|Western South China Sea            |  |                    | 228.3   |                        
|Eastern South China Sea            |  |                    | 357.0   |                        
|East China Sea                     |  |                    | 19.8    |                        
|Subtotal                           |  |                    | 1,692.6 |                        
|Overseas                           |  |                    |         |                        
|Asia (excluding China)             |  |                    | 83.6    |                        
|Oceania                            |  |                    | 15.9    |                        
|Africa                             |  |                    | 155.4   |                        
|North America (excluding Canada)   |  |                    | 175.0   |                        
|Canada                             |  |                    | 770.3   |                        
|South America                      |  |                    | 1.7     |                        
|Europe                             |  |                    | 166.0   |                        
|Subtotal                           |  |                    | 1,367.8 |                        
|Total                              |  |                    | 3,060.4 |                        
|Equity method entities             |  |                    | 199.3   |                        
|Total with equity method investees |  |                    | 3,259.7 |                        

__________

| | (1) | Including Synthetic oil 196.7 mmbbls.
| | --- | -------------------------------------



| | (2) | Including Synthetic oil 618.6 mmbbls.
| | --- | -------------------------------------



26


Table of Contents


Total
Net Proved Natural Gas Reserves(bcf)



|                                   |  | As
of December 31, |                                                   | As
of December 31, 2015
|---------------------------------- |  | ------------------ | ------------------------------------------------- | -----------------------
|                                   |  | 2013               |                                                   | 2014                   
|Offshore China                     |  |                    |                                                   |                        
|Bohai                              |  |                    | 552.9                                             |                        
|Western South China Sea            |  |                    | 2,505.4                                           |                        
|Eastern South China Sea            |  |                    | 1,114.2                                           |                        
|East China Sea                     |  |                    | 303.1                                             |                        
|Subtotal                           |  |                    | 4,475.6                                           |                        
|Overseas                           |  |                    |                                                   |                        
|Asia (excluding China)             |  |                    | 889.4                                             |                        
|Oceania                            |  |                    | 386.0                                             |                        
|Africa                             |  |                    | —                                                 |                        
|North America (excluding Canada)   |  |                    | 349.6                                             |                        
|Canada                             |  |                    | 195.0                                             |                        
|South America                      |  |                    | —                                                 |                        
|Europe                             |  |                    | 27.8                                              |                        
|Subtotal                           |  |                    | 1,847.7                                           |                        
|Total                              |  |                    | 6,323.3                                           |                        
|Equity method investees            |  |                    | 519.9                                             |                        
|Total with equity method investees |  |                    | 6,
                                         843.2 |                        





Total
Net Proved Reserves(million BOE)



|                                   |  | As of December 31, |         | As of December 31, 2015
|---------------------------------- |  | ------------------ | ------- | -----------------------
|                                   |  | 2013               |         | 2014                   
|Offshore China                     |  |                    |         |                        
|Bohai                              |  |                    | 1,179.7 |                        
|Western South China Sea            |  |                    | 649.6   |                        
|Eastern South China Sea            |  |                    | 542.7   |                        
|East China Sea                     |  |                    | 70.4    |                        
|Subtotal                           |  |                    | 2,442.3 |                        
|Overseas                           |  |                    |         |                        
|Asia (excluding China)             |  |                    | 240.6   |                        
|Oceania                            |  |                    | 92.0    |                        
|Africa                             |  |                    | 155.4   |                        
|North America (excluding Canada)   |  |                    | 233.2   |                        
|Canada                             |  |                    | 802.8   |                        
|South America                      |  |                    | 1.7     |                        
|Europe                             |  |                    | 170.6   |                        
|Subtotal                           |  |                    | 1,696.4 |                        
|Total                              |  |                    | 4,138.7 |                        
|Equity method investees            |  |                    | 288.9   |                        
|Total with equity method investees |  |                    | 4,427.6 |                        



Proved Reserves



As of December
31, 2015, we had proved reserves of 4,315.5 million BOE, including 2,215.0 million barrels of crude oil, 815.3 million barrels
of synthetic oil and 7,569.8 bcf of natural gas, representing a decrease of 162.5 million BOE as compared to proved reserves of
4,478.0 million BOE as of December 31, 2014.



27


Table of Contents


The changes
in our proved reserves mainly include:



lAn increase of 653.5 million BOE due to new discoveries and extensions, of which 73.3 million
BOE are developed and 580.2 million BOE are undeveloped, details ofwhichare described below:



| | Ø | Offshore
                                         China: the discoveries and extensions of oil and gas reserves in the amount of 515.1
                                         million BOE, which are primarily attributable
                                         to fields suchas Bozhong 34-9, Luda 21-2, Caofeidian6-4, Lingshui17-2 and Liuhua20-2 etc.; and
| | - | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | Ø» | Overseas:
                                         the discoveries and extensions of oil and gas reserves in the amount of 138.4 million
                                         BOE, which are primarily attributableto onshore and offshore fields in the United States.
| | -- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



lA decrease of 322.7 million BOE due to revision of previous estimates;



lThe production of 495.7 million BOE in 2015.



Proved Undeveloped Reserves
(PUD)



As of December
31, 2015, we had proved undeveloped reserves of 2,374.3 million BOE, including 1,017.7 million barrels of crude oil, 618.6 million
barrels of synthetic oil and 4,389.0 bcf of natural gas, representing an decrease of 162.1 million BOE as compared to proved undeveloped
reserves of 2,536.3 million BOE as of December 31, 2014.



The changes
in our proved undeveloped reserves mainly include:



lA decrease of 345.6 million BOE due to PUD converted to Proved Developed reserves (PD);



lA decrease of 396.6 million BOE due to revision of previous estimates;



lAn increase of 580.2 million BOE due to new discoveries and extensions, details of
whichare described below:



| | Ø | Offshore
                                         China: the discoveries and extensions of oil and gas reserves in the amount of 471.6
                                         million BOE, which are primarily attributable
                                         to fields such as Bozhong34-9, Luda 21-2, Caofeidian6-4, Lingshui17-2 and Liuhua20-2
                                         etc.; and
| | - | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | Ø | Overseas: the
                                         discoveries and extensions of oil and gas reserves in the amount of 108.6 million BOE
                                         which are primarily attributableto oil sands and shale gas fields in Canada, and onshore and offshore fields in the United
                                         States.
| | - | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



In 2015,
we had in total 345.6 million BOE PUD reserves converted to PD, or the PUD conversion rate was 13.6%.



In 2015,
we spent approximately US$4.1 billion on developing proved undeveloped reserves into proved developed reserves. US$3.7 billion,
or 90%, were spent on 26 major development projects in Bohai, Eastern South China Sea, Western South China Sea and Eastern South
China Sea in offshore China and Nigeria, the United Kingdom and the U.S. The remaining 10% was spent mainly on the infill drilling
programs in offshore China and Indonesia.



As of December
31, 2015, 52.0 million BOE of our proved undeveloped reserves were first booked before 2011. These proved undeveloped reserves
were mainly located in East China Sea, Bohai and Western South China Sea, including (i) 7.7 million BOE in East China Sea, which
are under construction; (ii) 19.7 million BOE in Bohai, including Jinzhou 20-2N oil field which is scheduled to be jointly developed
with newly discovered extensions; and (iii) 24.6 million BOE in Western South China



28


Table of Contents


Sea, including Wenchang 9-2/9-3/10-3
gas fields whose ODP was amended due to gas market change and expected to be online in 2018. The development of proved undeveloped
reserves relating to the above projects was not completed within five years from initial booking due to the specific circumstances
associated with the relevant development activities and delivery obligations. The Company books proved reserves for which development
is scheduled to commence after more than five years only if these proved reserves satisfy the SEC’s standards for attribution
of proved status and the Company’s management has reasonable certainty that these proved reserves will be produced.



Qualifications of Reserve
Technical Oversight Group and Internal Controls over Proved Reserves



Reserve
data contained in this disclosure is based on the definitions and disclosure guidelines contained in the SEC Title 17: “Code
of Federal Regulations–Modernization of Oil and Gas Reporting–Final Rule” in the Federal Register (SEC regulations),
released on January 14, 2009 and related accounting standards. Our proved reserves estimates were prepared using standard geological
and engineering methods generally accepted by the petroleum industry, and the definitions and standards of reserves required by
the SEC. Generally accepted methods for estimating reserves include volumetric calculations, material balance techniques, production
decline curves, pressure transient analysis, analogy with similar reservoirs, and reservoir simulation. The method or combination
of methods used is based on professional judgment and experience.



For 2013,
2014 and 2015, approximately 52%, 52% and 62 % respectively, of our reserves were evaluated by our internal reserves evaluation
staff, and the remaining were based upon estimates prepared by independent petroleum engineering consulting companies and reviewed
by us. Except as otherwise stated, all amounts of reserves in this report include our interests in equity method investees.



In 2015,
we engaged Ryder Scott Company, L.P. and Gaffney, Cline & Associates (Consultants) Pte Ltd. as independent third party consulting
firms to perform annual estimates for our net proved oil and gas reserves under our consolidated subsidiaries. For each independent
third party consulting firm, a report of third party letter has been prepared which summarizes the work undertaken, the assumptions,
data, methods and procedures they used and provides their reserves estimate. These reports have been included as appendices to
this document. Of the total net proved oil and gas reserves evaluated by our internal reserve evaluation staff, we engaged independent
third party consulting firms Ryder Scott Company, L.P., McDaniel & Associates Consultants Ltd. and DeGolyer and MacNaughton
to perform annual audits for over 65% of the internally evaluated reserves to provide validation of our processes and estimates.
For each independent third party consulting firm, a report of third party letter has been prepared which summarizes the work undertaken,
the assumptions, data, methods and procedures they used and concludes with their opinion concerning the reasonableness of the
estimated reserves quantities or reserves processes. These reports have been included as appendices to this document.



Based on
the extent and expertise of our internal reserves evaluation resources, our staff’s familiarity with our properties and
the controls applied to the evaluation process, we believe that the reliability of our internally generated estimates of reserves
and future net revenue is not materially less than that of reserves estimates
conducted by an independent qualified reserves evaluator.



Besides
engaging third parties to provide annual estimates and audits of our reserves, we also implement rigorous internal control systems
that monitor the entire reserves estimation procedures and certain key metrics in order to ensure that the process and results
of reserves estimates fully comply with the relevant SEC rules. As part of our efforts to improve the evaluation and oversight
of our reserves, we established the Reserve Management Committee, or RMC, which is led by one of our Executive Vice Presidents
and comprises the general managers of the relevant departments.



The RMC’s
main responsibilities are to:



| | · | review
                                         our reserve policies;
| | - | ---------------------------------------------------------------------



| | · | review
                                         our proved reserves and other categories of reserves; and
| | - | ---------------------------------------------------------------------------------------------------------



29


Table of Contents


| | · | select
                                         our reserve estimators and auditors.
| | - | ------------------------------------------------------------------------------------



The RMC
follows certain procedures to appoint our internal reserve estimators and reserve auditors, who are required to have undergraduate
degrees and at least five years and ten years of experience related to reserves estimation, respectively.



The reserves
estimators and auditors are required to be members of a professional society such as China Petroleum Society (CPS), and are required
to take the professional training and examinations as required by the professional society and us.



The RMC
delegates its daily operation to our Reserves Office, which is led by our Chief Reserves Supervisor. The Reserves Office is mainly
responsible for supervising reserves estimates and auditing. It reports to the RMC periodically and is independent from operating
divisions such as the exploration, development and production departments. Our Chief Reserve Supervisor has over 30 years’
experience in the oil and gas industry.



Exploration, Development
and Production



Summary



In
offshore China, the Company engages in oil and natural gas exploration, development and production in Bohai, Western South China
Sea, Eastern South China Sea and East China Sea, either independently or in cooperation with foreign partners through production
sharing contracts (“PSCs”). As of the end of 2015, approximately 53.9% of the Company’s net proved reserves
and approximately 65.2% of its net production were derived from offshore China.



In
its independent operations, the Company has been adding more reserves and production mainly through independent exploration and
development in offshore China. As of the end of 2015, approximately 85.7% of the Company’s net proved reserves and approximately
73.8% of its net production in offshore China were derived from independent projects.



In
its PSC operations, CNOOC, the Company’s controlling shareholder, has the exclusive right to explore and develop oil and
natural gas in offshore China in cooperation with foreign partners through PSCs. CNOOC has transferred to the Company all of its
rights and obligations under all the PSCs (except those relating to its management and regulatory function as a state-owned company),
including new PSCs that will be signed in the future.



Overseas,
following years of overseas development, the Company has essentially completed the layout of its global portfolio. Overseas assets
account for over 50% of the Company’s total assets. Currently, the Company holds interests in oil and natural gas blocks
in Indonesia, Australia, Nigeria, Uganda, Argentina, the U.S., Canada, the United Kingdom, Brazil and various other countries.



In 2015,
growth momentum of the world economy was sluggish. The downward pressure of the Chinese economy continued while international
oil prices remained low. The Company and the entire oil and gas industry faced severe market situation and difficult business
environment.



For this
reason, the Company continued to implement the “Year of Quality and Efficiency” program and carried out effective
measures to maintain healthy and sustainable development.



In 2015,
the Company persisted with strategies formulated at the beginning of the year, which includes, maintaining prudent financial policy
and investment decision; strengthening cost control and continuing to improve quality and efficiency; ensuring safe operation
of producing projects; keeping sanctioned projects on schedule with stringent quality control.



In 2015,
the Company significantly reduced its capital expenditure. However, the Company still reached its production and business targets
in spite of all difficulties. The Company managed to maintain appropriate exploration expenditures and intensive exploration activities,
and achieved successful results.



30


Table of Contents


Seven new
projects planned in early 2015 all came on stream. The high end of production target was met with a total volume of 495.7 million
BOE. To ensure sustainable development in the future, the Company steadily pushed ahead the construction of more than 20 projects.
All in cost per BOE was US$39.82, representing a decline for the second consecutive year. The Company has maintained a healthy
financial position with a net profit of Rmb 20.25 billion for the year. Meanwhile, health, safety and environmental protection
performance remained stable.



Looking
forward to 2016, the recovery of the global economy is expected to remain weak; low international oil prices will prevail, and
the external operating environment is likely to remain tough. In spite of this, the Company remains confident and persistent.
We will further strengthen our operating strategies under a low-oil-price environment, which include: maintaining prudent financial
policy; continuing to lower costs and increase efficiency through technology and management innovation; ensuring safe operation
and strict compliance with regulations; focusing on return by balancing short-term benefit and long-term development.



In 2016,
the capital expenditure of the Company will be no more than Rmb 60 billion. To maintain its competitive financial position, the
Company will continue to strengthen cost controls and focus more on cash flow management. Our production target for 2016 is 470-485
million BOE with four new projects to come on stream. Meanwhile, the Company will maintain its high standards in health, safety
and environmental protection.



Exploration



In
2015, the Company ensured its exploration spending in its core area, offshore China, and prioritized mature areas and rolling
areas, and made appropriate adjustment on the number of high cost wells such as deepwater wells; overseas, the Company collaborated
with its partners to optimize exploration program and focused on areas with high success rates. During the year, breakthroughs
were made in both offshore China and overseas exploration. Due to significant decrease in international oil prices, the reserve
replacement ratio for the Company is 67% for 2015.



In
offshore China, the exploration activities of the Company remained at a high level. In 2015, a total of approximately 13.0 thousand
kilometers of 2D Seismic Data was acquired independently; a total of approximately 16.5 thousand square kilometers of 3D Seismic
Data was acquired independently and through PSC, and 123 exploration wells were drilled. In addition, the Company completed 19
unconventional wells onshore China. 14 new discoveries were made and 20 oil and gas structures were successfully appraised. The
success rate of independent exploration wells in offshore China is 45-67%.



In
2015, the Company continued to implement a proactive exploration strategy in offshore China, resulting in successful achievements
including the following:



Firstly,
effectively completed the appraisal of three mid-to-large sized oil fields. The oil and gas structures of Caofeidian 6-4, Luda
16-3/Luda 16-3 South and Bozhong 34-9 in Bohai were successfully appraised, most of which being light oil.



Secondly,
remarkable achievements were made in rolling and expanding exploration in the North Slope of East Sag in Baiyun Trough in Eastern
South China Sea. Two discoveries of Liuhua 20-2 and Liuhua 21-2 were made which significantly enhanced the overall efficiency
of exploration and development in the region.



Thirdly,
breakthroughs were made in the expansion and new layer exploration in the central valley channels in Western South China Sea,
with the discovery of Lingshui 18-1, and successful appraisal of the oil and gas structure of Lingshui 25-1.



Fourthly,
with existing production facilities, the rolling exploration in Bohai has led to remarkable results, with the successful appraisal
of Bozhong 34-1N oil and gas structure. Aiming at high-abundance and high-quality reserves, the Company strengthened the integrated
exploration and development in Wushi Trough in Western South China Sea, and successfully appraised a number of oil



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fields around
Wushi 17-2, which enhanced the development efficiency of the region.



Such
achievements have further consolidated the position of offshore China as the core area of the Company and demonstrated the Company’s
unique strength in offshore China.



For
overseas exploration, the Company continued to focus on key areas and optimized its investment portfolio strategies for sustainable
development. New discoveries included REZ in Algeria and Ukot South in Nigeria. In addition, three oil and gas structures were
successfully appraised, including MAS and OGB in Algeria and Libra in Brazil, demonstrating the Company’s favorable exploration
progress overseas.



Furthermore,
the Company has enhanced its management through optimizing exploration portfolio and projects, improving management processes
and operational organization and reinforcing on-site operation management, integration of development and exploration and overseas
management. Specific measures carried out included: communicating actively with contractors to lower service prices; reinforcing
the refined management of exploration wells and reducing costs by focusing on details; enhancing operational efficiency through
technological innovation; and reinforcing the integration of exploration and development to enhance the overall benefits for the
Company through effective control of exploration costs.



In
2015, the Company utilized technological innovation to break through bottlenecks in exploration. The Company also increased operational
efficiency through technological innovations such as Single Trip Triple Large Coring. Breakthroughs were made in the sampling
process of heavy oil in Bohai. The well logging and testing for high-pressure-high-temperature wells also made progress.



The
Company’s major exploration activities in 2015 are set out in the table below:



|                            | Exploration
    Wells | New
    Discoveries | Successful
    Appraisal Wells | Seismic
    Data
|--------------------------- | --------------------- | ------------------- | ------------------------------ | ----------------
|Independent                 | PSC                   | 2D
    (km)         | 3D
    (km2)                  
|Wildcat                     | Appraisal             | Wildcat             | Appraisal                      | Independent     
|Offshore
    China          |                       |                     |                                |                 
|Bohai                       | 18                    | 32                  | 3                              | 0               
|Eastern
    South China Sea | 20                    | 7                   | 1                              | 0               
|Western
    South China Sea | 16                    | 15                  | 3                              | 0               
|East
    China Sea          | 1                     | 5                   | 2                              | 0               
|Subtotal                    | 55                    | 59                  | 9                              | 0               
|Overseas                    | 0                     | 0                   | 8                              | 5               
|Total                       | 55                    | 59                  | 17                             | 5               





In 2016,
the Company will prioritize offshore China, and balance among mature areas, rolling areas and new areas. We will focus on high-quality
blocks and conventional oil and gas exploration overseas. The Company will continue to maintain heavy exploration workload to
ensure mid- to long-term sustainable development.



Engineering Construction,
Development and Production



In
2015, the Company successfully completed its production target and reached the high end of the target set early this year. The
Company carefully organized its operational resources and made smooth



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progress
in engineering construction. There were more than 20 projects under construction in 2015. Currently, seven projects planned for
2015 came on stream.



In
2015, the Company’s net oil and gas production reached 495.7 million BOE, representing an increase of 14.6% year over year
and hit the high end of the production target of 475-495 million BOE. To date, new projects planned for 2015, Jinzhou 9-3 comprehensive
adjustment, Bozhong 28/34 comprehensive adjustment, Kenli 10-1 oil field, Dongfang 1-1 phase I adjustment and Luda 10-1 comprehensive
adjustment, commenced production in the year; Weizhou 11-4N oilfield phase II and Weizhou 12-2 oilfield joint development project
were announced to commence production early 2016.



In
2015, the Company’s development and production faced tremendous pressure due to the continuous slump in international oil
prices. Therefore, while ensuring production safety, the Company focused on enhancing efficiency and lowering costs in its development
and production operations, and was able to achieve its annual development and production targets during the year.



Firstly,
we focused on return in feasibility study projects and significantly reduced development investments. We achieved this mainly
by optimizing designs and investment.



Secondly,
we strictly controlled the quality of geology and reservoirs designs and promoted the risk-resistance capacity of new projects.
This will help us ensure that various development indicators are achieved for infill drilling, comprehensive adjustment projects
and new oil and gas fields.



Thirdly,
we conducted special programs to lower operating expenses and established a long-term mechanism to solidify the achievements,
which resulted in the successful control of operating costs. By utilizing market mechanisms, service and supply costs have also
been lowered.



Fourthly,
the number of projects and production expenditures were effectively controlled through project screening, budget controls and
process management. Meanwhile, through changes in the performance review system of business units, their motivation of cost control
was strengthened.



Looking
forward to 2016, the workload of onshore construction and offshore installation will remain stable. A total of four new projects
are expected to commence production, including Kenli 10-4 oilfield, Panyu 11-5 oilfield, Weizhou 6-9/6-10 oilfield comprehensive
adjustment project and Enping 18-1 oilfield. Among them, Kenli 10-4 oilfield already commenced production in January 2016. In
addition, it is expected that nearly 20 new projects will be under construction in 2016 and support the Company’s sustainable
growth in the future.



In
2016, the Company’s development and production are expected to face a harsh external environment due to pressure from international
oil prices. The Company will undertake its various tasks with emphasis on the following areas:



Firstly,
we will drive the feasibility study for major early-stage projects to further lower cost and enhance efficiency. We will strictly
control the quality of geological reservoir designs of early-stage projects and strengthen the study on the producing reserves
and recoverable reserves.



Secondly,
we will further develop the potential of mature oil fields and slow down its production decline. With oil reservoirs as the focus,
we will intensify the basic work of improving water injection and liquid production structures through the meticulous study of
mature oil fields and reformation of management concepts.



Thirdly,
we will strengthen the post evaluation of the ODP project, infill drilling and workover, establish scientific assessment criteria,
and explore the potential to further reduce costs and enhance efficiency.



Through
the above key measures, the Company will prioritize return, strive to achieve its annual production target and lay a solid foundation
for its long-term sustainable growth.



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Table of Contents


Regional Overview



Offshore China



Bohai



Bohai
is the most important crude oil producing area for the Company. The crude oil produced in this region is mainly heavy oil. As
of the end of 2015, the reserve and daily production volume in Bohai were 971.8 million BOE and 500,719 BOE/day, respectively,
representing approximately 22.5% and 36.9% of the Company’s total reserves and daily production, respectively. The operation
area in Bohai is mainly shallow water with a depth of 10 to 30 meters.



Bohai
has rich oil and gas resources and has been one of the Company’s primary areas for exploration and development. In 2015,
the Company made seven successful discoveries in Bohai, namely Penglai 7-6, Luda 16-3, Caofeidian 6-1, Penglai 31-3 South, Bozhong
29-4 West, Nanbao 35-2 South and West Bozhong 34-1 North. Successful results were made in frontier exploration in Miaoxinan Uplift;
light crude oil discovery was made in Guantao Group in Southeast Ring of Dabozhong and contributed to the sustainable development
of the Company. In addition, the Company also successfully appraised 13 oil and gas structures, including Caofeidian 6-4, Bozhong
34-9, Luda 16-3, Luda 16-3 South, Bozhong 34-1 North, Bozhong 29-1, Qinhuangdao 27-3, Kenli 10-1, Caofeidian 6-1, Bozhong 26-3,
Jinzhou 20-5, Bozhong 26-3 and Bozhong 19-4. Among which, Caofeidian 6-4, Luda 16-3/Luda 16-3 South and Bozhong 34-9 structures
were proved to be mid-to-large sized oilfields after appraisals. Bozhong 34-1 North represents the fruitful results that arose
from the concept of integration of exploration and development, which helped enhance the value of regional development.



These
new discoveries and successful appraisals further demonstrated Bohai’s potential as a core production region for the Company.



For
development and production, new projects including Jinzhou 9-3 comprehensive adjustment, Qinhuangdao 32-6 comprehensive adjustment,
Kenli 10-1 oilfield, Bozhong 28/34 oilfields comprehensive adjustment and Luda 10-1 oilfield comprehensive adjustment commenced
production during the year, adding impetus to the Company’s production growth.



Western
South China Sea



Western
South China Sea is one of the most important natural gas production areas for the Company. Currently, the typical water depth
of the Company’s operation area in this region ranges from 40 to 120 meters. As of the end of 2015, the reserves and daily
production volume in Western South China Sea reached 672.6 million BOE and 143,676 BOE/day, respectively, representing approximately
15.6% and 10.6% of the Company’s total reserves and daily production, respectively.



In
2015, the Company made five new independent discoveries in Western South China Sea, namely Wushi 16-1 West, Wushi 17-5, Wushi
16-9, Lingshui 18-1 and Lingshui 18-2. Of which, Lingshui 18-2 is a new natural gas discovery obtained from the new layer of the
central valley channels and was tested with high production capacity. Five successful appraisals were made, namely Wushi 16-9,
Wushi 16-1 West, Weizhou 6-8, Wushi 17-5 and Lingshui 25-1. Of which, Lingshui 25-1 was confirmed to be a mid-to-large sized natural
gas structure after appraisal; integration of exploration and development was promoted in Wushi Trough, with Wushi 16-9, Wushi
16-1 West and Wushi 17-5 being successfully appraised, enhancing the value of regional development.



For
development, Dongfang 1-1 gas field phase I adjustment came on stream in 2015, Weizhou 12-2 oilfield joint development project
and Weizhou 11-4 North oilfield phrase II were announced to start production at the beginning of 2016.



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Table of Contents


Eastern South China Sea



Eastern
South China Sea is one of the Company’s most important crude oil producing areas. Currently, the typical water depth of
the Company’s operation area in this region ranges from 100 to 300 meters. The crude oil produced is mostly of light to
medium gravity. As of the end of 2015, the reserves and daily production volume in Eastern South China Sea reached 515.6 million
BOE and 229,679 BOE/ day, respectively, representing approximately 11.9% and 16.9% of the Company’s total reserves and daily
production, respectively.



In
2015, the Company made favorable results in rolling and expanding exploration in the North Slope of East Sag in Baiyun Trough.
Two independent discoveries were made, namely Liuhua 20-2 and Liuhua 21-2, improving the overall efficiency of exploration and
development in the region. In addition, two successful appraisals were made, namely Liuhua 28-2 and Lufeng 14-4.



Benefitting
from the contribution of a few new projects such as Liwan 3-1 gas field which commenced production in 2014, the production output
in Eastern South China Sea increased significantly.



East
China Sea



The
typical water depth of the Company’s operation area in the East China Sea region is approximately 90 meters. As of the end
of 2015, approximately 3.8% of the Company’s reserves and 0.9% of the Company’s production were derived from East
China Sea.



Overseas



Asia (excluding China)



Asia
(excluding China) was the first overseas region that the Company entered into and has become one of its major overseas oil and
gas producing areas. Currently, the Company holds oil and gas assets mainly in Indonesia and Iraq. As of the end of 2015, the
reserves and daily production volume derived from Asia (excluding China) reached 208.9 million BOE and 70,987 BOE/day, respectively,
representing approximately 4.8% and 5.2% of the Company’s total reserves and daily production, respectively.



Indonesia



As
of the end of 2015, the Company’s asset portfolio in Indonesia consisted of three development and production blocks and
a block under construction, among which, the Company acted as the operator for the Southeast Sumatra block, while the Madura Strait
PSC was a joint operation block. In addition, the Company, as a non-operator, also holds working interests in the production sharing
contracts in Malacca PSC.



The
Company owns approximately 13.90% interest in the Tangguh LNG Project in Indonesia. In 2015, production volume of phase I of the
Project remained stable. Currently, we are preparing for the development of the third LNG train of Phase II, which is expected
to be completed and commence production in 2019.



Iraq



The
Company holds 63.75% participating interest in the technical service contract of Missan oilfields in Iraq and acts as the lead
contractor of these oilfields.



In
2015, faced with the severe security conditions in Iraq, as well as declining production of mature oilfields and other difficulties,
the Company coordinated the development and production operations, strengthened its oil reservoir study, and adopted effective
measures to increase production volume of mature wells. The newly drilled wells also achieved expected production levels. In 2015,
the production of Missan oilfields increased steadily and averaged approximately 28,000 barrels per day.



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Table of Contents


Oceania



Currently,
the Company’s oil and gas assets in Oceania are mainly located in Australia and Papua New Guinea. As of the end of 2015,
the reserves and daily production volume derived from Oceania reached 90.8 million BOE and 21,673 BOE/day, respectively, representing
approximately 2.1% and 1.6% of the Company’s total reserves and daily production, respectively.



Australia



The
Company owns 5.3% interest in the Australian North West Shelf LNG Project. The project has commenced production and is currently
supplying gas to end-users including the Dapeng LNG Terminal in Guangdong, China.



In
2015, the North West Shelf LNG Project generated stable production and achieved favorable economic returns.



The
Company also owns one exploration block in Australia, which is currently under appraisal.



Other
Regions in Oceania



The
Company owns interests in four blocks which are still under exploration in Papua New Guinea and a joint research block in New
Zealand.



Africa



Africa
is one of the relatively large oil and gas reserves and production base for the Company. The Company’s assets in Africa
are primarily located in Nigeria and Uganda. As of the end of 2015, the reserves and daily production volume derived from Africa
reached 166.6 million BOE and 83,677 BOE/day, respectively, representing approximately 3.9% and 6.2% of the Company’s total
reserves and daily production, respectively.



Nigeria



The
Company owns 45% interest in the OML130 block in Nigeria. OML130 is a deepwater project comprised of four oilfields, namely, Akpo,
Egina, Egina South and Preowei.



In
2015, the Akpo oilfield maintained stable production and its net production averaged approximately
64,000 barrels per day. The Egina project is currently at the construction stage, with construction of production facilities such
as Christmas trees and FPSO undergoing.



In
addition, Nexen Petroleum Nigeria Limited holds a 20% non-operating interest in Usan oilfield in the OML138 block in offshore
Nigeria, together with a number of other discoveries and exploration targets. Nexen Petroleum Nigeria Limited made a new discovery
in the area in 2015, namely Ukot South. Also, Nexen Petroleum Exploration & Production Nigeria Limited and Nexen Petroleum
Deepwater Nigeria Limited hold an 18% non-operating interest in the OPL 223 and OML 139 PSC, respectively.



We
plan to utilize the synergy of Usan and OML130 projects to establish an oil and gas production base in west Africa.



Uganda



The
Company owns one-third of the interest in each of EA 1, EA 2 and EA 3A in Uganda. EA 1, EA 2 and EA 3A are located at Lake Albert
Basin in Uganda, which is one of the most promising basins for oil and gas resources in Africa.



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In
2015, the Company, as the operator of EA 3A, took great efforts to promote the development of the Kingfisher oilfield. The field
is still under research at the preliminary development stage, and has currently completed the Pre-FEED of the crude oil pipeline.



In
2015, the FDP/PRR preparation for all oil and gas fields (excluding Kingfisher) in the reserved areas in the EA 1 and EA 2 blocks,
in accordance with the government’s review requirements, were completed and submitted to the government of Uganda for the
application of production licenses, and is currently awaiting government’s approval.



Other
Regions in Africa



Apart
from Nigeria and Uganda, the Company also owns interests in several blocks in Equatorial Guinea, the Republic of the Congo, Algeria
and the Gabonese Republic. In 2015, the Company made a new discovery in REZ structure in Algeria.



North
America



North
America has become the biggest overseas reserves and production region of the Company. The Company holds interests in oil and
gas assets in the U.S., Canada and Trinidad and Tobago, as well as part of the shares of MEG Energy Corporation in Canada. As
of the end of 2015, the Company’s reserves and daily production volume derived from North America reached 1,120.0 million
BOE and 135,030 BOE/day, respectively, representing approximately 26.0% and 10.0% of the Company’s total reserves and daily
production, respectively.



The
U.S.



The
Company currently holds 33.3% interest in two shale oil and gas projects in the U.S., namely the Eagle Ford and Niobrara shale
oil and gas projects.



In
2015, along with the increasing number of wells drilled, the net production of the Eagle Ford project continued to increase and
averaged approximately 60,000 BOE/day. At the same time, upon the identification of the core region of the Powder River Basin
for the Niobrara project, the project began to make contribution to the Company. Under the current low oil price environment,
our operators have slowed down asset development, which will impact our near-term production due to natural decline.



In
addition, the Company owns interest in two major deep-water developments, Stampede and Appomattox, and a number of other exploration
blocks in the U.S. Gulf of Mexico, through its wholly-owned subsidiary, Nexen Energy ULC (“Nexen”). The Company also
owns interests in several exploration blocks in offshore Alaska.



Canada



Canada
is one of the world’s major regions with rich oil sands resources, participation in oil sands development will be favorable
to the sustainable growth of the Company. In Canada, the Company, through its subsidiary, Nexen, owns 100% working interest in
the oil sands project located at the Long Lake as well as three other oil sands leases in the Athabasca region in northeastern
Alberta. We also hold a 7.23% interest in the Syncrude project and a 25% interest in several other non-operated exploration and
development leases.



In
2015, the Company continued the development of the Long Lake project. Its net production averaged approximately 30,000 BOE/day.
For the oil sands project in Canada, under the low oil price environment, the Company will leverage on its overall advantages,
lower cost and enhance efficiency, and control the pace of investment to provide a solid resource safeguard for its long-term
development.



In
addition, the Company holds approximately 12.39% of the shares of MEG Energy Corporation in Canada, which is listed on the Toronto
Stock Exchange. The Company also owns a 60% interest in Northern Cross (Yukon) Limited, which owns oil and gas exploration blocks
in the Yukon Province in



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Canada.



Other
Regions in North America



The
Company owns 12.5% interest in the 2C block and a 12.75% interest in the 3A block in Trinidad and Tobago, respectively, of which
the 2C block is in production. The engineering construction of phase III of the natural gas project progressed smoothly, and is
expected to come on stream in the second half of 2016.



South
America



In
South America, the Company mainly holds a 50% interest in Bridas Corporation (“Bridas”) and a 10% interest in the
PSC of the Libra oilfield in Brazil, among which, the Company’s 50% interest in Bridas is accounted for by equity methods.
As of the end of 2015, the Company’s reserves and daily production volume derived from South America reached 299.4 million
BOE and 49,884 BOE/day, respectively, representing approximately 6.9% and 3.7% of the Company’s total reserves and daily
production, respectively.



Argentina



The
Company holds a 50% interest in Bridas and makes joint management decisions. Bridas holds 40% interest in Pan American Energy
(“PAE”) in Argentina and 100% interest in AXION Refinery. Bridas engages in upstream oil and gas exploration and production
activities as well as downstream refining activities in Argentina and other countries. The strength of upstream and downstream
integration is gradually realized.



In
2015, the Company made considerable efforts to maintain normal operations and production in the operating areas and endeavored
to overcome the bottleneck of operational resources, coordinate resources and improve operational efficiency. The production of
Bridas increased slightly to approximately 49,000 BOE/day. The downstream refinery maintains a high level of operation capacity
and research on facilities upgrade and expansion is currently conducting.



Brazil



The
Company holds a 10% interest in the Libra PSC, a deepwater pre-salt project in Brazil. The oilfield is located in the Santos Basin,
with a block area of about 1,550 km2 and water depth of about 2,000 meters.



In
2015, a successful appraisal was made in the Libra project, which further reinforced the confidence in exploration and appraisal
in the block.



Brazil
is one of the world’s most important deepwater oil and gas development regions. The Company will fully leverage on the development
opportunities of the Libra project in Brazil to seek a new growth point for production growth.



Other
Regions in South America



The
Company also holds interests in several exploration and production blocks in Colombia.



Europe



The
Company holds interests in several oil and gas fields such as Buzzard and Golden Eagle in the North Sea. As of the end of 2015,
the Company’s reserves and daily production volume derived from Europe reached 103.8 million BOE and 110,842 BOE/day, respectively,
representing approximately 2.4% and 8.2% of the Company’s total reserves and daily production, respectively.



United
Kingdom



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The
Company’s asset portfolio in the North Sea consists of projects under production, development and exploration, mainly including:
a 43.2% interest in the Buzzard oilfield, one of the largest oilfield in the North Sea, and a 36.5% interest in the Golden Eagle
oilfield, making the Company the largest crude oil operator in the North Sea.



The
United Kingdom is one of the Company’s key overseas areas, as several key projects such as Buzzard and Golden Eagle have
contributed considerably to the Company’s production. In 2015, the net production of Buzzard oilfield averaged approximately
72,000 barrels per day. In the future, we will continue to intensify our efforts in the oil and gas development in the UK, and
actively look for potential exploration and development blocks in order to achieve a stable and sustainable development in the
region.



Other
Regions in Europe



The
Company holds a license issued by the government of Iceland for carrying out oil exploration operations in the Norwegian Sea,
Northeast Iceland. The project is at exploration and appraisal stage and completed offshore 2D seismic data acquisition and related
appraisal work.



Other Oil and Gas Data



Oil and Gas Production,
Production Prices and Production Costs



The
following table sets forth our net production, average sales price and average production cost (excluding ad valorem and severance
taxes) in the years of 2013, 2014 and 2015.



|                                 |  | Net
Production |           | Average
Sales Price |  | Average
Production Cost
|-------------------------------- |  | -------------- | --------- | ------------------- |  | -----------------------
|                                 |  | Total          |           | Crude and Liquids   |  | Gas                    
|                                 |  | (BOE/day)      |           | (Bbls/day)          |  | (Mmcf/day)             
|2015                             |  |                |           |                     |  |                        
|Offshore China                   |  |                |           |                     |  |                        
|Bohai                            |  |                | 500,719   |                     |  |                        
|Western South China Sea          |  |                | 143,676   |                     |  |                        
|Eastern South China Sea          |  |                | 229,679   |                     |  |                        
|East China Sea                   |  |                | 10,271    |                     |  |                        
|Subtotal                         |  |                | 884,346   |                     |  |                        
|Overseas                         |  |                |           |                     |  |                        
|Asia (excluding China)           |  |                | 70,987    |                     |  |                        
|Oceania                          |  |                | 21,673    |                     |  |                        
|Africa                           |  |                | 83,677    |                     |  |                        
|North America (excluding Canada) |  |                | 76,915    |                     |  |                        
|Canada                           |  |                | 58,115    |                     |  |                        
|South America                    |  |                | 1,110     |                     |  |                        
|Europe                           |  |                | 110,842   |                     |  |                        
|Subtotal                         |  |                | 423,319   |                     |  |                        
|Total                            |  |                | 1,307,664 |                     |  |                        
|Equity method investees          |  |                | 50,357    |                     |  |                        
|                                 |  |                |           |                     |  |                        
|2014                             |  |                |           |                     |  |                        
|Offshore China                   |  |                |           |                     |  |                        
|Bohai                            |  |                | 426,913   |                     |  |                        

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|Western South China Sea          |  |  | 138,972   |  |  |  | 80,493  |  |  |  | 341.7   |  |  |  | —      |  |  |  | —     |  |  |  | —     | 
|-------------------------------- |  |  | --------- |  |  |  | ------- |  |  |  | ------- |  |  |  | ------ |  |  |  | ----- |  |  |  | ----- | 
|Eastern South China Sea          |  |  | 163,970   |  |  |  | 141,166 |  |  |  | 136.8   |  |  |  | —      |  |  |  | —     |  |  |  | —     | 
|East China Sea                   |  |  | 5,678     |  |  |  | 1,206   |  |  |  | 26.8    |  |  |  | —      |  |  |  | —     |  |  |  | —     | 
|Subtotal                         |  |  | 735,533   |  |  |  | 626,791 |  |  |  | 643.3   |  |  |  | 98.19  |  |  |  | 7,573 |  |  |  | 9.73  | 
|Overseas                         |  |  |           |  |  |  |         |  |  |  |         |  |  |  |        |  |  |  |       |  |  |  |       | 
|Asia (excluding China)           |  |  | 65,280    |  |  |  | 37,237  |  |  |  | 154.4   |  |  |  | 95.23  |  |  |  | 9,636 |  |  |  | 18.21 | 
|Oceania                          |  |  | 26,092    |  |  |  | 4,297   |  |  |  | 111.2   |  |  |  | 100.08 |  |  |  | 3,163 |  |  |  | 9.41  | 
|Africa                           |  |  | 76,838    |  |  |  | 76,838  |  |  |  | —       |  |  |  | 96.91  |  |  |  | —     |  |  |  | 9.19  | 
|North America (excluding Canada) |  |  | 68,396    |  |  |  | 49,814  |  |  |  | 112.7   |  |  |  | 73.47  |  |  |  | 752   |  |  |  | 6.57  | 
|Canada                           |  |  | 67,770    |  |  |  | 48,183  |  |  |  | 117.5   |  |  |  | 85.66  |  |  |  | 3,690 |  |  |  | 41.09 | 
|South America                    |  |  | 1,058     |  |  |  | 1,058   |  |  |  | —       |  |  |  | 86.36  |  |  |  | 5,120 |  |  |  | 14.80 | 
|Europe                           |  |  | 96,370    |  |  |  | 87,918  |  |  |  | 50.7    |  |  |  | 97.79  |  |  |  | 7,206 |  |  |  | 12.69 | 
|Subtotal                         |  |  | 401,804   |  |  |  | 305,345 |  |  |  | 546.6   |  |  |  | 91.62  |  |  |  | 5,120 |  |  |  | 16.45 | 
|Total                            |  |  | 1,137,337 |  |  |  | 932,137 |  |  |  | 1,189.9 |  |  |  | 96.04  |  |  |  | 6,445 |  |  |  | 12.11 | 
|Equity method investees          |  |  | 47,640    |  |  |  | 23,510  |  |  |  | 140.2   |  |  |  | —      |  |  |  | —     |  |  |  | —     | 
|                                 |  |  |           |  |  |  |         |  |  |  |         |  |  |  |        |  |  |  |       |  |  |  |       | 
|2013                             |  |  |           |  |  |  |         |  |  |  |         |  |  |  |        |  |  |  |       |  |  |  |       | 
|Offshore China                   |  |  |           |  |  |  |         |  |  |  |         |  |  |  |        |  |  |  |       |  |  |  |       | 
|Bohai                            |  |  | 413,650   |  |  |  | 392,413 |  |  |  | 127.4   |  |  |  | —      |  |  |  | —     |  |  |  | —     | 
|Western South China Sea          |  |  | 132,284   |  |  |  | 75,606  |  |  |  | 330.5   |  |  |  | —      |  |  |  | —     |  |  |  | —     | 
|Eastern South China Sea          |  |  | 166,778   |  |  |  | 141,545 |  |  |  | 151.4   |  |  |  | —      |  |  |  | —     |  |  |  | —     | 
|East China Sea                   |  |  | 5,072     |  |  |  | 872     |  |  |  | 25.2    |  |  |  | —      |  |  |  | —     |  |  |  | —     | 
|Subtotal                         |  |  | 717,784   |  |  |  | 610,435 |  |  |  | 634.5   |  |  |  | 106.86 |  |  |  | 6,323 |  |  |  | 10.06 | 
|Overseas                         |  |  |           |  |  |  |         |  |  |  |         |  |  |  |        |  |  |  |       |  |  |  |       | 
|Asia (excluding China)           |  |  | 54,529    |  |  |  | 28,997  |  |  |  | 140.3   |  |  |  | 105.40 |  |  |  | 8,193 |  |  |  | 23.65 | 
|Oceania                          |  |  | 23,909    |  |  |  | 4,533   |  |  |  | 98.2    |  |  |  | 118.48 |  |  |  | 3,151 |  |  |  | 9.61  | 
|Africa                           |  |  | 77,343    |  |  |  | 77,343  |  |  |  | —       |  |  |  | 108.29 |  |  |  | —     |  |  |  | 7.54  | 
|North America (excluding Canada) |  |  | 62,496    |  |  |  | 44,245  |  |  |  | 109.5   |  |  |  | 79.59  |  |  |  | 3,632 |  |  |  | 8.47  | 
|Canada                           |  |  | 57,534    |  |  |  | 39,872  |  |  |  | 106.0   |  |  |  | 90.52  |  |  |  | 2,901 |  |  |  | 45.58 | 
|South America                    |  |  | 960       |  |  |  | 960     |  |  |  | —       |  |  |  | 97.62  |  |  |  | —     |  |  |  | 13.98 | 
|Europe                           |  |  | 88,241    |  |  |  | 83,460  |  |  |  | 28.7    |  |  |  | 103.58 |  |  |  | 9,700 |  |  |  | 12.38 | 
|Subtotal                         |  |  | 365,010   |  |  |  | 279,409 |  |  |  | 482.7   |  |  |  | 99.67  |  |  |  | 5,067 |  |  |  | 17.42 | 
|Total                            |  |  | 1,082,795 |  |  |  | 889,845 |  |  |  | 1,117.1 |  |  |  | 104.60 |  |  |  | 5,780 |  |  |  | 12.54 | 
|Equity method investees          |  |  | 45,173    |  |  |  | 22,758  |  |  |  | 130.2   |  |  |  | —      |  |  |  | —     |  |  |  | —     | 
|                                 |  |  |           |  |  |  |         |  |  |  |         |  |  |  |        |  |  |  |       |  |  |  |       | 





|
|







Drilling and Other Exploratory
and Development Activities



The following
table sets forth our net exploratory wells and development wells drilled in the years of 2013, 2014 and 2015.



|               |       | Net
Exploratory Wells Drilled |  | Net
Development Wells Drilled
|-------------- | ----- | ----------------------------- |  | -----------------------------
|               |       | Total                         |  | Productive                   
|2015           |       |                               |  |                              
|Offshore China |       |                               |  |                              
|Independent    |       |                               |  |                              
|               | Bohai |                               |  |                              

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|Western South China Sea |  |  | 31  |  |  |  | 12  |  |  |  | 19  |  |  |  | 32    |  |  |  | 32    |  |  |  | — | 
|----------------------- |  |  | --- |  |  |  | --- |  |  |  | --- |  |  |  | ----- |  |  |  | ----- |  |  |  | - | 
|Eastern South China Sea |  |  | 27  |  |  |  | 4   |  |  |  | 23  |  |  |  | 40    |  |  |  | 39    |  |  |  | — | 
|East China Sea          |  |  | 6   |  |  |  | 4   |  |  |  | 2   |  |  |  | —     |  |  |  | —     |  |  |  | — | 
|Subtotal                |  |  | 114 |  |  |  | 55  |  |  |  | 59  |  |  |  | 201   |  |  |  | 200   |  |  |  | — | 
|PSCs                    |  |  |     |  |  |  |     |  |  |  |     |  |  |  |       |  |  |  |       |  |  |  |   | 
|Bohai                   |  |  | 3   |  |  |  | —   |  |  |  | 3   |  |  |  | 40.0  |  |  |  | 40.0  |  |  |  | — | 
|Western South China Sea |  |  | 3   |  |  |  | —   |  |  |  | 3   |  |  |  | 0.6   |  |  |  | 0.6   |  |  |  | — | 
|Eastern South China Sea |  |  | 1   |  |  |  | —   |  |  |  | 1   |  |  |  | 3.0   |  |  |  | 3.0   |  |  |  | — | 
|East China Sea          |  |  | 2   |  |  |  | —   |  |  |  | 2   |  |  |  | 4.0   |  |  |  | 4.0   |  |  |  | — | 
|Subtotal                |  |  | 9   |  |  |  | —   |  |  |  | 9   |  |  |  | 47.6  |  |  |  | 47.6  |  |  |  | — | 
|Overseas                |  |  |     |  |  |  |     |  |  |  |     |  |  |  |       |  |  |  |       |  |  |  |   | 
|Asia (excluding China)  |  |  | —   |  |  |  | —   |  |  |  | —   |  |  |  | 20.4  |  |  |  | 20.4  |  |  |  | — | 
|Oceania                 |  |  | —   |  |  |  | —   |  |  |  | —   |  |  |  | —     |  |  |  | —     |  |  |  | — | 
|Africa                  |  |  | 1.2 |  |  |  | 1.2 |  |  |  | —   |  |  |  | 5.9   |  |  |  | 5.9   |  |  |  | — | 
|North America           |  |  | 0.5 |  |  |  | —   |  |  |  | 0.5 |  |  |  | 174.4 |  |  |  | 174.4 |  |  |  | — | 
|South America           |  |  | 0.6 |  |  |  | 0.6 |  |  |  | —   |  |  |  | 0.4   |  |  |  | 0.4   |  |  |  | — | 
|Europe                  |  |  | 0.7 |  |  |  | —   |  |  |  | 0.7 |  |  |  | 4     |  |  |  | 3     |  |  |  | 1 | 
|Subtotal                |  |  | 2.9 |  |  |  | 1.7 |  |  |  | 1.1 |  |  |  | 205.1 |  |  |  | 204.1 |  |  |  | 1 | 
|2014                    |  |  |     |  |  |  |     |  |  |  |     |  |  |  |       |  |  |  |       |  |  |  |   | 
|Offshore China          |  |  |     |  |  |  |     |  |  |  |     |  |  |  |       |  |  |  |       |  |  |  |   | 
|Independent             |  |  |     |  |  |  |     |  |  |  |     |  |  |  |       |  |  |  |       |  |  |  |   | 
|Bohai                   |  |  | 47  |  |  |  | 29  |  |  |  | 18  |  |  |  | 272   |  |  |  | 272   |  |  |  | — | 
|Western South China Sea |  |  | 42  |  |  |  | 17  |  |  |  | 25  |  |  |  | 47    |  |  |  | 47    |  |  |  | — | 
|Eastern South China Sea |  |  | 13  |  |  |  | 5   |  |  |  | 8   |  |  |  | 43    |  |  |  | 43    |  |  |  | — | 
|East China Sea          |  |  | 11  |  |  |  | 6   |  |  |  | 5   |  |  |  | —     |  |  |  | —     |  |  |  | — | 
|Subtotal                |  |  | 113 |  |  |  | 57  |  |  |  | 56  |  |  |  | 362   |  |  |  | 362   |  |  |  | — | 
|PSCs                    |  |  |     |  |  |  |     |  |  |  |     |  |  |  |       |  |  |  |       |  |  |  |   | 
|Bohai                   |  |  | 1   |  |  |  | —   |  |  |  | 1   |  |  |  | 91.4  |  |  |  | 91.4  |  |  |  | — | 
|Western South China Sea |  |  | 2   |  |  |  | 2   |  |  |  | —   |  |  |  | 0.6   |  |  |  | 0.6   |  |  |  | — | 
|Eastern South China Sea |  |  | 1   |  |  |  | —   |  |  |  | 1   |  |  |  | 14.9  |  |  |  | 14.9  |  |  |  | — | 
|East China Sea          |  |  | —   |  |  |  | —   |  |  |  | —   |  |  |  | 6.5   |  |  |  | 6.5   |  |  |  | — | 
|Subtotal                |  |  | 4   |  |  |  | 2   |  |  |  | 2   |  |  |  | 113.4 |  |  |  | 113.4 |  |  |  | — | 
|Overseas                |  |  |     |  |  |  |     |  |  |  |     |  |  |  |       |  |  |  |       |  |  |  |   | 
|Asia (excluding China)  |  |  | 1.3 |  |  |  | 0.1 |  |  |  | 1.2 |  |  |  | 11.1  |  |  |  | 11.1  |  |  |  | — | 
|Oceania                 |  |  | —   |  |  |  | —   |  |  |  | —   |  |  |  | —     |  |  |  | —     |  |  |  | — | 
|Africa                  |  |  | 2.8 |  |  |  | 1.3 |  |  |  | 1.5 |  |  |  | 2.4   |  |  |  | 2.4   |  |  |  | — | 
|North America           |  |  | 1.0 |  |  |  | 0.1 |  |  |  | 0.9 |  |  |  | 365.8 |  |  |  | 365.8 |  |  |  | — | 
|South America           |  |  | —   |  |  |  | —   |  |  |  | —   |  |  |  | 0.8   |  |  |  | 0.8   |  |  |  | — | 
|Europe                  |  |  | 2.2 |  |  |  | 1.4 |  |  |  | 0.8 |  |  |  | 3.0   |  |  |  | 3.0   |  |  |  | — | 
|Subtotal                |  |  | 7.3 |  |  |  | 2.9 |  |  |  | 4.4 |  |  |  | 383.1 |  |  |  | 383.1 |  |  |  | — | 
|                        |  |  |     |  |  |  |     |  |  |  |     |  |  |  |       |  |  |  |       |  |  |  |   | 
|2013                    |  |  |     |  |  |  |     |  |  |  |     |  |  |  |       |  |  |  |       |  |  |  |   | 
|Offshore China          |  |  |     |  |  |  |     |  |  |  |     |  |  |  |       |  |  |  |       |  |  |  |   | 
|Independent             |  |  |     |  |  |  |     |  |  |  |     |  |  |  |       |  |  |  |       |  |  |  |   | 
|Bohai                   |  |  | 39  |  |  |  | 28  |  |  |  | 11  |  |  |  | 161   |  |  |  | 161   |  |  |  | — | 
|Western South China Sea |  |  | 38  |  |  |  | 15  |  |  |  | 23  |  |  |  | 26    |  |  |  | 26    |  |  |  | — | 
|Eastern South China Sea |  |  | 15  |  |  |  | 1   |  |  |  | 14  |  |  |  | 13    |  |  |  | 13    |  |  |  | — | 
|East China Sea          |  |  | 5   |  |  |  | 3   |  |  |  | 2   |  |  |  | —     |  |  |  | —     |  |  |  | — | 
|Subtotal                |  |  | 97  |  |  |  | 47  |  |  |  | 50  |  |  |  | 200   |  |  |  | 200   |  |  |  | — | 
|PSCs                    |  |  |     |  |  |  |     |  |  |  |     |  |  |  |       |  |  |  |       |  |  |  |   | 

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|Bohai                   |  |  | —    |  |  |  | —   |  |  |  | —   |  |  |  | 67    |  |  |  | 67    |  |  |  | — | 
|----------------------- |  |  | ---- |  |  |  | --- |  |  |  | --- |  |  |  | ----- |  |  |  | ----- |  |  |  | - | 
|Western South China Sea |  |  | 3    |  |  |  | —   |  |  |  | 3   |  |  |  | 8.4   |  |  |  | 8.4   |  |  |  | — | 
|Eastern South China Sea |  |  | —    |  |  |  | —   |  |  |  | —   |  |  |  | 29.5  |  |  |  | 29. 5 |  |  |  | — | 
|East China Sea          |  |  | —    |  |  |  | —   |  |  |  | —   |  |  |  | 2.0   |  |  |  | 2.0   |  |  |  | — | 
|Subtotal                |  |  | 3    |  |  |  | —   |  |  |  | 3   |  |  |  | 106.9 |  |  |  | 106.9 |  |  |  | — | 
|Overseas                |  |  |      |  |  |  |     |  |  |  |     |  |  |  |       |  |  |  |       |  |  |  |   | 
|Asia (excluding China)  |  |  | 1.9  |  |  |  | 1.5 |  |  |  | 0.4 |  |  |  | 8.5   |  |  |  | 8.5   |  |  |  | — | 
|Oceania                 |  |  | —    |  |  |  | —   |  |  |  | —   |  |  |  | —     |  |  |  | —     |  |  |  | — | 
|Africa                  |  |  | 7.4  |  |  |  | 5.9 |  |  |  | 1.5 |  |  |  | 4.0   |  |  |  | 4.0   |  |  |  | — | 
|North America           |  |  | 0.9  |  |  |  | 0.3 |  |  |  | 0.6 |  |  |  | 186.7 |  |  |  | 186.4 |  |  |  | — | 
|South America           |  |  | 1.0  |  |  |  | —   |  |  |  | 1.0 |  |  |  | 0.2   |  |  |  | 0.2   |  |  |  | — | 
|Europe                  |  |  | 1.4  |  |  |  | 1.0 |  |  |  | 0.4 |  |  |  | 2.9   |  |  |  | 2.9   |  |  |  | — | 
|Subtotal                |  |  | 12.6 |  |  |  | 8.7 |  |  |  | 3.9 |  |  |  | 202.3 |  |  |  | 202.0 |  |  |  | — | 
|                        |  |  |      |  |  |  |     |  |  |  |     |  |  |  |       |  |  |  |       |  |  |  |   | 



Present
Activities



The following
tables set forth our present activities as of December 31, 2015.



|                        |  | Wells
Being Drilled |    | Waterfloods
Being Installed
|----------------------- |  | ------------------- | -- | ---------------------------
|                        |  | Gross               |    | Net                        
|Offshore China          |  |                     |    |                            
|Bohai                   |  |                     | 6  |                            
|Western South China Sea |  |                     | 3  |                            
|Eastern South China Sea |  |                     | 8  |                            
|East China Sea          |  |                     | 10 |                            
|Subtotal                |  |                     | 27 |                            
|Overseas                |  |                     |    |                            
|Asia (excluding China)  |  |                     | 7  |                            
|Oceania                 |  |                     | —  |                            
|Africa                  |  |                     | 2  |                            
|North America           |  |                     | 25 |                            
|South America           |  |                     | 1  |                            
|Europe                  |  |                     | 1  |                            
|Subtotal                |  |                     | 36 |                            



Oil and
Gas Properties, Wells, Operations, and Acreage



The following
table sets forth our productive wells, developed acreage and undeveloped acreage as of December 31, 2015.



|                        |  | Productive Wells  |       | Developed Acreage (km2) |  | Undeveloped Acreage (km2)
|----------------------- |  | ----------------- | ----- | ----------------------- |  | -------------------------
|                        |  | Crude and Liquids |       | Natural Gas             |  |                          
|                        |  | Gross             |       | Net                     |  | Gross                    
|Offshore China          |  |                   |       |                         |  |                          
|Bohai                   |  |                   | 2,055 |                         |  |                          
|Western South China Sea |  |                   | 282   |                         |  |                          
|Eastern South China Sea |  |                   | 399   |                         |  |                          

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|East China Sea         |  |  | 20     |  |  |  | 6.9     |  |  |  | 52    |  |  |  | 22.7  |  |  |  | 85     |  |  |  | 85     |  |  |  | 85,413  |  |  |  | 85,413  | 
|---------------------- |  |  | ------ |  |  |  | ------- |  |  |  | ----- |  |  |  | ----- |  |  |  | ------ |  |  |  | ------ |  |  |  | ------- |  |  |  | ------- | 
|Subtotal               |  |  | 2,756  |  |  |  | 2,370.9 |  |  |  | 197   |  |  |  | 158.3 |  |  |  | 6,988  |  |  |  | 6,988  |  |  |  | 257,292 |  |  |  | 257,292 | 
|Overseas               |  |  |        |  |  |  |         |  |  |  |       |  |  |  |       |  |  |  |        |  |  |  |        |  |  |  |         |  |  |  |         | 
|Asia (excluding China) |  |  | 536    |  |  |  | 491.8   |  |  |  | 27    |  |  |  | 12.3  |  |  |  | 15,199 |  |  |  | 6,074  |  |  |  | 23,273  |  |  |  | 10,885  | 
|Africa                 |  |  | 43     |  |  |  | 14.4    |  |  |  | —     |  |  |  | —     |  |  |  | 886    |  |  |  | 396    |  |  |  | 21,982  |  |  |  | 5,797   | 
|Oceania                |  |  | —      |  |  |  | —       |  |  |  | 50    |  |  |  | 2.5   |  |  |  | 4,115  |  |  |  | 218    |  |  |  | 41,766  |  |  |  | 33,333  | 
|North America          |  |  | 4,033  |  |  |  | 1,296.5 |  |  |  | 565   |  |  |  | 187.9 |  |  |  | 508    |  |  |  | 150    |  |  |  | 19,772  |  |  |  | 6,801   | 
|South America          |  |  | 4,545  |  |  |  | 896.5   |  |  |  | 384   |  |  |  | 76.5  |  |  |  | 67     |  |  |  | 7      |  |  |  | 2,840   |  |  |  | 795     | 
|Europe                 |  |  | 154    |  |  |  | 76.6    |  |  |  | 4     |  |  |  | 1.8   |  |  |  | 116    |  |  |  | 61     |  |  |  | 14,197  |  |  |  | 7,674   | 
|Subtotal               |  |  | 9,311  |  |  |  | 2,775.8 |  |  |  | 1,030 |  |  |  | 281   |  |  |  | 20,893 |  |  |  | 6,906  |  |  |  | 123,830 |  |  |  | 65,285  | 
|Total                  |  |  | 12,067 |  |  |  | 5,146.7 |  |  |  | 1,227 |  |  |  | 439.3 |  |  |  | 27,881 |  |  |  | 13,894 |  |  |  | 381,122 |  |  |  | 322,577 | 



The gross
acreage disclosed above includes the total number of acres in major blocks that we own an interest. The net acreage includes our
wholly owned interests and the sum of our fractional interests in gross acreage.



Delivery Commitment



We have
certain delivery commitments under the take-or-pay contracts for sales of natural gas. In 2015, the annual sales from our largest
gas contract contributed to only approximately 2.0% of our total oil and gas sales and the total revenues from gas sales accounted
for approximately 10.3% of our total revenues in 2015. Moreover, the total gas quantities that are subject to delivery commitments
under existing contracts or agreements are not significant to the Company. Therefore, we believe that we did not have any material
delivery commitment as of the end of 2015.



Sales and Marketing



Sales of Crude Oil



The
Company sells its crude oil produced offshore China to the PRC market mainly through CNOOC China Limited, its wholly-owned subsidiary.
The Company sells its crude oil produced overseas to international and domestic markets mainly through another wholly-owned subsidiary,
China Offshore Oil (Singapore) International Pte Ltd. Nexen Energy ULC, a wholly-owned subsidiary of the Company, sells its crude
oil and synthetic oil to international markets separately.



The
Company’s crude oil sales prices are mainly determined by the prices of international benchmark crude oil of similar quality,
with certain premiums or discounts subject to prevailing market conditions. Although the prices are quoted in U.S. dollars, customers
in China usually pay by Renminbi. The Company currently sells three types of crude oil in China, namely, heavy crude, medium crude
and light crude, which are benchmarked by Duri, Daqing, and Tapis, respectively, all of which are the benchmarking crude oil prices
in the Far East. The Company’s major customers in China are Sinopec, Petrochina and CNOOC. The crude oil produced overseas
and sold in the international markets is benchmarked at the Brent and WTI oil prices.



The
world economy lost its growth momentum and varied for different areas in 2015. The diversity in monetary policies in different
countries led to a strong US dollar. While the global demand for oil increased moderately, international oil prices continued
to plummet affected by oversupply of crude oil, which was mainly driven by increased production of US shale oil as well as from
OPEC member states. As a result, the Company’s realized oil prices declined significantly. In 2015, the Company’s
average realized oil price was US$51.27/barrel, representing a decline of 46.6% year over year.



The
table below sets forth the sales and marketing volumes in offshore China for each of these types of crude oil for the periods
indicated.



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|                                        |  | Year
ended December 31,
|--------------------------------------- |  | -----------------------
|                                        |  |                        
|Sales and Marketing Volumes (mmbbls)(1) |  | Benchmark Prices       
|Light Crude                             |  | PLATTS Tapis(2)        
|Medium Crude                            |  | Daqing OSP(3)          
|Heavy Crude                             |  | ICP Duri(4)            

__________



| | (1) | Includes the sales volumes of us and our foreign partners
under production sharing contracts.
| | --- | ---------------------------------------------------------------------------------------------



| | (2) | Tapis is a light crude oil produced in Malaysia.
| | --- | ------------------------------------------------



| | (3) | Daqing official selling price. Daqing is a medium crude
oil produced in northeast China.
| | --- | ----------------------------------------------------------------------------------------



| | (4) | Duri is a heavy crude oil produced in Indonesia. The
Indonesian crude price (“ICP”) Duri has been the sole benchmark price for heavy crude since 2006.
| | --- | ------------------------------------------------------------------------------------------------------------------------------------------------------



Sales of Natural Gas



The Company’s
natural gas sales prices are mainly determined by the Company’s negotiations with its customers. The Company’s natural
gas sales agreements are generally long-term contracts, which normally include a periodic price adjustment mechanism. The Company’s
natural gas customers are primarily located in the Southeastern coast of China and mainly include Hong Kong Castle Peak Power Company
Limited, CNOOC Gas and Power Group, China BlueChemical Ltd, etc.



The LNG sourced by
the Company from the North West Shelf LNG Project in Australia and the Tangguh LNG Project in Indonesia is mainly based on long-term
supply contracts and is sold to various customers in the Asia-Pacific region, including LNG Terminals in Dapeng, Guangdong and
Putian, Fujian, China.



In 2015, the Company’s
average realized natural gas price was US$6.39/mcf, representing a 0.8% decrease year over year, primarily due to two reasons:
on one hand, production from new gas fields in offshore China commanded higher prices; on the other hand, realized gas price overseas
decreased year over year as a result of significant decrease in natural gas prices in North America market, which offset the price
increase in offshore China.



In China, the current
oversupply of natural gas will adversely affect the development, operation and income of the Company’s natural gas business.
To cope with the current shortage of natural gas demand from downstream users, the Company will coordinate related designs, approvals
and gas price negotiations with downstream customers, with the aim of promoting a stable production of producing oil and gas fields
and the development of oil and gas fields under construction.





The table
below sets forth the average realized prices for our crude oil and natural gas for the periods indicated.



|                                  |  | Year ended December 31,
|--------------------------------- |  | -----------------------
|                                  |  | 2013                   
|Average Realized Prices           |  |                        
|Crude and Liquids (US$/bbl)       |  |                        
|Natural Gas (US$/mcf)             |  |                        
|                                  |  |                        
|West Texas Intermediate (US$/bbl) |  |                        



The international
benchmark crude oil price, West Texas Intermediate, was US$37.13 per barrel as of December 31, 2015 and US$38.34 per barrel as
of March 31, 2016.



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



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|                                      |  | Year ended December 31,              
|------------------------------------- |  | -------------------------------------
|                                      |  | 2013                                 
|                                      |  | (Rmb in millions, except percentages)
|Revenues sourced in the PRC           |  |                                      
|Revenues sourced outside the PRC      |  |                                      
|Total revenues                        |  |                                      
|% of revenues sourced outside the PRC |  |                                      



Procurement of Services



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



Besides building
floating production storage and offloading, or FPSO, with our partners, we employ independent third parties or CNOOC and/or its
affiliates for FPSO services and other services.



We conduct
a bidding process to determine who we employ to construct platforms, terminals and pipelines, to drill production wells and to
install offshore production facilities. Both independent third parties and CNOOCaffiliates participate in the bidding
process. We are closely involved in the design and management of services by contractors and exercise extensive control over their
performance, including their costs, schedule, quality and health, safety, and environment measures.



Research and Development



In 2015,
the Company continued to implement its “technology-driven” strategy through further reforms in the scientific and
technological systems, coordinated research resources and promoted research and production works in an orderly and effective manner.
During the year, the Company continued to streamline the positions of different research institutes and to identify their respective
responsibilities. In addition, measures were taken to coordinate the functions and systems of different institutes. The Company
also established an unconventional oil and gas research institute. Pilot platforms such as the platform for the development of
high temperature and high pressure reservoirs were put into use, providing basic requirements and protection for the Company’s
independent technological innovations. Through such innovations, the Company was able to protect its increased reserves and production
as well as to lower cost and enhance efficiency for its development projects. A series of research findings have been applied
to increase production efficiency. In recognition of its achievements, a second prize was awarded to the Company for “Key
Technological Application in Enhancing Oil Recovery of Offshore Heavy Polymer Flooding” from the National Technological
Invention Award in 2015.



Major
Scientific Project Development



In 2015,
in order to provide key technological support for its sustainable development, the Company strengthened the management of technological
projects and focused its efforts on areas such as exploration and development technology for deep water oil and gas fields, offshore
heavy oil fields and fields with low porosity and permeability, onshore coalbed methane exploration technology , tapping technology
of oil gas fields, offshore oil gas fields, development of high-temperature and high-pressure gas fields in South China Sea, etc.



In addition,
the Company undertook a number of national and CNOOC’s science and technology projects such as the “Development of
Large-scale Oil and Gas Fields and Coalbed Methane” and achieved know-how and new theories for geological explorations regarding
the differences in oil and gas accumulation in active fault zones in Bohai as well as high-temperature and high-pressure natural
gas accumulation. New exploration techniques were acquired, involving “low porosity, low permeability and low pressure”
oil and gas reservoirs and deep oil and gas exploration as well as key developments of oil gas fields concerning improvements
and comprehensive adjustments of maritime cluster well pattern and offshore heavy oil chemical flooding.



Innovative
Development of Key Technologies



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Following
the successful well logging in Lingshui 18-1-1 well, the Company made its first commercial discovery in Central Canyon Yinggehai
in 2015 through technological innovation. Results from the mathematical modeling and physical modeling research of thermal recovery
of heavy oil reservoirs offshore, which were developed in-house, were used in Nanbao 35-2 and Luda 27-2 oilfields. We have successfully
developed the first comprehensive assessment system of log interpretation which helped reduce the cost of comprehensive assessment
considerably. The Company developed for its own 7 series and 5 processing techniques for sand prevention, including the complete
series of cased well and open well. The Company is at the forefront of technological development in the country.



Health, Safety and Environmental
Protection (“HSE”)



The Company
always places great emphasis on health, safety and environmental protection (HSE). “Safety and environmental protection
come first, people oriented and well-equipped facilities” have been regarded as the core values of quality, health, safety
and environmental protection (QHSE). To promote the culture of HSE, the Company strives to establish a comprehensive management
system to improve employees’ awareness of HSE during operations, to strengthen their ability to identify safety risks as
well as improve their risk management skills.



Since
the end of 2014, the Work Safety Law of the People’s Republic of China (as amended) and the Environmental Protection Law
of the People’s Republic of China (as amended) have imposed stricter supervision and management of work safety on enterprises,
which brings about additional challenges for the Company in work safety, clean production and development.For this reason, the Company further reinforced its basic work of production safety through system improvement and management
innovation. The Company’s key responsibilities were effectively put in place and its safety culture was clearly demonstrated.
All in all, the operation of the health, safety and environmental protection system remained stable.



Offshore
China, in view of new regulations recently implemented, the Company has carried out safety hazards investigations and employed
third-party agencies to carry out safety and environmental compliance management and operational assessments in 2015 to identify
management’s weaknesses and to provide recommendations for improvement. We reinforced the system of QHSE work, adhered to
the mode of system management, coordinated and prepared annual audit inspections, organized system reviews for the 7 units under
the Company, and strengthened management reviews of highly specialized contractors by external experts. During the year, the Company
carried out a review on 35 contract helicopters and 11 diving contractors in 12 helicopter bases to obtain detailed management
findings and effectively avoid HSE risks. During the year, the Company also conducted special safety inspections of offshore oil
and gas, dangerous chemicals and inflammable and explosive materials, and full coverage inspections of “Five No-drillings”
to track potential problems and to remediate potential risks.



In 2015,
the Company advocated the implementation of “China National Offshore Oil Safety Signs behavior” actions and enacted
rules relating to safety signs behavior in three levels of daily working lives, including leaders, employees and organization
in order to arouse the safety awareness of employees in their everyday life and to promote security management.



Apart from
this, the Company further strengthened its energy saving technological reforms to reinforce energy discharge management and achieved
129,000 tons of standard coal energy savings in 2015.



In 2015,
the Company continued to strengthen overseas HSE management and enacted individual management plans for all highlighted overseas
projects. We have now finished all HSE management plans for branches in Iraq, Indonesia, Uganda and we continued to integrate
the HSE management within Nexen, gradually improved the HSE management and facilitated the implementation of corporate management
requirements effectively by the following measures: competing focused reviews, organizing joint exercises, enhancing communication,
and strengthening incident management.



The Company’s
emergency response system were undergoing serious testing. On 15 July 2015, an emulsion leak from a pipeline was discovered within
Nexen’s Long Lake operations, located in the



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south of
Fort McMurray, Alberta, Canada. The estimated size of the leak was 5,000 m3 over an area of approximately 21,900 m2mostly within a compacted pipeline corridor. There were no injuries due to this incident. The affected wells were suspended
and Nexen’s emergency response plan was activated. The Company places great emphasis on production safety and has taken
measures to minimize the spill's impact to the environment and wildlife. Since the incident, the Company has been working together
with relevant regulatory agencies in its conduct of clean-up and remediation work at the spill site. Nexen is cooperating with
the investigation of the regulatory agencies.



The majority
of the released bitumen in the spill area has been safely removed. Further continued remediation and clean-up work is underway
and will be carried out in compliance with applicable regulatory requirements.



HSE regulatory
standards were further enhanced with the help of information technology. Our Environmental Information System is able to monitor
real-time pollutant emission while safety inspection systems are available for continuing investigation and management of safety
risks.



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 PSCs. In addition, certain of our crude oil and natural gas operations are located in areas that
are subject to tropical weather disturbances such as typhoons, some of which can be severe enough to cause substantial damage
to facilities and interrupt production.



As part of
the 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 offshore oil and gas field properties all risks insurance and construction insurance,
protection and indemnity insurance, operator extra expenses insurance, marine cargo insurance and third party liabilities and
comprehensive general liability insurance. The operators of the projects in which we participate overseas are required by local
law to purchase insurance policies customarily taken out by international oil and gas companies.



We also carry
third-party liability insurance policies to cover (i) claims made against us by or on behalf of individuals who are not our employees
in the event of personal injury or death and (ii) legal liabilities for environmental damages resulting from our onshore and offshore
activities, including oil spills. In addition, we impose contractual requirements upon our contractors to purchase insurance policies
that cover their liabilities for the personal injuries of their own employees. Our contractors are obligated to indemnify us against
such claims.



As of December
31, 2015, we have purchased a number of insurance policies with varying policy coverage and limits to meet our risk management
requirements and cover our potential liabilities arising from accidents at any of our offshore and onshore locations. We maintain
insurance for costs relating to property damage to our facilities, control of well including drilling relief wells, removal of
wreck, pollution clean-up, liability for bodily injury and property damage to third parties. The policy limits and other terms
and conditions of these insurance policies comply with all applicable laws and regulations in the PRC and other relevant jurisdictions.
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 Operations—Extreme
weather conditions may have a material adverse impact on us and could result in losses that are not covered by insurance.”



Excluding
Nexen’s operation and Nexen’s assets, we have maintained varied insurance policies for our assets and operational
insurance policies and construction insurance policies, with different policy limits and deductibles. We also purchase operator’s
extra-expense up to US$ 100 million and third-party liabilities insurance up to US$200 million for our working interests. As for
deep-water wells, we are



47


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insured for
our working interest up to US$250 million for costs related to control of the well. The deductible for each insurance policy mainly
ranges from US$2 million to US$5 million for different types of insurance policies. For Nexen, we are insured for amounts up to
the replacement cost value of our assets for property damage and up to US$525 million for operators extra expense. Additionally,
we purchase insurance covering liability for bodily injury and property damage to third parties with limits of up to US$865 million.
This cover protects against liability that arises from sudden and accidental pollution or from other causes. For declared deep-water
wells, we are insured for our working interest share of up to US$850 million for costs related to control of the well.



For all of
our offshore operations, we have conducted comprehensive environmental impact evaluations and adopted emergency plans to deal
with potential oil spills. Pursuant to the requirements of the PRC government, the evaluations and plans for our offshore operations
in the PRC have been reviewed and approved by the industry experts and have been filed with the PRC government. The evaluations
and plans for our offshore operations overseas have complied with the legal and regulatory requirements of the relevant local
jurisdictions.



In addition,
we currently have seven oil spill emergency response bases, to which we have contributed land and funds for construction, separately
located in eight cities in the PRC, namely Suizhong, Tanggu, Longkou, Huizhou, Shenzhen, Zhuhai, Weizhou and Gaolan. All the oil
spill emergency response bases are close to our workplaces of operations, and in the event of any oil spill, explosion or other
similar events, they would react promptly and assist us in coping with such accidents effectively. We have developed and established
a “four-in-one” emergency management system to support our worldwide business, which includes a crisis management
plan, an emergency commanding system, an emergency information system and an emergency rescue team. Through constant trainings
and exercises, we have comprehensively enhanced our ability to defend risks, minimize the impact of emergency events and maintain
our sustainable development.



Competition



Domestic Competition



The oil and
gas industry is very competitive. We compete in the PRC and in international markets for customers as well as capital to finance
our exploration, development and production activities. Our principal competitors in the PRC 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 CNOOC, Sinopec and PetroChina to which we have been selling crude oil, from time to time. Based
on our past experiences with these refineries, we believe that we have established stable business relationships with them.



We are the
dominant player in the oil and gas industry in offshore China and, through CNOOC, are the only company permitted to engage in
oil and gas exploration and production in offshore China with foreign parties under PSCs. We may face increasing competition in
the future from other oil and gas 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 principal
competitors in the PRC natural gas market are PetroChina and Sinopec.



Foreign Competition



Imports of
crude oil are subject to import licenses, 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 licenses and restrictions on foreign exchange
has, to some extent, limited the competition from imported crude oil.



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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. At present,
CNOOC, Sinopec, PetroChina and several other domestic state-owned enterprises have received permission to import crude oil on
their own. Foreign owned or foreign invested entities and other non-state-owned enterprises are subject to certain import quotas.



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:



|                           |  | Year ended December 31,
|-------------------------- |  | -----------------------
|                           |  | 2013                   
|                           |  | Rmb
in millions        
|Exploration and production |  |                        
|Trading businesses         |  |                        
|Corporate and elimination  |  |                        
|Total operating revenues   |  |                        



We are mainly
engaged in the exploration, development, production and sales of crude oil and natural gas primarily in offshore China. For the
year ended December 31, 2015, approximately 73% of our total revenue was sourced in the PRC. Our overseas activities are mainly
conducted in Canada, the United States of America, United Kingdom, Nigeria, Argentina, Indonesia, Uganda, Iraq, Brazil and Australia,
etc.



Regulatory Framework in the
PRC



Government Control



All of China’s
petroleum resources are owned by the PRC state. The PRC government exercises regulatory control over oil 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 Oceanic Administration, the National Development and Reform Commission and the State Administration of Work Safety before
we are permitted to conduct production activities. Our sales are coordinated by the National Development and Reform Commission.
For independent operations and joint exploration and production with foreign enterprises, we are required to obtain various governmental
approvals, through CNOOC, including permits for exploration blocks, approval of a reserve report, environmental impact reports
submitted through CNOOC, extraction permits and work safety permits. Moreover, for joint exploration and production, we are required,
through CNOOC, to obtain approval of overall development plan from the National Development and Reform Commission, and to report
the circumstances and situation of the PSCs or other cooperation contracts between CNOOC and the foreign enterprises to the Ministry
of Commerce.



We explore
and develop our offshore China reserves under exploration and production licenses granted by the PRC government. Exploration licenses,
which are generally granted for individual blocks, require holders to make an annual minimum exploration investment and pay an
annual exploration license fee. The annual minimum investment and license fees are based on the area under license and increase
over the life of the exploration license. Production licenses, which are generally granted for individual fields, require holders
to pay an annual production right usage fee based on the area under license. All of our proved reserves in offshore China are
under production licenses granted by the PRC government.



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



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an undertaking
agreement between us and CNOOC. As approved by the PRC government, these policies and measures have provided us with benefits
mainly including the exclusive right to explore for, develop and produce petroleum in designated areas in offshore China in cooperation
with foreign enterprises and to sell petroleum in China, and the flexibility to set our prices in accordance with international
market prices and determine where to sell our crude oil.



Although
we historically have benefited from the foregoing special policies, we cannot assure that such policies will continue in the future.



Fiscal
Regimes for Independent Operations



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. Our profits arising in or derived from Hong Kong are subject to tax at a rate of 16.5%.



We received
a formal approval from the State Administration of Taxation of the PRC on October 19, 2010, confirming that we are regarded as
a Chinese Resident Enterprise, or CRE. According to the formal approval, we are subject to the PRC corporate income tax at a rate
of 25% starting from January 1, 2008. The corporate income tax we pay in Hong Kong can be credited against our PRC corporate income
tax liability.



We are required
to withhold 10% corporate income tax when we make dividend distributions to our non-Chinese resident enterprise shareholders.



Our PRC subsidiary,
CNOOC China Limited, as a wholly foreign-owned enterprise, is subject to an enterprise income tax rate of 25% under the prevailing
tax rules and regulations. CNOOC Deepwater Development Limited is subject to corporate income tax at the rate of 15% for the three
years ending 31 December 2017, after being assessed as a high new technology enterprise.



The PRC corporate
income tax is levied based on taxable income, including income from both operations and 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:



| | · | production
                                         taxes at the rate of 5% on independent production and production under PSCs;
| | - | --------------------------------------------------------------------------------------------------------------------------------



| | · | resource
                                         taxes at the rate of 5% (reduced tax rates may apply to specific products and fields)
                                         on the oil and gas sales revenue (excluding production taxes) derived from oil and gas
                                         fields under production sharing contracts signed after November 1, 2011 and independent
                                         offshore oil and gas fields starting from November 1, 2011, which replaced the royalties
                                         for oil and gas fields except for those under production sharing contracts signed before
                                         November 1, 2011. The resource tax rate has been changed from 5% to 6% since December
                                         1, 2014;
| | - | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | · | export
                                         tariffs at the rate of 5% on the export value of petroleum oil;
| | - | ---------------------------------------------------------------------------------------------------------------



| | · | business
                                         tax at the rates of 3% to 5% or value-added tax at the rate of 3% to 17% on other income;
| | - | -------------------------------------------------------------------------------------------------------------------------------------------



| | · | city
                                         construction tax at the rates of 1% or 7% on the actual paid production taxes, business
                                         tax and value-added tax;
| | - | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | · | educational
                                         surcharge at the rate of 3% on the actual paid production taxes, business tax and value-added
                                         tax; and
| | - | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



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| | · | local
                                         educational surcharge at the rate of 2% on the actual paid production taxes, business
                                         tax and value-added tax.
| | - | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



We calculate
our deferred tax to account for the temporary differences between our tax base, which is used for income tax reporting and prepared
in accordance with applicable tax guidelines, and our accounting base, which is prepared in accordance with applicable financial
reporting requirements. The temporary differences include accelerated amortization allowances for oil and gas properties, which
are partially offset by provisions for dismantlement and for impairment of property, plant and equipment and write-off of unsuccessful
exploratory drilling. As of December 31, 2013, 2014 and 2015, we had Rmb (22,633) million, Rmb (14,312) million and Rmb 1,948
million (US$ 301 million) respectively, in net deferred tax assets/ (liabilities). See note 12 to our consolidated financial statements
included elsewhere in this annual report.



Royalty



Royalties
paid to the PRC government are based on our gross production from both independent operations and oil and gas fields under PSCs.
The amount of the royalties varies up to 12.5% based on the annual production of the relevant property. The PRC government has
provided us, among other companies, with a royalty exemption in each field for up to one million tons, or approximately seven
million BOE, per year for our crude oil production and for up to 2 billion cubic meters (approximately 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 PSCs.



In 2011,
the State Council of the PRC amended the Provisional Regulation of PRC Resource Tax. As a result, since November 1, 2011, the
royalties payable to the PRC government have been replaced by resource tax, currently at 6% (5% before December 1, 2014) of the
sales revenues from crude oil and natural gas. The PSCs that were
signed before November 1, 2011 are not affected by the amendment of the Provisional Regulation of PRC Resource Tax and we continue
to pay royalties to the PRC government for these PSCs.



Special
Oil Gain Levy



In March
2006, the PRC government imposed a special oil gain levy at progressive rates from 20% to 40% on any income derived from sales
of locally produced crude oil by an oil exploration and production company at a price that exceeds US$40 per barrel. In December
2011, the PRC government increased the threshold of the special oil gain levy from US$40 per barrel to US$55 per barrel, with
effect from November 1, 2011. The special oil gain levy is collected on a quarterly basis. For the years ended December 31, 2013,
2014 and 2015 we incurred approximately Rmb 23,421 million, Rmb 19,072 million and Rmb 59 million (US$9.1 million) for the Special
Oil Gain Levy.



In December
2014, the PRC government has decided to increase the threshold of the special oil gain levy from US$55 per barrel to US$65 per
barrel, with effect from January 1, 2015. As international oil prices, the exchange rate of Renminbi and our crude oil production
fluctuate, we cannot ascertain the full impact of the Special Oil Gain Levy going forward.



The current
rates of the special oil gain levy are shown in the table below:



|Realized Oil Price (US$/bbl) | Rate
    of the Levy
|---------------------------- | --------------------
|65-70
    (Include 70)       | 20%                 
|70-75
    (Include 75)       | 25%                 
|75-80
    (Include 80)       | 30%                 
|80-85
    (Include 85)       | 35%                 
|Above
    85                 | 40%                 



Fiscal
Regimes for PSC Operations



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The PRC government
encourages foreign participation in offshore oil and gas exploitation. Currently, foreign enterprises can only undertake offshore
oil and gas exploitation activities in China after they have entered into a PSC with CNOOC.



Under our
PSCs, 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 PSCs is allocated to the PRC government as
its share oil.



When exploitation
operations in offshore China are conducted through a PSC, the operator of the oil or gas fields must submit a detailed evaluation
report and an overall development program to a joint management committee established under the PSC upon the discovery of commercially
viable oil or gas reserves. The program must be subsequently confirmed by CNOOC and approved by the PRC regulatory authorities
before the parties to the PSC begin the commercial development of the oil and gas fields.



Under PRC
law, only a state-owned company, such as CNOOC, may negotiate a PSC with foreign enterprises. CNOOC assigned to us all of its
rights and obligations under then-existing PSCs in 1999 and has undertaken to assign to us its future PSCs except for those relating
to CNOOC’s administrative functions as a state-owned oil company.



Bidding Process



CNOOC and
foreign enterprises enter into new PSCs primarily through bidding process organized by CNOOC and direct negotiation. During a
typical bidding process, CNOOC determines which blocks are open for bidding and invites foreign enterprises to bid. Potential
bidders are required to provide information, including minimum work commitments, exploration expenditures and percentages of share
oil payable to the PRC government; and CNOOC evaluates each bid and negotiates a PSC with the successful bidder. CNOOC has agreed
to allow us to participate in all negotiations for new PSCs.



Terms of PSCs



Term of
Length.PSCs typically last for 30 years: (1) the exploration period is generally divided into three phases, with three
years, two years and two years, respectively. During the exploration period, exploratory and appraisal work is conducted
in order to discover petroleum and to enable the parties to determine the commercial viability of any petroleum discovery; (2)
the development period begins when the relevant PRC regulatory authorities have approved the overall development program
and ends when the design, construction, installation, drilling and related research work for the realization of petroleum production
as planned have been completed; and (3) the production period begins when commercial production commences and usually lasts
for 15 years for oil and 20 years for natural gas.



Minimum
Work Commitment.The foreign partners must complete a minimum amount of work during the exploration period, generally including:
drilling a minimum number of wildcat(s); acquiring a fixed amount of seismic data; and incurring a minimum amount of exploration
expenditures. Foreign partners may be required to pay all exploration costs, which can be recovered according to the production
sharing formula after commercial discoveries are made and production begins. Foreign partners are required to relinquish 25% of
the contract area, excluding the development and production areas, to CNOOC at the end of each phase of the exploration period
and to relinquish all areas, excluding the development areas, production areas and areas under evaluation, to CNOOC at the end
of the exploration period.



Participating
Interests. We have the right to take participating interests up to 51% 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 PSCs is shown below.



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|Percentage
of annual gross production | Allocation                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  
|------------------------------------- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|5.0%                                  | Production tax payable to the PRC government(1)                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             
|                                      |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             
|62.5%                                 | For the payment of resource
        tax or recovery:                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        
|                                      | 1. Resource tax(2)payable to the PRC government                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             
|                                      | 2. Cost recovery oil(3)allocated according to the following priority:
        
        (1)
        recovery of current year operating costs by us and foreign partner(s);
        
        (2)
        recovery of current year abandonment costs accrued by us and foreign partner(s) ;
        
        (3)
        recovery of earlier exploration costs by foreign partner(s) or us (if any);
        
        (4)
        recovery of development costs and deemed interest by us and foreign partner(s) based on participating interests; and
        
        (5)
        any excess, allocated to the remainder oil.
|                                      |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             
|32.5%(4)                              | Remainder oil allocated
        according to the following formula:
        
        1.
        (1-X) multiplied by 32.5% represents share oil payable to the PRC government; and
        
        2.
        X multiplied by 32.5% represents remainder oil distributed according to each partner’s participating interest.                                                                                                                                                                                                                                                                                                

| |  | 
| |  | 

__________

| | (1) | In this annual report and in our
                                         consolidated financial statements included elsewhere in this annual report, references
                                         to production tax on oil and gas produced offshore China are the value-added tax set
                                         out in our PSCs offshore China.
| | --- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | (2) | For PSCs that came into effect prior
                                         to November 1, 2011, instead of resource tax, royalties (with the rate ranging from 0.0%-12.5%
                                         of the annual gross production, depending on the annual gross production of the oilfield)
                                         shall be paid to the PRC government.
| | --- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | (3) | The amount of crude oil equivalent
                                         to 62.5% of annual gross production minus the amount of crude oil for payment of resource
                                         tax shall be cost recovery oil.
| | --- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | (4) | The ratio “X” is agreed
                                         in each PSC based on commercial considerations and ranges from 8% to 100%.
| | --- | -------------------------------------------------------------------------------------------------------------------------------------------



We calculate
and pay oil and gas production tax and royalty (or resource tax) to the PRC government on a monthly basis and make adjustments
for any overpayment or underpayment at the end of the year. The foreign partners have the right to either take possession of their
allocable remainder oil for sale in the international market, or sell such crude oil to us in the PRC market.



Management
and Operator. A party will be designated as the operator to undertake the execution of the petroleum operations which includes
preparing work programs and budgets, procuring equipment and materials relating to operations, establishing insurance programs,
and issuing cash-call notices to the parties to the PSC to raise funds.



A joint management
committee will be set up to perform supervisory functions. Each of us and the foreign partners has the right to appoint an equal
number of representatives to form the joint management committee. We designate the chairman of the committee and the foreign partners
as a group designate the vice chairman. The joint management committee has the authority to make decisions on matters including
reviewing and approving operational and budgetary plans, determining the commercial viability of each petroleum discovery, reviewing
and adopting the overall development program; and approving significant procurements and expenditures as well as insurance coverage.



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



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



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We and our
foreign partners have joint ownership in all of the assets purchased, installed or constructed under the PSCs until either the
foreign partners have fully recovered their development costs, or upon the expiration of the production period under the PSCs.
After that, CNOOC will assume ownership of all of the assets under the PSCs, and our foreign partners and we retain the exclusive
right to use the assets during the production period.



Abandonment
Costs.Any party to our PSCs shall monthly pay the abandonment cost to the designated bank accounts managed by the operator
and jointly owned by the parties in proportion to their participating interests in the development of such oil field and/or gas
field in accordance with relevant laws, decrees, and other rules and regulations then existing with respect to the abandonment
of offshore facilities of the PRC.



Regulatory Framework Overseas



We are subject
to other fiscal regimes in the foreign countries and regions where we conduct operations, including Indonesia, Iraq, Australia,
Nigeria, Uganda, Argentina, the United States, Canada, United Kingdom and certain other countries. See “Item 4—Information
on the Company—Business Overview—Overseas.”



In countries
including Indonesia, Nigeria, Trinidad and Tobago and certain other countries, we conduct our operations through PSCs. For example,
the OML130 block in Nigeria involves a production sharing arrangement. We and the other partners to overseas PSCs are required
to bear all exploration, development and operating costs according to our 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.



Our net interest
in the PSCs overseas consists of our participating interest in the properties covered under the relevant PSCs, less oil and gas
distributed to the local government and/or the domestic market obligation, as applicable.



In Australia,
the U.S., Canada, United Kingdom, Argentina and certain other countries, we conduct our operations through exploration and production
permits, licenses or leases. We, as one of the title owners under these permits, licenses or leases, are required to bear all
exploration, development and operating costs together with other co-owners. Once production occurs, a certain percentage of the
annual production or revenue will first be distributed to the landowner, in most of cases in the form of royalty, severance tax
and other payments, and the rest of the annual production or revenue will be allocated among the co-owners. Exploration, development
and operating costs are deductible for the purpose of income tax calculation in accordance with local tax regulations.



In Iraq,
we operate our project under a technical service contract. We provide technology of developing oil & gas and invest capital
to assist the host country to achieve the production goals. According to the technical service contract, we have the rights to
recover all the investments and receive remuneration fee as defined in the contract as a return from the incremental production.



Taxation



Taxes paid
and payable by our non-PRC subsidiaries and jointly controlled entities include royalties, duties and export tariffs, as well
as taxes levied on petroleum related income, profits and budgeted operating and capital expenditures.



Our subsidiaries
domiciled outside of the PRC are subject to income tax rates ranging from 10% to 56%.



Environmental Regulation



Our operations
are required to comply with various applicable environmental laws and regulations, including PRC laws and regulations administered
by the State Oceanic Administration and national and local environmental protection bureaus for our operations in China. The Environmental



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Protection
Law of PRC was amended in 2014. Such amended Environmental Protection Law, which came into effect on January 1, 2015, strengthens
the environmental protection regulation system including but not limited to the pollution permission management system, provides
the environmental public interest litigation for the first time and increases the intensity of punishment against illegal actions.
We therefore face more stringent environmental supervision and law enforcement environment.



Government
agencies set national or local environmental protection standards. The relevant State Oceanic Administration and/or environmental
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 State Oceanic Administration and/or 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, State Oceanic Administration
or national and local environmental protection bureaus 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.



The PRC
and overseas environmental laws require offshore petroleum investors to pay abandonment costs. Our financial statements include
provisions for costs associated with the dismantlement of oil and gas fields as of December 31, 2013, 2014 and 2015 of approximately
Rmb 42,351 million, Rmb 52,889 million and Rmb 50,063 million (US$7,728 million), respectively.



According
to the Notice of the National Development and Reform Commission, National Energy Administration, Ministry of Finance, State Administration
of Taxation, and State Oceanic Administration on Issuing the Interim Provisions on Administration over the Abandonment and Disposal
of Offshore Oil and Gas Production Facilities, investors of the offshore oil and gas fields shall take responsibility for abandonment
of the offshore oil and gas production facilities and perform the obligation in relation to environmental protection and ecological
restoration, and shall provide and allocate special fund for the aforesaid purpose in accordance with the relevant laws and regulations.
The investors include us and the foreign parties to our PSCs.



Environmental
protection and prevention costs and expenses in connection with the operation of offshore petroleum exploitation are covered either
under PSCs, or by us for independent operations. 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 also
subject to the environmental rules introduced by governments in whose jurisdictions our logistical support facilities are located.



We believe
that our environmental protection systems and facilities comply with applicable national and local environmental protection regulations.



Patents and Trademarks



We have licenses
to use trademarks which are of value in the conduct of our business. CNOOC is the owner of relevant trademarks. Under the non-exclusive
license agreement between CNOOC and us, we have obtained the right to use the trademarks for a nominal consideration.



Employees and Employee Benefits



During the
years ended December 31, 2013, 2014 and 2015, we employed 17,553 persons, 21,046 persons and 20,585 persons, respectively. Of
the 20,585 employees we employed as of December 31, 2015, approximately 75.2% were involved in oil exploration, development and
production activities,



55


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approximately
3.6% were involved in accounting and finance work and the remainder were senior management and others. Part of the workers for
the operation of the oil and gas fields, maintenance and ancillary service are hired on a contract basis.



We have a
union that protects employees’ rights, organizes educational programs, assists in the fulfillment of economic objectives,
encourages employee participation in management decisions, and assists in mediating disputes between us and individual employees.



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



The total
remuneration of employees includes salary, bonuses and allowances. Bonus for any given period is based primarily on individual
and our performance. Employees also receive 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. 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 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 monthly contributions to the government pension plan at rates ranging
from 11% to 22% of our employees’ salaries, with each employee contributing 8% of his or her salary for retirement. The
contributions vary from region to region.



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.



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



As an oil
and gas exploration and production company operating in highly competitive markets, we depend in large part on our employees for
effective and efficient operations. We devote significant resources to train our employees. During 2015, we held 61 core training
workshops, which were attended by approximately 5,700 person-times of participants. To ensure smooth implementation of our overseas
strategy, we have established an international human resources system to attract and retain talent in the international market.
In order to enhance the planning and budget control of our labor costs, we have installed target benchmarks in performance appraisals
to guide various business units to cut their labor costs and to increase the accuracy of their budgets.



| | C. | Organizational Structure
| | -- | ------------------------



CNOOC indirectly
owned or controlled an aggregate of approximately 64.44% of our shares as of March 31, 2016. 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.



The following
chart sets forth our controlling entities and our directly wholly-owned subsidiaries as of March 31, 2016 and notes our significant
indirectly-held subsidiaries.



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________



| | (1) | Overseas Oil & Gas Corporation,
                                         Ltd. also directly owns five shares of our company.
| | --- | ----------------------------------------------------------------------------------------------------------------------------



| | (2) | Owner of our overseas interests in
                                         oil exploration and production businesses and operations, including our indirect wholly-owned
                                         subsidiaries CNOOC Southeast Asia Limited, CNOOC SES Ltd. , CNOOC Muturi Limited, CNOOC
                                         NWS Private Limited, CNOOC Exploration & Production Nigeria Limited, CNOOC Iraq Limited,
                                         CNOOC Canada Energy Ltd., CNOOC Uganda Ltd, Nexen Energy ULC, Nexen Petroleum UK Limited,
                                         Nexen Petroleum Nigeria Limited, OOGC America LLC, Nexen Petroleum Offshore U.S.A. Inc.,
                                         Nexen Oil Sands Partnership, CNOOC PETROLEUM BRASIL LTDA, CNOOC Nexen Finance (2014)
                                         ULC, CNOOC Finance (2015) U.S.A. LLC and CNOOC Finance (2015) Australia Pty Ltd.
| | --- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | (3) | Owner of substantially all of our
                                         PRC oil exploration and production businesses, operations and properties, including our
                                         indirect wholly-owned subsidiary CNOOC Deepwater Development Limited.
| | --- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | (4) | Business vehicle through which we
                                         engage in sales and marketing activities in the international markets.
| | --- | -------------------------------------------------------------------------------------------------------------------------------------------------



| | (5) | Includes CNOOC Finance (2003) Limited,
                                         CNOOC Finance (2011) Limited, CNOOC Finance (2012) Limited and CNOOC Finance (2013) Limited,
                                         all of which are our financing vehicles. These finance companies are our 100% owned subsidiaries
                                         with our company as their sole corporate director
| | --- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | d. | Property, plants and equipment
| | -- | ------------------------------



For our property,
plants and equipment relating to our business activities, see “Item 4—Information on the Company—Business Overview.”
We also have some other real properties, including land, buildings and facilities in our onshore processing plants for our gas
fields, oil and gas pipelines in both offshore China and overseas, and the upgrader facilities for our oil sands projects in Canada.



ITEM
4A. unresolved staff comments



None.



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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.
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.”



Overview



Our revenues
and profitability are largely determined by our production volume and the prices we realize on 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 total net production volume has increased over the past few years.



Factors Affecting Our Results
of Operations



There are
many factors that affect our results of operations and financial condition, mainly including the following:



Oil
and Gas Prices



Substantially
all of our revenues are from the sales of oil and natural gas. Therefore, one of the primary factors affecting our revenues is
the prices for crude oil and natural gas. Crude oil prices are subject to fluctuations due to market uncertainty and various other
factors that are beyond our control, including, but not limited to overall economic conditions, supply and demand dynamics for
crude oil and natural gas, political developments, the ability of petroleum producing nations to set and maintain production levels
and prices, the price and availability of other energy sources and weather conditions.



In addition,
our typical contracts with natural gas buyers include provisions for periodic resets and adjustment formulas which may result
in selling price fluctuations.



In addition
to directly affecting our revenues and earnings, declines in crude oil and/or natural gas prices may also result in the write-off
of higher cost reserves and other assets. Furthermore, lower crude oil and natural gas prices may reduce the amount of crude oil
and natural gas we can produce economically and render existing contracts that we have entered into uneconomical.



The following
table sets forth our average net realized prices for crude oil and natural gas for the periods indicated:



|                             |  |      |        | Year ended December 31,
|---------------------------- |  | ---- | ------ | -----------------------
|                             |  | 2013 |        | 2014                   
|Average net realized prices: |  |      |        |                        
|Crude oil (US$ per bbl)      |  |      | 104.60 |                        
|Natural gas (US$ per mcf)    |  |      | 5.78   |                        
|                             |  |      |        |                        



Production
and Sales Volumes



Our revenues
are also greatly affected by our production and sales volume as well as our product mix. Our crude oil and natural gas production
volumes depend primarily on our ability to keep a high reserve replacement ratio and to develop currently undeveloped reserves
in a timely and cost-effective manner.



We produce
and sell different mixes of crude oil and natural gas, each having different market prices. Therefore, in any given period, our
product mix is subject to change, which will also affect our results of operations.







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The following table sets forth our average
daily net production of crude oil and natural gas for the periods indicated.



|                                            |  |      |         | Year ended December 31,
|------------------------------------------- |  | ---- | ------- | -----------------------
|                                            |  | 2013 |         | 2014                   
|Net production of crude oil (bbl/day)(1)    |  |      | 912,603 |                        
|Net production of natural gas (mmcf/day)(1) |  |      | 1,247.4 |                        










| | (1) | Including our interest in equity method investees.
| | --- | --------------------------------------------------



For a description
of other factors affecting our results of operations, see “Item 3—Key Information—Risk Factors.”



Critical Accounting Policies



We prepare
our consolidated financial statements in accordance with IFRS issued by the IASB and HKFRS issued by the HKICPA. 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, if any, 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 included elsewhere in this annual
report.



Oil and
Gas Properties



For oil and
gas exploration, we have adopted the successful efforts method of accounting. As a result, we capitalize initial acquisition costs
of oil and gas properties. Impairment of initial acquisition costs is recognized as exploration expenses based on exploratory
experience and management judgment which includes, but is not limited to, that any dry hole has been drilled on the property;
that the carrying amount of the exploration and evaluation asset is unlikely to be recovered in full from successful development
or by sale; and that the period during which we have the right to explore in the specific area has expired or will expire in the
near future and is not expected to be renewed. 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 expenditure on construction,
installation or completion of infrastructure facilities such as platforms, pipelines, processing plants and the drilling of development
wells, and the building of enhanced recovery facilities, including those renewals and betterments that extend the economic lives
of the assets, and the related borrowing costs.



The costs
incurred in installing enhanced recovery facilities are capitalized together with the development costs of the relevant oil and
gas properties. We treat the costs of unsuccessful exploratory wells and all other exploration costs as expenses when incurred.
Productive oil and gas properties and other tangible and intangible costs of producing properties are depreciated 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 provision of depreciation, depletion and amortization. Common facilities that are built specifically
to service production directly attributed to designated oil and gas properties are amortized based on the proved developed reserves
of the respective oil and gas properties on a pro-rata basis. Common facilities that are not built specifically to service identified
oil and gas properties are depreciated using the straight-line method over their estimated useful lives. Costs associated with
significant development projects are not depreciated until commercial production commences and the reserves related to those costs
are excluded from the calculation of depreciation. 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 proved reserves.



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We recognized
the amount of the estimated cost of dismantlement discounted to its present value using a current pre-tax rate that reflects,
where appropriate, the risks specific to the liability. Changes in the estimated timing of dismantlement or dismantlement cost
estimates are dealt with prospectively by recording an adjustment to the provision, and a corresponding adjustment to property,
plant and equipment. We included the unwinding of the discount on the dismantlement provision as a finance cost.



Reserves
Estimation



Oil and gas
properties are depreciated on a unit-of-production basis at a rate calculated by reference to proved reserves. Commercial reserves
are determined using estimates of oil in place, recovery factors and future oil prices, the latter having an impact on the proportion
of the gross reserves which are attributable to the host government under the terms of the production sharing contracts. The level
of estimated commercial reserves is also a key determinant in assessing whether the carrying value of any of the Company’s
oil and gas properties has been impaired.



Pursuant
to the oil and gas reserve estimation requirements under US SEC rules, the Company uses the average, first-day-of-the-month oil
price during the 12-month period before the ending date of the period covered by the consolidated financial statements to estimate
its proved oil and gas reserves.



Impairment
of Non-Financial Assets other than Goodwill



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 fair value less costs to sell. We recognize an impairment loss only if the carrying
amount of an asset exceeds its recoverable amount. We charge an impairment loss to the consolidated statement of profit or loss
and other comprehensive income in the period in which it arises. A reversal of an impairment loss is credited to the consolidated
statement of profit or loss and other comprehensive income in the period in which it arises.



The calculations
of recoverable amount of assets require the use of estimates and assumptions. It is reasonably possible that the oil price assumption
may change, which may then impact the estimated life of the field and may then require a material adjustment to the carrying value
of tangible assets. The Company monitors internal and external indicators of impairment relating to its tangible and intangible
assets.



Business Combinations and
Goodwill



Business
combinations are accounted for using the acquisition method. The consideration transferred is measured at acquisition date fair
value which is the sum of the acquisition date fair values of assets transferred by the Company, liabilities assumed by the Company
to the former owners of the acquiree and the equity interests issued by the Company in exchange for control of the acquiree. For
each business combination, the Company elects whether it measures the non-controlling interests in the acquiree either at fair
value or at the proportionate share of the acquiree’s identifiable net assets. All other components of non-controlling interests
are measured at fair value. Acquisition costs incurred are expensed and included in administrative expenses.



Goodwill
is initially measured at cost, being the excess of the aggregate of the consideration transferred, the amount recognised for non-controlling
interests and any fair value of the Company’s previously held equity interests in the acquiree over the identifiable net
assets acquired and liabilities assumed. If the sum of this consideration and other items is lower than the fair value of the
net assets of the subsidiary acquired, the difference is recognised in profit or loss as a gain on bargain purchase.



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Joint
Arrangements



Certain of
the Company’s activities are conducted through joint arrangements. Joint arrangements are classified as either a joint operation
or joint venture, based on the rights and obligations arising from the contractual obligations between the parties to the arrangement.



Joint
Operations



Some arrangements
have been assessed by the Company as joint operations as both parties to the contract are responsible for the assets and obligations
in proportion to their respective interest, whether or not the arrangement is structured through a separate vehicle. This evaluation
applies to both the Company’s interests in production sharing arrangements and certain jointly-controlled entities.



Joint
Venture



A joint venture
is a joint arrangement whereby the parties that have joint control of the arrangement have rights to the net assets of the arrangement.



The Company’s
investments in joint ventures are stated in the consolidated statement of financial position at the Company’s share of net
assets under the equity method of accounting, less any impairment losses.



Fair
Value



The fair
value of financial instruments that are traded in active markets at each reporting date is determined by reference to quoted market
prices or dealer price quotations, without any deduction for transaction costs.



For financial
instruments not traded in an active market, the fair value is determined using appropriate valuation techniques. Such techniques
may include using recent arm’s length market transactions; reference to the current fair value of another instrument that
is substantially the same; a discounted cash flow analysis or other valuation models.



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 provided that 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
reporting 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 consolidated statement of profit or loss and
other comprehensive income.



We make provisions
for dismantlement based on the present value of our future costs expected to be incurred, on a property-by-property basis, in
respect of our expected dismantlement and abandonment costs at the end of the related oil exploration and recovery activities.



The ultimate
dismantlement costs are uncertain and cost estimates can vary in response to many factors including changes to relevant legal
requirements, the emergence of new restoration techniques or experience at other production sites. The expected timing and amount
of expenditure can also change, for example, in response to changes in reserves or changes in laws and regulations or their interpretation.
As a result, there could be significant adjustments to the provisions established which would affect future financial results.



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Deferred
Tax



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



Deferred
tax liabilities are recognized for all taxable temporary differences, except:



| | · | when
                                         the deferred tax liability arises from the initial recognition of an asset or liability
                                         in a transaction that is not a business combination and, at the time of the transaction,
                                         affects neither accounting profit or loss nor taxable profit or loss; and
| | - | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | · | in
                                         respect of taxable temporary differences associated with investments in subsidiaries,
                                         associates and interests in a joint venture, when 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.
| | - | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



A typical
example of transactions that are not business combinations and, at the time of the transaction, affect neither accounting profit
or loss nor taxable profit or loss is the acquisition of an asset, such as an exploration license or concession, where no previous
activity has taken place, whereby the consideration paid is higher than its tax base.



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 obligations to governments and other mineral interest owners. We have adopted a net basis of reporting for royalties and government
share oil when we have no legal rights to the underlying reserves. As such, we act as an agent for the relevant governments or
royalty holders when we sell the portion of oil and gas on their behalves. 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 PSC 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 or in cash when the liftings are equalized or in cash when production ceases. We enter into gas sales contracts with
customers which often contain take-or-pay clauses. Under these contracts, we make a long term supply commitment in return for
a commitment from the buyer to pay for minimum quantities, whether or not it takes delivery. These commitments contain protective
provisions, such as force majeure provision, and adjustment provisions. If a buyer has a right to get a “make up”
delivery at a later date, revenue recognition is deferred. If no such option exists according to the contract terms, revenue is
recognized when the take-or-pay penalty is triggered.



Our marketing
revenues principally represent sales of oil and gas purchased from the foreign partners under our PSCs and revenues from the trading
of oil and gas through our subsidiaries. The cost of the oil and gas sold is included in crude oil and product purchases. In addition,
our trading activities in North America involves entering into contracts to purchase and sell crude oil, natural gas and other
energy commodities, and use derivative contracts, including futures, forwards, swaps and options for hedging and trading purposes
(collectively “derivative contracts”). Any change in the fair value is also included in marketing revenue.



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:



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|                                 |  | Year ended December 31,                                   
|-------------------------------- |  | ----------------------------------------------------------
|                                 |  | 2013                                                      
|                                 |  | (Rmb in millions, except percentages and production data )
|Revenues:                        |  |                                                           
|Oil and gas sales:               |  |                                                           
|Crude oil                        |  |                                                           
|Natural gas                      |  |                                                           
|Total oil and gas sales          |  |                                                           
|                                 |  |                                                           
|Marketing revenues               |  |                                                           
|Other income                     |  |                                                           
|Total revenues                   |  |                                                           
|                                 |  |                                                           
|Net production (million BOE)(1): |  |                                                           
|Crude oil                        |  |                                                           
|Natural gas                      |  |                                                           
|Total net production             |  |                                                           

| |  | 
| |  | 



| | (1) | Including
                                         our interest in equity method investees.
| | --- | -------------------------------------------------------------------------------------------



The following
table sets forth, for the periods indicated, certain income and expense items in our consolidated statement of profit or loss
and other comprehensive income as a percentage of total revenues:



|                                             |  | Year ended December 31,
|-------------------------------------------- |  | -----------------------
|                                             |  | 2013                   
|Operating Revenues:                          |  |                        
|Oil and gas sales                            |  |                        
|Marketing revenues                           |  |                        
|Other income                                 |  |                        
|Total revenues                               |  |                        
|Expenses:                                    |  |                        
|Operating expenses                           |  |                        
|Taxes other than income tax                  |  |                        
|Exploration expenses                         |  |                        
|Depreciation, depletion and amortization     |  |                        
|Special oil gain levy                        |  |                        
|Impairment and provision                     |  |                        
|Crude oil and product purchases              |  |                        
|Selling and administrative expenses          |  |                        
|Others                                       |  |                        
|Total expenses                               |  |                        
|                                             |  |                        
|Interest income                              |  |                        
|Finance costs                                |  |                        
|Exchange gain, net                           |  |                        
|Investment income                            |  |                        
|Share of profits of associates               |  |                        
|Share of profits/(losses) of a joint venture |  |                        
|Non-operating income/(expenses), net         |  |                        
|Profit before tax                            |  |                        
|Income tax expense                           |  |                        
|Profit for the year                          |  |                        



63


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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
included elsewhere in 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.



The 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 PSCs, less an adjustment for production
allocable to foreign partners under our PSCs as reimbursement for exploration costs attributable to our participating interest.



Marketing
revenues represent our sales of our foreign partners’ oil and gas produced under our PSCs 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.
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.



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. Reimbursement of insurance claims is recognized when the compensation becomes
receivable.



Indonesia



The oil and
gas sales from our subsidiaries in Indonesia consist of our participating interest in the properties covered under the relevant
PSCs, less adjustments for oil and gas distributable to the Indonesian government under our Indonesian PSCs 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.



Iraq



The oil sales
from Iraq consist of our participating interest in the Missan project.



Australia



The oil and
gas sales from our subsidiaries in Australia consist of our participating interest in the North West Shelf project.



Nigeria



The oil and
gas sales from our subsidiaries in Nigeria consist of our participating interest in the properties covered under the relevant
PSCs. We record revenue from oil sales in accordance with the entitlement method. The revenue is calculated based on our participating
interest less the rental concession, royalty, and oil and gas distributable to the host country. The royalty rates applicable
to deepwater properties are zero.



Trinidad
and Tobago



The oil and
gas sales from our subsidiaries in Trinidad and Tobago consist of our participating interest in the properties covered under the
relevant PSCs.



The U.S.
and Canada



The oil and
gas sales from the U.S. consist of our participating interest in the properties of the Eagle Ford project, Niobrara project and
properties in the Gulf of Mexico.



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In respect
of oil and gas products derived from Canada, our share of sales is primarily recognized when the ownership of products is transferred
at the delivery point of the pipeline. The revenue is calculated net of royalties.



United
Kingdom



The oil and
gas sales from the United Kingdom consist of our participating interests in the Buzzard, Scott/Telford/Rochelle and Ettrick/Blackbird
properties.



Unconsolidated
Investees



Our share
of the oil and gas sales of unconsolidated investees is not included in our revenues, but our share of the profits or losses of
these investees is included as part of our share of profits or losses of associates and a joint venture as shown in our consolidated
statements of profit or loss and other comprehensive income.



2015 versus 2014



Consolidated
net profit



Our
consolidated net profit decreased 66.4% to Rmb 20,246 million (US$3,125.4 million) in 2015 from Rmb 60,199 million in 2014, primarily
as a result of the decrease in profitability under the low international oil price environment.



Revenues



Our
oil and gas sales, realized prices and sales volume in 2015 are as follows:





|                                    |  | 2015 |         | 2014 |  | Change |         | Change (%)
|----------------------------------- |  | ---- | ------- | ---- |  | ------ | ------- | ----------
|                                    |  |      |         |      |  |        |         |           
|Oil and gas sales (Rmb million)     |  |      | 146,597 |      |  |        | 218,210 |           
|Crude and liquids                   |  |      | 128,929 |      |  |        | 200,991 |           
|Natural gas                         |  |      | 17,668  |      |  |        | 17,219  |           
|Sales volume (million BOE)          |  |      | 480.1   |      |  |        | 415.6   |           
|Crude and liquids (million barrels) |  |      | 404.0   |      |  |        | 340.6   |           
|Natural gas (bcf)                   |  |      | 444     |      |  |        | 435     |           
|Realized prices                     |  |      |         |      |  |        |         |           
|Crude and liquids (US$/barrel)      |  |      | 51.27   |      |  |        | 96.04   |           
|Natural gas (US$/mcf)               |  |      | 6.39    |      |  |        | 6.44    |           
|Net production (million BOE)        |  |      | 495.7   |      |  |        | 432.5   |           
|China                               |  |      | 323.4   |      |  |        | 269.1   |           
|Overseas                            |  |      | 172.3   |      |  |        | 163.4   |           
|                                    |  |      |         |      |  |        |         |           





In
2015, our net production was 495.7 million BOE (including our interest in equity-accounted investees), representing an increase
of 14.6% from 432.5 million BOE in 2014, benefitting from the commencement of production of new oil and gas fields in offshore
China. The decrease in crude and liquids sales was primarily due to significantly lower realised oil prices in 2015, which was
partially offset by the increase in sales volume.



Operating
expenses



Our
operating expenses decreased 9.0% to Rmb 28,372 million (US$4,379.9 million) in 2015 from Rmb 31,180 million in 2014, and the
operating expenses per BOE decreased 20.9% to Rmb 59.4 (US$9.18) per BOE in 2015 from Rmb 75.1 (US$12.11) per BOE in 2014, attributable
from effective cost control and large increase in production. Operating expenses per BOE offshore China decreased 18.0% to Rmb
49.5 (US$7.64) per BOE in 2015 from Rmb 60.4 (US$9.73) per BOE in 2014. Overseas operating expenses per BOE decreased 21.4% to
Rmb 80.2 (US$12.38) per BOE in 2015 from Rmb 102.1(US$16.45) per BOE in 2014.



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Taxes
other than income tax



Our
taxes other than income tax decreased 9.1% to Rmb 10,770 million (US$1,662.6
million) in 2015 from Rmb 11,842 million in 2014. The decrease was mainly due to the decrease in oil and gas revenue.



Exploration
expenses



Our
exploration expenses decreased 14.1% to Rmb 9,900 million (US$1,528.3 million) in 2015 from Rmb 11,525 million in 2014, among
which dry hole expense decreased 16.7% to Rmb 4,740 million (US$731.7 million) in 2015 from Rmb 5,686 million in 2014, due to
the decrease of exploration expenditure, less high-cost wells and less wells expenses which were written off according to subsequent
reserve evaluation. Meanwhile, the seismic expense decreased as compared to 2014, resulting from the continuing efforts in lowering
costs and enhancing efficiency under the circumstance of decreasing exploration expenditure budget.



Depreciation,
depletion and amortization



Our
depreciation, depletion and amortization increased 26.0% to Rmb 73,439 million (US$11,337.0 million) in 2015 from Rmb 58,286 million
in 2014. Our average depreciation, depletion and amortization per BOE, excluding the dismantlement-related depreciation, depletion
and amortization, increased 11.8% to Rmb 146.4 (US$22.61) per BOE in 2015 from Rmb 130.9 (US$21.10) per BOE in 2014, primarily
as a result of the increased proportion of production of new oil and gas fields and adjustment projects in offshore China and
North Sea in UK in recent years, which were developed under the environment of increasing prices of raw materials and services
over the past few years. Meanwhile, the commencement of production of new development wells of shale oil and gas in the U.S. further
increased the amortization rate per BOE.



The
dismantlement-related depreciation, depletion and amortization costs decreased 10.3% to Rmb 3,545 million (US$547.2 million) in
2015 from Rmb 3,951 million in 2014. Our average dismantling costs per BOE decreased 22.0% to Rmb 7.43 (US$1.15) per BOE in 2015
from Rmb 9.52 (US$1.53) per BOE in 2014, primarily due to the decrease of the expected value of asset retirement obligations of
producing oil and gas fields, which was estimated based on current services price. Under the environment of reducing capital expenditure
in upstream industry, the service price of projects constructions and drilling wells decreased.



Special
Oil Gain Levy



Our
Special Oil Gain (SOG) Levy decreased 99.7% to Rmb 59 million (US$9.1 million) in 2015 from Rmb 19,072 million in 2014, primarily
as a result of our decreased realised oil price in offshore China and the Chinese government increased the threshold of the SOG
levy to US$65 with effect from 1 January 2015.



Impairment,
provision and write off



Our
impairment and provision decreased 33.3% to Rmb 2,746 million (US$423.9 million) in 2015 from Rmb 4,120 million in 2014. In 2015,
certain oil and gas properties located in China, North America, South America and Africa were impaired, which was reflected by
the impact of near term lower price. In addition, the Company wrote off some shale oil and gas assets in North America and certain
unproved properties in Canada. Approximately Rmb 1,400 million was included in the depreciation, depletion and amortization charge
of the year, and approximately Rmb 461 million was included in the exploration expenses, respectively. The reason is that the
leasehold contracts of these blocks were overdue, and the Company withdraw from these blocks by considering lower economy of the
project and falling short of expectation of the exploration result. Please refer to Note 15 to the Consolidated Financial Statement
of this annual report.



Selling
and administrative expenses



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Our
selling and administrative expenses decreased 13.7% to Rmb 5,705 million (US$880.7 million) in 2015 from Rmb 6,613 million in
2014. Our selling and administrative expenses per BOE decreased 24.9% to Rmb 11.95 (US$1.85) per BOE in 2015 from Rmb 15.93 (US$2.57)
per BOE in 2014. Such decreases were primarily due to lower expense resulting from the Company’s partial marketing business
restructuring and Company’s vigorous efforts in lowering costs and enhancing efficiency in this year.



Finance
costs/Interest income



Our
finance costs increased 28.2% to Rmb 6,118 million (US$944.5 million) in 2015 from Rmb 4,774 million in 2014, primarily due to
the increased interest expense from new issuance of guaranteed notes. Our interest income decreased 18.6% to Rmb 873 million (US$134.8
million) in 2015 from Rmb 1,073 million in 2014, primarily due to the reduced deposit scale under the declining market interest
rate environment.



Exchange
gains, net



Our
net exchange losses changed 113.6% to Rmb 143 million (US$22.1 million) in 2015, compared with exchange gains Rmb 1,049 million
in 2014, primarily as a result of the increase in exchange loss as a result of Rmb , GBP and CAD fluctuation against the US dollars.



Investment
income



Our
investment income decreased 10.7% to Rmb 2,398 million (US$370.2 million) in 2015 from Rmb 2,684 million in 2014, primarily attributable
to the decline in market rate of return on investment which was caused by the continuously decline interest rates promulgated
by the People’s Bank of China.



Share
of profits of associates/a joint venture



Our
share of profits of associates/a joint venture increased 89.2% to Rmb 1,903 million (US$293.8 million) in 2015 from Rmb 1,006
million in 2014, primarily attributable to the increase in profitability of joint venture resulting from local finance and tax
benefit.



Income
tax expense



Our income
tax credit changed 114.0% to Rmb 3,116 million (US$481.0 million) in 2015, compared with income tax expense of Rmb 22,314 million
in 2014, mainly because the UK government decreased the combined income tax rate on North Sea oil and gas activities from 62%
to 50% and resulted in a one-time reversal of net deferred tax liability. In addition, the lower profitability of overseas operations
due to decreased oil prices resulted in a further decline in income tax expense. The effective tax rate changed to (18.2%) in
2015 from 27.0% in 2014.



2014 versus 2013



Consolidated
net profit



Our
consolidated net profit increased 6.6% to Rmb 60,199 million in 2014 from Rmb 56,461 million in 2013, primarily as a result of
the more strengthened cost control under the recent decreased oil price environment.



Revenues



|                                    |  | Year ended December 31, |         |      |  |       
|----------------------------------- |  | ----------------------- | ------- | ---- |  | ------
|                                    |  | 2014                    |         | 2013 |  | Change
|Oil and gas sales (Rmb million)     |  |                         | 218,210 |      |  |       
|Crude and liquids                   |  |                         | 200,991 |      |  |       
|Natural gas                         |  |                         | 17,219  |      |  |       
|Sales volume (million BOE)          |  |                         | 415.6   |      |  |       
|Crude and liquids (million barrels) |  |                         | 340.6   |      |  |       
|Natural gas (bcf)                   |  |                         | 435     |      |  |       
|Realized prices                     |  |                         |         |      |  |       
|Crude and liquids (US$/barrel)      |  |                         | 96.04   |      |  |       
|Natural gas (US$/mcf)               |  |                         | 6.44    |      |  |       
|Net production (million BOE)        |  |                         | 432.5   |      |  |       
|China                               |  |                         | 269.1   |      |  |       
|Overseas                            |  |                         | 163.4   |      |  |       



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In
2014, our net production was 432.5 million BOE (including our interest in equity-accounted investees), representing an increase
of 5.1% from 411.7 million BOE in 2013, benefitting from the additional production from the Nexen acquisition in the end of February
2013 and the commencement of production on oil and gas fields in offshore China. The overseas production volume accounted for
37.8% of our total net production volume in 2014, compared with 36.2% in 2013. The decrease of crude and liquids sales was primarily
due to the lower realised oil prices in 2014. The increase of gas sales primarily came from the higher prices for sales in domestic
China and in East Asian LNG market.



Operating
expenses



Our operating
expenses increased 3.9% to Rmb 31,180 million in 2014 from Rmb 30,014 million in 2013, and the operating expenses per BOE decreased
1.1% to Rmb 75.1 per BOE in 2014 from Rmb 75.9 per BOE in 2013, attributable from effective cost control and steady increase in
production. Operating expenses per BOE offshore China decreased 0.8% to Rmb 60.4 per BOE in 2014 from Rmb 60.9 per BOE in 2013.
Overseas operating expenses per BOE decreased 3.2% to Rmb 102.1 per BOE in 2014 from Rmb 105.5 per BOE in 2013.



Taxes
other than income tax



Our
taxes other than income tax decreased 25.7% to Rmb 11,842 million in 2014 from Rmb 15,937 million in 2013. The decrease was mainly
due to the cancellation of accrued mineral resource compensation payment pursuant to the announcement made by Chinese government
agencies that did not require separately imposing such fee in offshore China anymore.



Exploration
expenses



Our exploration
expenses decreased 32.7% to Rmb 11,525 million in 2014 from Rmb 17,120 million in 2013, among which dry hole expenses decreased
39.9% to Rmb 5,686 million in 2014 from Rmb 9,453 million in 2013, due to less uncertain wells which were previously capitalised
but written off according to subsequent reserve evaluation. Meanwhile, due to the unfavorable exploration results and overdue
leases, some unproved properties of shale gas and oil projects located in the U.S. were written off in 2013. There was no such
event in 2014.



Depreciation,
depletion and amortization



Our
depreciation, depletion and amortization increased 3.2% to Rmb 58,286 million in 2014 from Rmb 56,456 million in 2013, primarily
as a result of the increased production. Our average depreciation, depletion and amortization per BOE, excluding the dismantlement-related
part, increased 0.5% to Rmb 130.9 per BOE in 2014 from Rmb 130.3 per BOE in 2013.



The
dismantlement-related depreciation, depletion and amortization costs decreased 20.3% to Rmb 3,951 million in 2014 from Rmb 4,954
million in 2013, Our average dismantling costs per BOE decreased 24.1% to Rmb 9.52 per BOE in 2014 from Rmb 12.53 per BOE in 2013,
primarily as a result of the decrease in dismantlement asset balance which came from the effect of discounting factor on the present
value of asset retirement obligations of producing oil and gas fields.



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Special
Oil Gain Levy



Our Special
Oil Gain Levy decreased 18.6% to Rmb 19,072 million in 2014 from Rmb 23,421 million in 2013, primarily as a result of our decreased
oil sales in offshore China.



Impairment
and provision



Our impairment
and provision was Rmb 4,120 million in 2014, while in 2013 was credit to impairment of Rmb 45 million. In 2014, certain oil and
gas properties located in North America and UK North Sea were impaired, which reflected the impact of near term lower price environment.
Please refer to Note 15 to the Consolidated Financial Statement of this annual report.



Selling
and administrative expenses



Our selling
and administrative expenses decreased 15.9% to Rmb 6,613 million in 2014 from Rmb 7,859 million in 2013. Such decreases were primarily
due to lower commission and consulting payments connected with acquisition and sound effect from enhancing operating efficiency
with cost deduction in this year. Our selling and administrative expenses per BOE decreased 20.0% to Rmb 15.93 per BOE in 2014
from Rmb 19.89 per BOE in 2013.



Finance
costs/Interest income



Our finance
costs increased 38.1% to Rmb 4,774 million in 2014 from Rmb 3,457 million in 2013, primarily due to new issuance of corporate
notes which was mainly used to replace short-term loans and the increase in unwinding of discount on provision for dismantlement
due to increase in discount rate and obligations contributed from newly developed oil and gas fields in 2014. Our interest income
decreased 1.7% to Rmb 1,073 million in 2014 from Rmb 1,092 million in 2013.



Exchange
gains, net



Our net
exchange gains increased 20.2% to Rmb 1,049 million in 2014 from Rmb 873 million in 2013, primarily as a result of GBP depreciating
against US dollar.



Investment
income



Our investment
income increased 2.8% to Rmb 2,684 million in 2014 from Rmb 2,611 million in 2013, primarily attributable to the increase in return
on corporate wealth management products and money market funds held by the company.



Share
of profits of associates/a joint venture



Our share
of profits of associates/a joint venture increased 12.4% to Rmb 1,006 million in 2014 from Rmb 895 million in 2013, primarily
attributable to the increase in profitability of associates.



Income
tax expense



Our income
tax expense decreased 8.5% to Rmb 22,314 million in 2014 from Rmb 24,390 million in 2013, and the effective tax rate decreased
to 27.0% in 2014 from 30.2% in 2013. The decrease in effective tax rate was mainly attributable to further recognized deferred
tax assets for oil sands project in Canada.



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Table of Contents




| | B. | Liquidity and Capital Resources
| | -- | -------------------------------



Our primary
source of cash during 2015 was cash flows from operating activities. We used cash primarily to fund capital expenditure and dividends.
The following table summarizes our cash flows for the periods presented:



|                                                     |  | Year ended December 31,
|---------------------------------------------------- |  | -----------------------
|                                                     |  | 2013                   
|                                                     |  |                        
|Cash generated from (used for):                      |  |                        
|Operating activities                                 |  |                        
|Investing activities                                 |  |                        
|Financing activities                                 |  |                        
|Net increase/(decrease) in cash and cash equivalents |  |                        



Cash
generated from operating activities



The
cash inflow from operating activities decreased 27.5% to Rmb 80,095 million (US$12,364.5 million) in 2015 from Rmb 110,508 million
in 2014, primarily attributable to the decrease in oil and gas sales cash inflows caused by the decline in international oil price.



Cash
Used in Investing Activities



In
2015, our capital expenditure (excluding acquisition) decreased 29.3% to Rmb 67,674 million (US$10,447.1 million) from 2014, because
the Company reduced its capital expenditure on the basis improving quality and efficiency in response to the challenges of low
oil prices. Our development expenditures in 2015 were primarily related to the capital expenditure of OML130 project, Iraq technical
service contract project, deep-water Gulf of Mexico and U.S. shale oil and gas, as well as the expenses incurred for improving
recovery factors of the oilfields in production. The Company had no significant acquisition during the year.



In
addition, our cash used in investing activities was also attributable to the purchase of other financial assets of Rmb 122,030
million (US$18,838.2 million) this year. Our cash generated from investing activities was mainly from the proceeds from the sales
of other financial assets in the amount of Rmb 104,900 million (US$16,193.8 million), and the decrease in our time deposits with
maturity over three months in the amount of Rmb 4,825 million (US$744.9 million).



Cash
Used in Financing Activities



In
2015, the increase in net cash inflow from financing activities was mainly due to the proceeds of bank borrowings of Rmb 20,541
million (US$3,171.0 million) and Rmb 23,184 million (US$3,800.0 million) from the issuance of guaranteed notes, partially offset
by the cash outflow of the distribution of dividends of Rmb 20,419 million (US$ 3,152.2 million), and the repayment of bank loans
of Rmb 24,127 million (US$3,724.6 million).



At
the end of 2015, our total interest-bearing outstanding debt was Rmb 164,645 million (US$ 25,416.8 million), compared to Rmb 136,563
million at the end of 2014. The increase in debt in 2015 was primarily attributable to the issuance of guaranteed notes of US$3.8
billion. Our gearing ratio, which is defined as interest-bearing debts divided by the sum of interest-bearing debts plus equity,
was 29.9%, higher than that of 26.5% in 2014. The main reason for the increase was the increased scale of interest-bearing debts.



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 (including the current portion) outstanding as of December 31, 2015.



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Table of Contents




|                         |  | Debt maturities (principal only) 
|------------------------ |  | ---------------------------------
|                         |  | Original currency                
|Due by December 31,      |  | US$                              
|                         |  | (in millions, except percentages)
|2016                     |  |                                  
|2017-2018                |  |                                  
|2019-2020                |  |                                  
|2021 and beyond          |  |                                  
|Total                    |  |                                  
|Percentage of total debt |  |                                  



In April
2015, we, through CNOOC Finance (2015) U.S.A. LLC, our 100% owned subsidiary, issued US$2,000 million 3.500% guaranteed notes
due 2025, through CNOOC Finance (2015) Australia Pty Ltd, our 100% owned subsidiary, issued US$1,500 million 2.625% guaranteed
notes due 2020, and US$300 million 4.200% guaranteed notes due 2045. The obligation of CNOOC Finance (2015) U.S.A. LLC and CNOOC
Finance (2015) Australia Pty Ltd in respect of the notes are unconditionally and irrevocably guaranteed by us. The net proceeds
of this notes offering were used for general corporate purposes.



As of December
31, 2015, we had total foreign currency debt of US$24,465 million, all of which is in U.S. dollars. As of March 31, 2016, we had
total foreign currency debt of US$24,265 million, all of which is in U.S. dollars.



As of December
31, 2015, we had unutilized banking facilities amounting to approximately Rmb 60,912 million (US$9, 403 million) as compared to
Rmb 63,623 million as of December 31, 2014.



In 2013,
2014 and 2015, we paid dividends totaling Rmb 20,226 million, Rmb 20,216 million and Rmb 20,419 million (US$3,152 million) (before
PRC withholding tax deducted), respectively. 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 debt offerings will be sufficient to fund
planned capital expenditures and investments, debt maturities and working capital requirements through at least 2016. However,
our ability to obtain adequate financing to satisfy our capital expenditures and debt service requirements may be limited by our
financial condition and results of operations and the liquidity of international and domestic financial markets. See “Item
3—Key Information—Risk Factors—Risks Relating to Our Operations—Our future prospects largely depend on
our capital expenditures, which are subject to various risks.”



Capital
Expenditures



For 2016,
we have budgeted no more than Rmb 60 billion for capital expenditures for exploration and development. The following table sets
forth the Company’s actual or budgeted capital expenditures on an accrual basis for the periods indicated.





|               |  | Year ended December 31,
|-------------- |  | -----------------------
|               |  | 2013 (1)               
|               |  | (Rmb million)          
|Offshore China |  |                        
|Development    |  |                        
|Exploration    |  |                        
|Subtotal       |  |                        
|Overseas       |  |                        
|Development    |  |                        
|Exploration    |  |                        
|Subtotal       |  |                        
|Total          |  |                        



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| | (1) | Capitalized interests were not included,
                                         and it was Rmb 2,049 million, Rmb 1,842 million and Rmb 1,385 million in 2013, 2014 and
                                         2015, respectively.
| | --- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | (2) | Figures for 2016 represent
our budgeted capital expenditures.
| | --- | -------------------------------------------------------------



In addition
to the budgeted development and exploration expenditures relating to the oil and gas properties described above, we may make additional
capital expenditures and investments consistent with our business strategy. See “Item 4—Information on the Company—Business
Overview—Business Strategy.” We expect to fund our capital expenditures with our cash flows from operations and external
financing.



Our ability
to maintain and grow our revenues, profit and cash flows depends upon continued capital spending. Generally, 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 Operations—Our future prospects largely depend on our capital expenditures, which are
subject to various risks.”



Holding
Company Structure



We are a
holding company. Our entire oil and gas exploration, development, production and sales business in the PRC is owned and conducted
by CNOOC China Limited, our wholly owned subsidiary in the PRC. Our oil and gas exploration, development and production business
outside the PRC is owned and conducted by CNOOC International Limited, our wholly owned subsidiary incorporated in the British
Virgin Islands, or owned and conducted by Nexen Energy ULC, a wholly-owned subsidiary of the Company located in Canada, or directly
owned by our company itself. International sales of crude oil and natural gas are conducted by China Offshore Oil (Singapore)
International Pte Ltd, our wholly owned subsidiary incorporated in Singapore. Nexen Energy ULC sells its crude oil and synthetic
oil to international markets separately. 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 profit determined
in accordance with PRC accounting standards and regulations. In addition, under PRC law, CNOOC China Limited should set aside
a portion of its profit each year to fund certain reserve funds. These reserves are not distributable as cash dividends.



Inflation/Deflation



According
to the China Statistical Bureau, as represented by the general consumer price index, China experienced an overall inflation rate
of 2.6%, 2.0% and 1.4% in 2013, 2014 and 2015, respectively. Neither deflation nor inflation has had a significant impact on our
results of operations in the respective years.



Impact of Recently Issued
Accounting Standards



IFRS
and HKFRS



We have
adopted the IFRS as issued by the IASB since January 1, 2008. Therefore, our consolidated financial statements for 2015 have been
prepared in due compliance with both IFRS and HKFRS. The accounting policies adopted are consisted with those of the year ended
December 31, 2014, except for the first time adoption of the amendments to IFRS/HKFRS and the new interpretation effective for
the Group's financial year beginning on January 1, 2015 (the “Amendments”) and early adoption of IFRS/HKFRS 9 (2009)
Financial Instruments . The adoption of those Amendments and interpretation upon their effective dates has had no material impact
on the accounting policies, the disclosures or the amounts recognized in the consolidated financial statements of the Group. Impact
of early adoption of IFRS/HKFRS 9 (2009) Financial Instruments is described in note 2.2 to our consolidated financial statement.



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Besides,
a number of new and revised IFRSs and HKFRSs have been issued and would become effective for annual periods beginning on or after
January 1, 2016. For details, please refer to notes 2.1 and 2.2 to our consolidated financial statements included elsewhere in
this annual report.



| | C. | Research and Development, Patents
                                         and Licenses, etc.
| | -- | ---------------------------------------------------------------------------------------------



See “Item
4—Information on the Company—Business Overview—Research and Development”, “Item 4—Information
on the Company—Business Overview—Patents and Trademarks”.



| | D. | Trend Information
| | -- | -----------------



Looking
forward to 2016, the recovery of the global economy is expected to remain weak; low international oil prices will prevail, and
the external operating environment is likely to remain tough. In spite of this, the Company remains confident and persistent.
We will further strengthen our operating strategies under a low-oil-price environment, which include: maintaining prudent financial
policy; continuing to lower costs and increase efficiency through technology and management innovation; ensuring safe operation
and strict compliance with regulations; focusing on return by balancing short-term benefit and long-term development.



In 2016,
the capital expenditure of the Company will be no more than Rmb 60 billion. To maintain its competitive financial position, the
Company will continue to strengthen cost controls and focus more on cash flow management. Our production target for 2016 is 470-485
million BOE with four new projects to come on stream. Meanwhile, the Company will maintain its high standards in health, safety
and environmental protection.



We plan to
increase our reserves and production through drill bits and value-driven acquisitions. We will continue to concentrate our independent
exploration efforts on major operating areas, especially offshore China. In the meantime, we will continue to cooperate with our
partners through production sharing contracts to lower capital requirements and exploration risks.



We will continue
to develop the natural gas market, and continue to explore and develop natural gas fields. In the event that we invest in businesses
and geographic areas where we have limited experience and expertise, we plan to structure our investments in the form of alliances
or partnerships with partners possessing the relevant experience and expertise.



We will continue
to maintain our prudent financial policy. As an essential part of our corporate culture, we continue to promote cost consciousness
among both our management team and employees. Also, in our performance evaluation system, cost control has been one of the most
important key performance indicators. Aiming to reduce operating cost, we plan to actively promote the regional development of
oil and gas fields and apply cutting-edge offshore engineering, drilling and production technologies to our operations.



Other than
as disclosed in the paragraphs above under Item 5.D, we are not aware of any trends that are reasonably likely to have a material
effect on our net sales or revenues, income from continuing operations, profitability, liquidity or capital resources, or that
would cause reported financial information not necessarily to be indicative of future operating results or financial conditions.
You are urged to read the forward-looking statements contained elsewhere in this annual report, the cautionary statement on page
9 and the Risk factors on pages 14, which describe the risks and uncertainties that may cause actual results and developments
to differ materially from those expressed or implied by these forward-looking statements. The Company provides no commitment to
update the forward-looking statements or to publish financial projections for forward-looking statements in the future.



| | E. | Off-Balance Sheet Arrangements
| | -- | ------------------------------



None.



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| | F. | Tabular Disclosure of Contractual
                                         Obligations
| | -- | --------------------------------------------------------------------------------------



The following
table sets forth information regarding our contractual obligations as of December 31, 2015.



|                               |  | Payments due by period
|------------------------------ |  | ----------------------
|Contractual Obligations        |  | Total                 
|                               |  | Rmb million           
|Long-term debt obligations(1)  |  |                       
|Operating lease obligations    |  |                       
|Provision for dismantlement(2) |  |                       
|Total                          |  |                       








| | (1) | The amount of long-term debt obligations
                                         represents the principal of the long-term debt obligations.
| | --- | ---------------------------------------------------------------------------------------------------------------------------------------------



| | (2) | Provision for dismantlement represents
                                         the discounted present value of retirement obligations in connection with upstream assets,
                                         which primarily relate to asset removal costs at the completion date of the relevant
                                         project.
| | --- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



As of December
31, 2013, 2014 and 2015, we had the following capital commitments, principally for the construction and purchase of property,
plant and equipment:



|Capital Commitments                |  | 2013        |         | 2014        |  | 2015       
|---------------------------------- |  | ----------- | ------- | ----------- |  | -----------
|                                   |  | Rmb million |         | Rmb million |  | Rmb million
|Contracted, but not provided for   |  |             | 30,131  |             |  |            
|Authorized, but not contracted for |  |             | 138,571 |             |  |            



| | G. | SAFE HARBOR
| | -- | -----------



The safe
harbor provided in Section 27A of the Securities Act and Section 21E of the Exchange Act, or the statutory safe harbors, shall
apply to forward-looking information provided pursuant to Item 5.F above. For our cautionary statement on the forward looking
statement in this annual report, see the section “Forward-Looking Statements” on page 9 of this annual report.



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, which has 8 members, including two executive
directors, two non-executive directors and four independent non-executive directors as of March 31, 2016. Hua Yang was appointed
as the Chairman of the Board and Yilin Wang resigned as Chairman of the Board and Non-executive Director both with effect from
May 19, 2015. Jiaxiang Wang retired as a Non-executive Director with effect from September 23, 2015. Jiewen Li was appointed as
a Joint Company Secretary of the Company and Hua Zhong ceased to serve as a Joint Company Secretary of the Company both with effect
from November 27, 2015.



The table
below sets forth information about our directors and senior officers:



|Name       |  | Year of Birth |  | Position                                                                                                       
|---------- |  | ------------- |  | ---------------------------------------------------------------------------------------------------------------
|Yilin Wang |  | 1956          |  | Chairman of our Board and Non-executive Director (resigned, effective May 19, 2015)                            
|           |  |               |  |                                                                                                                
|Hua Yang   |  | 1961          |  | Chairman of our Board and Non-executive Director (appointed as Chairman of Board with effect from May 19, 2015)
|           |  |               |  |                                                                                                                
|Fanrong Li |  | 1963          |  | Executive Director, Chief Executive Officer and President                                                      



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|                     |  |      |  |                                                                                                                                                                                
|-------------------- |  | ---- |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|Guangqi Wu           |  | 1957 |  | Executive Director and Compliance Officer                                                                                                                                      
|                     |  |      |  |                                                                                                                                                                                
|Bo Lv                |  | 1962 |  | Non-executive Director                                                                                                                                                         
|                     |  |      |  |                                                                                                                                                                                
|                     |  |      |  |                                                                                                                                                                                
|Jiaxiang Wang        |  | 1955 |  | Non-executive Director (retired, effective September 23, 2015)                                                                                                                 
|                     |  |      |  |                                                                                                                                                                                
|Sung Hong Chiu       |  | 1947 |  | Independent Non-executive Director                                                                                                                                             
|                     |  |      |  |                                                                                                                                                                                
|Lawrence J. Lau      |  | 1944 |  | Independent Non-executive Director                                                                                                                                             
|                     |  |      |  |                                                                                                                                                                                
|Aloysius Hau Yin Tse |  | 1948 |  | Independent Non-executive Director                                                                                                                                             
|                     |  |      |  |                                                                                                                                                                                
|                     |  |      |  |                                                                                                                                                                                
|Kevin G. Lynch       |  | 1951 |  | Independent Non-executive Director                                                                                                                                             
|                     |  |      |  |                                                                                                                                                                                
|Guangyu Yuan         |  | 1959 |  | Executive Vice President and General Manager of CNOOC China Limited Tianjin Branch                                                                                             
|                     |  |      |  |                                                                                                                                                                                
|Weilin Zhu           |  | 1956 |  | Executive Vice President and General Manager of Exploration Department                                                                                                         
|                     |  |      |  |                                                                                                                                                                                
|Liguo Zhao           |  | 1953 |  | General Counsel (retired, effective June 23, 2015)                                                                                                                             
|                     |  |      |  |                                                                                                                                                                                
|Bi Chen              |  | 1961 |  | Executive Vice President                                                                                                                                                       
|                     |  |      |  |                                                                                                                                                                                
|Wei Chen             |  | 1958 |  | Executive Vice President and General Director of CNOOC Research Institute                                                                                                      
|                     |  |      |  |                                                                                                                                                                                
|Guohua Zhang         |  | 1960 |  | Senior Vice President and General Manager of CNOOC China Limited Shanghai Branch                                                                                               
|                     |  |      |  |                                                                                                                                                                                
|Hua Zhong            |  | 1960 |  | Chief Financial Officer (resigned from the positions of Joint Company Secretary and General Manager of Investor Relations Department on and with effect from November 27, 2015)
|                     |  |      |  |                                                                                                                                                                                
|Yunhua Deng          |  | 1963 |  | Deputy Chief Geologist and Deputy General Director of CNOOC Research Institute                                                                                                 
|                     |  |      |  |                                                                                                                                                                                
|Lisong Song          |  | 1957 |  | Chief Safety Official and General Manager of Quality, Health, Safety and Environment Department                                                                                
|                     |  |      |  |                                                                                                                                                                                
|Yuhong Xie           |  | 1961 |  | Deputy Chief Geologist and General Manager of Exploration Department                                                                                                           
|                     |  |      |  |                                                                                                                                                                                
|May Sik Yu Tsue      |  | 1973 |  | Joint Company Secretary                                                                                                                                                        
|                     |  |      |  |                                                                                                                                                                                
|Jiewen Li            |  | 1965 |  | Joint Company Secretary and General Manager of Investor Relations Department (effective November 27, 2015)                                                                     
|                     |  |      |  |                                                                                                                                                                                

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

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opportunities 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 senior officer is provided below. Our registered office is located at 65th Floor, Bank of China
Tower, One Garden Road, Central, Hong Kong.



Executive Directors



Fanrong
LiBorn in 1963, Mr. Li is a professor-level senior engineer. He obtained a B.S. degree majoring in oil production from
Yangtze University in China, and received an MBA degree from the Business School of Cardiff University in United Kingdom. Mr.
Li has been working in the oil and gas industry in China over 30 years. He joined CNOOC in 1984, and worked as Petroleum Engineer,
later as Offshore Platform Supervisor, Operation Manager of CNOOC/AMOCO Joint Operating Group, Managing Director of CNOOC/STATOIL
Joint Operating Group, Chief Representative of Joint Management Committee in CACT Operators Group, General Manager of Development
and Production Department of the Company and President of CNOOC China Limited Shenzhen Branch. He served as an Assistant President
of CNOOC from January 2009 to April 2010 and worked as President of CNOOC Energy Technology & Services Limited from February
2009 to April 2010. Mr, Li also served as Chairman and Director of CNOOC Southeast Asia Limited, being a subsidiary of the Company.
He has served as Vice President of CNOOC since April 2010. He was appointed as President of the Company with effect from September
16, 2010, and was appointed as Chief Executive Officer of the Company with effect from November 23, 2011.He also serves as a Director
of CNOOC China Limited and Chairman and Director of CNOOC International Limited, all being subsidiaries of the Company. He was
appointed as the chairman of the board of Nexen Energy ULC with effect from February 26, 2013. Mr. Li was appointed as a Non-executive
Director of the Company with effect from May 24, 2010 and was re-designated from Non-executive Director to Executive Director
with effect from September 16, 2010.



Guangqi
Wu Born in 1957, Mr. Wu is a geologist, professor-level senior economist, Certified Senior Enterprise Risk Manager and
Certified Internal Auditor and graduated with a B.S. degree from the Ocean University of China, majoring in Marine Geology. He
also holds a master degree in Management from China University of Petroleum and a doctor degree in Management from Huazhong University
of Science and Technology. Mr. Wu joined CNOOC in 1982. From 1994 to 2001, he served as the Deputy General Manager of CNOOC Oil
Technical Services Company, a subsidiary of CNOOC, the Director of the Administration Department of CNOOC and the Director of
the Ideology Affairs Department of CNOOC successively. Mr. Wu was appointed as an Assistant President of CNOOC in 2003, and has
been the Vice President of CNOOC since 2004. Mr. Wu also serves as the Vice Chairman of China Association of Risk Professionals,
the Vice Chairman of China Association of Oceanic Engineering, the Director-General of National Energy Deepwater Oil & Gas
Engineering Technology Research Centre Council and the Chairman of CNOOC Marine Environment and Ecology Protection Foundation.
Mr. Wu served as an Independent Non-executive Director of China Yangtze Power Limited, a company listed on the Shanghai Stock
Exchange, from May 2003 to July 2010. Mr. Wu has served as the Compliance Officer of the Company since June 1, 2005 and he also
serves as a Director of CNOOC China Limited and CNOOC International Limited, all being the subsidiaries of the Company. Mr. Wu
was appointed as an Executive Director of the Company with effect from June 1, 2005.



Non-executive Directors



Yilin
Wang Born in 1956, Mr Wang is a professor-level senior engineer. He graduated from China University of Petroleum majoring
in petroleum geology and exploration and received a doctorate degree. He has over 30 years of working experience in China’s
oil and gas industry. From June 1996 to September 1999, Mr. Wang served as the deputy director and chief exploration geologist
of Xinjiang Petroleum Administration Bureau. From September 1999 to May 2004, he served as the general manager of PetroChina Xinjiang
Oilfield Company. From June 2001 to May 2004, he served as the senior executive of Xinjiang Petroleum Administration Bureau and
the general manager of PetroChina Xinjiang Oilfield Company. From July to December 2003, he served as the Assistant to General
Manager of China National Petroleum Corporation (“CNPC”). From December 2003 to April 2011, he served as the Deputy
General Manager of CNPC. From July 2004 to July 2007, he also served as the safety director of CNPC.

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From November 2005 to April 2011,
he served as a Director of PetroChina Company Limited, a company listed on the New York Stock Exchange, The Stock Exchange of
Hong Kong Limited and Shanghai Stock Exchange respectively. Since April 8, 2011, Mr. Wang serves as Chairman of CNOOC. Mr. Wang
was appointed as Chairman and Non-executive Director of the Company with effect from April 15, 2011. Mr. Wang resigned as Chairman
of the Board, Chairman of the Nomination Committee and Non-executive Director of the Company with effect from May 19, 2015.



Hua
YangBorn in 1961, Mr. Yang is a professor-level senior economist and graduated from China University of Petroleum with
a B.S. degree in petroleum engineering. He also received an MBA degree from the Sloan School of Management at MIT as a Sloan Fellow.
Mr. Yang joined CNOOC in 1982 and has over 30 years of experience in petroleum exploration and production. From 1982 to 1992,
Mr. Yang served in a number of positions in CNOOC Research Center including the Director of Field Development Department, the
Manager of Reservoir Engineering Department and the Project Manager. Thereafter, Mr. Yang was mainly involved in international
business, M&A, corporate finance and capital market operations. From 1993 to 1999, he served as the Deputy Chief Geologist,
the Deputy Director and the Acting Director for Overseas Development Department of CNOOC and the Vice President of CNOOC International
Limited. From 1999 to 2011, Mr. Yang served in a number of positions in the Company including Senior Vice President, Chief Financial
Officer, Executive Vice President, President and Chief Executive Officer. Mr. Yang also served as an Assistant President of CNOOC
from November 2006 to April 2010 and as Vice President of CNOOC from April 2010 to August 2011. Mr. Yang served as Director and
President of CNOOC from August 2011 to April 2015. He was appointed as Chairman of CNOOC in April 2015. In addition, he serves
as Chairman and Director of CNOOC China Limited, being a subsidiary of the Company. He also served as Chairman, Director and President
of CNOOC Southeast Asia Limited, General Manager of CNOOC China Limited and Chairman and Director of CNOOC International Limited,
all being subsidiaries of the Company. He also served as Director of CNOOC Finance Corporation Limited, a subsidiary of CNOOC.
Mr. Yang was appointed as an Executive Director of the Company with effect from August 31, 2005 and was the Vice Chairman of the
Board of the Company from September 16, 2010 to May 19, 2015, and was re-designated from an Executive Director to a Non-Executive
Director of the Company with effect from November 23, 2011. Mr. Yang has been appointed as Chairman of the Board and Chairman
of the Nomination Committee of the Company with effect from May 19, 2015.



Bo
Lv Born in 1962, Mr. Lv is a senior economist and received a Bachelor of Science degree in Management from China University
of Mining and Technology and an MBA degree from China Europe International Business School. Since 1985, he worked in the Ministry
of Coal Industry, the Ministry of Energy and the Organization Department of the Communist Party of China Central Committee and
served in a number of positions, including a Vice-Director-level official in the Personnel and Labor Department of the Ministry
of Energy, Vice Director and Director of Economic and Technology Cadre Bureau of the Organization Department of the Communist
Party of China Central Committee, Directors of the Fourth and Fifth Cadre Bureaus of the Organization Department of the Communist
Party of China Central Committee. Mr. Lv joined CNOOC in 2002 and served as the Director of the Human Resources Department of
CNOOC. In November 2006, Mr. Lv became the Assistant President of CNOOC. In April 2010, Mr. Lv was appointed as the Vice President
of CNOOC. Since December 2012, he has also served as Chairman of the Board of CNOOC Energy Technology and Services Limited, a
subsidiary of CNOOC. Mr. Lv was appointed as a Non-executive Director of the Company on November 27, 2013, and such appointment
took effect from January 1, 2014.



Jiaxiang
Wang Born in 1955, Mr. Wang is a professor-level senior engineer. He graduated from China University of Petroleum, major
in Drilling Engineering, and later received a Doctorate degree from Tianjin University in Management Science and Engineering.
Mr. Wang joined CNOOC in 1982. He served as Production Section Director, Chief Engineer, Deputy Director and Director of the Drilling
Department of CNOOC Bohai Corporation and Deputy General Manager of CNOOC Bohai Corporation. From 2001 to 2003, he served as the
Deputy General Manager of CNOOC China Limited Tianjin Branch. From June 2003 to December 2003, he served as the Deputy General
Manager of CNOOC Bohai Corporation. From December 2003 to April 2005, Mr. Wang served as the General Manager of CNOOC Bohai Corporation.
In November 2004, he was appointed as the General Manager of CNOOC Oil Base Group Limited. In January 2007, Mr. Wang was appointed
as the Assistant President of CNOOC. Since

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December 2007, he has also served as the General Manager of CNOOC Gas & Power Group.
In January 2013, Mr. Wang was appointed as a Vice President of CNOOC. Mr. Wang was appointed as a Non-executive Director of the
Company on November 27, 2013, and such appointment took effect from January 1, 2014. Mr. Wang Jiaxiang retired as a Non-executive
Director of the Company with effect from September 23, 2015.



Independent Non-executive
Directors



Sung
Hong ChiuBorn in 1947, Mr. Chiu received an LL.B. degree from the University of Sydney. He was admitted as a solicitor
of the Supreme Court of New South Wales and the High Court of Australia. He has over 30 years' experience in legal practice and
had been a director of a listed company in Australia. Mr. Chiu was 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 is also an Independent Non-executive Director of Tianda Pharmaceuticals Limited (formerly Yunnan Enterprises Holdings
Limited, Tianda Holdings Limited) since April 2008, a company listed on The Stock Exchange of Hong Kong Limited. Mr. Chiu is also
an Independent Non-executive Director of Bank of China (Australia) Limited (a wholly subsidiary of Bank of China Limited). Mr.
Chiu was appointed as an Independent Non-executive Director of the Company with effect from September 7, 1999.



Lawrence
J. Lau Born in 1944, Professor Lau graduated with a B.S. (with Great Distinction) in Physics from Stanford University
in 1964, and received his M.A. and Ph.D. degrees in Economics from the University of California at Berkeley in 1966 and 1969 respectively.
He joined the faculty of the Department of Economics at Stanford University in 1966, becoming Professor of Economics in 1976,
the first Kwoh-Ting Li Professor in Economic Development in 1992, and Kwoh-Ting Li Professor in Economic Development, Emeritus
in 2006. From 2004 to 2010, Professor Lau served as Vice-chancellor (President) of The Chinese University of Hong Kong. From September
2010 to September 2014, Professor Lau served as Chairman of CIC International (Hong Kong) Co., Limited. Professor Lau specializes
in economic development, economic growth, and the economies of East Asia, including that of China. He has authored, co-authored,
or edited six books and published more than 170 articles and notes in professional journals. Professor Lau is a member of the
12th National Committee of the Chinese People’s Political Consultative Conference and a Vice-Chairman of its Economics Subcommittee,
the Vice-Chairman of the Advisory Committee of the Qianhai Shenzhen-Hong Kong Modern Service Industry Cooperation Zone of Shenzhen
and a Director of the Chinese Association of Hong Kong and Macau Studies. Professor Lau also serves as a member of the Hong Kong
Special Administrative Region Exchange Fund Advisory Committee and Chairman of its Governance Sub-Committee, and member of its
Currency Board Sub-committee and Investment Sub-Committee. In addition, he also serves as a Member and Chairman of the Prize Recommendation
Committee, LUI Che Woo Prize Company, as well as a Vice-Chairman of Our Hong Kong Foundation. He was appointed a Justice of the
Peace in Hong Kong in July 2007. He currently serves as the Ralph and Claire Landau Professor of Economics at the Institute of
Global Economics and Finance, The Chinese University of Hong Kong, an Independent Non-executive Director of AIA Group Limited
and Hysan Development Company Limited, which are listed on the Hong Kong Stock Exchange, and an Independent Non-executive Director
of Far EasTone Telecommunications Company Limited, Taipei, which is listed on the Taiwan Stock Exchange. Professor Lau was appointed
as an Independent Non-executive Director of the Company with effect from August 31, 2005.



Aloysius
Hau Yin TseBorn in 1948, Mr. Tse is a fellow of The Institute of Chartered Accountants in England and Wales, and the
Hong Kong Institute of Certified Public Accountants ("HKICPA"). Mr. Tse is a past president and a former member of the
Audit Committee of the HKICPA. He joined KPMG in 1976, became a partner in 1984 and retired in March 2003. Mr. Tse was a non-executive
Chairman of KPMG's operations in the PRC and a member of the KPMG China advisory board from 1997 to 2000. Mr. Tse is currently
an independent non-executive director of China Telecom Corporation Limited, Wing Hang Bank Limited (whose shares were delisted
from The Stock Exchange of Hong Kong Limited with effect from 16 October 2014 and was renamed as OCBC Wing Hang Bank Limited),
Daohe Global Group Limited (formerly known as Linmark Group Limited), SJM Holdings Limited, Sinofert Holdings Limited and China
Huarong Asset Management Company, Limited, companies listed on The Stock Exchange of Hong Kong Limited. He was an independent
non-executive director of China Construction Bank Corporation, which is listed on the HKSE Main Board from 2004 to 2010. Mr.Tse
was appointed as an independent non-executive

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director of CCB International (Holdings) Limited, a wholly owned subsidiary of China
Construction Bank Corporation in March 2013. Mr. Tse is also a member of the International Advisory Council of the People's Municipal
Government of Wuhan. Mr. Tse was appointed as an Independent Non-executive Director of the Company with effect from June 8, 2005.



Kevin
G. Lynch Born in 1951, Mr. Lynch obtained a B.A. degree from Mount Allison University, a M.A. degree in Economics from
the University of Manchester, and a doctorate degree in Economics from McMaster University. He also holds eight honorary degrees.
Mr. Lynch was made a life Member of the Privy Council for Canada, and an Officer of the Order of Canada. He is the Vice Chairman
of BMO Financial Group and also a distinguished former public servant with 33 years of service with the Government of Canada.
Mr. Lynch served as Deputy Minister of Industry of Canada from 1995 to 2000, Deputy Minister of Finance of Canada from 2000 to
2004, Executive Director at the International Monetary Fund from 2004 to 2006 and was appointed as Clerk of the Privy Council
for Canada, Secretary to the Cabinet and Head of the Public Service from 2006 to 2009. Mr. Lynch is the Chancellor of the University
of King's College, Past Chair of the Board of Governors of the University of Waterloo, Chair of the Canadian Ditchley Foundation,
member and past Chair of the World Economic Forum's Global Policy Council on the Global Financial System and former Vice Chair
of the Jobs and Prosperity Council of Ontario.. He also serves on other boards including the Killam Trusts, Communitech, the Governor
General's Rideau Hall Foundation, and the Asia Pacific Foundation of Canada. Mr. Lynch is currently a director of Empire Company
Limited (Sobey's) listed on the Toronto Stock Exchange, a director of Canadian National Railway Company listed on the Toronto
Stock Exchange and New York Stock Exchange. Mr. Lynch was appointed as an Independent Non-executive Director of the Company on
November 27, 2013, and such appointment took effect from March 1, 2014.



Other Members of Senior Management



Guangyu
YuanBorn in 1959, Mr. Yuan is an Executive Vice President of the Company, responsible for drilling and completion. Mr.
Yuan is a professor-level senior engineer. He graduated from East China Petroleum Institute (now China University of Petroleum)
with a bachelor’s degree in drilling engineering. He graduated from the EMBA program of China Europe International Business
School in 2007 with an MBA degree. With over 30 years of experience in the oil and gas industry, Mr. Yuan joined CNOOC in 1982,
having served as Deputy Manager of CNOOC Bohai Drilling Company, Deputy General Manager of CNOOC China Offshore Oil Northern Drilling
Company, Deputy General Manager of Operational Department of CNOOC, General Manager of CNOOC China Offshore Oil Northern Drilling
Company, President of CNOOC Services, and Chairman of the Board of Directors, Chief Executive Officer and President of China Oilfield
Services Limited. Mr. Yuan also serves as the Director of CNOOC China Limited and CNOOC International Limited, both being the
subsidiaries of the Company. In November 2006, Mr. Yuan was appointed as the Assistant President of CNOOC. In February 2009, Mr.
Yuan was appointed as the Executive Vice President of the Company. In April 2013, Mr. Yuan was appointed as Director of Bohai
Petroleum Administrative Bureau of CNOOC and General Manager of CNOOC China Limited Tianjian Branch.



Weilin
ZhuBorn in 1956, Mr. Zhu is the Chief Geologist of CNOOC and Executive Vice President of the Company. Mr. Zhu is a professor-level
senior engineer. He graduated from Tongji University with a Ph.D. degree. Mr. Zhu joined CNOOC in 1982. Prior to 1999, he conducted
researches in CNOOC Research Center and served as the Deputy Manager of the Exploration Department, Manager of Science Management
Department, and Deputy Chief Geologist and Chief Geologist of the Research Center. From 1999 to 2007, Mr. Zhu served as the Deputy
Manager of Exploration Department of CNOOC, Deputy General Manager and General Manager of Exploration Department of the Company,
General Manager of CNOOC China Limited Zhanjiang Branch and Vice President of the Company. Mr. Zhu also serves as the Director
of CNOOC China Limited and CNOOC International Limited, the subsidiaries of the Company. Mr. Zhu has spent a long time in exploration
research and management of oil and natural gas in offshore China. He was granted the Special Subsidies from the government, nominated
as candidate for the “National Hundred, Thousand, and Ten Thousand Talent Project”, named as an Excellent Science
and Technology Worker of the Nation and awarded the Li Siguang Award for Geosciences, the highest tribute

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in geosciences awards
level. In August 2007, Mr. Zhu was appointed as the Chief Geologist of CNOOC, Executive Vice President of the Company and the
General Manager of the Exploration Department of the Company, responsible for the Company’s oil and gas exploration operations.
In July 2015, Mr. Zhu was appointed as the Chief Geologist of CNOOC and Executive Vice President of the Company.



Liguo
ZhaoBorn in 1953, Mr. Zhao is the General Counsel of the Company. He is a professor-level senior economist. He graduated
from the Faculty of Law, Peking University in 1983 with a bachelor of laws’ degree. In 1988, he studied at the Law School
of Niigata University in Japan for a year. Mr. Zhao joined CNOOC in 1983. He served as Head of Contract Division and Deputy General
Manager of Contract Law Department, and General Manager of Legal Department of CNOOC. He also served as the General Counsel of
CNOOC and the Company. Mr. Zhao was granted PRC lawyer qualification in 1987 and corporate counsel qualification in 1998. Mr.
Zhao was appointed as the General Counsel of CNOOC with effect from June 2008. He was appointed as
the General Counsel of the Company with effect from November 2009.In June 2015, Mr. Zhao retired as the General Counsel
of the Company.



Bi
Chen Born in 1961, Mr. Chen is an Executive Vice President of the Company and is responsible for development, production
and international affairs of the Company. Mr. Chen is a professor-level senior engineer. He graduated from the Southwest Petroleum
Institution (now Southwest Petroleum University) and received a bachelor degree in oil production. He received a master degree
of petroleum engineering from Edinburgh Heriot-Watt University in 1989 and an MBA degree from Tsinghua University in 2001. Mr.
Chen joined CNOOC in 1982 and has over 30 years of experience in the oil and natural gas industry. He served as the Deputy Manager
of CNOOC Nanhai West Corporation Oil Production Company, Director of Production Section, Deputy General Manager of Development
and Production Department of CNOOC, Deputy General Manager and General Manager of Development and Production Department of the
Company, and General Manager of CNOOC China Limited Tianjin Branch. Mr. Chen also serves as the Director of CNOOC China Limited
and CNOOC International Limited, both being the subsidiaries of the Company. In October 2005, Mr. Chen was appointed as Vice President
of the Company and General Manager of CNOOC China Limited Tianjin Branch. In January 2009, Mr. Chen was appointed as the Executive
Vice President of the Company.



Wei
Chen Born in 1958, Mr. Chen is the Worker’s Director and an Assistant President of CNOOC, an Executive Vice President
of the Company and the General Director of CNOOC Research Institute (formerly CNOOC Research Center). He is a professor-level
senior engineer. He received his B.S. degree from East China Petroleum Institute (now China University of Petroleum) and MBA from
Tsinghua University. He has over 30 years of experience in the oil and gas industry. Mr. Chen joined CNOOC in 1984 and previously
served as the Deputy Manager for the Development Department, the Deputy Manager of the Overseas Research Department, the Manager
of the Information Department, and the Deputy Director of CNOOC Research Center. He has also served as General Manager of Human
Resources Department and General Manager of Science and Technology Development of CNOOC, and the Senior Vice President of the
Company and General Manager of Administration Department of the Company. In July 2003, Mr. Chen was appointed as the Director
of CNOOC Research Center (later became President of CNOOC Research Institute). In February 2012, Mr. Chen was appointed as the
Worker’s Director of CNOOC. In March 2013, Mr. Chen was appointed as the Assistant President of CNOOC and the Executive
Vice President of the Company.



Guohua
ZhangBorn in 1960, Mr. Zhang is a Senior Vice President of the Company and the General Manager of CNOOC China Limited
Zhanjiang Branch. He is a professor-level senior engineer. He graduated from Shandong Oceanographic Institute (now Ocean University
of China) with a bachelor degree. He studied in the Business Institute of University of Alberta in Canada in 2001. He joined CNOOC
in 1982 and served as Deputy Chief Geologist and Manager of Exploration Department of CNOOC Naihai West Corporation, a subsidiary
of CNOOC, Chief Geologist of CNOOC Research Center, Assistant to General Manager of CNOOC China Limited and the General Manager
of Exploration Department of the Company. In March 2003, he was appointed as Senior Vice President of the Company. In October
2005, Mr. Zhang was appointed as Senior Vice President of the Company and General Manager of CNOOC China Limited Shanghai Branch.
In July 2009, he was appointed as Director of Donghai Petroleum Administrative Bureau of CNOOC.In July 2015, he was appointed as Director of

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Nanhaixibu Petroleum Administrative Bureau of CNOOC and General Manager of
CNOOC China Limited Zhanjiang Branch.



Hua
ZhongBorn in 1960, Mr. Zhong is Chief Financial Officer of the Company. Mr. Zhong is a professor-level senior economist
and senior engineer and graduated from Southwest Petroleum Institute (now Southwest Petroleum University) with a bachelor’s
degree in Oil Exploitation. He received a master’s degree in Petroleum Engineering from Heriot-Watt University in the United
Kingdom. He joined CNOOC in 1982, and has been working in the oil and gas industry for over 30 years. From 1982 to 1999, Mr. Zhong
served as Petroleum Engineer of China Offshore Oil Nanhai West Corporation (“COONWC”), Expro Northsea Staff in UK,
Deputy Manager of Downhole Services Company of Oil Production Company of COONWC, Manager of Wei 10-3 Oilfield, Oilfield Superintendent
of CNOOC Indonesia Project, Supervisor of Ya 2-1-3 HTHP Well Testing Project, Deputy Manager of Drilling and Exploitation Institute,
Manager of Science and Technology Development Department and Manager of Administration Department of COONWC. From September 1999
to October 2005, Mr. Zhong was General Manager of Administration Department and General Manager and Director of Development and
Planning Department of the Company. From August 2005 to September 2010, Mr. Zhong served as Vice President, Executive Vice President
and Chief Financial Officer of China Oilfield Services Limited, a company listed on The Stock Exchange of Hong Kong Limited and
Shanghai Stock Exchange, a subsidiary of CNOOC. On September 16, 2010, Mr. Zhong was appointed as Chief Financial Officer of the
Company. From March 2012 to November 2015, Mr. Zhong served as Joint Company Secretary of the Company.



Yunhua
DengBorn in 1963, Mr. Deng is an academician of the Chinese Academy of Engineering and
the Deputy Chief Exploration Engineer of the Company. Mr. Deng graduated from the Scientific Research Institute of Petroleum Exploration
and Development with a major in Petroleum Geology and Exploration and received a master's degree in Engineering IN 1988. He was
assistant geologist and then geologist in the Exploration Department of CNOOC Bohai Corporation Institute from 1988 to 1989; and
served as the Team Leader of the Comprehensive Petroleum Geological Research Team, Project Manager, Deputy Principal of Geologist,
Deputy Principal Geologist and Director of the Exploration Department and Deputy Chief Geologist in the CNOOC Bohai Corporation
Institute. Mr. Deng became Vice Chief Geology Engineer and Deputy General Manager of CNOOC China Limited Tianjian Branch from
1999 to 2005. He was Deputy Director of CNOOC Research Center from 2005 to 2006. He served as the Deputy Chief Exploration Engineer
of the Company and the Deputy Director of CNOOC Research Center from 2006 to 2007. Mr. Deng was appointed
Vice Chief Geology Engineer of CNOOC, Deputy Chief Exploration Engineer of the Company and Deputy Director of CNOOC Research Center
from 2007 to 2009; and has been Vice Chief Geology Engineer of CNOOC, Deputy Chief Exploration Engineer of the Company and Deputy
General Director of CNOOC Research Institute since 2009.



Lisong
SongBorn in 1957, Mr. Song is the Chief Safety Official and General Manager of the Quality,Health, Safety &Environmental
Protection (QHSE) Department of the Company. He graduated in 1982 with a bachelor's degree from the Department of Petroleum Development
of East China Petroleum Institute (now China University of Petroleum), majoring in Drilling Engineering. In 1999, he graduated
with a master’s degree of management from Department of Economic Management of School of Management, TianJin University.
From 1982 to 1994, he served as Supervisor and Platform Manager for Bohai Oil Corporation, and a staff member of the offshore
division of the Technology Safety Department and the head of the offshore safety division of the Technical Safety and Environmental
Protection Department respectively. From 1994 to 1999, Mr. Song served as Director of the Safety Production Division and head
of the Safety Office of the HSE Department of CNOOC. From 1999 to 2001, he served as Vice Manager of the HSE Department of the
Company. From 2001 to 2003, he served as Director of operational safety of the HSE Department of CNOOC. From 2003 to 2013, he
served as the General Manager of the HSE Department of CNOOC and the Company. From March 2013 to now, he has been serving as the
Deputy Chief Safety Official of CNOOC, the Chief Safety Official and General Manager of the QHSE Department of the Company.



Yuhong
XieBorn in 1961, Mr. Xie is the Deputy Chief Geologist and General Manager of Exploration Department of the Company as
well as a professor-level senior engineer. Mr. Xie obtained a

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Ph.D. Degree from China University of Geosciences in 2005. From
1982 to 1995, Mr. Xie served as an engineer of Research Institute and Exploration Department of CNOOC Naihai West Corporation.
From 1995 to 1996, he served as the Deputy Manager of Exploration Department of CNOOC Naihai West Corporation. From 1996 to 1999,
he served as Manager of Tepu Company of CNOOC Naihai West Corporation, Deputy Chief Earth Physicist and Manager of Exploration
Department of Naihai West Corporation. From 2001 to 2005, he was Deputy Chief Manager of CNOOC China Limited Zhanjiang Branch.
From 2005 to 2013, he served as the Chief Manager of CNOOC China Limited Zhanjiang Branch. From 2013 to 2015, he was appointed
as the Director of Naihai West Petroleum Administrative Bureau of CNOOC. From July 2015 to now, he has been serving as Deputy
Chief Geologist of CNOOC, Deputy Chief Geologist and General Manager of Exploration Department of the Company.



Joint Company Secretaries



Hua
ZhongPlease refer to the biography of Mr. Zhong above for details.



Jiewen
LiBorn in 1965, Ms. Li Jiewen is currently the General Manager (Director) of the Investor Relations Department (Office
for the Board of Directors) and the General Manager of the Controllers Department of the Company. Ms. Li is a senior economist
and Certified Senior Enterprise Risk Manager and a member of CPA Australia. Ms. Li graduated from Shanghai Jiao Tong University
with a bachelor’s degree in Naval Architecture and Ocean Engineering in 1987. She received a master’s degree in Management
from Zhejiang University in 2001. Ms. Li joined CNOOC in 1987 and has been working in the oil and gas industry for over 28 years.
From 1987 to 1989, Ms. Li was a Structure Engineer in Nanhai East Oil Corporation of CNOOC. From 1989 to 2004, she worked as the
Structure Engineer, Budget and Planning Engineer, Budget Supervisor, Assistant Finance Manager of CACT Operators Group. From January
2004 to October 2006, she served as the Finance Manager of CNOOC China Limited Shenzhen Branch. From October 2006 to November
2010, Ms. Li was the Deputy General Manager of the Controllers Department of the Company. Ms. Li has been appointed as the General
Manager of the Controllers Department of the Company in November 2010. Ms. Li has been also appointed as the General Manager (Director)
of the Investor Relations Department (Office for the Board of Directors) of the Company since October 2015. Ms. Li is also the
Director of Nexen Energy ULC, a subsidiary of the Company. Ms. Li was appointed as Joint Company Secretary of the Company with
effect from November 27, 2015.



May
Sik Yu Tsue Born in 1973, Ms. Tsue Sik Yu, May is the Joint Company Secretary of the Company. She graduated from Curtin
University of Technology in Australia with a bachelor of commerce in accounting. Ms. Tsue furthered her education at The Hong
Kong Polytechnic University in Master of Corporate Governance from 2004 to 2006. She is a fellow member of both the Institute
of Chartered Secretaries and Administrators and the Hong Kong Institute of Chartered Secretaries since 2012 and became a member
of Company Secretaries Panel and Advisor for Academy of Professional Certification in the same year. Furthermore, she is also
a fellow member and certified risk trainer of the Institute of Crisis and Risk Management and an associate member of CPA Australia.
From August 1998 to March 1999, Ms. Tsue worked in LG International (HK) Ltd. as a senior accounts clerk. Ms. Tsue joined China
Ocean Oilfield Services (HK) Limited in 1999 as an accountant. She helped to manage the finance of the CNOOC Insurance Limited
since 2000 and became its employee in 2004 as a manager of finance department. She serves as company secretary of CNOOC Insurance
Limited since March 2007. Ms. Tsue was appointed as Joint Company Secretary of the Company with effect from November 25, 2008.



| | B. | Compensation
| | -- | ------------



The aggregate
amount of fees, salaries, bonus, housing allowances, other allowances and benefits in kind paid to our directors for the year
ended December 31, 2015 was Rmb 4,740,212 (US$731,763), while the amount paid to our other senior management for the same period
was Rmb 7,584,041 (US$ 1,170,774). In addition, under our pension plan for 2015, we set aside an aggregate amount of Rmb 1,083,534
(US$167,269) for pension and similar benefits for our directors (other than independent non-executive directors) and senior management.
Our directors (other than independent non-executive directors) and senior management contributed an additional Rmb 581,702 (US$89,799)
to the pension plan for 2015. Each director’s annual compensation, including fees, salaries, allowances, benefits in kind,

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pension benefits and share option benefits, is disclosed in note 10 to our consolidated financial statements included elsewhere
in this annual report. Note 11 to our consolidated financial statements included elsewhere in this annual report discloses our
five highest paid employees during 2015. For further details regarding share options granted to our directors, officers and employees,
see “Item 6—Directors, Senior Management and Employees—Share Ownership.” For further details regarding
our employee compensation, see “Item 4—Information on the Company—Business Overview—Employees and Employee
Benefits.”



| | C. | Board Practice
| | -- | --------------



Committees



We have established
an audit committee, a remuneration committee and a nomination committee. Our audit committee meets at least twice a year and is
responsible for reviewing the completeness, accuracy and fairness of our accounts, evaluating our auditing scope (both internal
and external) and procedures, as well as its internal control systems. Our audit committee is also responsible for overseeing
the operation of the internal monitoring systems, so as to ensure our Board is able to monitor our overall financial position,
to protect our assets, and to prevent major errors or omissions resulting from financial reporting. In addition, our audit committee
reviews our Company’s business ethics and compliance policies, related reports and performs other corporate governance functions.
Our Board is responsible for these systems and appropriate delegations and guidance have been made. Our audit committee regularly
reports to our Board. Our audit committee consists of Aloysius Hau Yin Tse as the audit committee financial expert for the purposes
of U.S. securities laws and chairman of the audit committee, Sung Hong Chiu and Professor Lawrence J. Lau. Our audit committee
charter is available on our website, www.cnoocltd.com.



The main
responsibilities and authorities of our remuneration committee include making recommendations to our Board on our policy and structure
of the remuneration of our directors and senior management, determining the service contracts and specific remuneration packages
for all executive directors and senior management, such as benefits in kind, pension rights and compensation payments, including
any compensation payable for loss or termination of their office or appointment, and making recommendations to our Board on the
remuneration of non-executive directors and independent non-executive directors. Since January 1, 2014, our remuneration committee
consisted of two independent non-executive directors (Sung Hong Chiu as chairman and Aloysius Hau Yin Tse) and one non-executive
director (Bo Lv). Our remuneration committee charter is available on our website, www.cnoocltd.com.



The main
authorities and responsibilities of our nomination committee include nominating candidates to serve as our directors and senior
management for approval by our Board, reviewing the structure and composition of our Board, and evaluating the leadership abilities
of our executive directors so as to ensure our competitive position. Our nomination committee is also responsible for reviewing
and monitoring the training and continuous professional development of directors and senior management and make recommendations
to our Board in this regard. Yilin Wang retired as our Chairman of the Board, Non-executive Director and chairman of our nomination
committee with effect from May 19, 2015, and Hua Yang has been appointed and replaced Yilin Wang as Chairman of the Board and
chairman of our nomination committee as of the same day. Since May 19, 2015, our nomination committee consists of Hua Yang as
chairman, Professor Lawrence J. Lau and Kevin G. Lynch. Our nomination committee charter is available on our website, www.cnoocltd.com.



For information
on our audit committee financial expert and our code of ethics, see “Item 16A—Audit Committee Financial Expert,”
and “Item 16B—Code of Ethics.”



Directors Service Contracts



Our executive
directors and non-executive directors have entered into director’s service contracts with us and the terms of appointment
of our independent non-executive directors are governed by appointment letters. There is no severance pay arrangement for our
directors.



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Summary of Significant Differences
in Corporate Governance Practices for Purposes of Section 303A.11 of the New York Stock Exchange Listed Company Manual



We are incorporated
under the laws of Hong Kong. The principal trading market for our shares is the Hong Kong Stock Exchange. In addition, because
our shares are registered with the United States Securities and Exchange Commission and are listed on the New York Stock Exchange,
or the NYSE, we are subject to certain corporate governance requirements. However, many of the corporate governance rules in the
NYSE Listed Company Manual, or the NYSE Standards, do not apply to us as a “foreign private issuer” and we are permitted
to follow the corporate governance practices in Hong Kong in lieu of most corporate governance standards contained in the NYSE
Standards. Section 303A.11 of the NYSE Standards requires NYSE-listed foreign private issuers to describe the significant differences
between their corporate governance practices and the corporate governance standards applicable to U.S. domestic companies listed
on the NYSE, or U.S. domestic issuers. We set forth below a brief summary of such significant differences.



1.
Board and Committee Independence



While NYSE
Standards require U.S. domestic issuers to have a majority of independent directors, we are not subject to this requirement. Four
of our eight directors are independent non-executive directors.



NYSE Standards
require U.S. domestic issuers to schedule regular executive sessions of non-management directors, or regular executive sessions
of independent directors only. NYSE Standards also require that, if a U.S. domestic issuer chooses to hold regular meetings of
all non-management directors, it should hold an executive session at least once a year to be attended by only independent directors.
We are not subject to such requirements and our independent directors attend all board meetings where possible. We also schedule
meetings between our chairman and our independent non-executive directors.



NYSE Standards
require U.S. domestic issuers to disclose a method for interested parties to communicate directly with the presiding director
of the executive sessions, or with the non-management or independent directors as a group. We are not subject to such requirement
and we have not adopted such a method yet.



2.
Audit Committee



If an audit
committee member simultaneously serves on the audit committees of more than three public companies, and the listed company does
not limit the number of audit committees on which its audit committee members serve to three or less, then in each case, the board
of directors of the U.S. domestic issuer is required to determine that such simultaneous service would not impair the ability
of such member to effectively serve on its audit committee and disclose such determination on or through the U.S. domestic issuer’s
website or in its annual proxy statement or annual report. We are not subject to such requirement and we have not addressed this
in our audit committee charter.



NYSE Standards
require audit committees of U.S. domestic issuers to discuss guidelines and policies that govern the process by which risk assessment
and risk management are handled and include such responsibilities in their audit committee charters. We are not subject to such
requirement and our audit committee charter does not have such provision. Our audit committee charter only provides that our audit
committee shall review with our external auditors and the general managers of internal audit and risk management departments the
scope, adequacy and effectiveness of our corporate accounting and financial controls, internal control and risk management systems,
and any related significant findings regarding risks or exposures and consider recommendations for improvement of such controls.



NYSE Standards
require audit committees of U.S. domestic issuers to produce an audit committee report annually and include such report in their
annual proxy statements. We are not subject to such requirement and we have not addressed this in our audit committee charter.



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3.
Remuneration Committee



NYSE Standards
require U.S. domestic issuers to have a compensation committee composed entirely of independent directors. We are not subject
to such requirement and have a remuneration committee that consists of two independent non-executive directors and one non-executive
director. NYSE Standards also require the board of directors of U.S. domestic issuers to consider additional factors in evaluating
the independence of compensation committee members, including the source of compensation of the director, including any consulting,
advisory or other compensatory fee paid by the issuer to such director and whether such director is affiliated with the issuer,
a subsidiary of the issuer or an affiliate of a subsidiary of the issuer. We are not subject to such requirement and we have not
considered such additional factors in evaluating the independence of compensation committee members.



NYSE Standards
require U.S. domestic issuers to address in their compensation committee charters matters regarding committee member removal and
committee structure and operations (including authority to delegate to subcommittees). We are not subject to such requirement
and we have not addressed this in our remuneration committee charter.



NYSE Standards
require compensation committees of U.S. domestic issuers to produce a compensation committee report annually and include such
report in their annual proxy statements or annual reports on Form 10-K. We are not subject to such requirement and we have not
addressed this in our remuneration committee charter. We disclose the amounts of compensation of our directors on a named basis,
senior management by band and the five highest paid employees in our annual reports according to the requirements of the Hong
Kong Stock Exchange Listing Rules.



NYSE Standards
require compensation committees of U.S. domestic issuers may, in its sole discretion, retain or obtain the advice of compensation
consultants or other advisers, only after taking into consideration all factors relevant to such advisers’ independence
from management, including the various factors as specified in the NYSE Standards, and issuers must provide funding for the retention
of such advisers. Also, compensation committees shall be directly responsible for the appointment, compensation and oversight
of the advisers they retain. We are not subject to these requirements and we have not applied such requirements and addressed
them in our remuneration committee charter.



4.
Nomination Committee



While NYSE
Standards require U.S. domestic issuers to have only independent directors on their nomination committee, we are not subject to
such requirement and our nomination committee consists of two independent non-executive directors and one non-executive director.



NYSE Standards
require U.S. domestic issuers to address in their nomination committee charters matters regarding committee member removal and
committee structure and operations (including authority to delegate to subcommittees). We are not subject to such requirement
and we have not addressed this in our nomination committee charter.



5.
Corporate Governance Guidelines



NYSE Standards
require U.S. domestic issuers to adopt and disclose corporate governance guidelines. They must state in their annual proxy statements
or annual reports that such corporate governance guidelines are available on their websites and provide the website addresses.
We are not subject to such requirement. We have adopted a set of corporate governance guidelines in accordance with the Hong Kong
Stock Exchange Listing Rules, including the CNOOC Limited Code of Ethics for Directors and Senior Officers (the “Code of
Ethics”), to govern various aspects of our corporate governance. We have posted the Code of Ethics on our website, www.cnoocltd.com.
See “Item 16B—Code of Ethics.”



| | D. | Employees
| | -- | ---------



See “Item
4—Information on the Company—Business Overview—Employees and Employee Benefits.”



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| | E. | Share Ownership
| | -- | ---------------



As of March
31, 2016, our directors and employees had the following personal interests in options to subscribe for shares granted under our
share option schemes:



|Name of Grantee               |  | Number of shares involved in the options outstanding as of January 1, 2015 |             | Number of shares involved in the options outstanding as of March 31, 2016 |  | Date of Grant |             | Date of Expiration(1) |  | Closing price per share immediately before the date of grant (HK$) |  | Exercise Price (HK$)
|----------------------------- |  | -------------------------------------------------------------------------- | ----------- | ------------------------------------------------------------------------- |  | ------------- | ----------- | --------------------- |  | ------------------------------------------------------------------ |  | --------------------
|                              |  |                                                                            |             |                                                                           |  |               |             |                       |  |                                                                    |  |                     
|Executive Directors:          |  |                                                                            |             |                                                                           |  |               |             |                       |  |                                                                    |  |                     
|                              |  |                                                                            |             |                                                                           |  |               |             |                       |  |                                                                    |  |                     
|Guangqi Wu                    |  |                                                                            | 1,610,000   |                                                                           |  |               | —           |                       |  | August 31, 2005                                                    |  | August 31, 2015     
|                              |  |                                                                            | 1,770,000   |                                                                           |  |               | 1,770,000   |                       |  | June 14, 2006                                                      |  | June 14, 2016       
|                              |  |                                                                            | 1,857,000   |                                                                           |  |               | 1,857,000   |                       |  | May 25, 2007                                                       |  | May 25, 2017        
|                              |  |                                                                            | 1,857,000   |                                                                           |  |               | 1,857,000   |                       |  | May 29, 2008                                                       |  | May 29, 2018        
|                              |  |                                                                            | 1,857,000   |                                                                           |  |               | 1,857,000   |                       |  | May 27, 2009                                                       |  | May 27, 2019        
|                              |  |                                                                            | 1,857,000   |                                                                           |  |               | 1,857,000   |                       |  | May 20, 2010                                                       |  | May 20, 2020        
|                              |  |                                                                            |             |                                                                           |  |               |             |                       |  |                                                                    |  |                     
|Non-executive Directors:      |  |                                                                            |             |                                                                           |  |               |             |                       |  |                                                                    |  |                     
|Hua Yang                      |  |                                                                            | 1,610,000   |                                                                           |  |               | —           |                       |  | August 31, 2005                                                    |  | August 31, 2015     
|                              |  |                                                                            | 1,770,000   |                                                                           |  |               | 1,770,000   |                       |  | June 14, 2006                                                      |  | June 14, 2016       
|                              |  |                                                                            | 1,857,000   |                                                                           |  |               | 1,857,000   |                       |  | May 25, 2007                                                       |  | May 25, 2017        
|                              |  |                                                                            | 1,857,000   |                                                                           |  |               | 1,857,000   |                       |  | May 29, 2008                                                       |  | May 29, 2018        
|                              |  |                                                                            | 2,835,000   |                                                                           |  |               | 2,835,000   |                       |  | May 27, 2009                                                       |  | May 27, 2019        
|                              |  |                                                                            | 2,000,000   |                                                                           |  |               | 2,000,000   |                       |  | May 20, 2010                                                       |  | May 20, 2020        
|Other Employees In Aggregate: |  |                                                                            |             |                                                                           |  |               |             |                       |  |                                                                    |  |                     
|                              |  |                                                                            | 24,850,000  |                                                                           |  |               | —           |                       |  | August 31, 2005                                                    |  | August 31, 2015     
|                              |  |                                                                            | 34,940,000  |                                                                           |  |               | 31,630,000  |                       |  | June 14, 2006                                                      |  | June 14, 2016       
|                              |  |                                                                            | 40,576,000  |                                                                           |  |               | 37,102,000  |                       |  | May 25, 2007                                                       |  | May 25, 2017        
|                              |  |                                                                            | 49,875,000  |                                                                           |  |               | 44,304,000  |                       |  | May 29, 2008                                                       |  | May 29, 2018        
|                              |  |                                                                            | 62,865,000  |                                                                           |  |               | 54,594,000  |                       |  | May 27, 2009                                                       |  | May 27, 2019        
|                              |  |                                                                            | 75,341,000  |                                                                           |  |               | 64,484,000  |                       |  | May 20, 2010                                                       |  | May 20, 2020        
|Total                         |  |                                                                            | 311,184,000 |                                                                           |  |               | 251,631,000 |                       |  |                                                                    |  |                     










| | (1) | Except for share options
                                         granted under the Pre-Global Offering Share Option Scheme, all share options granted
                                         are subject to a vesting schedule pursuant to which one third of the options granted
                                         vest on the first, second and third anniversaries of the date of grant, respectively,
                                         such that the options granted are fully vested on the third anniversary of the date of
                                         grant.
| | --- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



For the year
ended December 31, 2015, no share options granted under our share option schemes were exercised. For the period from January 1,
2015 to March 31, 2016, no share options were exercised.



As of December
31, 2015, we had 262,592,000 share options outstanding under our share option schemes, which represented approximately 0.59% of
our shares in issue as of that date.



For further
details about our share option schemes, see notes 10 and 28 to our consolidated financial statements included elsewhere in this
annual report.



As of March
31, 2016, none of our directors or employees owned 1% or more of our shares including the shares underlying the share options
granted as of that date.



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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 March 31, 2016.



|Shareholder |  | Number
of Shares Owned |  | Percentage
|----------- |  | ---------------------- |  | ----------
|CNOOC(1)    |  | 28,772,727,273         |  | 64.44%    












| | (1) | CNOOC owns our shares indirectly
                                         through its wholly owned subsidiaries, CNOOC (BVI) Limited and Overseas Oil & Gas
                                         Corporation, Ltd.
| | --- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



Our
major shareholder listed above does not have voting rights different from our other shareholders. Except as set forth in the above
table, we are not aware of any shareholders that hold more than 5% of our shares. Except as disclosed above, we are not 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 March 31, 2016, 10,386,872 ADSs, representing approximately 2.3% of our then outstanding shares, were held of record in the
form of ADSs. At such date, the number of registered ADS holders in the United States was 56.



| | B. | Related Party Transactions
| | -- | --------------------------



Overview



We regularly
enter into transactions with related parties, including CNOOC and its associates, as defined under the Hong Kong Stock Exchange
Listing Rules. Since CNOOC indirectly owns an aggregate of approximately 64.44% of our outstanding shares, some of these transactions
constitute connected transactions under the Hong Kong Stock Exchange Listing Rules, and are regulated by the Hong Kong Stock Exchange.



Apart from
transactions with CNOOC and its associates, we have transactions with other state-owned enterprises, including, but not limited
to, the following:



| | · | Sales and purchase of goods
and services;
| | - | -----------------------------------------



| | · | Purchases of assets, goods
and services;
| | - | ----------------------------------------



| | · | Leases of assets; and
| | - | ---------------------



| | · | Bank deposits and borrowings.
| | - | -----------------------------



These transactions
are conducted in the normal course of businesson terms comparable
to those with other non-state-owned enterprises.



Categories of Continuing Connected
Transactions



As
we are controlled by CNOOC, transactions with CNOOC, its subsidiaries and associates are deemed to be related party transactions.
We entered into a comprehensive framework agreement with CNOOC on November 6, 2013 for the provision (1) by us and/or our associates
to the CNOOC and (2) by CNOOC and/or its associates to us, of a range of products and services which may be required and requested
from time to time by either party and/or its associates in respect of the continuing connected transactions. The term of the comprehensive
framework agreement is for a period of three years from January 1, 2014. The comprehensive framework agreement is substantially
on the same terms as the terms contained in the comprehensive framework agreements entered into by us on November 1, 2010. The
continuing connected transactions under such comprehensive framework agreement and the relevant annual caps for the three years
from January 1, 2014 were approved by our independent shareholders on November 27, 2013. The approved continuing connected transactions
are as follows:



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| | 1. | Provision of exploration, oil and
                                         gas development, oil and gas production as well as marketing, management and ancillary
                                         services by CNOOC and/or its associates to us:
| | -- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | (a) | Provision of exploration and support
                                         services            
| | --- | --------------------------------------------------------------------------------------------------
| | (b) | Provision of oil and gas development
                                         and support services
| | (c) | Provision of oil and gas production
                                         and support services 
| | (d) | Provision of marketing, management
                                         and ancillary services
| | (e) | FPSO vessel leases                                                                                



| | 2. | Provision of management, technical,
                                         facilities and ancillary services, including the supply of materials by us to CNOOC and/or
                                         its associates
| | -- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | 3. | Sales of petroleum and
natural gas products by us to CNOOC and/or its associates
| | -- | --------------------------------------------------------------------------------



| | (a) | Sales of petroleum and natural
                                         gas products (other than long term sales of natural gas and liquefied natural gas)
| | --- | ----------------------------------------------------------------------------------------------------------------------------------------------------------
| | (b) | Long-term sales of natural gas
                                         and liquefied natural gas                                                         



Pricing principles



The continuing
connected transactions described above are based on negotiations with CNOOC and/or its associates on normal commercial terms,
or on terms no less favorable than those available to us from independent third parties, under prevailing local market conditions,
including considerations such as volume of sales, length of contracts, package of services, overall customer relationship and
other market factors.



For the continuing
connected transactions referred to in paragraphs 1(a) to 1(d) above provided by CNOOC and/or its associates to us and paragraph
2 above provided by us to CNOOC and/or its associates, on the basis of the above pricing principles, such services must be charged
in accordance with the following pricing mechanism and in the following sequential order:



| | (i) | state-prescribed prices; or
| | --- | ---------------------------



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



| | (iii) | when neither (i) nor (ii) is
                                         applicable, the costs of CNOOC and/or its associates or us and /or our associates for
                                         providing the relevant service (including the cost of sourcing or purchasing from third
                                         parties) plus a margin of not more than 10%, before any applicable taxes.
| | ----- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



The continuing
connected transactions referred to in paragraph 1(e) above provided by CNOOC and/or its associates to us, on the basis of the
above pricing principles, are at market prices on normal commercial terms which are calculated on a daily basis.



The continuing
connected transactions referred to in paragraphs 3(a) above provided by us to CNOOC and/or its associates, on the basis of the
above pricing principles, are at state-prescribed prices or local, national or international market prices and on normal commercial
terms.



The continuing
connected transactions referred to in paragraphs 3(b) above provided by us to CNOOC and/or its associates, on the basis of the
above pricing principles, are at state-prescribed prices or local, national or international market prices and on normal commercial
terms, which are subject to adjustment in accordance with movements in international oil prices as well as other factors such
as the term of the sales agreement and the length of the relevant pipeline.



Disclosure
and/or Independent Shareholders’ Approval Requirements



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Under the
Hong Kong Stock Exchange Listing Rules, the following categories of continuing connected transactions are exempted from the independent
shareholders’ approval requirement but are subject to the announcement, annual report and annual review requirements set
out in the Hong Kong Stock Exchange Listing Rules, because each of the percentage ratios for these categories under the Hong Kong
Stock Exchange Listing Rules (other than the profits ratio) , where applicable, is expected to be less than 5% on an annual basis:



| | · | (a) Provision of marketing,
management and ancillary services by CNOOC and/or its associates to us;
| | - | ---------------------------------------------------------------------------------------------------



| | · | (b) Provision of management,
technical, facilities and ancillary services, including the supply of materials from us to CNOOC and/or its associates; and
| | - | --------------------------------------------------------------------------------------------------------------------------------------------------------



| | · | (c) FPSO vessel leases
from CNOOC and/or its associate to us.
| | - | -------------------------------------------------------------



Under the
Hong Kong Stock Exchange Listing Rules, the following categories of continuing connected transactions, or the non-exempt continuing
connected transactions, are subject to the connected transaction requirements:



| | (a) | Provision of exploration
and support services;
| | --- | ----------------------------------------------



| | (b) | Provision of oil and gas
development and support services;
| | --- | ----------------------------------------------------------



| | (c) | Provision of oil and gas
production and support services;.
| | --- | ----------------------------------------------------------



| | (d) | Sales of petroleum and
natural gas products (other than long-term sales of natural gas and liquefied natural gas); and
| | --- | ----------------------------------------------------------------------------------------------------------------------



| | (e) | Long term sales of natural
gas and liquefied natural gas.
| | --- | ---------------------------------------------------------



We obtained
independent shareholders’ approval at the extraordinary general meetings held on November 27, 2013 for the non-exempt continuing
connected transactions and relevant annual caps for the period from January 1, 2014 to December 31, 2016, respectively. The annual
caps for our continuing connected transactions with CNOOC and/or its associates are specified as follows:



|Category of Continuing
        Connected Transactions                                                                                                                      | Relevant Annual Caps                                                                                                                                                                                        
|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|                                                                                                                                                                           |                                                                                                                                                                                                             
|                                                                                                                                                                           |                                                                                                                                                                                                             
|Provision of exploration, oil and gas development, oil and gas production
    as well as marketing, management and ancillary services by CNOOC and/or its associates to us
|                                                                                                                                                                          
|(a) Provision of exploration and support services                                                                                                                          | For
        the three years ending December 31, 2016,
        
        Rmb
        15,000 million,
        
        Rmb
        16,100 million and
        
        Rmb
        17,200 million, respectively
|                                                                                                                                                                           |                                                                                                                                                                                                             
|(b) Provision of oil and gas development and support services                                                                                                              | For
        the three years ending December 31, 2016,
        
        Rmb
        47,200 million,
        
        Rmb
        49,600 million and
        
        Rmb
        52,100 million, respectively
|                                                                                                                                                                           |                                                                                                                                                                                                             
|(c) Provision of oil and gas production and support services                                                                                                               | For
        the three years ending December 31, 2016,
        
        Rmb
        10,500 million,
        
        Rmb
        11,600 million and
        
        Rmb
        12,800 million, respectively
|                                                                                                                                                                           |                                                                                                                                                                                                             
|(d) Provision of marketing,
        management and ancillary services                                                                                                      | For
        the three years ending December 31, 2016,
        
        Rmb
        1,408 million,
        
        Rmb
        1,875 million and
        
        Rmb
        2,075 million, respectively   
|                                                                                                                                                                           |                                                                                                                                                                                                             
|(e) FPSO vessel leases                                                                                                                                                     | For
        the three years ending December 31, 2016,
        
        Rmb
        1,450 million,
        
        Rmb
        2,180 million and
        
        Rmb
        2,350 million, respectively   
|                                                                                                                                                                           |                                                                                                                                                                                                             



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|Provision of management, technical, facilities and ancillary services, including
    the supply of materials from us to CNOOC and/or its associates
|---------------------------------------------------------------------------------------------------------------------------------------------------
|                                                                                                                                                   
|Provision of management, technical, facilities and ancillary services,
 including the supply
    of materials to CNOOC and/or its associates       
|                                                                                                                                                   
|Sales of petroleum and natural gas products by us to CNOOC and/or its associates                                                                   
|                                                                                                                                                   
|(a) Sales of petroleum
        and natural gas products (other than long-term 
sales of natural gas and liquefied natural gas)                     
|                                                                                                                                                   
|(b) Long-term sales of natural gas and liquefied natural gas                                                                                       



A detailed
discussion of significant connected transactions entered into in the ordinary course of business between us and our related parties
during 2015 and the balances arising from connected transactions at the end of 2015 is included in note 30 to our consolidated
financial statements included elsewhere in this annual report.



The non-exempt
continuing connected transactions for the year ended December 31, 2015 to which any member of us was a party were entered into
by us:



| | (i) | in the ordinary and usual
course of our business;
| | --- | -------------------------------------------------



| | (ii) | on normal commercial terms
or better; and
| | ---- | -----------------------------------------



| | (iii) | in accordance with the
relevant agreements (including pricing principles and guidelines set out therein) governing the transactions on terms that were
fair and reasonable and in the interests of our company and shareholders as a whole.
| | ----- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



We confirmed
that the annual amount of each category of the non-exempt continuing connected transactions for the year ended December 31, 2015
did not exceed the applicable annual caps; and we have complied with other relevant provisions of the Hong Kong Stock Exchange
Listing Rules in relation to each category of the non-exempt continuing connected transactions.



Transactions
with CNOOC Finance Corporation Limited



On October
14, 2008, we entered into a financial services framework agreement with CNOOC Finance Corporation Limited (“CNOOC Finance”),
our 31.8% owned associate and a subsidiary of CNOOC, pursuant to which CNOOC Finance Corporation Limited provides us with settlement,
depository, discounting, loans and entrustment loans services. On August 20, 2010, we entered into a renewal agreement with CNOOC
Finance to renew such financial services framework agreement.



As the financial
services framework agreement (as renewed on August 20, 2010) expired on December 31, 2013, we entered into a new renewal agreement
with CNOOC Finance on November 27, 2013 to further renew the financial services framework agreement for another three years from
January 1, 2014 to December 31, 2016. According to the renewal agreement dated November 27, 2013, the maximum daily outstanding
balance of deposits (including accrued interests)(excluding funds placed for the purpose of extending entrustment loans pursuant
to the entrustment loan services) should not exceed Rmb 22 billion for the period from January 1, 2014 to December 31, 2016. The
depository services were exempted from independent shareholders’ approval requirements and the settlement, discounting,
loans and entrustment loans services were exempted from all the connected transaction requirements under the Hong Kong Stock Exchange
Listing Rules.



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We confirmed
that the maximum daily outstanding balance of deposits (including accrued interests but excluding funds placed for the purpose
of extending entrustment loans pursuant to the entrustment loan services)
placed by us with CNOOC Finance did not exceed Rmb 22 billion from January 1, 2015 to December 31, 2015.



Borrowings
from CNOOC



In September
2014, CNOOC provided CNOOC International Limited, a wholly-owned subsidiary of us a five-year uncommitted revolving loan facility
for general purposes, with the principal amount of US$135 million of 0.95% per annum. As at March 31, 2016, the withdrawal amount
of the loan was US$130 million; In December 2014, CNOOC provided us a five-year uncommitted revolving loan facility for general
purposes, with the principal amount of US$600 million of 0.95% per annum. As at March 31, 2016, the withdrawal amount of the loan
was US$564 million. All the loans above are unsecured.



| | 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



As at December
31, 2015, the Company was not involved in any material litigation or arbitration and no material litigation or arbitration were
pending or threatened or made against the Company so far as the Company is aware.



Dividend Distribution Policy



The payment
of any future dividends will be determined by our Board, subject to shareholders’ approval for all dividends other than
interim dividends, based upon, among other things, our future earnings, capital requirements, financial conditions, future prospects
and other factors which our Board may consider relevant. Our ability to pay dividends will also depend on the cash flows determined
by the dividends, if any, received by us from our subsidiaries and associates. Holders of our shares will be entitled to receive
such dividends declared by our Board 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.



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 and withholding taxes of 10%. 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.



In 2013,
we declared and paid dividends totaling Rmb 20,226 million. In 2014, we declared and paid dividends totaling Rmb 20,216 million.
In 2015, we declared and paid dividends totaling Rmb 20,419 million (US$3,152 million). The amount of dividends we paid historically
is not indicative of the dividends that we will pay in the future.



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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 Limited 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 Limited 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, which amount was reached in 2009. Appropriations to the staff and workers’
bonus and welfare fund, which are determined at the discretion of the directors of CNOOC China Limited, are charged to expense
as incurred in our consolidated financial statements, which were prepared under IFRS. In accordance with the “Temporary
Regulation for Safety Expense Financial Management of High Risk Industry” and the implementation guidance issued by the
Ministry of Finance of the PRC, a safety fund has been accrued for our oil and gas exploration and production activities within
the PRC. The accrued safety fund will be utilized for improving the safety conditions of our production. Included in other reserves
was a provision for safety fund under the PRC regulation amounting to Rmb 733.7 million (US$113.3 million) in 2015, which was
Rmb 691.7 million in 2014. None of the contributions of CNOOC China Limited to these statutory funds may be used for dividend
purposes.



For the years
ended December 31, 2013, 2014 and 2015, CNOOC China Limited made the following appropriations to the statutory reserves:



|                                          |  | For
                                         the year ended  December
                                         31, 2013 |     | For
                                         the year ended  December
                                         31, 2014 |  | For
                                         the year ended  December
                                         31, 2015
|----------------------------------------- |  | ----------------------------------------------------------------------------------------------------------------------- | --- | ----------------------------------------------------------------------------------------------------------------------- |  | -----------------------------------------------------------------------------------------------------------------------
|                                          |  | Percentage  of
                                         Net Profits                                                     |     | Rmb(in millions)                                                                                                        |  | Percentage  of
                                         Net Profits                                                    
|Reserve fund                              |  |                                                                                                                         | —   |                                                                                                                         |  |                                                                                                                        
|Staff and workers’ bonus and welfare fund |  |                                                                                                                         | —   |                                                                                                                         |  |                                                                                                                        
|Safety fund                               |  |                                                                                                                         | 1.1 | %                                                                                                                       |  |                                                                                                                        



Contingencies



| | (a) | Two oil spill accidents
(the “Penglai 19-3 Oilfield Oil Spill Accidents”) occurred on June 4 and June 17, 2011 respectively at Platforms B
and C of Penglai 19-3 oilfield, which is being operated under a production sharing contract (the “PSC”) among CNOOC
China Limited, a subsidiary of the Company, and two subsidiaries of ConocoPhillips, a U.S. based oil company, among which ConocoPhillips
China Inc. (the “COPC”) was the operator and responsible for the daily operations of the oilfield when the Penglai
19-3 Oilfield Oil Spill Accidents occurred.
| | --- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



On
August 10, 2015, the Company received a Notice Calling for Responses from the Qingdao Maritime Court of the People’s Republic
of China for a public interest action filed by China Biodiversity Conservation and Green Development Foundation (the “Plaintiff”)
in relation to the Penglai 19-3 Oilfield Oil Spill Accidents (the “Claim”). The Claim is lodged against COPC and CNOOC
China Limited (together, the “Defendants”).The Plaintiff requires the Defendants to: (1) restore the ecological environment
in the Bohai Bay as damaged by the Penglai 19-3 Oilfield Oil Spill Accidents so that the environment will be brought back to its
original condition before the accidents occurred; (2) if the Defendants fail to set up and implement a scientific plan to restore
the ecological environment in the Bohai Bay within three months after a court judgment is granted in favor of the Plaintiff, establish
a fund specifically for the restoration of the ecological environment in the Bohai Bay. Such fund shall be supervised by a professional
public welfare foundation and the total amount of such fund shall be fixed based on the estimated costs for restoring the ecological
environment in the Bohai Bay as determined by a professional institution; and (3) bear all litigation costs incurred by the Plaintiff
in connection with the Claim. CNOOC China Limited has engaged PRC lawyers in relation to the Claim and is defending the Claim
vigorously.



The
Company is of the view that the Company’s obligations, if any, arising from the above mentioned accidents (including the
Claim disclosed in the paragraph above) shall be determined in accordance with relevant laws and regulations, the PSC and related
agreements, among others. Based on evaluations performed as of the date of the consolidated financial statements authorised

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for
issuance, the Company believes that it is not possible to determine provisions, if any, for the Company’s obligation determined
in the future arising from the above mentioned accidents (including the Claim disclosed in the paragraph above) in the consolidated
financial statements. The financial impact of such oil spill accidents on the Company is still uncertain, and the Company has
not made any provision for the accidents in the consolidated financial statements.



| | (b) | As a Chinese Resident Enterprise,
                                         the Company may be liable to pay taxes on the deemed interest income for the funding
                                         provided to its overseas subsidiaries starting from 1 January 2008. The Company has prepared
                                         contemporaneous documentation in accordance with applicable PRC tax laws and regulations
                                         and is currently awaiting confirmation from its in-charge tax authority.
| | --- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | (c) | On July 15, 2015, an emulsion
                                         leak from a pipeline was discovered within Nexen’s Long Lake operations, located
                                         in south of Fort McMurray, Alberta, Canada. The estimated size of the leak was 5,000
                                         m3 over an area of approximately 21,900 m2 mostly within a compacted pipeline corridor.
                                         There were no injuries as a result of this incident. The affected wells were suspended,
                                         and Nexen’s emergency response plan was activated. The Company places great emphasis
                                         on operation safety and has taken measures to minimize the spill's impact on the environment
                                         and wildlife. Since the incident, the Company has been working together with relevant
                                         regulatory agencies in its conduct of clean-up and remediation work at the spill site.
                                         Nexen is cooperating with the investigation of regulatory agencies.
| | --- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



The
majority of leaked bitumen in the spill area has been safely removed. Further remediation and clean-up work is underway and will
be carried out in compliance with applicable regulatory requirements. The total financial impact of this incident on the Group
is still uncertain, and the Company has not made a complete provision for the incident in the consolidated financial statements.



On
January 15, 2016, an explosion occurred at Nexen’s Long Lake site near the hydrocracker unit. Two employees died as a result
of the incident. Nexen informed the relevant regulatory authorities immediately and has been cooperating with the authorities
investigating the incident. Reasonable estimates for the financial effect cannot be determined at this stage.



The
Company maintains insurance policies that provide coverage against property damage, third party pollution clean-up and well control
losses. The Company has submitted claims to its insurers on these recent Long Lake losses and each claim is being investigated.



The Group
is subject to tax in numerous jurisdictions around the world. There are audits in progress and items under review. Difference
in positions taken by taxation authorities over the interpretation and application of tax laws and regulations may increase our
tax liability. Management has assessed the possible future outcome of matters that are currently under dispute. The Company believes
that an adequate provision for future tax liability has been included in the consolidated financial statements based on available
information.



In
addition to the matters mentioned above, we are dealing with a number of other lawsuits and arbitrations that arise in the ordinary
course of business. While the results of these legal proceedings cannot be ascertained at this stage, the Company believes these
proceedings are not expected to have a material effect on the consolidated financial statements.



| | B. | Significant Changes
| | -- | -------------------



The Company
has no other subsequent events needed to be disclosed except those disclosed in note 38 to our consolidated financial statements
included elsewhere in this annual report.



ITEM
9. THE OFFER AND LISTING



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



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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 “00883” and our ADSs are listed on the New York Stock
Exchange under the symbol “CEO.” Pursuant to certain undertakings in connection with our acquisition of Nexen, we
listed our ADSs on the Toronto Stock Exchange in September 2013 under the symbol “CNU”. The listing of our ADSs on
the Toronto Stock Exchange is not a new issuance of equity securities and does not generate additional funds for us. 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 and the Toronto
Stock Exchange.



|Period                 |  | Hong Kong Stock Exchange |       | New York Stock Exchange |  | Toronto Stock Exchange
|---------------------- |  | ------------------------ | ----- | ----------------------- |  | ----------------------
|                       |  | High                     |       | Low                     |  | High                  
|                       |  | (HK$ per share)          |       | (US$ per ADS)           |  | (Cdn$ per ADS)        
|2011                   |  |                          | 20.85 |                         |  |                       
|2012                   |  |                          | 18.10 |                         |  |                       
|2013                   |  |                          | 17.34 |                         |  |                       
|2014                   |  |                          | 15.68 |                         |  |                       
|2015                   |  |                          | 13.42 |                         |  |                       
|                       |  |                          |       |                         |  |                       
|2014 Financial Quarter |  |                          |       |                         |  |                       
|1st Quarter            |  |                          | 14.38 |                         |  |                       
|2nd Quarter            |  |                          | 14.12 |                         |  |                       
|3rd Quarter            |  |                          | 15.68 |                         |  |                       
|4th Quarter            |  |                          | 13.52 |                         |  |                       
|2015 Financial Quarter |  |                          |       |                         |  |                       
|1st Quarter            |  |                          | 11.38 |                         |  |                       
|2nd Quarter            |  |                          | 13.42 |                         |  |                       
|3rd Quarter            |  |                          | 11.02 |                         |  |                       
|4th Quarter            |  |                          | 9.52  |                         |  |                       
|2016 Financial Quarter |  |                          |       |                         |  |                       
|1st Quarter            |  |                          | 9.26  |                         |  |                       
|                       |  |                          |       |                         |  |                       
|Last Six Months        |  |                          |       |                         |  |                       
|October 2015           |  |                          | 9.52  |                         |  |                       
|November 2015          |  |                          | 9.25  |                         |  |                       
|December 2015          |  |                          | 9.04  |                         |  |                       
|January 2016           |  |                          | 8.07  |                         |  |                       
|February 2016          |  |                          | 8.23  |                         |  |                       
|March 2016             |  |                          | 9.26  |                         |  |                       



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 (Chapter 32 of the Laws
of Hong Kong, the predecessor to the Hong Kong Companies Ordinance). Our company registration number in Hong Kong is 685974. Under
the Hong Kong Companies Ordinance, we have the capacity, rights, powers and privileges of a natural person of full age and may
do anything which we are permitted or required to do by our articles of association or any enactment or rule of law.



The
following are summaries of provisions of our articles of association and the Hong Kong Companies Ordinance. By operation of this
Ordinance, provisions that were previously contained in our memorandum of association are deemed to be incorporated into our articles
of association except for those provisions which conflict with the Hong Kong Companies Ordinance. 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 was filed as an exhibit to our annual report on Form 20-F for the fiscal year
of 2010. We are required by the Hong

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Kong Stock Exchange Listing Rules to upload, among other things, our memorandum and articles
of association on our website and on the website of the Hong Kong Stock Exchange. We have complied with such requirement and as
such, our memorandum and articles of association were further filed as an exhibit to the Form 6-K filed with the SEC on March
30, 2012 (File Number: 1-14966).



Issue
of Shares



Under
the Hong Kong Companies Ordinance, our directors may, without obtaining the prior approval of our shareholders, offer to allot
new shares in our company to existing shareholders on a pro rata basis. Our directors may not allot new shares of our company
or grant rights to subscribe for, or to convert any security into, shares of our company in any other manner without the prior
approval of our shareholders at a general meeting. Any approval given at a general meeting granting our directors power to allot
shares or securities convertible into shares or to grant rights to subscribe for shares generally shall continue in force from
the date of the passing of the resolution until the earlier of:



| | · | the
                                         conclusion of the next annual general meeting following the passing of the resolution;
                                         and
| | - | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | · | the
                                         date on which the authority given under the resolution is revoked or varied by an ordinary
                                         resolution of our shareholders in a general meeting.
| | - | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



If
such an approval for a general mandate to issue shares is given, our Board shall have the discretion to issue such number of shares
as are approved pursuant to such general mandate, and our directors may offer, allot, grant options or other rights of subscription
or conversion over, or otherwise issue, such number of shares to persons at such times and for such consideration and upon such
terms and conditions as our directors may determine, subject to the restrictions under the Hong Kong Stock Exchange Listing Rules.



In
accordance with Hong Kong Stock Exchange Listing Rules, any such approval of the shareholders must be limited to shares not exceeding
20% of our total number of shares in issue as of the date of granting such approval plus the number of shares repurchased by us
since the granting of such approval.



Dividends



Subject
to the Hong Kong Companies Ordinance, the shareholders at a general meeting may declare dividends to be paid to shareholders.
However, under our articles of association, dividends cannot be declared in excess of the amount recommended by our Board. Further,
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 our company until claimed, and all dividends unclaimed for six years after having become payable may be forfeited
by the directors and shall revert to our company.



In
addition to dividends declared at a general meeting, our Board may declare and pay to the shareholders interim dividends as our
Board deems justified by our financial position. Our Board may also pay any fixed dividend on any shares of our company semi-annually
or at other suitable intervals, whenever our financial position, in their opinion, justifies such payment.



Winding
Up



If
we are wound up, the surplus assets remaining after payment to all creditors are to be divided among our shareholders in proportion
to the amount paid on the shares held by them respectively, and if such surplus assets are insufficient to repay the whole of
the paid-up share capital, they are to be distributed so that the losses are borne by our shareholders in proportion to the amount
paid up on the shares held by them respectively. 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.

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Voting
Rights



Under the
Hong Kong Companies Ordinance, any action to be taken by the shareholders at a general meeting requires the affirmative vote of
either an ordinary or a special resolution passed at such meeting.



| | · | An
                                         ordinary resolution is a resolution passed by a majority of shareholders that are entitled
                                         to, and do, vote in person or by proxy at a general meeting;
| | - | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | · | 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 Hong Kong Companies Ordinance provides that certain
specified matters may only approved by shareholders by way of special resolutions. These matters include, for example:



| | · | alteration
                                         of the articles;
| | - | --------------------------------------------------------------------



| | · | change
                                         of a company’s name;
| | - | --------------------------------------------------------------------



| | · | reduction
                                         of share capital; and
| | - | ------------------------------------------------------------------------



| | · | voluntary
                                         winding up.
| | - | --------------------------------------------------------------



The Hong
Kong Stock Exchange Listing Rules require that voting at any general meeting must be taken by way of poll, except where the chairman,
in good faith, decides to allow a resolution which relates purely a procedural or administrative matter to be voted on by a show
of hands. On a poll, every shareholder who is present in person or by proxy has one vote for every share held or represented by
him or her.



Any action
to be taken by the shareholders requires the affirmative vote of the requisite majority of the shares at a general meeting. 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.



Under Hong
Kong law and our articles of association, shareholders who are not residents of Hong Kong may hold, vote and transfer their shares
in our company in the same manner as our shareholders who are Hong Kong residents.



General
Meetings



We
are required to hold an annual general meeting each year within six months from the end of our financial year. We may also hold
extraordinary general meetings from time to time. Our Board may convene an extraordinary general meeting at will, and shall on
requisition in accordance with the Hong Kong Companies Ordinance, proceed to convene an extraordinary general meeting. Our annual
general meeting and a meeting called for the purpose of passing a special resolution require at least twenty-one days’ prior
notice, and any other general meeting requires at least fourteen 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 Hong Kong Companies 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 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.



At
each annual general meeting one third of our directors are to retire from office by rotation, save any director holding office
as chairman or chief executive officer. The directors to retire every year are to be those who have been longest in office since
their last election and the retiring directors will be eligible for re-election.



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Modification
of Rights



Subject
to the Hong Kong Companies Ordinance, 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
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 assets, whether present or future, and uncalled capital. Our Board 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. Subject to provision of the Hong Kong Companies Ordinance, our directors
may vote at a board meeting or by way of written resolution of directors on the following matters:



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



| | · | any
                                         contract or arrangement for the giving by us of any security or indemnity to a third
                                         party for our debts or obligations or debts or obligations of our subsidiaries for which
                                         such director or his or her associates assumed responsibility , or guaranteed or secured
                                         in whole or in part whether alone or jointly;
| | - | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | · | 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
                                         is/are or is/are to be interested as a participant in the underwriting or sub-underwriting;
| | - | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | · | any
                                         contract or arrangement in which the director or his or her associates are interested
                                         in the same manner as other holders of our securities by virtue only of their interest
                                         in our securities;
| | - | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | · | any
                                         proposal or arrangement concerning employee benefits that do not provide privileges to
                                         our directors or their associates not generally accorded to the class of persons to whom
                                         such scheme or fund relates, including pension fund or retirement, death or disability
                                         benefits schemes; and
| | - | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | · | 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
| | -- | ------------------



We have not
entered into any material contracts in the last two years other than in the ordinary course of business, those described in “Item
7―Major Shareholders and Related Party Transactions ― Related Party Transactions”.



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| | D. | Exchange Controls
| | -- | -----------------



For information
on foreign exchange controls in the PRC, foreign exchange rates, hedging activities and related foreign exchange risks, see “Item
3—Key Information—Selected Financial Data,” “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” 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 the PRC, Hong Kong and the
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. This summary 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 or other laws, such as
non-PRC, non-Hong Kong or non-U.S. laws. Accordingly, we urge you to consult your tax adviser regarding the tax consequences of
owning 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 change. There is no reciprocal tax treaty in effect between Hong Kong and the United States.



The PRC



On
April 22, 2009, the State Administration of Taxation of the PRC (the “SAT”) issued the “Notice regarding Matters
on Determination of Tax Residence Status of Chinese-controlled Offshore Incorporated Enterprises under Rules of Effective Management”
(the “Notice”).



Pursuant
to the “Enterprise Income Tax Law of the PRC” (the “New EIT Law”) and the Notice, enterprises established
outside of China whose “de facto management bodies” are located in China are considered Chinese Resident Enterprises,
or CREs.



We
are considered a PRC resident enterprise for purposes of the Notice. In Accordance with the Notice and the PRC income tax law
as well as the formal approval from the SAT in October 2010, we are regarded as a CRE pursuant to the provisions of the New EIT
Law and the Notice. Accordingly, we are required to withhold 10% corporate income tax when we make dividend distributions to the
ADS depositary and to our non-Chinese resident enterprise shareholders , whose names appear on our register of members, as of
the record date for such dividend, and who are not individuals. The 10% dividend withholding tax rate will not be reduced under
the 1984 Agreement between the United States and the People’s Republic of China for the Avoidance of Double Taxation, or
the PRC Treaty. In the past, we did not withhold any tax in respect of Dividends payable to any natural person shareholders whose
names appeared on our register of members on the relevant record dates.



Currently,
gains realized by foreign individual investors upon the sale of overseas-listed shares or American depositary shares are not subject
to tax on capital gains. In accordance with the New EIT Law, capital gains realized by foreign enterprises which are non-resident
enterprises in China upon the sale of overseas-listed shares or American depositary shares are generally subject to a PRC enterprise
income tax levied at a rate of 10%, unless exempted or reduced pursuant to an applicable double-taxation treaty or other exemption.



Hong Kong



Tax
on Dividends



Under the
current practices of the Hong Kong Inland Revenue Department, no tax is payable in Hong Kong on dividends paid by us.



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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 subject to Hong Kong profits tax which is currently imposed at a
rate of 16.5% on corporations and at a standard rate of 15% on individuals. Gains from sales of 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 will therefore
arise in respect of trading gains from sales of shares 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$1.00 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. A total
of HK$2.00 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$5.00 is currently payable on any instrument of transfer of shares. The withdrawal of shares upon the surrender
of ADSs, and the issuance of ADSs 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 ADSs upon the deposit of shares issued directly to the depositary or for the account
of the depositary does not incur stamp duty if it does not involve a change of beneficial ownership in the shares. No Hong Kong
stamp duty is payable upon the transfer of ADSs outside Hong Kong.



U.S. Federal Income Tax Considerations



The following
is a discussion of material U.S. federal income tax consequences of owning and disposing of ADSs or shares by the U.S. Holders
described below, but it does not purport to be a comprehensive description of all the tax considerations that may be relevant
to a particular person’s decision to own such ADSs or shares. This discussion does not address the potential application
of the Medicare contribution tax to “net investment income” of non-corporate U.S. Holders. In addition, this discussion
does not address U.S. state, local and non-U.S. tax consequences. The discussion applies only to U.S. Holders who hold ADSs or
shares as capital assets for U.S. federal income tax purposes and does not address all
of the U.S. federal income tax consequences that may be relevant to U.S. Holders that are subject to special rules, such
as:



| | · | certain
                                         financial institutions;
| | - | ------------------------------------------------------------------------



| | · | dealers
                                         or traders in securities who use a mark-to-market method of tax accounting;
| | - | ----------------------------------------------------------------------------------------------------------------------------



| | · | persons
                                         holding ADSs or shares as part of a straddle, conversion transaction,
                                         integrated transaction or similar transaction;
| | - | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | · | persons
                                         whose functional currency for U.S. federal income tax purposes is not the U.S. dollar;
| | - | ---------------------------------------------------------------------------------------------------------------------------------------



| | · | partnerships
                                         or other entities classified as partnerships for U.S. federal income tax purposes;
| | - | ----------------------------------------------------------------------------------------------------------------------------------------



| | · | persons
                                         liable for the alternative minimum tax;
| | - | ----------------------------------------------------------------------------------------



| | · | tax-exempt
                                         entities, “individual retirement accounts” or “Roth IRAs”;
| | - | --------------------------------------------------------------------------------------------------------------



| | · | persons
                                         that own or are deemed to own 10% or more of our voting stock;
| | - | ---------------------------------------------------------------------------------------------------------------



| | · | persons
                                         who acquired our ADSs or shares pursuant to the exercise of an employee stock option
                                         or otherwise as compensation; or
| | - | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | · | persons
                                         holding shares in connection with a trade or business conducted outside of the United
                                         States.
| | - | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



If an entity
that is classified as a partnership for U.S. federal income tax purposes owns ADSs or shares, the U.S. federal income tax treatment
of a partner will generally depend on the status of the partner and the activities of the partnership. Partnerships owning ADSs
or shares and partners in such partnerships should consult their tax advisers as to the particular U.S. federal income tax consequences
of owning and disposing of the ADSs or shares.



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This discussion
is based on the Internal Revenue Code of 1986, as amended (the “Code”), administrative pronouncements, judicial decisions,
final, temporary and proposed U.S. Treasury regulations and the PRC Treaty, all as of the date hereof. These laws are subject
to change, possibly on a retroactive basis. It is also based, in part, on representations by the Depositary and assumes that each
obligation under the Deposit Agreement and any related agreement will be performed in accordance with its terms. U.S. Holders
should consult their tax advisers concerning the U.S. federal, state, local and non-U.S. tax consequences of owning and disposing
of ADSs or shares in their particular circumstances.



As used herein,
a “U.S. Holder” is a person that for U.S. federal income tax purposes is a beneficial owner of ADSs or shares and
is: (i) a citizen or individual resident of the United States; (ii) a corporation, or other entity taxable as a corporation, created
or organized in or under the laws of the United States, any state therein or the District of Columbia; or (iii) an estate or trust
the income of which is subject to U.S. federal income taxation regardless of its source.



In general,
a U.S. Holder who owns ADSs should be treated as the owner of the underlying shares represented by those ADSs for U.S. federal
income tax purposes. Accordingly, no gain or loss should be recognized if a U.S. Holder exchanges ADSs for the underlying shares
represented by those ADSs.



The U.S.
Treasury has expressed concerns that parties to whom American depositary shares are released before delivery of shares to the
depositary (a pre-release), or intermediaries in the chain of ownership between holders and the issuer of the securities underlying
the American depository shares, may be taking actions that are inconsistent with the claiming of foreign tax credits by holders
of American depositary shares. Such actions would also be inconsistent with the claiming of the favorable tax rates, described
below, applicable to dividends received by certain non-corporate holders. Accordingly, the creditability of foreign taxes and
the availability of the favorable tax rates for dividends received by certain non-corporate holders, described below, could be
affected by actions taken by such parties or intermediaries.



This discussion
assumes that we were not a passive foreign investment company, or PFIC, for the taxable year ended December 31, 2015, as described
below, and that we will not become a PFIC.



Taxation of Distributions



Distributions
received by a U.S. Holder on ADSs or shares, other than certain pro rata distributions of common shares to all shareholders,
will constitute foreign-source dividend income to the extent paid out of our current or accumulated earnings and profits (as determined
for U.S. federal income tax purposes). Because we do not maintain calculations of our earnings and profits under U.S. federal
income tax principles, it is expected that distributions generally will be reported to U.S. Holders as dividends. Dividends will
be included in a U.S. Holder’s income on the date of the U.S. Holder’s or, in the case of ADSs, the Depositary’s
receipt of the dividend. The amount of the dividend will equal the U.S. dollar value of the Hong Kong dollar distribution, calculated
by reference to the exchange rate in effect on the date of receipt, regardless of whether the payment is converted into U.S. dollars
on the date of receipt. If the dividend is converted into U.S. dollars on the date of receipt, a U.S. Holder should not be required
to recognize foreign currency gain or loss in respect of the dividend income. A U.S. Holder may have foreign currency gain or
loss if the dividend is converted into U.S. dollars after the date of receipt. Corporate U.S. Holders will not be entitled to
claim a dividends-received deduction with respect to dividends paid by us.



Subject to
applicable limitations and the discussion above regarding concerns expressed by the U.S. Treasury, dividends paid by “qualified
foreign corporations” to certain non-corporate U.S. shareholdersare taxable at rates applicable to long-term capital gains. A foreign corporation is treated as a qualified foreign corporation
with respect to dividends paid on stock that is readily tradable on an established securities market in the United States, such
as the New York Stock Exchange where our ADSs are traded. A foreign corporation may also be treated as a qualified foreign corporation
if it is eligible for benefits of a comprehensive income tax treaty with the United States determined by the U.S. Treasury to
be satisfactory for these purposes and that includes an exchange of information program. Non-corporate U.S. Holders should consult
their tax advisers to determine whether these favorable rates

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may apply to dividends they receive from us and whether they are
subject to any special rules that limit their ability to be taxed at these favorable rates.



As described
in “—Taxation—The PRC,” we are regarded as a CRE pursuant to the provisions of the New EIT Law and the
Notice. Accordingly, dividends paid with respect to our ordinary shares or ADSs generally will be subject to PRC withholding taxes.
For U.S. federal income tax purposes, the amount of a dividend would include any amounts withheld by us in respect of PRC taxes.
Subject to applicable limitations, any PRC income taxes withheld from dividends on ADSs or shares (in
the case of a U.S. Holder that is eligible for the benefits of the PRC Treaty,at a rate not exceeding the rate provided
by the PRC Treaty) may be creditable against the U.S. Holder’s U.S. federal income tax liability. Where
a U.S. Holder is eligible for the benefits of the PRC Treaty,PRC taxes withheld in excess of the rate applicable under
the PRC Treaty will not be eligible for credit against the U.S. Holder’s U.S. federal income tax liability. The rules
governing foreign tax credits are complex, and U.S. Holders should consult their tax advisers regarding the creditability of foreign
taxes in their particular circumstances. Instead of claiming a credit, a U.S. Holder may, at the U.S. Holder’s election,
deduct such PRC taxes in computing taxable income, subject to applicable limitations. An election to deduct foreign taxes instead
of claiming foreign tax credits must apply to all foreign taxes paid or accrued in the taxable year.



Sale or Other Disposition
of ADSs or Shares



A U.S. Holder
will generally recognize capital gain or loss on the sale or other disposition of ADSs or shares, which will be long-term capital
gain or loss if the U.S. Holder has held such ADSs or shares for more than one year. The amount of the U.S. Holder’s gain
or loss will be equal to the difference between the amount realized on the sale or other disposition and the U.S. Holder’s
tax basis in the ADSs or shares (each determined in U.S. dollars).



As described
in “—Taxation —The PRC,” gains from dispositions of our ADSs or shares may be subject to PRC tax. A U.S.
Holder’s amount realized would include the gross amount of the disposition proceeds before any withholding or deduction
of PRC tax. Although under the Code any such gain of a U.S. Holder would generally be characterized as U.S.-source income, a U.S.
Holder that is eligible for the benefits of the PRC Treaty may be able to elect to treat the gain as foreign-source gain for foreign
tax credit purposes. The rules governing foreign tax credits are complex and the creditability of foreign taxes is subject to
limitations. U.S. Holders should consult their tax advisers regarding their eligibility for benefits under the PRC Treaty and
the creditability of any PRC tax paid with respect to dispositions in their particular circumstances.



Passive Foreign Investment
Company Considerations



We believe
that we were not a PFIC for U.S. federal income tax purposes for our taxable year ended December 31, 2015. In general, a non-U.S.
company will be a PFIC for U.S. federal income tax purposes for any taxable year in which (i) 75% or more of its gross income
consists of passive income or (ii) 50% or more of the average quarterly value of its assets consists of assets that produce, or
are held for the production of, passive income. As PFIC status depends upon the composition of our income and assets and the market
value of our assets from time to time, and since there are uncertainties in the manner of application of the PFIC rules, there
can be no assurance that we will not be a PFIC for any taxable year.



If we were
a PFIC for any taxable year during which a U.S. Holder held ADSs or shares, certain adverse U.S. federal income tax rules would
apply on a disposition (including certain pledges) of ADSs or shares by the U.S. Holder. In general, under those rules, gain recognized
by the U.S. Holder on a sale or other disposition of ADSs or shares would be allocated ratably over the U.S. Holder’s holding
period for the ADSs or shares. The amounts allocated to the taxable year of the sale or other disposition and to any year before
we became a PFIC would be taxed as ordinary income. The amount allocated to each other taxable year would be subject to tax at
the highest rate in effect for individuals or corporations, as appropriate, for such taxable year, and an interest charge would
be imposed on the resulting tax liability for each such taxable year. Any distribution in respect of ADSs or shares in excess
of 125% of the average of the annual distributions on ADSs or shares received by the U.S. Holder during the preceding three years
or the U.S. Holder’s holding period, whichever is shorter, would be subject to taxation in the

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same manner. Certain elections
(such as a mark-to-market election) may be available to U.S. Holders and may result in alternative tax treatment.



In addition,
if we were to be treated as a PFIC in a taxable year in which we pay a dividend or the prior taxable year, the favorable rates
discussed above with respect to dividends received by certain non-corporate U.S. Holders would not apply.



If we are
a PFIC for any taxable year during which a U.S. Holder owned our ADSs or shares, the U.S. Holder will generally be required to
file annual reports on IRS Form 8621.



Information Reporting
and Backup Withholding



Payments
of dividends and sales proceeds that are made within the United States or through certain U.S.-related financial intermediaries
may be subject to information reporting and backup withholding, unless the U.S. Holder is an exempt recipient or, in the case
of backup withholding, the U.S. Holder provides a correct taxpayer identification number and certifies that it is not subject
to backup withholding. The amount of any backup withholding from a payment to a U.S. Holder will be allowed as a credit against
the U.S. Holder’s U.S. federal income tax liability and may entitle such U.S. Holder to a refund, provided that the required
information is timely furnished to the Internal Revenue Service.



| | F. | Dividends and Paying Agents
| | -- | ---------------------------



Not applicable.



| | G. | Statement by Experts
| | -- | --------------------



Not applicable.



| | H. | Documents on Display
| | -- | --------------------



We are 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. Copies of such material may also be obtained
at prescribed rates by writing to the Public Reference Section of the Securities and Exchange Commission at 100 F Street, NE,
Washington, D.C. 20549. Please call 1-800-SEC-0330 for information on the location and operation of the Securities and Exchange
Commission’s public reference facilities. Our filings with the Securities and Exchange Commission are also available to
the public over the internet at its website at http://www.sec.gov.



| | I. | Subsidiary Information
| | -- | ----------------------



Not applicable.



ITEM
11. QUALITATIVE AND QUANTITATIVE DISCLOSURES ABOUT MARKET RISK



Our market
risk exposures primarily consist 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. International oil prices are volatile and this volatility has a significant effect on
our net sales and profit. We do not hedge market risk resulting from fluctuations in oil prices. See “Item 4—Information
on the Company—Business Overview—Overview” and “Item 3—Key Information—Risk Factors—Risks
Relating to Our Operations—Our business, revenues and profits fluctuate with changes in oil and gas prices.”



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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. China adopted a managed floating exchange rate approach
based on market supply and demand and with reference to a basket of currencies. From January 1, 2015 to March 31, 2016, Renminbi
depreciated approximately 3.8% against U.S. dollar.



Our management
has assessed our exposure to foreign currency risk by using a sensitivity analysis on the change in foreign exchange rate of the
US dollars, to which we are mainly exposed to as at December 31, 2015. Based on our management's assessment, a 5% change in the
foreign exchange rate of the US dollars at December 31, 2015 would have impacted our profit for the year by 0.9%. This analysis
has been determined assuming that the change in foreign exchange rates had occurred at the end of the reporting period and had
been applied to the foreign currency balances to which we have significant exposure with all other variables held constant.



The depreciation
of Renminbi against U.S. dollar may have the following impact on us:



| | · | Our
                                         oil and gas sales may increase, because the benchmark oil and gas prices are usually
                                         in U.S. dollars;
| | - | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | · | Our
                                         cost for imported equipment and materials will increase, because most of these costs
                                         are denominated in U.S. dollars; and
| | - | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | · | Our
                                         debt repayment burden will increase, since all of our debt is denominated in U.S. dollars.
| | - | ---------------------------------------------------------------------------------------------------------------------------------------



For further
information on 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 debts. An upward fluctuation in interest rates increases the cost of new debt and the cost
of servicing our floating rate debt. We may use interest rate swap transactions, from time to time, to hedge our interest rate
exposure when considered appropriate, based on existing and anticipated market conditions.



As of December
31, 2015, the interest rates for 84.2% of our outstanding debts were fixed. The term of the weighted average balance was approximately
9.02 years. A fixed interest rate can reduce the volatility of finance costs in uncertain markets. We do not currently engage
in any interest rate hedging activities.



As of December
31, 2015, the interest rates for 99.2% of our total outstanding long-term debts were fixed. The following table sets forth additional
information about the expected maturity dates of our outstanding long-term debt (including the current portion) as of December
31, 2015.



|                                                          |  | 2016                                  |                     | 2017 |  | 2018 |                     | 2019 |  | 2020 |                     | 2021
    and after |  | Total |                     | Fair
    value
 as of 
December 
31, 2015
|--------------------------------------------------------- |  | ------------------------------------- | ------------------- | ---- |  | ---- | ------------------- | ---- |  | ---- | ------------------- | ------------------ |  | ----- | ------------------- | -----------------------------------------
|                                                          |  | (Rmb in millions, except percentages)
|Long-term loans, including current portion                |  |                                       |                     |      |  |      |                     |      |  |      |                     |                    |  |       |                     |                                          
|Floating rate                                             |  |                                       | 187.2               |      |  |      | 200.9               |      |  |      | 210.0               |                    |  |       | 210.0               |                                          
|Interest rate                                             |  |                                       | Libor + 0.23%~0.38% |      |  |      | Libor + 0.23%~0.38% |      |  |      | Libor + 0.23%~0.38% |                    |  |       | Libor + 0.23%~0.38% |                                          
|                                                          |  |                                       |                     |      |  |      |                     |      |  |      |                     |                    |  |       |                     |                                          
|Long-term guaranteed notes, including current
    portion |  |                                       |                     |      |  |      |                     |      |  |      |                     |                    |  |       |                     |                                          
|Fixed rate                                                |  |                                       | 4,858.4             |      |  |      | 8,500.5             |      |  |      | 4,858.4             |                    |  |       | 1,943.3             |                                          
|Average interest rate                                     |  |                                       | 4.16                | %    |  |      | 4.31                | %    |  |      | 4.45                | %                  |  |       | 4.48                | %                                        



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For additional
discussions of our market risks, see “Item 3—Key Information—Risk Factors.”



ITEM
12. DESCRIPTION OF SECURITIES OTHER THAN EQUITY SECURITIES



| | A. | DEBT SECURITIES
| | -- | ---------------



Not applicable.



| | B. | WARRANTS AND RIGHTS
| | -- | -------------------



Not applicable.



| | C. | OTHER SECURITIES
| | -- | ----------------



Not applicable.



| | D. | American Depositary shares
| | -- | --------------------------



JPMorgan
Chase Bank, N.A. is our Depositary. The depositary’s office is located at 4 New York Plaza, New York, NY 10004. Each
of our ADSs represents 100 shares.



ADR Fees
Payable by Investors



The Depositary
may charge each person to whom ADRs are issued, including, without limitation, issuances against deposits of shares, issuances
in respect of share distributions, rights and other distributions, issuances pursuant to a stock dividend or stock split declared
by us, or issuances pursuant to a merger, exchange of securities or any other transaction or event affecting the ADSs or the deposited
securities, and each person surrendering ADSs for withdrawal of deposited securities or whose ADSs are cancelled or reduced for
any other reason, US$5.00 for each 100 ADSs (or portion thereof) issued, delivered, reduced, cancelled or surrendered, as the
case may be.



The following
additional charges shall be incurred by the ADR holders, by any party depositing or withdrawing shares or by any party surrendering
ADSs and/or to whom ADSs are issued (including, without limitation, issuances pursuant to a stock dividend or stock split declared
by us or an exchange of stock regarding the ADSs or the Deposited Securities or a distribution of ADSs), whichever is applicable:



| | · | a
                                         fee of up to US$0.05 per ADS for any cash distribution made pursuant to the deposit agreement;
| | - | -----------------------------------------------------------------------------------------------------------------------------------------



| | · | a
                                         fee of US$1.50 per ADR for transfers of certificated or direct registration ADRs;
| | - | ----------------------------------------------------------------------------------------------------------------------------



| | · | a
                                         fee of up to US$0.05 per ADS per calendar year (or portion thereof) for services performed
                                         by the Depositary in administering the ADRs (which fee may be charged on a periodic basis
                                         during each calendar year and shall be assessed against holders of ADRs as of the record
                                         date or record dates set by the Depositary during each calendar year shall be payable
                                         in the manner described in the next succeeding provision);
| | - | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | · | a
                                         fee for the reimbursement of such fees, charges and expenses as are incurred by the Depositary
                                         or any of its agents (including, without limitation, the custodian and expenses incurred
                                         on behalf of holders in connection with compliance with foreign exchange control
| | - | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



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| |  | regulations or any law or regulation relating to foreign investment) in connection with
    the servicing of the shares or other deposited securities, the sale of securities (including, without limitation, deposited
    securities), the delivery of deposited securities or otherwise in connection with the Depositary’s or its custodian’s
    compliance with applicable law, rule or regulation (which fees and charges shall be assessed on a proportionate basis against
    holders as of the record date or dates set by the Depositary and shall be payable at the sole discretion of the Depositary
    by billing such holders or by deducting such charge from one or more cash dividends or other cash distributions);
| |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------





| | · | stock
                                         transfer or other taxes and other governmental charges;
| | - | ------------------------------------------------------------------------------------------------------



| | · | cable,
                                         telex and facsimile transmission and delivery charges incurred at the request of an ADR
                                         holder in connection with the deposit or delivery of shares;
| | - | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | · | transfer
                                         or registration fees for the registration of transfer of deposited securities on any
                                         applicable register in connection with the deposit or withdrawal of deposited securities;
| | - | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | · | in
                                         connection with the conversion of foreign currency into U.S. dollars, the fees, expenses
                                         and other charges charged by JPMorgan Chase Bank, N.A. or its agent (which may be a division,
                                         branch or affiliate) so appointed in connection with such conversion; and
| | - | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | · | fees
                                         of any division, branch or affiliate of the Depositary utilized by the Depositary to
                                         direct, manage or execute any public or private sale of securities under the deposit
                                         agreement.
| | - | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



Payments
Received by Foreign Private Issuer



The Depositary
has agreed to reimburse certain company expenses related to our ADS program and incurred by us in connection with the program.
The Depositary reimbursed us, or paid amounts on our behalf to third parties, or waived its fees and expenses, of US$611,342 for
the year ended December 31, 2015.



Direct
Payments



The table
below sets forth the types of expenses that the Depositary has agreed to reimburse, and the invoices relating to the year ended
December 31, 2015 that were reimbursed:



|Category of Expenses     |  |  | Amount Reimbursed for Fiscal Year Ended December 31, 2015 (US$)(3)
|------------------------ |  |  | ------------------------------------------------------------------
|Investor relations(1)    |  |  | 160,934                                                           
|Broker reimbursements(2) |  |  | 136,172                                                           
|NYSE annual listing fees |  |  | 87,000                                                            
|TSX annual listing fees  |  |  | 77,236                                                            
|Total                    |  |  | 461,342                                                           










| | (1) | Includes
                                         investor relation service fees and investor relations expenses for road show in 2015.
| | --- | ---------------------------------------------------------------------------------------------------------------------------------------



| | (2) | Broker
                                         reimbursements are fees payable to Broadridge and other service providers for the distribution
                                         of hard copy material to beneficial ADR holders in the Depositary Trust Company. Corporate
                                         material includes information related to shareholders’ meetings and related voting
                                         instruction cards. These fees are SEC approved.
| | --- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | (3) | Includes
                                         the 30% withholding tax paid to the U.S. government.
| | --- | ------------------------------------------------------------------------------------------------------



Indirect
Payments



The Depositary
has also agreed to waive fees for standard costs associated with the administration of the ADS program and has paid certain expenses
directly to third parties on our behalf. The table below

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sets forth those expenses that the Depositary waived or paid directly
to third parties relating to the year ended December 31, 2015:



|Category of Expenses | Amount
Reimbursed for Fiscal Year Ended December 31, 2015
 (US$)
|-------------------- | ----------------------------------------------------------------
|Fees
    waived      | 150,000                                                         



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 INSTRUMENTS
                                         DEFINING THE RIGHTS OF SECURITY HOLDERS
| | -- | --------------------------------------------------------------------------------------------------------------------------



None.



| | B. | MATERIAL MODIFICATIONS TO THE RIGHTS
                                         OF REGISTERED SECURITIES BY ISSUING OR MODIFYING ANY OTHER CLASS OF SECURITIES
| | -- | ------------------------------------------------------------------------------------------------------------------------------------------------------------



None.



| | C. | WITHDRAWAL OR SUBSTITUTION OF A MATERIAL
                                         AMOUNT OF THE ASSETS SECURING ANY REGISTERED SECURITIES
| | -- | -----------------------------------------------------------------------------------------------------------------------------------------



Not applicable.



| | D. | CHANGE OF TRUSTEES OR PAYING AGENTS
                                         FOR ANY REGISTERED SECURITIES
| | -- | ----------------------------------------------------------------------------------------------------------



Not applicable.



| | E. | USE OF PROCEEDS
| | -- | ---------------



Not applicable.



ITEM
15. CONTROLS AND PROCEDURES



(a)	Disclosure
Controls and Procedures



An evaluation
was carried out under the supervision and with the participation of management, including our Chief Executive Officer and Chief
Financial Officer, of the effectiveness, as of December 31, 2015, of the design and operation of our disclosure controls and procedures
(as defined in Rule 13a-15(e) under the Securities Exchange Act of 1934, as amended, or the Exchange Act).



Based upon
this evaluation, our Chief Executive Officer and Chief Financial Officer concluded that, as of December 31, 2015, our disclosure
controls and procedures were effective to ensure that information required to be disclosed by us in our reports filed or submitted
under the Exchange Act is recorded, processed, summarized and reported as and when required by the SEC’s rules and forms
and is accumulated and communicated to our management, including our Chief Executive Officer and Chief Financial Officer, as appropriate
to allow timely decisions regarding required disclosure.



(b)	Management’s
annual report on internal control over financial reporting



106


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Our management
is responsible for establishing and maintaining adequate internal control over financial reporting, as defined in Rule 13a-15(f)
under the Exchange Act.



Because of
its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections
of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes
in conditions, or that the degree of compliance with the policies or procedures may deteriorate.



Our management
assessed the effectiveness of our internal control over financial reporting as of December 31, 2015 using the criteria set forth
in Internal Control – Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission
(COSO). Based on this assessment, our management has concluded that our internal control over financial reporting as of December
31, 2015 was effective.



(c)	Attestation
Report of the Registered Public Accounting Firm



Our independent
auditors have issued an audit report on the effectiveness of our internal control over financial reporting. This report appears
on page F-4.



(d)	Changes
in Internal Control over Financial Reporting



There were
no changes in our internal control over financial reporting that occurred during the year ended December 31, 2015 that have materially
affected, or that were reasonably likely to materially affect, our internal control over financial reporting.



ITEM
16A. AUDIT COMMITTEE FINANCIAL EXPERT



Aloysius
Hau Yin Tse has been designated by our Board as an audit committee financial expert. Mr. Tse is independent as defined in the
listing standards of the New York Stock Exchange.



ITEM
16B. CODE OF ETHICS



Our
Board adopted a Code of Ethics in 2003 to provide guidelines to our senior management and directors in legal and ethical matters
as well as the sensitivities involved in reporting illegal and unethical matters. The Code of Ethics covers areas such as supervisory
rules, insider dealing, market malpractices, conflict of interests, company opportunities, protection and proper use of our assets
as well as reporting requirements. As part of the continued efforts to improve our corporate governance standards, our Board conducted
an annual review to the Code of Ethics since 2009, and the current version of the Code of Ethics was reviewed and adopted in August
2015.



We have provided
all our directors and senior officers with a copy of the Code of Ethics and require them to comply with the Code of Ethics, so
as to ensure our operation is proper and lawful. We will take disciplinary actions towards any act which is in breach of the Code
of Ethics. Any change or waiver, explicit or implicit, with respect to our Code of Ethics, must be disclosed to our shareholders
either in our annual report or on our internet website, www.cnoocltd.com.



We have posted
our Code of Ethics on our website. To request a copy of our Code of Ethics free of charge, please contact our investor relations
manager, by email to ir@cnooc.com.cn.



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 were
Rmb 46.7 million for 2014 and Rmb 45.2 million (US$7.0 million) for 2015.



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Audit-Related
Fees



The aggregate
fees billed for services that are normally provided by the accountants in connection with statutory and regulatory filings or
engagements and assurance and related services by our principal accountant that are reasonably related to the performance of the
audit or review of financial statements and are not reported under “Audit Fees” were Rmb 8.7 million for 2014 and
Rmb 8.5 million (US$1.3 million) for 2015.



Tax Fees



The aggregate
fees billed for professional service rendered by the principal accountant for tax compliance, tax advice and tax planning were
approximately Rmb 2.1 million for 2014 and Rmb 0.6 million (US$0.1 million) for 2015.



All Other
Fees



The aggregate
fees billed for professional services rendered by our principal accountant for risk management advisory services and information
systems reviews were Rmb 7.0 million for 2014 and Rmb 2.5 million (US$0.4 million) for 2015.



The aggregate
fees billed for products and services provided by our principal accountant, other than the services reported above, were nil for
fiscal years 2014 and 2015.



Audit Committee’s
pre-approval policies and procedures



Our audit
committee under our Board is responsible for the appointment, compensation and oversight of the work of our principal accountant.Our audit committee adopted a policy calling for the audit committee’s pre-approval for the engagement of our principal
accountant for audit and permitted non-audit services.Our Board has also ratified the policy and procedures. Under
this audit committee policy, proposed services may be pre-approved by our audit committee either on an annual basis or on a case-by-case
basis. Appendices to the audit committee policy set forth (1) the audit, audit-related, tax and other services that may be subject
to the general annual pre-approval of the audit committee; and (2) a list of prohibited non-audit services. Our audit committee
will periodically review and revise these appendices 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 2015,
all fees for audit-related services, tax services and all other services paid to our principal accountant were approved by our
audit committee.



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



Not applicable.



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



None.



ITEM
16f. Change in Registrant’s Certifying Accountant



Not applicable.



ITEM
16g. Corporate Governance



See “Item
6—Directors, Senior Management and Employees—Board Practice—Summary of Significant Differences in Corporate
Governance Practices for Purposes of Section 303A.11 of the New York Stock Exchange Listed Company Manual.”



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Item
16H. MINE SAFETY DISCLOSURE



Not applicable.





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:



|ExhibitNumber | Document                                                                                                                                                                                                                                                                                                                                                                        
|------------- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|              |                                                                                                                                                                                                                                                                                                                                                                                 
|1.1           | Articles of Association of the Registrant, as amended in 2009, incorporated by reference
    to Exhibit 1.1 to our Annual Report on Form 20-F for fiscal year 2010 filed with the Securities and Exchange Commission (File
    number: 1-14966) and Exhibit 99.1 to Form 6-K furnished with the Securities and Exchange Commission on March 30, 2012 (File
    number: 1-14966).
|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) and Exhibit
    99.1 to Form 6-K furnished with the Securities and Exchange Commission on March 30, 2012 (File number: 1-14966).                                 
|2.1           | Form of Indenture, incorporated by reference to Exhibit 2.1 to our annual report on Form
    20-F for fiscal year 2002 filed with the Securities and Exchange Commission (File Number: 1-14966).                                                                                                                                                                                
|2.2           | Trust Deed dated December 15, 2004 among CNOOC Limited, CNOOC Finance (2004) Limited and
    J.P. Morgan Corporate Trustee Services Limited, incorporated by reference to Exhibit 2.2 to our annual report on Form 20-F
    for fiscal year 2004 filed with the Securities and Exchange Commission (File Number: 1-14966).                                                      
|2.3           | Indentures dated January 26, 2011 among CNOOC Finance (2011) Limited, as Issuer, CNOOC Limited,
    as Guarantor, and The Bank of New York Mellon, as Trustee*.                                                                                                                                                                                                                 
|2.4           | Indentures dated May 2, 2012 among CNOOC Finance (2012) Limited, as Issuer, CNOOC Limited,
    as Guarantor, Citicorp International Limited, as Trustee, Citibank, N.A., London Brach, as Paying Agent, and Citigroup Global
    Markets Deutschland AG, as Registrar*.                                                                                                         
|2.5           | Fourth Supplemental Indenture dated March 22, 2013 to the Senior Debt Indenture dated May
    4, 2007 among CNOOC Limited, Deutsche Bank Trust Company Americas and Nexen Inc., incorporated by reference to Exhibit 4.1
    to Form 6-K furnished with the Securities and Exchange Commission on March 22, 2013 (File number: 1-14966).                                        
|2.6           | Seventh Supplemental Indenture dated March 22, 2013 to the Trust Indenture dated April 28,
    1998 among CNOOC Limited, CIBC Mellon Trust Company, The Bank of New York Mellon and Nexen Inc., incorporated by reference
    to Exhibit 4.2 to Form 6-K furnished with the Securities and Exchange Commission on March 22, 2013 (File number: 1-14966).                        














* Pursuant to Instruction
2(b)(i) to Item 19 of Form 20-F, we undertake to furnish this document upon request of the Securities and Exchange Commission.



* Pursuant to Instruction
2(b)(i) to Item 19 of Form 20-F, we undertake to furnish this document upon request of the Securities and Exchange Commission.







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|2.7  | Form of Indenture among CNOOC Finance (2013) Limited, CNOOC Limited and The Bank of New
    York Mellon, incorporated by reference to Exhibit 4.1 to Form F-3 filed with the Securities and Exchange Commission on May
    1, 2013 (File number: 333-188261)                                              
|---- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|2.8  | Form of 1.125% Guaranteed Note due 2016, incorporated by reference to Exhibit 4.2 to Form
    6-K furnished with the Securities and Exchange Commission on May 9, 2013 (File number: 1-14966)                                                                                                             
|2.9  | Form of 1.750% Guaranteed Note due 2018, incorporated by reference to Exhibit 4.3 to Form
    6-K furnished with the Securities and Exchange Commission on May 9, 2013 (File number: 1-14966)                                                                                                             
|2.10 | Form of 3.000% Guaranteed Note due 2023, incorporated by reference to Exhibit 4.4 to Form
    6-K furnished with the Securities and Exchange Commission on May 9, 2013 (File number: 1-14966)                                                                                                             
|2.11 | Form of 4.250% Guaranteed Note due 2043, incorporated by reference to Exhibit 4.5 to Form
    6-K furnished with the Securities and Exchange Commission on May 9, 2013 (File number: 1-14966)                                                                                                             
|2.12 | Form of Indenture among CNOOC Nexen Finance (2014) ULC, CNOOC Limited and The Bank of New
    York Mellon, incorporated by reference to Exhibit 4.3 to Post-Effective Amendment No. 1  to Form F-3 filed with
    the Securities and Exchange Commission on April 22, 2014 (File number: 333-188261)      
|2.13 | Form of 1.625% Guaranteed Note due 2017, incorporated by reference to Exhibit 4.2 to Form
    6-K furnished with the Securities and Exchange Commission on May 1, 2014 (File number: 1-14966)                                                                                                             
|2.14 | Form of 4.250% Guaranteed Note due 2024, incorporated by reference to Exhibit 4.3 to Form
    6-K furnished with the Securities and Exchange Commission on May 1, 2014 (File number: 1-14966)                                                                                                             
|2.15 | Form of 4.875% Guaranteed Note due 2044, incorporated by reference to Exhibit 4.4 to Form
    6-K furnished with the Securities and Exchange Commission on May 1, 2014 (File number: 1-14966)                                                                                                             
|2.16 | Form of Indenture among CNOOC Finance (2015) Australia Pty Ltd, CNOOC Limited and The Bank
    of New York Mellon, incorporated by reference to Exhibit 4.5 to Post-Effective Amendment No.2  to Form F-3 filed
    with the Securities and Exchange Commission on April 27, 2015(File number: 333-188261)
|2.17 | Form of Indenture among CNOOC Finance (2015) U.S.A. LLC, CNOOC Limited and The Bank of New
    York Mellon, incorporated by reference to Exhibit 4.7 to Post-Effective Amendment No. 2 to Form F-3 filed with the Securities
    and Exchange Commission on April 27, 2015 (File number: 333-188261)      
|2.18 | Form of 2.625% Guaranteed Note due 2020, incorporated by reference to Exhibit 4.1 to Form
    6-K furnished with the Securities and Exchange Commission on May 5, 2015 (File number: 1-14966)                                                                                                             
|2.19 | Form of 3.500% Guaranteed Note due 2025, incorporated by reference to Exhibit 4.2 to Form
    6-K furnished with the Securities and Exchange Commission on May 5, 2015 (File number: 1-14966)                                                                                                             
|2.20 | Form of 4.200% Guaranteed Note due 2045, incorporated by reference to Exhibit 4.3 to Form
    6-K furnished with the Securities and Exchange Commission on May 5, 2015 (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).              



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|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 PSCs 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).                                                    
|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, 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 | Trademark License Agreement between CNOOC, CNOOC Limited and CNOOC China Limited, incorporated
    by reference to Exhibit 4.13 to our Annual Report on Form 20-F for fiscal year 2008 filed with the Securities and Exchange
    Commission (File Number: 1-14966).                                                                                                                                                                                                                             
|4.14 | Trademark License Agreement between CNOOC, CNOOC Limited and CNOOC China Limited, incorporated
    by reference to Exhibit 4.14 to our Annual Report on Form 20-F for fiscal year 2008 filed with the Securities and Exchange
    Commission (File Number: 1-14966).                                                                                                                                                                                                                             



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|4.15 | 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).                                                   
|---- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|4.16 | 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).                                        
|4.17 | 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 9thFloor, 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).                                                          
|4.18 | 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).                                                     
|4.19 | 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 6thto 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).                             
|4.20 | 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).                                                                         
|4.21 | 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).
|4.22 | 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).                                                                                                                                                                                
|4.23 | 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).                                                                        
|4.24 | 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).                                                                                                                                                                                                                                        



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|4.25 | 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).                                                                                                     
|---- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|4.26 | 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).                                                                                                                         
|4.27 | CNOOC Limited Share Option Scheme adopted on December 31, 2005, incorporated by reference
    to Exhibit 4.37 to our Annual Report on Form 20-F for fiscal year 2005 filed with the Securities and Exchange Commission (File
    Number: 1-14966).                                                                                                                       
|4.28 | 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).                                                             
|4.29 | 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).                                   
|4.30 | Subscription Agreement dated May 31, 2000 among CNOOC Limited, CNOOC (BVI) Limited, Overseas
    Oil & Gas Corporation, Ltd. and Hong Kong 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).                               
|4.31 | 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).                                                              
|4.32 | 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).
|4.33 | Equity Transfer Agreement dated September 5, 2003 between CNOOC China Limited and CNOOC
    (Summary Translation), incorporated by reference to Exhibit 4.38 to our annual report on Form 20-F for fiscal year 2003 filed
    with the Securities and Exchange Commission (File Number: 1-14966).                                                                        
|4.34 | Framework Agreement dated April 8, 2004 with CNOOC Finance Corporation Limited (Summary
    Translation), incorporated by reference to Exhibit 4.39 to our annual report on Form 20-F for fiscal year 2003 filed with
    the Securities and Exchange Commission (File Number: 1-14966).                                                                                 
|4.35 | Framework Agreement dated December 8, 2005 with CNOOC (Summary Translation), incorporated
    by reference to Exhibit 4.45 to our Annual Report on Form 20-F for fiscal year 2005 filed with the Securities and Exchange
    Commission (File number: 1-14966).                                                                                                          
|4.36 | Framework Agreement dated December 8, 2005 with China Oilfield Services Limited (Summary
    Translation), incorporated by reference to Exhibit 4.46 to our Annual Report on Form 20-F for fiscal year 2005 filed with
    the Securities and Exchange Commission (File number: 1-14966).                                                                                
|4.37 | Framework Agreement dated December 8, 2005 with Offshore Oil Engineering Co., Ltd. (Summary
    Translation), incorporated by reference to Exhibit 4.47 to our Annual Report on Form 20-F for fiscal year 2005 filed with
    the Securities and Exchange Commission (File number: 1-14966).                                                                             



113


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|4.38 | Sale and Purchase Agreement, dated January 8, 2006 between CNOOC Exploration & Production
    Limited and South Atlantic Petroleum Limited (certain statements, marked with an asterisk in brackets [*], have been omitted
    from this agreement pursuant to a request for confidential treatment pursuant to Rule 24b-2 under the Securities Exchange
    Act of 1934, as amended, and the omitted materials have been filed separately in paper form with the Securities and Exchange
    Commission), incorporated by reference to Exhibit 4.49 to our Annual Report on Form 20-F for fiscal year 2005 filed with the
    Securities and Exchange Commission (File number: 1-14966).
|---- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|4.39 | Framework Agreement dated November 8, 2007 with China BlueChemical Ltd. (Summary Translation),
    incorporated by reference to Exhibit 4.37 to our Annual Report on Form 20-F for fiscal year 2007 filed with the Securities
    and Exchange Commission (File number: 1-14966).                                                                                                                                                                                                                                                                                                                                                                                                        
|4.40 | Framework Agreement dated November 8, 2007 with CNOOC (Summary Translation), incorporated
    by reference to Exhibit 4.38 to our Annual Report on Form 20-F for fiscal year 2007 filed with the Securities and Exchange
    Commission (File number: 1-14966).                                                                                                                                                                                                                                                                                                                                                                                                                          
|4.41 | Framework Agreement dated November 8, 2007 with China Oilfield Services Limited (Summary
    Translation), incorporated by reference to Exhibit 4.39 to our Annual Report on Form 20-F for fiscal year 2007 filed with
    the Securities and Exchange Commission (File number: 1-14966).                                                                                                                                                                                                                                                                                                                                                                                                
|4.42 | Framework Agreement dated November 8, 2007 with Offshore Oil Engineering Co., Ltd. (Summary
    Translation), incorporated by reference to Exhibit 4.40 to our Annual Report on Form 20-F for fiscal year 2007 filed with
    the Securities and Exchange Commission (File number: 1-14966).                                                                                                                                                                                                                                                                                                                                                                                             
|4.43 | Framework Agreement dated November 1, 2010 with CNOOC (Summary Translation), incorporated
    by reference to Exhibit 4.43 to our Annual Report on Form 20-F for fiscal year 2010 filed with the Securities and Exchange
    Commission (File number: 1-14966).                                                                                                                                                                                                                                                                                                                                                                                                                          
|4.44 | Arrangement Agreement dated July 23, 2012 among CNOOC Limited, CNOOC Canada Holding Ltd.
    and Nexen Inc., incorporated by reference to Exhibit 4.44 to our Annual Report on Form 20-F for fiscal year 2012 filed with
    the Securities and Exchange Commission (File number: 1-14966).                                                                                                                                                                                                                                                                                                                                                                                              
|4.45 | Framework Agreement dated November 6, 2013 with CNOOC (Summary Translation) , incorporated
    by reference to Exhibit 4.45 to our Annual Report on Form 20-F for fiscal year 2014 filed with the Securities and Exchange
    Commission (File number: 1-14966).                                                                                                                                                                                                                                                                                                                                                                                                                         
|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).                                                                                                                                                                                                                                                                                                         
|11.1 | Code of Ethics for Directors and Senior Officers, as amended in 2015.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    
|12.1 | Certification by the Chief Executive Officer in accordance with Section 302 of the Sarbanes-Oxley
    Act of 2002.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       
|12.2 | Certification by the Chief Financial Officer in accordance with Section 302 of the Sarbanes-Oxley
    Act of 2002.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       
|13.1 | Sarbanes-Oxley Act of 2002 Section 906 Certification furnished to (not filed with) the Securities
    and Exchange Commission.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           
|15.1 | 2015 Reserves Reports of Ryder Scott Company, L.P.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       
|15.2 | 2015 Reserves Reports of Gaffney, Cline & Associates (Consultants) Pte Ltd.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              
|15.3 | 2015 Reserves Report of RPS.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             
|15.4 | 2015 Reserves AuditReports
    of Ryder Scott Company, L.P.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              



114


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|15.5  | 2015 Reserves AuditReport
    of McDaniel & Associates Consultants Ltd.                                                                                                                              
|----- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|15.6  | 2015 Reserves Audit Report
    of DeGolyer and MacNaughton.                                                                                                                                          
|15.7  | Letter from Ernst & Young (incorporated by reference to Exhibit 15.7 of our Annual Report
    on Form 20-F (file No. 001-14966) filed with the Securities and Exchange Commission on April 17, 2014).
|15.8  | Consent from Deloitte Touche Tohmatsu                                                                                                                                                                
|15.9  | Consent from Ryder Scott Company, L.P.                                                                                                                                                               
|15.10 | Consent from Gaffney, Cline & Associates (Consultants) Pte Ltd.                                                                                                                                      
|15.11 | Consent from RPS.                                                                                                                                                                                    
|15.12 | Consent from McDaniel & Associates Consultants
    Ltd.                                                                                                                                              
|15.13 | Consent from DeGolyer and MacNaughton.                                                                                                                                                               



115


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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:          
| |              
| |              



Date: April 21,
2016



116

















CNOOC LIMITED



CONSOLIDATED FINANCIAL
STATEMENTS

FOR THE YEARS ENDED DECEMBER
31, 2013, 2014 AND 2015

TOGETHER WITH REPORT OF
INDEPENDENT PUBLIC ACCOUNTING FIRM























F-1


Table of Contents




INDEX TO FINANCIAL
STATEMENTS



|                                                                                                                                        | Page
|--------------------------------------------------------------------------------------------------------------------------------------- | ----
|                                                                                                                                        |     
|CNOOC
    LIMITED                                                                                                                       |     
|                                                                                                                                        |     
|Report
    of independent registered public accounting firm on financial statements for the year ended December 31, 2013, 2014 and 2015 | F-3 
|                                                                                                                                        |     
|Report
    of independent registered public accounting firm on internal control over financial reporting as of Decmeber 31, 2015        | F-4 
|                                                                                                                                        |     
|Consolidated
    statements of profit or loss and other comprehensive income for the years ended December 31, 2013, 2014 and 2015       | F-5 
|                                                                                                                                        |     
|Consolidated
    statements of financial position as of December 31, 2014 and 2015                                                      | F-6 
|                                                                                                                                        |     
|Consolidated statements of changes in equity for the years ended December 31, 2013, 2014 and 2015                                       | F-7 
|                                                                                                                                        |     
|Consolidated
    statements of cash flows for the years ended December 31, 2013, 2014 and 2015                                          | F-9 
|                                                                                                                                        |     
|Notes
    to the consolidated financial statements                                                                                      | F-10



F-2


Table of Contents




REPORT
OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM



To the Board
of Directors and Shareholders of CNOOC Limited



We have audited
the accompanying consolidated statements of financial position of CNOOC Limited (the "Company") and its subsidiaries
(collectively referred to as the "Group") as of December 31, 2015 and 2014, and the related consolidated statements
of profit or loss and other comprehensive income, consolidated statements of changes in equity, and consolidated statements of
cash flows for each of the three years in the period ended December 31, 2015. These financial statements are the responsibility
of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audit.



We conducted
our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards
require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the 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,
such consolidated financial statements present fairly, in all material respects, the financial position of the Group as of December
31, 2015 and 2014, and the results of its operations and its cash flows for each of the three years in the period ended December
31, 2015 in conformity with International Financial Reporting Standards issued by the International Accounting Standards Board,
and Hong Kong Financial Reporting Standards issued by the Hong Kong Institute of Certified Public Accountants.



We have also
audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), the Group's internal
control over financial reporting as of December 31, 2015, based on the criteria established in Internal Control—Integrated
Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission and our report dated March 24,
2016 expressed an unqualified opinion on the Group's internal control over financial reporting.







Deloitte
Touche Tohmatsu

Certified
Public Accountants

Hong Kong

March 24, 2016



F-3


Table of Contents






REPORT OF INDEPENDENT REGISTERED
PUBLIC ACCOUNTING FIRM



To the Board of Directors
and Shareholders of CNOOC Limited



We have
audited the internal control over financial reporting of CNOOC Limited (the "Company") and its subsidiaries (collectively
referred to as the "Group") as of December 31, 2015, based on criteria established in Internal Control — Integrated
Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission. The Company's management is responsible
for maintaining effective internal control over financial reporting and for its assessment of the effectiveness of internal control
over financial reporting, included in the accompanying "Management’s annual report on internal control over financial
reporting". Our responsibility is to express an opinion on the Group's internal control over financial reporting based on
our audit.



We conducted
our audit in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require
that we plan and perform the audit to obtain reasonable assurance about whether effective internal control over financial reporting
was maintained in all material respects. Our audit included obtaining an understanding of internal control over financial reporting,
assessing the risk that a material weakness exists, testing and evaluating the design and operating effectiveness of internal
control based on the assessed risk, and performing such other procedures as we considered necessary in the circumstances. We believe
that our audit provides a reasonable basis for our opinion.



A company's
internal control over financial reporting is a process designed by, or under the supervision of, the company's principal executive
and principal financial officers, or persons performing similar functions, and effected by the company's board of directors, management,
and other personnel to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial
statements for external purposes in accordance with generally accepted accounting principles. A company's internal control over
financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable
detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) provide reasonable assurance
that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted
accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations
of management and directors of the company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized
acquisition, use, or disposition of the company's assets that could have a material effect on the financial statements.



Because
of the inherent limitations of internal control over financial reporting, including the possibility of collusion or improper management
override of controls, material misstatements due to error or fraud may not be prevented or detected on a timely basis. Also, projections
of any evaluation of the effectiveness of the internal control over financial reporting to future periods are subject to the risk
that the controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or
procedures may deteriorate.



In our opinion,
the Group maintained, in all material respects, effective internal control over financial reporting as of December 31, 2015, based
on the criteria established in Internal Control — Integrated Framework (2013) issued by the Committee of Sponsoring Organizations
of the Treadway Commission.



We have
also audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), the consolidated
financial statements as of and for the year ended December 31, 2015 of the Group and our report dated March 24, 2016 expressed
an unqualified opinion on those financial statements.







Deloitte Touche Tohmatsu

Certified Public Accountants

Hong Kong

March 24, 2016

F-4


Table of Contents




CNOOC LIMITED

CONSOLIDATED
STATEMENTS OF PROFIT OR LOSS AND OTHER COMPREHENSIVE INCOME

FOR THE YEARS
ENDED DECEMBER 31, 2013, 2014 AND 2015

(All amounts
expressed in millions of Renminbi/US$, except per share data)



|                                                                                                       |  |         |  | 2013    |          | 2014    |  | 2015    |          | 2015   
|------------------------------------------------------------------------------------------------------ |  | ------- |  | ------- | -------- | ------- |  | ------- | -------- | -------
|                                                                                                       |  | Notes   |  | RMB     |          | RMB     |  | RMB     |          | US$    
|                                                                                                       |  |         |  | million |          | million |  | million |          | million
|                                                                                                       |  |         |  |         |          |         |  |         |          |        
|REVENUE                                                                                                |  |         |  |         |          |         |  |         |          |        
|Oil and gas sales                                                                                      |  | 6       |  |         | 226,445  |         |  |         | 218,210  |        
|Marketing revenues                                                                                     |  | 34      |  |         | 55,495   |         |  |         | 50,263   |        
|Other income                                                                                           |  |         |  |         | 3,917    |         |  |         | 6,161    |        
|                                                                                                       |  |         |  |         |          |         |  |         |          |        
|                                                                                                       |  |         |  |         | 285,857  |         |  |         | 274,634  |        
|                                                                                                       |  |         |  |         |          |         |  |         |          |        
|EXPENSES                                                                                               |  |         |  |         |          |         |  |         |          |        
|Operating expenses                                                                                     |  |         |  |         | (30,014  | )       |  |         | (31,180  | )      
|Taxes other than income tax                                                                            |  | 12 (ii) |  |         | (15,937  | )       |  |         | (11,842  | )      
|Exploration expenses                                                                                   |  |         |  |         | (17,120  | )       |  |         | (11,525  | )      
|Depreciation, depletion and amortization                                                               |  | 8       |  |         | (56,456  | )       |  |         | (58,286  | )      
|Special oil gain levy                                                                                  |  | 7       |  |         | (23,421  | )       |  |         | (19,072  | )      
|Impairment and provision                                                                               |  | 15      |  |         | 45       |         |  |         | (4,120   | )      
|Crude oil and product purchases                                                                        |  |         |  |         | (53,386  | )       |  |         | (47,912  | )      
|Selling and administrative expenses                                                                    |  |         |  |         | (7,859   | )       |  |         | (6,613   | )      
|Others                                                                                                 |  |         |  |         | (3,206   | )       |  |         | (3,169   | )      
|                                                                                                       |  |         |  |         |          |         |  |         |          |        
|                                                                                                       |  |         |  |         | (207,354 | )       |  |         | (193,719 | )      
|                                                                                                       |  |         |  |         |          |         |  |         |          |        
|PROFIT FROM OPERATING
    ACTIVITIES                                                                   |  |         |  |         | 78,503   |         |  |         | 80,915   |        
|                                                                                                       |  |         |  |         |          |         |  |         |          |        
|Interest income                                                                                        |  | 8       |  |         | 1,092    |         |  |         | 1,073    |        
|Finance costs                                                                                          |  | 9       |  |         | (3,457   | )       |  |         | (4,774   | )      
|Exchange gains/(losses), net                                                                           |  |         |  |         | 873      |         |  |         | 1,049    |        
|Investment income                                                                                      |  | 8       |  |         | 2,611    |         |  |         | 2,684    |        
|Share of profits of associates                                                                         |  |         |  |         | 133      |         |  |         | 232      |        
|Share of profit of a joint venture                                                                     |  |         |  |         | 762      |         |  |         | 774      |        
|Non-operating income,
    net                                                                          |  |         |  |         | 334      |         |  |         | 560      |        
|                                                                                                       |  |         |  |         |          |         |  |         |          |        
|PROFIT BEFORE TAX                                                                                      |  | 8       |  |         | 80,851   |         |  |         | 82,513   |        
|Income tax (expense)/credit                                                                            |  | 12 (i)  |  |         | (24,390  | )       |  |         | (22,314  | )      
|                                                                                                       |  |         |  |         |          |         |  |         |          |        
|PROFIT
    FOR THE YEAR ATTRIBUTABLE TO OWNERS OF THE PARENT                                           |  |         |  |         | 56,461   |         |  |         | 60,199   |        
|                                                                                                       |  |         |  |         |          |         |  |         |          |        
|OTHER COMPREHENSIVE (EXPENSE)/INCOME                                                                   |  |         |  |         |          |         |  |         |          |        
|Items that may be subsequently
    reclassified to profit or loss:                                     |  |         |  |         |          |         |  |         |          |        
|Net
    loss on available-for-sale financial assets, net of tax                                        |  | 19      |  |         | (626     | )       |  |         | (2,301   | )      
|Exchange differences
    on translation of foreign operations                                          |  |         |  |         | (4,143   | )       |  |         | 454      |        
|Share of other comprehensive
    (expense)/ income of  associates                                      |  |         |  |         | (29      | )       |  |         | 92       |        
|Items that will not
    be reclassified to profit or loss                                              |  |         |  |         |          |         |  |         |          |        
|Fair
value change on equity investments designated as at fair value through other comprehensive income |  | 19      |  |         | -        |         |  |         | -        |        
|Others                                                                                                 |  |         |  |         | 393      |         |  |         | (268     | )      
|                                                                                                       |  |         |  |         |          |         |  |         |          |        
|OTHER
    COMPREHENSIVE (EXPENSE)/INCOME FOR THE YEAR, NET OF TAX                                      |  |         |  |         | (4,405   | )       |  |         | (2,023   | )      
|                                                                                                       |  |         |  |         |          |         |  |         |          |        
|TOTAL
    COMPREHENSIVE INCOME FOR THE YEAR ATTRIBUTABLE TO OWNERS OF THE PARENT                       |  |         |  |         | 52,056   |         |  |         | 58,176   |        
|                                                                                                       |  |         |  |         |          |         |  |         |          |        
|EARNINGS PER SHARE ATTRIBUTABLE
    TO OWNERS OF THE PARENT                                            |  |         |  |         |          |         |  |         |          |        
|Basic (RMB Yuan)                                                                                       |  | 14      |  |         | 1.26     |         |  |         | 1.35     |        
|Diluted (RMB Yuan)                                                                                     |  | 14      |  |         | 1.26     |         |  |         | 1.35     |        



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

F-5


Table of Contents


CNOOC LIMITED

CONSOLIDATED
STATEMENTS OF FINANCIAL POSITION

AS
OF DECEMBER 31, 2014 AND 2015

(All
amounts expressed in millions of Renminbi/US$)

|                                              |  |        |  | 2014    |         | 2015    |  | 2015   
|--------------------------------------------- |  | ------ |  | ------- | ------- | ------- |  | -------
|                                              |  | Notes  |  | RMB     |         | RMB     |  | US$    
|                                              |  |        |  | million |         | million |  | million
|                                              |  |        |  |         |         |         |  |        
|NON-CURRENT ASSETS                            |  |        |  |         |         |         |  |        
|Property, plant and equipment                 |  | 15     |  |         | 463,222 |         |  |        
|Intangible assets                             |  | 16     |  |         | 16,491  |         |  |        
|Investments in associates                     |  | 17     |  |         | 4,100   |         |  |        
|Investment in a joint venture                 |  | 18     |  |         | 21,150  |         |  |        
|Available-for-sale financial assets           |  | 19, 34 |  |         | 5,337   |         |  |        
|Equity investments                            |  | 19, 34 |  |         | -       |         |  |        
|Deferred tax assets                           |  | 12(i)  |  |         | 5,877   |         |  |        
|Other non-current assets                      |  | 20     |  |         | 5,974   |         |  |        
|                                              |  |        |  |         |         |         |  |        
|Total non-current assets                      |  |        |  |         | 522,151 |         |  |        
|                                              |  |        |  |         |         |         |  |        
|CURRENT ASSETS                                |  |        |  |         |         |         |  |        
|Inventories and supplies                      |  | 21     |  |         | 10,608  |         |  |        
|Trade receivables                             |  | 22     |  |         | 19,343  |         |  |        
|Due from related companies                    |  |        |  |         | 10,557  |         |  |        
|Derivative financial assets                   |  | 34     |  |         | 303     |         |  |        
|Available-for-sale financial assets           |  | 19, 34 |  |         | 54,030  |         |  |        
|Equity investments                            |  | 19, 34 |  |         | -       |         |  |        
|Other financial assets                        |  | 19, 34 |  |         | -       |         |  |        
|Other current assets                          |  |        |  |         | 8,114   |         |  |        
|Time deposits with maturity over three months |  | 23     |  |         | 22,835  |         |  |        
|Cash and cash equivalents                     |  | 23     |  |         | 14,918  |         |  |        
|                                              |  |        |  |         |         |         |  |        
|Total current assets                          |  |        |  |         | 140,708 |         |  |        
|                                              |  |        |  |         |         |         |  |        
|CURRENT LIABILITIES                           |  |        |  |         |         |         |  |        
|Loans and borrowings                          |  | 26     |  |         | 26,936  |         |  |        
|Borrowings from the parent company            |  | 30     |  |         | 4,244   |         |  |        
|Trade and accrued payables                    |  | 24     |  |         | 31,028  |         |  |        
|Due to the parent company                     |  | 30     |  |         | 240     |         |  |        
|Due to related companies                      |  | 30     |  |         | 21,164  |         |  |        
|Derivative financial liabilities              |  | 34     |  |         | 316     |         |  |        
|Other payables and accrued liabilities        |  | 25     |  |         | 11,259  |         |  |        
|Taxes payable                                 |  |        |  |         | 8,311   |         |  |        
|                                              |  |        |  |         |         |         |  |        
|Total current liabilities                     |  |        |  |         | 103,498 |         |  |        
|                                              |  |        |  |         |         |         |  |        
|NET CURRENT ASSETS                            |  |        |  |         | 37,210  |         |  |        
|                                              |  |        |  |         |         |         |  |        
|TOTAL ASSETS LESS CURRENT LIABILITIES         |  |        |  |         | 559,361 |         |  |        
|                                              |  |        |  |         |         |         |  |        
|NON-CURRENT LIABILITIES                       |  |        |  |         |         |         |  |        
|Loans and borrowings                          |  | 26     |  |         | 105,383 |         |  |        
|Provision for dismantlement                   |  | 27     |  |         | 52,433  |         |  |        
|Deferred tax liabilities                      |  | 12 (i) |  |         | 20,189  |         |  |        
|Other non-current liabilities                 |  |        |  |         | 1,746   |         |  |        
|                                              |  |        |  |         |         |         |  |        
|Total non-current liabilities                 |  |        |  |         | 179,751 |         |  |        
|                                              |  |        |  |         |         |         |  |        
|Net assets                                    |  |        |  |         | 379,610 |         |  |        
|                                              |  |        |  |         |         |         |  |        
|EQUITY                                        |  |        |  |         |         |         |  |        
|Equity attributable to owners of the parent   |  |        |  |         |         |         |  |        
|Issued capital                                |  | 28     |  |         | 43,081  |         |  |        
|Reserves                                      |  | 29     |  |         | 336,529 |         |  |        
|                                              |  |        |  |         |         |         |  |        
|Total equity                                  |  |        |  |         | 379,610 |         |  |        



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

F-6


Table of Contents


CNOOC
LIMITED

CONSOLIDATED
STATEMENTS OF CHANGES IN EQUITY

FOR
THE YEARS ENDED DECEMBER 31, 2013, 2014 AND 2015

(All
amounts expressed in millions of Renminbi)





|                                                                                |  | Attributable to owners of the parent
|------------------------------------------------------------------------------- |  | ------------------------------------
|                                                                                |  | Issued capital                      
|                                                                                |  |                                     
|At January 1, 2013                                                              |  |                                     
|                                                                                |  |                                     
|Profit for the year                                                             |  |                                     
|Other comprehensive expense, net of tax                                         |  |                                     
|Total comprehensive (expense)/income                                            |  |                                     
|2012 final dividend                                                             |  |                                     
|2013 interim dividend                                                           |  |                                     
|Proposed 2013 final dividend                                                    |  |                                     
|Exercise of share options                                                       |  |                                     
|Equity-settled share option expenses (note 28)                                  |  |                                     
|                                                                                |  |                                     
|At December 31, 2013                                                            |  |                                     
|                                                                                |  |                                     
|At January 1, 2014                                                              |  |                                     
|                                                                                |  |                                     
|Profit for the year                                                             |  |                                     
|Other comprehensive income/(expense), net of tax                                |  |                                     
|Total comprehensive income/(expense)                                            |  |                                     
|Transfer upon abolition of par value under the Hong Kong Companies Ordinance ** |  |                                     
|2013 final dividend                                                             |  |                                     
|2014 interim dividend                                                           |  |                                     
|Proposed 2014 final dividend                                                    |  |                                     
|                                                                                |  |                                     
|At December 31, 2014                                                            |  |                                     







F-7


Table of Contents


CNOOC
LIMITED

CONSOLIDATED
STATEMENTS OF CHANGES IN EQUITY

FOR
THE YEARS ENDED DECEMBER 31, 2013, 2014 AND 2015 (continued)

(All
amounts expressed in millions of Renminbi)



|                                                     |  |                                                                              
|---------------------------------------------------- |  | -----------------------------------------------------------------------------
|                                                     |  | Attributable
                                         to owners of the parent
|                                                     |  | Issued
    capital                                                           
|                                                     |  |                                                                              
|                                                     |  |                                                                              
|At January
    1, 2015                               |  |                                                                              
|                                                     |  |                                                                              
|Profit for the year                                  |  |                                                                              
|Other comprehensive
    income/(expense), net of tax |  |                                                                              
|Total comprehensive
    income/(expense)             |  |                                                                              
|2014 final dividend                                  |  |                                                                              
|2015 interim dividend                                |  |                                                                              
|Proposed 2015 final
    dividend                     |  |                                                                              
|                                                     |  |                                                                              
|At
    December 31, 2015                             |  |                                                                              



| | * | These
                                         reserve accounts comprise the consolidated reserves of approximately RMB342,960 million
                                         (December 31, 2014: RMB336,529 million ) in the consolidated statement of financial position.
| | - | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | ** | The
                                         Hong Kong Companies Ordinance (Cap. 622), becoming effective on 3 March 2014, abolishes
                                         the concept of nominal value and requirements for authorized share capital.
| | -- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



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



F-8


Table of Contents


CNOOC
LIMITED

CONSOLIDATED
STATEMENTS OF CASH FLOWS

FOR
THE YEARS ENDED DECEMBER 31, 2013, 2014 AND 2015

(All
amounts expressed in millions of Renminbi/US$)



|                                                                                       |  |       |  |         |          |         |  |         |          |        
|-------------------------------------------------------------------------------------- |  | ----- |  | ------- | -------- | ------- |  | ------- | -------- | -------
|                                                                                       |  |       |  | 2013    |          | 2014    |  | 2015    |          | 2015   
|                                                                                       |  | Notes |  | RMB     |          | RMB     |  | RMB     |          | US$    
|                                                                                       |  |       |  | million |          | million |  | million |          | million
|                                                                                       |  |       |  |         |          |         |  |         |          |        
|CASH FLOWS FROM OPERATING ACTIVITIES                                                   |  |       |  |         |          |         |  |         |          |        
|Cash generated from operations                                                         |  | 32    |  |         | 143,539  |         |  |         | 142,682  |        
|Income taxes paid                                                                      |  |       |  |         | (32,648  | )       |  |         | (32,174  | )      
|                                                                                       |  |       |  |         |          |         |  |         |          |        
|Net cash flows from operating activities                                               |  |       |  |         | 110,891  |         |  |         | 110,508  |        
|                                                                                       |  |       |  |         |          |         |  |         |          |        
|CASH FLOWS FROM INVESTING ACTIVITIES                                                   |  |       |  |         |          |         |  |         |          |        
|Acquisition of oil and gas properties                                                  |  |       |  |         | (7,001   | )       |  |         | -        |        
|Capital expenditure                                                                    |  |       |  |         | (79,716  | )       |  |         | (95,673  | )      
|Net outflow of cash and cash equivalents in respect of the acquisition of a subsidiary |  | 4     |  |         | (87,926  | )       |  |         | -        |        
|Additions in associates interest                                                       |  |       |  |         | -        |         |  |         | -        |        
|(Increase)/decrease in time deposits with maturity over three months                   |  |       |  |         | (9,328   | )       |  |         | 3,383    |        
|Dividends received from associates                                                     |  |       |  |         | 63       |         |  |         | 153      |        
|Dividends received from a joint venture                                                |  |       |  |         | -        |         |  |         | -        |        
|Interest received                                                                      |  |       |  |         | 871      |         |  |         | 1,041    |        
|Investment income received                                                             |  |       |  |         | 2,234    |         |  |         | 2,331    |        
|Purchase of current available-for-sale financial assets                                |  |       |  |         | (80,532  | )       |  |         | (105,718 | )      
|Purchase of other financial assets                                                     |  |       |  |         | -        |         |  |         | -        |        
|Purchase of equity investments                                                         |  |       |  |         | -        |         |  |         | -        |        
|Proceeds from sale of current available-for-sale financial assets                      |  |       |  |         | 90,852   |         |  |         | 102,587  |        
|Proceeds from sale of other financial assets                                           |  |       |  |         | -        |         |  |         | -        |        
|Proceeds from disposal of property, plant and equipment                                |  |       |  |         | 451      |         |  |         | 1,719    |        
|Net cash flows used in investing activities                                            |  |       |  |         | (170,032 | )       |  |         | (90,177  | )      
|                                                                                       |  |       |  |         |          |         |  |         |          |        
|CASH FLOWS FROM FINANCING ACTIVITIES                                                   |  |       |  |         |          |         |  |         |          |        
|Proceeds from issuance of guaranteed notes                                             |  |       |  |         | 24,363   |         |  |         | 24,578   |        
|Repayment of guaranteed notes                                                          |  |       |  |         | (4,100   | )       |  |         | -        |        
|Proceeds from bank loans                                                               |  |       |  |         | 59,186   |         |  |         | 12,789   |        
|Repayment of bank loans                                                                |  |       |  |         | (36,793  | )       |  |         | (32,523  | )      
|Dividends paid                                                                         |  |       |  |         | (20,226  | )       |  |         | (20,216  | )      
|Interest paid                                                                          |  |       |  |         | (3,832   | )       |  |         | (4,114   | )      
|Exercise of share options                                                              |  |       |  |         | 3        |         |  |         | -        |        
|                                                                                       |  |       |  |         |          |         |  |         |          |        
|Net cash flows from/(used in) financing activities                                     |  |       |  |         | 18,601   |         |  |         | (19,486  | )      
|                                                                                       |  |       |  |         |          |         |  |         |          |        
|NET (DECREASE) / INCREASE IN CASH AND CASH EQUIVALENTS                                 |  |       |  |         | (40,540  | )       |  |         | 845      |        
|Cash and cash equivalents at beginning of year                                         |  |       |  |         | 55,024   |         |  |         | 14,318   |        
|Effect of foreign exchange rate changes, net                                           |  |       |  |         | (166     | )       |  |         | (245     | )      
|                                                                                       |  |       |  |         |          |         |  |         |          |        
|CASH AND CASH EQUIVALENTS AT END OF YEAR                                               |  | 23    |  |         | 14,318   |         |  |         | 14,918   |        





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









F-9


Table of Contents


CNOOC
LIMITED

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(All amounts expressed in millions of
Renminbi unless otherwise stated)









| | 1. | CORPORATE
                                         INFORMATION
| | -- | --------------------------------------------------------------



CNOOC
Limited (the "Company") was incorporated in the Hong Kong Special Administrative Region ("Hong Kong") of 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 (hereinafter collectively referred to as the "Group"). During the
year, the Group was principally engaged in the exploration, development, production and sale of crude oil, natural gas and other
petroleum products.



The
registered office address of the Company is 65/F, Bank of China Tower, 1 Garden Road, Hong Kong.



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



Particulars
of the principal subsidiaries at the end of the reporting period are as follows:



|Name
    of entity                                                                                              | Place
                                         of
        establishment | Nominal
                                         value of ordinary shares
        issued
        and paid-up/
        registered
        capital | Percentage
        of
        equity
        attributable
        to
        the Group | Principal
    activities                                                                                                                                                                 
|--------------------------------------------------------------------------------------------------------------- | ----------------------------------------------------------------------- | ------------------------------------------------------------------------------------------------------------------------------------------------ | -------------------------------------------------------------------------------------- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|                                                                                                                |                                                                         |                                                                                                                                                  |                                                                                        |                                                                                                                                                                                          
|Directly
    held subsidiaries:                                                                                 |                                                                         |                                                                                                                                                  |                                                                                        |                                                                                                                                                                                          
|CNOOC
    China Limited                                                                                         | Tianjin,
    PRC                                                        | RMB20
    billion                                                                                                                                | 100%                                                                                   | Offshore
    petroleum exploration, development, production and sales, and shale gas exploration in the PRC                                                                              
|China
    Offshore Oil (Singapore) International Pte Ltd                                                        | Singapore                                                               | SG$3
    million                                                                                                                                 | 100%                                                                                   | Sales
    and marketing of petroleum products outside the PRC                                                                                                                            
|CNOOC
    International Limited                                                                                 | British
    Virgin Islands                                              | US$20,000,000,002                                                                                                                                | 100%                                                                                   | Investment
    holding                                                                                                                                                                   
|CNOOC
    Finance (2003) Limited                                                                                | British
    Virgin Islands                                              | US$1,000                                                                                                                                         | 100%                                                                                   | Bond
    issuance                                                                                                                                                                        
|CNOOC
    Finance (2011) Limited                                                                                | British
    Virgin Islands                                              | US$1,000                                                                                                                                         | 100%                                                                                   | Bond
    issuance                                                                                                                                                                        
|CNOOC
    Finance (2012) Limited                                                                                | British
    Virgin Islands                                              | US$1,000                                                                                                                                         | 100%                                                                                   | Bond
    issuance                                                                                                                                                                        
|CNOOC
    Finance (2013) Limited                                                                                | British
    Virgin Islands                                              | US$1,000                                                                                                                                         | 100%                                                                                   | Bond
    issuance                                                                                                                                                                        
|                                                                                                                |                                                                         |                                                                                                                                                  |                                                                                        |                                                                                                                                                                                          
|Indirectly
    held subsidiaries(1):                                                                            |                                                                         |                                                                                                                                                  |                                                                                        |                                                                                                                                                                                          
|CNOOC
    Deepwater Development Limited                                                                         | Zhuhai,
    PRC                                                         | RMB8.5
    billion                                                                                                                               | 100%                                                                                   | Deepwater
    and low-grade oil and gas fields exploitation in the PRC and exploration, development, production and sales of oil and gas
    in the oil and gas fields of South China Sea
|CNOOC
    Southeast Asia Limited                                                                                | Bermuda                                                                 | US$12,000                                                                                                                                        | 100%                                                                                   | Investment
holding                                                                                                                                                                       
|CNOOC
    SES Ltd.                                                                                              | Malaysia                                                                | US$1                                                                                                                                             | 100%                                                                                   | Petroleum
exploration, development and production in Indonesia                                                                                                                           
|CNOOC
    Muturi Limited                                                                                        | Isle
    of Man                                                         | US$7,780,770                                                                                                                                     | 100%                                                                                   | Petroleum
    exploration, development and production in Indonesia                                                                                                                       
|CNOOC
                                         NWS Private Limited                                              | Singapore                                                               | SG$2                                                                                                                                             | 100%                                                                                   | Offshore
                                         petroleum exploration,
        development
        and production in Australia                                                         
|CNOOC
                                         Exploration &
        Production
        Nigeria
        Limited | Nigeria                                                                 | NGN10
                                         million                                                                                           | 100%                                                                                   | Petroleum
    exploration, development and production in Africa                                                                                                                          



F-10


Table of Contents


CNOOC
LIMITED

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(All amounts expressed in millions of
Renminbi unless otherwise stated)





| | 1. | CORPORATE
                                         INFORMATION (continued)
| | -- | --------------------------------------------------------------------------



|Name
    of entity                              | Place
                                         of
        establishment | Nominal
    value of ordinary shares issued and paid-up/registered capital                                                          | Percentage
        of
        equity
        attributable
        to the Group | Principal
    activities                                                                                                                    
|----------------------------------------------- | ----------------------------------------------------------------------- | ----------------------------------------------------------------------------------------------------------------------------------- | ------------------------------------------------------------------------------ | --------------------------------------------------------------------------------------------------------------------------------------------
|                                                |                                                                         |                                                                                                                                     |                                                                                |                                                                                                                                             
|Indirectly
    held subsidiaries(continued)(1): |                                                                         |                                                                                                                                     |                                                                                |                                                                                                                                             
|CNOOC
    Iraq Limited                          | British
    Virgin Islands                                              | US$1                                                                                                                                | 100%                                                                           | Providing
                                         services of petroleum exploration
        and
        development in the Republic of Iraq
|CNOOC
    Canada Energy Ltd.                    | Canada                                                                  | 100
                                         common shares
        without
a par value 103,000 preferred shares without a par value | 100%                                                                           | Oil
    sands exploration,   development and production in Canada                                                                           
|CNOOC
    Uganda Ltd                            | Uganda                                                                  | 1
    million Uganda Shilling                                                                                                       | 100%                                                                           | Petroleum
    exploration, development and production in Africa                                                                             
|Nexen
    Energy ULC                            | Canada                                                                  | 13,671,421,700
    common shares without a par value                                                                                | 100%                                                                           | Petroleum
    exploration, development and production in Canada                                                                             
|Nexen
    Petroleum U.K. Limited                | England
    and Wales                                                   | GBP98,009,131                                                                                                                       | 100%                                                                           | Petroleum
    exploration, development and production in the UK                                                                             
|Nexen
    Petroleum Nigeria Limited             | Nigeria                                                                 | NGN30
    million                                                                                                                   | 100%                                                                           | Petroleum
    exploration, development and production in Nigeria                                                                            
|OOGC
    America LLC                            | USA                                                                     | N/A                                                                                                                                 | 100%                                                                           | Petroleum
    exploration, development and production in the USA                                                                            
|Nexen
    Petroleum Offshore U.S.A. Inc.        | USA                                                                     | US$15,830                                                                                                                           | 100%                                                                           | Petroleum
    exploration, development and production in the USA                                                                            
|Nexen
    Oil Sands Partnership                 | Canada                                                                  | N/A                                                                                                                                 | 100%                                                                           | Petroleum
    exploration, development and production in Canada                                                                             
|CNOOC
    PETROLEUM BRASIL LTDA(2)              | Brazil                                                                  | R$2,186,000,000                                                                                                                     | 100%                                                                           | Petroleum
    exploration, development and production in Brazil                                                                             
|CNOOC
    Nexen Finance (2014) ULC              | Canada                                                                  | 100
    common shares without a par value                                                                                           | 100%                                                                           | Bond
    issuance                                                                                                                           
|CNOOC
    Finance (2015) U.S.A. LLC(3)          | USA                                                                     | N/A                                                                                                                                 | 100%                                                                           | Bond
    Issuance                                                                                                                           
|CNOOC
    Finance (2015) Australia Pty Ltd(3)   | Australia                                                               | US$1                                                                                                                                | 100%                                                                           | Bond
    Issuance                                                                                                                           



| | (1) | All
                                         subsidiaries are indirectly held through CNOOC International Limited, except CNOOC Deepwater
                                         Development Limited which is indirectly held through CNOOC China Limited.
| | --- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | (2) | The
                                         registered capital of CNOOC PETROLEUM BRASIL LTDA increased from R$1,646,000,000 to R$2,186,000,000
                                         on February 11, 2015.
| | --- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | (3) | CNOOC
                                         Finance (2015) U.S.A. LLC was incorporated on March 23, 2015 and CNOOC Finance (2015)
                                         Australia Pty Ltd was incorporated on March 18, 2015, for issuing guaranteed notes (note
                                         26).
| | --- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



The above table
lists the subsidiaries of the Company which, in the opinion of the Directors, principally affected the results for the year or
formed a substantial portion of the total assets of the Group. To give details of other subsidiaries would, in the opinion of
the Directors, result in particulars of excessive length.



F-11
    Table of Contents
    



CNOOC
LIMITED

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(All amounts expressed in millions of
Renminbi unless otherwise stated)

| | 2.1 | STATEMENT
                                         OF COMPLIANCE
| | --- | ----------------------------------------------------------------



These
financial statements have been prepared in accordance with International Financial Reporting Standards ("IFRSs") issued
by the International Accounting Standards Board (the "IASB"), Hong Kong Financial Reporting Standards ("HKFRSs")
issued by the Hong Kong Institute of Certified Public Accountants (the "HKICPA"), the Rules Governing the Listing of
Securities on The Stock Exchange of Hong Kong Limited (the "Listing Rules") and the Hong Kong Companies Ordinance (Cap.
622) which came into effect on March 3, 2014. A summary of the significant accounting policies adopted by the Group is set out
below.



The
provisions of the Hong Kong Companies Ordinance (Cap.622) regarding preparation of accounts and directors’ report and audits
became effective, and has been adopted by the Company for the financial year ended December 31, 2015. Further, the disclosure
requirements set out in the Listing Rules regarding annual accounts have been amended with reference to the Hong Kong Companies
Ordinance (Cap.622). Accordingly the presentation and disclosure of information in the consolidated financial statements for the
financial year ended December 31, 2015 have been changed to comply with these new requirements. Comparative information in respect
of the financial year ended December 31, 2014 are presented or disclosed in the consolidated financial statements based on the
new requirements. Information previously required to be disclosed under the predecessor Hong Kong Companies Ordinance (Cap. 32)
or Listing Rules but not under the Hong Kong Companies Ordinance (Cap.622) or amended Listing Rules are not disclosed in these
consolidated financial statements.



| | 2.2 | CHANGES
                                         IN ACCOUNTING POLICY AND DISCLOSURES
| | --- | -------------------------------------------------------------------------------------



The
IASB has issued a number of new and revised IFRSs that are first effective for the current accounting year commencing January
1, 2015 or later but available for early adoption. The equivalent new and revised HKFRSs consequently issued by the HKICPA have
the same effective dates as those issued by the IASB and are in all material aspects identical to the pronouncements issued by
the IASB.



The
accounting policies adopted are consistent with those of the year ended December 31, 2014, except for the first time adoption
of the amendments to IFRSs/HKFRSs effective for the Group’s financial year beginning on January 1, 2015 (the "Amendments")
and early adoption of IFRS/HKFRS 9 (2009) Financial Instruments. The adoption of the Amendments had no material impact on the
accounting policies, the disclosures or the amounts recognized in the consolidated financial statements of the Group. Impact of
early adoption of IFRS/HKFRS 9 (2009) Financial Instruments is described as below.



Early
adopted before mandatory effective dates



IFRS/HKFRS
9 (2009) - Financial Instruments



In
the current year, the Group has applied IFRS/HKFRS 9 (2009). The Group has chosen January 1, 2015 as its date of initial application
(i.e. the date on which the Group has reassessed the classification of its financial assets in accordance with requirements of
IFRS/HKFRS 9 (2009)). The classification is based on the facts and circumstances as at January 1, 2015. In accordance with transition
provisions set out in IFRS/HKFRS 9 (2009), the Group has chosen not to restate comparative information and has provided additional
disclosures in accordance with IFRS/HKFRS 7 Financial Instruments – Disclosures in these consolidated financial statements
for the year ended 31 December 2015, and any difference between the measurement under IAS/HKAS 39 Financial Instruments: Recognition
and Measurement and IFRS/HKFRS 9 (2009) as at January 1, 2015 is recognized in the opening retained earnings and other reserves
at the date of initial application, if any. IFRS/HKFRS 9 (2009) does not apply to financial assets that have already been derecognized
at date of initial application. Other than the changes in classification of certain financial assets, the changes in accounting
policies had no material financial impact on the amounts recognized on the consolidated statement of financial position of the
Group as at January 1, 2015.

F-12


Table of Contents


CNOOC
LIMITED

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(All amounts expressed in millions of
Renminbi unless otherwise stated)



| | 2.2 | CHANGES IN ACCOUNTING
POLICY AND DISCLOSURES (continued)
| | --- | --------------------------------------------------------



Early
adopted before mandatory effective dates (continued)



IFRS/HKFRS
9 (2009) - Financial Instruments(continued)



IFRS/HKFRS
9 (2009) introduces new classification and measurement requirements for financial assets that are within the scope of IAS/ HKAS
39. Specifically, IFRS/ HKFRS 9 (2009) requires all financial assets to be classified and subsequently measured at either amortized
cost or fair value on the basis of the Group’s business model for managing the financial assets and the contractual cash
flow characteristics of the financial assets.



As
required by IFRS/HKFRS 9 (2009), debt instruments and hybrid contracts are subsequently measured at amortized cost only if (i)
the asset is held within a business model whose objective is to hold assets in order to collect contractual cash flows and (ii)
the contractual terms of the financial asset give rise on specified dates to cash flows that are solely payments of principal
and interest on the principal amount outstanding (collectively referred to as the “amortized cost criteria”). If either
of the two criteria is not met, the debt instruments are classified as at fair value through profit or loss (“FVTPL”).



However,
the Group may choose at initial recognition to designate a debt instrument that meets the amortized cost criteria as at FVTPL
if doing so eliminates or significantly reduces an accounting mismatch. Debt instruments that are subsequently measured at amortized
cost are subject to impairment.



Investments
in equity instruments are classified and measured as at FVTPL except when the equity investment is not held for trading and is
designated by the Group as at fair value through other comprehensive income (“FVTOCI”). If the equity investment is
designated as at FVTOCI, all gains and losses are recognized in other comprehensive income and are not subsequently reclassified
to profit or loss, except for dividend income that is generally recognized in profit or loss in accordance with IAS/ HKAS 18 Revenue.



The
directors have reviewed and reassessed the Group’s existing financial assets at 1 January 2015 based on the Group’s
business model for managing the financial assets and the contractual cash flow characteristics of the financial assets and concluded
that the Group’s financial assets, previously classified as “loans and receivables” under IAS/ HKAS 39 are held
within a business model whose objective is to hold these financial assets in order to collect contractual cash flows that are
solely payments of principal and interest. In addition, the directors concluded that the Group’s investments in certain
equity securities that previously classified as available-for-sale investments under IAS/ HKAS 39 are not held for trading, but
held for medium or long-term strategic purpose. Therefore, those investments in equity securities are designated as at FVTOCI
under IFRS/ HKFRS 9 (2009) as the directors believe that this provides a more meaningful presentation than reflecting changes
in fair value in profit or loss. Other equity investments are classified as FVTPL.

F-13


Table of Contents


CNOOC
LIMITED

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(All amounts expressed in millions of
Renminbi unless otherwise stated)





| | 2.2 | CHANGES
                                         IN ACCOUNTING POLICY AND DISCLOSURES (continued)
| | --- | -------------------------------------------------------------------------------------------------



Early
adopted before mandatory effective dates (continued)



IFRS/HKFRS
9 (2009) - Financial Instruments (continued)



The
initial application of IFRS/HKFRS 9 (2009) has affected the classification of financial assets of the Group, its joint venture/
associates and the Group’s other reserves and retained earnings as at January 1, 2015 as follows:



(i)
the Group's publicly traded equity investments (not held for trading) of RMB 2,958 million that were previously classified as
available-for-sale investments and measured at fair value at each reporting date under IAS/ HKAS 39 have been designated as at
FVTOCI;



(ii)
the Group’s non-publicly traded equity investments (not held for trading) of RMB 2,258 million previously classified as
available-for-sale investments and measured at fair value at each reporting date or at cost less impairment under IAS/HKAS 39
have been designated as at FVTOCI. The carrying amounts of the investments previously measured at cost less impairment represent
an appropriate estimate of their fair values as at January 1, 2015, as insufficient more recent information is available to measure
their fair values;



(iii)
the Group's equity investments of RMB 134 million previously classified as available-for-sale investments and measured at fair
value at each reporting date under IAS/ HKAS 39 have been classified as at FVTPL;



(iv)
the Group's investment in liquidity funds of RMB5,453 million and corporate wealth management products of RMB48,564 million that
were previously classified as available-for-sale investments and measured at fair value at each reporting date under IAS/ HKAS
39 have been classified as FVTPL;



(v)
The investment in publicly traded investments (not held for trading) of the Group’s joint venture/associates that were previously
classified as available-for-sale investments and measured at fair value at each reporting date under IAS/ HKAS 39 have been designated
as FVTOCI; and



(vi)
The investment in non-publicly traded investments (not held for trading) of the Group’s joint venture/associates previously
classified as available-for-sale investments and measured at fair value at each reporting date or at cost less impairment under
IAS/ HKAS 39 have been designated as at FVTOCI.



The
list below illustrates the classification and measurement of the financial assets under IAS/HKAS 39 and IFRS/HKFRS 9 (2009) at
January 1, 2015, the date of initial application.

F-14


Table of Contents


CNOOC
LIMITED

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(All amounts expressed in millions of
Renminbi unless otherwise stated)





| | 2.2 | CHANGES
                                         IN ACCOUNTING POLICY AND DISCLOSURES (continued)
| | --- | -------------------------------------------------------------------------------------------------



Early
adopted before mandatory effective dates (continued)



IFRS/HKFRS
9 (2009) - Financial Instruments (continued)



|                                                                                                                                     | Original
        measurement
        category
        under IAS/HKAS
        39 | New
                                         measurement
        category
        under IFRS/HKFRS
        9 (2009) | Original
        carrying
        amount
        under IAS/HKAS 39 | New
                                         carrying
        amount
        under
        IFRS/HKFRS
        9 (2009)
|------------------------------------------------------------------------------------------------------------------------------------ | ------------------------------------------------------------------------------- | ------------------------------------------------------------------------------------------------------------------- | ------------------------------------------------------------------ | ----------------------------------------------------------------------------------------------------------------------
|Publicly
                                         traded equity investments-MEG Energy Corporation ("MEG")
        (Note
        19) | Available-for-sale
        investments                                          | Financial
                                         assets
        designated as at
        FVTOCI                   | 2,958                                                              | 2,958                                                                                                                 
|Publicly
                                         traded equity investments-others
        (Note 19)                                 | Available-for-sale
        investments                                          | Financial
                                         assets at
        FVTPL                                          | 134                                                                | 134                                                                                                                   
|Non-publicly
                                         traded equity investments (Note 19)                                            | Available-for-sale
        investments                                          | Financial
                                         assets
        designated as at
        FVTOCI                   | 2,258                                                              | 2,258                                                                                                                 
|Derivative
                                         Financial assets (Note 34)                                                       | Financial
                                         assets at
        FVTPL      | Financial
                                         assets at
        FVTPL                                          | 303                                                                | 303                                                                                                                   
|Other
                                         financial assets: liquidity funds (Note 19)                                           | Available-for-sale
        investments                                          | Financial
                                         assets at
        FVTPL                                          | 5,453                                                              | 5,453                                                                                                                 
|Other
    financial assets: corporate wealth management products (Note 19)                                                           | Available-for-sale
        investments                                          | Financial
                                         assets at
        FVTPL                                          | 48,564                                                             | 48,564                                                                                                                
|Trade
                                         receivables (Note 22)                                                                 | Loans
    and receivables                                                       | Financial
                                         assets at
        amortized cost                                 | 29,411                                                             | 29,411                                                                                                                
|Time
                                         deposits with maturity over three months (Note 23)                                     | Loans
    and receivables                                                       | Financial
                                         assets at
        amortized cost                                 | 22,835                                                             | 22,835                                                                                                                
|Cash
                                         and cash equivalent (Note 23)                                                          | Loans
    and receivables                                                       | Financial
                                         assets at
        amortized cost                                 | 14,918                                                             | 14,918                                                                                                                
|Other
                                         non-current assets-dismantlement fund deposits (Note 20)                              | Loans
    and receivables                                                       | Financial
                                         assets at
        amortized cost                                 | 3,981                                                              | 3,981                                                                                                                 
|Other
    current assets                                                                                                             | Loans
    and receivables                                                       | Financial
                                         assets at
        amortized cost                                 | 8,573                                                              | 8,573                                                                                                                 

F-15


Table of Contents


CNOOC
LIMITED

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(All amounts expressed in millions of
Renminbi unless otherwise stated)





| | 2.2 | CHANGES
                                         IN ACCOUNTING POLICY AND DISCLOSURES (continued)
| | --- | -------------------------------------------------------------------------------------------------



Early
adopted before mandatory effective dates (continued)



IFRS/HKFRS
9 (2009) - Financial Instruments (continued)



In
relation to the equity investments (not held for trading), the Group has made an irrevocable election to present subsequent changes
in their fair value in other comprehensive income under IFRS/HKFRS 9 (2009), which will not be reclassified to profit or loss
on disposal or impairment of the relevant investments. Under IAS/HKAS 39, when an available-for-sales equity investment is disposed
of or impaired, the cumulative gain or loss is reclassified from other comprehensive income to profit or loss. Should the Group
have not early adopted IFRS/HKFRS 9 (2009), the Group's basic and diluted earnings per share would have been RMB0.41 yuan for
the year ended December 31, 2015. There is no material impact on the basic and diluted earnings per share for the year ended December
31, 2014.



The
Group has not applied the following new and revised IFRSs/HKFRSs, which may be relevant to the Group and have been issued but
are not yet effective, in these consolidated financial statements:





|IFRS 9/HKFRS 9 (2014)                             | Financial Instruments1                                                                
|------------------------------------------------- | --------------------------------------------------------------------------------------
|IFRS 14/ HKFRS 14                                 | Regulatory Deferral Accounts2                                                         
|IFRS 15/ HKFRS 15                                 | Revenue from Contracts with Customers7                                                
|IFRS 16                                           | Leases5                                                                               
|Amendments to IFRS 11/HKFRS 11                    | Accounting for Acquisitions of Interests in Joint Operations3                         
|Amendments to IAS 1/ HKAS 1                       | Disclosure Initiative3                                                                
|Amendments to IAS 16/HKAS 16 and IAS 38/HKAS 38   | Clarification of Acceptable Methods of Depreciation and Amortization3                 
|Amendments to IFRSs/HKFRSs                        | Annual Improvements to IFRSs/HKFRSs 2012-2014 Cycle3                                  
|Amendments to IAS 27/HKAS 27                      | Equity Method in Separate Financial Statements3                                       
|Amendments to IFRS 10/HKFRS 10 and IAS 28/HKAS 28 | Sale or Contribution of Assets between an Investor and its Associate or Joint Venture4
|Amendments to IAS 7                               | Disclosure Initiative6                                                                
|Amendments to IAS 12                              | Recognition of Deferred Tax Assets for Unrealized Losses                              



1
Effective for annual periods beginning on or after January 1, 2018, except for the 2009 version of IFRS /HKFRS 9, which
the Group adopted in advance

2
Effective for first annual IFRS/HKFRS financial statements beginning on or after January 1, 2016

3
Effective for annual periods beginning on or after January 1, 2016

4
Effective date is to be decided

5
Effective for annual periods beginning on or after January 1, 2019

6
Effective for annual periods beginning on or after January 1, 2017

7
Effective for annual periods beginning on or after January 1, 2018



F-16


Table of Contents


CNOOC
LIMITED

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(All amounts expressed in millions of
Renminbi unless otherwise stated)





| | 3. | SUMMARY
                                         OF SIGNIFICANT ACCOUNTING POLICIES
| | -- | -----------------------------------------------------------------------------------



Basis
of preparation



These
consolidated financial statements have been prepared under the historical cost convention, except for as detailed in the accounting
policies notes hereafter. These consolidated financial statements are presented in Renminbi ("RMB") and all values are
rounded to the nearest million except when otherwise indicated.



Basis
of consolidation



The
consolidated financial statements include the financial statements of the Company and its subsidiaries for the year ended December
31, 2015.



The
results of subsidiaries are consolidated from the date of acquisition, being the date on which the Group obtains control, and
continue to be consolidated until the date that such control ceases. The financial statements of the subsidiaries are prepared
for the same reporting period as the parent company, using consistent accounting policies.



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



All
intra-group balances, income and expenses and unrealized gains and losses and dividends resulting from intra-group transactions
are eliminated in full.



Business
combinations and goodwill



Business
combinations are accounted for using the acquisition method. The consideration transferred is measured at acquisition date fair
value which is the sum of the acquisition date fair values of assets transferred by the Group, liabilities assumed by the Group
to the former owners of the acquiree and the equity interests issued by the Group in exchange for control of the acquiree. For
each business combination, the Group elects whether it measures the non-controlling interests in the acquiree either at fair value
or at the proportionate share of the acquiree's identifiable net assets. All other components of non-controlling interests are
measured at fair value. Acquisition related costs incurred are expensed and included in administrative expenses.



When
the Group acquires a business, it assesses the financial assets and liabilities assumed for appropriate classification and designation
in accordance with the contractual terms, economic circumstances and pertinent conditions as at the acquisition date. This includes
the separation of embedded derivatives in host contracts by the acquiree.



If
the business combination is achieved in stages, the Group's previously held equity interest in the acquiree is remeasured to fair
value at the acquisition date through profit or loss.



Any
contingent consideration to be transferred by the acquirer is recognized at fair value at the acquisition date. Contingent consideration
classified as an asset or liability is measured at subsequent reporting dates in accordance with IFRS/HKFRS 9 (2009) or IAS/HKAS
39, with the corresponding gain or loss being recognized in profit or loss. Contingent consideration that is classified as equity
is not remeasured and subsequent settlement is accounted for within equity.



Goodwill
is initially measured at cost, being the excess of the aggregate of the consideration transferred, the amount recognized for non-controlling
interests and any fair value of the Group's previously held equity interests in the acquiree over the identifiable net assets
acquired and liabilities assumed. If the sum of this consideration and other items is lower than the fair value of the net assets
of the business acquired, the difference is recognized in profit or loss as a gain on bargain purchase.

F-17


Table of Contents


CNOOC
LIMITED

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(All amounts expressed in millions of
Renminbi unless otherwise stated)





3. SUMMARY
OF SIGNIFICANT ACCOUNTING POLICIES (continued)



Business
combinations and goodwill (continued)



After
initial recognition, goodwill is measured at cost less any accumulated impairment losses. Goodwill is tested for impairment annually
or more frequently if events or changes in circumstances indicate that the carrying value may be impaired. For the purpose of
impairment testing, goodwill acquired in a business combination is, from the acquisition date, allocated to each of the Group's
cash-generating units, or groups of cash-generating units, that are expected to benefit from the synergies of the combination,
irrespective of whether other assets or liabilities of the Group are assigned to those units or groups of units.



Impairment
is determined by assessing the recoverable amount of the cash-generating unit (group of cash-generating units) to which the goodwill
relates. Where the recoverable amount of the cash-generating unit (group of cash-generating units) is less than the carrying amount,
an impairment loss on goodwill is recognized. An impairment loss recognized for goodwill is not reversed in a subsequent period.



Where
goodwill has been allocated to a cash-generating unit (or group of cash-generating units) and part of the operation within that
unit is disposed of, the goodwill associated with the operation disposed of is included in the carrying amount of the operation
when determining the gain or loss on the disposal. Goodwill disposed of in these circumstances is measured based on the relative
value of the operation disposed of and the portion of the cash-generating unit retained.



Subsidiaries



Subsidiaries
are all those entities over which the Group has power over the investee such that the Group is able to direct the relevant activities,
has exposure or rights to variable returns from its involvement with the investee and has the ability to use its power over the
investee to affect the amount of the investor's returns.



Associates



Based
on the Group's ownership percentage (considering its direct ownership as well as potentially exercisable or convertible shares)
and other contractual rights, the Group has significant influence over its associates, rather than the power to control.



The
Group's investments in associates are stated in the consolidated statement of financial position at the Group's share of net assets
under the equity method of accounting, less any impairment losses. Adjustments are made to bring into line any dissimilar accounting
policies that may exist. The Group's share of the post-acquisition results and reserves of associates is included in the consolidated
statement of profit or loss and other comprehensive income and consolidated reserves, respectively. Unrealized gains and losses
resulting from transactions between the Group and its associates are eliminated to the extent of the Group's investments in the
associates, except where unrealized losses provide evidence of an impairment of the asset transferred. Goodwill arising from the
acquisition of associates is included as part of the Group's investments in associates and is not individually tested for impairment.



Joint
arrangements



Certain
of the Group's activities are conducted through joint arrangements. Joint arrangements are classified as either a joint operation
or joint venture, based on the rights and obligations arising from the contractual obligations between the parties to the arrangement.



Joint
control



Joint
control is the contractually agreed sharing of control of an arrangement, which exists only when decisions about the relevant
activities require unanimous consent of the parties sharing control.

F-18


Table of Contents


CNOOC
LIMITED

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(All amounts expressed in millions of
Renminbi unless otherwise stated)





3. SUMMARY OF SIGNIFICANT ACCOUNTING
POLICIES (continued)



Joint
arrangements (continued)



Joint
operations



Some
arrangements have been assessed by the Group as joint operations as both parties to the contract are responsible for the assets
and obligations in proportion to their respective interest, whether or not the arrangement is structured through a separate vehicle.
This evaluation applies to both the Group's interests in production sharing arrangements and certain joint operation.



The
Group entered into numerous production sharing arrangements or similar agreements in China and overseas countries. The Group's
participating interest may vary in each arrangement. The Group, as one of the title owners under certain exploration and/or production
licenses or permits, is required to bear exploration (with some exceptions in China), development and operating costs together
with other co-owners based on each owner's participating interest. Once production occurs, a certain percentage of the annual
production or revenue is first distributed to the local government, which, in most cases, with the nature of royalty and other
taxes or expenses, and the rest of the annual production or revenue is allocated among the co-owners.



The
Group accounts for the assets, liabilities, revenues and expenses relating to its interest in a joint operation in accordance
with the IFRSs/HKFRSs applicable to the particular assets, liabilities, revenues and expenses.



Joint
venture



A
joint venture is a joint arrangement whereby the parties that have joint control of the arrangement have rights to the net assets
of the arrangement.



The
Group's investments in joint ventures are stated in the consolidated statement of financial position at the Group's share of net
assets under the equity method of accounting, less any impairment losses. Adjustments are made to bring into line any dissimilar
accounting policies that may exist. The Group's share of the post-acquisition results and reserves of joint ventures is included
in the consolidated statement of profit or loss and other comprehensive income and consolidated reserves, respectively. Where
the profit sharing ratios is different to the Group's equity interest, the share of post-acquisition results of the joint ventures
is determined based on the agreed profit sharing ratio. Unrealized gains and losses resulting from transactions between the Group
and its joint ventures are eliminated to the extent of the Groups investments in the joint ventures, except where unrealized losses
provide evidence of an impairment of the asset transferred. Goodwill arising from the acquisition of joint ventures is included
as part of the Group's investments in joint ventures and is not individually tested for impairment.



Related
parties



A party
is considered to be related to the Group if:



| | (a) | the
                                         party is a person or a close member of that person's family and that person
| | --- | ------------------------------------------------------------------------------------------------------------------------



| | (i) | has
                                         control or joint control of the Group;
| | --- | -----------------------------------------------------------------------------------

| | (ii) | has
                                         significant influence over the Group; or
| | ---- | -------------------------------------------------------------------------------------

| | (iii) | is
                                         a member of the key management personnel of the Group or of a parent of the Group;
| | ----- | ------------------------------------------------------------------------------------------------------------------------------



F-19


Table of Contents


CNOOC
LIMITED

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(All amounts expressed in millions of
Renminbi unless otherwise stated)







3. SUMMARY
OF SIGNIFICANT ACCOUNTING POLICIES (continued)



Related
parties (continued)



| | (b) | the
                                         party is an entity where any of the following conditions applies:
| | --- | --------------------------------------------------------------------------------------------------------------



| | (i) | the
                                         entity and the Group are members of the same group;
| | --- | ------------------------------------------------------------------------------------------------

| | (ii) | one
                                         entity is an associate or joint venture of the other entity (or of a parent, subsidiary
                                         or fellow subsidiary of the other entity);
| | ---- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | (iii) | the
                                         entity and the Group are joint ventures of the same third party;
| | ----- | -------------------------------------------------------------------------------------------------------------

| | (iv) | one
                                         entity is a joint venture of a third entity and the other entity is an associate of the
                                         third entity;
| | ---- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | (v) | the
                                         entity is a post-employment benefit plan for the benefit of employees of either the Group
                                         or an entity related to the Group;
| | --- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | (vi) | the
                                         entity is controlled or jointly controlled by a person identified in (a); and
| | ---- | --------------------------------------------------------------------------------------------------------------------------

| | (vii) | a
                                         person identified in (a)(i) has significant influence over the entity or is a member
                                         of the key management personnel of the entity (or of a parent of the entity).
| | ----- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



Impairment
of non-financial assets other than goodwill



Where
an indication of impairment exists, or when annual impairment testing for an asset is required (other than inventories, deferred
tax assets, financial assets and goodwill), the asset's recoverable amount is estimated. An asset's recoverable amount is the
higher of the asset's or cash-generating unit's value in use and its fair value less costs of disposal, and is determined for
an individual asset, unless the asset does not generate cash inflows that are largely independent of those from other assets or
groups of assets, in which case the recoverable amount is determined for the cash-generating unit to which the asset belongs.



An
impairment loss is recognized only if the carrying amount of an asset exceeds its recoverable amount. In assessing value in use,
the estimated future cash flows are discounted to their present value using a pre-tax discount rate that reflects current market
assessments of the time value of money and the risks specific to the asset. An impairment loss is charged to profit or loss in
the period in which it arises in those expense categories consistent with the function of the impaired asset.



An
assessment is made at the end of each reporting period as to whether there is any indication that previously recognized impairment
losses may no longer exist or may have decreased. If such an indication exists, the recoverable amount is estimated. A previously
recognized impairment loss of an asset other than goodwill is reversed only if there has been a change in the estimates used to
determine the recoverable amount of that asset, but not to an amount higher than the carrying amount that would have been determined
(net of any depreciation/amortization) had no impairment loss been recognized for the asset in prior years. A reversal of such
an impairment loss is credited to profit or loss in the period in which it arises.



Property,
plant and equipment



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



| | (a) | Oil
                                         and gas properties
| | --- | ---------------------------------------------------------------



For
oil and gas properties, the successful efforts method of accounting is adopted. The Group capitalizes the initial acquisition
costs of oil and gas properties. Impairment of initial acquisition costs is recognized based on exploratory experience and management
judgement and charged to profit and loss as exploration expenses. Upon discovery of commercial reserves, acquisition costs are
transferred to proved properties. The costs of drilling and equipping successful exploratory wells, all development expenditures
on construction, installation or completion of infrastructure facilities such as platforms, pipelines, processing plants and the
drilling of development wells and the building of enhanced recovery facilities, including those renewals and betterments that
extend the economic lives of the assets, and the related borrowing costs are capitalized. The costs of unsuccessful exploratory
wells and all other exploration costs are expensed as incurred.

F-20


Table of Contents


CNOOC
LIMITED

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(All amounts expressed in millions of
Renminbi unless otherwise stated)





| | 3. | SUMMARY
                                         OF SIGNIFICANT ACCOUNTING POLICIES (continued)
| | -- | -----------------------------------------------------------------------------------------------



Property,
plant and equipment (continued)



| | (a) | Oil
                                         and gas properties (continued)
| | --- | ---------------------------------------------------------------------------



The
Group carries exploratory well costs as an asset when the well has found a sufficient quantity of reserves to justify its completion
as a producing well and where the Group is making sufficient progress assessing the reserves and the economic and operating viability
of the project. Exploratory well costs not meeting these criteria are charged to expenses. 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 the successful completion of further exploratory work remain capitalized and are reviewed periodically
for impairment.



Producing
oil and gas properties are depreciated on a unit-of-production basis over the proved developed reserves. Common facilities that
are built specifically to service production directly attributed to designated oil and gas properties are depreciated based on
the proved developed reserves of the respective oil and gas properties on a pro-rata basis. Common facilities that are not built
specifically to service identified oil and gas properties are depreciated using the straight-line method over their estimated
useful lives. Costs associated with significant development projects are not depreciated until commercial production commences
and the reserves related to those costs are excluded from the calculation of depreciation.



Capitalized
acquisition costs of proved properties are depreciated on a unit-of-production method over the total proved reserves of the relevant
oil and gas properties.



| | (b) | Vehicles,
                                         office equipment and others
| | --- | ------------------------------------------------------------------------------



Vehicles,
office equipment and others 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 useful
lives of vehicles, office equipment and other assets are in line with their beneficial periods.



Where
parts of an item of property, plant and equipment have different useful lives, the cost of that item is allocated on a recoverable
basis among the parts and each part is depreciated separately.



Residual
values, useful lives and the depreciation method are reviewed and, adjusted if appropriate, at each reporting date.



Any
gains and losses on disposals of property, plant and equipment (calculated as the difference between the net disposal proceeds
and the carrying amount of the asset) are recognized in profit or loss.



Intangible
assets (other than goodwill)



The
intangible assets of the Group comprise software, gas processing rights of the NWS Project, marketing transportation and storage
contracts, drilling rig contracts and seismic data usage rights. Intangible assets with finite lives are carried at cost, less
accumulated amortization and accumulated impairment losses. The cost of intangible assets acquired in a business combination is
the fair value as at the date of acquisition. Intangible assets with finite lives except for gas processing rights, are amortized
on the straight-line basis over the useful economic life and assessed for impairment whenever there is an indication that the
intangible asset may be impaired. The amortization period and the amortization method for an intangible asset with a finite useful
life are reviewed at least at each financial year end.

F-21


Table of Contents


CNOOC
LIMITED

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(All amounts expressed in millions of
Renminbi unless otherwise stated)





3. SUMMARY OF SIGNIFICANT ACCOUNTING
POLICIES (continued)



Intangible
assets (other than goodwill) (continued)



The
intangible assets regarding software have been amortized on the straight-line basis over their respective useful lives. The intangible
asset regarding the gas processing rights has been amortized upon the commercial production of the liquefied natural gas on a
unit-of-production basis over the total proved reserves of the relevant asset. The intangible assets regarding the marketing transportation
and storage contracts and drilling rig contracts are amortized over the life of the contracts on the straight-line basis. The
intangible assets related to the seismic data usage rights are amortized over the estimated useful life of the seismic data.



Major
maintenance and repairs



Expenditure
on major maintenance refits or repairs comprises the cost of replacement assets or parts of assets and overhaul costs. Where an
asset or part of an asset that was separately depreciated and is replaced, and it is probable that future economic benefits associated
with the item will flow to the Group, the replacement expenditure is capitalized. Where part of the asset was not separately considered
as a component, the replacement value is used to estimate the carrying amount of the replaced assets which is immediately written
off. All other maintenance costs are expensed as incurred.



Research
and development costs



All
research costs are expensed as incurred.



Expenditure
(other than that relating to oil and gas properties discussed above) incurred on projects to develop new products is capitalized
and deferred only when the Group can demonstrate the technical feasibility of completing the intangible asset so that it will
be available for use or sale, its intention to complete and its ability to use or sell the asset, how the asset will generate
future economic benefits, the availability of resources to complete the project and the ability to measure reliably the expenditure
during the development. Product development expenditure which does not meet these criteria is expensed when incurred.



Financial
assets



Classification
and subsequent measurement prior to January 1, 2015



Financial
assets within the scope of IAS 39/HKAS 39 are classified as financial assets at fair value through profit or loss, loans and receivables,
held-to-maturity investments, and available-for-sale financial assets, as appropriate. The Group determines the classification
of its financial assets at initial recognition. When financial assets are recognized initially, they are measured at fair value
plus transaction costs, except in the case of financial assets recorded at fair value through profit or loss.



Purchases
or sales of financial assets that require delivery of assets within a time frame established by regulation or convention in the
marketplace (regular way purchases or sales) are recognized on the trade date, that is, the date that the Group commits to purchase
or sell the asset.



The
Group's financial assets include cash and bank balances, trade and other receivables, equity and debt investments, and derivative
financial instruments.



The
subsequent measurement of financial assets depends on their classifications as follows:



F-22


Table of Contents


CNOOC
LIMITED

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(All amounts expressed in millions of
Renminbi unless otherwise stated)





3. SUMMARY
OF SIGNIFICANT ACCOUNTING POLICIES (continued)



Financial
assets (continued)



Classification
and subsequent measurement prior to January 1, 2015 (continued)



| | (a) | Financial
                                         assets at fair value through profit or loss
| | --- | ----------------------------------------------------------------------------------------------



Financial
assets at fair value through profit or loss are financial assets designated upon initial recognition at fair value through profit
or loss and financial assets classified as held-for-trading. Financial assets at fair value through profit and loss are carried
in the statement of financial position at fair value with net changes in fair value recognized in profit or loss in the period.
These net fair value changes do not include any dividends or interest earned on these financial assets, which are recognized in
accordance with the policies set out for "Revenue recognition" below.



| | (b) | Loans
                                         and receivables
| | --- | --------------------------------------------------------------



Loans
and receivables are non-derivative financial assets with fixed or determinable payments that are not quoted in an active market.
After initial measurement, such assets are subsequently carried at amortized cost using the effective interest method less any
allowance for impairment. Amortized cost is calculated by taking into account any discount or premium on acquisition and includes
fees or costs that are an integral part of the effective interest rate. Gains and losses are recognized in profit or loss when
the loans and receivables are derecognized or impaired, as well as through the amortization process.



| | (c) | Held-to-maturity
                                         investments
| | --- | ---------------------------------------------------------------------



Non-derivative
financial assets with fixed or determinable payments and fixed maturity are classified as held to maturity when the Group has
the positive intention and ability to hold them to maturity. Held-to-maturity investments are subsequently measured at amortized
cost using the effective interest rate method less any allowance for impairment. Amortized cost is calculated by taking into account
any discount or premium on acquisition and fees or costs that are an integral part of the effective interest rate. Gains and losses
are recognized in profit or loss when the investments are derecognized or impaired, as well as through the amortization process.



| | (d) | Available-for-sale
                                         financial assets
| | --- | ----------------------------------------------------------------------------



Available-for-sale
financial assets are non-derivative financial assets in listed and unlisted equity investments and debt securities. Equity investments
classified as available for sale are those which are neither classified as held for trading nor designated at fair value through
profit or loss. Debt securities in this category are those which are intended to be held for a long period of time and which may
be sold in response to needs for liquidity or in response to changes in market conditions.



After
initial recognition, available-for-sale financial assets are measured at fair value, with unrealized gains or losses recognized
as other comprehensive income in the available-for-sale investment revaluation reserve until the investment is derecognized, at
which time the cumulative gain or loss is recognized in profit or loss, or until the investment is determined to be impaired,
at which time the cumulative loss is reclassified from the available-for-sale investment revaluation reserve to profit or loss.
Interest and dividends earned whilst holding the available-for-sale financial investments are reported as interest income and
dividend income, respectively and are recognized in profit or loss in accordance with the policies set out for "Revenue recognition"
below.



When
the fair value of unlisted equity investments cannot be reliably measured because (a) the variability in the range of reasonable
fair value estimates is significant for that investment or (b) the probabilities of the various estimates within the range cannot
be reasonably assessed and used in estimating fair value, such investments are stated at cost less any impairment losses.

F-23


Table of Contents


CNOOC
LIMITED

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(All amounts expressed in millions of
Renminbi unless otherwise stated)





| | 3. | SUMMARY
                                         OF SIGNIFICANT ACCOUNTING POLICIES (continued)
| | -- | -----------------------------------------------------------------------------------------------



Financial
assets (continued)



Classification
and subsequent measurement on and after January 1, 2015



All
recognized financial assets are subsequently measured in their entirety at either amortized cost or fair value, depending on the
classification of the financial assets.



| | (a) | Financial
                                         assets at amortized cost
| | --- | ---------------------------------------------------------------------------



Debt
instruments and hybrid contracts that meet the following conditions are subsequently measured at amortized cost less impairment
loss:



•the asset is held within a business model whose objective is to hold assets in order to collect contractual cash flows; and



•the contractual terms of the asset give rise on specified dates to cash flows that are solely payments of principal and interest
on the principal amount outstanding.



All
other financial assets are subsequently measured at fair value.



The
effective interest method is a method of calculating the amortized cost of a debt instrument and of allocating interest income
over the relevant period. The effective interest rate is the rate that exactly discounts estimated future cash receipts (including
all fees and points paid or received that form an integral part of the effective interest rate, transaction costs and other premiums
or discounts) through the expected life of the debt instrument, or, where appropriate, a shorter period, to the net carrying amount
on initial recognition. Interest income for debt instruments measured subsequently at amortized cost is recognized in profit or
loss in accordance with the policies set out for "Revenue Recognition" below.



| | (b) | Financial
                                         assets at FVTPL
| | --- | ------------------------------------------------------------------



Investments
in equity instruments are classified as at FVTPL, unless the Group designates such investment that is not held for trading as
at FVTOCI on initial recognition.



A
financial asset is held for trading if it has been acquired principally for the purpose of selling it in the near term or it is
a derivative that is not designated and effective as a hedging instrument.



Debt
instruments that do not meet the amortized cost criteria (see (a) above) are measured at FVTPL. In addition, debt instruments
that meet the amortized cost criteria but are designated as at FVTPL are measured at FVTPL. A debt instrument may be designated
as at FVTPL upon initial recognition if such designation eliminates or significantly reduces a measurement or recognition inconsistency
that would arise from measuring assets or liabilities or recognising the gains and losses on them on different bases. The Group
has not designated any debt instrument as at FVTPL on initial application of IFRS/HKFRS 9 (2009) and during the year.



Financial
assets at FVTPL are measured at fair value at the end of each reporting period, with

any
gains or losses arising on remeasurement recognized in profit or loss.

F-24


Table of Contents


CNOOC
LIMITED

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(All amounts expressed in millions of
Renminbi unless otherwise stated)





3. SUMMARY
OF SIGNIFICANT ACCOUNTING POLICIES (continued)



Financial
assets (continued)



Classification
and subsequent measurement on and after January 1, 2015(continued)



| | (c) | Financial
                                         assets at FVTOCI
| | --- | -------------------------------------------------------------------



On
initial recognition, the Group can make an irrevocable election (on an instrument-by-instrument basis) to designate investments
in equity instruments as at FVTOCI. Designation at FVTOCI is not permitted if the equity investment is held for trading.



Investments
in equity instruments at FVTOCI are initially measured at fair value plus transaction costs. Subsequently, they are measured at
fair value with gains and losses arising from changes in fair value recognized in other comprehensive income and accumulated in
the other reserves. The cumulative gain or loss will not be reclassified to profit or loss on disposal of the investments.



The
Group has designated certain investments in equity instruments (publicly traded or non-publicly traded) that are not held for
trading as at FVTOCI on initial application of IFRS/HKFRS 9 (2009).



Dividends
on these investments in equity instruments are recognized in profit or loss when the Group’s right to receive the dividends
is established in accordance with HKAS/IAS 18 Revenue, unless the dividends clearly represent a recovery of part of the cost of
the investment.



Fair
value



The
fair value of financial instruments that are traded in active markets at each reporting date is determined by reference to quoted
market prices or dealer price quotations, without any deduction for transaction costs.



For
financial instruments not traded in an active market, the fair value is determined using appropriate valuation techniques. Such
techniques may include using recent arm's length market transactions; reference to the current fair value of another instrument
that is substantially the same; a discounted cash flow analysis or other valuation models.



An
analysis of fair values of financial instruments and further details as to how they are measured are provided in note 34.



Impairment
of financial assets



The
Group assesses at each reporting date whether there is any objective evidence that a financial asset, other than those at FVTPL
and FVTOCI, or a group of financial assets may be impaired.



| | (a) | Assets
                                         carried at amortized cost
| | --- | -------------------------------------------------------------------------



If
there is objective evidence that an impairment loss on loans and receivables or held-to-maturity investments carried at amortized
cost has been incurred, the amount of the loss is measured as the difference between the asset's carrying amount and the present
value of estimated future cash flows (excluding future credit losses that have not been incurred) discounted at the financial
asset's original effective interest rate (the effective interest rate computed at initial recognition). The carrying amount of
the asset is reduced either directly or through the use of an allowance account. The amount of the impairment loss is recognized
in profit or loss.

F-25


Table of Contents


CNOOC
LIMITED

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(All amounts expressed in millions of
Renminbi unless otherwise stated)





| | 3. | SUMMARY
                                         OF SIGNIFICANT ACCOUNTING POLICIES (continued)
| | -- | -----------------------------------------------------------------------------------------------



Impairment
of financial assets (continued)



| | (a) | Assets
                                         carried at amortized cost (continued)
| | --- | -------------------------------------------------------------------------------------



If,
in a subsequent year, the amount of the estimated impairment loss increases or decreases and the decrease can be related objectively
to an event occurring after the impairment was recognized, the previously recognized impairment loss is increased or reduced either
directly or by adjusting the allowance account. Any subsequent reversal of an impairment loss is recognized in profit or loss,
to the extent that the carrying value of the asset does not exceed amortized cost at the reversal date.



In
relation to trade and other receivables, a provision for impairment is made when there is objective evidence (such as the probability
of insolvency or significant financial difficulties of the debtor and significant changes in the technological, market, economic
or legal environment that have an adverse effect on the debtor) that the Group will not be able to collect all of the amounts
due under the original terms of an invoice.



| | (b) | Assets
                                         carried at cost
| | --- | ---------------------------------------------------------------



Prior
to January 1, 2015, if there is objective evidence that an impairment loss has incurred on an unquoted equity instrument that
is not carried at fair value because its fair value cannot be reliably measured, the amount of the loss is measured as the difference
between the asset's carrying amount and the present value of estimated future cash flows discounted at the current market rate
of return for a similar financial asset. Impairment losses on these assets are not reversed.



| | (c) | Available-for-sale
                                         financial assets
| | --- | ----------------------------------------------------------------------------



Prior
to January 1, 2015, if an available-for-sale asset is impaired, an amount comprising the difference between its cost (net of any
principal payment and amortization) and its current fair value, less any impairment loss previously recognized in profit or loss,
is removed from other comprehensive income and recognized in profit or loss.



Prior
to January 1, 2015, equity investments are impaired if there is a significant or prolonged decline in fair value of the investment
below its cost or where other objective evidence of impairment exists. Impairment of debt instruments is assessed based on the
same criteria as assets carried at amortized cost. Impairment losses on equity instruments are not reversed through profit or
loss; increases in their fair value after impairments are recognized directly in equity. Impairment losses on debt instruments
are reversed through profit or loss, if the increase in fair value of the instruments can be objectively related to an event occurring
after the impairment loss was recognized in profit or loss.



Derecognition
of financial assets



A
financial asset (or, where applicable a part of a financial asset or part of a group of similar financial assets) is derecognized
when:



| | (i) | The
                                         contractual rights to receive cash flows from the asset have expired; or
| | --- | ---------------------------------------------------------------------------------------------------------------------

| | (ii) | the
                                         Group has transferred its rights to receive cash flows from the asset, or the Group retains
                                         the contractual rights to receive the cash flows from the asset, but has assumed an obligation
                                         to pay the received cash flows in full without material delay to a third party under
                                         a "pass-through" arrangement; and either (a) has transferred substantially
                                         all the risks and rewards of the asset, or (b) has neither transferred nor retained substantially
                                         all the risks and rewards of the asset, but has no control of the asset.
| | ---- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

F-26


Table of Contents


CNOOC
LIMITED

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(All amounts expressed in millions of
Renminbi unless otherwise stated)



3. SUMMARY OF SIGNIFICANT
ACCOUNTING POLICIES (continued)



Derecognition
of financial assets (continued)



When
the Group has transferred its rights to receive cash flows from an asset or has entered into a pass-through arrangement, it evaluates
if and to what extent it has retained the risk and rewards of ownership of the asset. When it has neither transferred nor retained
substantially all the risks and rewards of the asset nor transferred control of the asset, the Group continues to recognize the
transferred asset to the extent of the Group's continuing involvement. In that case, the Group also recognizes an associated liability.
The transferred asset and the associated liability are measured on a basis that reflects the rights and obligations that the Group
has retained.



Financial
liabilities at amortized cost (including interest-bearing loans and borrowings)



Financial
liabilities including trade and other payables and interest-bearing loans and borrowings are initially stated at fair value less
directly attributable transaction costs and are subsequently measured at amortized cost, using the effective interest method.
The related interest expense is recognized within "Finance costs" in profit or loss.



Gains
and losses are recognized in profit or loss when the liabilities are derecognized as well as through the amortization process.



Financial
guarantee contracts



A
financial guarantee contract is recognized initially at its fair value including transaction costs that are directly attributable
to the issue of the guarantee. Subsequent to initial recognition, the liability is measured at the higher of the best estimate
of the expenditure required to settle the present obligation at the reporting date and the amount recognized less cumulative amortization.



Derecognition
of financial liabilities



A
financial liability is derecognized when the obligation under the liability is discharged, cancelled, or expires.



When
an existing financial liability is replaced by another from the same lender on substantially different terms, or the terms of
an existing liability are substantially modified, such an exchange or modification is treated as a derecognition of the original
liability and a recognition of a new liability, and the difference between the respective carrying amounts is recognized in profit
or loss.



Offsetting
of financial instruments



Financial
assets and liabilities are offset and the net amount reported in the consolidated statement of financial position, if and only
if, there is a currently enforceable legal right to offset the recognized amounts and there is an intention to settle on a net
basis, or to realize the assets and settle the liabilities simultaneously.



Inventories
and supplies



Inventories
primarily consist of oil and supplies, including items for repairs and maintenance of oil and gas properties. Inventories are
stated at the lower of cost and net realizable value. Costs of inventories and supplies represent purchase or production cost
of goods and are determined on a weighted average basis.



Cash
and cash equivalents



Cash
and cash equivalents comprise cash at banks and on hand and short term deposits with an original maturity of three months or less.

F-27


Table of Contents


CNOOC
LIMITED

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(All amounts expressed in millions of
Renminbi unless otherwise stated)





3. SUMMARY OF SIGNIFICANT ACCOUNTING
POLICIES (continued)



Provisions



| | (a) | General
| | --- | -------



A
provision is recognized 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 recognized for a provision is the present
value at the reporting 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 profit or loss.



| | (b) | Dismantlement
                                         liability
| | --- | ----------------------------------------------------------------



Dismantlement
liability is recognized when the Group has a present legal or constructive obligation as a result of the past events, and it is
probable that an outflow of resources will be required to settle the obligation, and a reliable estimate of the amount of the
obligation can be made. A corresponding amount equivalent to the provision is also recognized as part of the cost of the related
property, plant and equipment. The amount recognized is the estimated cost of dismantlement, discounted to its present value using
a current pre-tax rate that reflects, where appropriate, the risks specific to the liability. Changes in the estimated timing
of dismantlement or dismantlement cost estimates are dealt with prospectively by recording an adjustment to the provision, and
a corresponding adjustment to property, plant and equipment. The unwinding of the discount on the dismantlement provision is included
as a finance cost.



Income
tax



Income
tax comprises current and deferred tax. Income tax is recognized in the consolidated statement of profit or loss and other comprehensive
income, either as an expense as it relates to operating activities or as a component of the applicable categories of other comprehensive
income or expense.



Current
tax assets and liabilities for the current and prior periods are measured at the amount expected to be recovered from or paid
to the taxation authorities. The tax rates and tax laws used to compute the amount are those that are enacted or substantially
enacted, by the reporting date, in the countries where the Group operates and generates taxable income.



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



Deferred
tax liabilities are recognized for all taxable temporary differences, except:



| | · | when
                                         the deferred tax liability arises from the initial recognition of an asset or liability
                                         in a transaction that is not a business combination and, at the time of the transaction,
                                         affects neither the accounting profit nor taxable profit or loss; and
| | - | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | · | in
                                         respect of taxable temporary differences associated with investments in subsidiaries,
                                         associates and interests in joint ventures, when 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.
| | - | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



F-28


Table of Contents


CNOOC
LIMITED

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(All amounts expressed in millions of
Renminbi unless otherwise stated)





3.
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)

Income
tax (continued)



As
at December 31, 2015, deferred tax liabilities related to undistributed earnings of certain of the Company's subsidiaries have
not been recognized, since the timing of the reversal of the taxable temporary difference can be controlled by the Company and
it is probable that the temporary difference would not reverse in the foreseeable future.

Deferred
tax assets are recognized for all deductible temporary differences, the carryforward of unused tax credits and any unused tax
losses. Deferred tax assets are recognized to the extent that it is probable that taxable profit and taxable temporary differences
will be available against which the deductible temporary differences, the carryforward of unused tax credits and unused tax losses
can be utilized, except:



| | · | when
                                         the deferred tax assets relating to the deductible temporary differences arise from the
                                         initial recognition of an asset or liability in a transaction that is not a business
                                         combination and, at the time of the transaction, affects neither the accounting profit
                                         nor taxable profit or loss; and
| | - | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | · | in
                                         respect of deductible temporary differences associated with investments in subsidiaries,
                                         associates and interests in joint ventures, deferred tax assets are only recognized 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 utilized.
| | - | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



The
carrying amount of deferred tax assets is reviewed at each reporting 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 utilized. Unrecognized deferred
tax assets are reassessed at each reporting date and are recognized to the extent that it is probable that sufficient taxable
profit and taxable temporary differences will be available to allow all or part of the deferred tax asset to be utilized.

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

Deferred
tax assets and deferred tax liabilities are offset if a legally enforceable right exists to set off current tax assets against
current tax liabilities and the deferred taxes relate to the same taxable entity and the same taxation authority.



Revenue
recognition



Revenue
is recognized 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:



| | (a) | Oil
                                         and gas sales
| | --- | ----------------------------------------------------------



Oil
and gas sales represent the invoiced value of sales of oil and gas attributable to the interests of the Group, net of royalties,
obligations to governments and other mineral interest owners. Revenue from the sale of oil and gas is recognized when the significant
risks and rewards of ownership have been transferred, which is when title passes to the customer. Revenue from the production
of oil and gas in which the Group has a joint interest with other producers is recognized based on the Group’s working interest
and the terms of the relevant production sharing contracts. Differences between production sold and the Group’s share of
production are not significant.



F-29


Table of Contents


CNOOC
LIMITED

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(All amounts expressed in millions of
Renminbi unless otherwise stated)





| | 3. | SUMMARY
                                         OF SIGNIFICANT ACCOUNTING POLICIES (continued)
| | -- | -----------------------------------------------------------------------------------------------



Revenue
recognition (continued)



| | (a) | Oil
                                         and gas sales (continued)
| | --- | ----------------------------------------------------------------------



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 or in cash
when the liftings are equalised or in cash when production ceases.



The
Group has entered into gas sale contracts with customers, which contain take-or-pay clauses. Under these contracts, the Group
makes a long term supply commitment in return for a commitment from the buyer to pay for minimum quantities, whether or not it
takes delivery. These commitments contain protective (force majeure) and adjustment provisions. If a buyer has a right to get
a "make up" delivery at a later date, revenue recognition is deferred. If no such option exists according to the contract
terms, revenue is recognized when the take-or-pay penalty is triggered.



| | (b) | Marketing
                                         revenues
| | --- | -----------------------------------------------------------



Marketing
revenues principally represent the sales of oil and gas purchased from the foreign partners under the production sharing contracts
and revenues from the trading of oil and gas through the Company’s subsidiaries. The cost of the oil and gas sold is included
in “Crude oil and product purchases” in the consolidated statement of profit or loss and other comprehensive income.
In addition, the Group’s marketing activities in North America involves entering into contracts to purchase and sell crude
oil, natural gas and other energy commodities, and use derivative contracts, including futures, forwards, swaps and options for
hedging and trading purposes (collectively derivative contracts). Any change in the fair value is also included in marketing revenue.



| | (c) | Other
                                         income
| | --- | -----------------------------------------------------



Other
income mainly represents project management fees charged to foreign partners, handling fees charged to customers and gains from
disposal of oil and gas properties and is recognized when the services have been rendered or the properties have been disposed
of. Reimbursement of insurance claims is recognized when the compensation becomes receivable.



| | (d) | Dividend
                                         income
| | --- | --------------------------------------------------------



Dividend
income is recognized when the Group's right to receive payment is established.



| | (e) | Interest
                                         income
| | --- | --------------------------------------------------------



Interest
income is recognized as it accrues using the effective interest method.



The
Group presents taxes collected from customers in the consolidated statement of profit or loss and other comprehensive income on
a net basis.



F-30


Table of Contents


CNOOC
LIMITED

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(All amounts expressed in millions of
Renminbi unless otherwise stated)



3. SUMMARY OF SIGNIFICANT
ACCOUNTING POLICIES (continued)



Share-based
payment transactions



Employees
(including directors) of the Group receive remuneration in the form of share-based payment transactions, whereby employees render
services as consideration for equity instruments ("equity-settled transactions").



The
cost of equity-settled transactions with employees is measured by reference to the fair value at the date at which they are granted.
The fair value is determined by using the Black-Scholes option pricing model, further details of which are given in note 28.



The
cost of equity-settled transactions is recognized, together with a corresponding increase in equity, over the period in which
the performance and/or service conditions are fulfilled. The cumulative expense recognized for equity-settled transactions at
the end of the each reporting period until the vesting date reflects the extent to which the vesting period has expired and the
Group's best estimate of the number of equity instruments that will ultimately vest. The charge or credit to profit or loss for
a period represents the movement in the cumulative expense recognized as at the beginning and end of that period.



No
expense is recognized for awards that do not ultimately vest for the Group.



No
equity-settled award was cancelled or modified during the years ended December 31, 2015 and 2014.



The
dilutive effect of outstanding options is reflected as additional share dilution in the computation of earnings per share.



Retirement
and termination benefits



The
Group participates in defined contribution plans in accordance with local laws and regulations for full-time employees in the
PRC and other countries in which it operates. The Group's contributions to these defined contribution plans are charged to profit
or loss in the year to which they relate.



Borrowing
costs



Borrowing
costs consist of interest and other costs that an entity incurs in connection with the borrowing of funds. Borrowing costs directly
relating to the acquisition, construction or production of a qualifying asset that necessarily takes a substantial period of time
to get ready for its intended use or sale are capitalized as part of the cost of the respective assets. All other borrowing costs
are expensed in the period in which they are incurred.



Foreign
currencies



These
consolidated financial statements are presented in Renminbi ("RMB"). Each entity in the Group maintains its books and
records in its own functional currency. Foreign currency transactions recorded by the entities of the Group are initially recorded
using their respective exchange rates ruling at the dates of the transactions. Monetary assets and liabilities denominated in
foreign currencies are retranslated at the exchange rates ruling at the end of the reporting period. All differences arising on
settlement or translation of monetary items are taken to profit or loss. Non-monetary items that are measured in terms of historical
cost in a foreign currency are translated using the exchange rates at the dates of the initial transactions. Non-monetary items
measured at fair value in a foreign currency are translated using the exchange rates at the date when the fair value was determined.
The gain or loss arising on retranslation of a non-monetary item is treated consistently with the recognition of the gain or loss
on change in fair value of the item.



F-31


Table of Contents


CNOOC
LIMITED

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(All amounts expressed in millions of
Renminbi unless otherwise stated)





3. SUMMARY
OF SIGNIFICANT ACCOUNTING POLICIES (continued)



Foreign
currencies (continued)



The
functional currencies of certain entities within the Group are currencies other than RMB. As at the end of the reporting period,
the assets and liabilities of these entities are translated into the presentation currency of the Group at the exchange rates
ruling at the reporting date, and their statement of profit or loss and other comprehensive income are translated into RMB at
the weighted average exchange rates for the year. The resulting exchange differences are included in the cumulative translation
reserve. On disposal of a foreign operation, the deferred cumulative amount recognized in equity relating to that particular foreign
operation is recognized in profit or loss.



Operating
leases



Leases
where substantially all the rewards and risks of ownership of assets remain with the lessor are accounted for as operating leases.
Where the Group is the lessee, rentals payable under operating leases are charged to profit or loss on the straight-line basis
over the lease terms.



Prepaid
land lease payments under operating leases in China are initially stated at cost and subsequently amortized on the straight-line
basis over the lease terms.



Contingencies



A
contingent liability is disclosed when the existence of an obligation will only be confirmed by future events or when the amount
of the obligation cannot be measured reliably.



A
contingent asset is not recognized in the financial statements, but is disclosed when an inflow of economic benefits is probable.



Significant
accounting judgements, estimates and assumptions



The
preparation of the consolidated financial statements in accordance with IFRSs and HKFRSs requires management to make estimates
and assumptions that affect the reported amounts of assets and liabilities at the date of the consolidated financial statements
and the reported amounts of revenues and expenses during the reporting period. Estimates and judgements are continuously evaluated
and are based on management's experience and other factors, including expectations of future events that are believed to be reasonable
under the circumstances. However, actual outcomes can differ from these estimates.



In
the process of applying the Group's accounting policies, the Directors have made the following judgements, estimates and assumptions,
which have the most significant effect on the amounts recognized in the consolidated financial statements.



| | (a) | Reserve
                                         base
| | --- | -----------------------------------------------------



Oil
and gas properties are depreciated on a unit-of-production basis at a rate calculated by reference to proved reserves. Commercial
reserves are determined using estimates of oil in place, recovery factors and future oil prices, the latter having an impact on
the proportion of the gross reserves which are attributable to the host government under the terms of the production sharing contracts.
The level of estimated commercial reserves is also a key determinant in assessing whether the carrying value of any of the Group's
oil and gas properties has been impaired.



Pursuant
to the oil and gas reserve estimation requirements under US Securities and Exchange Commission's rules, the Group uses the average,
first-day-of-the-month oil price during the 12-month period before the ending date of the period covered by the consolidated financial
statements to estimate its proved oil and gas reserves.

F-32


Table of Contents


CNOOC
LIMITED

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(All amounts expressed in millions of
Renminbi unless otherwise stated)



3. SUMMARY OF SIGNIFICANT
ACCOUNTING POLICIES (continued)



Significant
accounting judgements, estimates and assumptions (continued)



| | (b) | Carrying
                                         value of oil and gas properties
| | --- | ---------------------------------------------------------------------------------



The
calculation of the unit-of-production rate for oil and gas properties amortization could be impacted to the extent that actual
production in the future is different from current forecast production based on proved reserves. This would generally result from
significant changes in any of the factors or assumptions used in estimating reserves. These factors could include changes in proved
reserves, the effect on proved reserves of differences between actual commodity prices and commodity price assumptions and unforeseen
operational issues.



| | (c) | Impairment
                                         indicators
| | --- | --------------------------------------------------------------



The
recoverable amounts of cash-generating units and individual assets have been determined based on the higher of value in use and
fair value less costs of disposal. These calculations require the use of estimates and assumptions. It is reasonably possible
that any unfavorable oil price assumption will impact the estimated life of the field and then require a material adjustment to
the carrying value of tangible and intangible assets. The Group monitors internal and external indicators of impairment relating
to its tangible and intangible assets.



| | (d) | Dismantlement
                                         costs
| | --- | ------------------------------------------------------------



Dismantlement
costs will be incurred by the Group at the end of the operating life of certain of the Group's facilities and properties. The
ultimate dismantlement costs are uncertain and cost estimates can vary in response to many factors including changes to relevant
legal requirements, the emergence of new restoration techniques or experience at other production sites. The expected timing and
amount of expenditure can also change, for example, in response to changes in reserves or changes in laws and regulations or their
interpretation. As a result, there could be significant adjustments to the provisions established which would affect future financial
results.



| | (e) | Taxes
| | --- | -----



Uncertainties
exist with respect to the interpretation of complex tax regulations (including those applicable to tax credits) and the amount
and timing of future taxable income. Given the wide range of international business relationships and the long term nature and
complexity of existing contractual agreements, differences arising between the actual results and the assumptions made, or future
changes to such assumptions, could necessitate future adjustments to tax income and expense already recorded. The Group establishes
provisions, based on best estimates, for possible consequences of audits by the tax authorities of the respective countries in
which it operates. The amount of such provisions is based on various factors, such as the Group's experience of previous tax audits
and differing interpretations of tax regulations by the taxable entity and the responsible tax authority. Such differences of
interpretation may arise on a wide variety of issues depending on the conditions prevailing in the respective group company's
domicile.

F-33


Table of Contents


CNOOC
LIMITED

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(All amounts expressed in millions of
Renminbi unless otherwise stated)





| | 4. | ACQUISITIONS
                                         AND OTHER ARRANGEMENTS
| | -- | ----------------------------------------------------------------------------



2015



The
Group has no significant acquisition during the year.



2014



The
Group has no significant acquisition during the year.



2013



| | (i) | On
                                         July 23, 2012, the Company, CNOOC Canada Holding Ltd. and Nexen Inc. entered into an
                                         arrangement agreement in relation to the Company’s proposed acquisition (through
                                         its wholly-owned subsidiary, CNOOC Canada Holding Ltd.) of all the Nexen Inc. common
                                         shares and preferred shares, pursuant to a plan of arrangement under the Canada Business
                                         Corporations Act.
| | --- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



The
acquisition of Nexen Inc. was completed on February 26, 2013 (Beijing time). The consideration of the acquisition was approximately
US$14.8 billion (approximately RMB92.8 billion), and was paid in cash. The consideration is related to acquisition of common shares
and preferred shares. As a result of the acquisition, an additional amount of approximately US$275 million was paid by Nexen Inc.
to settle its long-term incentive plans. The indebtedness of Nexen Inc. at the acquisition date remains outstanding except for
the US$460 million of subordinated debt that was repaid subsequently in 2013.



The
fair values of the identifiable assets and liabilities of Nexen as at the date of acquisition are as follows:



|                                       |  | Final amounts recognized
|-------------------------------------- |  | ------------------------
|                                       |  |                         
|Property, plant and equipment          |  |                         
|Intangible assets                      |  |                         
|Investment in an associate             |  |                         
|Deferred tax assets                    |  |                         
|Other non-current assets               |  |                         
|Trade receivables                      |  |                         
|Inventories and supplies               |  |                         
|Other current assets                   |  |                         
|Cash and cash equivalents              |  |                         
|                                       |  |                         
|Trade and accrued payables             |  |                         
|Taxes payable                          |  |                         
|Other payables and accrued liabilities |  |                         
|Loans and borrowings                   |  |                         
|Provisions for dismantlement           |  |                         
|Other non-current liabilities          |  |                         
|Deferred tax liabilities               |  |                         
|                                       |  |                         
|Net assets acquired                    |  |                         
|                                       |  |                         
|Goodwill on acquisition                |  |                         
|                                       |  |                         
|Satisfied by cash                      |  |                         

F-34


Table of Contents


CNOOC
LIMITED

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(All amounts expressed in millions of
Renminbi unless otherwise stated)





| | 4. | ACQUISITIONS
                                         AND OTHER ARRANGEMENTS (continued)
| | -- | ----------------------------------------------------------------------------------------



2013(continued)



| | (i) | (continued)
| | --- | -----------



An
analysis of the net outflow of cash and cash equivalents in respect of the acquisition is as follows:



|Cash consideration                                                     |  |  | 92,784 |  
|---------------------------------------------------------------------- |  |  | ------ | -
|Cash and cash equivalents acquired                                     |  |  | (4,858 | )
|                                                                       |  |  |        |  
|Net outflow of cash and cash equivalents in respect of the acquisition |  |  | 87,926 |  



Since
the acquisition, Nexen contributed RMB37,249 million to the Group's revenue and RMB1,078 million to the consolidated profit for
the year of 2013.



Had
the acquisition taken place at the beginning of the year of 2013, the revenue of the Group and the consolidated profit for the
year might have been RMB293,471 million and RMB56,429 million, respectively.



Legal
and professional fees related to the acquisition were approximately RMB474 million. The expenses are charged to profit or loss
directly.



| | (ii) | On
                                         December 2, 2013, CNOOC PETROLEUM BRASIL LTDA, a wholly-owned subsidiary of CNOOC International
                                         Limited, entered into a production sharing contract with Ministry Of Mines And Energy
                                         in Brazil, to be a non-operator contractor in Block LIBRA. CNOOC PETROLEUM BRASIL LTDA
                                         holds 10% working interest and paid its share of signature bonus of BRL1.5 billion (approximately
                                         RMB4.1 billion), which has been recorded as an acquisition cost of oil and gas properties.
| | ---- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------





| | 5. | SEGMENT
                                         INFORMATION
| | -- | ------------------------------------------------------------



| | (a) | Segment
                                         results
| | --- | --------------------------------------------------------



The
Group is engaged worldwide in the upstream operating activities of the conventional oil and gas, shale oil and gas, oil sands
and other unconventional oil and gas business. The Group reports the business through three operating and reporting segments:
exploration and production ("E&P"), trading business and corporate. These segments are determined primarily because
the Group's chief operating decision maker makes key operating decisions and assesses performance of the segment separately. The
Group evaluates the performance of each segment based on segment profit or loss. The geographical information is separately disclosed
in (b).



F-35


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CNOOC
LIMITED

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(All amounts expressed in millions of
Renminbi unless otherwise stated)



| | 5 | SEGMENT
                                         INFORMATION (continued)
| | - | ------------------------------------------------------------------------



| | (a) | Segment
                                         results (continued)
| | --- | --------------------------------------------------------------------



The following
table presents the segment financial information for the Group for the years ended December 31, 2013, 2014 and 2015.



|                                                                                                                                                                   |  | E&P  |          | Trading business |  | Corporate |          | Eliminations |  | Consolidated
|------------------------------------------------------------------------------------------------------------------------------------------------------------------ |  | ---- | -------- | ---------------- |  | --------- | -------- | ------------ |  | ------------
|                                                                                                                                                                   |  |      |          |                  |  |           |          |              |  |             
|                                                                                                                                                                   |  | 2013 |          | 2014             |  | 2015      |          | 2013         |  | 2014        
|                                                                                                                                                                   |  |      |          |                  |  |           |          |              |  |             
|External revenue                                                                                                                                                   |  |      | 212,417  |                  |  |           | 208,361  |              |  |             
|Intersegment revenue*                                                                                                                                              |  |      | 17,443   |                  |  |           | 15,380   |              |  |             
|                                                                                                                                                                   |  |      |          |                  |  |           |          |              |  |             
|Total revenue                                                                                                                                                      |  |      | 229,860  |                  |  |           | 223,741  |              |  |             
|                                                                                                                                                                   |  |      |          |                  |  |           |          |              |  |             
|Segment profit for the
    year                                                                                                                                    |  |      | 54,171   |                  |  |           | 54,846   |              |  |             
|                                                                                                                                                                   |  |      |          |                  |  |           |          |              |  |             
|Amounts
                                                                              included in the measure of segment profit or loss                            |  |      |          |                  |  |           |          |              |  |             
|Operating expenses                                                                                                                                                 |  |      | (30,014  | )                |  |           | (31,180  | )            |  |             
|Taxes
other than income tax                                                                                                                                        |  |      | (15,920  | )                |  |           | (11,802  | )            |  |             
|Exploration expenses                                                                                                                                               |  |      | (17,142  | )                |  |           | (11,680  | )            |  |             
|Depreciation, depletion and amortization                                                                                                                           |  |      | (55,512  | )                |  |           | (57,407  | )            |  |             
|Impairment and provision                                                                                                                                           |  |      | 34       |                  |  |           | (4,147   | )            |  |             
|Selling and administrative expenses                                                                                                                                |  |      | (4,294   | )                |  |           | (3,651   | )            |  |             
|Interest income                                                                                                                                                    |  |      | 19       |                  |  |           | 125      |              |  |             
|Finance costs                                                                                                                                                      |  |      | (2,269   | )                |  |           | (2,813   | )            |  |             
|Share
                                                                                                       of (losses)/profits of associates and a joint venture |  |      | (98      | )                |  |           | 12       |              |  |             
|Income tax (expense)/credit                                                                                                                                        |  |      | (24,524  | )                |  |           | (24,903  | )            |  |             
|                                                                                                                                                                   |  |      |          |                  |  |           |          |              |  |             
|Other segment information                                                                                                                                          |  |      |          |                  |  |           |          |              |  |             
|Investments
in associates and a joint venture                                                                                                                      |  |      | 1,145    |                  |  |           | 953      |              |  |             
|Others                                                                                                                                                             |  |      | 476,414  |                  |  |           | 524,702  |              |  |             
|                                                                                                                                                                   |  |      |          |                  |  |           |          |              |  |             
|Segment assets                                                                                                                                                     |  |      | 477,559  |                  |  |           | 525,655  |              |  |             
|                                                                                                                                                                   |  |      |          |                  |  |           |          |              |  |             
|Segment liabilities                                                                                                                                                |  |      | (315,805 | )                |  |           | (381,342 | )            |  |             
|                                                                                                                                                                   |  |      |          |                  |  |           |          |              |  |             
|Capital expenditure                                                                                                                                                |  |      | 248,462  |                  |  |           | 106,593  |              |  |             



* Certain oil and gas
produced by the E&P segment are sold via trading business segment. For the Group's chief operating decision maker's assessment
of segment performance, these revenues are reclassified back to E&P segment.

F-36


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CNOOC
LIMITED

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(All amounts expressed in millions of
Renminbi unless otherwise stated)





| | 5. | SEGMENT
                                         INFORMATION (continued)
| | -- | ------------------------------------------------------------------------



| | (b) | Geographical
                                         information
| | --- | -----------------------------------------------------------------



The
Group mainly engages in the exploration, development, production and sale of crude oil, natural gas and other petroleum products
in offshore China. Activities outside the PRC are mainly conducted in Canada, the United States of America, United Kingdom, Nigeria,
Argentina, Indonesia, Uganda, Iraq, Brazil and Australia etc.



In
presenting the Group’s geographical information, revenues from external customers are based on the location of the Group’s
customers, and non-current assets are attributed to the segments based on the location of the Group’s assets. 73% (2014:
65%, 2013: 67%) of the Group’s revenues are generated from PRC customers, and revenues generated from customers in other
locations are individually less than 10%.



The
following table presents certain non-current assets information for the Group’s geographical information for the years ended
December 31, 2013, 2014 and 2015.



|                                              |  | PRC     |  | Canada  |  | Others  |  | Consolidated
|--------------------------------------------- |  | ------- |  | ------- |  | ------- |  | ------------
|                                              |  |         |  |         |  |         |  |             
|                                              |  | 2013    |  | 2014    |  | 2015    |  | 2013        
|                                              |  |         |  |         |  |         |  |             
|Property, plant and equipment                 |  | 164,939 |  | 206,144 |  | 193,359 |  | 97,140      
|Investments in associates/a
    joint venture |  | 3,054   |  | 3,317   |  | 3,499   |  | 857         
|Other
    non-current assets                  |  | 3,716   |  | 5,246   |  | 7,087   |  | 1,021       



| | (c) | Information
                                         about major customers
| | --- | --------------------------------------------------------------------------



The
current year's revenue of approximately RMB14,692 million (2014: approximately RMB25,055 million, 2013: approximately RMB29,855
million) was derived from sales by the E&P segment and the trading business segment to China Petroleum & Chemical Corporation.
Sales to CNOOC Group refer to Note 30 (iii).





| | 6. | OIL
                                         AND GAS SALES
| | -- | ----------------------------------------------------------



|                              |  | 2013 |         | 2014 |  | 2015
|----------------------------- |  | ---- | ------- | ---- |  | ----
|Gross sales                   |  |      | 233,450 |      |  |     
|Less: Royalties               |  |      | (3,655  | )    |  |     
|PRC government’s share of oil |  |      | (3,350  | )    |  |     
|                              |  |      |         |      |  |     
|Oil and gas sales             |  |      | 226,445 |      |  |     





| | 7. | SPECIAL
                                         OIL GAIN LEVY
| | -- | --------------------------------------------------------------



In
2006, a Special Oil Gain Levy ("SOG Levy") was imposed by the Ministry of Finance of the PRC ("MOF") at the
progressive rates from 20% to 40% on the portion of the monthly weighted average sales price of the crude oil lifted in the PRC
exceeding US$40 per barrel. The MOF has decided to increase the threshold of the SOG Levy to US$55 with effect from November 1,
2011 and to further increase the threshold of the SOG Levy to US$65 with effect from January 1, 2015. Notwithstanding this adjustment,
the SOG Levy continues to have five levels and is calculated and charged according to the progressive and valorem rates on the
excess amounts. The SOG Levy paid can be claimed as a deductible expense for corporate income tax purposes and is calculated based
on the actual volume of the crude oil entitled.

F-37


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CNOOC
LIMITED

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(All amounts expressed in millions of
Renminbi unless otherwise stated)







| | 8. | PROFIT
                                         BEFORE TAX
| | -- | ----------------------------------------------------------



The Group’s
profit before tax is arrived at after charging/(crediting):



|                                                                    |  | 2013 |        | 2014 |  | 2015
|------------------------------------------------------------------- |  | ---- | ------ | ---- |  | ----
|                                                                    |  |      |        |      |  |     
|Crediting:                                                          |  |      |        |      |  |     
|Interest income from bank deposits                                  |  |      | (1,092 | )    |  |     
|                                                                    |  |      |        |      |  |     
|Investment income:                                                  |  |      |        |      |  |     
|– Net gain from sale ofavailable-for-sale financial assets          |  |      | (2,611 | )    |  |     
|– Fair value changes on other financial assets                      |  |      | -      |      |  |     
|                                                                    |  |      | (2,611 | )    |  |     
|                                                                    |  |      |        |      |  |     
|Insurance compensation on disposal of property, plant and equipment |  |      | (372   | )    |  |     
|                                                                    |  |      |        |      |  |     
|Charging:                                                           |  |      |        |      |  |     
|Auditors’ remuneration:                                             |  |      |        |      |  |     
|– Audit fee                                                         |  |      | 42     |      |  |     
|– Other fees                                                        |  |      | 17     |      |  |     
|                                                                    |  |      |        |      |  |     
|                                                                    |  |      | 59     |      |  |     
|                                                                    |  |      |        |      |  |     
|Employee wages, salaries, allowances and social security costs*     |  |      | 6,546  |      |  |     
|                                                                    |  |      |        |      |  |     
|Equity-settled share option expenses                                |  |      | 11     |      |  |     
|                                                                    |  |      |        |      |  |     
|Depreciation, depletion and amortization:                           |  |      |        |      |  |     
|– Property, plant and equipment                                     |  |      | 54,919 |      |  |     
|– Intangible assets                                                 |  |      | 1,414  |      |  |     
|– Less: Net amount capitalized                                      |  |      | 123    |      |  |     
|                                                                    |  |      |        |      |  |     
|                                                                    |  |      | 56,456 |      |  |     
|                                                                    |  |      |        |      |  |     
|Operating lease rentals:                                            |  |      |        |      |  |     
|– Office properties                                                 |  |      | 460    |      |  |     
|– Plant and equipment                                               |  |      | 1,944  |      |  |     
|                                                                    |  |      |        |      |  |     
|                                                                    |  |      | 2,404  |      |  |     
|                                                                    |  |      |        |      |  |     
|Repairs and maintenance                                             |  |      | 5,925  |      |  |     
|Research and development costs                                      |  |      | 1,278  |      |  |     
|Loss/(gain) on disposal of property, plant and equipment            |  |      | 681    |      |  |     



| | * | In
                                         2013, employee wages, salaries, allowances and social security costs only included the
                                         amount of Nexen for 10 months after acquisition, while the cost items included the amount
                                         of Nexen for 12 months in 2014 and 2015.
| | - | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

F-38


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CNOOC
LIMITED

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(All amounts expressed in millions of
Renminbi unless otherwise stated)





| | 9. | FINANCE
                                         COSTS
| | -- | ------------------------------------------------------



|                                                                    |  | 2013 |        | 2014 |  | 2015
|------------------------------------------------------------------- |  | ---- | ------ | ---- |  | ----
|                                                                    |  |      |        |      |  |     
|Interest on bank loans                                              |  |      | 1,212  |      |  |     
|Interest on other loans                                             |  |      | 2,223  |      |  |     
|Other borrowing costs                                               |  |      | 167    |      |  |     
|                                                                    |  |      |        |      |  |     
|Total borrowing costs                                               |  |      | 3,602  |      |  |     
|                                                                    |  |      |        |      |  |     
|Less: Amount capitalized in property, plant and equipment (note 15) |  |      | (2,049 | )    |  |     
|                                                                    |  |      |        |      |  |     
|                                                                    |  |      | 1,553  |      |  |     
|Other finance costs:                                                |  |      |        |      |  |     
|Unwinding of discount on provision for dismantlement (note 27)      |  |      | 1,904  |      |  |     
|                                                                    |  |      |        |      |  |     
|                                                                    |  |      | 3,457  |      |  |     



The
effective interest rates used to determine the amount of related borrowing costs for capitalization varied from 0.735% to 7.875%
(2014: from 0.64775% to 7.875%, 2013: from 0.665% to 6.66%) per annum during the year ended at December 31, 2015.





| | 10. | KEY
                                         MANAGEMENT PERSONNEL’S REMUNERATION
| | --- | --------------------------------------------------------------------------------



Key
management personnel are those persons having authority and responsibility for planning, directing and controlling the activities
of the entity, directly or indirectly, including any director (whether executive or otherwise) of the Company.



| | (i) | Directors’
                                         remuneration
| | --- | ----------------------------------------------------------------



|                          |  |          |  |              |  |             |  |               |  |             
|------------------------- |  | -------- |  | ------------ |  | ----------- |  | ------------- |  | ------------
|                          |  |          |  | Salaries     |  |             |  |               |  | Total       
|                          |  |          |  | allowances   |  | Performance |  | Pension       |  | paid/payable
|                          |  |          |  | and benefits |  | related     |  | scheme        |  | during      
|                          |  | Fees (1) |  | in kind (1)  |  | bonuses (1) |  | contributions |  | the year    
|                          |  | RMB’000  |  | RMB’000      |  | RMB’000     |  | RMB’000       |  | RMB’000     
|                          |  |          |  |              |  |             |  |               |  |             
|2013                      |  |          |  |              |  |             |  |               |  |             
|Executive directors:      |  |          |  |              |  |             |  |               |  |             
|                          |  |          |  |              |  |             |  |               |  |             
|Li Fanrong                |  | 759      |  | -            |  | -           |  | 79            |  | 838         
|Wu Guangqi                |  | 759      |  | -            |  | -           |  | 70            |  | 829         
|                          |  |          |  |              |  |             |  |               |  |             
|Subtotal                  |  | 1,518    |  | -            |  | -           |  | 149           |  | 1,667       
|                          |  |          |  |              |  |             |  |               |  |             
|Non-executive directors:  |  |          |  |              |  |             |  |               |  |             
|                          |  |          |  |              |  |             |  |               |  |             
|Wang Yilin(6)             |  | 847      |  | -            |  | -           |  | -             |  | 847         
|Yang Hua(6)               |  | 759      |  | -            |  | -           |  | -             |  | 759         
|Zhou Shouwei(3)           |  | 759      |  | -            |  | -           |  | -             |  | 759         
|Wu Zhenfang(3)            |  | 759      |  | -            |  | -           |  | -             |  | 759         
|                          |  |          |  |              |  |             |  |               |  |             
|Subtotal                  |  | 3,124    |  | -            |  | -           |  | -             |  | 3,124       
|                          |  |          |  |              |  |             |  |               |  |             
|Independent non-executive |  |          |  |              |  |             |  |               |  |             
|directors:                |  |          |  |              |  |             |  |               |  |             
|Chiu Sung Hong (2)        |  | 847      |  | -            |  | -           |  | -             |  | 847         
|Lawrence J. Lau           |  | 759      |  | -            |  | -           |  | -             |  | 759         
|Tse Hau Yin, Aloysius     |  | 879      |  | -            |  | -           |  | -             |  | 879         
|Wang Tao(5)               |  | 759      |  | -            |  | -           |  | -             |  | 759         
|Subtotal                  |  | 3,244    |  | -            |  | -           |  | -             |  | 3,244       
|Total                     |  | 7,886    |  | -            |  | -           |  | 149           |  | 8,035       



F-39


Table of Contents


CNOOC
LIMITED

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(All amounts expressed in millions of
Renminbi unless otherwise stated)







| | 10. | KEY
                                         MANAGEMENT PERSONNEL’S REMUNERATION (continued)
| | --- | --------------------------------------------------------------------------------------------



| | (i) | Directors’
                                         remuneration (continued)
| | --- | ----------------------------------------------------------------------------



|                          |  |          |  |              |  |             |  |               |  |             
|------------------------- |  | -------- |  | ------------ |  | ----------- |  | ------------- |  | ------------
|                          |  |          |  | Salaries     |  |             |  |               |  | Total       
|                          |  |          |  | allowances   |  | Performance |  | Pension       |  | paid/payable
|                          |  |          |  | and benefits |  | related     |  | scheme        |  | during      
|                          |  | Fees (1) |  | in kind (1)  |  | bonuses (1) |  | contributions |  | the year    
|                          |  | RMB’000  |  | RMB’000      |  | RMB’000     |  | RMB’000       |  | RMB’000     
|                          |  |          |  |              |  |             |  |               |  |             
|2014                      |  |          |  |              |  |             |  |               |  |             
|Executive directors:      |  |          |  |              |  |             |  |               |  |             
|                          |  |          |  |              |  |             |  |               |  |             
|Li Fanrong                |  | 753      |  | -            |  | -           |  | 78            |  | 831         
|Wu Guangqi                |  | 753      |  | -            |  | -           |  | 70            |  | 823         
|                          |  |          |  |              |  |             |  |               |  |             
|Subtotal                  |  | 1,506    |  | -            |  | -           |  | 148           |  | 1,654       
|                          |  |          |  |              |  |             |  |               |  |             
|Non-executive directors:  |  |          |  |              |  |             |  |               |  |             
|                          |  |          |  |              |  |             |  |               |  |             
|Wang Yilin(6)             |  | 840      |  | -            |  | -           |  | -             |  | 840         
|Yang Hua(6)               |  | 753      |  | -            |  | -           |  | -             |  | 753         
|Lv Bo(3)                  |  | 753      |  | -            |  | -           |  | -             |  | 753         
|Zhang Jianwei(3)(4)       |  | 690      |  | -            |  | -           |  | -             |  | 690         
|Wang Jiaxiang(3) (7)      |  | 753      |  | -            |  | -           |  | -             |  | 753         
|                          |  |          |  |              |  |             |  |               |  |             
|Subtotal                  |  | 3,789    |  | -            |  | -           |  | -             |  | 3,789       
|                          |  |          |  |              |  |             |  |               |  |             
|Independent non-executive |  |          |  |              |  |             |  |               |  |             
|directors:                |  |          |  |              |  |             |  |               |  |             
|Chiu Sung Hong(2)         |  | 887      |  | -            |  | -           |  | -             |  | 887         
|Lawrence J. Lau           |  | 753      |  | -            |  | -           |  | -             |  | 753         
|Tse Hau Yin, Aloysius     |  | 887      |  | -            |  | -           |  | -             |  | 887         
|Wang Tao(5)               |  | 125      |  | -            |  | -           |  | -             |  | 125         
|Kevin G. Lynch(5)         |  | 628      |  | -            |  | -           |  | -             |  | 628         
|Subtotal                  |  | 3,280    |  | -            |  | -           |  | -             |  | 3,280       
|Total                     |  | 8,575    |  | -            |  | -           |  | 148           |  | 8,723       
|                          |  |          |  |              |  |             |  |               |  |             
|2015                      |  |          |  |              |  |             |  |               |  |             
|Executive directors:      |  |          |  |              |  |             |  |               |  |             
|                          |  |          |  |              |  |             |  |               |  |             
|Li Fanrong                |  | -        |  | 170          |  | 470         |  | 117           |  | 757         
|Wu Guangqi                |  | -        |  | 170          |  | 470         |  | 117           |  | 757         
|                          |  |          |  |              |  |             |  |               |  |             
|Subtotal                  |  | -        |  | 340          |  | 940         |  | 234           |  | 1,514       
|                          |  |          |  |              |  |             |  |               |  |             
|Non-executive directors:  |  |          |  |              |  |             |  |               |  |             
|                          |  |          |  |              |  |             |  |               |  |             
|Wang Yilin(6)             |  | -        |  | -            |  | -           |  | -             |  | -           
|Yang Hua(6)               |  | -        |  | -            |  | -           |  | -             |  | -           
|Lv Bo(3)                  |  | -        |  | -            |  | -           |  | -             |  | -           
|Wang Jiaxiang(3) (7)      |  | -        |  | -            |  | -           |  | -             |  | -           
|                          |  |          |  |              |  |             |  |               |  |             
|Subtotal                  |  | -        |  | -            |  | -           |  | -             |  | -           
|                          |  |          |  |              |  |             |  |               |  |             
|Independent non-executive |  |          |  |              |  |             |  |               |  |             
|directors:                |  |          |  |              |  |             |  |               |  |             
|Chiu Sung Hong (2)        |  | 899      |  | -            |  | -           |  | -             |  | 899         
|Lawrence J. Lau           |  | 763      |  | -            |  | -           |  | -             |  | 763         
|Tse Hau Yin, Aloysius     |  | 899      |  | -            |  | -           |  | -             |  | 899         
|Kevin G. Lynch(5)         |  | 763      |  | -            |  | -           |  | -             |  | 763         
|Subtotal                  |  | 3,324    |  | -            |  | -           |  | -             |  | 3,324       
|Total                     |  | 3,324    |  | 340          |  | 940         |  | 234           |  | 4,838       



F-40


Table of Contents


CNOOC
LIMITED

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(All amounts expressed in millions of
Renminbi unless otherwise stated)







| | 10. | KEY
                                         MANAGEMENT PERSONNEL’S REMUNERATION (continued)
| | --- | --------------------------------------------------------------------------------------------



| | (i) | Directors’
                                         remuneration (continued)
| | --- | ----------------------------------------------------------------------------



Share
options(8)

|                          |  | 2013    |  | 2014    |  | 2015   
|------------------------- |  | ------- |  | ------- |  | -------
|                          |  | RMB’000 |  | RMB’000 |  | RMB’000
|                          |  |         |  |         |  |        
|Executive directors:      |  |         |  |         |  |        
|Li Fanrong                |  | -       |  | -       |  | -      
|Wu Guangqi                |  | 212     |  | -       |  | -      
|Subtotal                  |  | 212     |  | -       |  | -      
|Non-executive directors:  |  |         |  |         |  |        
|Wang Yilin(6)             |  | -       |  | -       |  | -      
|Yang Hua(6)               |  | 228     |  | -       |  | -      
|Zhou Shouwei(3)           |  | 205     |  | -       |  | -      
|Wu Zhenfang (3)           |  | 205     |  | -       |  | -      
|Lv Bo (3)                 |  | -       |  | -       |  | -      
|Zhang Jianwei (3)(4)      |  | -       |  | -       |  | -      
|Wang Jiaxiang (3)(7)      |  | -       |  | -       |  | -      
|Subtotal                  |  | 638     |  | -       |  | -      
|Independent non-executive |  |         |  |         |  |        
|directors:                |  |         |  |         |  |        
|Chiu Sung Hong (2)        |  | -       |  | -       |  | -      
|Lawrence J. Lau           |  | -       |  | -       |  | -      
|Tse Hau Yin, Aloysius     |  | -       |  | -       |  | -      
|Wang Tao(5)               |  | -       |  | -       |  | -      
|Kevin G. Lynch(5)         |  | -       |  | -       |  | -      
|Subtotal                  |  | -       |  | -       |  | -      
|Total                     |  | 850     |  | -       |  | -      



Notes:



| | (1) | Fees,
                                         salaries, allowances, and benefits in kind represent the gross amount (before applicable
                                         individual salary tax) paid/payable to individual directors. All the executive directors
                                         have voluntarily waived their salaries, allowances, benefits in kind and performance
                                         related bonuses in 2014 and 2013.
| | --- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | (2) | Mr.
                                         Chiu Sung Hong exercised his right to subscribe for 1,150,000 shares of options granted
                                         under the 2002 Share Option Scheme of the Company on July 19, 2013 and the allotment
                                         was completed on July 26, 2013.
| | --- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | (3) | On
                                         January 1, 2014, each of Mr. Lv Bo, Mr. Zhang Jianwei and Mr. Wang Jiaxiang was appointed
                                         as a non-executive director of the Company, and each of Mr. Zhou Shouwei and Mr. Wu Zhenfang
                                         retired as a non-executive director of the Company.
| | --- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | (4) | On
                                         November 17, 2014, Mr. Zhang Jianwei resigned as a non-executive director of the Company.
| | --- | -------------------------------------------------------------------------------------------------------------------------------------

| | (5) | On
                                         March 1, 2014, Mr. Kevin G. Lynch was appointed as an independent non-executive director
                                         of the Company and Mr. Wang Tao retired as an independent non-executive director of the
                                         Company.
| | --- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | (6) | On
                                         May 19, 2015, Mr. Yang Hua was appointed as Chairman of the Board and Chairman of the
                                         Nomination Committee of the Company and has no longer served as Vice-chairman of the
                                         Board. Mr. Wang Yilin resigned as Chairman of the Board, Chairman of the Nomination Committee
                                         and non-executive director of the Company.
| | --- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | (7) | On
                                         September 23, 2015, Mr. Wang Jiaxiang retired as a non-executive director of the Company.
| | --- | -------------------------------------------------------------------------------------------------------------------------------------

| | (8) | This
                                         item represents the fair value of share options for the Directors measured according
                                         to the Group's accounting policy as set out in note 3. No Directors except Mr. Chiu Sung
                                         Hong exercised any share option in 2013, 2014 or 2015. During the year, no new share
                                         option was granted to Directors in respect of their services to the Group under the applicable
                                         share option schemes of the Company. Further details of share option scheme and valuation
                                         techniques are set out in note 28.
| | --- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



Save
as disclosed above, there was no arrangement under which a director waived or agreed to waive any remuneration during the year.
In 2015, the executive directors' remuneration shown above were for their services in connection with the management of the affairs
of the Company. The other directors' remuneration shown above were for their services as directors of the Company.

F-41


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CNOOC
LIMITED

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(All amounts expressed in millions of
Renminbi unless otherwise stated)









| | 10. | KEY
                                         MANAGEMENT PERSONNEL’S REMUNERATION (continued)
| | --- | --------------------------------------------------------------------------------------------



(
ii)	Other key management personnel’s (excluding Directors’) remuneration



|                                    |  | 2013 |  | 2014 |  | 2015
|----------------------------------- |  | ---- |  | ---- |  | ----
|                                    |  |      |  |      |  |     
|Short term employee benefits        |  | 6    |  | 8    |  | 8   
|Pension scheme contributions        |  | 1    |  | 1    |  | 1   
|Amount paid/payable during the year |  | 7    |  | 9    |  | 9   
|Share options*                      |  | 1    |  | -    |  | -   
|                                    |  | 8    |  | 9    |  | 9   
|                                    |  |      |  |      |  |     



The
bands of the remuneration of other key management personnel (excluding Directors) and the related number of members of other key
management personnel (excluding Directors) are as follows:



|                     |  | Number of employees
|-------------------- |  | -------------------
|                     |  | 2013               
|                     |  |                    
|Nil to RMB 2,000,000 |  | 8                  
|                     |  | 8                  



| | * | This item represents the
fair value of share options measured according to the Group's accounting policy as set out in note 3. No other key management
personnel exercised any share option in 2013, 2014 or 2015.
| | - | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------





| | 11. | FIVE
                                         HIGHEST PAID EMPLOYEES
| | --- | --------------------------------------------------------------------



During
the year, none (2014: none; 2013: none) of the Directors, details of whose remuneration are disclosed in note 10 (i) above, received
an amount which falls within the category of the five highest paid employees. Details of the remuneration of the five (2014: five;
2013: five) highest paid employees, who are not the Directors, for the year are as follows:



|                                                   |  | 2013 |  | 2014 |  | 2015
|-------------------------------------------------- |  | ---- |  | ---- |  | ----
|                                                   |  |      |  |      |  |     
|Fees(1)                                            |  | -    |  | -    |  | -   
|Basic salaries, allowances and benefits in kind(1) |  | 19   |  | 18   |  | 22  
|Performance-related bonuses                        |  | 1    |  | 16   |  | 17  
|Pension scheme contributions                       |  | 1    |  | 1    |  | 1   
|                                                   |  |      |  |      |  |     
|Amount paid/payable during the year                |  | 21   |  | 35   |  | 40  
|                                                   |  |      |  |      |  |     
|                                                   |  | 21   |  | 35   |  | 40  



| | (1) | Fees
                                         and salaries, allowances, and benefits in kind represent the gross amount (before applicable
                                         individual salary tax) paid/payable to individual employees.
| | --- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------





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CNOOC
LIMITED

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(All amounts expressed in millions of
Renminbi unless otherwise stated)









| | 11. | FIVE
                                         HIGHEST PAID EMPLOYEES (continued)
| | --- | --------------------------------------------------------------------------------



The
remuneration of the five (2014: five, 2013: five) highest paid employees, who are not the directors, falls within the following
bands:



|                             |  | 2013 |  | 2014 |  | 2015
|---------------------------- |  | ---- |  | ---- |  | ----
|                             |  |      |  |      |  |     
|Nil to RMB5,500,000          |  | 3    |  | -    |  | -   
|RMB5,500,001 to RMB6,000,000 |  | -    |  | 1    |  | -   
|RMB6,000,001 to RMB6,500,000 |  | -    |  | 1    |  | -   
|RMB6,500,001 to RMB7,000,000 |  | 2    |  | -    |  | -   
|RMB7,000,001 to RMB7,500,000 |  | -    |  | 1    |  | 3   
|RMB7,500,001 to RMB8,000,000 |  | -    |  | 1    |  | -   
|RMB8,500,001 to RMB9,000,000 |  | -    |  | 1    |  | -   
|RMB9,000,001 to RMB9,500,000 |  | -    |  | -    |  | 2   
|                             |  | 5    |  | 5    |  | 5   



| | 12. | TAX
| | --- | ---



| | (i) | Income
                                         tax
| | --- | ---------------------------------------------------



The
Company and its subsidiaries are subject, on an entity basis, to income taxes on profits arising in or derived from the tax jurisdictions
in which the entities of the Group are domiciled and operate. The Company is subject to profits tax at a rate of 16.5 % (2014:
16.5%, 2013: 16.5%) on profits arising in or derived from Hong Kong.



The
Company is regarded as a Chinese Resident Enterprise (as defined in the "Enterprise Income Tax Law of the People's Republic
of China") by the State Administration of Taxation of the PRC. As a result, the Company is subject to the PRC corporate income
tax at the rate of 25% starting from January 1, 2008. The corporate income tax which is subjected in Hong Kong is qualified as
a foreign tax credit to offset the PRC corporate income tax starting from January 1, 2008.



The
Company's subsidiary in Mainland China, CNOOC China Limited, is a wholly-owned foreign enterprise. It is subject to corporate
income tax at the rate of 25% under the prevailing tax rules and regulations. CNOOC Deepwater Development Limited, a wholly-owned
subsidiary of CNOOC China Limited, is subject to corporate income tax at the rate of 15% for the three years ending December 31,
2017, after being assessed as a high new technology enterprise.



Subsidiaries
of the Group domiciled outside the PRC are subject to income tax at rates ranging from 10% to 56% (2014: 10% to 62%, 2013: 10%
to 62%). On March 26, 2015, the U.K. government decreased the combined income tax rate on North Sea oil and gas activities from
62% to 50% with effect from January 1, 2015.



As
of December 31, 2015, deferred tax liabilities related to undistributed earnings of the Company's overseas subsidiaries have not
been provided since the timing of the reversal of the taxable temporary differences can be controlled by the Company and it is
probable that the temporary differences would not reverse in the foreseeable future.



F-43


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CNOOC
LIMITED

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(All amounts expressed in millions of
Renminbi unless otherwise stated)









| | 12. | TAX
                                         (continued)
| | --- | --------------------------------------------------------



| | (i) | Income
                                         tax (continued)
| | --- | ---------------------------------------------------------------



An
analysis of the tax expense/ (credit) in the Group's consolidated statement of profit or loss and other comprehensive income is
as follows:



|                                                                                           |  | 2013 |        | 2014 |  | 2015
|------------------------------------------------------------------------------------------ |  | ---- | ------ | ---- |  | ----
|                                                                                           |  |      |        |      |  |     
|Current tax                                                                                |  |      |        |      |  |     
|Provision for PRC enterprise income tax on the estimated taxable profits for the year      |  |      | 18,369 |      |  |     
|Provision for overseas enterprise income tax on the estimated taxable profits for the year |  |      | 12,619 |      |  |     
|Deferred tax                                                                               |  |      |        |      |  |     
|Temporary differences in the current year                                                  |  |      | (6,598 | )    |  |     
|Effect of changes in tax rates                                                             |  |      | -      |      |  |     
|                                                                                           |  |      |        |      |  |     
|Income tax expense/(credit) for the year                                                   |  |      | 24,390 |      |  |     



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



|                                                        |  | 2013 |      | 2014 |  | 2015
|------------------------------------------------------- |  | ---- | ---- | ---- |  | ----
|                                                        |  | %    |      | %    |  | %   
|                                                        |  |      |      |      |  |     
|PRC statutory enterprise income tax rate                |  |      | 25.0 |      |  |     
|Effect of different tax rates for overseas subsidiaries |  |      | 7.6  |      |  |     
|Effect of changes in tax rates                          |  |      | -    |      |  |     
|Tax credit from the government                          |  |      | (2.5 | )    |  |     
|Tax reported in equity-accounted entities               |  |      | (0.3 | )    |  |     
|Tax losses previously not recognized                    |  |      | -    |      |  |     
|Others                                                  |  |      | 0.4  |      |  |     
|                                                        |  |      |      |      |  |     
|Group’s effective income tax rate                       |  |      | 30.2 |      |  |     



The
movements of deferred tax liabilities net of deferred tax assets are as follows:



|                             |  | 2013 |        | 2014 |  | 2015
|---------------------------- |  | ---- | ------ | ---- |  | ----
|                             |  |      |        |      |  |     
|At January 1                 |  |      | 3,363  |      |  |     
|Credit to the profit or loss |  |      | (6,598 | )    |  |     
|Acquisition of a subsidiary  |  |      | 26,626 |      |  |     
|Changes in tax rates         |  |      | -      |      |  |     
|Charge to equity             |  |      | 29     |      |  |     
|Exchange differences         |  |      | (787   | )    |  |     
|                             |  |      |        |      |  |     
|At December 31               |  |      | 22,633 |      |  |     

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CNOOC
LIMITED

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(All amounts expressed in millions of
Renminbi unless otherwise stated)







| | 12. | TAX
                                         (continued)
| | --- | --------------------------------------------------------



| | (i) | Income
                                         tax (continued)
| | --- | ---------------------------------------------------------------



Principal
components of deferred tax balances are as follows:



|                                                              |  | 2014 |         | 2015
|------------------------------------------------------------- |  | ---- | ------- | ----
|                                                              |  |      |         |     
|Deferred tax assets                                           |  |      |         |     
|Property, plant and equipment                                 |  |      | -       |     
|Provision for dismantlement                                   |  |      | 8,302   |     
|Losses available for offsetting against future taxable profit |  |      | 11,583  |     
|Fair value of long term borrowings                            |  |      | 1,750   |     
|Others                                                        |  |      | 822     |     
|                                                              |  |      |         |     
|                                                              |  |      | 22,457  |     
|                                                              |  |      |         |     
|Deferred tax liabilities                                      |  |      |         |     
|Property, plant and equipment                                 |  |      | (36,256 | )   
|Unrecognized gain for available-for-sale financial assets     |  |      | (116    | )   
|Fair value changes on other financial assets                  |  |      | -       |     
|Others                                                        |  |      | (397    | )   
|                                                              |  |      |         |     
|                                                              |  |      | (36,769 | )   
|                                                              |  |      |         |     
|Net deferred tax (liabilities)/assets                         |  |      | (14,312 | )   
|                                                              |  |      |         |     
|Of which – deferred tax assets                                |  |      | 5,877   |     
|deferred tax liabilities                                      |  |      | (20,189 | )   



As
at December 31, 2015, the Group had approximately RMB57,325 million (December 31, 2014: RMB45,484 million) of carry-forward tax
losses, predominantly in North America, that would be available to offset against future taxable profits of the subsidiaries in
which the tax losses arose. Most of the US and Canadian tax losses will expire in 9 to 20 years. The Uganda tax losses have no
fixed expiry date.



Deferred
tax assets in respect of tax losses are recognized only to the extent of the anticipated future taxable profits arising from the
reversal of existing taxable temporary differences.



As
at December 31, 2015, the Group's recognized tax losses amounted to RMB49,327 million (December 31, 2014: RMB36,116 million).
Unrecognized tax losses, where recovery is not currently expected, amounted to RMB7,998 million (December 31, 2014: RMB9,368 million).
This includes RMB1,343 million (2014: RMB1,249 million) of unrecognized tax loss arising from Uganda which has no fixed expiry
date. The remainder expires between 5 to 20 years.



As
at December 31, 2015, the Group's unrecognized deferred tax assets related to unused tax credits amounted to RMB5,790 million
(2014: RMB5,149 million). This includes RMB4,664 million (2014: RMB4,404 million) of unrecognized deferred tax assets related
to unused tax credits from Nigeria which has no fixed expiry date. The remainder expires between 2024 and 2034.

F-45


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CNOOC
LIMITED

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(All amounts expressed in millions of
Renminbi unless otherwise stated)





| | 12. | TAX
                                         (continued)
| | --- | --------------------------------------------------------



| | (ii) | Other taxes
| | ---- | -----------



The
Company's PRC subsidiaries pay the following other taxes and dues:



| | i. | Production taxes at the
rate of 5% on independent production and production under production sharing contracts;
| | -- | ---------------------------------------------------------------------------------------------------------------



| | ii. | Resource taxes (reduced
tax rates may apply to specific products and fields) on the oil and gas sales revenue (excluding production taxes) derived by
oil and gas fields under production sharing contracts signed after November 1, 2011 and independent offshore oil and gas fields
starting from November 1, 2011, which replaced the royalties for oil and gas fields, except for those under production sharing
contracts signed before November 1, 2011 which will be subject to related resource taxes requirement after the expiration of such
production sharing contracts. The resource tax rate has been changed from 5% to 6% since December 1, 2014;
| | --- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | iii. | Export tariffs at the rate
of 5% on the export value of petroleum oil;
| | ---- | ----------------------------------------------------------------------



| | iv. | Business tax at rates of
3% to 5% or value-added tax at the rate of 3% to 17% on other income;
| | --- | ----------------------------------------------------------------------------------------------



| | v. | City construction tax at
the rate of 1% or 7% on the actual paid production taxes, business tax and value-added tax;
| | -- | --------------------------------------------------------------------------------------------------------------------



| | vi. | Educational surcharge at
the rate of 3% on the actual paid production taxes, business tax and value-added tax; and
| | --- | ------------------------------------------------------------------------------------------------------------------



| | vii. | Local educational surcharge
at the rate of 2% on the actual paid production taxes, business tax and value-added tax.
| | ---- | --------------------------------------------------------------------------------------------------------------------



In
addition, other taxes paid and payable by the Company's non-PRC subsidiaries include royalty as well as taxes levied on petroleum-related
income, budgeted operating and capital expenditure.

F-46


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CNOOC
LIMITED

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(All amounts expressed in millions of
Renminbi unless otherwise stated)





| | 13. | DIVIDENDS
| | --- | ---------



|                                                                                                                                                                         |  | 2013   |  | 2014   |  | 2015  
|------------------------------------------------------------------------------------------------------------------------------------------------------------------------ |  | ------ |  | ------ |  | ------
|                                                                                                                                                                         |  |        |  |        |  |       
|Dividend per ordinary share:                                                                                                                                             |  |        |  |        |  |       
|2015 interim dividend - HK$0.25 (2014: interim dividend HK$0.25, 2013: interim dividend    HK$0.25) per ordinary share                                                   |  | 8,843  |  | 8,846  |  | 9,145 
|2014 final dividend - HK$0.32 (2013: final dividend HK$0.32, 2012: final dividend    HK$0.32) per ordinary share                                                         |  | 11,383 |  | 11,370 |  | 11,274
|                                                                                                                                                                         |  |        |  |        |  |       
|Final dividend proposed at HK$0.25 (2014: HK$0.32, 2013: HK$0.32) per ordinary share by the Board of Directors - not recognized as a liability as at the end of the year |  | 11,269 |  | 11,325 |  | 9,397 
|                                                                                                                                                                         |  |        |  |        |  |       



Pursuant
to the Enterprise Income Tax Law of the People's Republic of China and related laws and regulations, the Company is regarded as
a Chinese Resident Enterprise, and thus is required to withhold corporate income tax at the rate of 10% when it distributes dividends
to its non-resident enterprise (as defined in the "Enterprise Income Tax Law of the People's Republic of China") shareholders,
with effect from the distribution of the 2008 final dividend. In respect of all shareholders whose names appear on the Company's
register of members and who are not individuals (including HKSCC Nominees Limited, corporate nominees or trustees such as securities
companies and banks, and other entities or organizations, which are all considered as non-resident enterprise shareholders), the
Company will distribute the dividend after deducting corporate income tax of 10%.





| | 14. | EARNINGS
                                         PER SHARE
| | --- | -----------------------------------------------------------



|                                                                                                                     |  | 2013           |  | 2014           |  | 2015          
|-------------------------------------------------------------------------------------------------------------------- |  | -------------- |  | -------------- |  | --------------
|                                                                                                                     |  |                |  |                |  |               
|Earnings                                                                                                             |  |                |  |                |  |               
|Profit for the year attributable to ordinary equity holders for the basic and diluted earnings per share calculation |  | 56,461         |  | 60,199         |  | 20,246        
|                                                                                                                     |  |                |  |                |  |               
|Number of shares                                                                                                     |  |                |  |                |  |               
|Weighted average number of ordinary shares for the basic earnings per share calculation                              |  | 44,646,825,847 |  | 44,647,455,984 |  | 44,647,455,984
|                                                                                                                     |  |                |  |                |  |               
|Effect of dilutive potential ordinary shares under the share option schemes                                          |  | 140,293,242    |  | 87,318,520     |  | 37,363,069    
|                                                                                                                     |  |                |  |                |  |               
|Weighted average number of ordinary shares for the purpose of diluted earnings per share                             |  | 44,787,119,089 |  | 44,734,774,504 |  | 44,684,819,053
|                                                                                                                     |  |                |  |                |  |               
|Earnings per share:                                                                                                  |  |                |  |                |  |               
|Basic (RMB Yuan)                                                                                                     |  | 1.26           |  | 1.35           |  | 0.45          
|Diluted (RMB Yuan)                                                                                                   |  | 1.26           |  | 1.35           |  | 0.45          

F-47


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CNOOC
LIMITED

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(All amounts expressed in millions of
Renminbi unless otherwise stated)





| | 15. | PROPERTY,
                                         PLANT AND EQUIPMENT
| | --- | ----------------------------------------------------------------------



|                                                                     |  |                        |          |                                          |  |      
|-------------------------------------------------------------------- |  | ---------------------- | -------- | ---------------------------------------- |  | -----
|                                                                     |  | Oil and gas properties |          | Vehicles and office equipment and others |  | Total
|                                                                     |  |                        |          |                                          |  |      
|Cost:                                                                |  |                        |          |                                          |  |      
|                                                                     |  |                        |          |                                          |  |      
|At January 1, 2014                                                   |  |                        | 628,762  |                                          |  |      
|Additions                                                            |  |                        | 107,229  |                                          |  |      
|Disposals and write-offs                                             |  |                        | (4,289   | )                                        |  |      
|Exchange differences                                                 |  |                        | 930      |                                          |  |      
|                                                                     |  |                        |          |                                          |  |      
|At December 31, 2014                                                 |  |                        | 732,632  |                                          |  |      
|                                                                     |  |                        |          |                                          |  |      
|At January 1, 2015                                                   |  |                        | 732,632  |                                          |  |      
|Additions                                                            |  |                        | 52,811   |                                          |  |      
|Disposals and write-offs                                             |  |                        | (2,952   | )                                        |  |      
|Exchange differences                                                 |  |                        | 21,495   |                                          |  |      
|                                                                     |  |                        |          |                                          |  |      
|At December 31, 2015                                                 |  |                        | 803,986  |                                          |  |      
|                                                                     |  |                        |          |                                          |  |      
|Accumulated depreciation, depletion and amortization and impairment: |  |                        |          |                                          |  |      
|                                                                     |  |                        |          |                                          |  |      
|At January 1, 2014                                                   |  |                        | (213,425 | )                                        |  |      
|Depreciation charge for the year                                     |  |                        | (56,812  | )                                        |  |      
|Impairment                                                           |  |                        | (4,114   | )                                        |  |      
|Disposals and write-offs                                             |  |                        | 951      |                                          |  |      
|Exchange differences                                                 |  |                        | (50      | )                                        |  |      
|                                                                     |  |                        |          |                                          |  |      
|At December 31, 2014                                                 |  |                        | (273,450 | )                                        |  |      
|                                                                     |  |                        |          |                                          |  |      
|At January 1, 2015                                                   |  |                        | (273,450 | )                                        |  |      
|Depreciation charge for the year                                     |  |                        | (71,933  | )                                        |  |      
|Impairment                                                           |  |                        | (2,358   | )                                        |  |      
|Disposals and write-offs                                             |  |                        | 358      |                                          |  |      
|Exchange differences                                                 |  |                        | (6,441   | )                                        |  |      
|                                                                     |  |                        |          |                                          |  |      
|At December 31, 2015                                                 |  |                        | (353,824 | )                                        |  |      
|                                                                     |  |                        |          |                                          |  |      
|Net book value:                                                      |  |                        |          |                                          |  |      
|At December 31, 2014                                                 |  |                        | 459,182  |                                          |  |      
|                                                                     |  |                        |          |                                          |  |      
|At December 31, 2015                                                 |  |                        | 450,162  |                                          |  |      
|                                                                     |  |                        |          |                                          |  |      



Included
in the current year's additions was an amount of approximately RMB1,385 million (2014: approximately RMB1,842 million, 2013: approximately
RMB2,049 million) in respect of interest capitalized in property, plant and equipment (note 9). Included also in the depreciation
charge for the year was an amount of approximately RMB3,465 million (2014: approximately RMB3,873 million, 2013: approximately
RMB4,939 million) in respect of a depreciation charge on dismantlement cost capitalized in oil and gas properties.



F-48


Table of Contents


CNOOC
LIMITED

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(All amounts expressed in millions of
Renminbi unless otherwise stated)





| | 15. | PROPERTY,
                                         PLANT AND EQUIPMENT (continued)
| | --- | ----------------------------------------------------------------------------------



Impairment
and provision recognized during the year included the impairment loss of approximately RMB2,358 million (2014: RMB4,114 million)
to reduce the carrying amount of certain oil and gas properties to the recoverable amount. This impairment loss was mainly related
to fields in China, North America and South America and Africa which was primarily due to the decline in crude oil price in near-term.
The recoverable amount was calculated based on the assets value in use and was determined at the oil field(s) level.



During
the current year, the Group wrote off some shale oil and gas assets in North America and unproved properties in Canada. Approximately
RMB1,400 million was included in the depreciation, depletion and amortization charge of the year, and approximately RMB461 million
was included in the disposal and write-offs which was classified as exploration expenses, repectively. The reason is that the
leasehold contracts of these blocks were overdue, and the Group withdraw from these blocks by considering lower economy of the
project and falling short of expectation of the exploration result.





| | 16. | INTANGIBLE
                                         ASSETS
| | --- | ----------------------------------------------------------



|                                 |  | Gas processing right under NWS Project |       | Drilling rig contracts and seismic data usage rights |  | Marketing transportation and storage contracts |       | Software and others |  | Goodwill |        | Total
|-------------------------------- |  | -------------------------------------- | ----- | ---------------------------------------------------- |  | ---------------------------------------------- | ----- | ------------------- |  | -------- | ------ | -----
|                                 |  |                                        |       |                                                      |  |                                                |       |                     |  |          |        |      
|Cost:                            |  |                                        |       |                                                      |  |                                                |       |                     |  |          |        |      
|At January 1, 2014               |  |                                        | 1,118 |                                                      |  |                                                | 1,957 |                     |  |          | 1,556  |      
|Additions                        |  |                                        | -     |                                                      |  |                                                | -     |                     |  |          | -      |      
|Disposal                         |  |                                        | -     |                                                      |  |                                                | -     |                     |  |          | -      |      
|Exchange differences             |  |                                        | 4     |                                                      |  |                                                | 7     |                     |  |          | 6      |      
|                                 |  |                                        |       |                                                      |  |                                                |       |                     |  |          |        |      
|At December 31, 2014             |  |                                        | 1,122 |                                                      |  |                                                | 1,964 |                     |  |          | 1,562  |      
|                                 |  |                                        |       |                                                      |  |                                                |       |                     |  |          |        |      
|At January 1, 2015               |  |                                        | 1,122 |                                                      |  |                                                | 1,964 |                     |  |          | 1,562  |      
|Additions                        |  |                                        | -     |                                                      |  |                                                | -     |                     |  |          | -      |      
|Disposal                         |  |                                        | -     |                                                      |  |                                                | (467  | )                   |  |          | (125   | )    
|Exchange differences             |  |                                        | 69    |                                                      |  |                                                | 99    |                     |  |          | 90     |      
|                                 |  |                                        |       |                                                      |  |                                                |       |                     |  |          |        |      
|At December 31, 2015             |  |                                        | 1,191 |                                                      |  |                                                | 1,596 |                     |  |          | 1,527  |      
|                                 |  |                                        |       |                                                      |  |                                                |       |                     |  |          |        |      
|Accumulated amortization:        |  |                                        |       |                                                      |  |                                                |       |                     |  |          |        |      
|At January 1, 2014               |  |                                        | (473  | )                                                    |  |                                                | (544  | )                   |  |          | (439   | )    
|Amortization charge for the year |  |                                        | (68   | )                                                    |  |                                                | (452  | )                   |  |          | (370   | )    
|Exchange differences             |  |                                        | (1    | )                                                    |  |                                                | -     |                     |  |          | -      |      
|                                 |  |                                        |       |                                                      |  |                                                |       |                     |  |          |        |      
|At December 31, 2014             |  |                                        | (542  | )                                                    |  |                                                | (996  | )                   |  |          | (809   | )    
|                                 |  |                                        |       |                                                      |  |                                                |       |                     |  |          |        |      
|At January 1, 2015               |  |                                        | (542  | )                                                    |  |                                                | (996  | )                   |  |          | (809   | )    
|Amortization charge for the year |  |                                        | (44   | )                                                    |  |                                                | (383  | )                   |  |          | (283   | )    
|Disposal                         |  |                                        | -     |                                                      |  |                                                | 467   |                     |  |          | 56     |      
|Exchange differences             |  |                                        | (35   | )                                                    |  |                                                | (46   | )                   |  |          | (60    | )    
|                                 |  |                                        |       |                                                      |  |                                                |       |                     |  |          |        |      
|At December 31, 2015             |  |                                        | (621  | )                                                    |  |                                                | (958  | )                   |  |          | (1,096 | )    
|                                 |  |                                        |       |                                                      |  |                                                |       |                     |  |          |        |      
|Net book value:                  |  |                                        |       |                                                      |  |                                                |       |                     |  |          |        |      
|At December 31, 2014             |  |                                        | 580   |                                                      |  |                                                | 968   |                     |  |          | 753    |      
|                                 |  |                                        |       |                                                      |  |                                                |       |                     |  |          |        |      
|At December 31, 2015             |  |                                        | 570   |                                                      |  |                                                | 638   |                     |  |          | 431    |      



Goodwill
represents the excess of the purchase price over the estimated fair value of the assets acquired and liabilities assumed in a
business combination. Goodwill acquired through business combinations is held at the E&P segment.



The
intangible asset regarding the gas processing rights has been amortized upon the commercial production of the liquefied natural
gas on a unit-of -production basis over the total proved reserves of the relevant asset. The intangible assets regarding the marketing
transportation and storage contracts are amortized on a straight-line basis over the life of the contracts which is less than
20 years. Other identifiable intangible assets are amortized on a straight-line basis over a period ranging from 3 to 5 years.

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CNOOC
LIMITED

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(All amounts expressed in millions of
Renminbi unless otherwise stated)





| | 17. | INVESTMENTS
                                         IN ASSOCIATES
| | --- | ------------------------------------------------------------------



Particulars
of the principal associates at the end of the reporting period are as follows:



|                               |  |               |  | Nominal value                                |  |                      |  |                                                            
|------------------------------ |  | ------------- |  | -------------------------------------------- |  | -------------------- |  | -----------------------------------------------------------
|                               |  |               |  | of ordinary shares issued and                |  | Percentage of equity |  |                                                            
|                               |  | Place of      |  | paid-up/registered                           |  | attributable to      |  |                                                            
|Name of associates             |  | establishment |  | capital                                      |  | the Group            |  | Principal activities                                       
|Shanghai Petroleum             |  | Shanghai, PRC |  | RMB900 million                               |  | 30%                  |  | Production, processing and
 technology consultation of oil,
|Corporation Limited            |  |               |  |                                              |  |                      |  | gas and relevant products                                  
|                               |  |               |  |                                              |  |                      |  | in the PRC                                                 
|                               |  |               |  |                                              |  |                      |  |                                                            
|CNOOC Finance                  |  | Beijing, PRC  |  | RMB4
billion                                 |  | 31.8%                |  | Provision
of deposit, transfer,                            
|Corporation Limited            |  |               |  |                                              |  |                      |  | settlement, loan, discounting                              
|                               |  |               |  |                                              |  |                      |  | and other financing services to                            
|                               |  |               |  |                                              |  |                      |  | CNOOC and its member entities                              
|                               |  |               |  |                                              |  |                      |  |                                                            
|Northern Gross (Yukon) Limited |  | Canada        |  | 22,691,705 common shares without a par value |  | 60%                  |  | Petroleum
exploration, development and production in Canada



To
give details of other associate would, in the opinion of the Directors, result in particulars of excessive length.



The
Group’s investments in associates represent:



|                    |  | 2014  |  | 2015 
|------------------- |  | ----- |  | -----
|Share
of net assets |  | 4,100 |  | 4,324



None
of the Group’s associates are considered to be individually material. The following table illustrates the summarized financial
information of the Group’s associates in the consolidated financial statements:



|                                     |  | 2013 |     | 2014 |  | 2015
|------------------------------------ |  | ---- | --- | ---- |  | ----
|                                     |  |      |     |      |  |     
|Profit for the year                  |  |      | 133 |      |  |     
|Other comprehensive (expense)/income |  |      | (29 | )    |  |     
|Total comprehensive income           |  |      | 104 |      |  |     



| | 18. | INVESTMENT IN A JOINT
VENTURE
| | --- | -----------------------------



Particulars
of the joint venture at the end of the reporting period are as follows:



|Name of entity     |  | Place of establishment |  | Nominal value of ordinary shares issued and paid- up/registered capital |  | Percentage of equity attributable to the Group |  | Principal activities
|------------------ |  | ---------------------- |  | ----------------------------------------------------------------------- |  | ---------------------------------------------- |  | --------------------
|Bridas Corporation |  | British Virgin Islands |  | US$ 102,325,582                                                         |  | 50%                                            |  | Investment
holding  





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CNOOC
LIMITED

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(All amounts expressed in millions of
Renminbi unless otherwise stated)





| | 18. | INVESTMENT IN A JOINT
VENTURE (continued)
| | --- | -----------------------------------------



Summarized financial
information of the joint venture is disclosed below:







|                                                                   |  | 2014 |         | 2015
|------------------------------------------------------------------ |  | ---- | ------- | ----
|Cash and cash equivalents                                          |  |      | 4,151   |     
|Other current assets                                               |  |      | 4,932   |     
|Total current assets                                               |  |      | 9,083   |     
|                                                                   |  |      |         |     
|Non-current assets, excluding goodwill                             |  |      | 52,835  |     
|Goodwill                                                           |  |      | 3,463   |     
|Total assets                                                       |  |      | 65,381  |     
|                                                                   |  |      |         |     
|Current financial liabilities (excluding trade and other payables) |  |      | (1,290  | )   
|Other current liabilities                                          |  |      | (4,697  | )   
|Total current liabilities                                          |  |      | (5,987  | )   
|                                                                   |  |      |         |     
|Non-current financial liabilities                                  |  |      | (3,989  | )   
|Other non-current liabilities                                      |  |      | (13,105 | )   
|Total non-current liabilities                                      |  |      | (17,094 | )   
|Total liabilities                                                  |  |      | (23,081 | )   
|                                                                   |  |      |         |     
|Net assets                                                         |  |      | 42,300  |     
|                                                                   |  |      |         |     
|Net assets, excluding goodwill                                     |  |      | 38,837  |     





|                                         |  | 2013 |        | 2014 |  | 2015
|---------------------------------------- |  | ---- | ------ | ---- |  | ----
|Revenue                                  |  |      | 32,045 |      |  |     
|Depreciation, depletion and amortization |  |      | (3,009 | )    |  |     
|Interest income                          |  |      | 253    |      |  |     
|Finance costs                            |  |      | (416   | )    |  |     
|                                         |  |      |        |      |  |     
|Profit before tax                        |  |      | 3,272  |      |  |     
|Income tax expense                       |  |      | (1,748 | )    |  |     
|Profit after tax                         |  |      | 1,524  |      |  |     
|Total comprehensive income               |  |      | 1,524  |      |  |     
|                                         |  |      |        |      |  |     



Reconciliation
of the summarized financial information of the joint venture to the carrying amount of the Group’s investment in the joint
venture is disclosed below:



|                                                           |  | 2014   |  | 2015  
|---------------------------------------------------------- |  | ------ |  | ------
|                                                           |  |        |  |       
|Share of net assets of a joint venture, excluding goodwill |  | 19,418 |  | 22,252
|Goodwill on acquisition less cumulative impairment         |  | 1,732  |  | 1,837 
|Carrying amount of investment in a joint venture           |  | 21,150 |  | 24,089



Dividend
of US$5 million (equivalent to RMB32 million) was received from the joint venture in 2015 and no dividend was received from the
joint venture in 2014 or 2013.

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CNOOC
LIMITED

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(All amounts expressed in millions of
Renminbi unless otherwise stated)





| | 19. | EQUITY
                                         INVESTMENTS AND OTHER FINANCIAL ASSETS / AVAILABLE-FOR-SALE FINANCIAL ASSETS
| | --- | ----------------------------------------------------------------------------------------------------------------------------



| | (i) | Equity investments/
available-for-sale financial assets
| | --- | -------------------------------------------------------



|                                    |  | 2014 |  | 2015
|----------------------------------- |  | ---- |  | ----
|Current:                            |  |      |  |     
|Non-publicly traded investments     |  |      |  |     
|Private equity funds, at fair value |  | 13   |  | 14  
|                                    |  |      |  |     
|                                    |  | 13   |  | 14  





|                                                            |  |       |  |      
|----------------------------------------------------------- |  | ----- |  | -----
|Non-current:                                                |  |       |  |      
|Publicly traded investments                                 |  |       |  |      
|Equity investment in MEG, at fair value1)                   |  | 2,958 |  | 1,077
|Other equity investment classified at FVTPL, at fair value  |  | 134   |  | 65   
|                                                            |  | 3,092 |  | 1,142
|Non-publicly traded investments                             |  |       |  |      
|Private equity fund in Kerogen Energy Fund 2), atfair value |  | -     |  | 2,629
|Private equity fund in Kerogen Energy Fund 2), atcost       |  | 2,245 |  | -    
|                                                            |  |       |  |      
|                                                            |  | 5,337 |  | 3,771
|                                                            |  |       |  |      





Upon
the application of IFRS/HKFRS 9 (2009) on January 1, 2015, the Group’s investments in certain equity securities that previously
classified as available-for-sale investments under IAS/HKAS 39 are not held for trading, but held for medium or long-term strategic
purpose. Therefore, those investments in equity securities are designated as at FVTOCI under IFRS/HKFRS 9 (2009) as the directors
believe that this provides a more meaningful presentation than reflecting changes in fair value in profit or loss. Other equity
investments are classified as FVTPL.



| | 1) | MEG
                                         is principally engaged in the exploitation and production of oil sands. The investment
                                         in
| | -- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

MEG
is designated by the Group as at FVTOCI (as disclosed in note 2). As at December 31, 2015, the investment in MEG was stated at
the quoted market price.



| | 2) | Kerogen
                                         Energy Fund is principally engaged in the investment in the oil and gas industry. The
| | -- | --------------------------------------------------------------------------------------------------------------------------------------

equity
investment in Kerogen Energy Fund is designated by the Group as at FVTOCI (as disclosed in note 2). The cost of this non-publicly
traded equity investment represents an appropriate estimate of its fair value as at January 1, 2015 and December 31, 2015, as
insufficient more recent information is available to measure its fair value.

F-52


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CNOOC
LIMITED

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(All amounts expressed in millions of
Renminbi unless otherwise stated)







| | 19. | EQUITY
                                         INVESTMENTS AND OTHER FINANCIAL ASSETS / AVAILABLE-FOR-SALE FINANCIAL ASSETS (Continued)
| | --- | ----------------------------------------------------------------------------------------------------------------------------------------



(ii)
Other financial assets/ available-for-sale financial asset



|                                                |  | 2014   |  | 2015  
|----------------------------------------------- |  | ------ |  | ------
|Current:                                        |  |        |  |       
|Non-publicly traded investments, at fair value: |  |        |  |       
|Corporate wealth management products 1)         |  | 48,564 |  | 64,002
|Liquidity funds 2)                              |  | 5,453  |  | 7,804 
|                                                |  |        |  |       
|                                                |  | 54,017 |  | 71,806



Upon
the application of IFRS/HKFRS 9 (2009) on January 1, 2015, the Group’s other financial assets that were previously classified
as available-for-sale financial assets have been classified as financial assets at FVTPL.



| | 1) | The
                                         corporate wealth management products will mature from January 6, 2016 to December 14,2016
                                         (2014: from January 8, 2015 to June 17, 2015).
| | -- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | 2) | The liquidity funds
have no fixed maturity date and no coupon rate.
| | -- | -------------------------------------------------------------------



The
gains of the Group's other financial assets recognized in the profit or loss for the year was RMB2,398 million (realized gains
on available-for-sale financial assets for 2014 and 2013, recognized in profit or loss: RMB2,684 million and RMB2,611 million)
..



During
the year, the fair value changes on the Group's equity investments recognized directly in other comprehensive expense amounted
to RMB1,573 million (net loss on available-for-sale financial assets for 2014 and 2013, recognized in other comprehensive expense:
RMB2,301 million and RMB 626 million).



None
of the equity investments and other financial assets above is past due or impaired.

F-53


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CNOOC
LIMITED

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(All amounts expressed in millions of
Renminbi unless otherwise stated)







| | 20. | OTHER NON-CURRENT ASSETS
| | --- | ------------------------



Included
in the other non-current assets were restricted deposits for future dismantlement. Pursuant to the Provisional Regulations on
the Dismantlement of Offshore Oil and Gas Production Facilities of the People's Republic of China, the Group accrues dismantlement
costs for all the oil and gas fields under production sharing contracts in the PRC, and makes monthly cash contributions to the
specified dismantlement fund accounts supervised by the PRC government. The deposit cannot be withdrawn or utilized for any other
purposes but the dismantlement of oil and gas production facilities in the future. As at December 31, 2015, the balance of the
specified dismantlement fund accounts was RMB6,570 million (December 31, 2014: RMB3,981 million).





| | 21. | INVENTORIES
                                         AND SUPPLIES
| | --- | -----------------------------------------------------------------



|                                           |  | 
|------------------------------------------ |  | 
|                                           |  | 
|                                           |  | 
|Materials and supplies                     |  | 
|Oil in tanks                               |  | 
|Less: Provision for inventory obsolescence |  | 
|                                           |  | 
|                                           |  | 





| | 22. | TRADE
                                         RECEIVABLES
| | --- | ----------------------------------------------------------



The
credit terms of the Group are generally within 30 days after the delivery of oil and gas. Payment in advance or collateral may
be required from customers, depending on credit rating. Trade receivables are non-interest-bearing.



As
at December 31, 2015 and 2014, substantially all the trade receivables were aged within 30 days. All customers have a good repayment
history and no receivables are past due.





| | 23. | CASH
                                         AND CASH EQUIVALENTS AND TIME DEPOSITS WITH MATURITY OVER THREE MONTHS
| | --- | --------------------------------------------------------------------------------------------------------------------



The
Group's cash and cash equivalents mainly consist of current deposits and time deposits with maturity within seven days. The bank
balances are deposited with creditworthy banks with no recent history of default.



The
weighted average effective interest rates of the Group's bank deposits were 2.61% per annum (2014: 2.96% per annum, 2013: 2.0%
per annum) for the year ended December 31, 2015.





| | 24. | TRADE
                                         AND ACCRUED PAYABLES
| | --- | -------------------------------------------------------------------



As
at December 31, 2015 and 2014, substantially all the trade and accrued payables were aged within six months. The trade and accrued
payables are non-interest-bearing.

F-54


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CNOOC
LIMITED

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(All amounts expressed in millions of
Renminbi unless otherwise stated)







| | 25. | OTHER
                                         PAYABLES AND ACCRUED LIABILITIES
| | --- | -------------------------------------------------------------------------------



|                                      |  | 2014   |  | 2015  
|------------------------------------- |  | ------ |  | ------
|                                      |  |        |  |       
|Accrued payroll and welfare payable   |  | 1,805  |  | 1,813 
|Provision for retirement benefits     |  | 614    |  | 837   
|Accrued expenses                      |  | 164    |  | 273   
|Advances from customers               |  | 67     |  | 1,188 
|Royalties payable                     |  | 424    |  | 233   
|Special oil gain levy payable         |  | 2,150  |  | -     
|Provision for dismantlement (note 27) |  | 456    |  | 560   
|Other payables                        |  | 5,819  |  | 8,630 
|                                      |  |        |  |       
|                                      |  | 11,499 |  | 13,534



| | 26. | LOANS
                                         AND BORROWINGS
| | --- | -------------------------------------------------------------



Current



|                                         |  |                                                                |  | 2014   |  | 2015 
|---------------------------------------- |  | -------------------------------------------------------------- |  | ------ |  | -----
|                                         |  | Effective interest rate and final maturity                     |  | Loans  |  | Notes
|                                         |  |                                                                |  |        |  |      
|Short-term loans and borrowings          |  |                                                                |  |        |  |      
|General loans***                         |  | LIBOR+0.42% to 0.6% per annum with maturity within one year*** |  | 30,250 |  | -    
|                                         |  |                                                                |  | 30,250 |  | -    
|Loans and borrowings due within one year |  |                                                                |  |        |  |      
|For Tangguh LNG Project**                |  | LIBOR+0.23% to 0.38% per annum with maturity within one year   |  | 160    |  | -    
|Notes*                                   |  |                                                                |  | -      |  | 770  
|                                         |  |                                                                |  | 160    |  | 770  
|                                         |  |                                                                |  | 30,410 |  | 770  



Non-current



|                          |  |                                                              |  | 2014      | 2015
|------------------------- |  | ------------------------------------------------------------ |  | --------- | ----
|                          |  | Effective interest rate and final maturity                   |  | Bank loan |     
|For Tangguh LNG Project** |  | LIBOR+0.23% to 0.38% per annum with maturity through to 2021 |  | 1,035     |     
|Notes*                    |  |                                                              |  | -         |     
|                          |  |                                                              |  | 1,035     |     







F-55


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CNOOC
LIMITED

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(All amounts expressed in millions of
Renminbi unless otherwise stated)





26.	LOANS AND BORROWINGS (continued)



| | * | The
                                         detail of notes are as follows:
| | - | ----------------------------------------------------------------------------



|                                       |  |                 |  |             |  | Outstanding Principal Amount                                                      
|-------------------------------------- |  | --------------- |  | ----------- |  | ----------------------------------------------------------------------------------
|Issued by                              |  | Maturity        |  | Coupon Rate |  | 31
                                 December
                                 2015
|                                       |  |                 |  |             |  | USD million                                                                       
|                                       |  |                 |  |             |  |                                                                                   
|CNOOC Finance (2003) Limited           |  | Due in 2033     |  | 5.500%      |  | 300                                                                               
|CNOOC Finance (2011) Limited           |  | Due in 2021     |  | 4.25%       |  | 1,500                                                                             
|CNOOC Finance (2011) Limited           |  | Due in 2041     |  | 5.75%       |  | 500                                                                               
|CNOOC Finance (2012) Limited           |  | Due in 2022     |  | 3.875%      |  | 1,500                                                                             
|CNOOC Finance (2012) Limited           |  | Due in 2042     |  | 5.000%      |  | 500                                                                               
|CNOOC Finance (2013) Limited           |  | Due in 2016     |  | 1.125%      |  | 750                                                                               
|CNOOC Finance (2013) Limited           |  | Due in 2018     |  | 1.750%      |  | 750                                                                               
|CNOOC Finance (2013) Limited           |  | Due in 2023     |  | 3.000%      |  | 2,000                                                                             
|CNOOC Finance (2013) Limited           |  | Due in 2043     |  | 4.250%      |  | 500                                                                               
|CNOOC Nexen Finance (2014) ULC         |  | Due in 2017     |  | 1.625%      |  | 1,250                                                                             
|CNOOC Nexen Finance (2014) ULC         |  | Due in 2024     |  | 4.250%      |  | 2,250                                                                             
|CNOOC Nexen Finance (2014) ULC         |  | Due in 2044     |  | 4.875%      |  | 500                                                                               
|Nexen                                  |  | Matured in 2015 |  | 5.2%        |  | -                                                                                 
|Nexen                                  |  | Due in 2017     |  | 5.65%       |  | 62                                                                                
|Nexen                                  |  | Due in 2019     |  | 6.2%        |  | 300                                                                               
|Nexen                                  |  | Due in 2028     |  | 7.4%        |  | 200                                                                               
|Nexen                                  |  | Due in 2032     |  | 7.875%      |  | 500                                                                               
|Nexen                                  |  | Due in 2035     |  | 5.875%      |  | 790                                                                               
|Nexen                                  |  | Due in 2037     |  | 6.4%        |  | 1,250                                                                             
|Nexen                                  |  | Due in 2039     |  | 7.5%        |  | 700                                                                               
|CNOOC Finance (2015) U.S.A. LLC        |  | Due in 2025     |  | 3.500%      |  | 2,000                                                                             
|CNOOC Finance (2015) Australia Pty Ltd |  | Due in 2020     |  | 2.625%      |  | 1,500                                                                             
|CNOOC Finance (2015) Australia Pty Ltd |  | Due in 2045     |  | 4.200%      |  | 300                                                                               



All
the notes issued mentioned above were fully and unconditionally guaranteed by the Company.



| | ** | In
                                         connection with the Tangguh LNG Project in Indonesia, the Company delivered a guarantee
                                         dated October 29, 2007, in favor of Mizuho Corporate Bank, Ltd., which acts as the facility
                                         agent for and on behalf of various international commercial banks under a US$884 million
                                         commercial loan agreement. The Company guarantees the payment obligations of the trustee
                                         borrower under the subject loan agreement and is subject to a maximum cap of approximately
                                         US$164,888,000.
| | -- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



A
letter of credit agreement was signed between the Company and Talisman Energy Inc. (“Talisman”) with execution of
the agreement in respect of the sale of a 3.05691% interest of the Company in the Tangguh LNG Project to Talisman. Accordingly,
Talisman has delivered valid and unexpired standby letters of credit to the Company (as the beneficiary) as a counter-guarantee
to offset the exposure of the Company’s guarantee for the aforesaid interest of 3.05691% in respect of the Tangguh LNG Project
financing. The amount of the standby letters of credit was US$30 million.

F-56


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CNOOC
LIMITED

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(All amounts expressed in millions of
Renminbi unless otherwise stated)





26.	LOANS AND BORROWINGS (continued)



| | *** | As
                                         at December 31, 2015, US$3,700 million bank loans (2014: US$3,750 million) were guaranteed
                                         by the Company.
| | --- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | **** | As
                                         at December 31, 2015, US$694 million shareholder loans (2014: US$694 million) of the
                                         Group were included in General loans. For details please refer to Note 30(v).
| | ---- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



The
maturities of the long term bank loans are as follows:

|                                                           |  | 
|---------------------------------------------------------- |  | 
|                                                           |  | 
|                                                           |  | 
|Repayable:                                                 |  | 
|Within one year                                            |  | 
|After one year but within two years                        |  | 
|After two years but within three years                     |  | 
|After three years but within four years                    |  | 
|After four years but within five years                     |  | 
|After five years                                           |  | 
|                                                           |  | 
|                                                           |  | 
|Amount due within one year shown under current liabilities |  | 
|                                                           |  | 
|                                                           |  | 



Supplemental
information with respect to the long term bank loans:



|                   |  |             |  |               |  | Maximum     |  | Average     |  | Weighted     
|------------------ |  | ----------- |  | ------------- |  | ----------- |  | ----------- |  | -------------
|                   |  |             |  | Weighted      |  | amount      |  | amount      |  | average      
|                   |  |             |  | average       |  | outstanding |  | outstanding |  | interest rate
|For the year ended |  | Balance     |  | interest rate |  | during the  |  | during the  |  | during the   
|December 31        |  | at year end |  | at year end   |  | year        |  | year (1)    |  | year (2)     
|                   |  |             |  |               |  |             |  |             |  |              
|2014               |  | 1,195       |  | 0.58%         |  | 2,255       |  | 1,725       |  | 0.58%        
|2015               |  | 1,098       |  | 0.85%         |  | 1,195       |  | 1,147       |  | 0.72%        



| | (1) | The
                                         average amount outstanding is computed by averaging the outstanding principal balances
                                         as at January 1, and December 31, of each year.
| | --- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | (2) | The
                                         weighted average interest rate is computed by averaging the interest rates as at January
                                         1, and December 31, of each year.
| | --- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



There
was no default of principal, interest or redemption terms of the loans and borrowings during the year.

F-57


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CNOOC
LIMITED

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(All amounts expressed in millions of
Renminbi unless otherwise stated)





| | 27. | PROVISION FOR DISMANTLEMENT
| | --- | ---------------------------



|                                                                                              |  | 
|--------------------------------------------------------------------------------------------- |  | 
|                                                                                              |  | 
|                                                                                              |  | 
|At January 1                                                                                  |  | 
|New projects(1)                                                                               |  | 
|Revision(1)                                                                                   |  | 
|Utilization                                                                                   |  | 
|Deletions                                                                                     |  | 
|Unwinding of discount(2)(note 9)                                                              |  | 
|Exchange differences                                                                          |  | 
|                                                                                              |  | 
|At December 31                                                                                |  | 
|                                                                                              |  | 
|Current portion of dismantlement included in other payables and accrued liabilities (note 25) |  | 
|                                                                                              |  | 
|At December 31                                                                                |  | 
|                                                                                              |  | 

| | (1) | The
                                         amounts are included in the additions of oil and gas properties in note 15.
| | --- | ------------------------------------------------------------------------------------------------------------------------

| | (2) | The
                                         discount rates used for calculating the provision for dismantlement are within the range
                                         of 4% to 5% (2014: 4% to 5%, 2013: 5% to 6%).
| | --- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | 28. | SHARE
                                         CAPITAL
| | --- | ------------------------------------------------------



|                                                                                        |  |                  |  | Issued sharecapital equivalent of
|--------------------------------------------------------------------------------------- |  | ---------------- |  | ---------------------------------
|                                                                                        |  | Number of shares |  | RMB million                      
|                                                                                        |  |                  |  |                                  
|Issued and fully paid:                                                                  |  |                  |  |                                  
|Ordinary shares of HK$0.02 each as at January 1, 2014                                   |  | 44,647,455,984   |  | 949                              
|                                                                                        |  |                  |  |                                  
|Transfer
from share premium and capital redemption reserve upon abolition of par value* |  | -                |  | 42,132                           
|As at December 31, 2014                                                                 |  | 44,647,455,984   |  | 43,081                           
|                                                                                        |  |                  |  |                                  
|As at December 31, 2015                                                                 |  | 44,647,455,984   |  | 43,081                           



*
The Hong Kong Companies Ordinance (Cap. 622), becoming effective on March 3, 2014, abolishes the concept of nominal value and
requirements for authorized share capital.

F-58


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CNOOC
LIMITED

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(All amounts expressed in millions of
Renminbi unless otherwise stated)



28.	SHARE
CAPITAL (continued)



Share
option schemes



The
Company has adopted the share option schemes for the grant of options to the Company's directors, senior management and other
eligible grantees.



| | (1) | Pre-Global
                                         Offering Share Option Scheme (expired in 2011);
| | --- | ---------------------------------------------------------------------------------------------------

| | (2) | 2001
                                         Share Option Scheme (expired in 2011);
| | --- | ------------------------------------------------------------------------------------

| | (3) | 2002
                                         Share Option Scheme (as defined below); and
| | --- | -----------------------------------------------------------------------------------------

| | (4) | 2005
                                         Share Option Scheme (as defined below).
| | --- | -------------------------------------------------------------------------------------



Under
these share option schemes, the Remuneration Committee of the Board will from time to time propose for the Board's approval the
grant of share options and the number of share options to be granted to the relevant grantees. The maximum aggregate number of
shares (including those that could be subscribed for under the Pre-Global Offering Share Option Scheme, the 2001 Share Option
Scheme, the 2002 Share Option Scheme and the 2005 Share Option Scheme) which may be issued upon exercise of all options granted
shall not exceed 10% of the total issued share capital of the Company as at December 31, 2005, being the date on which the shareholders
of the Company approved the 2005 Share Option Scheme, excluding shares under options which have lapsed.



2002
Share Option Scheme

In
June 2002, the Company adopted a share option scheme (the "2002 Share Option Scheme") for the purpose of recognizing
the contribution that certain individuals had made to the Company and for attracting and retaining the best available personnel
to the Company.



Under
the 2002 Share Option Scheme, the Board may, at its discretion, offer to grant to the directors and employees of the Company or
any of its subsidiaries options to subscribe for shares of the Company. The maximum number of shares in respect of which options
may be granted under the 2002 Share Option Scheme to any individual in any 12-month period up to the date of the latest grant
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 grantee for the grant of options will be HK$1.00. The exercise
price for such options will be determined by the Board at its discretion at the date of grant, except that such price shall be
not less than the higher of:



| | (1) | the
                                         nominal value of a share of the Company on the date of grant;
| | --- | ----------------------------------------------------------------------------------------------------------

| | (2) | the
                                         average closing price of the shares as stated in the quotation sheets of the Stock Exchange
                                         of Hong Kong Limited (the "HKSE") for the five trading days immediately preceding
                                         the date of grant; and
| | --- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | (3) | the
                                         closing price of the shares as stated in the quotation sheet of the HKSE on the date
                                         of grant.
| | --- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



The
exercise periods for the options granted under the 2002 Share Option Scheme shall end not later than 10 years from the date of
grant.



On
31 December 2005, the Company terminated the 2002 Share Option Scheme. Upon termination of the 2002 Share Option Scheme, no further
options may be granted under the 2002 Share Option Scheme, but in all other respects the provisions of the 2002 Share Option Scheme
shall remain in force. The outstanding options under the 2002 Share Option Scheme shall continue to be subject to the provisions
of the 2002 Share Option Scheme. The exercise periods for all options under the 2002 Share Option Scheme have lapsed.

F-59


Table of Contents


CNOOC
LIMITED

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(All amounts expressed in millions of
Renminbi unless otherwise stated)





| | 28. | SHARE
                                         CAPITAL (continued)
| | --- | ------------------------------------------------------------------



Share
option schemes (continued)



2005
Share Option Scheme



On
December 31, 2005, the Company adopted a new share option scheme (the "2005 Share Option Scheme"). Under the 2005 Share
Option Scheme, the Board has the authority to grant options to subscribe for shares to the directors, officers and employees of
the Company and its subsidiaries, and any other persons who in the sole discretion of the Board, have contributed or will contribute
to the Group. Unless approved by the shareholders, the total number of shares issued and to be issued upon exercise of the options
granted to each individual (including exercised and unexercised options) under the 2005 Share Option Scheme or any other share
option scheme adopted by the Company, in any 12-month period, must not exceed 1% of the shares in issue of the Company.



According
to the 2005 Share Option Scheme, the consideration payable by a grantee for the grant of options will be HK$1.00. The exercise
price for such options will be determined by the Board at its discretion at the date of grant, except that such price shall be
at least the higher of:



| | (1) | the
                                         nominal value of a share of the Company on the date of grant;
| | --- | ----------------------------------------------------------------------------------------------------------

| | (2) | the
                                         average closing price of the shares as stated in the HKSE's daily quotation sheets for
                                         the five trading days immediately preceding the date of grant; and
| | --- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | (3) | the
                                         closing price of the shares as stated in the HKSE's daily quotation sheet on the date
                                         of grant.
| | --- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



The
period within which the options must be exercised, as well as any minimum holding period or performance targets which apply to
the options, will be specified by the Board of the Company at the time of grant. The exercise periods for options granted under
the 2005 Share Option Scheme shall end not later than 10 years from the date of grant. No options may be granted under the 2005
Share Option Scheme after the date of the 10th anniversary of the adoption of the 2005 Share Option Scheme.



No
new share option was granted during the year (2014 and 2013: nil) and the Group recognized an equity-settled share option expense
of nil (2014: nil, 2013: RMB11 million) during the year.



The
fair value of equity-settled share options granted was estimated as at the date of grant if any, using the Black-Scholes option
pricing model, taking into account the terms and conditions upon which the options were granted.



Details
of the share options outstanding are as follows:



|                                         |  | 2014                    |   | 2015                           
|---------------------------------------- |  | ----------------------- | - | -------------------------------
|                                         |  | Number of share options |   | Weighted average exercise price
|                                         |  |                         |   |                                
|Outstanding at the beginning of the year |  | 383,178,934             |   |                                
|Granted during the year                  |  | -                       |   |                                
|Forfeited during the year                |  | (51,445,000             | ) |                                
|Expired during the year                  |  | (20,549,934             | ) |                                
|Exercised during the year                |  | -                       |   |                                
|                                         |  |                         |   |                                
|Outstanding at the end of the year       |  | 311,184,000             |   |                                
|                                         |  |                         |   |                                
|Exercisable at the end of the year       |  | 311,184,000             |   |                                



No
share options had been cancelled or modified during the years ended December 31, 2013, 2014 or 2015.

F-60


Table of Contents


CNOOC
LIMITED

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(All amounts expressed in millions of
Renminbi unless otherwise stated)





| | 28. | SHARE
                                         CAPITAL (continued)
| | --- | ------------------------------------------------------------------



At
the date of approval of these consolidated financial statements, the share options outstanding under these share option schemes
represented approximately 0.59% of the Company's shares in issue as at that date (2014: 0.70%, 2013: 0.86 %). The weighted average
remaining contractual life of share options outstanding at the end of the year was 2.74 years (2014: 3.50 years, 2013: 4.23 years).
The exercise in full of the outstanding share options would, under the present capital structure of the Company, result in the
issue of 262,592,000 additional ordinary shares of the Company and additional share capital of RMB2, 323,404,158.





| | 29. | RESERVES
| | --- | --------



According
to the laws and regulations of the PRC and the articles of association of CNOOC China Limited, CNOOC China Limited is required
to provide for certain statutory funds, namely, the general reserve fund and the staff and workers' bonus and welfare fund, which
are appropriated from net profit (after making up for 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 reaches 50% of its registered
capital. The general reserve fund can only be used, upon approval by the relevant authority, to offset against accumulated losses
or to increase capital.



Appropriation
to the staff and workers' bonus and welfare fund, which is determined at the discretion of the board of directors of CNOOC China
Limited, is expensed as incurred under IFRSs/HKFRSs. The staff and workers' bonus and welfare fund can only be used for special
bonuses or collective welfare of employees.



As
at December 31, 2015, the general reserve fund amounted to RMB10,000 million (December 31, 2014: RMB10,000 million), representing
50% (2014: 50%) of the total registered capital of CNOOC China Limited.



In
accordance with the "Temporary Regulation for Safety Expense Financial Management of Higher Risk Industry" and the implementation
guidance issued by the MOF of the PRC, the Group is required to accrue a safety fund for its oil and gas exploration and production
activities within the PRC by appropriating a portion of its net profit to other reserves based on its annual production from offshore
China. Such reserve is reduced for expenses incurred to improve the safety conditions of oil and gas production. When the safety
fund is fully utilized, additional expenses incurred for safety production purposes are charged directly to the profit or loss
for the year. As of December 31, 2015, the Group's safety fund reserve under the PRC regulations amounted to nil (December 31,
2014: nil).

F-61


Table of Contents


CNOOC
LIMITED

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(All amounts expressed in millions of
Renminbi unless otherwise stated)





| | 30. | RELATED
                                         PARTY TRANSACTIONS
| | --- | -------------------------------------------------------------------



As
disclosed in note 1, the Company is a subsidiary of CNOOC, which is a state-owned enterprise subject to the control of the State
Council of the PRC. The State Council of the PRC directly and indirectly controls a significant number of state-owned entities
and organizations.



Comprehensive
framework agreement with CNOOC in respect of a range of products and services



As
the Group is controlled by CNOOC, transactions with CNOOC, its subsidiaries and associates (the "CNOOC Group") are disclosed
as related party transactions. The connected transactions or continuing connected transactions are defined in Chapter 14A of Listing
Rules in respect of items listed below also constitute related party transactions. The Company has complied with the disclosure
requirements in accordance with Chapter 14A of the Listing Rules for the continuing connected transactions listed below. The Company
entered into a comprehensive framework agreement with CNOOC on November 6, 2013 for the provision (1) by the Group to the CNOOC
Group and (2) by the CNOOC Group to the Group, of a range of products and services which may be required and requested from time
to time by either party and/or its associates in respect of the continuing connected transactions. The term of the comprehensive
framework agreement is for a period of three years from January 1, 2014. The comprehensive framework agreement is substantially
on the same terms as the terms contained in the comprehensive framework agreement entered into by the Company on November 1, 2010.
The continuing connected transactions under such comprehensive framework agreement and the relevant annual caps for the three
years from January 1, 2014 were approved by the independent shareholders of the Company on November 27, 2013. The approved continuing
connected transactions are as follows:



| | (1) | Provision
                                         of exploration, oil and gas development, oil and gas production as well as marketing,
                                         management and ancillary services by the CNOOC Group to the Group:
| | --- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | (a) | Provision
                                         of exploration and support services
| | --- | --------------------------------------------------------------------------------------

| | (b) | Provision
                                         of oil and gas development and support services
| | --- | --------------------------------------------------------------------------------------------------

| | (c) | Provision
                                         of oil and gas production and support services
| | --- | -------------------------------------------------------------------------------------------------

| | (d) | Provision
                                         of marketing, management and ancillary services
| | --- | --------------------------------------------------------------------------------------------------

| | (e) | FPSO
                                         vessel leases
| | --- | -----------------------------------------------------------



| | (2) | Provision
                                         of management, technical, facilities and ancillary services, including the supply of
                                         materials by the Group to the CNOOC Group; and
| | --- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | (3) | Sales
                                         of petroleum and natural gas products by the Group to the CNOOC Group:
| | --- | ---------------------------------------------------------------------------------------------------------------------



| | (a) | Sales
                                         of petroleum and natural gas products (other than long-term sales of natural gas and
                                         liquefied natural gas)
| | --- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | (b) | Long-term
                                         sales of natural gas and liquefied natural gas
| | --- | -------------------------------------------------------------------------------------------------



F-62


Table of Contents


CNOOC
LIMITED

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(All amounts expressed in millions of
Renminbi unless otherwise stated)





| | 30. | RELATED
                                         PARTY TRANSACTIONS (continued)
| | --- | -------------------------------------------------------------------------------



Pricing
principles



The
continuing connected transactions described above are based on negotiations with the CNOOC Group on normal commercial terms, or
on terms no less favourable than those available to the Group from independent third parties, under prevailing local market conditions,
including considerations such as volume of sales, length of contracts, package of services, overall customer relationship and
other market factors.



For
the continuing connected transactions referred to in paragraphs (1)(a) to (1)(d) above provided by CNOOC Group to the Group and
paragraph (2) above provided by the Group to CNOOC Group, on the basis of the above pricing principle, such services must be charged
in accordance with the following pricing mechanism and in the following sequential order:



| | (i) | state-prescribed
                                         prices; or
| | --- | --------------------------------------------------------------------

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

| | (iii) | when
                                         neither (i) nor (ii) is applicable, the costs of the CNOOC Group or the Group for providing
                                         the relevant service (including the cost of sourcing or purchasing from third parties)
                                         plus a margin of not more than 10%, before any applicable taxes.
| | ----- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



The
continuing connected transactions referred to in paragraph (1)(e) above provided by the CNOOC Group to the Group, on the basis
of the above pricing principle, are at market prices on normal commercial terms which are calculated on a daily basis.



The
continuing connected transactions referred to in paragraphs (3)(a) above provided by the Group to the CNOOC Group, on the basis
of the above pricing principle, are at state-prescribed prices or local, national or international market prices and on normal
commercial terms.



The
continuing connected transactions referred to in paragraphs (3)(b) above provided by the Group to the CNOOC Group, on the basis
of the above pricing principle, are at state-prescribed prices or local, national or international market prices and on normal
commercial terms, which are subject to adjustment in accordance with movements in international oil prices as well as other factors
such as the term of the sales agreement and the length of the relevant pipeline.



F-63


Table of Contents


CNOOC
LIMITED

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(All amounts expressed in millions of
Renminbi unless otherwise stated)





| | 30. | RELATED
                                         PARTY TRANSACTIONS (continued)
| | --- | -------------------------------------------------------------------------------



The
following is a summary of significant related party transactions entered into in the ordinary course of business between the Group
and its related parties during the year and the balances arising from related party transactions at the end of the year:



| | (i) | Provision
                                         of exploration, oil and gas development, oil and gas production as well as marketing,
                                         management and ancillary services by the CNOOC Group to the Group
| | --- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------





|                                                                                                        |  |       
|------------------------------------------------------------------------------------------------------- |  | ------
|                                                                                                        |  | 2013  
|                                                                                                        |  |       
|Provision of exploration and support services                                                           |  | 9,547 
|                                                                                                        |  |       
|-
                                 Inclusive of amounts capitalized under property, plant and equipment |  | 4,059 
|                                                                                                        |  |       
|Provision of oil and gas development and support services                                               |  | 31,716
|                                                                                                        |  |       
|Provision of oil and gas production and support services (note a)                                       |  | 9,256 
|                                                                                                        |  |       
|Provision of marketing, management and ancillary services (note b)                                      |  | 822   
|                                                                                                        |  |       
|FPSO vessel leases (note c)                                                                             |  | 1,208 
|                                                                                                        |  |       
|                                                                                                        |  | 52,549





| | (ii) | Provision
                                         of management, technical, facilities and ancillary services, including the supply of
                                         materials by the Group to the CNOOC Group
| | ---- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



The
Group did not enter into any transactions in the above category for the years ended December 31, 2013, 2014 or 2015.



| | (iii) | Sales
                                         of petroleum and natural gas products by the Group to the CNOOC Group
| | ----- | --------------------------------------------------------------------------------------------------------------------



|                                                                                                                               |  |        
|------------------------------------------------------------------------------------------------------------------------------ |  | -------
|                                                                                                                               |  | 2013   
|                                                                                                                               |  |        
|Sales of petroleum and natural gas products (other than long term sales of natural
    gas and liquefied natural gas) (note d) |  | 175,362
|                                                                                                                               |  |        
|Long term sales of natural gas and liquefied natural gas (note e)                                                              |  | 6,433  
|                                                                                                                               |  |        
|                                                                                                                               |  | 181,795



F-64


Table of Contents


CNOOC
LIMITED

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(All amounts expressed in millions of
Renminbi unless otherwise stated)





| | 30. | RELATED
                                         PARTY TRANSACTIONS (continued)
| | --- | -------------------------------------------------------------------------------



| | (iv) | Transactions
                                         and Balances with CNOOC Finance Corporation Limited (“CNOOC Finance”)
                                         (note f)
| | ---- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | (a) | Interest
                                         income received by the Group
| | --- | ------------------------------------------------------------------------------



|                                               |  |     
|---------------------------------------------- |  | ----
|                                               |  | 2013
|                                               |  |     
|Interest income from deposits in CNOOC Finance |  | 328 



| | (b) | Deposits
                                         balances made by the Group
| | --- | ----------------------------------------------------------------------------



|                          |  |        |  |       
|------------------------- |  | ------ |  | ------
|                          |  | 2014   |  | 2015  
|                          |  |        |  |       
|Deposits in CNOOC Finance |  | 19,462 |  | 21,707



| | (v) | Balances
                                         with the CNOOC Group
| | --- | ----------------------------------------------------------------------



|                                                     |  |       
|---------------------------------------------------- |  | ------
|                                                     |  | 2014  
|                                                     |  |       
|Amount due to CNOOC                                  |  |       
|- included in other payables and accrued liabilities |  | 240   
|Amount due to other related parties                  |  |       
|- included in trade and accrued payables             |  | 21,164
|                                                     |  | 21,404
|                                                     |  |       
|Borrowing from CNOOC (note g)                        |  | 4,244 
|Amounts due from other related parties               |  |       
|– included in trade receivables                      |  | 10,098
|– included in other current assets                   |  | 459   
|                                                     |  | 10,557



| | (vi) | Balance
                                         with a joint venture
| | ---- | ---------------------------------------------------------------------

|                                   |  |     
|---------------------------------- |  | ----
|                                   |  | 2014
|                                   |  |     
|Amounts due from a joint venture   |  |     
|– included in other current assets |  | 91  
|                                   |  | 91  





F-65


Table of Contents


CNOOC
LIMITED

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(All amounts expressed in millions of
Renminbi unless otherwise stated)





| | 30. | RELATED
                                         PARTY TRANSACTIONS (continued)
| | --- | -------------------------------------------------------------------------------



| | (vii) | Transactions
                                         and balances with other state-owned enterprises
| | ----- | -----------------------------------------------------------------------------------------------------



The
Group enters into extensive transactions covering sales of crude oil and natural gas, purchase of property, plant and equipment
and other assets, receiving of services, and making deposits and borrowings with state-owned enterprises, other than the CNOOC
Group, in the normal course of business on terms comparable to those with other non-state-owned enterprises. The purchases of
property, plant and equipment and other assets, and receipt of services from these state-owned enterprises are individually not
significant. The individually significant sales transactions with these state-owned enterprises are disclosed in note 35. In addition,
the Group had certain of its cash in bank and time deposits with certain state-owned banks in the PRC as at December 31, 2015,
as summarized below:



|                                                |  | 2014   |  | 2015  
|----------------------------------------------- |  | ------ |  | ------
|                                                |  |        |  |       
|Cash and cash equivalents                       |  | 6,067  |  | 5,416 
|Time deposits with maturity over three months   |  | 4,214  |  | -     
|Specified dismantlement fund accounts (note 20) |  | 3,981  |  | 6,570 
|                                                |  | 14,262 |  | 11,986



Interest
rates for the above time deposits and specified dismantlement fund accounts are at prevailing market rates.



| | (viii) | Key
                                         management personnel’s remuneration
| | ------ | --------------------------------------------------------------------------------



Key
management personnel’s remuneration is disclosed in note 10.



| | (ix) | Coalbed
                                         Methane Resources Exploration and Development Cooperation Agreement with China United
                                         Coalbed Methane Corporation Limited
| | ---- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|                       |  | 2014 |  | 2015 
|---------------------- |  | ---- |  | -----
|                       |  |      |  |      
|Accumulated investment |  | 896  |  | 1,263





The
amount due to the parent company and amounts due from/to related parties are unsecured, interest-free and are repayable on demand,
unless otherwise disclosed.



F-66


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CNOOC
LIMITED

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(All amounts expressed in millions of
Renminbi unless otherwise stated)





| | 30. | RELATED
                                         PARTY TRANSACTIONS (continued)
| | --- | -------------------------------------------------------------------------------



Notes:



| | a) | These
                                         represent the services for production operations, the provision of various facilities
                                         and ancillary services, such as provision of different types of materials, medical and
                                         employee welfare services, maintenance and repair of major equipment and supply of water,
                                         electricity and heat to the Group, some of which may not be available from independent
                                         third parties or available on comparable terms.
| | -- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | b) | These
                                         include marketing, administration and management, management of oil and gas operations
                                         and integrated research services as well as other ancillary services relating to exploration,
                                         development, production and research activities of the Group. In addition, the CNOOC
                                         Group leased certain premises to the Group for use as office premises and staff quarters
                                         out of which they provided management services to certain properties.
| | -- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | c) | CNOOC
                                         Energy Technology & Services Limited leased floating production, storage and offloading
                                         (FPSO) vessels to the Group for use in oil production operations.
| | -- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | d) | The
                                         sales include crude oil, condensate oil, liquefied petroleum gas, natural gas and liquefied
                                         natural gas to the CNOOC Group. Individual sales contracts were entered into from time
                                         to time between the Group and the CNOOC Group.
| | -- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | e) | It
                                         is the market practice for sales terms to be determined based on the estimated reserves
                                         and production profile of the relevant gas fields. The long term sales contracts usually
                                         last for 15 to 20 years.
| | -- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | f) | CNOOC
                                         Finance is a 31.8% owned associate of the Company and also a subsidiary of CNOOC. Under
                                         the renewed financial services framework agreement with CNOOC Finance dated November
                                         27, 2013, CNOOC Finance continues to provide to the Group settlement, depository, discounting,
                                         loans and entrustment loans services. The renewal agreement is effective from January
                                         1, 2014 to December 31, 2016. The depository services were exempted from independent
                                         shareholders’ approval requirements under the Listing Rules. The maximum daily
                                         outstanding balance for deposits stated in CNOOC Finance (including accrued interest
                                         but excluding funds placed for the purpose of extending entrustment loans pursuant to
                                         the entrustment loan services) in 2015 was RMB22,000 million (2014: RMB22,000 million).
| | -- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | g) | In
                                         September 2014, CNOOC provided CNOOC International Limited, a wholly-owned subsidiary
                                         of the Company a five-year uncommitted revolving loan facility for general purposes,
                                         with the principal amount of US$135 million of 0.95% per annum. As at December 31, 2015,
                                         the withdrawal amount of the loan was US$130 million (December 31, 2014: US$130 million);
                                         In December 2014, CNOOC provided the Company a five-year uncommitted revolving loan facility
                                         for general purposes, with the principal amount of US$600 million of 0.95% per annum.
                                         As at December 31, 2015, the withdrawal amount of the loan was US$564 million (December
                                         31, 2014: US$564 million).
| | -- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

F-67


Table of Contents


CNOOC
LIMITED

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(All amounts expressed in millions of
Renminbi unless otherwise stated)





31. RETIREMENT BENEFITS



All
the Group's full-time employees in the PRC are covered by a state-managed retirement benefit plan operated by the government of
the PRC, and are entitled to an annual pension. The PRC government is responsible for the pension liabilities to these retired
employees. The Group is required to make annual contributions to the state-managed retirement benefit plan at rates ranging from
11% to 22% of the employees' base salaries.



The
Company is required to make contributions to a defined contribution mandatory provident fund at a rate of 5% of the salaries of
all full-time employees in Hong Kong. The related pension costs are expensed as incurred.



The
Group provides retirement benefits for all local employees in overseas locations in accordance with relevant labor law, and provides
employee benefits to expatriate staff in accordance with the relevant employment contracts.



During
the year, the Group's pension costs charged to the consolidated statement of profit or loss and other comprehensive income amounted
to RMB613 million (2014: RMB845 million, 2013:RMB239 million).





| | 32. | NOTE
                                         TO THE CONSOLIDATED STATEMENT OF CASH FLOWS
| | --- | -----------------------------------------------------------------------------------------



Reconciliation
of profit before tax to cash generated from operations



|                                                                                |  | 2013    |   | 2014 |         | 2015
|------------------------------------------------------------------------------- |  | ------- | - | ---- | ------- | ----
|                                                                                |  |         |   |      |         |     
|Profit before tax                                                               |  | 80,851  |   |      | 82,513  |     
|                                                                                |  |         |   |      |         |     
|Adjustments for:                                                                |  |         |   |      |         |     
|Interest income                                                                 |  | (1,092  | ) |      | (1,073  | )   
|Finance costs                                                                   |  | 3,457   |   |      | 4,774   |     
|Exchange gains/(losses), net                                                    |  | (873    | ) |      | (1,049  | )   
|Share of profits of associates                                                  |  | (133    | ) |      | (232    | )   
|Share of profit of a joint venture                                              |  | (762    | ) |      | (774    | )   
|Investment income                                                               |  | (2,611  | ) |      | (2,684  | )   
|Impairment and provision                                                        |  | (45     | ) |      | 4,120   |     
|Depreciation, depletion and amortization                                        |  | 56,456  |   |      | 58,286  |     
|Loss/(gain) on disposal and write-off of property, plant and equipment          |  | 4,704   |   |      | (789    | )   
|Equity-settled share option expenses                                            |  | 11      |   |      | -       |     
|Others                                                                          |  | 18      |   |      | 46      |     
|Subtotal                                                                        |  | 139,981 |   |      | 143,138 |     
|                                                                                |  |         |   |      |         |     
|                                                                                |  |         |   |      |         |     
|(Increase)/decrease in trade receivables and other current assets               |  | (5,698  | ) |      | 7,471   |     
|(Increase)/decrease in inventories and supplies                                 |  | (1,775  | ) |      | (1,540  | )   
|Increase/(decrease) in trade and accrued payables and other current liabilities |  | 11,031  |   |      | (6,387  | )   
|                                                                                |  |         |   |      |         |     
|Cash generated from operations                                                  |  | 143,539 |   |      | 142,682 |     



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LIMITED

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(All amounts expressed in millions of
Renminbi unless otherwise stated)





33.	COMMITMENTS
AND CONTINGENCIES



| | (i) | Capital commitments
| | --- | -------------------



As
at December 31, 2015, the Group had the following capital commitments, principally for the construction of property, plant and
equipment:



|                                     |  | 2014    |  | 201   
|------------------------------------ |  | ------- |  | ------
|Contracted, but not provided for (1) |  | 39,630  |  | 51,296
|Authorized, but not contracted for   |  | 115,269 |  | 91,112



| | (1) | The capital commitments
contracted, but not provided for, include the estimated payments to the Ministry of Land and Resources of the PRC for the next
five years with respect to the Group's exploration and production licenses.
| | --- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



The
above table includes a commitment of approximately RMB2,688 million (December 31, 2014: RMB5,870 million) contracted with the
CNOOC Group.



Capital
commitments of a joint venture:

|                                   |  | 2014  |  | 2015 
|---------------------------------- |  | ----- |  | -----
|Contracted, but not provided for   |  | 1,612 |  | 605  
|Authorized, but not contracted for |  | -     |  | 1,321



As
at December 31, 2015, the Group had unutilized banking facilities amounting to approximately RMB60,912 million (December 31, 2014:
RMB63,623 million).



| | (ii) | Operating lease commitments
| | ---- | ---------------------------



| | a. | Office properties
| | -- | -----------------



The
Group leases certain of its office properties under operating lease arrangements. Leases for properties are negotiated for terms
ranging from 5 months to 20 years.

As
at December 31, 2015, the Group had total minimum lease payments under non-cancellable operating leases falling due as follows:



|                                                   |  | 2014  |  | 2015 
|-------------------------------------------------- |  | ----- |  | -----
|                                                   |  |       |  |      
|Commitments due:                                   |  |       |  |      
|No later than one year                             |  | 1,758 |  | 1,019
|Later than one year and not later than two years   |  | 888   |  | 650  
|Later than two years and not later than five years |  | 2,048 |  | 1,337
|Later than five years                              |  | 1,888 |  | 1,717
|                                                   |  |       |  |      
|                                                   |  | 6,582 |  | 4,723



The
above table includes minimum lease payments of approximately RMB273 million (December 31, 2014: RMB405 million) to the CNOOC Group.



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LIMITED

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(All amounts expressed in millions of
Renminbi unless otherwise stated)





33.	COMMITMENTS
AND CONTINGENCIES (continued)



| | (ii) | Operating lease commitments
(continued)
| | ---- | ---------------------------------------



| | a. | Office properties (continued)
| | -- | -----------------------------



Office
properties commitments of a joint venture:



|                                                   |  | 2014 |  | 2015
|-------------------------------------------------- |  | ---- |  | ----
|                                                   |  |      |  |     
|Commitments due:                                   |  |      |  |     
|No later than one year                             |  | 31   |  | 27  
|Later than one year and not later than two years   |  | 25   |  | 18  
|Later than two years and not later than five years |  | 33   |  | 24  
|Later than five years                              |  | 34   |  | 34  
|                                                   |  |      |  |     
|                                                   |  | 123  |  | 103 



| | b. | Plant and equipment
| | -- | -------------------



The
Group leases certain of its plant and equipment under operating lease arrangements for a term from 1 year to 25 years.



As
at December 31, 2015, the Group had total minimum lease payments under non-cancellable operating leases falling due as follows:



|                                                   |  | 2014  |  | 2015 
|-------------------------------------------------- |  | ----- |  | -----
|                                                   |  |       |  |      
|Commitments due:                                   |  |       |  |      
|No later than one year                             |  | 1,687 |  | 1,519
|Later than one year and not later than two years   |  | 774   |  | 1,179
|Later than two years and not later than five years |  | 1,863 |  | 1,497
|Later than five years                              |  | 4,458 |  | 3,966
|                                                   |  |       |  |      
|                                                   |  | 8,782 |  | 8,161



The
above table includes a commitment of approximately RMB4,075 million (December 31, 2014: RMB4,311 million) to the CNOOC Group.





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LIMITED

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(All amounts expressed in millions of
Renminbi unless otherwise stated)





| | 33. | COMMITMENTS
                                         AND CONTINGENCIES (continued)
| | --- | ----------------------------------------------------------------------------------



| | (iii) | Contingencies
| | ----- | -------------



| | a. | Two
                                         oil spill accidents ( the “Penglai 19-3 Oilfield Oil Spill Accidents”) occurred
                                         on June 4, and June 17, 2011 respectively at Platforms B and C of Penglai 19-3 oilfield,
                                         which is being operated under a production sharing contract (the “PSC”) among
                                         CNOOC China Limited, a subsidiary of the Company, and two subsidiaries of ConocoPhillips,
                                         a U.S. based oil company, among which ConocoPhillips China Inc. (the “COPC”)
                                         was the operator and responsible for the daily operations of the oilfield when the Penglai
                                         19-3 Oilfield Oil Spill Accidents occurred.
| | -- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



On
August 10, 2015, the Company received a Notice Calling for Responses from the Qingdao Maritime Court of the People’s Republic
of China for a public interest action filed by China Biodiversity Conservation and Green Development Foundation (the “Plaintiff”)
in relation to the Penglai 19-3 Oilfield Oil Spill Accidents (the “Claim”). The Claim is lodged against COPC and CNOOC
China Limited (together, the “Defendants”).The Plaintiff requires the Defendants to: (1) restore the ecological environment
in the Bohai Bay as damaged by the Penglai 19-3 Oilfield Oil Spill Accidents so that the environment will be brought back to its
original condition before the accidents occurred; (2) if the Defendants fail to set up and implement a scientific plan to restore
the ecological environment in the Bohai Bay within three months after a court judgment is granted in favor of the Plaintiff, establish
a fund specifically for the restoration of the ecological environment in the Bohai Bay. Such fund shall be supervised by a professional
public welfare foundation and the total amount of such fund shall be fixed based on the estimated costs for restoring the ecological
environment in the Bohai Bay as determined by a professional institution; and (3) bear all litigation costs incurred by the Plaintiff
in connection with the Claim. CNOOC China Limited has engaged PRC lawyers in relation to the Claim and is defending the Claim
vigorously.



The
Company is of the view that the Company’s obligations, if any, arising from the above mentioned accidents (including the
Claim disclosed in the paragraph above) shall be determined in accordance with relevant laws and regulations, the PSC and related
agreements, among others. Based on evaluations performed as of the date of the consolidated financial statements authorized for
issuance, the Company believes that it is not possible to determine provisions, if any, for the Company’s obligation determined
in the future arising from the above mentioned accidents (including the Claim disclosed in the paragraph above) in the consolidated
financial statements. The financial impact of such oil spill accidents on the Company is still uncertain, and the Company has
not made any provision for the accidents in the consolidated financial statements.



| | b. | As
                                         a Chinese Resident Enterprise, the Company may be liable to pay taxes on the deemed interest
                                         income for the funding provided to its overseas subsidiaries starting from January 1,
                                         2008. The Company has prepared contemporaneous documentation in accordance with applicable
                                         PRC tax laws and regulations and is currently awaiting confirmation from its in-charge
                                         tax authority.
| | -- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

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LIMITED

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(All amounts expressed in millions of
Renminbi unless otherwise stated)





33. COMMITMENTS AND
CONTINGENCIES (continued)

| | (iii) | Contingencies (continued)
| | ----- | -------------------------



| | c. | On
                                         July 15, 2015, an emulsion leak from a pipeline was discovered within Nexen’s Long
                                         Lake operations, located in south of Fort McMurray, Alberta, Canada. The estimated size
                                         of the leak was 5,000 m3over an area of approximately 21,900 m2
                                         mostly within a compacted pipeline corridor. There were no injuries as a result of this
                                         incident. The affected wells were suspended, and Nexen’s emergency response plan
                                         was activated. The Company places great emphasis on operation safety and has taken measures
                                         to minimize the spill's impact on the environment and wildlife. Since the incident, the
                                         Company has been working together with relevant regulatory agencies in its conduct of
                                         clean-up and remediation work at the spill site. Nexen is cooperating with the investigation
                                         of regulatory agencies.
| | -- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



The
majority of leaked bitumen in the spill area has been safely removed. Further remediation and clean-up work is underway and will
be carried out in compliance with applicable regulatory requirements. The total financial impact of this incident on the Group
is still uncertain, and the Company has not made a complete provision for the incident in the consolidated financial statements.





On
January 15, 2016, an explosion occurred at Nexen’s Long Lake site near the hydrocracker unit. Two employees died as a result
of the incident. Nexen informed the relevant regulatory authorities immediately and has been cooperating with the authorities
investigating the incident. Reasonable estimates for the financial effect cannot be determined at this stage.



The
Company maintains insurance policies that provide coverage against property damage, third party pollution clean-up and well control
losses. The Company has submitted claims to its insurers on these recent Long Lake losses and each claim is being investigated.





The
Group is subject to tax in numerous jurisdictions around the world. There are audits in progress and items under review. Difference
in positions taken by taxation authorities over the interpretation and application of tax laws and regulations may increase our
tax liability. Management has assessed the possible future outcome of matters that are currently under dispute. The Company believes
that an adequate provision for future tax liability has been included in the consolidated financial statements based on available
information.



In
addition to the matters mentioned above, the Group is dealing with a number of other lawsuits and arbitrations that arise in the
ordinary course of business. While the results of these legal proceedings cannot be ascertained at this stage, the Company believes
these proceedings are not expected to have a material effect on the consolidated financial statements.



| | 34. | FINANCIAL INSTRUMENTS
| | --- | ---------------------



Fair
value of financial instruments



The
Group enters into contracts to purchase and sell crude oil, natural gas and other energy commodities, and use derivative contracts,
including futures, forwards, swaps and options for hedging and trading purposes (collectively derivative contracts). The Group
also use derivatives to manage foreign currency risk for non-trading purposes. The total gains or losses in profit or loss for
the year attributable to the realized and unrealized gains or losses relating to total derivative financial assets and liabilities
that are included in "marketing revenues" is RMB114 million (2014: RMB1,030 million, 2013: RMB1,667 million ).



For
purposes of estimating the fair value of the derivative contracts, wherever possible, the Group utilizes quoted market price and,
if not available, estimates from third-party brokers. These brokers’ estimates are corroborated with multiple sources and/or
other observable market data utilizing assumptions that market participants would use when pricing the assets or liabilities,
including assumptions about risk and market liquidity.



The
carrying values of the Group’s cash and cash equivalents, time deposits, trade receivables, other current assets, short-term
loans, trade and accrued payables, other payables and accrued liabilities approximated to their fair values at the reporting date
due to the short maturity of these instruments.

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CNOOC
LIMITED

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(All amounts expressed in millions of
Renminbi unless otherwise stated)







| | 34. | FINANCIAL
                                         INSTRUMENTS (continued)
| | --- | --------------------------------------------------------------------------



Fair
value of financial instruments (continued)



The
carrying amount of the Group’s non-current non-publicly traded equity investments represents an appropriate estimate of
their fair values, as insufficient more recent information is available to measure their fair values as at December 31, 2015.



The
fair value of the Group's long term bank loans with floating interest rates approximated to the carrying amount as at December
31, 2015 and 2014.



The
estimated fair value of the Group's long term guaranteed notes was approximately RMB133,629 million as at December 31, 2015 (2014:
RMB108,106 million), which was determined by reference to the market price as at December 31, 2015.



Fair
value hierarchy



The
Group uses the following hierarchy that reflects the significance of the inputs used in making the fair value measurement:



Level
1: quoted prices (unadjusted) in active markets for identical assets or liabilities. Active markets are those in which transaction
occur in sufficient frequency and volume to provide pricing information on an on-going basis.



Level
2: fair value measurements are those derived from inputs other than quoted prices included within Level 1 that are observable
for the asset or liability, either directly or indirectly. Instruments in this category include non-exchange traded derivatives
such as over-the-counter physical forwards and options, including those that have prices similar to quoted market prices, private
equity funds and corporate wealth management products. The Group obtains information from sources of independent price publications,
over-the-counter broker quotes and the fund management’s quotations as at the reporting date.



Level
3: fair value measurements are those derived from valuation techniques that include inputs for the asset or liability that are
not based on observable market data (unobservable inputs), or where the observable data does not support the majority of the instruments
fair value.



As
at December 31, 2015 and December 31, 2014, the Group held the following financial instruments measured at fair value for each
hierarchy respectively:



|Assets measured at fair value              |  | December 31 2015 |  | Level 1 |  | Level 2 |  | Level 3
|------------------------------------------ |  | ---------------- |  | ------- |  | ------- |  | -------
|Other financial assets-current             |  |                  |  |         |  |         |  |        
|Corporate wealth management products       |  | 64,002           |  | -       |  | 64,002  |  | -      
|Liquidity funds                            |  | 7,804            |  | 7,804   |  | -       |  | -      
|Derivative financial assets – current      |  | 7                |  | -       |  | 7       |  | -      
|Equity investments                         |  |                  |  |         |  |         |  |        
|Non-publicly traded investments- current   |  | 14               |  | -       |  | 14      |  | -      
|Publicly traded investments-non current    |  | 1,142            |  | 1,142   |  | -       |  | -      
|                                           |  | 72,969           |  | 8,946   |  | 64,023  |  | -      
|                                           |  |                  |  |         |  |         |  |        
|Liabilities measured at fair value         |  |                  |  |         |  |         |  |        
|Derivative financial liabilities – current |  | -                |  | -       |  | -       |  | -      





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CNOOC
LIMITED

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(All amounts expressed in millions of
Renminbi unless otherwise stated)





| | 34. | FINANCIAL
                                         INSTRUMENTS (continued)
| | --- | --------------------------------------------------------------------------



Fair
value hierarchy (continued)



|Assets measured at fair value                   |  | December 31 2014 |   | Level 1 |       | Level 2 |  | Level 3
|----------------------------------------------- |  | ---------------- | - | ------- | ----- | ------- |  | -------
|Available-for-sale financial assets-current     |  |                  |   |         |       |         |  |        
|Private equity funds                            |  | 13               |   |         | -     |         |  | 13     
|Corporate wealth management products            |  | 48,564           |   |         | -     |         |  | 48,564 
|Liquidity funds                                 |  | 5,453            |   |         | 5,453 |         |  | -      
|Derivative financial assets – current           |  | 303              |   |         | 96    |         |  | 47     
|                                                |  | 54,333           |   |         | 5,549 |         |  | 48,624 
|Available-for-sale financial assets-non current |  |                  |   |         |       |         |  |        
|Equity investment                               |  | 3,092            |   |         | 3,092 |         |  | -      
|                                                |  | 3,092            |   |         | 3,092 |         |  | -      
|                                                |  |                  |   |         |       |         |  |        
|Liabilities measured at fair value              |  |                  |   |         |       |         |  |        
|Derivative financial liabilities – current      |  | (316             | ) |         | (264  | )       |  | (23    



For
financial assets and liabilities arising from derivative contracts, inputs may be readily observable, market-corroborated or generally
unobservable. The Group utilizes valuation techniques that seek to maximize the use of observable inputs and minimize the use
of unobservable inputs. To value longer term transactions and transactions in less active markets for which pricing information
is not generally available, unobservable inputs may be used. In these instances, internally developed methodologies are used to
determine fair value, which primarily includes extrapolation of observable future prices to similar locations, similar instruments
or later time periods. Key inputs are forward price of the underlying commodity, which may be observable or unobservable, discount
rate and foreign exchange rates. The derivatives are classified according to the above fair value hierarchy based on the amount
of observable inputs used to value the instruments. For derivatives categorised within level 3 of the fair value hierarchy, the
significant unobservable inputs used in the fair value measurement includes the extrapolation of future price of commodity.



No
amounts have been transferred between the different levels of the fair value hierarchy for the year.



A reconciliation
of changes in the fair value of the derivatives classified as Level 3 for the year ended December 31, 2015 and 2014 is provided
below:



Level
3 Reconciliation of derivative financial assets and liabilities, net



|                              |  | 2014 |   | 2015
|----------------------------- |  | ---- | - | ----
|                              |  |      |   |     
|Fair value, beginning of year |  | 115  |   |     
|Realized gains                |  | 541  |   |     
|Unrealized gains              |  | 132  |   |     
|Settlements                   |  | (657 | ) |     
|Exchange difference           |  | -    |   |     
|                              |  |      |   |     
|Fair value, end of year       |  | 131  |   |     



Items
classified in Level 3 are generally economically hedged such that gains or losses on positions classified in Level 3 are often
offset by gains or losses on positions classified in Level 1 or Level 2.

F-74


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CNOOC
LIMITED

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(All amounts expressed in millions of
Renminbi unless otherwise stated)





| | 35. | CONCENTRATION
                                         OF CUSTOMERS
| | --- | -------------------------------------------------------------------



A
substantial portion of the Group's oil and gas sales to third-party customers is made to a small number of customers on credit.
Details of the gross sales to these top five third party customers are as follows:



|                                        |  | 2013   |  | 2014   |  | 2015  
|--------------------------------------- |  | ------ |  | ------ |  | ------
|China Petroleum & Chemical Corporation* |  | 29,855 |  | 25,055 |  | 14,692
|Royal Dutch Shell plc                   |  | 11,777 |  | 16,724 |  | 6,917 
|PetroChina Company Limited*             |  | 14,312 |  | 14,048 |  | 5,502 
|Phillips 66 Co.                         |  | 17,708 |  | 15,057 |  | 4,554 
|ExxonMobil Corporation                  |  | 13,082 |  | 14,429 |  | 4,548 



| | * | These
                                         transactions are with other state-owned enterprises.
| | - | ---------------------------------------------------------------------------------------------------



| | 36. | FINANCIAL
                                         RISK MANAGEMENT OBJECTIVES AND POLICIES
| | --- | ------------------------------------------------------------------------------------------



The
Group's principal financial instruments comprise bank loans, long term guaranteed notes, equity investments and other financial
assets/ available-for-sale financial assets, cash and short term deposits. The Group has various other financial assets and liabilities
such as trade receivables, trade and accrued payables, which arise directly from its operations.



The
Group is exposed to credit risk, oil and gas price risk, currency risk, interest rate risk and liquidity risk.



The
Group's senior management oversees the management of these risks. The Group's senior management is supported by various departments
that advise on financial risks and the appropriate financial risks governance framework for the Group. Those departments provide
assurance to the Group's senior management that the Group's financial risk-taking activities are governed by appropriate policies
and procedures and that financial risks are identified, measured and managed in accordance with group policies and group risk
appetite.



| | (i) | Credit
                                         risk
| | --- | ----------------------------------------------------



The
carrying amounts of the Group's cash and cash equivalents, time deposits, liquidity funds investments and corporate wealth management
products, trade receivables and other receivables, and other current assets except for prepayments represent the Group's maximum
exposure to credit risk in relation to its financial assets.



The
significant portion of the Group's trade receivables is related to the sale of oil and natural gas to third party customers. The
Group performs ongoing credit evaluations of the customers' financial condition and collateral may be required from customers.
The Group made an impairment allowance on doubtful receivables and actual losses have been within management's expectation.



Concentrations
of credit risk are managed by customer/counterparty and by geographical region. At December 31, 2015, the Group has certain concentrations
of credit risk as 7% (2014: 11%) and 10% (2014: 15%) of the Group's trade receivables were due from the Group's largest third-party
customer and the five largest third-party customers, respectively.



No
other financial assets carry a significant exposure to credit risk.



| | (ii) | Oil
                                         and gas price risk
| | ---- | ---------------------------------------------------------------



Since
the Group makes reference to international oil prices to determine its realized oil price, fluctuations in international oil price
would have a significant impact on the Group's sale revenue, profit, assets value and cashflow. In addition, certain of the Group's
natural gas sales contracts contain price adjustment provisions. Any changes in international oil prices, inflation rate and domestic
natural gas price policies may result in changes in natural gas prices, which will affect the Group's profitability. In North
America, the majority of the Group's oil and gas production is sold under short-term contracts, exposing the Group to the risk
of price movements. Other energy contracts the Group enters into also expose the Group to commodity price risk between the time
the Group purchases and sells contracted volumes.

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CNOOC
LIMITED

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(All amounts expressed in millions of
Renminbi unless otherwise stated)







| | 36. | FINANCIAL
                                         RISK MANAGEMENT OBJECTIVES AND POLICIES (continued)
| | --- | ------------------------------------------------------------------------------------------------------



| | (iii) | Currency
                                         risk
| | ----- | ------------------------------------------------------



Substantially
all of the Group's oil and gas sales are denominated in Renminbi and United States dollars ("US dollars"). Starting
from July 21, 2005, China reformed the exchange rate regime by moving into a managed floating exchange rate regime based on market
supply and demand with reference to a basket of currencies. Renminbi would no longer be pegged to the US dollars. From January
1, 2015 to December 31, 2015 (the last working day in 2015), Renminbi has depreciated by approximately 5.77% against the US dollars.
At December 31, 2015, approximately 89% (December 31, 2014: 79%, December 31, 2013: 79%) of the Group's cash and cash equivalents
and time deposits with maturity over three months were denominated in Renminbi, and the remaining amounts were substantially denominated
in US dollars and Hong Kong dollars. The Group also have exposures to currencies other than the US dollars, such as Canadian dollar
and British Pounds as such exposures are considered insignificant.



Management
has assessed the Group's exposure to foreign currency risk by using a sensitivity analysis on the change in foreign exchange rate
of the US dollars, to which the Group is mainly exposed to as at December 31, 2014 and 2015. Based on management's assessment,
a 5% change in the foreign exchange rate of the US dollars at December 31, 2015 would have impacted the profit for the year of
the Group by 0.09% (December 31, 2014: 0.06%) and the equity of the Group by 0.12% (December 31, 2014: 0.50%). This analysis has
been determined assuming that the change in foreign exchange rates had occurred at the end of the reporting period and had been
applied to the foreign currency balances to which the Group has significant exposure with all other variables held constant. The
analysis is performed on the same basis for 2014.



Senior
management are closely monitoring the Group's net exposure to foreign currency risk. The depreciation of Renminbi against the
US dollars may have the following impact on the Group. On one hand, since the benchmark oil and gas prices are usually in US dollars
against Renminbi, the Group's oil and gas sales may increase due to the appreciation of the US dollars against Renminbi. On the
other hand, the appreciation of the US dollars against Renminbi will also increase the Group's costs for imported equipment and
materials, most of which are denominated in the US dollars.



| | (iv) | Interest
                                         rate risk
| | ---- | -----------------------------------------------------------



The
interest rate risk is closely monitored by the Group's senior management. As at the end of 2015, the interest rates for 84.2%
of the Group's debts were fixed. Apart from borrowing for Tangguh LNG Project, all of the Group's long term debts are fixed rate.
The weighted average term of the Group's debt balance outstanding was approximately 9.02 years. The fixed interest rates can reduce
the volatility of finance costs under uncertain environments and the Group's exposure to changes in interest rates is not expected
to be material.



| | (v) | Liquidity
                                         risk
| | --- | -------------------------------------------------------



The
Group manages its liquidity risk by regularly monitoring its liquidity requirements and its compliance with debt covenants to
ensure that it maintains sufficient cash and cash equivalents, readily realizable equity investments and other financial assets/
available-for-sale financial assets, and adequate time deposits to meet its liquidity requirements in the short and long term.
In addition, bank facilities have been put in place for contingency purposes.



The
Group's trade and accrued payables, other payables and accrued liabilities are all due for settlement within six months after
the reporting date.

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CNOOC
LIMITED

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(All amounts expressed in millions of
Renminbi unless otherwise stated)





| | 36. | FINANCIAL
                                         RISK MANAGEMENT OBJECTIVES AND POLICIES (continued)
| | --- | ------------------------------------------------------------------------------------------------------



| | (vi) | Capital
                                         management
| | ---- | -----------------------------------------------------------



The
primary objectives of the Group's capital management are to safeguard the Group's ability to continue as a going concern and to
maintain healthy capital ratios in order to support its business and maximize shareholders' value.



The
Group manages its capital structure and makes adjustments to it in light of changes in economic conditions. To maintain or adjust
the capital structure, the Group may return capital to shareholders, raise new debt or issue new shares. No changes were made
in the objectives, policies or processes for managing capital during the years end December 31, 2013, 2014 and 2015.



The
Group monitors capital on the basis of the debt to capital ratio, which is calculated as interest-bearing debts divided by total
capital (equity attributable to owners of the parent plus interest-bearing debts).



|                                            |  | 2013    |  | 2014    |  | 2015   
|------------------------------------------- |  | ------- |  | ------- |  | -------
|                                            |  |         |  |         |  |        
|Interest-bearing debts                      |  | 131,852 |  | 136,563 |  | 164,645
|Equity attributable to owners of the parent |  | 341,620 |  | 379,610 |  | 386,041
|Total capital                               |  | 473,472 |  | 516,173 |  | 550,686
|                                            |  |         |  |         |  |        
|Gearing ratio                               |  | 27.8%   |  | 26.5%   |  | 29.9%  





| | 37. | CHARGE
                                         OF ASSETS
| | --- | ---------------------------------------------------------



CNOOC
NWS Private Limited, a wholly-owned subsidiary of the Group, together with the other joint venture partners and the operator of
the NWS Project, signed a Deed of Cross Charge and an Extended Deed of Cross Charge whereby certain liabilities incurred or to
be incurred, if any, by the Company in respect of the NWS Project are secured by its interest in the NWS Project.





| | 38. | SUBSEQUENT
                                         EVENTS
| | --- | ----------------------------------------------------------



Except
for the matter mentioned in Note 33 (c), the Group has no other significant subsequent events needed to be disclosed in the consolidated
financial statements.



| | 39. | APPROVAL
                                         OF THE FINANCIAL STATEMENTS
| | --- | -----------------------------------------------------------------------------



The
consolidated financial statements were approved and authorized for issue by the Board of Directors on March 24, 2016.





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CNOOC
LIMITED

SUPPLEMENTARY
INFORMATION ON OIL AND GAS PRODUCING ACTIVITIES

(UNAUDITED)

(All
amounts expressed in millions of Renminbi unless otherwise stated)





The
following disclosures are included in accordance with the FASB Accounting Standard Codification 932 “Extractive Activities-Oil
and Gas (the “ASC 932”).



The
regional analysis presented below is on a continent basis, with separate disclosure for countries that contain 15% or more of
the total proved reserve, in accordance with SEC and FASB requirements.



Reserve
quantity information

Crude
oil and natural gas reserve estimates are determined through analysis of geological and engineering data which appear, with reasonable
certainty, to be economically producible in the future from known oil and natural gas reservoirs under existing economic and operating
conditions. The reserve data that we disclosed were all based on the definitions and disclosure guidelines contained in the US
Securities and Exchange Commission’s final rules on “Modernization of oil and Gas Reporting” (the “SEC
Final Rule”).



For
the years 2015, 2014 and 2013, approximately 62%, 52% and 52%, respectively, of our total proved reserves were evaluated by us,
and the remaining were evaluated by independent third parties.



We
implemented rigorous internal control system that monitors the entire reserves estimation process and certain key metrics in order
to ensure that the process and results of reserves estimates fully comply with the relevant SEC rules.



We
established the Reserve Management Committee, or RMC, which is led by one of our Executive Vice Presidents and comprises the general
managers of the relevant departments.



The
RMC’s main responsibilities are to:



| | · | review
our reserves policies;
| | - | -----------------------------



| | · | review
our proved reserves and other categories of reserves; and
| | - | ----------------------------------------------------------------
| |   |                                                                 

| | · | select
                                         our reserves estimators and auditors.
| | - | -------------------------------------------------------------------------------------



The
RMC follows certain procedures to appoint our internal reserves estimators and reserves auditors, who are required to have undergraduate
degrees and at least five years and ten years of experience related to reserves estimation, respectively.



The
reserves estimators and auditors are required to be members of a professional society, such as China Petroleum Society (CPS),
and are required to take the professional trainings and examinations as required by the professional society and us.



The
RMC delegates its daily operation to our Reserves Office, which is led by our Chief Reserve Supervisor. The Reserves Office is
mainly responsible for supervising reserves estimates and auditing. It reports to the RMC periodically and is independent from
operating divisions such as the exploration, development and production departments. Our Chief Reserve Supervisor has more than
30 years’ experience in oil and gas industry.



The
Group’s net proved reserves consist of its 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 the PRC, less
(i) 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 (ii) 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 plus the participating interest in the properties covered under the production
sharing contracts in oversea countries, less adjustments, if any, of share oil attributable to the host government and the domestic
market obligation.



Pursuant
to SEC Final Rule, the Group uses the average, first-day-of-the-month oil price during the 12-month period before the ending date
of the period covered by the consolidated financial statements to estimate its proved oil and gas reserves.



The
Company determines its net entitlement oil and gas reserves under production sharing contracts using the economic interest method.



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CNOOC
LIMITED

SUPPLEMENTARY
INFORMATION ON OIL AND GAS PRODUCING ACTIVITIES

(UNAUDITED)

(All
amounts expressed in millions of Renminbi unless otherwise stated)





| | (a) | Reserve
                                         quantity information (continued)
| | --- | ---------------------------------------------------------------------------------



Proved
developed and undeveloped reserves:



|                                    |  | PRC     |  | Asia (excluding PRC) |  | Oceania |  | Africa      |  | Canada* |  |             |  |         |  | North America(excluding Canada) * |  | South America |  | Europe      |  | Total        
|----------------------------------- |  | ------- |  | -------------------- |  | ------- |  | ----------- |  | ------- |  | ----------- |  | ------- |  | --------------------------------- |  | ------------- |  | ----------- |  | -------------
|                                    |  | Oil     |  | Natural gas          |  | Oil     |  | Natural gas |  | Oil     |  | Natural gas |  | Oil     |  | Natural gas                       |  | Oil           |  | Natural gas |  | Synthetic oil
|                                    |  | (mmbls) |  | (bcf)                |  | (mmbls) |  | (bcf)       |  | (mmbls) |  | (bcf)       |  | (mmbls) |  | (bcf)                             |  | (mmbls)       |  | (bcf)       |  | (mmbls)      
|Consolidated
    entities           |  |         |  |                      |  |         |  |             |  |         |  |             |  |         |  |                                   |  |               |  |             |  |              
|31 December 2012                    |  | 1,666   |  | 4,460                |  | 65      |  | 800         |  | 17      |  | 409         |  | 136     |  | -                                 |  | -             |  | -           |  | -            
|Purchase/(Disposal)
    of reserves |  | -       |  | -                    |  | 1       |  | -           |  | -       |  | -           |  | 27      |  | -                                 |  | -             |  | 65          |  | 579          
|Discoveries and extensions          |  | 226     |  | 376                  |  | -       |  | 74          |  | -       |  | -           |  | 1       |  | -                                 |  | -             |  | 45          |  | 7            
|Improved Recovery                   |  | -       |  | -                    |  | -       |  | -           |  | -       |  | -           |  | -       |  | -                                 |  | -             |  | -           |  | -            
|Production                          |  | (223)   |  | (232)                |  | (11)    |  | (51)        |  | (2)     |  | (36)        |  | (28)    |  | -                                 |  | -             |  | (39)        |  | (15)         
|Revisions of prior estimates        |  | 24      |  | (128)                |  | 29      |  | 66          |  | 1       |  | 13          |  | 19      |  | -                                 |  | -             |  | 124         |  | 165          
|31 December 2013                    |  | 1,693   |  | 4,476                |  | 84      |  | 889         |  | 16      |  | 386         |  | 155     |  | -                                 |  | -             |  | 195         |  | 736          
|Purchase/(Disposal) of reserves     |  | -       |  | -                    |  | -       |  | -           |  | -       |  | -           |  | -       |  | -                                 |  | -             |  | (38)        |  | -            
|Discoveries and extensions          |  | 201     |  | 752                  |  | -       |  | 11          |  | -       |  | 6           |  | 2       |  | -                                 |  | -             |  | 93          |  | 92           
|Improved Recovery                   |  | -       |  | -                    |  | -       |  | -           |  | -       |  | -           |  | -       |  | -                                 |  | -             |  | -           |  | -            
|Production                          |  | (229)   |  | (235)                |  | (14)    |  | (56)        |  | (2)     |  | (41)        |  | (28)    |  | -                                 |  | -             |  | (43)        |  | (16)         
|Revisions of prior estimates        |  | 26      |  | (236)                |  | (23)    |  | 17          |  | 2       |  | 104         |  | 13      |  | -                                 |  | -             |  | 27          |  | (62)         
|31
    December 2014                |  | 1,692   |  | 4,757                |  | 47      |  | 861         |  | 17      |  | 456         |  | 143     |  | -                                 |  | -             |  | 233         |  | 750          
|Purchase/(Disposal) of reserves     |  | -       |  | -                    |  | -       |  | -           |  | -       |  | -           |  | -       |  | -                                 |  | -             |  | -           |  | -            
|Discoveries and extensions          |  | 267     |  | 1,491                |  | -       |  | 10          |  | -       |  | -           |  | 3       |  | -                                 |  | -             |  | -           |  | 8            
|Improved Recovery                   |  | -       |  | -                    |  | -       |  | -           |  | -       |  | -           |  | -       |  | -                                 |  | -             |  | -           |  | -            
|Production                          |  | (278)   |  | (267)                |  | (17)    |  | (51)        |  | (1)     |  | (34)        |  | (31)    |  | -                                 |  | -             |  | (25)        |  | (15)         
|Revisions of prior estimates        |  | (250)   |  | (626)                |  | 29      |  | 26          |  | (1)     |  | (32)        |  | 52      |  | -                                 |  | -             |  | (89)        |  | 73           
|31
    December 2015                |  | 1,431   |  | 5,355                |  | 60      |  | 846         |  | 15      |  | 389         |  | 167     |  | -                                 |  | -             |  | 119         |  | 815          



F-79


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CNOOC
LIMITED

SUPPLEMENTARY
INFORMATION ON OIL AND GAS PRODUCING ACTIVITIES

(UNAUDITED)

(All
amounts expressed in millions of Renminbi unless otherwise stated)





| | (a) | Reserve quantity information
(continued)
| | --- | ----------------------------------------



Proved
developed and undeveloped reserves: (continued)





|                                                        |  | PRC     |  | Asia (excluding PRC) |  | Oceania |  | Africa      |  |         |  | Canada*     |  |         |  |             |  |         |  | North America(excluding Canada) |  | South America |  | Europe  |  | Total  
|------------------------------------------------------- |  | ------- |  | -------------------- |  | ------- |  | ----------- |  | ------- |  | ----------- |  | ------- |  | ----------- |  | ------- |  | ------------------------------- |  | ------------- |  | ------- |  | -------
|                                                        |  | Oil     |  | Natural gas          |  | Oil     |  | Natural gas |  | Oil     |  | Natural gas |  | Oil     |  | Natural gas |  | Oil     |  | Natural gas                     |  | Synthetic oil |  | Bitumen |  | Oil    
|                                                        |  | (mmbls) |  | (bcf)                |  | (mmbls) |  | (bcf)       |  | (mmbls) |  | (bcf)       |  | (mmbls) |  | (bcf)       |  | (mmbls) |  | (bcf)                           |  | (mmbls)       |  | (mmbls) |  | (mmbls)
|Enterprise’s
    share of equity method investees:      |  |         |  |                      |  |         |  |             |  |         |  |             |  |         |  |             |  |         |  |                                 |  |               |  |         |  |        
|31 December 2012                                        |  | 1       |  | 5                    |  | -       |  | -           |  | -       |  | -           |  | -       |  | -           |  | -       |  | -                               |  | -             |  | -       |  | -      
|Purchase/(Disposal) of reserves                         |  | -       |  | -                    |  | -       |  | -           |  | -       |  | -           |  | -       |  | -           |  | -       |  | -                               |  | -             |  | -       |  | -      
|Discoveries and extensions                              |  | -       |  | -                    |  | -       |  | -           |  | -       |  | -           |  | -       |  | -           |  | -       |  | -                               |  | -             |  | -       |  | -      
|Improved Recovery                                       |  | -       |  | -                    |  | -       |  | -           |  | -       |  | -           |  | -       |  | -           |  | -       |  | -                               |  | -             |  | -       |  | -      
|Production                                              |  | -       |  | (2)                  |  | -       |  | -           |  | -       |  | -           |  | -       |  | -           |  | -       |  | -                               |  | -             |  | -       |  | -      
|Revisions
    of prior estimates                        |  | -       |  | 1                    |  | -       |  | -           |  | -       |  | -           |  | -       |  | -           |  | -       |  | -                               |  | -             |  | -       |  | -      
|31 December 2013                                        |  | 1       |  | 4                    |  | -       |  | -           |  | -       |  | -           |  | -       |  | -           |  | -       |  | -                               |  | -             |  | -       |  | -      
|Purchase/(Disposal) of reserves                         |  | -       |  | -                    |  | -       |  | -           |  | -       |  | -           |  | -       |  | -           |  | -       |  | -                               |  | -             |  | -       |  | -      
|Discoveries and extensions                              |  | -       |  | -                    |  | -       |  | -           |  | -       |  | -           |  | -       |  | -           |  | -       |  | -                               |  | -             |  | -       |  | -      
|Improved Recovery                                       |  | -       |  | -                    |  | -       |  | -           |  | -       |  | -           |  | -       |  | -           |  | -       |  | -                               |  | -             |  | -       |  | -      
|Production                                              |  | -       |  | (2)                  |  | -       |  | -           |  | -       |  | -           |  | -       |  | -           |  | -       |  | -                               |  | -             |  | -       |  | -      
|Revisions
    of prior estimates                        |  | -       |  | 1                    |  | -       |  | -           |  | -       |  | -           |  | -       |  | -           |  | -       |  | -                               |  | -             |  | -       |  | -      
|31 December 2014                                        |  | 1       |  | 3                    |  | -       |  | -           |  | -       |  | -           |  | -       |  | -           |  | -       |  | -                               |  | -             |  | -       |  | -      
|Purchase/(Disposal) of reserves                         |  | -       |  | -                    |  | -       |  | -           |  | -       |  | -           |  | -       |  | -           |  | -       |  | -                               |  | -             |  | -       |  | -      
|Discoveries and extensions                              |  | -       |  | -                    |  | -       |  | -           |  | -       |  | -           |  | -       |  | -           |  | -       |  | -                               |  | -             |  | -       |  | -      
|Improved Recovery                                       |  | -       |  | 5                    |  | -       |  | -           |  | -       |  | -           |  | -       |  | -           |  | -       |  | -                               |  | -             |  | -       |  | -      
|Production                                              |  | -       |  | (2)                  |  | -       |  | -           |  | -       |  | -           |  | -       |  | -           |  | -       |  | -                               |  | -             |  | -       |  | -      
|Revisions
    of prior estimates                        |  | -       |  | -                    |  | -       |  | -           |  | -       |  | -           |  | -       |  | -           |  | -       |  | -                               |  | -             |  | -       |  | -      
|31 December 2015                                        |  | 1       |  | 6                    |  | -       |  | -           |  | -       |  | -           |  | -       |  | -           |  | -       |  | -                               |  | -             |  | -       |  | -      
|Total
    consolidated and equity Interests in reserves |  |         |  |                      |  |         |  |             |  |         |  |             |  |         |  |             |  |         |  |                                 |  |               |  |         |  |        
|31 December 2013                                        |  | 1,693   |  | 4,480                |  | 84      |  | 889         |  | 16      |  | 386         |  | 155     |  | -           |  | -       |  | 195                             |  | 736           |  | 34      |  | 175    
|31 December 2014                                        |  | 1,692   |  | 4,760                |  | 47      |  | 861         |  | 17      |  | 456         |  | 143     |  | -           |  | -       |  | 233                             |  | 750           |  | 31      |  | 209    
|31 December 2015                                        |  | 1,431   |  | 5,361                |  | 60      |  | 846         |  | 15      |  | 389         |  | 167     |  | -           |  | -       |  | 119                             |  | 815           |  | -       |  | 239    



*
As the Group's proved reserves in Canada were over 15% of the Group's total proved reserves since the end of 2013, the Group's
proved reserves and related information in Canada are disclosed separately from year 2013 and after. For year 2012 and prior years,
Canada were included in North America if applicable and disclosed on a combined basis.

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CNOOC
LIMITED

SUPPLEMENTARY
INFORMATION ON OIL AND GAS PRODUCING ACTIVITIES

(UNAUDITED)

(All
amounts expressed in millions of Renminbi unless otherwise stated)





| | (a) | Reserve quantity information
(continued)
| | --- | ----------------------------------------



Proved developed reserves:



|                                               |  | PRC     | Asia(excluding PRC) | Oceania     | Africa | Canada  |  | North America(excluding Canada) | South America | Europe  | Total
|---------------------------------------------- |  | ------- | ------------------- | ----------- | ------ | ------- |  | ------------------------------- | ------------- | ------- | -----
|                                               |  | Oil     |                     | Natural gas |        | Oil     |  | Natural gas                     |               | Oil     |      
|                                               |  | (mmbls) |                     | (bcf)       |        | (mmbls) |  | (bcf)                           |               | (mmbls) |      
|                                               |  |         |                     |             |        |         |  |                                 |               |         |      
|Consolidated entities                          |  |         |                     |             |        |         |  |                                 |               |         |      
|31 December 2013                               |  | 700     |                     | 1,337       |        | 24      |  | 415                             |               | 8       |      
|31 December 2014                               |  | 759     |                     | 1,775       |        | 24      |  | 375                             |               | 12      |      
|31 December 2015                               |  | 809     |                     | 1,757       |        | 40      |  | 439                             |               | 10      |      
|                                               |  |         |                     |             |        |         |  |                                 |               |         |      
|Enterprise’s share of equity method investees: |  |         |                     |             |        |         |  |                                 |               |         |      
|31 December 2013                               |  | 1       |                     | 4           |        | -       |  | -                               |               | -       |      
|31 December 2013                               |  | 1       |                     | 3           |        | -       |  | -                               |               | -       |      
|31 December 2013                               |  | 1       |                     | 6           |        | -       |  | -                               |               | -       |      





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CNOOC
LIMITED

SUPPLEMENTARY
INFORMATION ON OIL AND GAS PRODUCING ACTIVITIES

(UNAUDITED)

(All
amounts expressed in millions of Renminbi unless otherwise stated)



| | (a) | Reserve quantity information
(continued)
| | --- | ----------------------------------------



Proved undeveloped
reserves:



|                                                 |  | PRC     |  | Asia(excluding PRC) |  | Oceania |  | Africa      |  | Canada  |  | North America(excluding Canada) |  | South America |  | Europe      |  | Total  
|------------------------------------------------ |  | ------- |  | ------------------- |  | ------- |  | ----------- |  | ------- |  | ------------------------------- |  | ------------- |  | ----------- |  | -------
|                                                 |  | Oil     |  | Natural gas         |  | Oil     |  | Natural gas |  | Oil     |  | Natural gas                     |  | Oil           |  | Natural gas |  | Oil    
|                                                 |  | (mmbls) |  | (bcf)               |  | (mmbls) |  | (bcf)       |  | (mmbls) |  | (bcf)                           |  | (mmbls)       |  | (bcf)       |  | (mmbls)
|                                                 |  |         |  |                     |  |         |  |             |  |         |  |                                 |  |               |  |             |  |        
|Consolidated entities                            |  |         |  |                     |  |         |  |             |  |         |  |                                 |  |               |  |             |  |        
|31 December 2013                                 |  | 992     |  | 3,139               |  | 59      |  | 474         |  | 8       |  | 203                             |  | 96            |  | -           |  | -      
|31 December 2014                                 |  | 932     |  | 2,982               |  | 24      |  | 487         |  | 5       |  | 109                             |  | 95            |  | -           |  | -      
|31 December 2015                                 |  | 622     |  | 3,598               |  | 20      |  | 406         |  | 5       |  | 116                             |  | 114           |  | -           |  | -      
|                                                 |  |         |  |                     |  |         |  |             |  |         |  |                                 |  |               |  |             |  |        
|Enterprise’s share of equity   method investees: |  |         |  |                     |  |         |  |             |  |         |  |                                 |  |               |  |             |  |        
|31 December 2013                                 |  | -       |  | -                   |  | -       |  | -           |  | -       |  | -                               |  | -             |  | -           |  | -      
|31 December 2014                                 |  | -       |  | -                   |  | -       |  | -           |  | -       |  | -                               |  | -             |  | -           |  | -      
|31 December 2015                                 |  | -       |  | -                   |  | -       |  | -           |  | -       |  | -                               |  | -             |  | -           |  | -      



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CNOOC
LIMITED

SUPPLEMENTARY
INFORMATION ON OIL AND GAS PRODUCING ACTIVITIES

(UNAUDITED)

(All
amounts expressed in millions of Renminbi unless otherwise stated)



| | (b) | Results of operations
| | --- | ---------------------



|                                             |  |         |   | 2013                 
|-------------------------------------------- |  | ------- | - | ---------------------
|                                             |  |         |   | Consolidated entities
|                                             |  | PRC     |   |                      
|                                             |  |         |   |                      
|Net sales
    to customers                   |  | 157,458 |   |                      
|Operating expenses                           |  | (15,961 | ) |                      
|Taxes other than income tax                  |  | (14,585 | ) |                      
|Exploration expense                          |  | (9,939  | ) |                      
|Accretion expense                            |  | (1,406  | ) |                      
|Depreciation, depletion and
    amortization |  | (27,992 | ) |                      
|Special
    oil gain levy                    |  | (23,421 | ) |                      
|                                             |  | 64,154  |   |                      
|                                             |  |         |   |                      
|Income
    tax expense                       |  | (16,038 | ) |                      
|                                             |  |         |   |                      
|Result of operations                         |  | 48,116  |   |                      



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CNOOC
LIMITED

SUPPLEMENTARY
INFORMATION ON OIL AND GAS PRODUCING ACTIVITIES

(UNAUDITED)

(All
amounts expressed in millions of Renminbi unless otherwise stated)





| | (b) | Results of operations
(continued)
| | --- | ---------------------------------



|                                                        |  |        |   | 2013                                              
|------------------------------------------------------- |  | ------ | - | --------------------------------------------------
|                                                        |  |        |   | Enterprise’s
    share of equity method investees:
|                                                        |  | PRC    |   | Asia
    (excluding PRC)                          
|                                                        |  |        |   |                                                   
|Net
    sales to customers                              |  | 284    |   |                                                   
|Operating
    expenses                                  |  | (130   | ) |                                                   
|Taxes
    other than income tax                         |  | (29    | ) |                                                   
|Exploration
    expense                                 |  | (43    | ) |                                                   
|Accretion
    expense                                   |  | (16    | ) |                                                   
|Depreciation,
    depletion and amortization            |  | (137   | ) |                                                   
|Special
    oil gain levy                               |  | -      |   |                                                   
|                                                        |  | (71    | ) |                                                   
|                                                        |  |        |   |                                                   
|Income
    tax expense                                  |  | -      |   |                                                   
|                                                        |  |        |   |                                                   
|Result
    of operations                                |  | (71    | ) |                                                   
|                                                        |  |        |   |                                                   
|Total
    result of operations for producing activities |  | 48,045 |   |                                                   





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CNOOC
LIMITED

SUPPLEMENTARY
INFORMATION ON OIL AND GAS PRODUCING ACTIVITIES

(UNAUDITED)

(All
amounts expressed in millions of Renminbi unless otherwise stated)



| | (b) | Results of operations
(continued)
| | --- | ---------------------------------



|                                         |  |         |   | 2014                 
|---------------------------------------- |  | ------- | - | ---------------------
|                                         |  |         |   | Consolidated entities
|                                         |  | PRC     |   | Asia (excluding PRC) 
|                                         |  |         |   |                      
|Net sales to customers                   |  | 148,985 |   |                      
|Operating expenses                       |  | (16,212 | ) |                      
|Taxes other than income tax              |  | (10,157 | ) |                      
|Exploration expense                      |  | (4,945  | ) |                      
|Accretion expense                        |  | (1,803  | ) |                      
|Depreciation, depletion and amortization |  | (28,993 | ) |                      
|Special oil gain levy                    |  | (19,072 | ) |                      
|                                         |  | 67,803  |   |                      
|                                         |  |         |   |                      
|Income tax expense                       |  | (16,952 | ) |                      
|                                         |  |         |   |                      
|Result of operations                     |  | 50,851  |   |                      





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CNOOC
LIMITED

SUPPLEMENTARY
INFORMATION ON OIL AND GAS PRODUCING ACTIVITIES

(UNAUDITED)

(All
amounts expressed in millions of Renminbi unless otherwise stated)





| | (b) | Results of operations
(continued)
| | --- | ---------------------------------



|                                                    |  |        |   | 2014                                          
|--------------------------------------------------- |  | ------ | - | ----------------------------------------------
|                                                    |  |        |   | Enterprise’s share of equity method investees:
|                                                    |  | PRC    |   | Asia (excluding PRC)                          
|                                                    |  |        |   |                                               
|Net sales to customers                              |  | 277    |   |                                               
|Operating expenses                                  |  | (136   | ) |                                               
|Taxes other than income tax                         |  | (25    | ) |                                               
|Exploration expense                                 |  | (1     | ) |                                               
|Accretion expense                                   |  | (15    | ) |                                               
|Depreciation, depletion and amortization            |  | (78    | ) |                                               
|Special oil gain levy                               |  | -      |   |                                               
|                                                    |  | 22     |   |                                               
|                                                    |  |        |   |                                               
|Income tax expense                                  |  | (3     | ) |                                               
|                                                    |  |        |   |                                               
|Result of operations                                |  | 19     |   |                                               
|                                                    |  |        |   |                                               
|Total result of operations for producing activities |  | 50,870 |   |                                               





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CNOOC
LIMITED

SUPPLEMENTARY
INFORMATION ON OIL AND GAS PRODUCING ACTIVITIES

(UNAUDITED)

(All
amounts expressed in millions of Renminbi unless otherwise stated)





| | (b) | Results of operations
(continued)
| | --- | ---------------------------------



|                                         |  |     |         | 2015 Consolidated entities
|---------------------------------------- |  | --- | ------- | --------------------------
|                                         |  | PRC |         | Asia (excluding PRC)      
|                                         |  |     |         |                           
|Net sales to customers                   |  |     | 106,258 |                           
|Operating expenses                       |  |     | (15,984 | )                         
|Taxes other than income tax              |  |     | (9,498  | )                         
|Exploration expense                      |  |     | (4,415  | )                         
|Accretion expense                        |  |     | (1,882  | )                         
|Depreciation, depletion and amortization |  |     | (39,533 | )                         
|Special oil gain levy                    |  |     | (59     | )                         
|                                         |  |     | 34,887  |                           
|                                         |  |     |         |                           
|Income tax expense                       |  |     | (8,722  | )                         
|                                         |  |     |         |                           
|Result of operations                     |  |     | 26,165  |                           



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CNOOC
LIMITED

SUPPLEMENTARY
INFORMATION ON OIL AND GAS PRODUCING ACTIVITIES

(UNAUDITED)

(All
amounts expressed in millions of Renminbi unless otherwise stated)





| | (b) | Results of operations
(continued)
| | --- | ---------------------------------



|                                                        |  |        |   | 2015 Enterprise’s
                                         share of equity method investees:
|------------------------------------------------------- |  | ------ | - | --------------------------------------------------------------------------------------------
|                                                        |  | PRC    |   | Asia
    (excluding PRC)                                                                    
|                                                        |  |        |   |                                                                                             
|Net sales
    to customers                              |  | 200    |   |                                                                                             
|Operating
    expenses                                  |  | (139   | ) |                                                                                             
|Taxes
    other than income tax                         |  | (11    | ) |                                                                                             
|Exploration
    expense                                 |  | (59    | ) |                                                                                             
|Accretion
    expense                                   |  | (6     | ) |                                                                                             
|Depreciation,
    depletion and amortization            |  | (109   | ) |                                                                                             
|Special
    oil gain levy                               |  | -      |   |                                                                                             
|                                                        |  | (124   | ) |                                                                                             
|                                                        |  |        |   |                                                                                             
|Income
    tax expense                                  |  | 19     |   |                                                                                             
|                                                        |  |        |   |                                                                                             
|Result
    of operations                                |  | (105   | ) |                                                                                             
|                                                        |  |        |   |                                                                                             
|Total
    result of operations for producing activities |  | 26,060 |   |                                                                                             





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CNOOC
LIMITED

SUPPLEMENTARY
INFORMATION ON OIL AND GAS PRODUCING ACTIVITIES

(UNAUDITED)

(All
amounts expressed in millions of Renminbi unless otherwise stated)



| | (c) | Capitalized costs
| | --- | -----------------



|                                                     |  |          |   | 2013
|---------------------------------------------------- |  | -------- | - | ----
|                                                     |  |          |   |     
|                                                     |  | PRC      |   |     
|                                                     |  |          |   |     
|Proved oil and gas properties                        |  | 323,111  |   |     
|Unproved oil and gas properties                      |  | 5,538    |   |     
|Accumulated depreciation, depletion and amortization |  | (162,767 | ) |     
|Net capitalized costs                                |  | 165,882  |   |     





|                                                     |  |        |   | 2013                                         
|---------------------------------------------------- |  | ------ | - | ---------------------------------------------
|                                                     |  |        |   | Enterprise’s share of equity method investees
|                                                     |  | PRC    |   |                                              
|                                                     |  |        |   |                                              
|Proved oil and gas properties                        |  | 1,888  |   |                                              
|Unproved oil and gas properties                      |  | -      |   |                                              
|Accumulated depreciation, depletion and amortization |  | (1,637 | ) |                                              
|Net capitalized costs                                |  | 251    |   |                                              



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CNOOC
LIMITED

SUPPLEMENTARY
INFORMATION ON OIL AND GAS PRODUCING ACTIVITIES

(UNAUDITED)

(All
amounts expressed in millions of Renminbi unless otherwise stated)



| | (c) | Capitalized costs (continued)
| | --- | -----------------------------



|                                                     |  |          |   | 2014
|---------------------------------------------------- |  | -------- | - | ----
|                                                     |  |          |   |     
|                                                     |  | PRC      |   |     
|                                                     |  |          |   |     
|Proved oil and gas properties                        |  | 383,162  |   |     
|Unproved oil and gas properties                      |  | 12,319   |   |     
|Accumulated depreciation, depletion and amortization |  | (191,397 | ) |     
|Net capitalized costs                                |  | 204,084  |   |     





|                                                     |  |     |   | 2014                                         
|---------------------------------------------------- |  | --- | - | ---------------------------------------------
|                                                     |  |     |   | Enterprise’s share of equity method investees
|                                                     |  | PRC |   |                                              
|                                                     |  |     |   |                                              
|Proved oil and gas properties                        |  | 251 |   |                                              
|Unproved oil and gas properties                      |  | -   |   |                                              
|Accumulated depreciation, depletion and amortization |  | (81 | ) |                                              
|Net capitalized costs                                |  | 170 |   |                                              



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CNOOC
LIMITED

SUPPLEMENTARY
INFORMATION ON OIL AND GAS PRODUCING ACTIVITIES

(UNAUDITED)

(All
amounts expressed in millions of Renminbi unless otherwise stated)





| | (c) | Capitalized costs (continued)
| | --- | -----------------------------



|                                                     |  |          |   | 2015
Consolidated entities
|---------------------------------------------------- |  | -------- | - | --------------------------
|                                                     |  | PRC      |   |                           
|                                                     |  |          |   |                           
|Proved oil and gas properties                        |  | 409,295  |   |                           
|Unproved oil and gas properties                      |  | 13,006   |   |                           
|Accumulated depreciation, depletion and amortization |  | (230,943 | ) |                           
|Net capitalized costs                                |  | 191,358  |   |                           





|                                                     |  |        |   | 2015                                         
|---------------------------------------------------- |  | ------ | - | ---------------------------------------------
|                                                     |  |        |   | Enterprise’s share of equity method investees
|                                                     |  | PRC    |   |                                              
|                                                     |  |        |   |                                              
|Proved oil and gas properties                        |  | 2,129  |   |                                              
|Unproved oil and gas properties                      |  | -      |   |                                              
|Accumulated depreciation, depletion and amortization |  | (1,831 | ) |                                              
|Net capitalized costs                                |  | 298    |   |                                              



F-91


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CNOOC
LIMITED

SUPPLEMENTARY
INFORMATION ON OIL AND GAS PRODUCING ACTIVITIES

(UNAUDITED)

(All
amounts expressed in millions of Renminbi unless otherwise stated)





| | (d) | Costs incurred in oil
and gas property acquisition, exploration and development
| | --- | -------------------------------------------------------------------------------



|                     |  |        |  | 2013                 
|-------------------- |  | ------ |  | ---------------------
|                     |  |        |  | Consolidated entities
|                     |  | PRC    |  | Asia (excluding PRC) 
|Acquisition costs:   |  |        |  |                      
|–Proved              |  | 879    |  |                      
|–Unproved            |  | -      |  |                      
|Exploration costs    |  | 12,155 |  |                      
|Development costs*   |  | 42,877 |  |                      
|Total costs incurred |  | 55,911 |  |                      





|                     |  |     |  | 2013                                         
|-------------------- |  | --- |  | ---------------------------------------------
|                     |  |     |  | Enterprise’s share of equity method investees
|                     |  | PRC |  |                                              
|Acquisition costs:   |  |     |  |                                              
|–Proved              |  | -   |  |                                              
|–Unproved            |  | -   |  |                                              
|Exploration costs    |  | 43  |  |                                              
|Development costs*   |  | 7   |  |                                              
|Total costs incurred |  | 50  |  |                                              





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CNOOC
LIMITED

SUPPLEMENTARY
INFORMATION ON OIL AND GAS PRODUCING ACTIVITIES

(UNAUDITED)

(All
amounts expressed in millions of Renminbi unless otherwise stated)





| | (d) | Costs incurred in oil
and gas property acquisition, exploration and development (continued)
| | --- | -------------------------------------------------------------------------------------------





2014Consolidated entitiesPRC
    Asia (excluding PRC)
    Oceania
    Africa
    Canada
    North America(excluding Canada)
    South America
    Europe
    TotalAcquisition costs:–Proved
    -
    -
    -
    -
    -
    -
    -
    -
    -–Unproved
    -
    -
    -
    -
    -
    -
    -
    -
    -Exploration costs
    13,644
    1,515
    267
    3,454
    1,759
    2,260
    421
    724
    24,044Development costs*
    58,920
    5,060
    -
    7,754
    8,239
    10,026
    44
    5,434
    95,477Total costs incurred
    72,564
    6,575
    267
    11,208
    9,998
    12,286
    465
    6,158
    119,521


2014Enterprise’s share of equity method investeesPRC
    Asia (excluding PRC)
    Oceania
    Africa
    Canada
    North America(excluding Canada)
    South America
    Europe
    TotalAcquisition costs:–Proved
    -
    -
    -
    -
    -
    -
    -
    -
    -–Unproved
    -
    -
    -
    -
    -
    -
    -
    -
    -Exploration costs
    1
    -
    -
    -
    -
    -
    151
    -
    152Development costs*
    -
    -
    -
    -
    -
    -
    1,890
    -
    1,890Total costs incurred
    1
    -
    -
    -
    -
    -
    2,041
    -
    2,042










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CNOOC
LIMITED

SUPPLEMENTARY
INFORMATION ON OIL AND GAS PRODUCING ACTIVITIES

(UNAUDITED)

(All
amounts expressed in millions of Renminbi unless otherwise stated)





| | (d) | Costs incurred in oil
and gas property acquisition, exploration and development (continued)
| | --- | -------------------------------------------------------------------------------------------



|                         |  |        |  | 2015                    
|------------------------ |  | ------ |  | ------------------------
|                         |  |        |  | Consolidated entities   
|                         |  | PRC    |  | Asia
    (excluding PRC)
|Acquisition costs:       |  |        |  |                         
|–Proved                  |  | -      |  |                         
|–Unproved                |  | -      |  |                         
|Exploration
    costs    |  | 9,516  |  |                         
|Development
    costs*   |  | 22,726 |  |                         
|Total
    costs incurred |  | 32,242 |  |                         





|                         |  |     |  | 2015                                             
|------------------------ |  | --- |  | -------------------------------------------------
|                         |  |     |  | Enterprise’s share of equity
    method investees
|                         |  | PRC |  |                                                  
|Acquisition costs:       |  |     |  |                                                  
|–Proved                  |  | -   |  |                                                  
|–Unproved                |  | -   |  |                                                  
|Exploration
    costs    |  | 59  |  |                                                  
|Development
    costs*   |  | 241 |  |                                                  
|Total
    costs incurred |  | 300 |  |                                                  



| | * | The
                                         development costs include estimated future dismantlement costs of dismantling oil and
                                         gas properties.
| | - | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

F-94


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CNOOC
LIMITED

SUPPLEMENTARY
INFORMATION ON OIL AND GAS PRODUCING ACTIVITIES

(UNAUDITED)

(All
amounts expressed in millions of Renminbi unless otherwise stated)





| | (e) | Standardised measure
of discounted future net cash flows and changes therein
| | --- | ----------------------------------------------------------------------------



Pursuant
to FASB Topic 932, the average of first-day-of-the-month oil price during the 12-month period before the year end, were used to
estimate annual future production from proved reserves to determine future cash inflows.



Future
development costs are estimated based upon constant price assumptions and the assumption of 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 the 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.



Present
value of estimated future net cash flows:



|                                                         |  |       |  |           |   | 2013                     
|-------------------------------------------------------- |  | ----- |  | --------- | - | -------------------------
|                                                         |  |       |  |           |   | Consolidated
    entities
|                                                         |  | Notes |  | PRC       |   | Asia
    (excluding PRC) 
|                                                         |  |       |  |           |   |                          
|Future
    cash inflows                                  |  | (1)   |  | 1,336,580 |   |                          
|Future
    production costs                              |  |       |  | (523,810  | ) |                          
|Future
    development costs                             |  | (2)   |  | (259,636  | ) |                          
|Future
    income taxes                                  |  |       |  | (102,827  | ) |                          
|                                                         |  |       |  |           |   |                          
|Future
    net cash flows                                |  | (3)   |  | 450,307   |   |                          
|10%
    discount factor                                  |  |       |  | (165,652  | ) |                          
|                                                         |  |       |  |           |   |                          
|Standardised
measure of discounted future net cash flows |  |       |  | 284,655   |   |                          







F-95


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CNOOC
LIMITED

SUPPLEMENTARY
INFORMATION ON OIL AND GAS PRODUCING ACTIVITIES

(UNAUDITED)

(All
amounts expressed in millions of Renminbi unless otherwise stated)



| | (e) | Standardised measure
of discounted future net cash flows and changes therein (continued)
| | --- | ----------------------------------------------------------------------------------------



|                                                                  |  |       |  |         |   | 2013                                                         
|----------------------------------------------------------------- |  | ----- |  | ------- | - | -------------------------------------------------------------
|                                                                  |  |       |  |         |   | Enterprise’s
    share of equity method investees            
|                                                                  |  | Notes |  | PRC     |   | Asia (excluding
                                         PRC)
|                                                                  |  |       |  |         |   |                                                              
|Future
    cash inflows                                           |  | (1)   |  | 560     |   |                                                              
|Future
    production costs                                       |  |       |  | (369    | ) |                                                              
|Future
    development costs                                      |  | (2)   |  | (229    | ) |                                                              
|Future
    income taxes                                           |  |       |  | -       |   |                                                              
|                                                                  |  |       |  |         |   |                                                              
|Future
    net cash flows                                         |  | (3)   |  | (38     | ) |                                                              
|10%
    discount factor                                           |  |       |  | 45      |   |                                                              
|                                                                  |  |       |  |         |   |                                                              
|Standardised
    measure of discounted
    future net cash flows  |  |       |  | 7       |   |                                                              
|                                                                  |  |       |  |         |   |                                                              
|Total
    standardised measure of discounted future net cash flow |  |       |  | 284,662 |   |                                                              





F-96


Table of Contents


CNOOC
LIMITED

SUPPLEMENTARY
INFORMATION ON OIL AND GAS PRODUCING ACTIVITIES

(UNAUDITED)

(All
amounts expressed in millions of Renminbi unless otherwise stated)





| | (e) | Standardised measure
of discounted future net cash flows and changes therein (continued)
| | --- | ----------------------------------------------------------------------------------------



|                                                             |  |       |  |           |   | 2014                                                         
|------------------------------------------------------------ |  | ----- |  | --------- | - | -------------------------------------------------------------
|                                                             |  |       |  |           |   | Consolidated
    entities                                    
|                                                             |  | Notes |  | PRC       |   | Asia (excluding
                                         PRC)
|                                                             |  |       |  |           |   |                                                              
|Future
    cash inflows                                      |  | (1)   |  | 1,335,886 |   |                                                              
|Future
    production costs                                  |  |       |  | (528,067  | ) |                                                              
|Future
    development costs                                 |  | (2)   |  | (273,362  | ) |                                                              
|Future
    income taxes                                      |  |       |  | (89,139   | ) |                                                              
|                                                             |  |       |  |           |   |                                                              
|Future
    net cash flows                                    |  | (3)   |  | 445,318   |   |                                                              
|10%
    discount factor                                      |  |       |  | (163,945  | ) |                                                              
|                                                             |  |       |  |           |   |                                                              
|Standardised
    measure of discounted future net cash flows |  |       |  | 281,373   |   |                                                              





F-97


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CNOOC
LIMITED

SUPPLEMENTARY
INFORMATION ON OIL AND GAS PRODUCING ACTIVITIES

(UNAUDITED)

(All
amounts expressed in millions of Renminbi unless otherwise stated)





| | (e) | Standardised measure
of discounted future net cash flows and changes therein (continued)
| | --- | ----------------------------------------------------------------------------------------



|                                                                  |  |       |  |         |   | 2014                                                         
|----------------------------------------------------------------- |  | ----- |  | ------- | - | -------------------------------------------------------------
|                                                                  |  |       |  |         |   | Enterprise’s share of equity
    method investees            
|                                                                  |  | Notes |  | PRC     |   | Asia (excluding
                                         PRC)
|                                                                  |  |       |  |         |   |                                                              
|Future cash inflows                                               |  | (1)   |  | 572     |   |                                                              
|Future production costs                                           |  |       |  | (1,225  | ) |                                                              
|Future development
    costs                                      |  | (2)   |  | (642    | ) |                                                              
|Future
    income taxes                                           |  |       |  | -       |   |                                                              
|                                                                  |  |       |  |         |   |                                                              
|Future net cash flows                                             |  | (3)   |  | (1,295  | ) |                                                              
|10%
    discount factor                                           |  |       |  | 271     |   |                                                              
|                                                                  |  |       |  |         |   |                                                              
|Standardised
    measure of  discounted future net cash flows     |  |       |  | (1,024  | ) |                                                              
|                                                                  |  |       |  |         |   |                                                              
|Total
    standardised measure of discounted future net cash flow |  |       |  | 280,349 |   |                                                              





F-98


Table of Contents


CNOOC
LIMITED

SUPPLEMENTARY
INFORMATION ON OIL AND GAS PRODUCING ACTIVITIES

(UNAUDITED)

(All
amounts expressed in millions of Renminbi unless otherwise stated)





| | (e) | Standardised measure
of discounted future net cash flows and changes therein (continued)
| | --- | ----------------------------------------------------------------------------------------



|                                                             |  |       |  |          |   | 2015                                                         
|------------------------------------------------------------ |  | ----- |  | -------- | - | -------------------------------------------------------------
|                                                             |  |       |  |          |   | Consolidated
    entities                                    
|                                                             |  | Notes |  | PRC      |   | Asia (excluding
                                         PRC)
|                                                             |  |       |  |          |   |                                                              
|Future
    cash inflows                                      |  | (1)   |  | 791,748  |   |                                                              
|Future
    production costs                                  |  |       |  | (268,950 | ) |                                                              
|Future
    development costs                                 |  | (2)   |  | (184,967 | ) |                                                              
|Future
    income taxes                                      |  |       |  | (46,043  | ) |                                                              
|                                                             |  |       |  |          |   |                                                              
|Future
    net cash flows                                    |  | (3)   |  | 291,788  |   |                                                              
|10%
    discount factor                                      |  |       |  | (127,971 | ) |                                                              
|                                                             |  |       |  |          |   |                                                              
|Standardised
    measure of discounted future net cash flows |  |       |  | 163,817  |   |                                                              



F-99


Table of Contents


CNOOC
LIMITED

SUPPLEMENTARY
INFORMATION ON OIL AND GAS PRODUCING ACTIVITIES

(UNAUDITED)

(All
amounts expressed in millions of Renminbi unless otherwise stated)





| | (e) | Standardised measure
of discounted future net cash flows and changes therein (continued)
| | --- | ----------------------------------------------------------------------------------------



|                                                                  |  |       |  |         |   | 2015                                                         
|----------------------------------------------------------------- |  | ----- |  | ------- | - | -------------------------------------------------------------
|                                                                  |  |       |  |         |   | Enterprise’s share of equity
    method investees            
|                                                                  |  | Notes |  | PRC     |   | Asia (excluding
                                         PRC)
|                                                                  |  |       |  |         |   |                                                              
|Future cash
    inflows                                           |  | (1)   |  | 579     |   |                                                              
|Future production
    costs                                       |  |       |  | (928    | ) |                                                              
|Future development costs                                          |  | (2)   |  | (575    | ) |                                                              
|Future
    income taxes                                           |  |       |  | -       |   |                                                              
|                                                                  |  |       |  |         |   |                                                              
|Future net cash flows                                             |  | (3)   |  | (924    | ) |                                                              
|10%
    discount factor                                           |  |       |  | 213     |   |                                                              
|                                                                  |  |       |  |         |   |                                                              
|Standardised
    measure of discounted future net cash flows      |  |       |  | (711    | ) |                                                              
|Total
    standardised measure of discounted future net cash flow |  |       |  | 163,106 |   |                                                              



| | (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 the PRC less (i) an adjustment for the royalties payable to the
                                         PRC government and share oil payable to the PRC government under production sharing contracts
                                         and (ii) an adjustment for production allocable to foreign partners under the PRC production
                                         sharing contracts for exploration costs attributable to the Group’s participating
                                         interest, and plus the participating interest in the properties covered under the production
                                         sharing contracts in oversea countries, less adjustments, if any, of share oil attributable
                                         to the host 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 oil and gas properties.
| | --- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

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CNOOC
LIMITED

SUPPLEMENTARY
INFORMATION ON OIL AND GAS PRODUCING ACTIVITIES

(UNAUDITED)

(All
amounts expressed in millions of Renminbi unless otherwise stated)





| | (e) | Standardised measure
of discounted future net cash flows and changes therein (continued)
| | --- | ----------------------------------------------------------------------------------------



Changes
in the standardised measure of discounted future net cash flows:

|                                                                          |  |              |   |                 |        |             
|------------------------------------------------------------------------- |  | ------------ | - | --------------- | ------ | ------------
|                                                                          |  |              |   |                 |        | 2013        
|                                                                          |  |              |   |                 |        | Consolidated
|                                                                          |  |              |   |                 |        | and equity  
|                                                                          |  |              |   |                 |        | share of    
|                                                                          |  |              |   | Equity share of |        | equity      
|                                                                          |  | Consolidated |   | equity method   |        | method      
|                                                                          |  | Total        |   | investee        |        | investee    
|                                                                          |  |              |   |                 |        |             
|Standardised measure, beginning of year                                   |  | 347,460      |   |                 | 9,539  |             
|Sales of production, net of royalties and production costs                |  | (180,494     | ) |                 | 313    |             
|Net change in prices, net of royalties and production costs               |  | 51,408       |   |                 | (2,624 | )           
|Extensions discoveries and improved recovery, net of related future costs |  | 53,261       |   |                 | -      |             
|Change in estimated future development costs                              |  | (82,414      | ) |                 | (2,083 | )           
|Development costs incurred during the year                                |  | 70,077       |   |                 | 229    |             
|Revisions in quantity estimates                                           |  | 22,884       |   |                 | 820    |             
|Accretion of discount                                                     |  | 42,522       |   |                 | 1,269  |             
|Net change in income taxes                                                |  | (17,464      | ) |                 | 1,148  |             
|Purchase of properties                                                    |  | 114,763      |   |                 | -      |             
|Changes in timing and other                                               |  | (42,499      | ) |                 | 907    |             
|                                                                          |  |              |   |                 |        |             
|Standardised measure, end of year                                         |  | 379,504      |   |                 | 9,518  |             



F-101


Table of Contents


CNOOC
LIMITED

SUPPLEMENTARY
INFORMATION ON OIL AND GAS PRODUCING ACTIVITIES

(UNAUDITED)

(All
amounts expressed in millions of Renminbi unless otherwise stated)





| | (e) | Standardised measure
of discounted future net cash flows and changes therein (continued)
| | --- | ----------------------------------------------------------------------------------------



|                                                                          |  |              |   |                 |        |             
|------------------------------------------------------------------------- |  | ------------ | - | --------------- | ------ | ------------
|                                                                          |  |              |   |                 |        | 2014        
|                                                                          |  |              |   |                 |        | Consolidated
|                                                                          |  |              |   |                 |        | and equity  
|                                                                          |  |              |   |                 |        | share of    
|                                                                          |  |              |   | Equity share of |        | equity      
|                                                                          |  | Consolidated |   | equity method   |        | method      
|                                                                          |  | Total        |   | investee        |        | investee    
|                                                                          |  |              |   |                 |        |             
|Standardised measure, beginning of year                                   |  | 379,504      |   |                 | 9,518  |             
|Sales of production, net of royalties and production costs                |  | (175,187     | ) |                 | 58     |             
|Net change in prices, net of royalties and production costs               |  | 4,323        |   |                 | 8,750  |             
|Extensions discoveries and improved recovery, net of related future costs |  | 87,059       |   |                 | 652    |             
|Change in estimated future development costs                              |  | (62,501      | ) |                 | (4,050 | )           
|Development costs incurred during the year                                |  | 105,782      |   |                 | 197    |             
|Revisions in quantity estimates                                           |  | (6,620       | ) |                 | 697    |             
|Accretion of discount                                                     |  | 48,893       |   |                 | 1,305  |             
|Net change in income taxes                                                |  | 19,828       |   |                 | (2,595 | )           
|Purchase of properties                                                    |  | (1,544       | ) |                 | -      |             
|Changes in timing and other                                               |  | (8,664       | ) |                 | (4,307 | )           
|                                                                          |  |              |   |                 |        |             
|Standardised measure, end of year                                         |  | 390,873      |   |                 | 10,225 |             





F-102


Table of Contents


CNOOC
LIMITED

SUPPLEMENTARY
INFORMATION ON OIL AND GAS PRODUCING ACTIVITIES

(UNAUDITED)

(All
amounts expressed in millions of Renminbi unless otherwise stated)





| | (e) | Standardised measure
of discounted future net cash flows and changes therein (continued)
| | --- | ----------------------------------------------------------------------------------------



|                                                                          |  |              |   |                 |        |             
|------------------------------------------------------------------------- |  | ------------ | - | --------------- | ------ | ------------
|                                                                          |  |              |   |                 |        | 2015        
|                                                                          |  |              |   |                 |        | Consolidated
|                                                                          |  |              |   |                 |        | and equity  
|                                                                          |  |              |   |                 |        | share of    
|                                                                          |  |              |   | Equity share of |        | equity      
|                                                                          |  | Consolidated |   | equity method   |        | method      
|                                                                          |  | Total        |   | investee        |        | investee    
|                                                                          |  |              |   |                 |        |             
|Standardised measure, beginning of year                                   |  | 390,873      |   |                 | 10,225 |             
|Sales of production, net of royalties and production costs                |  | (107,455     | ) |                 | (288   | )           
|Net change in prices, net of royalties and production costs               |  | (306,900     | ) |                 | (5,484 | )           
|Extensions discoveries and improved recovery, net of related future costs |  | 68,657       |   |                 | 904    |             
|Change in estimated future development costs                              |  | 38,995       |   |                 | (247   | )           
|Development costs incurred during the year                                |  | 65,680       |   |                 | 2,904  |             
|Revisions in quantity estimates                                           |  | (37,789      | ) |                 | 545    |             
|Accretion of discount                                                     |  | 50,466       |   |                 | 1,720  |             
|Net change in income taxes                                                |  | 64,907       |   |                 | 1,040  |             
|Purchase of properties                                                    |  | -            |   |                 | (2     | )           
|Changes in timing and other                                               |  | (51,430      | ) |                 | (2,070 | )           
|                                                                          |  |              |   |                 |        |             
|Standardised measure, end of year                                         |  | 176,004      |   |                 | 9,247  |             









F-103