China BlueChemical Ltd. — Proxy Solicitation & Information Statement 2019

Nov 27, 2019

THIS CIRCULAR IS IMPORTANT AND REQUIRES YOUR IMMEDIATE ATTENTION

If you are in any doubt as to any aspect of this circular or as to the action to be taken, you should consult your stockbroker or other registered dealer in securities, bank manager, solicitor, professional accountant or other independent professional adviser.

If you have sold or transferred all your shares in China BlueChemical Ltd., you should at once hand this circular to the purchaser(s) or transferee(s) or to the bank, stockbroker or other agent through whom the sale or transfer was effected for transmission to the purchaser(s) or transferee(s).

Hong Kong Exchanges and Clearing Limited and The Stock Exchange of Hong Kong Limited take no responsibility for the contents of this circular, make no representation as to its accuracy or completeness and expressly disclaim any liability whatsoever for any loss howsoever arising from or in reliance upon the whole or any part of the contents of this circular.

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(a joint stock limited company incorporated in the People’s Republic of China with limited liability)

(Stock Code: 3983)

PROPOSED REVISION OF CURRENT ANNUAL CAPS FOR THE PROVISION OF SERVICES AND SUPPLIES AND SALE OF PRODUCTS

BY CNOOC GROUP TO THE GROUP UNDER THE COMPREHENSIVE SERVICES AND PRODUCT SALES AGREEMENT

Independent Financial Adviser to the Independent Board Committee and the Independent Shareholders

Halcyon Capital Limited

A letter from the Board is set out on pages 4 to 12 of this circular. A letter from the Independent Board Committee is set out on page 13 of this circular. A letter from the Independent Financial Adviser containing its advice to the Independent Board Committee and the Independent Shareholders is set out on pages 14 to 24 of this circular.

The notice convening the EGM to be held at the Meeting Room, 3rd Floor, Kaikang CNOOC Mansion, No. 15, Sanqu, Anzhenxili, Chaoyang District, Beijing, PRC on Friday, 20 December 2019 at 9: 00 a.m. together with the relevant reply slip and proxy form was published on the website of the Stock Exchange (www.hkexnews.hk) and despatched on 4 November 2019.

Shareholders who intend to attend the EGM in person or by proxy shall complete and return the corresponding reply slip in accordance with the instructions printed thereon before Friday, 29 November 2019. Whether or not you are able to attend the EGM, you are strongly advised to complete and sign the proxy form, in accordance with the instructions printed thereon, and to lodge them with the Company’s Secretary Office of the Board in China (for Domestic Shareholders or Shareholders of unlisted foreign Shares) at Room 1707, Kaikang CNOOC Mansion, No. 15, Sanqu, Anzhenxili, Chaoyang District, Beijing, the PRC or the Company’s H Share Registrar, Computershare Hong Kong Investor Services Limited (for H Shareholders), at 17M Floor, Hopewell Centre, 183 Queen’s Road East, Wanchai, Hong Kong, as soon as possible and in any event not less than 24 hours before the time appointed for the holding of the EGM (or any adjournment thereof). Completion and return of the proxy forms will not preclude you from attending and voting in person at the EGM (or any adjournment thereof) should you so wish.

• For identification purpose only

27 November 2019

CONTENTS

	Page
DEFINITIONS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	1
LETTER FROM THE BOARD . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	4
LETTER FROM THE INDEPENDENT BOARD COMMITTEE . . . . . . . . . . . . . . . . . .	13
LETTER FROM THE INDEPENDENT FINANCIAL ADVISER . . . . . . . . . . . . . . . . . .	14
APPENDIX — GENERAL INFORMATION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	25

– i –

DEFINITIONS

In this circular, the following words and expressions shall, unless the context otherwise requires, have the following respective meanings:

• ‘‘Board’’ the board of Directors ‘‘CNOOC’’ 中國海洋石油集團有限公司 (China National Offshore Oil Corporation*), a state-owned company established in China which is also the controlling shareholder of the Company

• ‘‘CNOOC Group’’ CNOOC and its associates, excluding the Group

• ‘‘CNOOC Gas and 中海石油氣電集團有限責任公司 (CNOOC Gas and Power Group Power’’ Ltd.*), a company incorporated in the PRC and a subsidiary of CNOOC

• ‘‘CNOOC Tianye’’ 中海石油天野化工有限責任公司 (CNOOC Tianye Chemical Limited*), a company incorporated in the PRC and a none-wholly owned subsidiary of the Company

• ‘‘Company’’ 中海石油化學股份有限公司 (China BlueChemical Ltd.*) (stock code: 3983), a company established in the PRC and a subsidiary of CNOOC, the H Shares of which have been listed on the main board of the Stock Exchange since September 2006

• ‘‘Comprehensive the comprehensive services and product sales and purchase Services and Product framework agreement dated 3 November 2017 entered into Sales Agreement’’ between the Company and CNOOC, which has been reviewed and approved by Shareholders on the 2017 extraordinary general meeting of the Company held on 28 December 2017

• ‘‘Current Annual the current annual caps for the provision of services and supplies Cap(s)’’ and sale of products by CNOOC Group to the Group for the two years commencing on 1 January 2019 and ending 31 December 2019 and 2020 under the Comprehensive Services and Product Sales Agreement, being RMB383,469,000 and RMB390,796,000, respectively

• ‘‘Director(s)’’ director(s) of the Company

• ‘‘EGM’’

• the extraordinary general meeting of the Company to be held at 9: 00 a.m. on Friday, 20 December 2019 at the Meeting Room, 3rd Floor, Kaikang CNOOC Mansion, No. 15, Sanqu, Anzhenxili, Chaoyang District, Beijing, the PRC for the Independent Shareholders to consider and, if thought fit, approve, among other things, the Proposed Revised Annual Caps, and any adjournment thereof

• ‘‘Group’’ the Company and its subsidiaries from time to time

– 1 –

DEFINITIONS

‘‘H Share(s)’’ the overseas-listed foreign share(s) in the Company’s share capital, with a nominal value of RMB1.00 each, which are listed on the Stock Exchange;

• ‘‘H Shareholder(s)’’

registered holders of H Share(s);

• ‘‘Hong Kong’’

• the Hong Kong Special Administrative Region of the PRC

• ‘‘Independent Board an independent committee of the Board comprising Ms. Karen Committee’’ Lee Kit Ying, Mr. Eddie Lee Kwan Hung and Mr. Yu Changchun, the independent non-executive Directors, formed for the purpose of advising the Independent Shareholders in respect of the Proposed Revised Annual Caps under the Comprehensive Services and Product Sales Agreement

• ‘‘Independent Financial Adviser’’ or ‘‘Halcyon Capital’’

• Halcyon Capital Limited, a corporation licensed to carry out Type 6 (advising on corporate finance) regulated activity under the Securities and Futures Ordinance (Chapter 571 of the Laws of Hong Kong) appointed as the Independent Financial Adviser to advise the Independent Board Committee and the Independent Shareholders in relation to the Proposed Revised Annual Caps

• ‘‘Independent Shareholders’’

• Shareholders other than CNOOC Group

• ‘‘Latest Practicable Date’’

• 19 November 2019, being the latest practicable date prior to the printing of this circular for the purpose of ascertaining certain information contained in this circular

• ‘‘Listing Rules’’

• the Rules Governing the Listing of Securities on The Stock Exchange of Hong Kong Limited as amended from time to time

• ‘‘PRC’’ or ‘‘China’’

• the People’s Republic of China, which for the purpose of this circular excludes Hong Kong, the Macau Special Administrative Region and Taiwan

• ‘‘Proposed Revised Annual Cap(s)’’

• the proposed revised annual caps for the provision of services and supplies and sale of products by CNOOC Group to the Group for the two years commencing on 1 January 2019 and ending 31 December 2019 and 2020 under the Comprehensive Services and Product Sales Agreement, being RMB498,525,000 and RMB691,638,000

• ‘‘RMB’’

Renminbi, the lawful currency of the PRC

• ‘‘Shareholder(s)’’

shareholder(s) of the Company

• ‘‘Stock Exchange’’ The Stock Exchange of Hong Kong Limited

– 2 –

DEFINITIONS

‘‘Transaction(s)’’

the continuing connected transactions in relation to the provision of services and supplies and sale of products by CNOOC Group to the Group under the Comprehensive Services and Product Sales Agreement

‘‘%’’ percent

In addition, the terms ‘‘associate’’, ‘‘connected person’’, ‘‘connected transaction’’, ‘‘continuing connected transaction’’, ‘‘controlling shareholder’’, ‘‘percentage ratio(s)’’ and ‘‘subsidiary(ies)’’ shall have the meanings ascribed to them under the Listing Rules.

• The Chinese name(s) of the PRC entities have been translated into English in this circular for reference only. In the event of any discrepancies between the Chinese names of the PRC entities and their respective English translations, the Chinese version shall prevail.

– 3 –

LETTER FROM THE BOARD

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(a joint stock limited company incorporated in the People’s Republic of China with limited liability)

(Stock Code: 3983)

Executive Directors: Mr. Xia Qinglong Mr. Wang Weimin

Non-executive Directors: Mr. Meng Jun Mr. Guo Xinjun

Independent non-executive Directors:

Ms. Karen Lee Kit Ying

Mr. Eddie Lee Kwan Hung

Mr. Yu Changchun

Registered Office:

No. 1 Zhu Jiang South Street Dongfang City Hainan Province The PRC

Principal place of business in Hong Kong:

65/F., Bank of China Tower No. 1 Garden Road Central Hong Kong

27 November 2019

To the Shareholders

Dear Sir or Madam,

PROPOSED REVISION OF CURRENT ANNUAL CAPS FOR THE PROVISION OF SERVICES AND SUPPLIES AND SALE OF PRODUCTS BY CNOOC GROUP TO THE GROUP UNDER THE COMPREHENSIVE SERVICES AND PRODUCT SALES AGREEMENT

INTRODUCTION

We refer to the announcement of the Company dated 3 November 2017, the circular dated 13 November 2017, the poll results announcement of the extraordinary general meeting of the Company dated 28 December 2017 and the announcement of the Company dated 4 November 2019 in relation to, among others, (i) the Comprehensive Services and Product Sales Agreement entered into between CNOOC and the Company dated 3 November 2017; and (ii) the Current Annual Caps and the Proposed Revised Annual Caps for the provision of services and supplies and sale of products by CNOOC Group to the Group for the years ending 31 December 2019 and 2020 under the Comprehensive Services and Product Sales Agreement.

• For identification purpose only

– 4 –

LETTER FROM THE BOARD

During the process of the Company’s internal review on continuing connected transactions, it was noted that the transaction amount (unaudited) relating to the provision of services and supplies and sale of products by CNOOC Group to the Group under Comprehensive Services and Product Sales Agreement was approximately RMB260.4 million for the nine months ended 30 September 2019, and the transaction amounts for year 2019 and 2020 are expected to exceed the threshold of 5% of the applicable percentage ratios under the Listing Rules. Therefore, the Board proposes to seek prior approval of Independent Shareholders under Rule 14A.54 of the Listing Rules to revise the Current Annual Caps for the two years ending 31 December 2019 and 2020.

The purposes of this circular are:

• (1) to provide details in respect of the Proposed Revised Annual Caps;

• (2) to set out the recommendations from the Independent Board Committee in respect of the Proposed Revised Annual Caps;

• (3) to set out the advice from Halcyon Capital in respect of the Proposed Revised Annual Caps; and

• (4) to provide the Shareholders with other information required under the Listing Rules.

PRINCIPAL TERMS OF THE TRANSACTIONS UNDER COMPREHENSIVE SERVICES AND PRODUCT SALES AGREEMENT

Terms and conditions of the Comprehensive Services and Product Sales Agreement as mentioned in ‘‘Comprehensive Services and Product Sales Agreement’’ of the announcement of the Company dated 3 November 2017 remain unchanged.

Date

3 November 2017

Parties

• (a) The Company

• (b) CNOOC

– 5 –

LETTER FROM THE BOARD

Scope of Provision of Services and Supplies and Sale of Products

In relation to the provision of services and supplies and sale of products by CNOOC Group to the Group under the Comprehensive Services and Product Sales Agreement,

• a. CNOOC Group has agreed to provide services and supplies to the Group (including but not limited to engineering services, telecommunication and network services, construction services, management system/technology development services, equipment leasing, equipment maintenance, project management services, labour services, materials/equipment procurement services, transportation services, technical training services, catering, accommodation, medical, insurance services, conference services, consultancy services and logistics management services, dependent upon service locations and the facilities established); and

• b. CNOOC Group has agreed to sell products (potash, medicament and natural gas etc.) to the Group.

Term

The term of the Comprehensive Services and Product Sales Agreement commenced on 1 January 2018 and will expire on 31 December 2020, but may be renewed upon agreement provided that the requirements of the Listing Rules in relation to connected transactions are complied with.

Pricing Principles

The provision of services, supplies and products by CNOOC Group to the Group under the Comprehensive Services and Products Sales Agreement will be conducted on normal commercial terms and conditions which shall not be less favourable to the Group than those offered to third parties by CNOOC Group and will be priced in accordance with the pricing principles set out in the Comprehensive Services and Product Sales Agreement as follows:

• i. not higher than the prices charged by CNOOC Group to its associates (other than members of the Group) or other comparable independent third party customers (if any) for the same type of services, supplies or products; or

• ii. with reference to the prices for the same type of services, supplies or products in the same areas charged on normal terms in the ordinary and usual course of its business by comparable independent third party service providers or suppliers; or

• iii. with reference to the prices for the same type of services, supplies or products in the adjacent areas charged on normal terms in the ordinary and usual course of its business by comparable independent third party providers or suppliers.

– 6 –

LETTER FROM THE BOARD

All the prices for the provision of services and supplies and sale of products by the CNOOC Group to the Group under the Comprehensive Services and Product Sale Agreement have been and will be determined through tendering process (if practicable) with reference to the comparable market prices of the same type of services or supplies or products.

Nevertheless, for the above-mentioned services, supplies and products, when relevant government authorities publish a government-prescribed price in relation to the transactions contemplated under the Comprehensive Services and Product Sales Agreement during its term, the relevant prices shall be adjusted with reference to the government-prescribed price accordingly.

PRICING PROCEDURES

In order to ensure that the price of the Comprehensive Services and Product Sales Agreement with respect to provision of services and supplies and sale of products by CNOOC Group to the Group is determined on a fair and reasonable basis and in accordance with the pricing principle, the Company has set up the Procurement Management Committee, which comprises senior management and executives from the Procurement Department and Disciplinary Inspection Committee of the Company, to determine the supplier of services, supplies and products. The following procedures have been adopted when determining the suppliers of the services, supplies and products:

The Procurement Management Committee is responsible for carrying out tendering process to assess the quality and price of services, supplies and products, qualification of suppliers, and terms offered by no less than three suppliers to make sure the conditions offered by CNOOC Group in the separate agreements under the Comprehensive Services and Product Sales Agreement are no less favorable to the Group than those offered by independent third parties to the Group (if practicable). If the above-mentioned tendering process is not available due to the exclusivity of certain services, supplies or products in certain places, requirements of government authorities or other reasons, the Procurement Management Committee will negotiate with suppliers of services, supplies or products to make sure the pricing principles set out in the Comprehensive Services and Product Sales Agreement are fulfilled.

The Group may, from time to time when the situation requires, enter into separate agreements which will set out the specific scope of services, supplies and products, and the terms and conditions of providing such services, supplies and products according to the principles laid down by the Comprehensive Services and Product Sales Agreement.

REVISION OF THE CURRENT ANNUAL CAPS

Proposed Revised Annual Caps and historical figures

It is expected that the transaction volume of the Transactions may increase for the years 2019 and 2020. As such, the Company proposes to revise the Current Annual Caps.

– 7 –

LETTER FROM THE BOARD

	Current	Annual Caps	Proposed Revised Annual
	for the year ending		Caps for the year ending 31
Transaction type		31 December	December
	2019	2020	2019 2020
	(RMB’000)		(RMB’000)
Provision of services and supplies
and sale of products by
CNOOC Group to the Group	383,469	390,796	498,525 691,638

The historical amounts of the Transactions for the year ended 31 December 2018 and the nine months ended 30 September 2019, were approximately RMB181,897,000 and RMB260,399,000 (unaudited), respectively.

Basis of the Proposed Revised Annual Caps

The reasons for the increase of the historical amounts mentioned above and the basis of the Proposed Revised Annual Caps considered by the Directors are as follows:

• (i) CNOOC Tianye, located in Inner Mongolia, uses natural gas as its main raw material, while the natural gas supply in northern China in winter is tight, causing it to stop production sometimes in winter. Therefore, in order to ensure the continuous production of CNOOC Tianye in winter, the Group has reached an agreement with the CNOOC Gas and Power, a subsidiary of CNOOC, to provide gas for CNOOC Tianye in the winter of 2019 and 2020 by way of transition. As a result, the procurement demand of services and supplies and sale of products by the Group from CNOOC Group under the Comprehensive Services and Product Sales Agreement is expected to increase; and

• (ii) a 5% buffer for fluctuation in relevant commodity prices, future operation needs of the Company and possible market changes.

As at the date of this circular, the transaction amount of the Transactions has not exceeded the Current Annual Cap.

Reasons and Benefits for the Revision of Current Annual Caps

The company anticipates that, as disclosed above, the demand for procurement of services, supplies, and products by the Group from CNOOC Group under the Comprehensive Services and Product Sales Agreement will increase. The Transactions are necessary for daily manufacturing and operation and in line with the interests of the Group and the Shareholders as a whole. The Company is one of the major subsidiaries of CNOOC which is one of the largest petroleum companies in China. In view of the extensive resources and experience of CNOOC Group, it is desirable for the Group to seek supports and maintain business relationships with CNOOC Group, and the Transactions will secure stable and reliable supply of raw material and services for the Company’s production.

– 8 –

LETTER FROM THE BOARD

The Comprehensive Services and Product Sales Agreement and the Transactions are entered into in the ordinary and usual course of business of the Group and on normal commercial terms. The Directors are of the view that the Transactions and the Proposed Revised Annual Caps as described above are fair and reasonable and in the interests of the Group and the Shareholders as a whole, as the Transactions has facilitated and will continue to facilitate the operation of the Group’s business.

MEASURES TO ENSURE COMPLIANCE WITH THE LISTING RULES

The Company has established comprehensive internal control system and adopted various internal control rules, including connected transaction management measures, sales and pricing management measures, and procurement and tender administration measures, to ensure that the continuing connected transactions are conducted in accordance with the executed agreements. Before entering into a specific connected transaction agreement, the designated department of the Group will review and assess whether the rates and terms set out in the specific agreement are consistent with the executed framework agreement to ensure that the interests of the Shareholders as a whole are taken into account and protected. The Company has set up the Audit Department to audit and assess the operation of the internal control system and management system of the Company and report to the audit committee of the Board and the Board in connection to the status of the internal control of the Company (including the implementation status of connected transactions) regularly. The audit committee of the Board and the supervisory committee of the Company will also regularly conduct assessment on the internal control system of the Company and its subsidiaries in order to ensure the effectiveness of the internal control system and management system of the Group, including internal control measures in respect of connected transactions management. Furthermore, the audit committee of the Board convenes meetings twice a year to discuss and assess the implementation of connected transactions. In addition, the Company’s external auditors shall conduct an interim review and a year-end audit on the Company’s internal control measures, including connected transactions.

IMPLICATIONS OF THE LISTING RULES

CNOOC is the controlling shareholder of the Company. Therefore, CNOOC Group (other than the Group) are the Company’s connected persons under Rule 14A.07 of the Listing Rules. As a result, the Transactions constitute continuing connected transactions of the Company. Pursuant to Rule 14A.54(1) of the Listing Rules, the Company is requested to re-comply with the announcement and shareholders’ approval requirements before the Current Annual Caps are exceeded and it proposes to adopt the Proposed Revised Annual Caps. As the highest applicable percentage ratio in respect of Proposed Revised Annual Caps exceeds 5%, the Proposed Revised Annual Caps are subject to reporting, announcement and Independent Shareholders’ approval requirements under Chapter 14A of the Listing Rules.

– 9 –

LETTER FROM THE BOARD

GENERAL INFORMATION OF THE PARTIES INVOLVED

The Group

The Group mainly engages in the developments, production and sales of fertilisers (mainly urea, phosphate fertilisers and compound fertilisers) and chemical products (mainly methanol and polyformaldehyde).

CNOOC and its associates

CNOOC is the controlling shareholder of the Company and is one of largest state-owned oil companies in the PRC specializing in exploration of oil and gas in the PRC with its headquarters in Beijing. It is the largest offshore oil and gas producer in the PRC. Since its establishment, it has sustained continuous developments and had advanced from a company engaging only in exploitation of oil and gas to an integrated conglomerate with prominent main business and a complete production chain including upstream petroleum businesses (such as exploration, development, production and sales of oil and gas), downstream petroleum businesses (such as refining, petrochemicals, use of natural gas, power generation, the manufacturing and sale of fertilisers and chemicals) and financial services.

BOARD CONFIRMATION

The Comprehensive Services and Product Sales Agreement and the Transactions are entered into in the ordinary and usual course of business of the Group and on normal commercial terms. The Directors (including the independent non-executive Directors) are of the view that the Transactions and the Proposed Revised Annual Caps as described above are fair and reasonable and in the interests of the Group and the Shareholders as a whole.

Due to their positions in CNOOC, Mr. Meng Jun and Mr. Guo Xinjun have abstained from voting at the Board meeting on the resolution agreeing to submit to Independent Shareholders for approval of the Proposed Revised Annual Caps. Save as disclosed above, none of the Directors has any material interest in the Transactions and Proposed Revised Annual Caps.

RECOMMENDATION

Based on the relevant information disclosed herein, the Directors (including the independent non-executive Directors) believe that the Comprehensive Services and Product Sales Agreement and the Transactions are entered into in the ordinary and usual course of business of the Group and on normal commercial terms. The Directors are of the view that the Transactions and the Proposed Revised Annual Caps as described above are fair and reasonable and in the interests of the Group and the Shareholders as a whole. Accordingly, the Directors recommend the Independent Shareholders to vote in favour of the relevant resolution to be proposed at the EGM.

– 10 –

LETTER FROM THE BOARD

For the purpose of the EGM, the Board has established the Independent Board Committee (comprising Ms. Karen Lee Kit Ying, Mr. Eddie Lee Kwan Hung and Mr. Yu Changchun, all of whom are independent non-executive Directors) to consider and advise the Independent Shareholders with respect to the Proposed Revised Annual Caps.

The letter of advice from Halcyon Capital to the Independent Board Committee and the Independent Shareholders is set out on pages 14 to 24 of this circular.

Your attention is drawn to the letter from the Independent Board Committee which is set out on page 13 of this circular. The Independent Board Committee, having taken into account the advice of the Independent Financial Adviser, considers that the Proposed Revised Annual Caps are fair and reasonable and are in the interests of the Group and the Shareholders as a whole. Accordingly, the Independent Board Committee recommends the Independent Shareholders to vote in favour of the relevant resolution to be proposed at the EGM.

EGM

The Company will convene an EGM to obtain the Independent Shareholders’ approval of, among other things, the Proposed Revised Annual Caps.

At the EGM, CNOOC and its associates will abstain from voting with respect to the Proposed Revised Annual Caps. As at the Latest Practicable Date, the voting rights attached to 2,738,999,512 domestic shares of the Company were controlled by CNOOC and such number of Shares represented approximately 59.41% of the issued share capital of the Company.

The notice of the EGM to be held at 9: 00 a.m. on Friday, 20 December 2019 together with the relevant reply slip and proxy form was published on the HKExnews website (http://www.hkexnews.hk) and despatched on 4 November 2019.

Whether or not you are able to attend the EGM, you are strongly advised to complete and sign the corresponding proxy form, in accordance with the instructions printed thereon, and to lodge them with the Company’s Secretary Office of the Board in China (for Domestic Shareholders or Shareholders of unlisted foreign Shares) at Room 1707, Kaikang CNOOC Mansion, No. 15, Sanqu, Anzhenxili, Chaoyang District, Beijing, the PRC or the Company’s H Share Registrar, Computershare Hong Kong Investor Services Limited (for H Shareholders), at 17M Floor, Hopewell Centre, 183 Queen’s Road East, Wanchai, Hong Kong, as soon as possible and in any event not less than 24 hours before the time appointed for the holding of the EGM (or any adjournment thereof). Completion and return of the proxy forms will not preclude you from attending and voting in person at the EGM (or any adjournment thereof) should you so wish.

A POLL AT EXTRAORDINARY GENERAL MEETING

In accordance with the requirement of Rule 13.39(4) of the Listing Rules, the resolution to be considered, and if thought fit, to be passed at the EGM, shall be passed by way of a poll.

– 11 –

LETTER FROM THE BOARD

OTHER INFORMATION

Your attention is drawn to the letter from Halcyon Capital which contains its advice to the Independent Board Committee and the Independent Shareholders, the letter from the Independent Board Committee which sets out its recommendation to the Independent Shareholders, the additional information set out in the appendix to this circular and the notice of the EGM dated 4 November 2019.

By Order of the Board China BlueChemical Ltd.* Wu Xiaoxia Company Secretary

• For identification purpose only

– 12 –

LETTER FROM THE INDEPENDENT BOARD COMMITTEE

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(a joint stock limited company incorporated in the People’s Republic of China with limited liability)

(Stock Code: 3983)

27 November 2019

To the Independent Shareholders

Dear Sir or Madam,

THE PROPOSED REVISED ANNUAL CAPS

We refer to the circular dated 27 November 2019 (the ‘‘Circular’’) despatched to the shareholders of the China BlueChemical Ltd. of which this letter forms part. Unless the context otherwise requires, terms and expressions defined in the Circular shall have the same meanings in this letter.

We have been appointed as members of the Independent Board Committee to advise the Independent Shareholders on the fairness and reasonableness with respect to the proposed revised annual caps for the provision of services and supplies and sale of products by CNOOC Group to the Group under the Comprehensive Services and Product Sales Agreement for the two financial years commencing on 1 January 2019 and ending on 31 December 2019 and 2020 (the ‘‘Proposed Revised Annual Caps’’). Halcyon Capital Limited has been appointed as the Independent Financial Adviser to advise the Independent Board Committee on the Proposed Revised Annual Caps.

We wish to draw your attention to the letter from the Board set out on pages 4 to 12 of the Circular and the letter from Halcyon Capital containing its advice to us set out on pages 14 to 24 of the Circular.

Having considered the advice given by Halcyon Capital Limited, we are of the opinion that the Proposed Revised Annual Caps are fair and reasonable and are in the interests of the Group and the Shareholders as a whole. Accordingly, we recommend the Independent Shareholders to vote in favour of the ordinary resolution to be proposed at the EGM to approve the Proposed Revised Annual Caps.

Yours faithfully,

Karen Lee Kit Ying, Eddie Lee Kwan Hung and Yu Changchun Members of Independent Board Committee

• For identification purpose only

– 13 –

LETTER FROM THE INDEPENDENT FINANCIAL ADVISER

The following is the full text of the letter of advice from Halcyon Capital Limited to the Independent Board Committee and the Independent Shareholders which has been prepared for the purpose of the inclusion in this circular.

Halcyon Capital Limited 11/F, 8 Wyndham Street, Central, Hong Kong

27 November 2019

To the Independent Board Committee and the Independent Shareholders

Dear Sirs,

PROPOSED REVISION OF CURRENT ANNUAL CAPS FOR THE PROVISION OF SERVICES AND SUPPLIES AND SALE OF PRODUCTS BY CNOOC GROUP TO THE GROUP UNDER THE COMPREHENSIVE SERVICES AND PRODUCT SALES AGREEMENT

INTRODUCTION

We refer to our appointment as the independent financial adviser to the Independent Board Committee and the Independent Shareholders in relation to the Comprehensive Services and Product Sales Agreement (with respect to provision of services and supplies and sale of products by CNOOC Group to the Group); and (ii) the relevant Proposed Revised Annual Caps, details of which are set out in the letter from the Board (the ‘‘Board Letter’’) contained in the circular of the Company dated 27 November 2019 (the ‘‘Circular’’), of which this letter forms part. Terms used in this letter shall have the same respective meanings as defined in the Circular unless the context otherwise requires.

On 3 November 2017, the Company entered into the Comprehensive Services and Product Sales Agreement with CNOOC, pursuant to which, among others, CNOOC Group has agreed to provide services and supplies and sell products to the Group (the ‘‘Continuing Connected Transactions’’) for a term of three years from 1 January 2018 to 31 December 2020.

During the process of the Company’s internal review on continuing connected transactions, it was noted that the transaction amount (unaudited) relating to the Continuing Connected Transactions was approximately RMB260.4 million for the nine months ended 30 September 2019, and the transaction amounts for the two years ending 31 December 2019 and 2020 are expected to exceed the threshold of 5% of the applicable percentage ratios under the Listing Rules. Therefore, the Board proposed to seek prior approval of Independent Shareholders under Rule 14A.54 of the Listing Rules to revise the Current Annual Caps for the two years ending 31 December 2019 and 2020.

– 14 –

LETTER FROM THE INDEPENDENT FINANCIAL ADVISER

As at the Latest Practicable Date, CNOOC was a controlling Shareholder within the meaning of the Listing Rules. Accordingly, CNOOC Group (other than the Group) is the connected person of the Company under Rule 14A.07 of the Listing Rules. As a result, the Continuing Connected Transactions constitute continuing connected transactions of the Company. Pursuant to Rule 14A.54(1) of the Listing Rules, the Company is requested to re-comply with the announcement and shareholders’ approval requirement before the Current Annual Caps are exceeded and it is proposed to adopt the Proposed Revised Annual Caps. As the highest applicable percentage ratios (as defined under Rule 14.07 of the Listing Rules) in respect of the Proposed Revised Annual Caps exceeds 5%, the Continuing Connected Transactions are subject to the requirements of reporting, announcement and Independent Shareholders’ approval under Chapter 14A of the Listing Rules. CNOOC and its associates will abstain from voting at the EGM with respect to the Continuing Connected Transactions.

The Independent Board Committee comprising all independent non-executive Directors, namely Ms. Karen Lee Kit Ying, Mr. Eddie Lee Kwan Hung and Mr. Yu Changchun, has been established to advise the Independent Shareholders as to whether the entering into of the Comprehensive Services and Product Sales Agreement (with respect to the Continuing Connected Transactions) is on normal commercial terms and in the ordinary and usual course of business of the Group, and together with the Proposed Revised Annual Caps are fair and reasonable and in the interests of the Group and the Independent Shareholders as a whole and how to vote on the relevant resolution in the EGM. In our capacity as the Independent Financial Adviser to the Independent Board Committee and the Independent Shareholders, our role is to provide the Independent Board Committee and the Independent Shareholders with an independent opinion and recommendation in this regard.

BASIS OF OUR OPINION

Except for being appointed twice as the independent financial adviser to the then independent board committees and independent shareholders of the Company (details of which have been set out in the letters from the independent financial adviser contained in the circulars of the Company dated 7 November 2014 and 13 November 2017), we have no other relationships with or interests in the Company and any other parties that could reasonably be regarded as relevant to our independence. Apart from the normal professional fees paid to us in connection with our appointments, no arrangements exist whereby we had received any fees or benefits from the Company or any other party to the transactions, and therefore we consider such relationship would not affect our independence. We are therefore independent under Rule 13.84 of the Listing Rules to act as the Independent Financial Adviser to the Independent Board Committee and the Independent Shareholders in connection with the Continuing Connected Transactions.

In formulating our opinion and recommendation, we have relied on the information, financial information and facts included in the Circular and supplied to us, and the representations expressed by the Directors and/or management of the Group, and have assumed that all such information, financial information, facts and any representations made to us, or referred to in the Circular, for which they are fully responsible, in all

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LETTER FROM THE INDEPENDENT FINANCIAL ADVISER

material aspects, were true, accurate and complete as at the time they were made and as at the date hereof, have been properly extracted from the relevant underlying accounting records (in the case of financial information) and made after due and careful inquiry by the Directors and/or the management of the Group. The Directors and/or the management of the Group have confirmed that, having made all reasonable enquiries and to the best of their knowledge and belief, all relevant information has been supplied to us and that no material facts have been omitted from the information supplied and representations expressed to us. We have also relied on certain information available to the public and have assumed such information to be accurate and reliable. We have no reason to doubt the completeness, truth or accuracy of the information and representations provided and we are not aware of any facts or circumstances which would render such information provided and representations made to us untrue, inaccurate or misleading.

Our review and analyses were based upon, among others, the information provided by the Group including the Circular, the Comprehensive Services and Product Sales Agreement and certain published information from the public domain.

We have also discussed with the Directors and/or the management of the Group with respect to the terms of and the reasons for the Continuing Connected Transactions (including the Proposed Revised Annual Caps), and considered that we have reviewed sufficient information to reach an informed view and to justify reliance on the information provided and to provide a reasonable basis for our opinion. We have not, however, conducted any independent verification of the information included in the Circular and supplied to us by the Directors and/or the management of the Group nor have we conducted any form of in-depth investigation into the businesses, affairs, financial position, profitability or prospects of the Group, CNOOC, the Independent Producer (defined below) and each of their respective associates, and the parties involved in the Continuing Connected Transactions.

PRINCIPAL FACTORS AND REASONS CONSIDERED

In arriving at our opinion in respect of the Continuing Connected Transactions, we have considered the following principal factors and reasons:

I. Background and reasons for entering into the Continuing Connected Transactions

The Group is principally engaged in the developments, production and sales of fertilisers (including urea, phosphate fertilisers and compound fertilisers) and chemical products (primarily methanol and polyformaldehyde).

As advised by the management of the Group, the Group has established long-term business relationships with CNOOC Group, including the provision of services and supplies and sale of products between the Group and CNOOC Group. CNOOC is one of the largest state-owned oil companies in the PRC and an integrated conglomerate with various business sectors covering oil and gas exploitation, technical services, natural gas and power generation, financial services, logistics services and new energies development. In view of the extensive resources and experience of CNOOC Group, the Company considered it is desirable for the Group to seek supports and maintain

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LETTER FROM THE INDEPENDENT FINANCIAL ADVISER

business relationships with CNOOC Group. Hence, on 3 November 2017, the Company entered into the Comprehensive Services and Product Sales Agreement with CNOOC to secure stable and reliable supply of services, supplies and raw materials for the Group’s operation and production.

With reference to the Board Letter, CNOOC Tianye, located in Inner Mongolia, uses natural gas as its main raw material, while the natural gas supply in northern China in winter is tight, causing it to stop production sometimes in winter. Therefore, in order to ensure the continuous production of CNOOC Tianye in winter, the Group has reached an agreement with CNOOC Gas and Power, a subsidiary of CNOOC, to provide gas for CNOOC Tianye in the winter of 2019 and 2020 by way of transition. As a result, the procurement demand of services, supplies and products by the Group from CNOOC Group under the Comprehensive Services and Product Sales Agreement is expected to increase. Accordingly, on 4 November 2019, the Board proposed to seek prior approval of Independent Shareholders under Rule 14A.54 of the Listing Rules to revise the Current Annual Caps of approximately RMB383.5 million and RMB390.8 million to the Proposed Revised Annual Caps of approximately RMB498.5 million and RMB691.6 million for the two years ending 31 December 2019 and 2020, respectively.

Having considered the aforesaid, we concur with the Directors’ view that it is desirable for the Group to continue its business relationship with and to seek supports from the CNOOC Group as such cooperation is expected to benefit the Group for its business development from leveraging on the CNOOC Group’s extensive resources and experience in various business sectors and the entering into the Continuing Connected Transactions is in the ordinary and usual course of business of the Group.

II. Principal Terms of the Continuing Connected Transactions under the Comprehensive Services and Product Sales Agreement

In assessing whether the terms of the Continuing Connected Transactions under the Comprehensive Services and Product Sales Agreement are fair and reasonable, we have reviewed the principal terms of the Comprehensive Services and Product Sales Agreement (with respect to the Continuing Connected Transactions) as set out below:

• (a) CNOOC Group has agreed to provide services and supplies to the Group (including but not limited to engineering services, telecommunication and network services, construction services, management system/technology development services, equipment leasing, equipment maintenance, project management services, labour services, materials/equipment procurement services, transportation services, technical training services, catering, accommodation, medical, insurance services, conference services, consultancy services and logistics management services), dependent upon service locations and the facilities established by the Group or CNOOC Group; and

• (b) CNOOC Group has agreed to sell products (potash, medicament and natural gas etc.) to the Group.

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LETTER FROM THE INDEPENDENT FINANCIAL ADVISER

The term of the Comprehensive Services and Product Sales Agreement commenced on 1 January 2018 and will expire on 31 December 2020, but may be renewed upon agreement provided that the requirements of the Listing Rules in relation to connected transactions are complied with.

The provision of services, supplies and products by CNOOC Group to the Group under the Comprehensive Services and Products Sales Agreement will be conducted on normal commercial terms and conditions which shall not be less favourable to the Group than those offered to third parties by CNOOC Group and will be priced in accordance with the pricing principles set out in the Comprehensive Services and Product Sales Agreement as follows:

• i. not higher than the prices charged by CNOOC Group to its associates (other than members of the Group) or other comparable independent third party customers (if any) for the same type of services, supplies or products; or

• ii. with reference to the prices for the same type of services, supplies or products in the same areas charged on normal terms in the ordinary and usual course of its business by comparable independent third party service providers or suppliers; or

• iii. with reference to the prices for the same type of services, supplies or products in the adjacent areas charged on normal terms in the ordinary and usual course of its business by comparable independent third party providers or suppliers.

All the prices for the provision of services and supplies and sale of products by CNOOC Group to the Group under the Comprehensive Services and Product Sales Agreement will be determined through tender process (if practicable) with reference to the comparable market prices of the same type of services or supplies or products.

As discussed with the management of the Group, we understand that when relevant government authorities publish a government-prescribed price in relation to the transactions contemplated under the Comprehensive Services and Product Sales Agreement during the term of the Comprehensive Services and Product Sales Agreement, the relevant prices shall be adjusted with reference to the government-prescribed price accordingly.

In order to ensure that the price with respect to the provision of services and supplies and sale of products by CNOOC Group to the Group under the Comprehensive Service and Product Sales Agreement is determined on a fair and reasonable basis and in accordance with the pricing principles, the Company has adopted the procedures as disclosed in the section headed ‘‘IV. Internal Control Measures for the Continuing Connected Transactions’’ below in this letter. We have reviewed (i) the Comprehensive Services and Product Sales Agreement; (ii) the relevant documents in relation to the tenders conducted in 2018 and 2019 requiring a minimum of three qualified bidders for a valid tender; (iii) the relevant agreements entered into between the Group and CNOOC Group; (iv) the relevant agreements entered into

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LETTER FROM THE INDEPENDENT FINANCIAL ADVISER

between the Group and independent service providers or suppliers; (v) the invoices issued by CNOOC Group to the Group; (vi) the invoices issued by the independent service providers or suppliers to the Group; (vii) the invoices issued by CNOOC Group to other comparable independent third party customers; and (viii) pricing document issued by relevant government authority and noted that the prices charged by CNOOC Group were conducted in accordance with the pricing principles.

Taking into account the above, we are of the view that the terms of the Comprehensive Services and Product Sales Agreement (with respect to the Continuing Connected Transactions) are fair and reasonable so far as the Company and the Independent Shareholders are concerned.

III. Basis of the Proposed Revised Annual Caps

The following table set out (i) the historical annual caps or Current Annual Caps for each of the four years ended/ending 31 December 2020; (ii) the historical transaction amounts for each of the two years ended 31 December 2018 and the nine months ended 30 September 2019; (iii) the utilisation rates of the historical or Current Annual Caps; and (iv) the Proposed Revised Annual Caps in respect of the Continuing Connected Transactions:

	For the	year ended/ending 31 December	year ended/ending 31 December	year ended/ending 31 December
	2017	2018	2019	2020
		Amounts in	RMB’000
Historical annual caps or Current
Annual Caps	243,390	304,247	383,469	390,796
			260,399
			(January to
Historical transaction amount	194,055	181,897	September)	N/A
			67.9% up
			to 30
			September
Utilisation rate for the year/period	79.7%	59.8%	2019	N/A
Proposed Revised Annual Caps	N/A	N/A	498,525	691,638

As stated in the Board Letter, in determining the Proposed Revised Annual Caps for the Continuing Connected Transactions, the Directors have estimated the annual transaction figures for the two years ending 31 December 2019 and 2020 on the following basis:

• (i) CNOOC Tianye, located in Inner Mongolia, uses natural gas as its main raw material, while the natural gas supply in northern China in winter is tight, causing it to stop production sometimes in winter. Therefore, in order to ensure the continuous production of CNOOC Tianye in winter, the Group has reached an agreement with the CNOOC Gas and Power, a subsidiary of CNOOC, to provide gas for CNOOC Tianye in the winter of 2019 and 2020

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LETTER FROM THE INDEPENDENT FINANCIAL ADVISER

by way of transition. As a result, the procurement demand of services, supplies and products by the Group from CNOOC Group under the Comprehensive Services and Product Sales Agreement is expected to increase; and

• (ii) a 5% buffer for fluctuation in relevant commodity prices, future operation needs of the Company and possible market changes.

We noted that the Proposed Revised Annual Caps for each of the two years ending 31 December 2019 and 2020 of approximately RMB498.5 million and RMB691.6 million, respectively, represented an increase of approximately 63.9% comparing to the historical annual cap amount for the year ended 31 December 2018 and an increase of approximately 38.7% comparing to Proposed Revised Annual Cap for the year ending 31 December 2019. In assessing the reasonableness of the Proposed Revised Annual Caps in respect of the Continuing Connected Transactions, we have reviewed the calculation of the Proposed Revised Annual Caps and understood the Proposed Revised Annual Caps were arrived at based on the estimated demand for the relevant services, supplies and products by the Group in accordance with the Group’s business operation and plan. Furthermore, the Company also contemplated the historical amount of CNOOC Group’s provision of services and supplies and sales of products in determining the Proposed Revised Annual Cap for the year ending 31 December 2019. Based on the information provided by the Group, the actual procurement amount of the services, supplies and products by the Group from CNOOC Group for the nine months ended 30 September 2019 amounted to approximately RMB260.4 million, which was mainly resulted from of the procurement of (i) natural gas from CNOOC Group in the first quarter of 2019 for the manufacturing operations of CNOOC Tianye’s production facilities in Inner Mongolia; and (ii) potash from CNOOC Group for both manufacturing and trading purposes. We understood from the management of the Group that historically CNOOC Tianye used natural gas from an independent sole natural gas producer in Inner Mongolia (the ‘‘Independent Producer’’) as its main raw material for production. Occasionally, CNOOC Tianye was not able to obtain sufficient natural gas to meet the manufacturing operations of its production facilities in Inner Mongolia during the winter months because of the tight supply of natural gas in northern China in winter due to high demand for heating. In the first quarter of 2019, after discussions among the Group, CNOOC Group and the Independent Producer, the Independent Producer agreed to supply a stable amount of natural gas to the Group through CNOOC Group under the condition that CNOOC Group also supplies natural gas to the Independent Producer in southern China during the winter months (the ‘‘Natural Gas Transit Arrangement’’).

As discussed with the management of the Group, the estimated procurement of natural gas from CNOOC Group accounts for the largest portion amongst the Proposed Revised Annual Caps of different types of transactions under the Continuing Connected Transactions, where the estimated values account for approximately 49.2% and 60.5% of the Proposed Revised Annual Caps for each of the two years ending 31 December 2019 and 2020 respectively. We understood from the management of the

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LETTER FROM THE INDEPENDENT FINANCIAL ADVISER

Group that the estimated amount of natural gas to be procured by the Group is determined with reference to (i) the Group’s estimated average price of natural gas to be procured from CNOOC Group after taking into account the historical natural gas prices and the Group’s estimation on the growth of natural gas prices in the coming year; and (ii) the Group’s estimated demand for natural gas consumption, mainly for the manufacturing operations of CNOOC Tianye’s production facilities in Inner Mongolia during winter months. According to the management of the Group, the Company expects that the Natural Gas Transit Arrangement will be fully implemented in 2020. Hence, the estimated procurement amount of natural gas from CNOOC Group for the year ending 31 December 2020 is expected to increase as compared to the expected amount of that for the year ending 31 December 2019.

Furthermore, we noted that the PRC government has adopted tightened environmental protection policies to promote the use of natural gas as fuel for industrial, commercial and residential use in recent years, including the Notice on Clean Winter Heating Plan for North China (2017–2021) 《北方地區冬季清潔取暖計 劃(2017–2021)》issued in 2017 and the Three-Year Action Plan for Winning the Battle for a Blue Sky《打贏藍天保衛戰三年行動計劃》 issued in 2018. Propelled by favourable government policies, the demand for natural gas consumption in downstream utilisation sectors such as power generation for heating and industrial fuels has grown rapidly. Taking into account the above, we concur with the Directors’ view that being able to secure natural gas supply from CNOOC Group during winter months is crucial to the Group’s business operation in northern China given the tight natural gas supply in northern China in winter.

The estimated procurement of potash from CNOOC Group for each of the years ending 31 December 2019 and 2020 amount to approximately 20.9% and 17.8% of the Proposed Revised Annual Caps, respectively. We understood from the management of the Group that the estimated procurement of potash from CNOOC Group under the Comprehensive Services and Product Sales Agreement is determined with reference to the historical demand of potash from the Group. Based on the information provided by the Group, the actual purchase amount of the potash by the Group from CNOOC Group for the nine months ended 30 September 2019 already amounted to approximately 17.5% and 12.6% of each of the Proposed Revised Annual Caps for the year ending 31 December 2019 and 2020 respectively.

Furthermore, we have discussed with the management of the Company and understood that the subsequent increase of the Proposed Revised Annual Cap for the year ending 31 December 2020 is mainly attributable to the following factors: (i) the estimate on the changes of volumes and unit prices of products and services to be provided by CNOOC Group to the Group, especially the procurement of natural gas and potash; (ii) the full implementation of the Natural Gas Transit Arrangement; and (iii) a buffer of 5% in consideration of the possibility of fluctuation in the relevant prices and/or demand from CNOOC Group in relation thereto in the coming year. In addition, we have reviewed contracts and invoices for some products and services on sampling basis, and taken into account their possible fluctuation in prices and

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LETTER FROM THE INDEPENDENT FINANCIAL ADVISER

demands as a result of various factors such as changes in business operation and plan of both the Group and CNOOC Group in the coming year. Therefore, we consider that a 5% buffer is reasonable.

Taking into account the foregoing, we consider that the Proposed Revised Annual Caps in respect of the Continuing Connected Transactions are fair and reasonable so far as the Company and the Independent Shareholders concerned.

IV. Internal Control Measures for the Continuing Connected Transactions

As stated in the Board Letter, the Company has established internal control system and adopted various internal control rules, including connected transaction management measures, sales and pricing management measures, and procurement and tender administration measures, to ensure that the continuing connected transactions are conducted in accordance with the executed agreements. The Company has set up the Audit Department to audit and assess the operation of the internal control system and management system of the Company and report to the audit committee of the Board and the Board in connection to the status of the internal control of the Company (including the implementation status of connected transactions) regularly. Before entering into a specific connected transaction agreement, the designated department(s) of the Group will review and assess whether the rates and terms set out in the specific agreement are consistent with the executed framework agreement to ensure that the interests of the Shareholders as a whole are taken into account and protected.

Regarding the provision of the services and supplies, and sales of products by CNOOC Group to the Group, prices for services, supplies or products being offered to the Group will be determined through tendering process (if practicable) with reference to the comparable market prices of the same type of services or supplies or products. In order to ensure the prices of the Comprehensive Services and Product Sales Agreement with respect to provision of services and supplies and sale of products by CNOOC Group to the Group is determined on a fair and reasonable basis and in accordance with the pricing principles, the Company has set up the Procurement Management Committee, which comprises senior management and executives from the Procurement Department and Disciplinary Inspection Committee of the Company, to determine the supplier of services, supplies and products. When determining the price for provision of services, supplies or products to the Group, the Procurement Management Committee is responsible for carrying out tendering process to assess the quality and price of services, supplies and products, qualification of suppliers, and terms offered by no less than three suppliers to make sure the conditions offered by CNOOC Group in the separate agreements under the Comprehensive Services and Product Sales Agreement are no less favorable to the Group than those offered by independent third parties to the Group (if practicable). If the abovementioned tendering process is not available due to the exclusivity of certain services, supplies or products in certain places, requirements of government authorities or other reasons, the Procurement Management Committee will negotiate with suppliers of services, supplies or products to make sure the pricing principles set out in the Comprehensive Services and Product Sales Agreement are fulfilled.

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LETTER FROM THE INDEPENDENT FINANCIAL ADVISER

We have reviewed the internal control policies of the Group and discussed with the management of the Company to understand the procedures. With respect to different type of the Continuing Connected Transactions, we have also reviewed sample documents provided by the Company (including relevant invoices, agreements, and tender documents) on random selection basis under the Continuing Connected Transactions and noted that they were in line with the pricing principles as described above.

In addition, pursuant to Rules 14A.55 to 14A.59 of the Listing Rules, the Continuing Connected Transactions are subject to the following annual review requirements:

• (a) the independent non-executive Directors must review the Continuing Connected Transactions every year and confirm in the annual report whether the Continuing Connected Transactions have been entered into:

• (i) in the ordinary and usual course of business of the Group;

• (ii) on normal commercial terms or better; and

• (iii) according to the agreements governing them on terms that are fair and reasonable and in the interests of the Shareholders as a whole;

• (b) the Company must engage its auditors to report on the Continuing Connected Transactions every year. The auditors of the Company must provide a letter to the Board confirming whether anything has come to their attention that causes them to believe that the Continuing Connected Transactions:

• (i) have not been approved by the Board;

• (ii) were not, in all material respects, in accordance with the pricing policies of the Group if the Continuing Connected Transactions involve the provision of goods or services by the Group;

• (iii) were not entered into, in all material respects, in accordance with the relevant agreement governing the Continuing Connected Transactions; and

• (iv) have exceeded the caps.

• (c) the Company must provide a copy of the auditors’ letter to the Stock Exchange at least 10 business days before the bulk printing of its annual report;

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LETTER FROM THE INDEPENDENT FINANCIAL ADVISER

• (d) the Company must allow, and ensure that the counterparties to the Continuing Connected Transactions allow, the Company’s auditors sufficient access to their records for the purpose of the reporting on the Continuing Connected Transactions; and

• (e) the Company must promptly notify the Stock Exchange and publish an announcement if the independent non-executive Directors and/or the Company’s auditors cannot confirm the matters as required. The Stock Exchange may require the Company to re-comply with the announcement and the Shareholders’ approval requirement and may impose additional conditions.

Taking into account the above-mentioned internal control measures and reporting requirements attached to the Continuing Connected Transactions, in particular, (i) the restriction of the transaction value of the Continuing Connected Transactions by way of the Proposed Revised Annual Caps; and (ii) the on-going review by the independent non-executive Directors and auditors of the Company of the Continuing Connected Transactions, we are of the view that appropriate measures thereof exist to monitor the conduct of the Continuing Connected Transactions and assist to safeguard the interests of the Independent Shareholders.

RECOMMENDATION

Having considered the above principal factors and reasons, we consider (i) the entering into of the Comprehensive Services and Product Sales Agreement (with respect to the Continuing Connected Transactions) is in the ordinary and usual course of business of the Group and on normal commercial terms; and (ii) together with the Proposed Revised Annual Caps are fair and reasonable and in the interests of the Group and the Independent Shareholders as a whole. Accordingly, we advise the Independent Board Committee to recommend the Independent Shareholders to vote in favour of the relevant resolution to be proposed at the EGM to approve the Proposed Revised Annual Caps under the Comprehensive Services and Product Sales Agreement (with respect to the Continuing Connected Transactions).

Yours faithfully, For and on behalf of Halcyon Capital Limited Terry Chu Managing Director

Mr. Terry Chu is a person licensed under the SFO to carry out type 1 (dealing in securities) and type 6 (advising on corporate finance) regulated activities under the SFO and regarded as a responsible officer of Halcyon Capital Limited and has over 19 years of experience in corporate finance industry.

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APPENDIX

GENERAL INFORMATION

RESPONSIBILITY STATEMENT

This circular includes particulars given in compliance with the Listing Rules for the purpose of giving information with regard to the Company. The Directors collectively and individually accept full responsibility and confirm that, having made all reasonable enquiries, to the best of their knowledge and belief, the information contained in this circular is accurate and complete in all material respects and not misleading or deceptive, and there are no other matters the omission of which would make any statement herein or this circular misleading.

DISCLOSURE OF INTERESTS

As at the Latest Practicable Date, none of the Directors, supervisors, the chief executive or their associates of the Company had interests or short positions in the shares, underlying shares and debentures of the Company or its associated corporations (within the meaning of Part XV of the SFO) which were required to be notified to the Company and the Stock Exchange pursuant to Divisions 7 and 8 of Part XV of the SFO (including interests and short positions which they are taken or deemed to have under such provisions of the SFO); or which are required, pursuant to section 352 of the SFO, to be entered in the register referred to therein; or which are required, pursuant to Model Code for Securities Transactions by Directors of Listed Issuers contained in the Listing Rules, to be notified to the Company and the Stock Exchange, except that the associate of Ms. Liu Lijie, a supervisor of the Company, held 80,000 H shares of the Company.

Save for Mr. Meng Jun and Mr. Guo Xinjun concurrently serving as Directors and/or management members of CNOOC, as at the Latest Practicable Date, none of the Directors was a director or an employee of any shareholders of the Company or a company which has interest or short position in shares or underlying shares of the Company which would fall to be disclosed to the Company under the provisions of Divisions 2 and 3 of Part XV of the SFO.

SERVICE CONTRACTS OF THE DIRECTORS

No Director or supervisor of the Company had or proposed to enter into any service contract with members of the Group, which is not terminable by the relevant member of the Group within one year without payment of compensation (other than statutory compensation).

COMPETING INTEREST

As at the Latest Practicable Date, none of the Directors or their respective associates had any interest in other business which competes or is likely to compete with the business of the Group.

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APPENDIX

GENERAL INFORMATION

EXPERT STATEMENTS

This circular includes statement(s), opinion(s) or advice(s) made by the following expert:

Name Qualification

Halcyon Capital Licensed corporation to carry out type 6 (advising on Limited corporate finance) regulated activity as defined under the SFO

The above-mentioned expert has given and has not withdrawn its written consent to the issue of this circular with the inclusion of its letter and/or references to its name in the form and context in which it appears.

As at the Latest Practicable Date, the above-mentioned expert did not have any shareholding in any member of the Group or any right (whether legally enforceable or not) to subscribe for or to nominate persons to subscribe for securities in any member of the Group.

NO MATERIAL INTERESTS

As at the Latest Practicable Date, none of the Directors, the supervisors of the Company and the above-mentioned expert had any direct or indirect interest in any assets which have been, since 31 December 2018 (being the date to which the latest published audited accounts of the Company were made up), acquired or disposed of by or leased to any member of the Group, or are proposed to be acquired or disposed of by or leased to any member of the Group.

As at the Latest Practicable Date, none of the Directors and the supervisors of the Company was materially interested in any contract or arrangement subsisting at the date of this circular which was significant in relation to the business of the Group.

NO MATERIAL ADVERSE CHANGE

As at the Latest Practicable Date, the Directors were not aware of any material adverse change in the financial or trading position of the Group since 31 December 2018, the date to which the latest published consolidated audited accounts of the Group had been made up.

MATERIAL LITIGATION

As at the Latest Practicable Date, none of the Company and its subsidiaries was engaged in any material litigation or arbitration and there was no litigation or claim of material importance known to the Directors to be pending or threatened by or against the Company and its subsidiaries.

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APPENDIX

GENERAL INFORMATION

MISCELLANEOUS

• (i) The joint company secretaries of the Company are Ms. Wu Xiaoxia and Ms. Ng Sau Mei. Ms. Wu Xiaoxia is also the chief financial officer and a vice president of the Company.

• (ii) The registered office and the principal place of business of the Company is No. 1 Zhu Jiang South Street, Dongfang City, Hainan Province, the PRC. The Hong Kong H Share Registrar and H Share transfer office of the Company is Computershare Hong Kong Investor Services Limited situated at Shops 1712–1716, 17th Floor, Hopewell Centre, 183 Queen’s Road East, Wanchai, Hong Kong. The H Share registrar of the Company in Hong Kong is Computershare Hong Kong Investor Services Limited, whose registered office is at 17M Floor, Hopewell Center, 183 Queen’s Road East, Wanchai, Hong Kong.

• (iii) The English language text of this document shall prevail over the Chinese language text.

DOCUMENTS FOR INSPECTION

Copies of the following documents are available for inspection during normal business hours at the Company’s representative office in Hong Kong at 65/F., Bank of China Tower, No. 1 Garden Road, Central, Hong Kong for a period of 14 days (excluding public holidays) from the date of the circular:

• (i) the letter from the Independent Board Committee dated 27 November 2019, the text of which is set out on page 13 of this circular;

• (ii) the letter from the Independent Financial Adviser dated 27 November 2019, the text of which is set out on pages 14 to 24 of this circular;

• (iii) the consent letter dated 27 November 2019 signed by the Independent Financial Adviser in relation to the issue of this circular; and

• (iv) the Comprehensive Services and Product Sales Agreement entered into between the Company and CNOOC dated 3 November 2017.

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