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||State Council, PRC Exploitation of Offshore Petroleum Resources in Cooperation with Foreign Parties Regulations (Revised)
PART ONE GENERAL PROVISIONS
Article 1 These Regulations are formulated in order to promote the development of the national economy, to expand international economic and technological cooperation and, on the premise of maintaining national sovereignty and economic interests, to permit foreign enterprises to participate in the cooperative exploitation of offshore petroleum resources of the People's Republic of China (PRC).
Article 2 All petroleum resources in the internal waters, territorial sea and continental shelf of the PRC and in all sea areas within the limits of national jurisdiction over the maritime resources of the PRC are owned by the PRC.
In the sea areas referred to in the preceding paragraph, all buildings and structures set up and vessels operating to exploit petroleum, as well as the corresponding onshore oil (gas) terminals and bases, shall be under the jurisdiction of the PRC.
Article 3 The government of the PRC shall protect, in accordance with the law, the investments of foreign enterprises participating in the cooperative exploitation of offshore petroleum resources, the profits due to them and other legal rights and interests, and shall protect, in accordance with the law, the cooperative exploitation activities of foreign enterprises.
All activities for the cooperative exploitation of offshore petroleum resources within the scope of these Regulations shall be subject to the laws and decrees of the PRC and relevant provisions of the State; all enterprises and persons taking part in petroleum operations shall be subject to the laws of China and shall accept inspection and supervision by the competent authorities concerned of the Chinese government.
Article 4 The State shall not levy the investment and profit from foreign enterprises participating in the cooperative exploitation of petroleum resources. Under special circumstances, the State may, in accordance with the need of the social public interest, levy parts or all of the petroleum due to the foreign enterprises in the cooperative exploitation in accordance with the legal procedure, and provide compensation accordingly.
Article 5 The department appointed by the State Council shall, in accordance with the zones and surface areas of cooperation determined by the State, decide on the method of cooperation and classify cooperation blocks; it shall work out a plan for the exploitation of offshore petroleum resources in cooperation with the foreign enterprises in accordance with long-term State economic plans, formulate business policies for the foreign cooperative exploitation of offshore petroleum resources and examine and approve the overall development programme for offshore oil (gas) fields.
Article 6 The China National Offshore Oil Corporation (CNOOC) shall have overall responsibility for foreign cooperative exploitation of offshore petroleum resources in the PRC.
CNOOC is a State corporation with the status of a legal person and has the exclusive right to prospect for, develop, produce and sell petroleum within the zones of cooperation with foreign enterprises.
CNOOC may, as the work requires, establish regional corporations, specialized corporations and overseas representative offices to carry out the tasks delegated by the head office.
Article 7 CNOOC shall, by means of calling for bids and signing petroleum contracts, cooperate with foreign enterprises to exploit petroleum resources in accordance with the zones, surface areas and blocks of foreign cooperative exploitation of petroleum resources.
The petroleum contracts referred to in the preceding paragraph shall become effective upon approval by the Ministry of Foreign Trade and Economic Cooperation (MOFTEC) of the PRC.
Documents signed by CNOOC for other forms of cooperative exploitation of petroleum resources utilizing technology and funds provided by foreign enterprises shall also be subject to approval by MOFTEC of the PRC.
PART TWO RIGHTS AND OBLIGATIONS OF THE PARTIES TO PETROLEUM CONTRACTS
Article 8 CNOOC shall cooperate with foreign enterprises to exploit offshore petroleum resources by means of entering into petroleum contracts, and, unless otherwise specified by laws and administrative regulations or otherwise agreed upon in the petroleum contract, the foreign enterprise party to the petroleum contract (hereafter "foreign contractor") shall provide the investment to carry out prospecting, be responsible for prospecting operations and bear all prospecting risks; after a commercial oil (gas) field is discovered, both the foreign contractor and CNOOC shall provide the investment for its cooperative development, and the foreign contractor shall be responsible for the development operations and production operations until CNOOC takes over the production operations when conditions permit as provided in the petroleum contract. The foreign contractor may, in accordance with the provisions of the petroleum contract, recover its investment and expenses and receives remuneration out of the petroleum produced.
Article 9 The foreign contractor may export the petroleum due to it and the petroleum it purchases, and may also, in accordance with the law, remit abroad the investment it recovers, its profits and its other legal income.
Article 10 All Chinese enterprises and foreign enterprises participating in the cooperative exploitation of offshore petroleum resources shall pay taxes in accordance with the law and shall pay mining royalties.
All the employees of the enterprises referred to in the preceding paragraph shall pay individual income tax in accordance with the law.
Article 11 The equipment and materials imported for carrying out the petroleum contract shall be subject to tax at a reduced rate, or be exempted from tax, or be given other preferential tax treatment in accordance with State provisions.
Article 12 The foreign contractor opening a foreign exchange account and handling other foreign exchange matters shall follow the PRC, Foreign Exchange Control Regulations and other State provisions related to foreign exchange.
Article 13 The personnel needed for the petroleum production may be agreed upon in the petroleum contract, and the business operator may give priority to Chinese citizens in the recruitment.
Article 14 In carrying out the petroleum contract, the foreign contractor engaging in development and production processes must promptly and accurately report to CNOOC on the situation of petroleum operations; and it must acquire complete and accurate data, records, samples, vouchers and other original data with respect to the various aspects of the petroleum operations, and regularly submit to CNOOC the required data and samples as well as various technological, economic, financial and accounting, and administrative reports.
Article 15 In carrying out the petroleum contract, the foreign contractor engaging in development and production operations shall establish a branch or representative office within the territory of the PRC and fulfil registration formalities in accordance with the law.
The location of the offices referred to in the preceding paragraph shall be determined through consultation with CNOOC.
Article 16 The provisions of Articles 3, 9, 10, 11 and 15 hereof shall, by analogy, apply to foreign subcontractors that render services in connection with the petroleum operations.
PART THREE PETROLEUM OPERATIONS
Article 17 In order to achieve the highest possible petroleum recovery factor, the operator must, in accordance with these Regulations and provisions regarding the exploitation of petroleum resources and in the light of international practice, formulate an overall development program for the oil (gas) field and carry out production operations.
Article 18 In carrying out the petroleum contract, the foreign contractor engaging in development and production operations shall use the existing bases within the territory of the PRC, and, if new bases are needed, they must be established within the territory of the PRC.
The specific locations of the new bases referred to in the preceding paragraph, and other
arrangements that may be necessary in special circumstances, must all be subject to the written approval of CNOOC.
Article 19 CNOOC shall have the right to send personnel to join the foreign operator in making master designs and engineering designs for carrying out the petroleum contract.
Article 20 The ownership of all assets purchased or built by the foreign contractor to carry out the petroleum contract in accordance with the plan and budget, excluding equipment leased from a third party, shall belong to CNOOC after the foreign contractor's investment has been compensated as provided for, and, within the term of the contract, the foreign contractor may continue to use those assets within the term of the contract.
Article 21 CNOOC shall have the ownership of all of the data, records, samples, vouchers and other original data of all petroleum operations obtained from the execution of the petroleum contract.
The utilization and transfer, donation, exchange, sale and publication of the afore- mentioned data, records, samples, vouchers and other original data and their export and transmission from the PRC must all be conducted in accordance with relevant provisions of the State.
Article 22 In the course of petroleum operations, the operator and subcontractors shall comply with the relevant laws and provisions on environmental protection and safety of the PRC, and shall, in the light of international practice, protect fishery resources and other natural resources and prevent the environment, including the ozone, seas, rivers, lakes and land, from being polluted or damaged, when conducting operations.
Article 23 The petroleum produced within the petroleum contract area shall be landed in the PRC or may be exported from oil (gas) metering points on offshore terminals. In case such petroleum has to be landed at point outside the PRC, the approval of the State Council must be obtained.
PART FOUR SUPPLEMENTARY PROVISIONS
Article 24 Any dispute arising between foreign and Chinese enterprises during the cooperative exploitation of offshore petroleum resources shall be settled through friendly consultations. If it cannot be resolved through consultation, mediation and arbitration may be conducted by an arbitration body of the PRC, or the parties to the contract may agree upon arbitration by another arbitration body.
Article 25 In case an operator or subcontractor violates the provisions hereof in conducting petroleum operations, the department designated by the State Council shall order rectification within a period and issue a warning in accordance with its authority. If no correction is made prior to the specified deadline, the department may order the suspension of petroleum operations. All economic losses arising therefrom shall be borne by the party responsible.
Article 26 The terms used in these Regulations are defined as follows:
1. "Petroleum" means crude oil or natural gas deposited underground, currently being extracted or already extracted.
2. "Exploitation" means, in general, the exploration for and development, production and marketing of petroleum, as well as other related activities.
3. "Petroleum contract" means a contract signed, in accordance with the law, between CNOOC and foreign enterprises for the cooperative exploitation of offshore petroleum resources of the PRC, including the exploration for and development and production of petroleum.
4. "Contract area" means a surface area designated within a sea area demarcated by geographical coordinates in the petroleum contract for the cooperative exploitation of petroleum resources.
5. "Petroleum operations" means all exploration, development and production operations and other related activities conducted in carrying out the petroleum contract.
6. "Exploration operations" means all work done to locate the petroleum-bearing traps by means of geological, geophysical and geochemical methods and including drilling exploratory wells, etc., and all work done to determine the commerciality of discovered petroleum traps, including appraisal drilling, feasibility studies and preparation of the overall development plan for an oil (gas) field.
7. "Development operations" means projects, such as those for designing, construction, installation and drilling, and corresponding research work, conducted from the date of the approval of the overall development plan for an oil (gas) field by the department designated by the State Council, in order to bring about petroleum production, and including production activities carried out before the commencement of commercial production.
8. "Production operations" means all operations for producing petroleum conducted after the date of commencement of the commercial production of an oil (gas) field and related activities, such as extraction, injection, production stimulation, processing, storage and transportation and lifting of petroleum and other operations.
9. "Foreign contractor" means a foreign enterprise that signs a petroleum contract with CNOOC. The foreign enterprises may be a corporation or a consortium of corporations.
10. "Operator" means an entity that is responsible for implementing the operations pursuant to the provisions of the petroleum contract.
11. "Subcontractor" means an entity that renders services to the operator.
Article 27 These Regulations shall be effective as of the date of promulgation.