Raymond Industrial Limited — Proxy Solicitation & Information Statement 2003

Oct 31, 2003

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 licensed securities dealer, bank manager, solicitor, professional accountant or other professional adviser.

If you have sold or transferred all your shares in CNPC (Hong Kong) Limited, you should at once hand this circular, together with the enclosed form of proxy, to the purchaser or transferee or to the bank, stockbroker or other agent through whom the sale or transfer was effected for transmission to the purchaser.

The Stock Exchange of Hong Kong Limited takes no responsibility for the contents of this circular, makes no representation as to its accuracy or completeness and expressly disclaims 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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PROPOSED EXTENSION AGREEMENTS IN RELATION TO THE PRC OILFIELDS AND THE ONGOING CONNECTED TRANSACTIONS

Independent Financial Adviser to the Independent Board Committee

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Kingsway Capital Limited

A letter from the independent board committee of CNPC (Hong Kong) Limited dated 31 October 2003 is set out on page 15 of this circular.

A letter from Kingsway Capital Limited containing its advice to the independent board committee of CNPC (Hong Kong) Limited dated 31 October 2003 is set out on pages 16 to 23 of this circular.

A notice convening a special general meeting of CNPC (Hong Kong) Limited to be held at the Vinson Room, Pacific Place Conference Centre, Level 5, One Pacific Place, 88 Queensway, Central, Hong Kong on 18 November 2003 at 11:00 a.m. is set out on pages 28 to 29 of this circular. Whether or not you are able to attend the meeting, please complete and return the enclosed form of proxy in accordance with the instructions printed thereon as soon as possible and in any event not less than 48 hours before the time appointed for holding the meeting or any adjourned meeting (as the case may be). Completion and return of the form of proxy will not preclude you from attending and voting at the meeting or any adjourned meeting should you so wish.

* For identification purpose only

31 October 2003

CONTENTS

	Page
Definitions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	1
Letter from the Board
1. Introduction . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	5
2. Extension Agreements and Ongoing Connected Transactions . . . . . . . . . . . . . . . . . . .	6
3. Waiver to be Sought . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	11
4. Special General Meeting . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	13
5. Recommendations of the Independent Board Committee . . . . . . . . . . . . . . . . . . . . . . .	14
6. Additional Information. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	14
Letter from the Independent Board Committee . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	15
Letter from Kingsway Capital Limited. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	16
Appendix – General Information. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	24
Notice of Special General Meeting. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	28

– i –

DEFINITIONS

In this circular, the following expressions have the following meanings, unless the context otherwise requires:

• “Associated Companies”

• subsidiaries or associated companies (i.e., companies that are held as to 20% of the equity interest)

• “associates”

as defined in the Listing Rules

• “Announcement”

• the press announcement issued by the Company dated 29 October 2003 in relation to, inter alia, the Proposals

• “Beckbury”

• Beckbury International Limited, a company incorporated with limited liability in the British Virgin Islands and a wholly-owned subsidiary of the Company

• “Board”

the board of Directors

• “CNPC”

• China National Petroleum Corporation, a state-owned economic entity established under the laws of the PRC and the indirect controlling shareholder and ultimate parent of the Company and PetroChina

• “CNPC Group”

• CNPC and its Associated Companies, other than the Company and its Associated Companies

• “Company”

• CNPC (Hong Kong) Limited, a company incorporated with limited liability in Bermuda and listed on the Stock Exchange

• “Directors”

the directors of the Company

• “Entrustment Contracts”

• the Xinjiang Entrustment Contract and the Leng Jiapu Entrustment Contract

• “Extension Agreements”

• the Xinjiang Extension Agreement and the Leng Jiapu Extension Agreement

• “Group”

the Company and its subsidiaries

• “Hafnium”

• Hafnium Limited, company incorporated with limited liability in the British Virgin Islands and a wholly-owned subsidiary of the Company

– 1 –

DEFINITIONS

• “Hong Kong”

• “Independent Board Committee”

• “Independent Financial Advisor”

• “Independent Shareholders”

• “Interim Report”

• “Karamay Oilfield”

• “Latest Practicable Date”

• “Liaohe Contract”

• “Leng Jiapu Entrustment Contract”

• “Leng Jiapu Extension Agreement”

• “Leng Jiapu Oilfield”

• the Hong Kong Special Administrative Region of the PRC

• the committee of Directors, consisting of Lau Wah Sum and Aubrey Li Kwok Sing, the independent non-executive Directors, formed to advise the Independent Shareholders in respect of the Proposals

• Kingsway Capital Limited, the independent financial advisor to the Independent Board Committee in relation to the Proposals

• Shareholders other than Sun World and its associates

• the unaudited report of the Company for the six months ended 30 June 2003

• an oilfield in Junggar basin in Xinjiang, the PRC, part of which is being developed by the Group pursuant to the Xinjiang Contract

• 27 October 2003, being the latest practicable date prior to the printing of this circular for ascertaining certain information contained herein

• the Leng Jiapu Area Petroleum Contract, dated 30 December 1997, entered into between CNPC and Beckbury. All the rights and obligations (other than the supervisory functions related to CNPC’s role as representative of the PRC government) of CNPC under this contract was on 8 October 2001 novated to PetroChina

• the contract dated 21 March 1998 entered into between Beckbury and Liaohe Petroleum Exploration Bureau concerning the operation of the Liaohe Contract

• the proposed extension agreement to be entered into between Beckbury and Liaohe Petroleum Exploration Bureau to extend the term of the Leng Jiapu Entrustment Contract

the Leng Jiapu Oilfield in Liaohe, Liaoning Province, the PRC, part of which is being developed by the Group pursuant to the Liaohe Contract

– 2 –

DEFINITIONS

“Listing Rules”	the Rules Governing the Listing of Securities on the
	Stock Exchange
“Ongoing Connected Transactions”	the existing ongoing connected transactions between the
	Group and CNPC and its Associated Companies (including
	PetroChina and its Associated Companies) pursuant to
	the PRC Oil Production Sharing Contracts and the
	Entrustment Contracts (to be extended by the Extension
	Agreements)
“PetroChina”	PetroChina Company Limited, a joint stock limited
	company incorporated in the PRC under the Company
	Law of the PRC and listed on the Stock Exchange with
	American depositary shares listed on the New York Stock
	Exchange
“PRC”	the People’s Republic of China
“PRC Oilfields”	the Karamay Oilfield and the Leng Jiapu Oilfield
“PRC Oil Production Sharing	the Xinjiang Contract and the Liaohe Contract
Contracts”
“Proposals”	the proposals to be considered by the Independent
	Shareholders at the Special General Meeting to approve
	the Extension Agreements and the Ongoing Connected
	Transactions
“SFO”	Securities and Futures Ordinance (Chapter 571 of the
	Laws of Hong Kong)
“Shareholders”	shareholders of the Company
“Shares”	shares of HK$0.01 each in the share capital of the
	Company
“Special General Meeting”	a special general meeting of the Shareholders to be
	convened to consider and, if thought fit, approve the
	resolutions in respect of the Proposals
“Stock Exchange”	The Stock Exchange of Hong Kong Limited

– 3 –

DEFINITIONS

• “Sun World”

Sun World Limited, the company through which CNPC holds its shareholding interest in the Company

• “Xinjiang Contract”

• the Xinjiang Oil Field Production Sharing Contract, dated 1 July 1996, entered into between CNPC and Hafnium. All the rights and obligations (other than the supervisory functions related to CNPC’s role as representative of the PRC government) of CNPC under this contract was on 8 October 2001 novated to PetroChina

• “Xinjiang Entrustment Contract”

• the contract dated 21 October 1996 entered into between Hafnium and Xinjiang Petroleum Administration Bureau concerning the operation of the Xinjiang Contract

• “Xinjiang Extension Agreement”

• the proposed extension agreement to be entered into between Hafnium and Xinjiang Petroleum Administration Bureau to extend the term of the Xinjiang Entrustment Contract

Unless otherwise specified, the translation of US dollars into Hong Kong dollars is based on the exchange rate of US$1.00 = HK$7.78

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LETTER FROM THE BOARD

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Directors: Wang Mingcai (Executive Chairman) Li Hualin (Executive Vice-Chairman & Managing Director) Lin Jingao[+] Lau Wah Sum, GBS, LLD, DBA, JP[++] Aubrey Li Kwok Sing[++]

+ Non-executive Director

++ Independent non-executive Directors

Registered office: Clarendon House Church Street Hamilton HM11 Bermuda

Principal Office in Hong Kong: Room 3907-3910 39/F, 118 Connaught Road West Hong Kong 31 October 2003

To the Shareholders

Dear Sir or Madam,

PROPOSED EXTENSION AGREEMENTS IN RELATION TO THE PRC OILFIELDS AND THE ONGOING CONNECTED TRANSACTIONS

1. INTRODUCTION

On 29 October 2003, the Board issued the Announcement notifying the Shareholders that, inter alia, the Company proposed to enter into the Extension Agreements and had applied to the Stock Exchange for a waiver in respect of the Ongoing Connected Transactions.

The main purposes of this circular are (i) to provide additional information regarding the Extension Agreements and the Ongoing Connected Transactions; (ii) to set out the letter of advice from Kingsway Capital Limited to the Independent Board Committee and the recommendation and opinion of the Independent Board Committee in respect of the Proposals; and (iii) to give Shareholders notice of the Special General Meeting at which ordinary resolutions will be proposed seeking the approval of the Independent Shareholders of the Proposals.

* For identification purposes only

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LETTER FROM THE BOARD

2. EXTENSION AGREEMENTS AND ONGOING CONNECTED TRANSACTIONS

PRC OIL PRODUCTION SHARING CONTRACTS

The Xinjiang Contract and the Liaohe Contract were approved by the Independent Shareholders at the special general meetings of the Company held on 28 August 1996 and 23 February 1998, respectively and details of these contracts were set out in a circular to Shareholders dated 11 September 2001 containing, among other things, the novation by CNPC of all its rights and obligations (other than the supervisory functions related to CNPC’s role as representative of the PRC government) under such agreements to PetroChina.

The Stock Exchange granted waivers from strict compliance with the disclosure and shareholders’ approval requirements under the Listing Rules in respect of certain ongoing connected transactions of the Company resulting from the PRC Oil Production Sharing Contracts. However, such waivers will expire at the end of the current financial year ending 31 December 2003 and, accordingly, the Directors have applied to the Stock Exchange for an extension of the waiver for a further three financial years ending 31 December 2006.

The Xinjiang Contract

The Group holds a 54% participating interest in a production contract in the Karamay Oilfield, covering an area of 20 square kilometers, the balance of which is held by PetroChina.

The Xinjiang Contract was entered into for the development and production of crude oil in the Karamay Oilfield. Pursuant to the Xinjiang Contract, the Group agreed to fund an enhanced oil recovery programme (the “Infill Development Programme”) implemented by Hafnium under the Xinjiang Contract thereby reducing the inter-well spacing and improving oil recovery from ongoing steamflood process in the area as defined in the Xinjiang Contract (the “Xinjiang Contract Area”). Hafnium shall bear all the cost required for the Infill Development Programme in exchange for a 54% share in the oil production from the Xinjiang Contract Area. In addition, Hafnium shares in the production from the Xinjiang Contract Area which shall be allocated (after deduction of taxes) firstly towards operating costs recovery and thereafter in the proportion of 54% to Hafnium and 46% to PetroChina towards investment recovery and any remainder oil as profit.

The Xinjiang Contract provides for twelve consecutive years of production sharing commencing on 1 September 1996.

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LETTER FROM THE BOARD

In connection with the Xinjiang Contract, Hafnium has also entered into the Xinjiang Entrustment Contract with Xinjiang Petroleum Administration Bureau, an operational entity wholly-owned and operated by CNPC, whereby the latter was entrusted to take up the responsibility as an operator under the Xinjiang Contract. Pursuant to the Xinjiang Entrustment Contract, the Group shall pay to Xinjiang Petroleum Administration Bureau a support fee which equals to 30% of the total amount of salary and welfare expenses of the personnel of the Joint Development Department (“Xinjiang JDD”). The Xinjiang JDD was established pursuant to the Xinjiang Entrustment Contract which is responsible for the performance of Xinjiang Petroleum Administration Bureau’s contractual responsibilities under the Xinjiang Entrustment Contract.

Pursuant to the Xinjiang Extension Agreement, it is proposed to extend the term of the Xinjiang Entrustment Contract to until expiry of the Xinjiang Contract, save that either party may terminate the Xinjiang Entrustment Contract by giving six months’ prior written notice to the other party. The Company proposes to seek Independent Shareholders’ approval of the Xinjiang Extension Agreement at the Special General Meeting.

The Liaohe Contract

The Group holds a 70% participating interest in a production contract in the Leng Jiapu Oilfield, the balance of which is held by PetroChina.

The Liaohe Contract was entered into for the development and production of crude oil in the Leng Jiapu Oilfield. Pursuant to the Liaohe Contract, the Group agreed to acquire 70% of the production sharing interest for RMB1,008 million (approximately HK$942 million) and to fund its share of cost of the operations carried out for the realisation of petroleum production (the “Development Operations”) in the areas as defined in the Liaohe Contract (the “Contract Area”). Pursuant to the Liaohe Contract, Beckbury shall bear 70% of the costs required for the Development Operations in the Contract Area and share in the production from the Contract Area which shall, from the implementation of the Development Operations, be allocated firstly towards operating costs recovery and thereafter in the proportion of 70% to Beckbury and 30% to PetroChina towards investment recovery and profit.

The Liaohe Contract provides for twenty consecutive years of production sharing commencing on 1 March 1998.

In connection with the Liaohe Contract, the Group has also entered into the Leng Jiapu Entrustment Contract with Liaohe Petroleum Exploration Bureau, an operational entity owned and operated by CNPC, whereby the latter was entrusted to take up the responsibility as an operator under the Liaohe Contract. Pursuant to the Leng Jiapu Entrustment Contract, the Group shall pay to Liaohe Petroleum Exploration Bureau a support fee which equals to 30% of the total amount of salary and welfare expenses of the

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LETTER FROM THE BOARD

personnel of the Joint Development Department (“Liaohe JDD”). The Liaohe JDD was established pursuant to the Leng Jiapu Entrustment Contract which is responsible for the performance of Liaohe Petroleum Exporation Bureau’s contractual responsibilities under the Leng Jiapu Entrustment Contract.

Pursuant to the proposed Leng Jiapu Extension Agreement, it is proposed to extend the term of the Leng Jiapu Entrustment Contract to until expiry of the Liaohe Contract, save that either party may terminate the Leng Jiapu Entrustment Contract by giving six months’ prior written notice to the other party. The Company proposes to seek Independent Shareholders’ approval of the Leng Jiapu Extension Agreement at the Special General Meeting.

The obligations of each of Xinjiang Petroleum Administration Bureau and Liaohe Petroleum Exploration Bureau as an operator under the Entrustment Contracts include the following:

• (i) carrying out petroleum operations and preparing annual budget in respect of petroleum operations;

• (ii) applying appropriate and advanced technology and business managerial experience to perform the petroleum operations; and

• (iii) responsible for procurement of installments, equipment and supplies and entering into subcontracts and service contracts related to the petroleum operations.

Key Terms and Conditions of the PRC Oil Production Sharing Contracts

A summary of the major terms and conditions of the PRC Oil Production Sharing Contracts was contained in the circular to Shareholders dated 11 September 2001 and the salient details are set out below:

• (a) Production sharing between the Group and PetroChina

The Group and PetroChina have agreed to, and will continue to, share in the oil and natural gas produced from the Karamay Oilfield as to 54% by the Group and 46% by PetroChina, and from the Leng Jiapu Oilfield as to 70% by the Group and 30% by PetroChina.

• (b) Provision of assistance by PetroChina to the Group

PetroChina have provided, and will continue to provide, assistance to the Group on an ongoing basis during the term of the respective licences, for among other things, leasing warehouses and terminal facilities, and obtaining transportation and communication facilities. The annual assistance fee payable by the Group for such assistance is US$50,000 (approximately HK$389,000) for each of the PRC Oilfields. The fee is accounted for as operating costs and shared by the Group and PetroChina in accordance with the procedures described in the PRC Oil Production Sharing Contracts.

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LETTER FROM THE BOARD

(c) Payment of training fees to PetroChina

The Group has paid, and will continue to pay, PetroChina, in the course of development and operations of each oilfield, an amount of US$50,000 (approximately HK$389,000) annually for training of personnel for each of the PRC Oilfields.

• (d) Purchase of crude oil by CNPC and its Associated Companies (including PetroChina and its Associated Companies)

The Group has the right to sell and deliver its share of oil production from each of the Karamay Oilfield and the Leng Jiapu Oilfield to a destination of its choice, except for destinations which infringe on the political interests of the PRC. However, given the transportation costs and prevailing oil prices, the likely purchaser of all the oil production share attributable to the Company from each of the PRC Oilfields is likely to be CNPC or its Associated Companies (including PetroChina or its Associated Companies). Since entering into the PRC Oil Production Sharing Contracts, the Company has sold all its share of the oil from the PRC Oilfields to CNPC or its Associated Companies and the Board intends to continue with the arrangement.

There is no contractual obligation upon CNPC or its Associated Companies (including PetroChina or its Associated Companies) to purchase oil production from the PRC Oilfields although, from a commercial perspective, the Board expects that CNPC or its Associated Companies (including PetroChina or its Associated Companies) will continue to accept all deliveries.

The price of various grades of crude oil sold is determined with reference to the prevailing price in arm’s length transactions of a similar quality crude oil price set by CNPC with reference to the trend of the international oil price.

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LETTER FROM THE BOARD

The following transactions have been entered into by the Group in connection with the PRC Oil Production Sharing Contracts and Entrustment Contracts (details of which have been included in the Company’s annual reports for the two financial years ended 31 December 2002 and in the Interim Report:

(A) Amounts received by the Group from the CNPC Group Sale of crude oil to PetroChina_(note i) (B) Payments made by the Group to the CNPC Group (1) Payments made pursuant to the Entrustment Contracts(note ii) (2) Payments made pursuant to the PRC Oil Production Sharing Contracts(note iii)_	(54% 2001 410,688 180,005 422	Xinjiang Contract held by Group) (note iv) Six months ended 30 June 2002 2003 HK$’000 314,997 212,819 117,890 48,982 422 210	Liaohe Contract (70% held by Group) (note iv) Six months ended 30 June 2001 2002 2003 HK$’000 995,945 948,220 646,061 425,233 404,306 291,958 544 544 274	Liaohe Contract (70% held by Group) (note iv) Six months ended 30 June 2001 2002 2003 HK$’000 995,945 948,220 646,061 425,233 404,306 291,958 544 544 274
				291,958
				274

Notes :

• (i) The oil price is set by CNPC with reference to the trend of the international oil price.

• (ii) These amounts include fees paid for the provision of operating crews, purchase of equipment, materials and supplies, provision of utilities and repair and maintenance services and charges for drilling, perforation, surveying, quantifying and construction work.

• (iii) These amounts represent assistance and training fees paid by the Group to entities wholly-owned by CNPC.

• (iv) All of the above amounts for the Xinjiang Contract and the Liaohe Contract represent the Group’s 54% and 70% respective share of oil production and respective cost items.

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LETTER FROM THE BOARD

Waiver Requested in respect of the Ongoing Connected Transactions

Xinjiang Petroleum Administration Bureau and Liaohe Petroleum Exploration Bureau, which are the direct contracting parties in respect of the Extension Agreements, are entities owned and operated by CNPC. CNPC has approximately a 90% interest in PetroChina and approximately a 57.53% interest in the Company. Accordingly, under the Listing Rules, the Ongoing Connected Transactions are considered to be connected transactions for the Company and would normally require full disclosure and/or prior Independent Shareholders’ approval. As the Ongoing Connected Transactions will continue to be entered into on normal commercial terms and their aggregate annual amount is expected to exceed the higher of HK$10,000,000 or 3% of the consolidated net tangible asset value of the Group and are, in the Board’s opinion, fair and reasonable and in the ordinary course of business, the Board considers that compliance with the ongoing disclosure and shareholders’ approval requirements of these transactions under the Listing Rules would be impractical and would not be of benefit to the Shareholders.

The Company has previously obtained from the Stock Exchange waivers in respect of the disclosure and shareholders’ approval requirements under the Listing Rules in relation to the Ongoing Connected Transactions (except for the Extension Agreements) subject to the conditions set out in the Company’s circular dated 11 September 2001. The nature of the Ongoing Connected Transactions has not changed from the details contained in such earlier circular, except that the terms of the Entrustment Contracts will be extended by the Extension Agreements.

The Company will seek approval from Independent Shareholders for the Extension Agreements and the continuance of the Ongoing Connected Transactions resulting therefrom and has applied to the Stock Exchange for a new waiver from strict compliance with the disclosure and shareholders’ approval requirements of the Listing Rules for a further period of three financial years ending 31 December 2006 subject to the conditions set out in the section below headed “Waiver to be Sought”.

3. WAIVER TO BE SOUGHT

Reasons for and benefit of the Ongoing Connected Transactions

The Ongoing Connected Transactions will, so long as CNPC remains the controlling shareholder of the Company, constitute connected transactions under the Listing Rules and, unless waivers are granted by the Stock Exchange, would be subject to disclosure and/or Independent Shareholders’ approval requirements under the Listing Rules.

In the opinion of the Directors, the Ongoing Connected Transactions will continue to be conducted in the ordinary and usual course of business of the Company. These transactions will continue to be agreed on an arm’s length basis with terms that are fair

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LETTER FROM THE BOARD

and reasonable to the Company. Due to the long-term relationship between the Group and the CNPC Group, the Board considers it to be beneficial to the Company to carry out the Ongoing Connected Transactions with the CNPC Group as these transactions have facilitated and will continue to facilitate the Group’s business operations.

The Directors also consider that full disclosure of, and/or prior approval from the Independent Shareholders for, the Ongoing Connected Transactions in accordance with the provisions of Chapter 14 of the Listing Rules would be impracticable, would incur significant additional administrative costs to the Company and would act against the interests of the Company and the Shareholders.

Conditions to waiver

The Company has applied to the Stock Exchange for a waiver from strict compliance with the disclosure and Independent Shareholders’ approval requirements of the Listing Rules in respect of the Ongoing Connected Transactions for a period of three financial years ending 31 December 2006 subject to the following conditions :

• (a) Such transactions shall be:

• conducted on normal commercial terms and entered into in the ordinary and usual course of the Group’s business; and

• (ii) entered into either in accordance with the terms of the agreements governing such transactions or on terms no less favourable than those available to or from independent third parties, as applicable.

• (b) The following matters shall be approved by Independent Shareholders at the Special General Meeting:

• (i) the entry into of the Extension Agreements; and

• (ii) the continuance of the Ongoing Connected Transactions.

• (c) The independent non-executive Directors shall review the transactions annually and confirm in each annual report and accounts covering that year that such transactions have been conducted in the manner set out above in paragraph (a) above.

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LETTER FROM THE BOARD

• (d) The auditors of the Company shall review the transactions annually and provide the Directors with a letter (a copy of which will be provided to the Listing Division of the Stock Exchange) stating whether:

• (i) the transactions received the approval of the Directors;

• (ii) the transactions have been entered into on normal commercial terms and have been entered into in accordance with the terms of the relevant agreements governing such transactions or on terms that are no less favourable than terms available to or from independent third parties, as applicable;

• (iii) the transactions have been entered into in accordance with the oil sharing ratios and development cost sharing ratios as stated in the respective PRC Oil Production Sharing Contracts;

and where, for whatever reason, the auditors decline to accept the engagement or are unable to provide the letter mentioned above, the Directors shall contact the Listing Division of the Stock Exchange immediately.

• (e) Details of the transactions in each financial year shall be disclosed in the Company’s annual reports as required by Rule 14.25 (1) (A) to (D) of the Listing Rules.

4. SPECIAL GENERAL MEETING

There is set out on pages 28 to 29 of this circular a notice convening the Special General Meeting to be held at 11:00 a.m. on 18 November 2003, at which ordinary resolutions will be proposed and, if thought fit, passed to approve the entering into of the Extension Agreements and the Ongoing Connected Transactions.

A form of proxy for use at the Special General Meeting is enclosed. Whether or not Shareholders are able to attend such meeting, they are requested to complete and return the form of proxy to the principal place of business of the Company at Room 3907-3910, 39/F., 118 Connaught Road West, Hong Kong in accordance with the instructions printed thereon as soon as possible and in any event not less than 48 hours before the time appointed for holding the Special General Meeting or any adjourned meeting (as the case may be). Completion and return of the form of proxy will not preclude Independent Shareholders from attending and voting at the Special General Meeting or any adjourned meeting should they so wish.

Sun World, being the holder of 57.53% interest in the Company as at the Latest Practicable Date and a wholly-owned subsidiary of CNPC, and its associates will abstain from voting in respect of all the resolutions at the Special General Meeting.

– 13 –

LETTER FROM THE BOARD

5. RECOMMENDATIONS OF THE INDEPENDENT BOARD COMMITTEE

Your attention is drawn to (i) the letter from the Independent Board Committee set out on page 15 of this circular which contains the recommendation of the Independent Board Committee to the Independent Shareholders concerning the Extension Agreements and the Ongoing Connected Transactions; and (ii) the letter from Kingsway Capital Limited set out on pages 16 to 23 of this circular which contains the advice of Kingsway Capital Limited to the Independent Board Committee in relation to the Extension Agreements and the Ongoing Connected Transactions and the principal factors and reasons considered by Kingsway Capital Limited in arriving at its advice.

The Independent Board Committee, having taken into account the advice of Kingsway Capital Limited, considers that the terms of the Extension Agreements and the Ongoing Connected Transaction are fair and reasonable so far as the Independent Shareholders are concerned. Accordingly, it unanimously recommends that the Independent Shareholders should vote in favour of all the ordinary resolutions to be proposed at the Special General Meeting to approve the above matters.

6. ADDITIONAL INFORMATION

Your attention is also drawn to the additional information set out in the Appendix and the notice of the Special General Meeting set out at the end of this circular.

By Order of the Board

Wang Mingcai Li Hualin Executive Chairman Executive Vice-Chairman and Managing Director

– 14 –

LETTER FROM THE INDEPENDENT BOARD COMMITTEE

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31 October 2003

To the Independent Shareholders

Dear Sir/Madam,

PROPOSED EXTENSION AGREEMENTS IN RELATION TO THE PRC OILFIELDS AND ONGOING CONNECTED TRANSACTIONS

We refer to the circular dated 31 October 2003 (the “Circular”) issued to the Shareholders of which this letter forms parts. Terms defined herein shall have the same meanings as defined in the Circular unless the context requires otherwise.

We are writing to you to set out our recommendation as to whether or not the terms of the Extension Agreements and the Ongoing Connected Transactions are fair and reasonable so far as the Independent Shareholders are concerned. Details of the Extension Agreements and the Ongoing Connected Transactions are summarised in the Letter from the Board set out in the Circular. In considering the fairness and reasonableness of the above transactions, we have been advised by Kingsway Capital Limited (“Kingsway”). You are strongly advised to read the letter from Kingsway to the Independent Board Committee which is set out on pages 16 to 23 of the Circular.

RECOMMENDATIONS

We have discussed with the management of the Company the reasons for the proposed execution of the Extension Agreements and the continuance of the Ongoing Connected Transactions and the terms thereof. We have also considered the advice and recommendations of Kingsway.

We concur with the views of Kingsway and consider that the terms of the Extension Agreements and the Ongoing Connected Transactions are fair and reasonable so far as the Independent Shareholders are concerned. Accordingly, we recommend that the Independent Shareholders should vote in favour of all the ordinary resolutions set out in the notice of the Special General Meeting.

Yours faithfully,

The Independent Board Committee

Lau Wah Sum, GBS, LLD, DBA, JP Aubrey Li Kwok Sing

* For identification purpose only

– 15 –

LETTER FROM KINGSWAY CAPITAL LIMITED

The following is the text of the letter from Kingsway Capital Limited to the Independent Board Committee setting out its opinion in connection with the Extension Agreements and the Ongoing Connected Transactions.

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Kingsway Capital Limited

31 October 2003

To the Independent Board Committee of CNPC (Hong Kong) Limited (the “Company”)

Dear Sirs

PROPOSED EXTENSION AGREEMENTS IN RELATION TO THE PRC OILFIELDS AND THE ONGOING CONNECTED TRANSACTIONS

We have been appointed as the independent financial adviser to advise the Independent Board Committee in relation to the terms of the Extension Agreements and the Ongoing Connected Transactions, details of which were set out in the Letter from the Board contained in the Company’s circular dated 31 October 2003 (the “Circular”), of which this letter forms part. Capitalised terms used in this letter shall have the same meanings as those defined in the Circular unless the context of this letter otherwise requires.

Liaohe Petroleum Exploration Bureau and Xinjiang Petroleum Administration Bureau, which are the direct contracting parties in respect of the Extension Agreements, are entities owned and operated by CNPC. CNPC is the controlling shareholder (as defined in the Listing Rules) of the Company and PetroChina, and it or any of its associates is a connected person of the Company. Accordingly, the proposed execution of the Extension Agreements and the Ongoing Connected Transactions constitute connected transactions for the Company under Chapter 14 of the Listing Rules and will be subject to the approval of the Independent Shareholders at the Special General Meeting in accordance with the requirements of the Listing Rules and the conditions of the waiver application as referred to below. Given that the Ongoing Connected Transactions are recurring in nature and their aggregate annual transaction value is expected to exceed the higher of HK$10,000,000 or 3% of the consolidated net tangible asset value of the Group, the Company has previously obtained a waiver from the Stock Exchange from strict compliance with the disclosure and shareholders’ approval requirements as set out in the Listing Rules in relation thereto for a period of 3 financial years ending 31 December 2003, and the Company has applied for a renewal of the waiver for a further period of 3 financial years ending 31 December 2006.

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LETTER FROM KINGSWAY CAPITAL LIMITED

In formulating our opinion, we have relied on the statements, information, opinions and representations contained in the Circular and the information and representations provided to us by the Company. We have assumed that all information, representations and opinions contained or referred to in the Circular and all information, representations and opinions which have been provided by the Company for which the Directors are solely responsible, are true and accurate at the time they were made and continue to be so as at the date of this letter.

We consider that we have been provided with and reviewed sufficient information on which to form a reasonable basis for our opinion. We have no reason to suspect that any relevant information has been withheld, nor are we aware of any fact or circumstance which would render the information provided and the representations and opinions expressed or made to us untrue, inaccurate or misleading. Having made all reasonable enquiries, the Directors have further confirmed that, to the best of their knowledge, there are no other facts or representations the omission of which would make any statement in the Circular relating to the Company, including this letter, misleading. We have not, however, carried out any independent verification of the information provided by the Company and the management of the Company, nor have we conducted any independent investigation into the business and affairs of the Group and the CNPC Group.

PRINCIPAL FACTORS AND REASONS CONSIDERED

In formulating our opinion in relation to the Extension Agreements and the Ongoing Connected Transactions, we have taken into consideration the following principal factors and reasons:

(a) Background of the Ongoing Connected Transactions and the proposed execution of the Extension Agreements

The Ongoing Connected Transactions arose, and will continue to arise, from the PRC Oil Production Sharing Contracts and the Entrustment Contracts. Further details of the PRC Oil Production Sharing Contracts including the circumstances giving rise thereto and their key terms and conditions are set out in the sub-section headed “PRC Oil Production Sharing Contracts” in the section headed “Extension Agreements and Ongoing Connected Transactions” in the Letter from the Board. In connection with the PRC Oil Production Sharing Contracts, the Group has entered into the Entrustment Contracts with the CNPC Group whereby the relevant members of the CNPC Group were entrusted to take up the responsibility as operators under the PRC Oil Production Sharing Contracts. Each of the Entrustment Contracts may be extended by the parties thereto on the same terms and conditions by mutual agreement.

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LETTER FROM KINGSWAY CAPITAL LIMITED

(b) Reasons for the continuance of the Ongoing Connected Transactions and the proposed execution of the Extension Agreements

We understand from the Directors that a substantial number of personnel engaged in the supply of products and services relating to the exploration, development, production, storage and transportation of crude oil and natural gas in the PRC are employees of the CNPC Group, and the CNPC Group has comprehensive capability in all aspects of the oil industry in the PRC. Given that the Group did not have the requisite manpower and expertise to assume all the obligations as the operators under the PRC Oil Production Sharing Contracts, the Group has been entrusting the CNPC Group to take up the responsibilities as operators pursuant to the Entrustment Contracts, and has been sourcing services related to the operations and development of the PRC Oilfields from the CNPC Group. As for the sale of crude oil, we note that under the terms of the PRC Oil Production Sharing Contracts, the Group has the right to sell and deliver its share of oil production from the PRC Oilfields to any destinations of its choice, except for destinations which infringe on the political interests of the PRC. The Directors have advised that taking into account the transportation costs involved and prevailing oil prices, the CNPC Group was, from a commercial standpoint, the likely purchaser of the Group’s share of such oil production, and the Group has therefore been selling all its share of the oil from the PRC Oilfields to CNPC or its Associated Companies. The Directors have further advised that in the past, crude oil sold by the Group to the CNPC Group was transported to destinations designated by the CNPC Group through the existing oil pipe networks owned by the CNPC Group, and therefore the transportation costs incurred were relatively lower than the transportation costs which would have been incurred if the crude oil had been sold to independent third parties. This is because if the crude oil were sold to independent third parties, the crude oil would have to be transported to designated locations using either the CNPC Group’s existing oil pipe networks, in which case the Group would need to lease the oil pipe networks from the CNPC Group, or oil trucks. In either case additional transportation costs would be incurred, which would erode the Group’s profit margin should such additional transportation costs fail to be shifted to its customers. The Directors have also advised that the prices of the crude oil sold to the CNPC Group were determined with reference to the prevailing price in arm’s length transactions of a similar quality crude oil price set by CNPC with reference to the trend of the international oil price. As confirmed by the Directors, all the Ongoing Connected Transactions have been conducted in the ordinary and usual course of business of the Group and were on normal commercial terms after arm’s length negotiations with the CNPC Group.

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LETTER FROM KINGSWAY CAPITAL LIMITED

The Directors have advised that in their opinion, the Ongoing Connected Transactions will continue to be conducted in the ordinary and usual course of business of the Company on normal commercial terms and are fair and reasonable so far as the Independent Shareholders are concerned. The Directors consider that the continuance of the Ongoing Connected Transactions will be in the interest of the Company since the Ongoing Connected Transactions have facilitated and will continue to facilitate the Group’s business operations. Given that (i) the Group does not have the requisite manpower and expertise to assume all the obligations as the operators under the PRC Oil Production Sharing Contracts; (ii) the CNPC Group will, from a commercial standpoint, continue to be the likely purchaser of the Group’s share of oil production from the PRC Oilfields having taken into consideration the transportation costs and prevailing oil prices as explained above; and (iii) the sale of crude oil to the CNPC Group has contributed to the Group’s operating profit in the past and is expected to continue to contribute to the Group’s operating profit for the three years ending 31 December, 2006, we concur with the Directors’ view that the continuance of the Ongoing Connected Transactions have facilitated and will continue to facilitate the Group’s business operations, and will be in the interest of the Company.

As for the proposed execution of the Extension Agreements, the Directors expect that the Group will continue to engage the relevant members of the CNPC Group to assume the responsibility as operators under the PRC Oil Production Sharing Contracts until the expiry of the PRC Oil Production Sharing Contracts, since, as already noted above, they consider that such entrustment arrangements with the CNPC Group will continue to facilitate the Group’s business operations. The Directors have therefore proposed the execution of the Extension Agreements so that the Entrustment Contracts and their respective underlying PRC Oil Production Sharing Contracts will expire on the same date (save that the contracting parties may terminate the entrustment arrangements by providing six months’ advance notice). The Directors have confirmed that save for the expiry dates of the Entrustment Contracts, the terms of the Entrustment Contracts will be substantially the same after the execution of the Extension Agreements. The Directors consider that the execution of the Extension Agreements would save the Company’s administrative time which would otherwise be expended on renegotiating the extended term of the Entrustment Contracts every time they are due to expire and that the entering into of the Extension Agreements is in the interest of the Company and the terms are fair and reasonable so far as the Independent Shareholders are concerned. Having considered the aforesaid reasons, we concur with the Directors’ view that the entering into of the Extension Agreements is in the interest of the Company and the terms thereof are fair and reasonable so far as the Independent Shareholders are concerned.

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LETTER FROM KINGSWAY CAPITAL LIMITED

(c) Nature and terms of the Ongoing Connected Transactions

The table below set out the details of the Ongoing Connected Transactions which took place during the 2 financial years ended 31 December 2002 and the 6 months ended 30 June 2003. It should be noted that all of the amounts stated below for the Xinjiang Contract and the Liaohe Contract represent the Group’s 54% and 70% respective share of oil production and respective cost items.

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Xinjiang Contract Liaohe Contract
6 months 6 months
ended ended
30 June 30 June
2001 2002 2003 2001 2002 2003
HK$’000 HK$’000
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(A) Amounts received by the Group from the CNPC Group

Sale of crude oil to

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

PetroChina (note i) 410,688 314,997 212,819 995,945 948,220 646,061
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(B) Payments made by the Group to the CNPC Group

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

(1) Payments made pursuant
to the Entrustment
Contracts (note ii) 180,005 117,890 48,982 425,233 404,306 291,958
(2) Payments made pursuant
to the PRC Oil Production
Sharing Contracts (note iii) 422 422 210 544 544 274
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Notes:

• (i) The oil price is set by CNPC with reference to the trend of the international oil price.

• (ii) These amounts include fees paid for the provision of operating crews, purchase of equipment, materials and supplies, provision of utilities and repair and maintenance services and charges for drilling, perforation, surveying, quantifying and construction work.

• (iii) These amounts represent assistance and training fees paid by the Group to entities wholly-owned by CNPC.

We understand from the Company that the nature of the Ongoing Connected Transactions to be conducted in the 3 financial years ending 31 December 2006 (i.e. the term of the new waiver) will be in substance the same as the Ongoing Connected Transactions set out in the above table.

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LETTER FROM KINGSWAY CAPITAL LIMITED

Sale of crude oil by the Group to the CNPC Group

As already noted above, under the terms of the PRC Oil Production Sharing Contracts, the Group has the right to sell and deliver its share of oil production from the PRC Oilfields to any destinations of its choice, except for destinations which infringe on the political interests of the PRC. In addition, the PRC Oil Production Sharing Contracts provide that the price of various grades of crude oil sold shall be determined with reference to the prevailing price in arm’s length transactions of a similar quality crude oil price set by CNPC with reference to the trend of the international oil price. As mentioned above, the Directors have advised that although the Group is not restricted to selling the crude oil produced from the PRC Oilfields to the CNPC Group, given the transportation costs involved and prevailing oil prices, the CNPC Group was, from a commercial standpoint, the likely purchaser of the Group’s share of such oil production. As a result, since the execution of the PRC Oil Production Sharing Contracts, the Company has sold all its share of the oil from the PRC Oilfields to CNPC or its Associated Companies (including PetroChina or its Associated Companies) with prices set in accordance with the terms of the PRC Oil Production Sharing Contracts.

We understand from the Directors that although there is no contractual obligation upon any member of the CNPC Group (including PetroChina or its Associated Companies) to purchase the Group’s share of oil production from the PRC Oilfields, they expect, having considered from a commercial perspective, that the CNPC Group (including PetroChina or its Associated Companies) will continue to accept all deliveries of such oil production. We also understand from the Directors that although there is also no contractual obligation upon the Group to sell the crude oil produced from the PRC Oilfields to the CNPC Group, given the transportation costs and prevailing oil prices, they expect that the likely purchasers of all the Group’s share of oil production from the PRC Oilfields in future will continue to be members of the CNPC Group (including PetroChina or its Associated Companies) and the Company intends to continue with such selling arrangements which will be entered into in the ordinary course of business of the Group on normal commercial terms, and the sale price of the crude oil will continue to be determined with reference to the prevailing price in arm’s length transactions of a similar quality crude oil price set by CNPC with reference to the trend of the international oil price.

Fees for provision of services paid to the CNPC Group

We note that pursuant to the Entrustment Contracts, payments for the provision of operating crews, purchase of equipment, materials and supplies, provision of utilities and repair and maintenance services and charges for drilling, perforation, surveying, quantifying and construction work were made by the Group to the CNPC Group. In addition, pursuant to the PRC Oil Production Sharing Contracts, payments for assistance and training fees, which are both fixed at an annual amount of US$50,000 (approximately HK$389,000), were paid by the Group to PetroChina. The aforesaid payments were, and will continue to be, accounted for as

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LETTER FROM KINGSWAY CAPITAL LIMITED

operating costs in accordance with the terms of the PRC Oil Production Sharing Contracts which costs were, and will continue to be, shared in the ratio of (i) 54% to the Group and 46% to the CNPC Group in respect of the Xinjiang Contract; and (ii) 70% to the Group and 30% to the CNPC Group in respect of the Liaohe Contract. We understand from the Directors that in the past, all the services provided by the CNPC Group to the Group were provided on normal commercial terms and entered into in the ordinary and usual course of the Group’s business and were entered into either in accordance with the terms of the PRC Oil Production Sharing Contracts or on terms no less favourable than those available to or from independent third parties.

We understand from the Directors that all the transactions with the CNPC Group in relation to the services for the operations of the PRC Oilfields pursuant to the Entrustment Contracts (as to be extended by the Extension Agreements) will continue to be entered into in the usual and ordinary course of the Group’s business and will be on terms the same as or no less favourable than those available to or from independent third parties.

(d) Conditions of the waiver

The waiver from strict compliance with the disclosure and Independent Shareholders’ approval requirements of the Listing Rules in respect of the Ongoing Connected Transactions for a period of 3 financial years ending 31 December 2006 is subject to the following conditions:–

• (a) Such transactions shall be:

• (i) conducted on normal commercial terms and entered into in the ordinary and usual course of the Group’s business; and

• (ii) entered into either in accordance with the terms of the agreements governing such transactions or on terms no less favourable than those available to or from independent third parties, as applicable.

• (b) The following matters shall be approved by Independent Shareholders at the Special General Meeting:

• (i) the entry into of the Extension Agreements; and

• (ii) the continuance of the Ongoing Connected Transactions.

• (c) The independent non-executive Directors shall review the transactions annually and confirm in each annual report and accounts covering that year that such transactions have been conducted in the manner set out in paragraph (a) above.

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LETTER FROM KINGSWAY CAPITAL LIMITED

• (d) The auditors of the Company shall review the transactions annually and provide the Directors with a letter (a copy of which will be provided to the Listing Division of the Stock Exchange) stating whether:

• (i) the transactions received the approval of the Directors;

• (ii) the transactions have been entered into on normal commercial terms and have been entered into in accordance with the terms of the relevant agreements governing such transactions or on terms that are no less favourable than terms available to or from independent third parties, as applicable;

• (iii) the transactions have been entered into in accordance with the oil sharing ratios and development cost sharing ratios as stated in the respective PRC Oil Production Sharing Contracts;

and where, for whatever reason, the auditors decline to accept the engagement or are unable to provide the letter mentioned above, the Directors shall contact the Listing Division of the Stock Exchange immediately.

• (e) Details of the transactions in each financial year shall be disclosed in the Company’s annual reports as required by Rule 14.25(1)(A) to (D) of the Listing Rules.

On the basis of the conditions of the waiver stated above, we are of the view that the interests of the Independent Shareholders in relation to the Ongoing Connected Transactions will be properly safeguarded.

RECOMMENDATIONS IN RESPECT OF THE ONGOING CONNECTED TRANSACTIONS AND THE EXTENSION AGREEMENTS

Having considered the above-mentioned principal factors and reasons, we concur with the Directors’ view that the continuance of the Ongoing Connected Transactions and the entering into of the Extension Agreements are in the interest of the Company, and the terms of the Ongoing Connected Transactions and the Extension Agreements are fair and reasonable so far as the Independent Shareholders are concerned. Accordingly, we advise the Independent Board Committee to recommend the Independent Shareholders to vote in favour of all the ordinary resolutions to be proposed at the Special General Meeting in respect of the Extension Agreements and the Ongoing Connected Transactions.

Yours faithfully For and behalf of

Kingsway Capital Limited Chu Tat Hoi

Director

– 23 –

APPENDIX – GENERAL INFORMATION

1. 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 facts, information and opinions relating to CNPC and PetroChina were provided by CNPC. The Directors collectively and individually accept full responsibility for the accuracy of the information contained in this circular relating to the Company and confirm, having made all reasonable enquiries, that to the best of their knowledge and belief there are no other facts the omission of which would make any statement herein relating to the Company misleading.

2. DISCLOSURE OF INTEREST

• (a) Save as disclosed below, as at the Latest Practicable Date, none of the Directors or chief executive of the Company had any interests or short position in the shares, underlying shares and debentures of the Company or any of 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 were required pursuant to section 352 of the SFO to be entered in the register referred to therein or which were required, pursuant to the Model Code for Securities Transactions by the Directors of Listed Companies, to be notified to the Company and the Stock Exchange:

• (i) Messrs Wang Mingcai and Li Hualin are directors of Sun World which beneficially owned 2,730,487,342 Shares as at the Latest Practicable Date. Sun World is a wholly-owned subsidiary of CNPC, the Company’s ultimate holding company incorporated in the PRC.

• (ii) Share options that have been granted to the Directors under the executive share option schemes approved by the Board on 23 October 1991 and 3 June 2002, respectively are as follows:

			Options outstanding
		Exercise price	as at the Latest
Name	Date of grant	HK$	Practicable Date	Expiry date
Li Hualin	8 March 2001	0.410	20,000,000	7 March 2006
	26 April 2001	0.610	20,000,000	25 April 2006
Lin Jingao	26 April 2001	0.610	10,000,000	25 April 2006
Wang Mingcai	8 March 2001	0.410	20,000,000	7 March 2006
	26 April 2001	0.610	30,000,000	25 April 2006

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APPENDIX – GENERAL INFORMATION

• (b) As at the Latest Practicable Date and so far as is known to the Directors, save as disclosed below, there is no person (other than the Directors or the chief executive of the Company) who had an interest or short position in the shares and 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 or, who was, directly or indirectly, interested in 10% or more of nominal value of any class of share capital carrying rights to vote in all circumstances at general meeting of any other member of the Group, or any options in respect of such capital:

Name of company	Name of shareholder	Number of shares owned	Number of shares owned	Approximate %
The Company	Sun World		2,730,487,342*	57.53%
Thai Offshore	Siam Citizens Corporation		436,874	14.56%
Petroleum Limited	Limited
SAPET Development	China Petroleum Technology		50	50%
Corporation	Development Co.
Marina Ventures Hong	Marina Ventures International		250	25%
Kong Limited	Limited

• 2,381,022,468 Shares are registered under the name of HKSCC Nominees Limited

Sun World is a wholly-owned subsidiary of CNPC. Accordingly, CNPC is taken to be interested in the 2,730,487,342 Shares held by Sun World.

• (c) As at the Latest Practicable Date, none of the Directors had entered into any service contracts with any member of the Group (excluding contracts expiring or determinable by the employer within one year without payment of compensation (other than statutory compensation)).

• (d) None of the Directors 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.

• (e) Save as disclosed herein, none of the Directors has any direct or indirect interest in any assets which have been 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 since 31 December 2002, being the date to which the latest published audited financial statements of the Group were prepared.

3. CONSENT

Kingsway Capital Limited has given and has not withdrawn its written consent to the issue of this circular with the inclusion of its letter dated 31 October 2003 and the references to its name in the form and context in which they respectively appear.

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APPENDIX – GENERAL INFORMATION

4. QUALIFICATION OF EXPERT

The following are the qualifications of the expert who has given an opinion or advice which is contained in this circular:

Name

Qualifications

Kingsway Capital Limited A deemed licensed corporation for types 4, 6 and 9 regulated activities under the SFO

As at the Latest Practicable Date, Kingsway Capital Limited had no shareholding in any member of the Group or the right (whether legally enforceable or not) to subscribe for or to nominate persons to subscribe for securities in any member of the Group.

5. GENERAL

• (a) The registered office of the Company is situated at Clarendon House, Church Street, Hamilton HM11, Bermuda and the principal place of business of the Company in Hong Kong is Room 3907-3910, 39/F, 118 Connaught Road West, Hong Kong.

• (b) The branch registrar of the Company in Hong Kong is Secretaries Limited, G/F Bank of East Asia Harbour View Centre, 56 Gloucester Road Wanchai, Hong Kong.

• (c) The secretary of the Company is Mr. Lau Hak Woon. Mr. Lau is a member of Hong Kong Society of Accountants in Hong Kong and a fellow member of the Chartered Association of Certified Accountants in the United Kingdom and a Certified Management Accountant of the Society of Management Accountants of Ontario in Canada.

• (d) The English text of this circular shall prevail over the Chinese text.

6. MATERIAL ADVERSE CHANGE

The Directors are not aware of any material adverse change in the financial or trading position of the Group since 31 December 2002, being the date to which the latest published audited accounts of the Group were made up.

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APPENDIX – GENERAL INFORMATION

7. DOCUMENTS AVAILABLE FOR INSPECTION

Copies of the following documents will be available for inspection at the office of Baker & McKenzie at 14th Floor, Hutchison House, 10 Harcourt Road, Hong Kong during normal business hours up to and including 18 November 2003:

• (a) the Xinjiang Contract and the Xinjiang Entrustment Contract;

• (b) the Liaohe Contract and the Leng Jiapu Entrustment Contract;

• (c) the latest draft of the Xinjiang Extension Agreement;

• (d) the latest draft of the Leng Jiapu Extension Agreement;

• (e) the letter of recommendation from the Independent Board Committee to the Independent Shareholders, the text of which is set out on page 15 of this circular; and

• (f) the letter of advice from Kingsway Capital Limited, the text of which is set out on pages 16 to 23 of this circular.

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NOTICE OF SPECIAL GENERAL MEETING

==> picture [254 x 53] intentionally omitted <==

==> picture [6 x 5] intentionally omitted <==

NOTICE IS HEREBY GIVEN that a special general meeting (the “Meeting”) of the shareholders of CNPC (Hong Kong) Limited (the “Company”) will be held at the Vinson Room, Pacific Place Conference Centre, Level 5, One Pacific Place, 88 Queensway, Central, Hong Kong on 18 November 2003 at 11:00 a.m. for the purposes of considering and, if thought fit, passing the following resolutions as ordinary resolutions:

ORDINARY RESOLUTIONS

1. “ THAT the proposed extension agreement to be entered into between Hafnium Limited (a wholly-owned subsidiary of the Company) and Xinjiang Petroleum Administration Bureau (an operational entity owned by China National Petroleum Corporation (“CNPC”) (the “Xinjiang Extension Agreement”), and an extension agreement to be entered into between Beckbury International Limited (a wholly-owned subsidiary of the Company) and Liaohe Petroleum Exploration Bureau (an operational entity owned by CNPC) (the “Leng Jiapu Extension Agreement”), drafts of which have been initialed by the chairman of the Meeting and for the purpose of identification marked “A” and “B”, respectively, be and are hereby approved and the Directors be and are hereby authorised to make, procure and/ or approve such amendments to the Xinjiang Extension Agreement and the Leng Jiapu Extension Agreement as they may in their discretion consider necessary, desirable or appropriate, and to sign the Xinjiang Extension Agreement and the Leng Jiapu Extension Agreement (both as amended, if applicable) and to do all such further acts and things and execute such further documents and take all such steps which in their opinion may be necessary, desirable or expedient to implement and/or give effect to the terms of the Xinjiang Extension Agreement and the Leng Jiapu Extension Agreement .”

2. “ THAT the continuance of the existing ongoing connected transactions between the Company and its subsidiaries (the “Group”), and CNPC, its subsidiaries or associated companies (i.e., companies that are held as to 20% of the equity interest) (the “CNPC Group”), as described in the paragraph headed “Extension Agreements and Ongoing Connected Transactions” under the section “Letter from the Board” of the circular of the Company dated 31 October 2003, which the Company expects to continue to occur on a regular and continuous basis in the ordinary and usual course of business of the Group, are hereby approved and the Directors be and are hereby authorised to do all such further acts and things and execute such further documents and take all such steps which in their opinion may be necessary, desirable or expedient to implement and/or give effect to the terms of such connected transactions.”

3. For identification purposes only

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NOTICE OF SPECIAL GENERAL MEETING

Hong Kong, 31 October 2003

By order of the Board Lau Hak Woon Company Secretary

Notes:

1. A member entitled to attend and vote at the Meeting is entitled to appoint one or more proxies to attend and vote in his stead. A proxy need not be a member of the Company.

2. To be valid, the form of proxy, together with a power of attorney or other authority (if any) under which it is signed or a notarially certified copy of such power of attorney or authority, must be deposited at the Company’s principal place of business in Hong Kong at Room 3907-3910, 39/F, 118 Connaught Road West, Hong Kong not less than 48 hours before the time appointed for holding the meeting or adjourned meeting. The form of proxy must be completed strictly in accordance with the instructions set out therein. Completion and return of the form of proxy will not preclude you from attending and voting in person at the Meeting or at any adjourned meeting should you so wish.

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