China BlueChemical Ltd. — Proxy Solicitation & Information Statement 2022

Dec 11, 2022

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, together with the enclosed forms of proxy and reply slips, 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)

(I) PROPOSED REVISION OF CURRENT ANNUAL CAPS (II) PROPOSED CONTINUING CONNECTED TRANSACTIONS WITH A CONNECTED SUBSIDIARY

AND

(III) SUPPLEMENTAL NOTICE OF THE FIRST EXTRAORDINARY GENERAL MEETING OF 2022

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

A letter from the Board is set out on pages 7 to 29 of this circular. A letter from the Independent Board Committee is set out on pages 30 to 31 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 32 to 53 of this circular.

The First Notice convening the EGM to be held at the Meeting Room, 14th Floor, Kaikang CNOOC Mansion, No. 15, Sanqu, Anzhenxili, Chaoyang District, Beijing, the PRC on Wednesday, 28 December 2022 at 8:30 a.m. together with the relevant reply slip and First Proxy Form was published on the website of the Stock Exchange (www.hkexnews.hk) and despatched on 11 November 2022.

A Supplemental Notice setting out additional resolutions to be considered and approved at the EGM is set out on pages 57 to 58 of this circular.

Whether or not you are able to attend the EGM, you are strongly advised to complete and sign the First Proxy Form and the enclosed Supplemental 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 holders of the domestic shares or 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 holders of H Shares), 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) (i.e., 8:30 a.m. on Tuesday, 27 December 2022). Please note that 24 December 2022 to 27 December 2022 are not working days in Hong Kong and Computershare Hong Kong Investor Services Limited’s offices will not be open on these days for physical delivery of the proxy form. Completion and return of the proxy form 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

9 December 2022

CONTENTS

	Page
DEFINITIONS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	1
LETTER FROM THE BOARD . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	7
LETTER FROM THE INDEPENDENT BOARD COMMITTEE . . . . . . . . . . . . . . . . . . . . . . .	30
LETTER FROM THE INDEPENDENT FINANCIAL ADVISER . . . . . . . . . . . . . . . . . . . . . .	32
APPENDIX — GENERAL INFORMATION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	54
SUPPLEMENTAL NOTICE OF THE FIRST EXTRAORDINARY
GENERAL MEETING OF 2022 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	57

– 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 China Limited’’

• 中海石油(中國)有限公司 (CNOOC China Limited*), a company established in China and a wholly-owned subsidiary of CNOOC Limited

• ‘‘CNOOC Fudao’’

• 海洋石油富島有限公司 (CNOOC Fudao Limited*), a company established in the PRC and is currently a wholly-owned subsidiary of the Company

• ‘‘CNOOC Group’’

• CNOOC and its associates, excluding the Group

• ‘‘CNOOC International Trade’’

• 中海油國際貿易有限責任公司 (CNOOC International Trade Co., Ltd.), a limited company incorporated in the PRC which is a subsidiary of CNOOC

• ‘‘CNOOC Jiantao’’

• 中海石油建滔化工有限公司 (CNOOC Kingboard Chemical Limited), a company established in China and the equity interest of which is owned as to 60% by the Company and 40% by 建滔投資有限公司 (Kingboard Investments Limited)

• ‘‘CNOOC Limited’’

• 中國海洋石油有限公司 (CNOOC Limited*), a company listed on the Stock Exchange (Stock Code: 0883) and the New York Stock Exchange (Stock Code: CEO) and a subsidiary of CNOOC

• ‘‘Company’’

• 中海石油化學股份有限公司 (China BlueChemical Ltd.*), a company incorporated in the PRC and a subsidiary of CNOOC, the H shares of which are listed on the Stock Exchange

• ‘‘Comprehensive Services and Product Sales Agreement’’

• the comprehensive services and product sales and purchase framework agreement dated 23 October 2020 entered into between the Company and CNOOC

• ‘‘Comprehensive Services and Product Sales Agreement with Fudao Chemical’’

• the comprehensive services and product sales and purchase framework agreement dated 18 November 2022 entered into between the Company and Fudao Chemical

– 1 –

DEFINITIONS

• ‘‘Current Annual Caps’’

the Current Annual Cap I and the Current Annual Caps II

• ‘‘Current Annual Cap I’’

the current annual cap for the Transactions I for the year ending 31 December 2023 under the Comprehensive Services and Product Sales Agreement, being RMB915.4 million

• ‘‘Current Annual Caps II’’

the current annual caps for the Transactions II for the two years ending 31 December 2022 and 2023 under the Natural Gas Sale and Purchase Agreements, being RMB2,879.8 million and RMB2,945.8 million, respectively

• ‘‘Director(s)’’

• director(s) of the Company

• ‘‘Dongfang 13-2 Gasfield Group Natural Gas Sale and Purchase Agreement’’

• the Dongfang 13-2 gasfield group natural gas sale and purchase agreement dated 3 November 2017

• ‘‘EGM’’

• the extraordinary general meeting of the Company to be held at 8:30 a.m. on Wednesday, 28 December 2022 at the Meeting Room, 14th Floor, Kaikang CNOOC Mansion, No. 15, Sanqu, Anzhenxili, Chaoyang District, Beijing, the PRC to be convened, among other things, for the Independent Shareholders to consider and, if thought fit, approve (1) the Proposed Revised Annual Caps, and (2) the Comprehensive Services and Product Sales Agreement with Fudao Chemical, the Proposed Continuing Connected Transactions with Fudao Chemical for the sale of products by Fudao Chemical to the Group and the Proposed Annual Cap with Fudao Chemical for the sale of products by Fudao Chemical to the Group, and any adjournment thereof

• ‘‘First Notice’’ the notice of EGM dated 11 November 2022

• ‘‘First Proxy Form’’

• the proxy form of the Company dated 11 November 2022

• ‘‘Four Major Types of Crude Oil’’

• the four types of crude oil referred to in Dongfang 1-1 Offshore Gasfield Natural Gas Sale and Purchase Agreement, Natural Gas Sale and Purchase Framework Agreement, Ledong Natural Gasfield Natural Gas Sale and Purchase Agreement and Dongfang 1-1 Offshore Gasfield Natural Gas Sale and Purchase Agreement mean West Texas Intermediate Crude Oil (西德克薩斯中質原油), Tapis Crude Oil (塔皮斯原油), Brent Crude Oil (混合布倫特原油) and Minas Crude Oil (米納斯原油)

– 2 –

DEFINITIONS

• ‘‘Fudao Chemical’’

中海油(海南)富島化工有限公司 (CNOOC (Hainan) Fudao Chemical Ltd.*), a limited company incorporated in the PRC, in which the Company and CNOOC indirectly hold the 51% and 49% equity interests, respectively

• ‘‘Fudao Phase I Urea Plant’’

• the Company’s urea plant with a 520,000-tonne annual capacity in Hainan

• ‘‘Fudao Phase II Urea Plant’’ the Company’s urea plant with an 800,000-tonne annual capacity in Hainan

• ‘‘Group’’

the Company and its subsidiaries from time to time

• ‘‘Hainan Phase I Methanol Plant’’

• the Company’s methanol plant with a 600,000-tonne annual capacity in Hainan

• ‘‘Hainan Phase II Methanol Plant’’

• the Company’s methanol plant with an 800,000-tonne annual capacity in Hainan

• ‘‘Hainan Plants’’

Fudao Phase I Urea Plant, Fudao Phase II Urea Plant, Hainan Phase I Methanol Plant and Hainan Phase II Methanol Plant

• ‘‘Hong Kong’’

the Hong Kong Special Administrative Region of the PRC

• ‘‘Independent Board Committee’’

an independent committee of the Board comprising Mr. Yu Changchun, Mr. Lin Feng and Mr. Xie Dong, the independent non-executive Directors, formed for the purpose of advising the Independent Shareholders in respect of (1) the Proposed Revised Annual Caps, and (2) the Comprehensive Services and Product Sales Agreement with Fudao Chemical, the Proposed Continuing Connected Transactions with Fudao Chemical for the sale of products by Fudao Chemical to the Group and the Proposed Annual Cap with Fudao Chemical for the sale of products by Fudao Chemical to the Group

– 3 –

DEFINITIONS

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

• ‘‘Independent Shareholders’’

• ‘‘Latest Practicable Date’’

• ‘‘Listing Rules’’

• ‘‘Natural Gas Sale and Purchase Agreements’’

• Gram Capital Limited, a licensed corporation to carry out Type 6 (advising on corporate finance) regulated activity under the SFO, being the independent financial adviser to the Independent Board Committee and the Independent Shareholders in respect of (1) the Proposed Revised Annual Caps, and (2) the Comprehensive Services and Product Sales Agreement with Fudao Chemical, the Proposed Continuing Connected Transactions with Fudao Chemical for the sale of products by Fudao Chemical to the Group and the Proposed Annual Cap with Fudao Chemical for the sale of products by Fudao Chemical to the Group

Shareholders other than CNOOC Group

• 30 November 2022, being the latest practicable date prior to the printing of this circular for the purpose of ascertaining certain information contained herein

• the Rules Governing the Listing of Securities on The Stock Exchange of Hong Kong Limited

• the five long-term agreements the Group has entered into with CNOOC China Limited, including (i) Dongfang 1-1 Offshore Gasfield Natural Gas Sale and Purchase Agreement dated 28 July 2003, (ii) Dongfang 1-1 Offshore Gasfield Natural Gas Sale and Purchase Agreement dated 10 March 2005, (iii) Natural Gas Sale and Purchase Framework Agreement dated 1 September 2006 and Ledong Natural Gasfield Natural Gas Sale and Purchase Agreement dated 26 March 2010 thereunder, (iv) the Dongfang 1-1 Gasfield Phase I Adjusted Project Natural Gas Sale and Purchase Framework Agreement dated 28 October 2014 and the Dongfang 1-1 Gasfield Phase I Adjusted Project Natural Gas Sale and Purchase Agreement dated 18 May 2015 thereunder, and (v) Dongfang 13-2 Gasfield Group Natural Gas Sale and Purchase Agreement dated 3 November 2017

– 4 –

DEFINITIONS

• ‘‘Platts Crude Oil Marketwire’’

• Platts Crude Oil Marketwire is published by Platts which is a leading global provider of energy and metals information. Platts has been widely recognised by the crude oil industry due to the high accuracy and quick update of the information provided by it, and its fair and transparency as an independent information provider. So far, major oil companies and trading companies both in China and abroad have adopted the oil price information provided by Platts as the basis to conduct their business

• ‘‘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 Annual Cap(s) with the proposed annual caps with Fudao Chemical for the Fudao Chemical’’ Proposed Continuing Connected Transactions with Fudao Chemical

• ‘‘Proposed Continuing Connected Transactions with Fudao Chemical’’

• the provision of services and supplies and sale of products by the Group to Fudao Chemical in 2022 and 2023 and the sale of products by Fudao Chemical to the Group in 2023 under the Comprehensive Services and Product Sales Agreement with Fudao Chemical

• ‘‘Proposed Revised Annual Caps’’

• the Proposed Revised Annual Cap I and the Proposed Revised Annual Caps II

• ‘‘Proposed Revised Annual Cap I’’

• the proposed revised annual cap for the Transactions I for the year ending 31 December 2023 under the Comprehensive Services and Product Sales Agreement, being RMB2,620 million

• ‘‘Proposed Revised Annual Caps II’’

• the proposed revised annual caps for the Transactions II for the two years ending 31 December 2022 and 2023 under the Natural Gas Sale and Purchase Agreements, being RMB3,300 million and RMB3,480 million, respectively

• ‘‘Prospectus’’ the Hong Kong prospectus of the Company dated 18 September 2006

• ‘‘RMB’’ Renminbi, the lawful currency of the PRC

• ‘‘SFO’’ the Securities and Futures Ordinance (Chapter 571 of the Laws of Hong Kong), as amended, supplemented or otherwise modified from time to time

– 5 –

DEFINITIONS

• ‘‘Shareholder(s)’’ shareholder(s) of the Company

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

• ‘‘Supplemental Notice’’ the supplemental notice of EGM dated 9 December 2022

• ‘‘Supplemental Proxy Form’’ the supplemental proxy form of the Company dated 9 December 2022

• ‘‘Transactions’’ the Transactions I and the Transactions II

• ‘‘Transactions I’’ the continuing 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

• ‘‘Transactions II’’ the continuing transactions in relation to the purchase of natural gas by the Group under the Natural Gas Sale and Purchase Agreements

• ‘‘%’’ percent

In addition, the terms ‘‘associate’’, ‘‘connected person’’, ‘‘connected subsidiary’’, ‘‘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.

– 6 –

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. Hou Xiaofeng Mr. Li Zhi

Non-executive Directors:

Mr. Huang Hulong Mr. Zhao Baoshun

Independent non-executive Directors:

Mr. Yu Changchun Mr. Lin Feng Mr. Xie Dong

Registered Office: No. 3 Park Third Road Basuo Town 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

9 December 2022

To the Shareholders

Dear Sir or Madam,

(I) PROPOSED REVISION OF CURRENT ANNUAL CAPS (II) PROPOSED CONTINUING CONNECTED TRANSACTIONS WITH A CONNECTED SUBSIDIARY

AND

(III) SUPPLEMENTAL NOTICE OF THE FIRST EXTRAORDINARY GENERAL MEETING OF 2022

INTRODUCTION

We refer to the announcements of the Company dated 11 November 2022 and 18 November 2022 in relation to, among other things, (i) the Proposed Revised Annual Caps, and (ii) the Comprehensive Services and Product Sales Agreement with Fudao Chemical, the Proposed Continuing Connected Transactions with Fudao Chemical for the sale of products by Fudao Chemical to the Group and the Proposed Annual Cap with Fudao Chemical for the sale of products by Fudao Chemical to the Group.

• For identification purpose only

– 7 –

LETTER FROM THE BOARD

The purposes of this circular are:

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

• (2) to provide details in respect of the Comprehensive Services and Product Sales Agreement with Fudao Chemical, the Proposed Continuing Connected Transactions with Fudao Chemical for the sale of products by Fudao Chemical to the Group and the Proposed Annual Cap with Fudao Chemical for the sale of products by Fudao Chemical to the Group;

• (3) to set out the recommendations from the Independent Board Committee in respect of (i) the Proposed Revised Annual Caps, and (ii) the Comprehensive Services and Product Sales Agreement with Fudao Chemical, the Proposed Continuing Connected Transactions with Fudao Chemical for the sale of products by Fudao Chemical to the Group and the Proposed Annual Cap with Fudao Chemical for the sale of products by Fudao Chemical to the Group;

• (4) to set out the advice from Gram Capital in respect of (i) the Proposed Revised Annual Caps, and (ii) the Comprehensive Services and Product Sales Agreement with Fudao Chemical, the Proposed Continuing Connected Transactions with Fudao Chemical for the sale of products by Fudao Chemical to the Group and the Proposed Annual Cap with Fudao Chemical for the sale of products by Fudao Chemical to the Group;

• (5) to provide the Shareholders with other information required under the Listing Rules; and

• (6) to provide the Shareholders with the Supplemental Notice of the EGM.

I. PROPOSED REVISION OF THE CURRENT ANNUAL CAPS

We refer to the announcement of the Company dated 23 October 2020, the circular dated 13 November 2020 and the poll results announcement of the second extraordinary general meeting of the Company dated 29 December 2020 in relation to, among other things, (i) the Comprehensive Services and Product Sales Agreement and the Current Annual Cap I for the year ending 31 December 2023; and (ii) the Natural Gas Sale and Purchase Agreements and the Current Annual Caps II for the two years ending 31 December 2022 and 2023.

During the process of the Company’s internal review on continuing connected transactions, it was noted that the transaction amount (unaudited) for the Transactions I (provision of services and supplies and sale of products by CNOOC Group to the Group under the Comprehensive Services and Product Sales Agreement) and the Transactions II (purchase of natural gas by the Group under the Natural Gas Sale and Purchase Agreements) was approximately RMB286.8 million and RMB2,382.7 million, respectively, for the nine months ended 30 September 2022. In addition, considering the increase in the demand for procurement of propylene, acetone and fuel gas by the Group from CNOOC Group under the Comprehensive Services and Product Sales Agreement and the increase in the costs of purchase of natural gas by the Group under the Natural Gas Sale and

– 8 –

LETTER FROM THE BOARD

Purchase Agreements, (i) the transaction amount for the Transactions I for the year ending 31 December 2023 is expected to exceed the Current Annual Cap I and (ii) the transaction amounts for the Transactions II for the two years ending 31 December 2022 and 2023 are expected to exceed the Current Annual Caps II, respectively. As such, the Board proposes to seek prior approval of Independent Shareholders under Rule 14A.54 of the Lisitng Rules to revise the Current Annual Caps.

TRANSACTIONS I — THE PROVISION OF SERVICES AND SUPPLIES AND SALE OF PRODUCTS BY CNOOC GROUP TO THE GROUP UNDER THE COMPREHENSIVE SERVICES AND PRODUCT SALES AGREEMENT

Principal Terms of the Transactions I

Principal terms and conditions of the Comprehensive Services and Product Sales Agreement, including terms of the Transactions I, the details of which are set out as below, remain unchanged compared to those set out in ‘‘Comprehensive Services and Product Sales Agreement’’ of the circular of the Company dated 13 November 2020.

Date

23 October 2020

Parties

• (a) The Company

• (b) CNOOC

Scope of the Transactions I

In relation to the Transactions I,

• 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.

– 9 –

LETTER FROM THE BOARD

Term

The term of the Comprehensive Services and Product Sales Agreement commenced on 1 January 2021 and will expire on 31 December 2023, but may be renewed upon agreement provided that the requirements of the Listing Rules in relation to connected transactions are complied with.

Pricing Principles

Under the Comprehensive Services and Products Sales Agreement, the Transactions I will be conducted on normal commercial terms and conditions which shall not be less favourable than those offered to independent third parties by CNOOC Group, and the prices thereunder will be determined in accordance with the pricing principles set out in the Comprehensive Services and Product Sales Agreement as follows:

• a. 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

• b. 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

• c. 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.

Nevertheless, when relevant government authorities publish a government-prescribed price in relation to the Transactions I 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. As of the Latest Practicable Date, there are no government-prescribed prices currently in force for the above-mentioned services, supplies and products.

Pricing Procedures

In order to ensure that the price of the Comprehensive Services and Product Sales Agreement with respect to the Transactions I 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 (including the independent third parties and CNOOC Group) to make sure the conditions offered by CNOOC Group in the separate agreements under the

– 10 –

LETTER FROM THE BOARD

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.

Proposed Revision of the Current Annual Cap I

Historical Figures and Proposed Revised Annual Cap I

It is expected that the transaction amount of the Transactions I may increase for the year ending 31 December 2023. As such, the Company proposes to revise the Current Annual Cap I.

	Current	Proposed Revised
	Annual Cap I for	Annual Cap I for
	the year ending	the year ending
Transaction type	31 December 2023	31 December 2023
	(RMB’000)	(RMB’000)
Provision of services and supplies	915,437	2,620,000
and sale of products by CNOOC Group
to the Group

The historical amount of the Transactions I for the year ended 31 December 2021 and the nine months ended 30 September 2022 were approximately RMB450.3 million and RMB286.8 million (unaudited), respectively.

Basis of the Proposed Revised Annual Cap I

To put the Company’s strategy of the exploration into acrylonitrile business into practice, the acrylonitrile project of the Group will commence production in the first quarter of 2023. Therefore, the demand for procurement of propylene, acetone and fuel gas for the operation of acrylonitrile project by the Group from CNOOC Group is expected to increase in the year ending 31 December 2023. The basis of the Proposed Revised Annual Cap I considered by the Directors are as follows:

• (i) the theoretical maximum amount of consumption of propylene, acetone and fuel gas based on the highest possible operation days of the plants of acrylonitrile project;

• (ii) the market prices of propylene, acetone and fuel gas in 2022; and

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

– 11 –

LETTER FROM THE BOARD

TRANSACTIONS II — THE PURCHASE OF NATURAL GAS BY THE GROUP UNDER THE NATURAL GAS SALE AND PURCHASE AGREEMENTS

Principal Terms of the Transactions II

We refer to the Prospectus of the Company, the announcements of the Company dated 5 November 2008, 9 November 2011, 28 March 2012, 28 October 2014, 3 November 2017 and 23 October 2020 and the circulars of the Company dated 14 November 2008, 31 December 2008, 15 November 2011, 7 November 2014, 13 November 2017 and 13 November 2020 in relation to, among other things, the continuing connected transactions of the Company.

The Group entered into five natural gas sale and purchase agreements with CNOOC China Limited, the summary of which are listed as follows:

• (1) Dongfang 1-1 Offshore Gasfield Natural Gas Sale and Purchase Agreement between the Company and CNOOC China Limited dated 28 July 2003, under which CNOOC China Limited has committed to supply natural gas to the Company for Fudao Phase II Urea Plant at prices that are subject to adjustments on a quarterly basis by reference to the prices of Four Major Types of Crude Oil quoted on Platts Crude Oil Marketwire during the preceding quarter. The natural gas delivery period under this agreement is 20 years, commencing on 1 October 2003 and will expire on 30 September 2023.

• (2) Dongfang 1-1 Offshore Gasfield Natural Gas Sale and Purchase Agreement between CNOOC Jiantao and CNOOC China Limited dated 10 March 2005, under which CNOOC China Limited has committed to supply natural gas to CNOOC Jiantao for Hainan Phase I Methanol Plant at prices that are subject to adjustments on a monthly basis by reference to the prices of Four Major Types of Crude Oil quoted on Platts Crude Oil Marketwire during the preceding month. The natural gas delivery period under this agreement is 20 years, commencing on 16 October 2006 and will expire on 15 October 2026.

• (3) Natural Gas Sale and Purchase Framework Agreement between the Company and CNOOC China Limited on 1 September 2006, under which CNOOC China Limited has committed to supply natural gas for the Company’s future plants. This agreement does not include the transactions conducted under the two pre-existing agreements mentioned above. Under this framework agreement, CNOOC China Limited will sell natural gas to the Company and/or the Company’s subsidiaries at a price which is determined on a fair and reasonable basis (including by reference to the prices of Four Major Types of Crude Oil quoted on Platts Crude Oil Marketwire) and in accordance with normal commercial customs. The term of the agreement is of 20 years commencing on the date of the agreement. CNOOC China Limited and the Company or the Company’s relevant subsidiaries will enter into separate agreements which will set out the specific terms and conditions for natural gas sales and purchases according to the principles laid down by this framework agreement.

– 12 –

LETTER FROM THE BOARD

On 26 March 2010, the Company and CNOOC China Limited entered into the Ledong Natural Gasfield Natural Gas Sale and Purchase Agreement under the Natural Gas Sale and Purchase Framework Agreement dated 1 September 2006 pursuant to which CNOOC China Limited has agreed to supply natural gas to the Company for Hainan Phase II Methanol Plant at prices of natural gas that are subject to adjustments on a quarterly basis by reference to the prices of Four Major Types of Crude Oil quoted on Platts Crude Oil Marketwire during the preceding quarter. The natural gas delivery period under this agreement is 15 years, commencing on 1 January 2011 and will expire on 31 December 2025.

• (4) Dongfang 1-1 Gasfield Phase I Adjusted Project Natural Gas Sale and Purchase Framework Agreement among the Company, CNOOC Fudao and CNOOC China Limited dated 28 October 2014 pursuant to which CNOOC China Limited has agreed to supply to the Group with natural gas as feedstock required mainly for Fudao Phase I Urea Plant. The natural gas delivery period under this framework agreement is nine years commencing on 1 August 2015.

On 18 May 2015, the Company, CNOOC Fudao and CNOOC China Limited entered into the Dongfang 1-1 Gasfield Phase I Adjusted Project Natural Gas Sale and Purchase Agreement under the Dongfang 1-1 Gasfield Phase I Adjusted Project Natural Gas Sale and Purchase Framework Agreement dated 28 October 2014 pursuant to which CNOOC China Limited has agreed to supply to the Company with natural gas as feedstock required mainly for Fudao Phase I Urea Plant. The natural gas delivery period under this agreement commenced on 8 April 2016 and will expire at the end of operation period of the gasfield, which is expected to be on or before 31 July 2024.

• (5) Dongfang 13-2 Gasfield Group Natural Gas Sale and Purchase Agreement among the Company, CNOOC Fudao and CNOOC China Limited dated 3 November 2017, pursuant to which CNOOC China Limited has agreed to supply to the Group with natural gas as feedstock required mainly for the Hainan Plants. The natural gas delivery period under this agreement is 20 years commencing on 15 November 2018.

As disclosed in the Prospectus of the Company, because the above-mentioned natural gas sale and purchase agreements (1) to (3) were entered into by the Company before its listing on 29 September 2006, the Company applied to the Stock Exchange at the time of its listing for, and the Stock Exchange has granted, a waiver from strict compliance with the independent shareholders’ approval requirement. The joint sponsors to the listing have also confirmed that they consider that a term of 20 years for each of the natural gas sale and purchase agreements (1) to (3) is appropriate.

As disclosed in the circulars of the Company dated 7 November 2014 and 13 November 2017, for the above-mentioned natural gas sale and purchase agreements (4) and (5), the Dongfang 1-1 Gasfield Phase I Adjusted Project Natural Gas Sale and Purchase Framework Agreement and Dongtang 13-2 Gasfield Group Natural Gas Sale and Purchase Agreement, Halcyon Capital, the then independent financial adviser of the Company, having considered the nature of the agreement

– 13 –

LETTER FROM THE BOARD

and industrial practice, was of the opinion that it is reasonable for such agreements to be of a longer period than three year and it is in line with normal business practice for agreements of this type.

As mentioned in the announcement of the Company dated 30 June 2022, due to the internal arrangement of CNOOC Limited, the business entity engaging in the sales of natural gas within CNOOC Limited changed from CNOOC China Limited, a subsidiary of CNOOC Limited, to CNOOC International Trade, another subsidiary of CNOOC Limited, in 2021. Based on such arrangement, the above-mentioned parties (as suppliers) of Natural Gas Sale and Purchase Agreements have also been changed from CNOOC China Limited to CNOOC International Trade. Such arrangement has no adverse impact on the supply of natural gas to the Group as the source of natural gas is still within CNOOC Limited. In addition, other terms and conditions (including the pricing terms) of the Natural Gas Sale and Purchase Agreements as mentioned in ‘‘Natural Gas Sale and Purchase Agreements’’ of the circular of the Company dated 13 November 2020 remain unchanged. Considering the above-mentioned factors, the Directors are of the view that such change to the Natural Gas Sale and Purchase Agreements does not constitute the material change to the terms under the Rule 14A.54(2) of the Listing Rules.

Pricing Procedures

In order to ensure that the price of the natural gas under the above-mentioned natural gas sale and purchase agreements (1) to (3) is determined on a fair and reasonable basis and in accordance with the pricing principles, the Company has adopted the following procedures when determining the price of the natural gas to be supplied to its production facilities in Hainan:

• a. the designated department of the Company would monitor and obtain the prevailing average prices of the Four Major Types of Crude Oil quoted on Platts Crude Oil Marketwire on a quarterly basis in the case of Fudao Phase I Urea Plant, Fudao Phase II Urea Plant and Hainan Phase II Methanol Plant, and on a monthly basis in the case of Hainan Phase I Methanol Plant;

• b. based on the average prices of the Four Major Types of Crude Oil quoted on Platts Crude Oil Marketwire obtained, the designated department would calculate the natural gas price for the preceding quarter or month (as the case may be) in accordance with the pricing principles as set out in the relevant natural gas sale and purchase agreement;

• c. the designated department would then submit the natural gas price so determined to senior management of the Company for approval upon which the Company would make payment to CNOOC International Trade in accordance with the terms and conditions as set out in the relevant natural gas sale and purchase agreements.

The transactions under the Dongfang 1-1 Gasfield Phase I Adjusted Project Natural Gas Sale and Purchase Framework Agreement has been conducted on normal commercial terms and conditions which is no less favourable than those offered to independent third parties by CNOOC International Trade or CNOOC China Limited (where applicable), and has been priced in

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accordance with a benchmark price which is determined with reference to the exploration, development and production cost of the gasfield plus reasonable profit in principle as CNOOC International Trade or CNOOC China Limited (where applicable) is the sole supplier of natural gas in the region. The Company has checked the 2013 annual report of CNOOC Limited to ensure the benchmark price is comparable to the average realized price per thousand cubic feet of natural gas in 2013 as disclosed therein. The parties will negotiate for the adjustment of the benchmark price in August each year taking into consideration of the factors such as change of the pricing policy by the state pricing regulatory authorities, prices of domestic energy markets, domestic prices for natural gas and change in CPIs. The Company has checked the annual reports of CNOOC Limited for 2017 to 2021 to ensure the benchmark price after the adjustment is comparable to the average realized prices per thousand cubic feet of natural gas from 2017 to 2021 as disclosed therein. For the transactions of 2022 and going forward, the Company will also check average realized price per thousand cubic feet of natural gas disclosed in the latest annual reports of CNOOC Limited to ensure the reasonableness and fairness of the benchmark price after the adjustment.

The transactions under the Dongfang 13-2 Gasfield Group Natural Gas Sale and Purchase Agreement has been conducted on normal commercial terms and conditions which is no less favourable than those offered to independent third parties by CNOOC International Trade or CNOOC China Limited (where applicable), and has been priced in accordance with a benchmark price which is determined with reference to the exploration, development and production cost of the gasfield plus reasonable profit in principle as CNOOC China Limited or CNOOC International Trade (where applicable) is the sole supplier of natural gas in the region.

In order to ensure the benchmark price of the Dongfang 13-2 Gasfield Group Natural Gas Sale and Purchase Agreement is determined on a fair and reasonable basis, the Company has checked the average realized prices per thousand cubic feet of natural gas disclosed in the annual reports of CNOOC Limited for 2014 to 2016, analysed the effect of different natural gas prices on the gross profit of the Company’s products, and the Financial Management Department of the Company has compared the benchmark price provided by CNOOC China Limited to another related company. In order to ensure the benchmark price after the adjustment of the Dongfang 13-2 Gasfield Group Natural Gas Sale and Purchase Agreement is determined on a fair and reasonable basis, the Company has checked the average realized prices per thousand cubic feet of natural gas disclosed in the annual reports of CNOOC Limited for 2017 to 2021, analysed the effect of different natural gas prices on the gross profit of the Company’s products, and the Financial Management Department of the Company has compared such price provided by CNOOC China Limited or CNOOC International Trade (where applicable) to another related company. For the transactions of 2022 and going forward, the Company will also check average realized price per thousand cubic feet of natural gas disclosed in the latest annual reports of CNOOC Limited to ensure the reasonableness and fairness of the benchmark price after the adjustment.

The price of natural gas will be adjusted based on the benchmark price on a quarterly basis if the average price of international crude oil (Dated Brent) or the average selling price of the Company’s urea or methanol of that quarter increases to certain thresholds, with the price of international crude oil (Dated Brent) and the selling price of the Company’s urea or methanol each

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contributing an agreed percentage in the adjustment of the natural gas price. Under the current adjustment mechanism, the price of natural gas will stay unchanged if none of the average price of international crude oil (Dated Brent) or the average selling price of the Company’s methanol or urea increases to certain thresholds, while the price of natural gas will increase if any of the average price of international crude oil (Dated Brent) or the average selling price of the Company’s methanol or urea increases to certain thresholds.

The adjustment mechanisms in the existing natural gas sale and purchase agreements of the Company as disclosed in this circular mainly refer to the prices of crude oil. However, due to fluctuation in international crude oil prices in recent years, in the Dongfang 13-2 Gasfield Group Natural Gas Sale and Purchase Agreement, the Company considers that a mechanism to adjust natural gas price with reference to various other factors in addition to oil price will alleviate the pressure of the Company when facing increasing oil price and secure a price more favourable for the Company, and in particular taking into account the selling price of the Company’s products would enable the Company to better control its cost.

In order to ensure the price of natural gas under the Dongfang 13-2 Gasfield Group Natural Gas Sale and Purchase Agreement is determined in accordance with the pricing principle, at the end of each quarter, the Financial Management Department is responsible for collecting the average price for international crude oil (Dated Brent) of that quarter while the Marketing Center is responsible for preparing the average selling price of the Company’s methanol and urea of that quarter. The Production Management Department will calculate the price of natural gas of that quarter in accordance with the price adjustment mechanism as set out in the Dongfang 13-2 Gasfield Group Natural Gas Sale and Purchase Agreement. The adjusted natural gas price then will be submitted to the senior management of the Company for final review and approval. In the case of any dispute on the natural gas price, the Strategy and Planning Department is responsible for negotiating with CNOOC International Trade.

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Revision of the Current Annual Caps II

Historical Figures and Proposed Revised Annual Caps II

It is expected that the transaction amount of the Transactions II may increase for the two years ending 31 December 2022 and 2023. As such, the Company proposes to revise the Current Annual Caps II.

Proposed Revised Current Annual Caps II for Annual Caps II the year ending for the year ending Transaction type 31 December 31 December 2022 2023 2022 2023 (RMB’000) (RMB’000) Purchase of natural gas by 2,879,788 2,945,829 3,300,000 3,480,000 the Group from CNOOC International Trade

The historical amounts of the Transactions II for the year ended 31 December 2021 and the nine months ended 30 September 2022, were approximately RMB2,622.2 million and RMB2,382.7 million (unaudited), respectively. For the avoidance of doubt, the transaction amounts of Transactions II mentioned in this circular have included the transaction amount between CNOOC China Limited and the Group under the Natural Gas Sale and Purchase Agreements.

Basis of the Proposed Revised Annual Caps II

The basis of the Proposed Revised Annual Caps II considered by the Directors are as follows:

• (i) the surge in the average price of international crude oil (Dated Brent) since the beginning of the year and the increase of the prices of urea or methanol triggered the abovementioned natural gas price adjustment mechanisms under the Dongfang 13-2 Gasfield Group Natural Gas Sale and Purchase Agreement, which led to the significant increase in the costs of purchase of natural gas by the Group in 2022 and such costs is also expected to maintain at a higher level in 2023. The average price of international crude oil (Dated Brent) increased by 56.7% for the nine months ended 30 September 2022 as compared with the same period of last year;

• (ii) the theoretical maximum amount of gas consumption based on the highest possible operation days of each production plant of the Group in Hainan; and

• (iii) a 3% buffer for fluctuation in relevant commodity prices, future operation needs of the Company and possible market changes.

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As at the Latest Practicable Date, the transaction amount of the Transactions II for 2022 has not exceeded the Current Annual Caps II for 2022.

II. PROPOSED CONTINUING CONNECTED TRANSACTIONS WITH FUDAO CHEMICAL

We refer to the announcement dated 19 August 2020 in relation to the establishment of Fudao Chemical. As stated in the announcement, Fudao Chemical is designated to produce acrylonitrile products and other products. The acrylonitrile project of the Group will commence production in 2023, which is comprised of an acrylonitrile plant with an annual capacity of 200,000 tons, an MMA plant with an annual capacity of 70,000 tons and plants for production of acetonitrile and other products. Therefore, the Board expects to conduct continuing transactions with Fudao Chemical from the end of 2022. We also refer to the announcement of the Company dated 18 November 2022 in relation to the Comprehensive Services and Product Sales Agreement with Fudao Chemical and the Proposed Continuing Connected Transactions with Fudao Chemical contemplated thereunder.

Principal Terms of the Proposed Continuing Connected Transactions with Fudao Chemical

Principal terms and conditions of the Comprehensive Services and Product Sales Agreement with Fudao Chemical are set out as below:

Date

18 November 2022

Parties

• (a) The Company

• (b) Fudao Chemical

Scope of the Proposed Continuing Connected Transactions with Fudao Chemical

• a. The Group has agreed to provide services and supplies to Fudao Chemical (including but not limited to provision of offices and facilities, labour services, technical training services, project management services, logistics management services, accommodation/ catering services, port management, logistics assistance, transportation services, equipment leasing, equipment maintenance, materials/equipment procurement services and material supplies for utility system); and

• b. The Group has agreed to sell products (methanol, liquid ammonia, etc.) to Fudao Chemical and Fudao Chemical has agreed to sell products (including but not limited to acrylonitrile, acetonitrile, MMA, etc.) to the Group.

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Term

The term of the Comprehensive Services and Product Sales Agreement with Fudao Chemical will commence on the date of obtaining relevant approval from the shareholders’ general meeting of the Company and will expire on 31 December 2023, but may be renewed upon agreement provided that the requirements of the Listing Rules in relation to connected transactions are complied with.

Pricing Principles

In order to facilitate effective internal control of the Proposed Continuing Connected Transactions with Fudao Chemical under the Comprehensive Services and Product Sales Agreement with Fudao Chemical, the Company will divide, so far as practicable, such transactions into two categories, which are (i) the provision of services and supplies and sale of products by the Group to Fudao Chemical and (ii) the sale of products by Fudao Chemical to the Group.

Under the Comprehensive Services and Product Sales Agreement with Fudao Chemical, the provision of services and supplies and sale of products by the Group to Fudao Chemical will be conducted on normal commercial terms and conditions which shall not be favourable than those offered to independent third parties by the Group, the sale of products by Fudao Chemical to the Group will be conducted on normal commercial terms and conditions which shall not be less favourable than those offered by independent third parties to the Group and shall not be less favourable than those offered to independent third parties by Fudao Chemical, and the prices thereunder will be determined in accordance with the pricing principles set out in the Comprehensive Services and Product Sales Agreement with Fudao Chemical as follows:

1. As to provision of services and supplies and sale of products by the Group to Fudao Chemical

2. a. not lower than the prices charged by the Group to other comparable independent third-party customers for the same type of services, supplies or products; or

3. b. 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

4. c. 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 service providers or suppliers.

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1. As to sale of products by Fudao Chemical to the Group

2. a. not higher than the prices charged by Fudao Chemical to its associates (other than members of the Group) or other comparable independent third-party customers (if any) for the same type of products; or

3. b. with reference to the prices for the same type of products in the same areas charged on normal terms in the ordinary and usual course of its business by comparable independent third-party suppliers; or

4. c. with reference to the prices for the same type of products in the adjacent areas charged on normal terms in the ordinary and usual course of its business by comparable independent third-party suppliers.

Nevertheless, for the above-mentioned services, supplies and products, when relevant government authorities publish a government-prescribed price in relation to the Proposed Continuing Connected Transactions with Fudao Chemical during the term of the Comprehensive Services and Product Sales Agreement with Fudao Chemical, the relevant prices shall be adjusted with reference to the government-prescribed price accordingly. As of the Latest Practicable Date, there are no government-prescribed prices currently in force for the above-mentioned services, supplies and products.

Pricing Procedures

In order to ensure that the price of the Comprehensive Services and Product Sales Agreement with Fudao Chemical with respect to the sale of products by Fudao Chemical 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 products. The following procedures have been adopted when determining the suppliers of products:

The Procurement Management Committee is responsible for carrying out tendering process to assess the quality and price of products, qualification of suppliers, and terms offered by no less than three suppliers to make sure the conditions offered by Fudao Chemical in the separate agreements under the Comprehensive Services and Product Sales Agreement with Fudao Chemical 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 products in certain places, requirements of government authorities or other reasons, the Procurement Management Committee will negotiate with suppliers of products to make sure the pricing principles set out in the Comprehensive Services and Product Sales Agreement with Fudao Chemical are fulfilled.

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The Annual Caps with Fudao Chemical for the Provision of Services and Supplies and Sale of Products by the Group to Fudao Chemical and the Basis thereof

The annual cap with Fudao Chemical for the provision of services and supplies and sale of products by the Group to Fudao Chemical for the two years ending 31 December 2022 and 2023 is RMB70,000,000 and RMB320,000,000, respectively. As the highest applicable percentage ratio in respect of the Proposed Annual Caps with Fudao Chemical for the provision of services and supplies and sale of products by the Group to Fudao Chemical does not exceed 5%, these transactions (including the annual caps thereof) are only subject to reporting, annual review and announcement requirements under Chapter 14A of the Listing Rules. Please refer to the announcement of the Company dated 18 November 2022 for details of the provision of services and supplies and sale of products by the Group to Fudao Chemical, the annual caps and the determination basis thereof.

The Proposed Annual Cap with Fudao Chemical for the Sale of Products by Fudao Chemical to the Group

As at the Latest Practicable Date, there is no transaction conducted between the Group and Fudao Chemical.

The Proposed Annual Cap with Fudao Chemical for the Sale of Products by Fudao Chemical to the Group

The Proposed Annual Cap with Fudao Chemical for the sale of products by Fudao Chemical to the Group for the year ending 31 December 2023 is RMB3,130 million.

Basis of The Proposed Annual Cap with Fudao Chemical for the Sale of Products by Fudao Chemical to the Group

The basis of the Proposed Annual Cap with Fudao Chemical for the sale of products by Fudao Chemical to the Group considered by the Directors is as follows:

• a. the theoretical maximum amount of production of acrylonitrile, acetonitrile and MMA based on the highest possible operation days of the plants of acrylonitrile project of Fudao Chemical since formally commencing operation in 2023;

• b. the market prices of acrylonitrile, acetonitrile and MMA in 2022; and

• c. 5% buffer for fluctuation in relevant commodity prices, future operation needs of the Company and possible market change.

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III. 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 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 and transaction amounts) regularly. The Company will re-comply with the requirements under relevant rules (including the Listing Rules) before the annual caps of any continuing connected transactions are exceeded.

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 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. The independent non-executive Directors and external auditors will conduct annual review of the connected transactions and provide annual confirmations in accordance with the Listing Rules (as applicable) that the connected transactions are conducted in accordance with the terms of the relevant agreements, on normal commercial terms and in accordance with the pricing policy and/or do not exceed the proposed applicable annual caps. 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.

• IV. REASONS FOR AND BENEFITS OF THE PROPOSED REVISED ANNUAL CAPS AND THE PROPOSED CONTINUING CONNECTED TRANSACTIONS WITH FUDAO CHEMICAL FOR THE SALE OF PRODUCTS BY FUDAO CHEMICAL TO THE GROUP

1. As to the Proposed Revised Annual Caps

As disclosed above, the demand for procurement of propylene, acetone and fuel gas by the Group from CNOOC Group under the Comprehensive Services and Product Sales Agreement will increase in 2023, and the costs of purchase of natural gas by the Group under the Natural Gas Sale and Purchase Agreements increased in 2022 and are expected to maintain at a higher level in 2023. The Transactions are necessary for daily manufacturing and operation and in line with the interests of the Group. The Company is one of the major subsidiaries of CNOOC which is one of the largest petroleum companies in China. In view of

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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.

The Comprehensive Services and Product Sales Agreement, the Natural Gas Sale and Purchase Agreements 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 have facilitated and will continue to facilitate the operation of the Group’s business.

2. As to the Proposed Continuing Connected Transactions with Fudao Chemical for the sale of products by Fudao Chemical to the Group

To put the Company’s strategy of the exploration into acrylonitrile business into practice, the acrylonitrile project of the Group will commence production in 2023. The Group could help Fudao Chemical maintain the sales amount and selling prices at a stable and healthy level, especially at the start-up phase of Fudao Chemical. Taking advantage of the domestic and overseas sales channels of the Group, Fudao Chemical could benefit from the Group’s widespread and strong sales network and open up market for its products. In addition, the Group also has strong bargaining power in the sale process, and has generally achieved its target position as a price leader for its key products among industry peers in the same regions. The Group’s market position and bargaining power could help Fudao Chemical to achieve profitable prices.

The Directors are of the view that the Proposed Continuing Connected Transactions with Fudao Chemical for the sale of products by Fudao Chemical to the Group will be carried out in the ordinary and usual course of the Group’s business, on an arm’s length basis and on normal commercial terms, and the terms of the Comprehensive Services and Product Sales Agreement with Fudao Chemical and the Proposed Annual Cap with Fudao Chemical for the sale of products by Fudao Chemical to the Group are fair and reasonable and in the interests of the Group and the Shareholders as a whole.

V. IMPLICATIONS OF THE LISTING RULES

1. As to the Proposed Revised Annual Caps

CNOOC is the controlling shareholder of the Company. Therefore, CNOOC and its associates (other than the Group) are the Company’s connected persons under Rule 14A.07 of the Listing Rules. Given CNOOC International Trade is a subsidiary of CNOOC, CNOOC International Trade is an associate of CNOOC and therefore shall be deemed as a connected person of the Company under Rule 14A.07 of the Listing Rules. As a result, the Transactions

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under the Comprehensive Services and Product Sales Agreement and the Natural Gas Sale and Purchase Agreements, respectively, 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 the Proposed Revised Annual Cap I and Proposed Revised Annual Caps II exceeds 5%, respectively, both of the Proposed Revised Annual Cap I and the Proposed Revised Annual Caps II are subject to reporting, announcement and Independent Shareholders’ approval requirements under Chapter 14A of the Listing Rules, respectively.

2. As to the Proposed Continuing Connected Transactions with Fudao Chemical for the sale of products by Fudao Chemical to the Group

As at the Latest Practicable Date, the Company indirectly holds 51% equity interests in Fudao Chemical; and CNOOC, the Company’s controlling shareholder, indirectly holds 49% equity interests in Fudao Chemical. Therefore, Fudao Chemical is a connected subsidiary of the Company under Rule 14A.16 of the Listing Rules. As a result, the Comprehensive Services and Product Sales Agreement with Fudao Chemical and the Proposed Continuing Connected Transactions with Fudao Chemical contemplated thereunder constitute continuing connected transactions of the Company.

As the highest applicable percentage ratio in respect of the Proposed Annual Cap with Fudao Chemical for the sale of products by Fudao Chemical to the Group are more than 5%, the Proposed Continuing Connected Transactions with Fudao Chemical for the sale of products by Fudao Chemical to the Group are subject to reporting, announcement and Independent Shareholders’ approval requirements under Chapter 14A of the Listing Rules.

VI. GENERAL INFORMATION

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

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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.

CNOOC International Trade mainly engages in wholesales of crude oil and refined products. CNOOC International Trade is a wholly owned subsidiary of CNOOC Limited, whose controlling shareholder is CNOOC.

Fudao Chemical mainly engages in the production, manufacturing and sales of acrylonitrile products and methyl methacrylate products and is a non-wholly owned subsidiary of the Company.

VII. BOARD CONFIRMATION

For the Transactions and the Proposed Revised Annual Caps, the Directors (including the independent non-executive Directors) are of the view that the Comprehensive Services and Product Sales Agreement, the Natural Gas Sale and Purchase Agreements and the Transactions are entered into in the ordinary and usual course of business of the Group, on an arm’s length basis and on normal commercial terms, the Transactions and the Proposed Revised Annual Caps are fair and reasonable and in the interests of the Group and the Shareholders as a whole.

For the Proposed Continuing Connected Transactions with Fudao Chemical for the sale of products by Fudao Chemical to the Group and the Proposed Annual Cap with Fudao Chemical for the sale of products by Fudao Chemical to the Group, the Directors (including the independent nonexecutive Directors) are of the view that the Proposed Continuing Connected Transactions with Fudao Chemical for the sale of products by Fudao Chemical to the Group will be carried out in the ordinary and usual course of the Group’s business, on an arm’s length basis and on normal commercial terms, and the terms of the Comprehensive Services and Product Sales Agreement with Fudao Chemical and the Proposed Annual Cap with Fudao Chemical for the sale of products by Fudao Chemical to the Group are fair and reasonable and in the interests of the Group and the Shareholders as a whole.

Due to their positions in CNOOC, Mr. Huang Hulong and Mr. Zhao Baoshun have abstained from voting at the Board meeting on the resolutions agreeing to submit to Independent Shareholders for approval of (1) the Proposed Revised Annual Caps and (2) the Comprehensive Services and Product Sales Agreement with Fudao Chemical, the Proposed Continuing Connected Transactions with Fudao Chemical for the sale of products by Fudao Chemical to the Group and the Proposed Annual Cap with Fudao Chemical for the sale of products by Fudao Chemical to the Group. Save as disclosed above, none of the Directors has any material interest in the above-mentioned transactions (including the annual caps thereof).

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VIII.RECOMMENDATION

Based on the relevant information disclosed herein, the Directors (including the independent non-executive Directors) believe that

• (1) for the Transactions and the Proposed Revised Annual Caps: the Comprehensive Services and Product Sales Agreement, the Natural Gas Sale and Purchase Agreements and the Transactions thereunder are entered into in the ordinary and usual course of business of the Group, on an arm’s length basis and on normal commercial terms, the Transactions and the Proposed Revised Annual Caps are fair and reasonable and in the interests of the Group and the Shareholders as a whole; and

• (2) for the Proposed Continuing Connected Transactions with Fudao Chemical for the sale of products by Fudao Chemical to the Group and the Proposed Annual Cap with Fudao Chemical for the sale of products by Fudao Chemical to the Group: the Comprehensive Services and Product Sales Agreement with Fudao Chemical and the Proposed Continuing Connected Transactions with Fudao Chemical for the sale of products by Fudao Chemical to the Group thereunder will be entered into in the ordinary and usual course of the Group’s business, on an arm’s length basis and on normal commercial terms, and the terms and the Proposed Annual Cap with Fudao Chemical for the sale of products by Fudao Chemical to the Group 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 resolutions to be proposed at the EGM.

For the purpose of the EGM, the Board has established the Independent Board Committee to consider and advise the Independent Shareholders with respect to (1) the Proposed Revised Annual Caps, and (2) the Comprehensive Services and Product Sales Agreement with Fudao Chemical, the Proposed Continuing Connected Transactions with Fudao Chemical for the sale of products by Fudao Chemical to the Group and the Proposed Annual Cap with Fudao Chemical for the sale of products by Fudao Chemical to the Group.

The letter of advice from Gram Capital to the Independent Board Committee and the Independent Shareholders is set out on pages 32 to 53 of this circular. Your attention is drawn to the letter from the Independent Board Committee which is set out on pages 30 to 31 of this circular. The Independent Board Committee, having taken into account the advice of the Independent Financial Adviser, considers that

• (1) for the Transactions and the Proposed Revised Annual Caps: the Comprehensive Services and Product Sales Agreement, the Natural Gas Sale and Purchase Agreements and the Transactions thereunder are entered into in the ordinary and usual course of business of the Group, on an arm’s length basis and on normal commercial terms, the Transactions and the Proposed Revised Annual Caps are fair and reasonable and in the interests of the Group and the Shareholders as a whole; and

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• (2) for the Proposed Continuing Connected Transactions with Fudao Chemical for the sale of products by Fudao Chemical to the Group and the Proposed Annual Cap with Fudao Chemical for the sale of products by Fudao Chemical to the Group: the Comprehensive Services and Product Sales Agreement with Fudao Chemical and the Proposed Continuing Connected Transactions with Fudao Chemical for the sale of products by Fudao Chemical to the Group contemplated thereunder will be entered into in the ordinary and usual course of the Group’s business, on an arm’s length basis and on normal commercial terms, and the terms and the Proposed Annual Cap with Fudao Chemical for the sale of products by Fudao Chemical to the Group are fair and reasonable and 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 resolutions to be proposed at the EGM.

IX. EGM

The Company will convene an EGM to obtain the approval of:

1. the Proposed Revised Annual Caps; and

2. the Comprehensive Services and Product Sales Agreement with Fudao Chemical, the Proposed Continuing Connected Transactions with Fudao Chemical for the sale of products by Fudao Chemical to the Group and the Proposed Annual Cap with Fudao Chemical for the sale of products by Fudao Chemical to the Group.

At the EGM, CNOOC and its associates will abstain from voting with respect to (1) the Proposed Revised Annual Caps, and (2) the Comprehensive Services and Product Sales Agreement with Fudao Chemical, the Proposed Continuing Connected Transactions with Fudao Chemical for the sale of products by Fudao Chemical to the Group and the Proposed Annual Cap with Fudao Chemical for the sale of products by Fudao Chemical to the Group. 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 First Notice convening the EGM to be held at the Meeting Room, 14th Floor, Kaikang CNOOC Mansion, No. 15, Sanqu, Anzhenxili, Chaoyang District, Beijing, the PRC on Wednesday, 28 December 2022 at 8:30 a.m. together with the relevant reply slip and First Proxy Form was published on the website of the Stock Exchange (www.hkexnews.hk) and despatched on 11 November 2022.

A Supplemental Notice is set out on pages 57 to 58 of this circular. A Supplemental Proxy Form for use at the EGM is also enclosed.

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LETTER FROM THE BOARD

As a result of the additional resolutions proposed subsequent to the despatch of the First Notice, the First Notice and the First Proxy Form do not contain the additional resolutions proposed as set out in the Supplemental Notice. Whether or not you are able to attend the EGM, you are strongly advised to complete and sign the First Proxy Form and the enclosed Supplemental 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 holders of domestic shares or 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 holders of H Shares), 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) (i.e., by 8:30 a.m. on Tuesday, 27 December 2022). Please note that 24 December 2022 to 27 December 2022 are not working days in Hong Kong and Computershare Hong Kong Investor Services Limited’s offices will not be open on these days for physical delivery of the proxy form. Completion and return of the form of proxy will not preclude you from attending and voting in person at the EGM (or any adjournment thereof) should you so wish.

The Supplemental Proxy Form will not affect the validity of the First Proxy Form duly completed by you in respect of the resolutions set out in the First Notice. If you have completed and delivered the First Proxy Form and validly appointed a proxy to attend and act for you at the EGM, but do not complete and deliver the Supplemental Proxy Form, your proxy will be entitled to vote at his/her discretion on the resolutions set out in the Supplemental Notice. If you do not complete and deliver the First Proxy Form but have completed and delivered the Supplemental Proxy Form and validly appointed a proxy to attend and act for you at the EGM, unless otherwise instructed, your proxy will be entitled to vote at his/her discretion on the resolutions set out in the First Notice. For the avoidance of doubt, should the proxies being appointed to attend the EGM under each of the First Proxy Form and/or the Supplemental Proxy Form are different and more than one of the proxies attended the EGM, only the proxy validly appointed under the First Proxy Form shall be designated to vote on all the resolutions at the EGM.

Reply slips completed and lodged in accordance with the instructions printed thereon on or before 8 December 2022 by Shareholders who intend to attend the EGM are valid.

X. A POLL AT EXTRAORDINARY GENERAL MEETING

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

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LETTER FROM THE BOARD

XI. OTHER INFORMATION

Your attention is drawn to the letter from Gram 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 Supplemental Notice of the EGM dated 9 December 2022.

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

Company Secretary

• For identification purpose only

– 29 –

LETTER FROM THE INDEPENDENT BOARD COMMITTEE

==> picture [334 x 40] intentionally omitted <==

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

(Stock Code: 3983)

9 December 2022

To the Independent Shareholders

Dear Sir or Madam,

PROPOSED REVISION OF CURRENT ANNUAL CAPS AND PROPOSED CONTINUING CONNECTED TRANSACTIONS WITH A CONNECTED SUBSIDIARY

We refer to the circular dated 9 December 2022 (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 (1) the Proposed Revised Annual Caps, and (2) the Comprehensive Services and Product Sales Agreement with Fudao Chemical, the Proposed Continuing Connected Transactions with Fudao Chemical for the sale of products by Fudao Chemical to the Group and the Proposed Annual Cap with Fudao Chemical for the sale of products by Fudao Chemical to the Group. Gram Capital has been appointed as the Independent Financial Adviser to advise the Independent Board Committee in this regard.

We wish to draw your attention to the letter from the Board set out on pages 7 to 29 of the Circular and the letter from Gram Capital containing its advice to us set out on pages 32 to 53 of the Circular.

Having considered the advice given by Gram Capital, we are of the opinion that

• (1) for the Transactions and the Proposed Revised Annual Caps: the Comprehensive Services and Product Sales Agreement, the Natural Gas Sale and Purchase Agreements and the Transactions thereunder are entered into in the ordinary and usual course of business of the Group, on an arm’s length basis and on normal commercial terms, the Transactions and the Proposed Revised Annual Caps are fair and reasonable and in the interests of the Group and the Shareholders as a whole; and

• For identification purpose only

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LETTER FROM THE INDEPENDENT BOARD COMMITTEE

• (2) for the Proposed Continuing Connected Transactions with Fudao Chemical for the sale of products by Fudao Chemical to the Group and the Proposed Annual Cap with Fudao Chemical for the sale of products by Fudao Chemical to the Group: the Comprehensive Services and Product Sales Agreement with Fudao Chemical and the Proposed Continuing Connected Transactions with Fudao Chemical for the sale of products by Fudao Chemical to the Group contemplated thereunder will be carried out in the ordinary and usual course of the Group’s business, on an arm’s length basis and on normal commercial terms, and the terms and the Proposed Annual Cap with Fudao Chemical for the sale of products by Fudao Chemical to the Group are fair and reasonable and 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 resolutions to be proposed at the EGM to approve (1) the Proposed Revised Annual Caps, and (2) the Comprehensive Services and Product Sales Agreement with Fudao Chemical, the Proposed Continuing Connected Transactions with Fudao Chemical for the sale of products by Fudao Chemical to the Group and the Proposed Annual Cap with Fudao Chemical for the sale of products by Fudao Chemical to the Group.

Yours faithfully,

Yu Changchun, Lin Feng and Xie Dong Members of Independent Board Committee

– 31 –

LETTER FROM THE INDEPENDENT FINANCIAL ADVISER

Set out below is the text of a letter received from Gram Capital, the Independent Financial Adviser to the Independent Board Committee and the Independent Shareholders in respect of the CCTs for the purpose of inclusion in this circular.

Room 1209, 12/F. Nan Fung Tower 88 Connaught Road Central/ 173 Des Voeux Road Central Hong Kong

9 December 2022

• To: The independent board committee and the independent shareholders of China BlueChemical Ltd.*

Dear Sir/Madam,

CONTINUING CONNECTED TRANSACTIONS

INTRODUCTION

We refer to our appointment as the Independent Financial Adviser to advise the Independent Board Committee and the Independent Shareholders in respect of the Revision of Current Annual Caps and the Proposed Continuing Connected Transactions with Fudao Chemical for the sale of products by Fudao Chemical to the Group (the ‘‘Fudao Chemical Product Sales Transaction’’, together with the Revision of Current Annual Caps, the ‘‘CCTs’’), details of which are set out in the letter from the Board (the ‘‘Board Letter’’) contained in the circular dated 9 December 2022 issued by the Company to the Shareholders (the ‘‘Circular’’), of which this letter forms part. Terms used in this letter shall have the same meanings as defined in the Circular unless the context requires otherwise.

With reference to the Board Letter, during the process of the Company’s internal review on continuing connected transactions, it was noted that the unaudited transaction amount for Transactions I and Transactions II was approximately RMB286.8 million and RMB2,382.7 million, respectively, for the nine months ended 30 September 2022. It is expected that (i) the transaction amount for the Transactions I for the year ending 31 December 2023 is expected to exceed the Current Annual Cap I; and (ii) the transaction amounts for the Transactions II for the two years ending 31 December 2022 and 2023 are expected to exceed the Current Annual Caps II. As such, on 11 November 2022 (the ‘‘1st Announcement Date’’), the Board proposes to revise the Current Annual Caps.

On 18 November 2022 (the ‘‘2nd Announcement Date’’), the Company entered into the Comprehensive Services and Product Sales Agreement with Fudao Chemical in respect of, among other things, the Fudao Chemical Product Sales Transaction in 2023.

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LETTER FROM THE INDEPENDENT FINANCIAL ADVISER

With reference to the Board Letter, the CCTs are subject to the reporting, announcement and Independent Shareholders’ approval requirements under Chapter 14A of the Listing Rules.

The Independent Board Committee comprising Mr. Yu Changchun, Mr. Lin Feng and Mr. Xie Dong (being all independent non-executive Directors) has been formed to advise the Independent Shareholders on (i) whether the terms of the CCTs are on normal commercial terms and are fair and reasonable; (ii) whether the CCTs are in the interests of the Company and the Shareholders as a whole and conducted in the ordinary and usual course of business of the Group; and (iii) how the Independent Shareholders should vote in respect of the resolutions to approve the CCTs at the EGM. We, Gram Capital Limited, have been appointed as the Independent Financial Adviser to advise the Independent Board Committee and the Independent Shareholders in this respect.

INDEPENDENCE

During the past two years immediately preceding the Latest Practicable Date, Gram Capital was engaged as the independent financial adviser in relation to major and connected transactions and continuing connected transactions of the Company, details of which were set out in the Company’s announcement dated 30 June 2022. Save for the aforesaid engagement, there was no other service provided by Gram Capital to the Company relating to any transaction of the Company with executed agreement during the past two years immediately preceding the Latest Practicable Date.

Notwithstanding the aforesaid engagement, we were not aware of any relationships or interests between Gram Capital and the Company, or any other parties during the past two years immediately preceding the Latest Practicable Date that could be reasonably regarded as hindrance to Gram Capital’s independence to act as the Independent Financial Adviser.

Having considered the above and that (i) none of the circumstances as set out under the Rule 13.84 of the Listing Rules existed as at the Latest Practicable Date; and (ii) the aforesaid past engagement was only independent financial adviser engagements and will not affect our independence to act as the Independent Financial Adviser, we are of the view that we are independent to act as the Independent Financial Adviser.

BASIS OF OUR OPINION

In formulating our opinion to the Independent Board Committee and the Shareholders, we have relied on the statements, information, opinions and representations contained or referred to in the Circular and the information and representations as provided to us by the Directors. We have assumed that all information and representations that have been provided by the Directors, for which they are solely and wholly responsible, are true and accurate at the time when they were made and continue to be so as at the Latest Practicable Date. We have also assumed that all statements of belief, opinion, expectation and intention made by the Directors in the Circular were reasonably made after due enquiry and careful consideration. We have no reason to suspect that any material facts or information have been withheld or to doubt the truth, accuracy and completeness of the information and facts contained in the Circular, or the reasonableness of the opinions

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LETTER FROM THE INDEPENDENT FINANCIAL ADVISER

expressed by the Company, its advisers and/or the Directors, which have been provided to us. Our opinion is based on the Directors’ representation and confirmation that there is no undisclosed private agreement/arrangement or implied understanding with anyone concerning the CCTs. We consider that we have taken sufficient and necessary steps on which to form a reasonable basis and an informed view for our opinion in compliance with Rule 13.80 of the Listing Rules.

The Circular, for which the Directors collectively and individually accept full responsibility, includes particulars given in compliance with the Listing Rules for the purpose of giving information with regard to the Company. The Directors, having made all reasonable enquiries, confirm that to the best of their knowledge and belief, the information contained in the 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 the Circular or any statement therein misleading. We, as the Independent Financial Adviser, take no responsibility for the contents of any part of the Circular, save and except for this letter of advice.

We consider that we have been provided with sufficient information to reach an informed view and to provide a reasonable basis for our opinion. We have not, however, conducted any independent in-depth investigation into the business and affairs of the Company, CNOOC, CNOOC China Limited, CNOOC International Trade, Fudao Chemical or their respective subsidiaries or associates, nor have we considered the taxation implication on the Group or the Shareholders as a result of the CCTs. Our opinion is necessarily based on the financial, economic, market and other conditions in effect and the information made available to us as at the Latest Practicable Date. Shareholders should note that subsequent developments (including any material change in market and economic conditions) may affect and/or change our opinion and we have no obligation to update this opinion to take into account events occurring after the Latest Practicable Date or to update, revise or reaffirm our opinion. In addition, nothing contained in this letter should be construed as a recommendation to hold, sell or buy any Shares or any other securities of the Company.

Lastly, where information in this letter has been extracted from published or otherwise publicly available sources, it is the responsibility of Gram Capital to ensure that such information has been correctly extracted from the relevant sources while we are not obligated to conduct any independent in-depth investigation into the accuracy and completeness of those information.

– 34 –

LETTER FROM THE INDEPENDENT FINANCIAL ADVISER

PRINCIPAL FACTORS AND REASONS CONSIDERED

In arriving at our opinion in respect of the CCTs, we have taken into consideration the following principal factors and reasons:

Information on the Group

With reference to the Board Letter, the Group mainly engages in the developments, production and sales of fertilisers (including urea, phosphate and compound fertiliser) and chemical products (primarily methanol and polyformaldehyde).

Set out below are the consolidated financial information of the Group for the two years ended 31 December 2021 and for the six months ended 30 June 2022, as extracted from the Company’s annual report for the year ended 31 December 2021 (the ‘‘2021 Annual Report’’) and the Company’s interim report for the six months ended 30 June 2022 (the ‘‘2022 Interim Report’’):

			For the	For the
			six months	six months		For the	For the
			ended	ended	Year-on-	year ended	year ended	Year-on-
			30 June	30 June	year	31 December	31 December	year
			2022	2021	change	2021	2020	change
			RMB’000	RMB’000	%	RMB’000	RMB’000	%
			(unaudited)	(unaudited)		(audited)	(audited)
Revenue			7,370,785	6,109,852	20.64	13,398,008	10,417,493	28.61
—	Urea		2,486,437	2,016,291	23.32	4,352,870	4,055,126	7.34
—	Methanol		1,738,141	1,277,245	36.09	3,213,056	2,331,577	37.81
—	Phosphorus and
		compound
		fertiliser	1,781,910	1,475,228	20.79	2,814,900	2,105,007	33.72
—	Others		1,364,297	1,341,088	1.73	3,017,182	1,925,783	56.67
Gross	profit		1,408,050	1,285,227	9.56	2,936,409	1,333,728	120.17
Profit	for	the year	1,046,026	1,327,925	(21.23)	1,641,435	779,157	110.67

As depicted in the above table, the Group recorded revenue and gross profit of (i) approximately RMB13.40 billion and RMB2.94 billion respectively for the year ended 31 December 2021 (‘‘FY2021’’), representing an increase of approximately 28.61% and 120.17% respectively as compared to those for the year ended 31 December 2020 (‘‘FY2020’’); and (ii) approximately RMB7.37 billion and RMB1.41 billion respectively for the six months ended 30 June 2022 (‘‘1H2022’’), representing an increase of approximately 20.64% and 9.56% respectively as compared to those for the corresponding period in 2021.

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LETTER FROM THE INDEPENDENT FINANCIAL ADVISER

With reference to the 2021 Annual Report and the 2022 Interim Report:

• (i) the increase in revenue was primarily attributable to the year-on-year significant increase in selling prices of urea, methanol and phosphate and compound fertilisers of the Group;

• (ii) the increase in gross profit for FY2021 was primarily attributable to (a) significant increase in prices of urea, methanol and phosphate and compound fertilisers as aforementioned, which exceeded the increase in the respective costs; (b) significant increase in prices of polyoxymethylene, which exceeded increase in costs; and (c) increase in the gross profit from the trading business and other segments, partially offset by the decrease in gross profit from Basuo Port due to the year-on-year increase in the costs of throughput; and

• (iii) the increase in gross profit for 1H2022 was primarily attributable to (a) increase in the price and sales volume of methanol in 2022; and (b) the increase in gross profit of other segments, partially offset by (a) the rising raw material prices and a decline in sales volume of phosphate and compound fertilisers; (b) rising raw material prices and reduction in the production and sales volume of urea, as a result of an overhaul underwent by two plants of the Group; and (c) decrease in sales volume of polyoxymethylene.

The Group’s profit increased by approximately 110.67% from approximately RMB0.78 billion for FY2020 to approximately RMB1.64 billion for FY2021. With reference to the 2021 Annual Report, such increase was primarily attributable to (i) the increase in revenue and gross profit as aforementioned; (ii) the decrease in selling and distribution expenses; (iii) the increase in finance income; (iv) the recognition of gain on disposal of a subsidiary and an associate for FY2021; and (v) the recognition on gain on deemed disposal of a joint venture for FY2021, partially offset by (i) the turnaround from other net gains for FY2020 to other net losses for FY2021; (ii) the increase in administrative expenses and other expenses; (iii) the recognition of impairment losses for FY2021; and (iv) the increase in income tax expenses.

The Group recorded profit of approximately RMB1.05 billion for 1H2022, representing a decrease of approximately 21.23% as compared to that for the corresponding period in 2021. With reference to the 2022 Interim Results, such decrease was primarily attributable to (i) the absence of gain on disposal of a subsidiary and an associate during 1H2022; (ii) the decrease in net other income and finance income; (iii) the increase in administrative expenses and other expenses; and (iv) the turnaround from net exchange gains for the six months ended 30 June 2021 to net exchange losses for 1H2022, partially offset by (i) the increase in revenue and gross profit as aforementioned; (ii) the increase in other gains and losses, change in fair value of financial assets at fair value through profit or loss and share of profits of associates; and (iii) the decrease in finance costs and income tax expenses.

– 36 –

LETTER FROM THE INDEPENDENT FINANCIAL ADVISER

Information on CNOOC and its associates

With reference to the Board Letter, 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.

With reference to the Board Letter, CNOOC International Trade mainly engages in wholesales of crude oil and refined products. CNOOC International Trade is a wholly owned subsidiary of CNOOC Limited, whose controlling shareholder is CNOOC.

With reference to the Board Letter and as advised by the Directors, Fudao Chemical mainly engages in the production, manufacturing and sales of acrylonitrile products and methyl methacrylate products and is a non-wholly owned subsidiary of the Company indirectly held as to 51% by the Company and 49% by CNOOC.

Reasons for and benefits of the CCTs

Revision of Current Annual Caps

With reference to the Board Letter, the demand for procurement of propylene, acetone and fuel gas (which the Group did not procure during the two years ended 31 December 2021 and the nine months ended 30 September 2022 based on the information provided by the Company) by the Group from CNOOC Group under the Comprehensive Services and Product Sales Agreement will increase in 2023, and the costs of purchase of natural gas by the Group under the Natural Gas Sale and Purchase Agreements increased in 2022 and are expected to maintain at a higher level in 2023. The Transactions are necessary for daily manufacturing and operation and in line with the interests of the Group. 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.

With reference to the Board Letter:

• . the current annual cap for Transactions I for the year ending 31 December 2022 (‘‘FY2022’’) was approximately RMB900.2 million and the historical transaction amount of Transactions I for the nine months ended 30 September 2022 was approximately RMB286.8 million. Although the current annual cap for Transactions I

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LETTER FROM THE INDEPENDENT FINANCIAL ADVISER

for FY2022 has not been exceeded, as noted from the Board Letter and as advised by the Directors, as the Group’s acrylonitrile project will commence production in 2023, the demand for procurement of propylene, acetone and fuel gas for the operation of acrylonitrile project by the Group is expected to increase for the year ending 31 December 2023 (‘‘FY2023’’). Therefore, the revision of annual cap for Transactions I is required.

• . the current annual cap for Transactions II for FY2022 was approximately RMB2,879.8 million and the historical transaction amount of Transactions II for the nine months ended 30 September 2022 was approximately RMB2,382.7 million. As advised by the Directors, based on the recent movement of the price for natural gas, it is anticipated that the Current Annual Caps II are insufficient to cater for the Group’s operation, thus the revision of annual caps for Transactions II is required.

As illustrated in the section headed ‘‘Information on the Group’’ above, (i) the Group’s revenue from urea, methanol and phosphate and compound fertilisers accounted for approximately 81.51%, 77.48% and 81.49%, in aggregate, for FY2020, FY2021 and 1H2022 respectively; and (ii) the Group’s revenue increases by approximately 28.61% and 20.64% for FY2021 and 1H2022 respectively, as compared to those of the corresponding previous year/ period.

Fudao Chemical Product Sales Transaction

With reference to the Board Letter, to put the Company’s strategy of the exploration into acrylonitrile business into practice, the acrylonitrile project of the Group (which will be carried out by Fudao Chemical) will commence production in 2023. The Group could help Fudao Chemical maintain the sales amount and selling prices at a stable and healthy level, especially at the start-up phase of Fudao Chemical. Taking advantage of the domestic and overseas sales channels of the Group, Fudao Chemical could benefit from the Group’s widespread and strong sales network and open up market for its products. In addition, the Group also has strong bargaining power in the sale process, and has generally achieved its target position as a price leader for its key products among industry peers in the same regions. The Group’s market position and bargaining power could help Fudao Chemical to achieve profitable prices.

With reference to the 2021 Annual Report, 2022 Interim Report and as advised by the Directors, the acrylonitrile project is one of the Group’s key projects and it is orderly advanced. During 1H2022 the construction and preparation work for the acrylonitrile projects were smoothly underway and the milestone targets were essentially achieved. In 2022, the Group will ensure the success of trial operation of the acrylonitrile project and get wellprepared for its production and sales.

Having considered the above, we are of the view that the CCTs are conducted in the ordinary and usual course of business of the Group and are in the interests of the Company and its Shareholders as a whole.

– 38 –

LETTER FROM THE INDEPENDENT FINANCIAL ADVISER

1. TRANSACTIONS I

Principal terms of the Transactions I

Set out below are the principal terms of the Comprehensive Services and Products Sales Agreement, including terms of the Transactions I, details of which are set out in the sub-section headed ‘‘Principal Terms of the Transactions I’’ under the section headed ‘‘TRANSACTIONS I — THE PROVISION OF SERVICES AND SUPPLIES AND SALE OF PRODUCTS BY CNOOC GROUP TO THE GROUP UNDER THE COMPREHENSIVE SERVICES AND PRODUCT SALES AGREEMENT’’ of the Board Letter.

Date

23 October 2020

Parties

The Company

CNOOC

Scope of the Transactions I

In relation to the Transactions I,

• 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 2021 and will expire on 31 December 2023, but may be renewed upon agreement provided that the requirements of the Listing Rules in relation to connected transactions are complied with.

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LETTER FROM THE INDEPENDENT FINANCIAL ADVISER

Pricing principles

Under the Comprehensive Services and Products Sales Agreement, the Transactions I will be conducted on normal commercial terms and conditions which shall not be less favourable than those offered to independent third parties by CNOOC Group, and the prices thereunder will be determined in accordance with the pricing principles set out in the Comprehensive Services and Product Sales Agreement as follows:

• a. 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

• b. 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

• c. 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.

Nevertheless, when relevant government authorities publish a governmentprescribed price in relation to the Transactions I 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. As at the Latest Practicable Date, there are no government-prescribed prices currently in force for the above-mentioned services, supplies and products.

We understood from the Directors that the procurement of potash accounted for a significant portion of the Transactions I for FY2021 and for the nine months ended 30 September 2022. For our due diligence purpose, we obtained from the Company a list of individual contracts entered into between the Group and CNOOC Group for the procurement of potash by the Group for each of FY2020, FY2021 and 1H2022. From the aforesaid summary, we randomly selected and the Company provided us three sets of transaction documents in respect of the procurement of potash for FY2020, FY2021 and 1H2022. After comparing the transactions documents and the then prevailing market price of potash, we noted that the unit prices charged by CNOOC Group for the procurement of potash were not higher than the then prevailing market price.

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LETTER FROM THE INDEPENDENT FINANCIAL ADVISER

With reference to the Board Letter, in order to ensure that the price of the Transactions I is determined on a fair and reasonable basis and in accordance with the pricing principles, the Company implemented certain pricing procedures relating to the Transactions I. We consider the effective implementation of the pricing procedures will help to ensure the fair pricing of the Transactions I and the compliance of the pricing principles.

Proposed Revised Annual Cap I

Set out below are (i) the historical transaction amounts of Transactions I for the three years ending 31 December 2022, together with the current annual caps and the utilisation rates; and (ii) the Proposed Revised Annual Cap I:

	For the	For the	For the
	year ended	year ended	year ending
	31 December	31 December	31 December
	2020	2021	2022
	RMB’000	RMB’000	RMB’000
Historical transaction amounts of	608,925	450,264	286,840
Transactions I			(Note)
Current annual caps	691,638	893,208	900,221
Utilisation rate (%)	88.04	50.41	N/A
			For the year
			ending
			31 December
			2023
			(‘‘FY2023’’)
			RMB’000
Proposed Revised Annual Cap I			2,620,000

Note: The figure is for the nine months ended 30 September 2022.

The proposed annual caps were estimated based on various factors, details of which are set out in the sub-section headed ‘‘Basis of the Proposed Revised Annual Cap I’’ under the section headed ‘‘Proposed Revision of the Current Annual Cap I’’ of the Board Letter.

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LETTER FROM THE INDEPENDENT FINANCIAL ADVISER

As illustrated above, the utilisation rates of the current annual caps were approximately 88.04% for FY2020 and 50.41% for FY2021 and, the historical transaction amounts of Transactions I for the nine months ended 30 September 2022 (‘‘9M2022’’) accounted for approximately 31.86% of the current annual cap for FY2022.

For our due diligence purpose, we obtained (i) breakdown of the historical transaction amounts for the three years ended 31 December 2021 and for 9M2022; (ii) breakdown of the current annual caps for the three years ending 31 December 2023 formulated by the Company; and (iii) calculations of the Proposed Revised Annual Cap I for the year ending 31 December 2023. We noted that in formulating the Current Annual Cap I, the Company estimated that a substantial portion of the Current Annual Cap I would be contributed by the sale of natural gas by CNOOC Group to the Group. However, as advised by the Directors, a subsidiary of the Company which was supposed to procure natural gas under Transactions I ceased its production of urea and methanol since 2021, hence the low utilisation rate for FY2021. Had the portion of the sale of natural gas by CNOOC Group to the Group been removed from the current annual caps for FY2021 and FY2022, the utilisation rate of the current annual cap for FY2021 would have been approximately 82.38% and the historical transaction amount for 9M2022 would account for approximately 51.81% of the current annual cap for FY2022.

Based on the calculation of the Proposed Revised Annual Cap I, we noted that, in formulating the Proposed Revised Annual Cap I, the Directors (i) removed the estimated portion of the sale of natural gas, while the other elements of the Current Annual Cap I remained the same; and (ii) included the estimated procurement amount of other supplies (primarily propylene) by Fudao Chemical. Upon our enquiry, we understood from the Directors that the Group’s acrylonitrile project, being carried out by Fudao Chemical, will commence production in 2023 with an annual propylene processing capacity of approximately 0.2 million tons.

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LETTER FROM THE INDEPENDENT FINANCIAL ADVISER

We noted in the calculation of the Proposed Revised Annual Cap I that the estimated transaction amount in relation to the provision of propylene was calculated based on the annual processing capacity of approximately 0.2 million tons of propylene and the estimated unit price of propylene of approximately RMB7,920 per ton of propylene. To assess the fairness and reasonableness of the estimated unit price of propylene adopted in the calculation of the Proposed Revised Annual Cap I, we searched for the daily spot price of propylene for approximately one-year period commencing from 4 January 2022 up to and including the 1st Announcement Date (‘‘1st Review Period’’).

==> picture [337 x 224] intentionally omitted <==

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0
Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov
2022 2022 2022 2022 2022 2022 2022 2022 2022 2022 2022
----- End of picture text -----

Source: Wind Financial Terminal

The spot price of propylene formed an increasing trend and fluctuated between RMB7,600 per ton to RMB8,350 per ton during the period from 4 January 2022 to 28 February 2022, before the spot price of propylene spike and reached the highest of RMB9,250 per ton as recorded on 7 March 2022, 8 March 2022 and 9 March 2022. Thereafter, the spot price of propylene fluctuated between RMB6,800 per ton to RMB9,100 per ton and reached RMB7,300 as recorded on the 1st Announcement Date.

Based on the movement of the historical spot prices of propylene during the 1st Review Period, we do not doubt the reasonableness of the estimated unit price of propylene adopted in formulating the Proposed Revised Annual Cap I.

As noted from the Board Letter, a 5% buffer was incorporated in the Proposed Revised Annual Cap I for fluctuation in relevant commodity prices, future operation needs of the Company and possible change. We also noted from other Hong Kong listed

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LETTER FROM THE INDEPENDENT FINANCIAL ADVISER

companies’ circulars regarding continuing connected transactions that the incorporation of buffer of 10% in the proposed annual caps are common among listed companies in Hong Kong. As such, we do not doubt the reasonableness of the buffer of 5%.

In light of the above, we consider the Proposed Revised Annual Cap I is fair and reasonable.

Shareholders should note that as the Proposed Revision Annual Cap I are relating to future events and were estimated based on assumptions which may or may not remain valid for the entire period up to 31 December 2023, and they do not represent forecasts of costs to be incurred from the Transactions I. Consequently, we express no opinion as to how closely the actual costs to be incurred from the Transactions I will correspond with the Proposed Revised Annual Cap I.

Having considered the principal terms of the Transactions I above, we are of the view that the terms of the Transactions I (including the Proposed Revised Annual Cap I) are on normal commercial terms and are fair and reasonable.

2. TRANSACTIONS II

Principal terms of the Transactions II

With reference to the Board Letter, the Group entered into the Natural Gas Sale and Purchase Agreements with CNOOC China Limited for the supply of natural gas to the Group, the summary of which are set out in the sub-section headed ‘‘Principal Terms of the Transactions II’’ under the section headed ‘‘TRANSACTIONS II — THE PURCHASE OF NATURAL GAS BY THE GROUP UNDER THE NATURAL GAS SALE AND PURCHASE AGREEMENTS’’ of the Board Letter. The term of each of the Natural Gas Sale and Purchase Agreements was 20 years from their respective commencement date.

With reference to the Board Letter, due to the internal arrangement of CNOOC Limited, the business entity engaging in the sales of natural gas within CNOOC Limited changed from CNOOC China Limited, a subsidiary of CNOOC Limited, to CNOOC International Trade, another subsidiary of CNOOC Limited, in 2021. Based on such arrangement, the above-mentioned parties (as suppliers) of Natural Gas Sale and Purchase Agreements have also been changed from CNOOC China Limited to CNOOC International Trade. Such arrangement has no adverse impact on the supply of natural gas to the Group as the source of natural gas is still within CNOOC Limited. In addition, other terms and conditions (including the pricing terms) of the Natural Gas Sale and Purchase Agreements as mentioned in ‘‘Natural Gas Sale and Purchase Agreements’’ of the circular of the Company dated 13 November 2020 remain unchanged.

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LETTER FROM THE INDEPENDENT FINANCIAL ADVISER

Pricing principles

As noted from Board Letter, the prices under Transactions II will be determined based on, where applicable:

• a. the natural gas price for the preceding quarter or month as calculated based on the average prices of the Four Major Types of Crude Oil quoted on Platts Crude Oil Marketwire obtained and the relevant natural gas sale and purchase agreement under the Natural Gas Sale and Purchase Agreements;

• b. the benchmark price (with reference to the exploration, development and production costs of the gasfield plus reasonable profit) and adjustment on factors such as change of the pricing policy by the state pricing regulatory authorities, prices of domestic energy markets domestics prices for natural gas and change in CPIs; or

• c. the benchmark price (with reference to the exploration, development and production costs of the gasfield plus reasonable profit).

For our due diligence, the Company provided us with a summary of the Transactions II for FY2020, FY2021 and for 9M2022. From the aforesaid summary, we randomly selected and obtained three sets of transactions documents in respect of Transactions II during FY2020, FY2021 and 9M2022. After comparing the aforesaid transaction documents and the then prevailing market rates of natural gas, we noted that the price charged by the connected persons to the Group were not higher than the then prevailing market rates of natural gas.

With reference to the Board Letter, in order to ensure that the price of the Transactions II is determined on a fair and reasonable basis and in accordance with the pricing principles, the Company implemented certain pricing procedures relating to the Transactions II. We consider the effective implementation of the pricing procedures will help to ensure the fair pricing of the Transactions II and compliance of the pricing principles.

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LETTER FROM THE INDEPENDENT FINANCIAL ADVISER

Proposed Revised Annual Caps II

Set out below are (i) the historical transaction amounts of Transactions II for the three years ending 31 December 2022, together with the current annual caps and the utilisation rates; and (ii) the Proposed Revised Annual Cap II:

	For the year	For the year	For the year
	ended	ended	ending
	31 December	31 December	31 December
	2020	2021	2022
	RMB’000	RMB’000	RMB’000
Historical transaction amounts of	2,489,018	2,622,160	2,382,655
Transactions II			(Note)
Current annual caps	2,967,467	2,814,157	2,879,788
Utilisation rate (%)	83.88	93.18	N/A
		For the year	For the year
		ending	ending
		31 December	31 December
		2022	2023
		RMB’000	RMB’000
Proposed Revised Annual Caps II		3,300,000	3,480,000

Note: The figure is for the nine months ended 30 September 2022.

The proposed annual caps were estimated based on various factors, details of which are set out in the sub-section headed ‘‘Basis of the Proposed Revised Annual Caps II’’ under the section headed ‘‘Revision of the Current Annual Caps II’’ of the Board Letter.

As illustrated above, the utilisation rates of the current annual caps were approximately 83.88% for FY2020 and 93.18% for FY2021 and, the historical transaction amounts of Transactions II for the 9M2022 accounted for approximately 82.74% of the current annual cap for FY2022. The historical annual caps were utilised at a high level.

– 46 –

LETTER FROM THE INDEPENDENT FINANCIAL ADVISER

For our due diligence purpose, we obtained (i) breakdown of the historical transaction amounts for the three years ended 31 December 2021 and for 9M2022; (ii) breakdown of the current annual caps for the three years ending 31 December 2023 formulated by the Company; and (iii) calculations of the Proposed Revised Annual Caps II for FY2022 and FY2023. We noted that the Group procured approximately 3.6 million tons of natural gas and approximately 3.4 million tons of natural gas from connected persons for FY2020 and FY2021, respectively; and the Group is expected to procure approximately 3.5 million tons of natural gas and 3.3 million tons of natural gas for FY2022 and FY2023 respectively. The expected increase in transaction amounts of Transactions II was primarily due to the increase in unit costs of natural gas during FY2022.

In respect of the estimated unit costs of natural gas, we noted that the estimated unit cost adopted in formulating the Proposed Revised Annual Caps II was lower than the latest ex-factory price of onshore and imported pipeline gas in Hainan as promulgated by the National Development and Reform Commission of the PRC.

As noted from the Board Letter, a 3% buffer was incorporated in the Proposed Revised Annual Caps II for fluctuation in relevant commodity prices, future operation needs of the Company and possible change. We also noted from other Hong Kong listed companies’ circulars regarding continuing connected transactions that the incorporation of buffer of 10% in the proposed annual caps are common among listed companies in Hong Kong. As such, we do not doubt the reasonableness of the buffer of 3%.

In light of the above, we consider the Proposed Revised Annual Caps II is fair and reasonable.

Shareholders should note that as the Proposed Revision Annual Cap II are relating to future events and were estimated based on assumptions which may or may not remain valid for the entire period up to 31 December 2023, and they do not represent forecasts of costs to be incurred from the Transactions II. Consequently, we express no opinion as to how closely the actual costs to be incurred from the Transactions II will correspond with the Proposed Revised Annual Caps II.

Having considered the principal terms of the Transactions II above, we are of the view that the terms of the Transactions II (including the Proposed Revised Annual Caps II) are on normal commercial terms and are fair and reasonable.

3. Fudao Chemical Product Sales Transaction

Principal terms of the Fudao Chemical Product Sales Transaction

Set out below are the principal terms of the Comprehensive Services and Products Sales Agreement with Fudao Chemical, including terms of the Fudao Chemical Product Sales Transaction, details of which are set out in the sub-section headed ‘‘Principal

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LETTER FROM THE INDEPENDENT FINANCIAL ADVISER

Terms of the Proposed Continuing Connected Transactions with Fudao Chemical’’ under the section headed ‘‘II. PROPOSED CONTINUING CONNECTED TRANSACTIONS WITH FUDAO CHEMICAL’’ of the Board Letter.

Date

18 November 2022

Parties

The Company

Fudao Chemical

Scope of the Proposed Continuing Connected Transactions with Fudao Chemical

• a. The Group has agreed to provide services and supplies to Fudao Chemical (including but not limited to provision of offices and facilities, labour services, technical training services, project management services, logistics management services, accommodation/catering services, port management, logistics assistance, transportation services, equipment leasing, equipment maintenance, materials/equipment procurement services and material supplies for utility system); and

• b. The Group has agreed to sell products (methanol, liquid ammonia, etc.) to Fudao Chemical and Fudao Chemical has agreed to sell products (including but not limited to acrylonitrile, acetonitrile, MMA, etc.) to the Group.

Term

The term of the Comprehensive Services and Product Sales Agreement with Fudao Chemical will commence on the date of obtaining relevant approval from the shareholders’ general meeting of the Company and will expire on 31 December 2023, but may be renewed upon agreement provided that the requirements of the Listing Rules in relation to connected transactions are complied with.

– 48 –

LETTER FROM THE INDEPENDENT FINANCIAL ADVISER

Pricing principles

Under the Comprehensive Services and Products Sales Agreement with Fudao Chemical, the Fudao Chemical Product Sales Transaction will be conducted on normal commercial terms and conditions which shall not be less favourable than those offered by independent third parties to the Group and shall not be less favourable than those offered to independent third parties by Fudao Chemical, and the prices thereunder will be determined in accordance with the pricing principles set out in the Comprehensive Services and Product Sales Agreement with Fudao Chemical as follows:

• a. not higher than the prices charged by Fudao Chemical to its associates (other than members of the Group) or other comparable independent third-party customers (if any) for the same type of products; or

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

• c. with reference to the prices for the same type of products in the adjacent areas charged on normal terms in the ordinary and usual course of its business by comparable independent third-party suppliers.

Nevertheless, for the above-mentioned services, supplies and products, when relevant government authorities publish a government-prescribed price in relation to the Proposed Continuing Connected Transactions with Fudao Chemical during the term of the Comprehensive Services and Product Sales Agreement with Fudao Chemical, the relevant prices shall be adjusted with reference to the governmentprescribed price accordingly. As of the Latest Practicable Date, there were no government-prescribed prices currently in force for the above-mentioned services, supplies and products.

With reference to the Board Letter, in order to ensure that the price of the Fudao Chemical Product Sales Transaction 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 products. Details of the procedures to be taken by the Company’s Procurement Management Committee is set out in the sub-section headed ‘‘Pricing Procedures’’ under the section headed ‘‘II. PROPOSED CONTINUING CONNECTED TRANSACTIONS WITH FUDAO CHEMICAL’’ of the Board Letter.

– 49 –

LETTER FROM THE INDEPENDENT FINANCIAL ADVISER

Proposed annual cap

With reference to the Board Letter, as at the Latest Practicable Date, there was no transaction conducted between the Group and Fudao Chemical. The proposed Annual Cap for the Fudao Chemical Product Sales Transaction for FY2023 is RMB3,130 million.

The proposed annual cap was estimated based on various factors, details of which are set out in the sub-section headed ‘‘Basis of The Proposed Annual Cap with Fudao Chemical for the Sale of Products by Fudao Chemical to the Group’’ under the section headed ‘‘II. PROPOSED CONTINUING CONNECTED TRANSACTIONS WITH FUDAO CHEMICAL’’ of the Board Letter.

For our due diligence purpose, we obtained a calculation of the proposed annual cap in respect of Fudao Chemical Product Sales Transaction for FY2023. We noted from the calculation that the proposed annual cap was formulated based on (i) the maximum annual output capacity of Fudao Chemical for the production of acrylonitrile, acetonitrile and MMA; (ii) the estimated unit price for acrylonitrile, acetonitrile and MMA; and (iii) 5% buffer for fluctuation in relevant commodity prices, future operation needs of the Company and possible market change.

To assess the fairness and reasonableness of the estimated unit price of acrylonitrile, acetonitrile and MMA adopted in the calculation of the Proposed Annual Cap with Fudao Chemical in respect of Fudao Chemical Product Sales Transaction, we searched for the daily spot price of acrylonitrile and acetonitrile, and the daily market price (mid) of MMA in southern China for the period from 3 January 2022 up to and including the 2nd Announcement Date (‘‘2nd Review Period’’).

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LETTER FROM THE INDEPENDENT FINANCIAL ADVISER

==> picture [337 x 238] intentionally omitted <==

----- Start of picture text -----

RMB Historical price of acrylonitrile, acetonitrile and MMA (per ton)
30,000
25,000
20,000
15,000
10,000
5,000
0
Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov
2022 2022 2022 2022 2022 2022 2022 2022 2022 2022 2022
Spot price of acrylonitrile Spot price of acetonitrile Market price (mid) of MMA
----- End of picture text -----

Source: Wind Financial Terminal

As illustrated in the above table:

• (i) the spot price of acrylonitrile fluctuated between RMB8,600 per ton to RMB12,900 per ton during the 2nd Review Period;

• (ii) the spot price of acetonitrile formed a general decreasing trend since the start of the 2nd Review Period and fluctuated between the range of RMB18,000 per ton to RMB24,300 per ton from 4 January 2022 to 21 June 2022. Thereafter, the spot price of acetonitrile drop significantly and reached the lowest of RMB10,600 per ton as recorded on 27 July 2022, 28 July 2022, 29 July 2022 and 1 August 2022 before it rebounded and reached RMB16,300 per ton on 31 August 2022, 1 September 2022 and 2 September 2022. The spot price of acetonitrile fluctuated between RMB12,400 per ton and RMB16,000 per ton from 5 September 2022 to the 2nd Announcement Date; and

• (iii) the market price (mid) of MMA fluctuated between RMB11,200 per ton to RMB14,250 per ton during the 2nd Review Period.

The estimated unit prices of acrylonitrile, acetonitrile and MMA adopted in formulating the proposed annual cap were close to their respective spot price or market price (mid) from October 2022 up to the 2nd Announcement Date. Based on the movement of the historical spot prices of acrylonitrile, acetonitrile and MMA

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LETTER FROM THE INDEPENDENT FINANCIAL ADVISER

during the 2nd Review Period, we do not doubt the reasonableness of the estimated unit price of acrylonitrile, acetonitrile and MMA adopted in formulating the proposed annual cap.

As aforementioned, a 5% buffer was incorporated in the proposed annual cap for fluctuation in relevant commodity prices, future operation needs of the Company and possible change. We also noted from other Hong Kong listed companies’ circulars regarding continuing connected transactions that the incorporation of buffer of 10% in the proposed annual caps are common among listed companies in Hong Kong. As such, we do not doubt the reasonableness of the buffer of 5%.

In light of the above, we consider the Proposed Annual Cap with Fudao Chemical in respect of Fudao Chemical Product Sales Transaction is fair and reasonable.

Shareholders should note that as the proposed annual cap for Fudao Chemical Product Sales Transaction are relating to future events and were estimated based on assumptions which may or may not remain valid for the entire period up to 31 December 2023, and they do not represent forecasts of costs to be incurred from the Fudao Chemical Product Sales Transaction. Consequently, we express no opinion as to how closely the actual costs to be incurred from the Fudao Chemical Product Sales Transaction will correspond with the proposed annual cap.

Having considered the principal terms of the Fudao Chemical Product Sales Transaction above, we are of the view that the terms of the Fudao Chemical Product Sales Transaction (including the proposed annual cap) are on normal commercial terms and are fair and reasonable.

Listing Rules implication

The Directors confirmed that the Company shall comply with the requirements of Rules 14A.53 to 14A.59 of the Listing Rules pursuant to which (i) the value of the CCTs must be restricted by the proposed annual caps for the two years ending 31 December 2023 (where applicable); (ii) the terms of the CCTs (including the relevant annual caps) must be reviewed by the independent non-executive Directors annually; and (iii) details of the independent nonexecutive Directors’ annual review on the terms of the CCTs must be included in the Company’s subsequent published annual reports.

Furthermore, it is also required by the Listing Rules that the auditors of the Company must provide a letter to the Board confirming, among other things, whether anything has come to their attention that causes them to believe that the CCTs (i) have not been approved by the Board; (ii) were not, in all material aspects, in accordance with the pricing policies of the Group; (iii) were not entered into, in all material respects, in accordance with the relevant agreement governing the transactions; and (iv) have exceeded the proposed annual caps.

– 52 –

LETTER FROM THE INDEPENDENT FINANCIAL ADVISER

In the event that the total amount of the CCTs is anticipated to exceed the proposed annual caps, or that there is any proposed material amendment to the terms of the CCTs, as confirmed by the Directors, the Company shall comply with the applicable provisions of the Listing Rules governing continuing connected transactions.

Given the above stipulated requirements for the continuing connected transactions pursuant to the Listing Rules by the Company, we are of the view that there are adequate measures in place to monitor the CCTs (together with the relevant proposed annual caps) and hence the interest of the Independent Shareholders would be safeguarded.

RECOMMENDATION

Having taken into account the above factors and reasons, we are of the opinion that (i) the terms of the CCTs are on normal commercial terms and are fair and reasonable; and (ii) the CCTs are conducted in the ordinary and usual course of business of the Group and are in the interests of the Company and the Shareholders as a whole. Accordingly, we recommend the Independent Board Committee to advise the Independent Shareholders to vote in favour of the resolutions to be proposed at the EGM to approve the CCTs and we recommend the Independent Shareholders to vote in favour of the resolutions in this regard.

Yours faithfully, For and on behalf of Gram Capital Limited Graham Lam Managing Director

• Note: Mr. Graham Lam is a licensed person registered with the Securities and Futures Commission and a responsible officer of Gram Capital Limited to carry out Type 6 (advising on corporate finance) regulated activity under the SFO. He has over 25 years of experience in investment banking industry.

• For identification purpose only

– 53 –

GENERAL INFORMATION

APPENDIX

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 220,000 H shares of the Company.

Save for Mr. Huang Hulong and Mr. Zhao Baoshun, the non-executive Directors, serving as full-time despatched directors by CNOOC, as at the Latest Practicable Date, none of the Directors is 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.

– 54 –

GENERAL INFORMATION

APPENDIX

EXPERT STATEMENTS

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

Name Qualification Gram Capital Licensed corporation to carry out type 6 (advising on 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 2021 (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 Latest Practicable Date 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 2021, the date to which the latest published consolidated audited accounts of the Group had been made up.

MISCELLANEOUS

• (i) The registered office and the principal place of business of the Company is No. 3, Park Third Road, Basuo Town, 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.

– 55 –

GENERAL INFORMATION

APPENDIX

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

DOCUMENTS ON DISPLAY

The following documents with be published on the Stock Exchange’s website and the Company’s website for a period of 14 days from the date of this circular.

• (i) the Comprehensive Services and Product Sales Agreement entered into between the Company and CNOOC dated 23 October 2020;

• (ii) the Natural Gas Sale and Purchase Agreements entered into with CNOOC China Limited; and

• (iii) the Comprehensive Services and Product Sales Agreement entered into between the Company and Fudao Chemical dated 18 November 2022.

– 56 –

SUPPLEMENTAL NOTICE OF FIRST EXTRAORDINARY GENERAL MEETING OF 2022

==> picture [334 x 41] intentionally omitted <==

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

(Stock Code: 3983)

SUPPLEMENTAL NOTICE OF FIRST EXTRAORDINARY GENERAL MEETING OF 2022

We refer to the notice of the China BlueChemical Ltd.* (the ‘‘Company’’) dated 11 November 2022 (the ‘‘First Notice’’), which set out details of the time and venue of the first extraordinary general meeting of 2022 of the Company (the ‘‘EGM’’) and the resolutions to be proposed at the EGM for Shareholders’ approval.

SUPPLEMENTAL NOTICE IS HEREBY GIVEN that the EGM will be held at the Meeting Room, 14th Floor, Kaikang CNOOC Mansion, No. 15 Sanqu, Anzhenxili, Chaoyang District, Beijing, the PRC on Wednesday, 28 December 2022 at 8:30 a.m. Unless otherwise indicated, capitalized terms used in this supplemental notice and the following resolutions shall have the same meanings as those defined in the circular of the Company dated 9 December 2022 (the ‘‘Circular’’). The EGM is for the purpose of considering and, if thought fit, passing of the following resolutions:

By way of ordinary resolution:

1. To consider and approve the Comprehensive Services and Product Sales Agreement with Fudao Chemical and the Proposed Continuing Connected Transactions with Fudao Chemical for the sale of product by Fudao Chemical to the Group as set out in the Circular; and the Board is hereby authorized to take such actions as are necessary to implement the Comprehensive Services and Product Sales Agreement with Fudao Chemical and the Proposed Continuing Connected Transactions with Fudao Chemical for the sale of products by Fudao Chemical to the Group.

2. To consider and approve the Proposed Annual Cap with Fudao Chemical for the sale of products by Fudao Chemical to the Group as set out in the Circular; the Board is hereby authorized to take such actions as are necessary to implement the Proposed Annual Cap with Fudao Chemical for the sale of products by Fudao Chemical to the Group.

By order of the Board China BlueChemical Ltd.* Wu Xiaoxia

Company Secretary

Beijing, the PRC 9 December 2022

• For identification purpose only

– 57 –

SUPPLEMENTAL NOTICE OF FIRST EXTRAORDINARY GENERAL MEETING OF 2022

As at the date of this notice, the executive directors of the Company are Mr. Hou Xiaofeng and Mr. Li Zhi, the nonexecutive directors of the Company are Mr. Huang Hulong and Mr. Zhao Baoshun, and the independent non-executive directors of the Company are Mr. Yu Changchun, Mr. Lin Feng and Mr. Xie Dong.

Notes:

1. A supplemental proxy form of the Company dated 9 December 2022 (the ‘‘Supplemental Proxy Form’’) containing the resolutions mentioned above is enclosed with the Circular. The proxy form of the Company dated 11 November 2022 (the ‘‘First Proxy Form’’) will remain valid and effective to the fullset extent applicable if correctly completed and lodged. The Supplemental Proxy Form will not affect the validity of the First Proxy Form duly completed and lodged by you in respect of the resolutions set out in the First Notice. If you have duly completed and lodged the First Proxy Form and validly appointed a proxy to attend and act for you at the EGM but do not duly complete and lodge the Supplemental Proxy Form, your proxy will be entitled to vote at the discretion on the resolutions set out in this supplemental notice. If you do not duly complete and lodge the First Proxy Form but have duly completed and lodged the Supplemental Proxy Form and validly appointed a proxy to attend and act for you at the EGM, your proxy will be entitled to vote at the discretion on the resolutions set out in the First Notice. For the avoidance of doubt, should the proxies being appointed to attend the EGM under each of the First Proxy Form and/ or the Supplemental Proxy Form are different and more than one of the proxies attended the EGM, only the proxy validly appointed under the First Proxy Form shall be designated to vote on all the resolutions at the EGM.

2. A shareholder entitled to attend and vote at the EGM may appoint one or more proxies to attend and vote in his/her stead. A proxy need not be a shareholder of the Company. Where a shareholder has appointed more than one proxy to attend the EGM, such proxies may only vote on a poll.

The instrument appointing a proxy must be in writing under the hand of a shareholder or his/her attorney duly authorised in writing. If the shareholder is a corporation, that instrument must be either under its common seal or under the hand of its attorney or duly authorised attorney(s). If that instrument is signed by an attorney of the shareholder, the power of attorney authorising that attorney to sign or other authorisation document must be notarised.

In order to be valid, in respect of holders of the domestic shares or unlisted foreign shares of the Company, the Supplemental Proxy Form together with the power of attorney or other authorisation document (if any) must be deposited at the Company’s Secretary Office of the Board in China (Address: Room 1707, Kaikang CNOOC Mansion, No. 15, Sanqu, Anzhenxili, Chaoyang District, Beijing, the PRC) not less than 24 hours (i.e., by 8:30 a.m., Tuesday, 27 December 2022) before the time fixed for holding the EGM. In respect of the Company’s H Shares, the said documents together must be lodged at the Company’s H share registrar within the abovementioned period by holders of H Shares. The H share registrar of the Company is Computershare Hong Kong Investor Services Limited, whose address is 17M Floor, Hopewell Centre, 183 Queen’s Road East, Wanchai, Hong Kong. Please note that 24 December 2022 to 27 December 2022 are not working days in Hong Kong and Computershare Hong Kong Investor Services Limited’s offices will not be open on these days for physical delivery of the Supplemental Proxy Form. Completion and return of the Supplemental Proxy Form will not preclude a shareholder from attending and voting in person at the EGM if he/she so wishes.

1. Please refer to the First Notice for details in respect of the time and venue of the EGM, other resolutions to be passed at the EGM, eligibility for attending the EGM, the First Proxy Form, registration procedures, closure of register of members, reply slip and other relevant matters in relation to the EGM.

2. Shareholders or their proxies must present proof of their identities upon attending the EGM. Should a proxy be appointed, the proxy must also present copies of his/her proxy form, or copies of appointing instrument and power of attorney, if applicable.

3. The EGM is expected to last not more than one day. Shareholder or proxies attending the EGM are responsible for their own transportation and accommodation expenses.

– 58 –