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PRC Exploitation of Onshore Oil Resources in Cooperation with Foreign Parties Regulations (Revised)

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Updated: 2006-08-04 16:04
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  PART ONE GENERAL PROVISIONS

  Article 1 These Regulations have been formulated in order to safeguard the development of oil industry and promote international economic cooperation and technical exchange.
  Article 2 Exploitation of onshore oil resources in cooperation with foreign parties in the territory of the People's Republic of China must be carried out in compliance with these Regulations.
  Article 3 The oil resources in the territory of the People's Republic of China belong to the state of the People's Republic of China.
  Article 4 The PRC government protects in accordance with law the cooperative exploitation activities of foreign enterprises that participate in cooperative exploitation of onshore oil resources and their investments, profits and other lawful rights and interests.
  Exploitation of onshore oil resources in cooperation with foreign parties in the territory of the People's Republic of China must be carried out in compliance with the relevant laws, regulations and rules of the People's Republic of China and must be subject to the supervision of the relevant authorities of the PRC government.
  Article 5 The state will not expropriate the investments and incomes of foreign enterprises that participate in cooperative exploitation of onshore oil resources. In special circumstances and where required by social public interests, the state may expropriate a part or all of the oil receivable by the foreign enterprises in cooperative exploitation in accordance with legal procedures and will provide commensurate compensations therefor.
  Article 6 A department designated by the State Council shall be in charge of dividing cooperative blocks in the cooperative areas approved by the State Council, determining the forms of cooperation, organizing the formulation of relevant plans and policies, and examining and approving the plans of overall development of oil (gas) fields in cooperation with foreign parties.
  Article 7 China National Petroleum Corporation and China Petroleum Chemical Corporation (hereafter, the "Chinese Oil Companies") shall be responsible for the business of exploitation of onshore oil resources in cooperation with foreign parties; responsible for negotiating, signing and performing contracts with foreign enterprises for cooperative exploitation of onshore oil resources; and entitled to the exclusive rights for oil exploration, development and production in cooperation with foreign enterprises in the areas approved by the State Council for exploitation of onshore oil resources in cooperation with foreign parties.
  Article 8 The Chinese Oil Companies shall enter into contracts through tendering or negotiation with foreign enterprises for cooperative exploitation of onshore oil resources on the basis of the divided cooperative blocks in the areas approved by the State Council for exploitation of onshore oil resources in cooperation with foreign parties. Such contracts shall be formed only after they have been approved by the Ministry of Foreign Trade and Economic Cooperation of the People's Republic of China.
  The Chinese Oil Companies may also enter into cooperative contracts other than those specified in the preceding paragraph in relation to the areas approved by the State Council for exploitation of onshore oil resources in cooperation with foreign parties. Such contracts shall be filed with the Ministry of Foreign Trade and Economic Cooperation of the People's Republic of China.
  Article 9 Once a foreign cooperative block is announced, except for the exploitation of onshore oil resources by Chinese Oil Companies in cooperation with foreign enterprises, other enterprise shall not enter into that block to carry out exploration activities or enter into any economic and technical cooperation agreement with a foreign enterprise for oil exploitation in that block.
  If, prior to the announcement of a foreign cooperative block, an enterprise has entered into that block to carry out oil exploration (which exploration is still in the regional evaluation stage), it shall withdraw from the block after the Chinese Oil Companies have entered into a contract with a foreign enterprise. The Chinese Oil Companies shall be responsible for selling the exploration data obtained by the first-mentioned enterprise in order to provide an appropriate compensation for its investment. If an oil (gas) field with commercial exploitation value is discovered in that block, the enterprise that has withdrawn from that block may participate in the development of the block by way of investment.
  The department designated by the State Council shall periodically adjust its previously determined foreign cooperative blocks in accordance with the entry and performance of contracts.
  Article 10 In exploitation of onshore oil resources in cooperation with foreign parties, a principle that shall be followed is that both national and local interests shall be taken into account, and local interests shall be given appropriate preference through ways such as absorption of funds from the place in which an oil (gas) field is located to invest in the development of an oil (gas) field with commercial exploitation value.
  The relevant local people's government shall, in accordance with law, protect the normal production and business activities in the cooperative areas and provide effective assistance to such activities in respect of land use, road access and daily life services.
  Article 11 Exploitation of onshore oil resources in cooperation with foreign parties shall be subject to taxation in accordance with law and shall be subject to payment of royalties.
  Employees of enterprises in exploitation of onshore oil resources in cooperation with foreign parties shall pay tax on the incomes they receive.
  Article 12 Tax reduction, tax exemption or other tax preferential treatments shall be provided in accordance with the relevant provisions of the state in respect of the equipment and materials imported for performance of contracts. The specific methods shall be formulated by the Ministry of Finance jointly with the General Administration of Customs.

  PART TWO RIGHTS AND OBLIGATIONS OF FOREIGN CONTRACTORS

  Article 13 Cooperation between Chinese Oil Companies and foreign enterprises in exploitation of onshore oil resources must be subject to contracts. Unless otherwise provided in law or regulations or otherwise agreed in contract, the contracting foreign enterprise (hereafter, the "Foreign Contractor") shall be the sole party to invest in the exploration, to be responsible for the exploration operations and to assume the risks of exploration. After an oil (gas) field with commercial exploitation value is discovered, the Foreign Contractor and the Chinese Oil Companies shall jointly invest in the cooperative development of the field and the Foreign Contractor shall undertake the development operations and production operations until the Chinese Oil Company take over the production operations in accordance with the contract.
  Article 14 The Foreign Contractor may recover its investment and costs and obtain a return from the produced oil as agreed in the contract.
  Article 15 The oil receivable or purchased by the Foreign Contractor may be shipped abroad in accordance with the relevant provisions of the state and as agreed in the contract and the investment, profits and other lawful incomes of the Foreign Contractor may be expatriated abroad in accordance with law.
  If the Foreign Contractor sells the oil receivable by it in the territory of the People's Republic of China, such oil shall generally be purchased by the Chinese Oil Companies but it may be sold in such other manners as agreed by the parties to the contract provided such sale does not contravene the provisions of the state concerning sale of petroleum products in the territory of the People's Republic of China.
  Article 16 In opening foreign exchange accounts and handling other foreign exchange matters, the Foreign Contractor shall comply with the PRC, Administration of Foreign Exchange Regulations and other provisions of the state concerning administration of foreign exchange.
  The investments of the Foreign Contractor shall be in US dollars or other freely convertible currencies.
  Article 17 The Foreign Contractor shall establish a branch, subsidiary or representative institution in the territory of the People's Republic of China in accordance with law.
  The place for establishing the above-mentioned institution shall be agreed between the Foreign Contractor and the Chinese Oil Companies.
  Article 18 In the course of contract performance, the Foreign Contractor shall timely and accurately report its oil operations to the Chinese Oil Companies, completely and accurately obtain the data, records, samples, evidences and other original information of its oil operations, and provide the information and samples as well as various reports on technical, economic, accounting and administrative matters to the Chinese Oil Companies as required.
  Article 19 Except for equipment leased from third parties, title to all assets purchased or built by the Foreign Contractor pursuant to the plans and budgets in contract performance shall become vested in the Chinese Oil Companies upon the compensation of the investment of the Foreign Contractor as agreed in the contract or the expiration of the production term of the oil (gas) field. During the term of the contract, the Foreign Contractor may use such assets as agreed in the contract.

  PART THREE OIL OPERATIONS

  Article 20 The operator must formulate a plan for the overall development of the oil (gas) field and obtain the approval of the department designated by the State Council before it carries out development operations and production operations.
  Article 21 The personnel required in the oil operations may be agreed in the oil contract, and the operator may recruit Chinese citizens in preference.
  Article 22 In carrying out oil operations, the operator and contractor shall comply with the laws, regulations and standards of the state concerning environmental protection and safe operation, and shall follow international practices to protect agricultural land, aquatic resources, forest resources and other natural resources and prevent pollution and damage to the atmosphere, oceans, rivers, lakes, ground water and other land environment.
  Article 23 Land use in carrying out oil operations shall be handled in accordance with the PRC, Administration of Land Law and other relevant provisions of the State.
  Article 24 Title to the data, records, samples, evidences and other original information of various oil operations set out in Article 18 hereof shall be vested in the Chinese Oil Companies.
  The use, transfer, donation, exchange, sale or publication of the data, records, samples, evidences and other original information set out in the preceding paragraph or the shipment or transmission of them out of the territory of the People's Republic of China must be carried out in accordance with the relevant provisions of the State.

  PART FOUR DISPUTE RESOLUTION

  Article 25 If a dispute arises between the parties to a contract for cooperative exploitation of onshore oil resources in connection with the performance of the contract, the dispute shall be resolved through consultation or conciliation. If the parties are not willing to carry out consultation or conciliation, or if the consultation or conciliation fails, the dispute may be submitted to arbitration by a Chinese arbitration institution or other arbitration institution in accordance with the arbitration provision of the contract or the arbitration agreement made subsequently in writing.
  If the parties have not agreed on an arbitration provision in the contract and fail to subsequently enter into an arbitration agreement in writing, a suit may be brought to a people's court.

  PART FIVE LEGAL LIABILITIES

  Article 26 If anyone violates these Regulations by committing any of the following acts, the department designated by the State Council will, according to its authority, order it to correct the act within a time limit and give it a warning. If it fails to correct the act within the time limit, the department may order to stop carrying out the oil operations. If the act constitutes a crime, criminal liabilities shall be pursued according to law.
  1. in violation of the first paragraph of Article 9 hereof, entry into a foreign cooperative block without authorization to carry out oil exploration or entry into an agreement with a foreign enterprise for oil exploitation in that foreign cooperative block;
  2. in violation of Article 18 hereof, failure in the course of contract performance to timely and accurately report the oil operations to the Chinese Oil Companies, failure to provide the information and samples as well as various reports on technical, economic, accounting and administrative matters to the Chinese Oil Companies as required;
  3. in violation of Article 20 hereof, carrying out of development operations and production operations without authorization before the overall development plan of the oil (gas) field has been approved; or
  4. in violation of the second paragraph of Article 24 hereof, use, transfer, donation, exchange, sale or publication of the data, records, samples, evidences and other original information of oil operations or shipment or transmission of them out of the territory of the People's Republic of China, all without authorization.
  Article 27 If anyone violates Article 11, Article 16, Article 22 or Article 23 hereof, the relevant state authority will impose punishment in accordance with the relevant laws and regulations. If the violation constitutes a crime, criminal liability shall be pursued according to law.

  PART SIX SUPPLEMENTARY PROVISIONS

  Article 28 The following terms in these Regulations shall have the following meanings:
  1. "Oil" means the crude oil and natural gas existing underground, being extracted or already extracted.
  2. "Onshore oil resources" means underground oil resources existing on land anywhere (including beaches, islands and sea area extending to the depth of 5 metres).
  3. "Exploitation" means exploration, development, production and sale of oil and the activities relating thereto.
  4. "Oil operations" means the exploration, development and production operations and their related activities that are carried out in contract performance.
  5. "Exploration operations" means all the works that are carried out using geological, geophysical and geochemical methods, including drilling wells, for discovering oil traps and all the works, such as the drilling of evaluation wells, the feasibility studies and the formulation of the overall development plan of the oil (gas) field, that are carried out on a discovered oil trap for determining its commercial value.
  6. "Development operations" means the designing, construction, installation, drilling and related researches that are carried out after the date of the approval of the overall development plan of the oil (gas) field in order to achieve oil production, including the production activities prior to the commercial production.
  7. "Production operations" means all the operations and related activities that are carried out for production of oil from the date of commercial production of an oil (gas) field.
  Article 29 Provisions of Articles 4, 11, 12, 15, 16, 17 and 21 hereof are applicable to foreign contractors.
  Article 30 Exploitation of coalbed methane resources in cooperation with foreign parties shall be implemented exclusively by China United Coalbed Methane Co., Ltd. by reference to these Regulations.
  Article 31 These Regulations shall be implemented as of the date of promulgation.


 

 

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