Raymond Industrial Limited - Proxy Solicitation & Information Statement 2006

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 licensed securities dealers, 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 to the purchaser or to the bank, licensed securities dealer or other agent through whom the sale or transfer was effected for transmission to the purchaser or transferee.

The Stock Exchange of Hong Kong Limited takes no responsibility for the contents of this circular, make 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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CNPC (HONG KONG) LIMITED
(incorporated in Bermuda with limited liability)
(Stock Code: 135)
CNPC (HONG KONG)
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CNPC (HONG KONG) LIMITED

CONTINUING CONNECTED TRANSACTIONS

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

South China Capital Limited

A letter from the Board is set out on pages 5 to 16 of this circular and a letter from the Independent Board Committee is set out on page 17 of this circular. A letter from South China Capital Limited, the Independent Financial Adviser to the Independent Board Committee and the Independent Shareholders, containing its advice to the Independent Board Committee and the Independent Shareholders is set out on pages 18 to 28 of this circular.

A notice convening the SGM of CNPC (Hong Kong) Limited to be held at Vinson Room, Pacific Place Conference Centre, Level 5, One Pacific Place, 88 Queensway, Central, Hong Kong, on 15 December 2006, at 11:00 a.m. is set out on pages 35 to 36 of this circular. Whether or not you are able to attend the SGM, you are requested to complete the enclosed form of proxy in accordance with the instructions printed thereon and return it to the Company’s principal office at Room 3907 - 3910, 39/F., 118 Connaught Road West, Hong Kong as soon as possible and in any event not less than 48 hours before the time appointed for the holding of the SGM or any adjournment thereof. Completion and return of the form of proxy will not preclude you from attending and voting at the SGM or any adjournment thereof should you so wish.

For identification only.

28 November 2006

		Page
DEFINITIONS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .		1
LETTER	FROM THE BOARD
1.	Introduction . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	5
2.	Continuing Connected Transactions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	6
3.	Reasons for, and Benefits of the Continuing Connected Transactions . . . . .	12
4.	Caps . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	12
5.	Basis for the Caps . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	14
6.	Requirements of the Listing Rules . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	14
7.	SGM . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	15
8.	Recommendation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	15
9.	Procedure to Demand a Poll . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	16
10.	Additional Information . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	16
LETTER	FROM THE INDEPENDENT BOARD COMMITTEE . . . . . . . . . . . . . .	17
LETTER	FROM THE INDEPENDENT FINANCIAL ADVISER . . . . . . . . . . . . . .	18
APPENDIX – GENERAL INFORMATION . . . . . . . . . . . . . . . . . . . . . . . . . . . .		29
NOTICE	OF THE SPECIAL GENERAL MEETING . . . . . . . . . . . . . . . . . . . . . . .	35

– i –

DEFINITIONS

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

“associates” has the meaning ascribed to it in the Listing Rules “Beckbury” means Beckbury International Limited, a company incorporated with limited liability in the British Virgin Islands and a wholly-owned subsidiary of the Company
“Board” means the board of Directors of the Company, including the independent non-executive Directors
“Bye-laws” means the bye-laws of the Company as amended, supplemented or modified from time to time
“Caps” means the proposed maximum aggregate annual values of the Continuing Connected Transactions as set out in the paragraph headed “Caps” of this circular
“Chairman” means the chairman of the Board “CNPC” means (China National Petroleum Corporation*), a State-owned enterprise established under the laws of PRC
“CNPC Group” means CNPC, its subsidiaries and associates, but excluding members of the Group
“Company” means CNPC (Hong Kong) Limited, a company incorporated with limited liability in Bermuda and the shares of which are listed on the Stock Exchange
“connected persons” has the meaning ascribed to it in the Listing Rules “Continuing Connected means the transactions between the Group and the Transactions” CNPC Group contemplated under the PSAs and the Master Agreement (as amended by the Supplemental Agreement) as set out in the paragraph headed “Continuing Connected Transactions” of this circular
“Director(s)” means the director(s) of the Company
“Existing Waiver” means the waiver granted by the Stock Exchange on 24 December 2003 to the Company in respect of, among other things, the Continuing Connected Transactions
“Group”

means the Company and its subsidiaries

– 1 –

DEFINITIONS

“Hafnium” means Hafnium Limited, a company incorporated with limited liability in the British Virgin Islands and a wholly-owned subsidiary of the Company
“HK$” means Hong Kong dollars, the lawful currency of Hong Kong
“Hong Kong” means the Hong Kong Special Administrative Region of the PRC
“Independent Financial Adviser” means South China Capital Limited
“Independent Shareholders” means the Shareholders other than CNPC and its associates
“Independent Board Committee” means the independent committee of the Board, comprising Dr. Lau Wah Sum, Mr. Li Kwok Sing Aubrey and Dr. Liu Xiao Feng, the independent non-executive Directors of the Company, established for the purpose of reviewing and advising Independent Shareholders in respect of the Continuing Connected Transactions and the Caps
“Karamay Oilfield” means an oilfield in Junggar basin in Xinjiang, the PRC, part of which is being developed by the Group pursuant to the Xinjiang Contract
“Latest Practicable Date” means 24 November 2006, being the latest practicable date prior to the printing of this circular for the purpose of ascertaining certain information contained herein
“Liaohe Contract”
means the Leng Jiapu Area Petroleum Contract dated 30 December 1997 entered into between CNPC and Beckbury, and where the context requires, include the Leng Jiapu Entrustment Contract and the Leng Jiapu Extension Agreement. All the rights and obligations (other than the supervisory functions related to CNPC’s role as representative of the PRC government) of CNPC under the Liaohe Contract was novated to PetroChina Company Limited, a subsidiary of CNPC, on 8 October 2001
“Leng Jiapu Entrustment Contract”
means the entrustment contract dated 21 March 1998 entered into between Beckbury and the CNPC Group concerning the operation of the Liaohe Contract

– 2 –

DEFINITIONS

“Leng Jiapu Extension Agreement”
means the extension agreement dated 19 November 2003 entered into between Beckbury and the CNPC Group to extend the term of the Leng Jiapu Entrustment Contract
“Leng Jiapu Oilfield” means the Leng Jiapu Oilfield in Liaohe, Liaoning Province, the PRC, part of which is being developed by the Group pursuant to the Liaohe Contract
“Listing Rules” means the Rules Governing the Listing of Securities on the Stock Exchange
“Master Agreement”
means the master agreement dated 19 November 2003 entered into between CNPC and the Company regarding provision by the CNPC Group to the Group, of a range of products and services from time to time, effective as of 1 January 2004 and as amended by the Supplemental Agreement
“Model Code”
means the Model Code for Securities Transactions by Directors of Listed Issuers in the Listing Rules
“PRC”
means the People’s Republic of China
“PRC Oilfields”
means the Karamay Oilfield and the Leng Jiapu Oilfield
“PSAs”
means the Xinjiang Contract and the Liaohe Contract
“SFO”
means the Securities and Futures Ordinance (Chapter 571 of the Laws of Hong Kong)
“SGM”
means the special general meeting of the Company to be held on 15 December 2006 at Vinson Room, Pacific Place Conference Centre, Level 5, One Pacific Place, 88 Queensway, Central, Hong Kong for the Independent Shareholders to consider and, if thought fit, approve the Continuing Connected Transactions and the Caps
“Shareholders” means the holders of Shares
“Shares”
means the ordinary shares of HK$0.01 each in the share capital of the Company
“Stock Exchange”

means The Stock Exchange of Hong Kong Limited

“subsidiaries”

has the meaning ascribed to it in the Listing Rules

– 3 –

DEFINITIONS

“Supplemental Agreement” means the agreement supplemental to the Master Agreement dated 14 November 2006 entered into between the Company and CNPC amending certain terms of the Master Agreement, which is subject to Independent Shareholders’ approval at the SGM “Xinjiang Contract” means 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 novated to PetroChina Company Limited, a subsidiary of CNPC, on 8 October 2001 “US$” means United States dollars, the lawful currency of the United States of America

For the purpose of this circular, unless otherwise indicated, the exchange rate at US$1.00 = HK$7.74 has been used, where applicable, for purpose of illustration only and not constitute a representation that any amount have been, could have been or may be exchanged.

For identification only.

– 4 –

LETTER FROM THE BOARD

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CNPC (HONG KONG) LIMITED
(incorporated in Bermuda with limited liability)
CNPC (HONG KONG)
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(Stock Code: 135)

Executive Directors: Wang Mingcai (Chairman) Li Hualin (Chief Executive Officer) Cheng Cheng

Non-executive Directors: Lau Wah Sum, GBS, LLD, DBA, JP[+] Li Kwok Sing Aubrey[+] Liu Xiao Feng[+]

+ Independent Non-executive Directors

Registered office: Clarendon House Church Street Hamilton HM 11 Bermuda

Principal office in Hong Kong: Rooms 3907-3910 39th Floor 118 Connaught Road West Hong Kong

28 November 2006

To the Shareholders

Dear Sir or Madam,

CONTINUING CONNECTED TRANSACTIONS

1. INTRODUCTION

Reference is made to the announcement made by the Company dated 13 November 2006 relating to, among other things, the Continuing Connected Transactions.

The Group entered into (i) the PSAs with the CNPC Group on 1 July 1996 and 30 December 1997 respectively, (ii) the Master Agreement with the CNPC Group on 19 November 2003, and (iii) the Supplemental Agreement with the CNPC Group amending certain terms of the Master Agreement on 14 November 2006. Under the PSAs and the Master Agreement (as amended by the Supplemental Agreement), the CNPC Group has provided, and will continue to provide, certain products and services to the Group. In addition, the Group may sell its share of the oil production from the PRC Oilfields to the CNPC Group under the PSAs.

As at the Latest Practicable Date, CNPC, which indirectly owned approximately 51.95% of the issued share capital of the Company, was the controlling shareholder of the Company. Accordingly, CNPC is a connected person of the Company and the transactions under the PSAs and the Master Agreement (as amended by the Supplemental Agreement) constitute continuing connected transactions of the Company.

* For identification only.

– 5 –

LETTER FROM THE BOARD

The Continuing Connected Transactions and the Caps are subject to the reporting, announcement and independent shareholders’ approval requirements pursuant to Rule 14A.35 of the Listing Rules.

The Independent Board Committee has been formed to advise the Independent Shareholders as to whether the Continuing Connected Transactions and the Caps thereunder are fair and reasonable and in the interests of the Company and the Shareholders as a whole, taking into account the recommendations of the Independent Financial Adviser.

The Independent Financial Adviser has been appointed to advise the Independent Board Committee and the Independent Shareholders as to whether the Continuing Connected Transactions and the Caps thereunder are fair and reasonable and in the interests of the Company and the Shareholders as a whole.

The purpose of this circular is:

(i) to provide the Shareholders with details of the Continuing Connected Transactions and the Caps;
(ii) to set out the advice of the Independent Financial Adviser in respect of the Continuing Connected Transactions and the Caps;
(iii) to set out the recommendation of the Independent Board Committee in respect of the Continuing Connected Transactions and the Caps; and
(iv) to give notice to convene the SGM to consider and, if thought fit, to approve the Continuing Connected Transactions and the Caps.

2. CONTINUING CONNECTED TRANSACTIONS

(A) PRODUCTS AND SERVICES PROVIDED BY THE CNPC GROUP TO THE GROUP

The Group has obtained, and will continue to obtain, certain products and services from the CNPC Group under the PSAs and the Master Agreement.

PSAs

Synopsis:

– 6 –

LETTER FROM THE BOARD

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 the circulars to Shareholders dated 5 August 1996 and 6 February 1998 respectively and the salient details are set out below. On 24 December 2003, the Company obtained the Existing Waiver from the Stock Exchange from strict compliance with the relevant requirements of the then Listing Rules in respect of, among others, the continuing connected transactions of the Group with the CNPC Group under the PSAs. The Existing Waiver will expire on 31 December 2006.

(a) The Xinjiang Contract

Date: 1 July 1996

Parties: (1) Hafnium, a wholly owned subsidiary of the Company

(2) CNPC. 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 novated to PetroChina Company Limited, a subsidiary of CNPC, on 8 October 2001

Duration: 12 years from 1 September 1996

Principal terms:

The Xinjiang Contract is an oil production sharing agreement in relation to the development and production of crude oil in the Karamay Oilfield, Xinjiang, PRC. Pursuant to the Xinjiang Contract, the Group and the CNPC Group hold 54% and 46% participating interests respectively. Pursuant to the Xinjiang Contract, the Group is entitled to 54% of the oil production from the contracted area in Karamay Oilfield.

The Xinjiang Contract has a term of less than three years and will expire in 2008. If the parties mutually agree after negotiation, the term of the Xinjiang Contract may be extended, but may not be extended beyond 2012, unless so agreed by CNPC and approved by the State Council of the PRC. Before 31 December 2008, the Company will re-comply with the relevant requirements of the Listing Rules with respect to any further continuing connected transactions arising out of the Xinjiang Contract after 31 December 2008.

(b) The Liaohe Contract

Date: 30 December 1997

– 7 –

LETTER FROM THE BOARD

Parties:

(1) Beckbury, a wholly owned subsidiary of the Company
(2) CNPC. 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 novated to PetroChina Company Limited, a subsidiary of CNPC, on 8 October 2001

Duration: 20 years from 1 March 1998

Principal terms:

The Liaohe Contract is an oil production sharing agreement in relation to the development and production of crude oil in the Leng Jiapu Oilfield, Liaoning, PRC. Pursuant to the Liaohe Contract, the Group and the CNPC Group hold 70% and 30% participating interests respectively. Pursuant to the Liaohe Contract, the Group is responsible for 70% of the operation cost incurred in connection with oil production in certain areas within the Leng Jiapu Oilfield as specified in the Liaohe Contract (the “Liaohe Contract Area”). The Group is entitled to 70% of the oil production generated from the Liaohe Contract Area.

In connection with the Liaohe Contract, the Group has also entered into the Leng Jiapu Entrustment Contract with the CNPC Group, whereby the CNPC Group was entrusted to be the operator under the Liaohe Contract. Pursuant to the Leng Jiapu Entrustment Contract, the Group pays to the CNPC Group a support fee representing 30% of the aggregate salary and welfare expenses paid to the personnel of the joint development department. The joint development department was established pursuant to the Leng Jiapu Entrustment Contract and is responsible for carrying out the contractual responsibilities of the CNPC Group under the Leng Jiapu Entrustment Contract. Beckbury and the CNPC Group entered into the Leng Jiapu Extension Agreement extending the term of the Leng Jiapu Entrustment Contract so as to expire at the end of the Liaohe Contract, unless otherwise terminated earlier by either party giving the other party at least six months’ prior written notice.

The Liaohe Contract has a term of more than three years and will expire in 2018. The Company will seek the Independent Shareholders’ approval at the SGM in respect of the continuing connected transactions under the Liaohe Contract for the three years ending 31 December 2009. Before 31 December 2009, the Company will re-comply with the relevant requirements of the Listing Rules with respect to any further continuing connected transactions arising out of the Liaohe Contract after 31 December 2009.

Master Agreement (as amended by the Supplemental Agreement)

Date: 19 November 2003

– 8 –

LETTER FROM THE BOARD

Parties: (1) The Company

(2) CNPC

Synopsis:

The Master Agreement (as amended by the Supplemental Agreement) provides a framework for the Group to obtain, inter alia, a range of products and services from the CNPC Group in relation to oil exploration and production projects. The Group obtained the Existing Waiver from the Stock Exchange on 24 December 2003 from strict compliance with the relevant requirements of the then Listing Rules in respect of, among other things, the Master Agreement. The Existing Waiver will expire on 31 December 2006.

Principle terms:

2.1 Provision of products and services by the CNPC Group to the Group

The CNPC Group has provided, and will continue to provide, the following to the Group:

(i) supply of equipment required for petroleum exploration and production;
(ii) supply of materials, supplies and other products required for petroleum exploration and production;
(iii) engineering services including geological surveying, drilling, well cementing, logging, mud logging, well testing, work-over, oilfield construction (and installation), engineering and design, project management and supervision, equipment repairing and maintenance, equipment antiseptic testing, technical know-how (such as patent, know-how and software relating to the captioned services) and information services and other related or similar services;
(iv) production services including data management and filing services, asset leasing, environmental sanitation, repair and upgrade of equipment, transportation, maintenance of access road and other related or similar services; and
(v) logistics support services including procurement agency, quality inspection, storage and delivery and other related or similar services.

– 9 –

LETTER FROM THE BOARD

2.2 General principles, price and terms

The transactions under the Master Agreement are subject to the following general principles:

(i) the products and services should be of good quality and the price of the products and services should be fair and reasonable. The terms and conditions on which such products and services to be provided to the Group should be no less favourable than those (x) offered by the CNPC Group to independent third parties and (y) offered by independent third parties to the Group, for similar products and services;
(ii) individual implementation agreements in relation to each type of products and services will be entered into between the CNPC Group and the Group. Each implementation agreement should set out the detailed terms and conditions for providing such products and services; and
(iii) the quality, price and other terms and conditions for the provision of the products and services by the CNPC Group to the Group are no less favourable than those offered by independent third parties to the Group.
2.3 Price determination

The pricing for the products and services to be provided pursuant to the Master Agreement will be based on the following general principles:

(i) the price (the “Relevant Market Price”) should not exceed the best price among all the prices as offered by all the independent third parties in the relevant market in the ordinary course of business (the “Best Local Price”). If the CNPC Group provide the relevant products or services at a price lower than the Best Local Price to independent third parties in the relevant market, such lower price shall be the Relevant Market Price; and
(ii) in the absence of the Relevant Market Price, the price should not exceed the best price among all the prices as offered by all the independent third parties in the nearby market in the ordinary course of business (the “Best International Price”). If the CNPC Group provides the relevant products or services at a price lower than the Best International Price to independent third parties in the nearby market, such lower price shall be used.

2.4 Other rights and obligations

The Group retains the right to purchase the products or services from independent third parties where the products or services offered by such independent third parties are considered by the Group to be superior to those offered by the CNPC Group. So long as the CNPC Group is able to supply the products and services required by the Group in accordance with the Master Agreement, the CNPC Group may supply such products and services to other third parties.

– 10 –

LETTER FROM THE BOARD

Both parties shall procure that their respective branch companies, subsidiaries and controlled entities shall enter into implementation agreements in accordance with the terms and conditions of the Master Agreement. The CNPC Group has agreed to compensate the Company for any loss arising from any breach by the CNPC Group of the Master Agreement or of any implementation agreement.

2.5 Terms and termination

The term of the Master Agreement was initially for 10 years commencing from 1 January 2004. This term (together with the term of each implementation agreement executed pursuant to the Master Agreement) is to be amended by the Supplemental Agreement to three years commencing from 1 January 2007. Each implementation agreement may be terminated by any party from time to time by giving at least six months’ prior written notice to the other party. Termination of an implementation agreement will not affect the CNPC Group’s and the Group’s rights and obligations under the Master Agreement or other implementation agreements executed pursuant to the Master Agreement. In the event that the CNPC Group proposes to terminate the provision of any products or services, and the Company is unable to find alternative suppliers, the CNPC Group must continue to provide such products and services in accordance with terms of the Master Agreement.

As the implementation agreements executed pursuant to the Master Agreement are simply further elaborations on the provision of products and services under the Master Agreement, they do not constitute new categories of connected transactions.

(B) PURCHASE OF THE GROUP’S SHARE OF CRUDE OIL BY THE CNPC GROUP

Pursuant to the PSAs, the Group has the right to sell and deliver its share of oil production from each of the PRC Oilfields 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 the entire oil production share attributable to the Company from each of the PRC Oilfields is likely to be the CNPC Group.

Since entering into the PSAs, the Company has sold all its share of the oil from the PRC Oilfields to the CNPC Group and the Board intends to continue this arrangement. There is no contractual obligation upon the CNPC Group to purchase the Group’s share of the oil production from the PRC Oilfields although, from a commercial perspective, the Board expects that the CNPC Group will continue to accept all deliveries. The price of crude oil paid by the CNPC Group for the Group’s share of the oil production from the PRC Oilfields is determined by reference to the prevailing market price of similar grade crude oil in an arm’s length transaction with reference to the trend of the international oil prices.

– 11 –

LETTER FROM THE BOARD

3. REASONS FOR, AND BENEFITS OF THE CONTINUING CONNECTED TRANSACTIONS

The Company is an enterprise whose business operations primarily focus on investing in petroleum up-stream business as well as other petroleum-related businesses that generate stable income. CNPC, on the other hand, is an enterprise whose business operations cover a broad spectrum of upstream and downstream activities, domestic marketing and international trade, technical services, and equipment manufacturing and supply. CNPC is a major producer and supplier of petrochemical products. CNPC is also involved in the provision of operational services and technical support in such areas as geophysical prospecting, well drilling, logging, well testing, downhole operations, oilfield surface facilities construction, pipeline construction, refining and petrochemical projects, and manufacturing and supply of petroleum equipment.

In view of the strengths and scope of CNPC’s business activities and the strong favourable support that such Continuing Connected Transactions would bring to the Company’s business activities, the Board considers it to be beneficial to the Company to carry out the Continuing Connected Transactions with the CNPC Group as these transactions have facilitated and will continue to facilitate the Group’s business operations. The Board also notes the long smooth cooperation history between the Company and CNPC in relation to such transactions.

The Continuing Connected Transactions as referred to in this circular will be conducted in the ordinary and usual course of business of the Group. These transactions will continue to be agreed on an arm’s length basis with terms that are fair and reasonable to the Company.

4. CAPS

The Board has considered and proposed that the following maximum aggregate annual values in respect of each category of the Continuing Connected Transactions be set for the period from 1 January 2007 to 31 December 2009.

Proposed annual caps of the Continuing Connected Transactions for each of the years ending 31 December 2007, 2008 and 2009

		For the years ending 31	For the years ending 31	December
Category of products and services		2007	2008	2009
			(HK$’000)
(a)	Products and services provided by the	1,127,000	1,232,000	1,100,000
	CNPC Group to the Group
(b)	Purchase of the Group’s share of crude oil	4,370,000	4,241,000	3,019,000
	by the CNPC Group

– 12 –

LETTER FROM THE BOARD

The aggregate transaction amounts in respect of each category of the Continuing Connected Transactions for each year ended 31 December 2004 and 2005 are as follows:

Historical annual values of the Continuing Connected Transactions for each year ended 31 December 2004 and 2005

		For the years ended
		31 December
Category of products and services		2004 2005
		(HK$’000)
(a)	Products and services provided by the CNPC Group to	710,710 789,749
	the Group
(b)	Purchase of the Group’s share of crude oil by the	1,797,175 2,329,253
	CNPC Group

Annual caps of the Continuing Connected Transactions for each year ended 31 December 2004 and 2005 under the Existing Waiver

		For each of the
		years ended
		31 December 2004
Category of products and services		and 2005
		(US$)
Xinjiang Contract
(a)	annual training fee payable by the Group to the CNPC	50,000
	Group	(approximately
		HK$387,000)
(b)	annual assistance fee payable by the Group to the CNPC	50,000
	Group	(approximately
		HK$387,000)
Liaohe Contract
(a)	annual training fee payable by the Group to the CNPC	50,000
	Group	(approximately
		HK$387,000)
(b)	annual assistance fee payable by the Group to the CNPC	50,000
	Group	(approximately
		HK$387,000)

– 13 –

LETTER FROM THE BOARD

For each of the years ended 31 December 2004 Category of products and services and 2005 (US$)

Master Agreement

(a)	aggregate fees payable by the Group to the CNPC Group	3% of the net
	for the supply of equipment, materials, supplies and other	tangible assets of the
	products required for petroleum exploration and	Group in the
	production	relevant financial
		year
(b)	aggregate fees payable by the Group to the CNPC Group	3% of the net
	for engineering, production and logistics support services	tangible assets of the
		Group in the
		relevant financial
		year

Further, the Existing Waiver provides that the oil and natural gas produced from the PRC Oilfields and the related development costs shall be shared between the Group and the CNPC Group in accordance with the ratios set out in the respective PSAs.

5. BASIS FOR THE CAPS

(a) Products and services provided by the CNPC Group to the Group

The Caps in relation the provision of products and services by the CNPC Group to the Group have been determined with reference to the historical level of products and services charges paid by the CNPC Group to the Group under the PSAs and the Master Agreement, the relevant pricing principles, the development and production progress of the PRC Oilfields and the number of oil exploration and production projects that the Group will be involved in the coming three years. As disclosed in the announcement of the Company dated 10 July 2006, the Company entered into a letter of intent to acquire 70% interest in Continental-GeoPetro (Bengara-II) Ltd. On 29 September 2006, the Company completed the acquisition of 70% interest in Continental-GeoPetro (Bengara-II) Ltd. With this new project, it is expected that the products and services required from the CNPC Group will materially increase in the next three years.

(b) Purchase of the Group’s share of crude oil by the CNPC Group

The Caps in relation to the purchase of the Group’s share of crude oil by the CNPC Group under the PSAs have been determined with reference to the historical level of purchase price of the Group’s share of crude oil paid by the CNPC Group to the Group, the prevailing market price of similar grade crude oil with reference to the trend of the international oil prices and the production progress of the PRC Oilfields in the coming three years.

– 14 –

LETTER FROM THE BOARD

6. REQUIREMENTS OF THE LISTING RULES

As at the Latest Practicable Date, CNPC, which indirectly owned approximately 51.95% of the issued share capital of the Company, was the controlling shareholder of the Company. Accordingly, CNPC is a connected person of the Company and the Continuing Connected Transactions will constitute continuing connected transactions of the Company under Rule 14A.14 of the Listing Rules.

As one or more of the relevant percentage ratios (other than profit ratio) will exceed 2.5% on an annual basis, the Continuing Connected Transactions and the Caps will be subject to the reporting, announcement and independent shareholders’ approval requirements under Rules 14A.45 to 14A.48 of the Listing Rules.

At the SGM, CNPC and its associates shall abstain from voting on the resolution in connection with the Continuing Connected Transactions and the Caps. The vote taken at the SGM to seek approval of the Continuing Connected Transactions and the Caps will be taken by poll.

Details of the Continuing Connected Transactions will be included in the annual report and accounts of the Company in accordance with Rules 14A.45 and 14A.46 of the Listing Rules. In the event that any of the Caps are exceeded or the PSAs and/or the Master Agreement (as amended by the Supplemental Agreement) are renewed or the terms thereof are materially varied, the Company will re-comply with the reporting, announcement and independent shareholders’ approval requirements pursuant to Rules 14A.45 to 14A.48 of the Listing Rules.

7. SGM

Set out on pages 35 to 36 of this circular is a notice convening the SGM to be held at the Vinson Room, Pacific Place Conference Centre, Level 5, One Pacific Place, 88 Queensway, Central, Hong Kong, on 15 December 2006 at 11:00 a.m. An ordinary resolution will be proposed at the SGM to approve the Continuing Connected Transactions and the Caps.

A form of proxy for use in connection with the SGM is enclosed. Whether or not you are able to attend the SGM in person, you are requested to complete and return the accompanying form of proxy in accordance with the instructions printed thereon to the Company’s principal office at Room 3907 – 3910, 39/F., 118 Connaught Road West, Hong Kong as soon as possible but in any event not less than 48 hours before the time appointed for holding of the SGM or any adjournment thereof. Completion and return of the form of proxy shall not preclude you from attending and voting at the SGM or any adjourned meeting should you wish.

8. RECOMMENDATION

Your attention is drawn to the letter from the Independent Board Committee set out on page 17 of this circular which contains its recommendation to the Independent Shareholders in relation to the Continuing Connected Transactions and the Caps. Your

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LETTER FROM THE BOARD

attention is also drawn to the letter of advice from the Independent Financial Adviser set out on pages 18 to 28 of this circular which contains its advice to the Independent Board Committee and the Independent Shareholders in relation to the Continuing Connected Transactions and the Caps and the principal factors and reasons taken into account in arriving at its recommendation.

9. PROCEDURE TO DEMAND A POLL

Pursuant to Bye-law 67 of the Bye-laws, subject to the applicable laws and rules prescribed by the stock exchange in the relevant territory from time to time in force, at any general meeting a resolution put to the vote of the meeting shall be decided on a show of hands unless a poll is (before or on the declaration of the result of the show of hands or on the withdrawal of any other demand for a poll) demanded:

(i) by the Chairman of such meeting; or
(ii) by at least three Shareholders present in person (or in the case of a Shareholder being a corporation by its duly authorised representative) or by proxy for the time being entitled to vote at the meeting; or
(iii) by a Shareholder or Shareholders present in person (or in the case of a Shareholder being a corporation by its duly authorised representative) or by proxy and representing not less than one-tenth of the total voting rights of all Shareholders having the right to vote at the meeting; or
(iv) by a Shareholder or Shareholders present in person (or in the case of a Shareholder being a corporation by its duly authorised representative) or by proxy and holding Shares in the Company conferring a right to vote at the meeting being Shares on which an aggregate sum has been paid up equal to not less than one-tenth of the total sum paid up on all the Shares conferring that right.

10. ADDITIONAL INFORMATION

Your attention is also drawn to the general information set out in the appendix to this circular.

By the Order of the Board CNPC (Hong Kong) Limited Li Hualin Chief Executive Officer

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LETTER FROM THE INDEPENDENT BOARD COMMITTEE

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CNPC (HONG KONG)
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CNPC (HONG KONG) LIMITED

(incorporated in Bermuda with limited liability)

(Stock Code: 135)

28 November 2006

To the Independent Shareholders

Dear Sir or Madam,

CONTINUING CONNECTED TRANSACTIONS

We refer to the circular of the Company dated 28 November 2006 (the “ Circular ”) of which this letter forms part. Terms defined in the Circular have the same meanings when used in this letter.

We have been appointed by the Board as the Independent Board Committee to advise you as to whether the Continuing Connected Transactions and the Caps thereunder are fair and reasonable and in the interests of the Company and the Shareholders as a whole, taking into account the recommendations of the Independent Financial Adviser.

South China Capital Limited has been appointed as the Independent Financial Adviser to advise the Independent Board Committee and the Independent Shareholders in respect of the Continuing Connected Transactions and the Caps. Your attention is drawn to the letter of advice from the Independent Financial Advisor as set out on pages 18 to 28 of the Circular.

Having taken into account the advice of the Independent Financial Advisor, the Independent Board Committee considers that the Continuing Connected Transactions and the Caps thereunder are fair and reasonable and in the interests of the Company and the Shareholders as a whole.

The Independent Board Committee therefore recommends the Independent Shareholders to vote in favour of the ordinary resolution to be proposed at the SGM relating to the Continuing Connected Transactions and the Caps.

Yours faithfully,

The Independent Board Committee

Dr. Lau Wah Sum Mr. Li Kwok Sing Aubrey Dr. Liu Xiao Feng

Independent non-executive directors of the Company

* For identification only.

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LETTER FROM THE INDEPENDENT FINANCIAL ADVISER

Set out below is the text of the letter of advice from the Independent Financial Adviser to the Independent Board Committee and the Independent Shareholders prepared for inclusion in this circular.

South China Capital Limited 28th Floor, Bank of China Tower, No. 1 Garden Road, Central, Hong Kong

28 November 2006

To: The Independent Board Committee and the Independent Shareholders

Dear Sirs,

CONTINUING CONNECTED TRANSACTIONS

INTRODUCTION

We refer to our appointment by the Company as the Independent Financial Adviser to advise the Independent Board Committee and the Independent Shareholders in relation to the Continuing Connected Transactions and the Caps, details of which are set out in the letter from the Board (the “Letter from the Board”) contained in the circular dated 28 November 2006 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.

As CNPC indirectly owns approximately 51.95% of the issued share capital of the Company, CNPC is the controlling shareholder of the Company. Accordingly, CNPC is a connected person of the Company and the transactions under the PSAs and the Master Agreement (as amended by the Supplemental Agreement) constitute continuing connected transactions of the Company. Pursuant to Rule 14A.35 of the Listing Rules, the Continuing Connected Transactions and the Caps are subject to the reporting, announcement and independent shareholders’ approval requirements by poll at the SGM. CNPC and its associates shall abstain from voting on the relevant resolution at the SGM.

Pursuant to the requirement of Rule 13.39(6) of the Listing Rules, an Independent Board Committee comprising all the independent non-executive Directors, namely Lau Wah Sum, Li Kwok Sing Aubrey and Liu Xiao Feng, has been formed to advise the Independent

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LETTER FROM THE INDEPENDENT FINANCIAL ADVISER

Shareholders of the Company in relation to the Continuing Connected Transactions and the Caps. We, South China Capital Limited, have been appointed to advise the Independent Board Committee and the Independent Shareholders as to (i) whether or not the Continuing Connected Transactions contemplated under the PSAs and the Master Agreement (as amended by the Supplemental Agreement) are on normal commercial terms, in the ordinary and usual course of business and in the interests of the Company and the Shareholders as a whole; and (ii) whether or not the terms of the PSAs and the Master Agreement (as amended by the Supplemental Agreement) and the Caps are fair and reasonable so far as the Company and the Independent Shareholders are concerned.

BASIS OF OUR OPINION

In formulating our opinion to the Independent Board Committee and the Independent 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 which have been provided by the Directors are true and accurate at the time when they were made and continue to be so as at the date hereof. 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 taken all reasonable steps as required under Rule 13.80 of the Listing Rules to formulate our opinion and advice. 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 expressed by the Company, its advisers and/ or the Directors, which have been provided to us.

The Directors have collectively and individually accepted full responsibility for the accuracy of the information and representations contained in the Circular and have confirmed, having made all reasonable enquires, which to the best of their knowledge and belief, there are no other facts the omission of which would make any statement in the Circular misleading. 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, or their respective subsidiaries or associated companies.

PRINCIPAL FACTORS AND REASONS CONSIDERED

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

1. Information of the Company

As stated in the Letter from the Board, the Company is an enterprise whose business operations primarily focus on investing in petroleum up-stream business as well as other petroleum-related businesses that generate stable income. According to the 2005 annual report of the Company, the principal activity of the Company is investment holdings. The principal activities of its principal subsidiaries are the exploration and

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LETTER FROM THE INDEPENDENT FINANCIAL ADVISER

production of crude oil and natural gas in the PRC, the Republic of Kazakhstan, the Sultanate of Oman, Peru, the Kingdom of Thailand, the Azerbaijan Republic and the Union of Myanmar.

2. Information of the CNPC Group

As stated in the Letter from the Board, CNPC is an enterprise whose business operations cover a broad spectrum of upstream and downstream activities, domestic marketing and international trade, technical services, and equipment manufacturing and supply. CNPC is a major producer and supplier of petrochemical products. It is also involved in the provision of operational services and technical support in such areas as geophysical prospecting, well drilling, logging, well testing, downhole operations, oilfield surface facilities construction, pipeline construction, refining and petrochemical projects, and manufacturing and supply of petroleum equipment.

3. Background of the Continuing Connected Transactions

According to the Directors, under the PSAs and the Master Agreement (as amended by the Supplemental Agreement), the Group has (i) obtained, and will continue to obtain, certain products and services from the CNPC Group; and (ii) sold, and will continue to sell (provided that the CNPC Group will continue to accept all deliveries), its share of crude oil production from the PRC Oilfields to the CNPC Group; details of which are summarized below:

PSAs

Under the PSAs, the Group has obtained, and will continue to obtain, personnel training services and other assistance, among other things, leasing warehouses and terminal facilities, and obtaining transportation and communication facilities, from the CNPC Group on a continuing basis. Also, pursuant to the PSAs, the Group has the right to sell and deliver its share of oil production from each of the PRC Oilfields to a destination of its choice, except for destination which infringe on the political interests of the PRC. However, given the transportation costs and prevailing oil prices, the likely purchaser of the entire oil production share attributable to the Company from each of the PRC Oilfields is likely to be the CNPC Group. The Company has sold its entire share of crude oil from the PRC Oilfields to the CNPC Group since entering into the PSAs.

Master Agreement (as amended by the Supplemental Agreement)

The Master Agreement was entered between the Company and CNPC on 19 November 2003, which provides a framework for the Group to obtain, inter alia, a range of products and services from the CNPC Group in relation to oil exploration and production projects. The term of the Master Agreement was initially for 10 years commencing from 1 January 2004. This term (together with the term of each implementation agreement executed pursuant to the Master Agreement) is to be amended by the Supplemental Agreement to three years commencing from 1 January 2007.

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LETTER FROM THE INDEPENDENT FINANCIAL ADVISER

Further details of the PSAs and the Master Agreement (as amended by the Supplemental Agreement) including the key terms and conditions are set out in the Letter from the Board.

4. Reasons for and benefits of the Continuing Connected Transactions

Supplementing requisite manpower, expertise, facilities and products to facilitate the Group’s business operation

As stated in the Letter from the Board and as mentioned above, CNPC is an enterprise whose business operations cover a broad spectrum of upstream and downstream activities, domestic marketing and international trade, technical services, and equipment manufacturing and supply in the petroleum industry. The CNPC Group is also involved in the provision of operational services and the technical support in such areas as geophysical prospecting, well drilling, logging, well testing, downhole operations, oilfield surface facilities construction, pipeline construction, refining and petrochemical projects, and manufacturing and supply of petroleum equipment. We understand from the Directors that a substantial number of personnel engaged in the supply of products and services to the Group relating to the exploration, development, production, storage and transportation of crude oil in the PRC are employees of the CNPC Group, and the CNPC Group has comprehensive capability in various aspects of the oil industry. The Group does not currently have the requisite manpower, expertise and facilities to assume all the obligations as the sole operator of the PRC Oilfields and other overseas oilfields without the assistance from third parties. As such, we are of the view that the acquisition of certain products and services from the CNPC Group under the PSAs and the Master Agreement (as amended by the Supplemental Agreement) have facilitated, and will continue to facilitate, the Group’s business operation by supplementing the requisite manpower, expertise, facilities and products to the Group.

Enhancing the competitiveness of the Group

According to the Company’s 2005 annual report, we noted that the Group will continue to explore new business opportunities, aim to increase oil reserves and invest in projects with lower risk and reasonable return in different regions and develop petroleum-related business in the PRC and overseas. According to the management of the Company, by tapping the high-quality personnel and technology resources from the CNPC Group at a competitive pricing, the Group could enhance its competitive advantages in the PRC and overseas oil markets. Considering the strengths and scope of CNPC Group’s business activities and capabilities in the PRC and overseas oil markets, we are of the view that the Continuing Connected Transactions are in line with the Group’s business strategy and are in the interests of the Company and the Shareholders as a whole.

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LETTER FROM THE INDEPENDENT FINANCIAL ADVISER

Likely purchaser

We note that under the terms of the PSAs, 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 that infringe on the political interests of the PRC. The Group is not restricted to selling its share of the crude oil produced from the PRC Oilfields to the CNPC Group. However, according to the Directors, taking into account the transportation costs involved and prevailing oil prices, the CNPC Group is, from a commercial standpoint, the likely purchaser of the Group’s entire share of oil production from each of the PRC Oilfields, and the Group has therefore been selling all its share of oil production from the PRC Oilfields to the CNPC Group. As further advised by the Directors that in the past, crude oil from each of the PRC Oilfields sold by the Group to the CNPC Group was transported to destinations designated by the CNPC Group through its existing oil pipe networks, and therefore the transportation costs incurred were 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 was sold to independent third parties, the crude oil would have to be transported to locations designated by the purchaser either using 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 reduce the Group’s profit margin should the Group fail to shift such additional transportation costs to the purchaser.

Long smooth cooperation

We noted that the Group has carried out the Continuing Connected Transactions with the CNPC Group since 1997. Given the long smooth cooperation history between the Group and the CNPC Group in relation to such transactions, we are of the view that the Continuing Connected Transactions have been, and will continue to be conducted in the ordinary and usual course of business of the Group, and is in the interests of the Company and the Shareholders as a whole.

Having considered the above information and reasons, we are of the opinion that the Continuing Connected Transactions will continue to facilitate the Group’s business operations, and therefore, are in the interests of the Company and the Shareholders as a whole.

5. Basis of price determination

Acquisition of products and services from the CNPC Group

We note that under the PSAs, payments for the acquisition of products and services by the Group from the CNPC Group are determined after arm’s length negotiation between the Group and the CNPC Group with reference to market prices. We consider the basis of the price for the products and services acquired by the Group from the CNPC Group negotiated by both parties on arm’s length basis by reference to market conditions is on normal commercial terms and is in line with market practice.

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LETTER FROM THE INDEPENDENT FINANCIAL ADVISER

As stated in the Letter from the Board, pursuant to the Master Agreement, the prices for the products and services to be provided by the CNPC Group will be based on the following general principles:

(i) the price (the “Relevant Market Price”) should not exceed the best prices among all the prices as offered by all the independent third parties in the relevant market in the ordinary course of business (the “Best Local Price”). If the CNPC Group provide the relevant products or services at a price lower than the Best Local Price to independent third parties in the relevant market, such lower price shall be the Relevant Market Price; and
(ii) in the absence of the Relevant Market Price, the price should not exceed the best price among all the prices as offered by all the independent third parties in the nearby market in the ordinary course of business (the “Best International Price”). If the CNPC Group provides the relevant products or services at a price lower than the Best International Price to independent third parties in the nearby market, such lower price shall be used.

We note that based on the terms of the Master Agreement (as amended by the Supplemental Agreement), where relevant and appropriate, the Company will obtain quotations from vendors in the relevant marketplace and will obtain the lowest price of the products and services that the CNPC Group provides to independent third parties. The Group retains the right to purchase the products or services from independent third parties where the products or services offered by such independent third parties are considered by the Group to be superior to those offered by the CNPC Group. As such, we consider that the prices of the products and/or services to be supplied by the CNPC Group to the Group under the Master Agreement (as amended by the Supplemental Agreement) would not be less favourable to the Company than those available from independent third parties. Therefore, we are of the view that the basis of price determination for the products and services to be provided by the CNPC Group to the Group under the PSAs and the Master Agreement (as amended by the Supplemental Agreement) is fair and reasonable and in the interest of the Company and its Shareholders as a whole.

Purchase of the Group’s share of crude oil by the CNPC Group

As stated in the Letter from the Board, pursuant to the PSAs, the price of crude oil paid by the CNPC Group for the Group’s share of the oil production from the PRC Oilfields is determined by reference to the prevailing market price of similar grade crude oil in an arm’s length transaction with reference to the trend of the international oil prices. The prevailing market price of similar grade crude oil is readily available public information in the marketplace. Therefore, we are of the view that the price determination under the terms of PSAs regarding the sales of the Group’s share of crude oil from the PRC Oilfields by the Company to CNPC Group is fair and reasonable, and in the interests of the Company and the Shareholders as a whole.

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LETTER FROM THE INDEPENDENT FINANCIAL ADVISER

Having considered the above, we are of the view that (i) the terms of the PSAs and the Master Agreement (as amended by the Supplemental Agreement) between the Group and the CNPC Group are on normal commercial terms and are in line with the market practice, and (ii) the basis for determining the prices for the acquisition of products and services from the CNPC Group and the sales of the Group’s share of crude oil from the PRC Oilfields to the CNPC Group, are fair and reasonable and are in the interests of the Company and the Shareholders as a whole.

6. Proposed Caps of the Continuing Connected Transactions

Proposed Caps of the Continuing Connected Transactions for each of the years ending 31 December 2007, 2008 and 2009 are set out as follows:

Category of products and services	Category of products and services	Proposed	Caps (HK$ ’000)	Caps (HK$ ’000)
		For the years ending 31		December
		2007	2008	2009
(1)	Products and services provided by the
	CNPC Group to the Group (the
	“Products and Services Caps”)	1,127,000	1,232,000	1,100,000
(2)	Purchase of the Group’s share of crude
	oil by the CNPC Group (the “Oil Caps”)	4,370,000	4,241,000	3,019,000

(1) Products and Services Caps

According to the Letter from the Board, the proposed Products and Services Caps for the products and services obtained by the Group from the CNPC Group are determined with reference to: (i) the historical level of products and services charges paid by the Group to the CNPC Group under the PSAs and the Master Agreement; (ii) the relevant pricing principles; and (iii) the development and production progress of the PRC Oilfields and the number of oil exploration and production projects that the Group will be involved in the coming three years.

(a) Acquisition of products and services under the PSAs

According to the Company’s 2005 annual report, we summarized the amounts paid by the Group to the CNPC Group for the acquisition of products and services from the CNPC Group under the PSAs for the years ended 31 December 2004 and 2005 as follows:

Acquisition of products and services from the CNPC Group under Xinjiang Contract Liaohe Contract Total	Historical figures (HK$ ’000) For the years ending 31 December 2004 2005 133,947 184,964 520,555 564,926 654,502 749,890	Historical figures (HK$ ’000) For the years ending 31 December 2004 2005 133,947 184,964 520,555 564,926 654,502 749,890
		749,890

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LETTER FROM THE INDEPENDENT FINANCIAL ADVISER

According to the above table, we noted that the growth rate of the acquisition of products and services from the CNPC Group under the PSAs from 2004 to 2005 was approximately 15%. In addition, according to the management of the Company, as the market price of crude oil has been on an increasing trend since 2002, it is possible that the oil production in the PRC Oilfields may be increased, which would then require additional products and services to be provided by the CNPC Group to satisfy the potential growth in the business operation in the PRC Oilfields in the next three years. Furthermore, according to the “China Macro-Economics Research Report” issued by the China National Information Center in November 2006, the growth rate of the GDP of China in 2007 is estimated to be approximately 9.5%. Having considered the above factors and reasons, we are of the view that it is fair and reasonable to assume an annual 15% growth rate regarding the Products and Services Caps.

(b) Acquisition of products and services under the Master Agreement (as amended by the Supplemental Agreement)

According to the Directors, the acquisition of products and services from the CNPC Group under the Master Agreement (as amended by the Supplemental Agreement) are mainly utilized for the Group’s overseas oilfield projects in the Kingdom of Thailand, Peru and Indonesia. Based on the information provided by the management of the Company, the provision of products and services by the CNPC Group for these overseas projects of the Group are mainly in relation to wells-drilling, seismic analysis, in-depth analysis and investigation, infrastructure construction, etc. Furthermore, as stated in the Letter from the Board, the Company completed the acquisition of 70% interest in Continental-GeoPetro (Bangara-II) Ltd. in September 2006. With this new project, it is expected that that products and services required from the CNPC Group will materially increase in the next three years.

As advised by the Directors, we understand that the exploration of oilfield is a complex project with the participation of many different parties, and the costs of each project may vary considerably depending on the location of the oilfield, the local labor cost, the workload of the exploration, the stage of development, and the local experience and skill-set of the labor, etc. Therefore, it would not be appropriate to estimate the exploration cost of the oilfields in different places by applying a uniform standard. Furthermore, as confirmed by the Directors, the proposed Products and Services Caps are based on the potential demand for the materials and equipment of the Group in accordance with its business development plan as well as the estimated cost incurred with the related materials and equipment. The Directors are of the view that there is a potential breakthrough in the oil exploration on some overseas oilfields owned by the Group. Therefore, we believe it is possible that there would be additional demand of the products and services required by the Group from the CNPC Group.

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LETTER FROM THE INDEPENDENT FINANCIAL ADVISER

Based on the above, we are of the view that the Products and Services Caps for the acquisition of products and services by the Company from the CNPC Group under the PSAs and the Master Agreement (as amended by the Supplemental Agreement) are fair and reasonable and are in the interest of the Company and the Shareholders as a whole.

(2) Oil Caps

According to the Letter from the Board, the Oil Caps for the purchase of the Group’s share of crude oil to the CNPC Group are determined with reference to: (i) the historical level of purchase price of the Group’s share of crude oil paid by the CNPC Group to the Group; (ii) the prevailing market price of similar grade crude oil with reference to the trend of the international oil prices; and (iii) the production progress of the PRC Oilfields in the coming three years.

As advised by the management of the Company, the proposed Oil Caps for the purchase of the Group’s share of crude oil by the CNPC Group for the three years ending 31 December 2007, 2008 and 2009 are attributable to the proposed sales of crude oil under the PSAs. From historical records in recent years, we noted that the total sales to CNPC Group from the PRC Oilfields ranged from 7.5 million barrels to 8.5 million barrels per year. Based on the information provided by the Company, the Group would maintain the average level of sales of its share of crude oil from the PRC Oilfields to the CNPC Group (as compared to its volume of sales in year 2004 and year 2005). Because of the fact that the Xinjiang Contract will expire in 2008, the Group’s share of crude oil under the Xinjiang Contract is estimated to be nil in the year of 2009. The Directors estimated that the forecast sales of the Group’s share of crude oil from the PRC Oilfields to the CNPC Group for each of the three years ending 31 December 2007, 2008 and 2009 to be approximately 8.6 million, 7.7 million and 6 million barrels respectively. Such estimation is within the range of the recent historical sales to the CNPC Group from the PRC Oilfields.

In the computation of the Oil Caps, the Directors have applied an average price of US$65 per barrel on the selling prices of crude oil to be charged to the CNPC Group. With reference to the West Texas Intermediate (the “WTI”) crude oil price in the previous twelve months as set out below, we noted that the price of WTI crude oil was in the range of US$53 per barrel to US$75 per barrel, with an average price of approximately US$64 per barrel. Therefore, we are of the view that it is appropriate for the Directors to apply an average price of US$65 per barrel for the computation of the Oil Caps and we are of the view that the basis of determination of the Oil Caps is fair and reasonable.

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LETTER FROM THE INDEPENDENT FINANCIAL ADVISER

WTI Crude Oil – Daily Posted Price in 12 previous months

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

74 74
72 72
copyright oilnergy.com, 2006
70 70
68 68
66 66
64 64
62 62
60 60
58 58
56 56
54 54
52 52
Nov 05 Dec Jan 06 Feb Mar Apr May June July Aug Sep Oct Nov
$/BBL
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Source: www.onlinergy.com

In light of the above and taken into consideration of the outlook of the PRC Oilfields, including the estimation of the Group’s sales of its share of crude oil and the assumption of an average price of crude oil of US$65 per barrel, we are of the view that the Oil Caps are fair and reasonable and are in the interest of the Company and its Shareholders as a whole.

7. Listing Rules implications

The Directors confirmed that the Company will comply with the requirements of Rule 14A.37 to 14A.41 of the Listing Rules pursuant to which (i) the values of the transactions contemplated under the PSAs and the Master Agreement (as amended by the Supplemental Agreement) must be restricted by way of annual caps for each of the three years ending 31 December 2009; (ii) the terms of the transactions contemplated under the PSAs and the Master Agreement (as amended by the Supplemental Agreement) and the Caps must be reviewed by the independent non-executive Directors annually; and (iii) details of the independent non-executive Directors’ annual review on the terms of the transactions contemplated under the PSAs and the Master Agreement (as amended by the Supplemental Agreement) and Caps must be included in the Company’s subsequent published annual reports and financial accounts. 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, that the transactions contemplated under the PSAs and the Master Agreement (as amended by the Supplemental Agreement) are carried out in accordance with their respective terms and the Caps are not being exceeded. In the event that the total amount of the transactions contemplated under the PSAs and the Master Agreement (as amended by the Supplemental Agreement) exceeds the Caps, or that there is any material amendment to the terms of the PSAs and the Master Agreement (as amended by the Supplemental Agreement), the Company will re-comply with the relevant requirements of the Listing Rules governing continuing connected transactions.

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LETTER FROM THE INDEPENDENT FINANCIAL ADVISER

In light of the above requirements for the Continuing Connected Transactions pursuant to the Listing Rules, we are of the view that there are adequate measures in place to monitor the Continuing Connected Transactions contemplated under the PSAs and the Master Agreement (as amended by the Supplemental Agreement) and hence the interests of the Independent Shareholders would be safeguarded.

Recommendation and Conclusion

Having considered the above factors and reasons, we are of the opinion that the Continuing Connected Transactions contemplated under the PSAs and the Master Agreement (as amended by the Supplemental Agreement) are on normal commercial terms, in the ordinary and usual course of business and in the interests of the Company and the Shareholders as a whole, and the terms of the PSAs and the Master Agreement (as amended by the Supplemental Agreement) as well as the Caps are fair and reasonable so far as the Company and the Independent Shareholders are concerned. Accordingly, we recommend that the Independent Shareholders, and advise the Independent Board Committee to recommend the Independent Shareholders, to vote in favour of the resolution to be proposed at the SGM to approve the Continuing Connected Transactions and the Caps.

Yours faithfully, For and on behalf of South China Capital Limited Graham Lam Director

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GENERAL INFORMATION

APPENDIX

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 Directors collectively and individually accept full responsibility for the accuracy of the information contained in this circular 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 misleading.

2. DIRECTORS’ INTERESTS IN SECURITIES

(A) Interests pursuant to the SFO

As at the Latest Practicable Date, the interests and short positions of the Directors and chief executive of the Company 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: (i) 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 were taken or deemed to have under such provisions of the SFO); (ii) entered into the register kept by the Company pursuant to section 352 of the SFO; or (iii) notified to the Company and the Stock Exchange pursuant to the Model Code were as follows:

2.1 Interests in underlying shares through equity derivatives (within the meaning of Part XV of the SFO)

As at the Latest Practicable Date, the Directors had personal interests in the following underlying Shares held through share options granted to them:

			Options
			outstanding as
		Exercise	at the Latest
		price per	Practicable
Name of Director	Date of grant	Share	Date	Expiry date
		(HK$)
Wang Mingcai	27 April 2005	1.224	25,000,000	26 April 2010
Li Hualin	27 April 2005	1.224	20,000,000	26 April 2010
Cheng Cheng	25 June 2004	0.94	20,000,000	24 June 2009
Lau Wah Sum	8 January 2004	1.362	3,500,000	7 January 2009
Li Kwok Sing	8 January 2004	1.362	3,500,000	7 January 2009
Aubrey
Liu Xiao Feng	27 April 2005	1.224	2,500,000	26 April 2010

These interests in share options represent long positions in the underlying Shares in respect of physically settled derivatives of the Company.

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GENERAL INFORMATION

APPENDIX

2.2 Interests in qualifying shares

At the Latest Practicable Date, none of the Directors had any interest in the shares of the Company or any of its subsidiaries solely held in a non-beneficial capacity and for the purpose of holding the requisite qualifying shares.

Save as disclosed in this circular, as at the Latest Practicable Date, none of the Directors or chief executive of the Company had any interests or short positions in the shares, underlying shares or debentures of the Company or any of its associated corporations (as defined in Part XV of the SFO) which would be required to be: (i) notified to the Company and the Stock Exchange pursuant to Divisions 7 and 8 of Part XV of the SFO (including interests or short positions which they would be taken or deemed to have under such provisions of the SFO); (ii) entered in the register kept by the Company pursuant to section 352 of the SFO; or (iii) notified to the Company and the Stock Exchange pursuant to the Model Code.

(B) Directorships in substantial shareholder

As at the Latest Practicable Date, Wang Mingcai and Li Hualin were directors of Sun World Limited which was a substantial shareholder of the Company. Sun World Limited was an indirect wholly owned subsidiary of CNPC.

3. SUBSTANTIAL SHAREHOLDERS

As at the Latest Practicable Date, so far as the Directors or chief executive of the Company were aware or could ascertain after reasonable enquiry, the following persons, not being a Director or chief executive of the Company, had interests or short positions in the Shares and underlying Shares 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 were, directly or indirectly, interested in 10% or more of the nominal value of any class of share capital carrying rights to vote in all circumstances at general meetings of any member of the Group or had any options in respect of such capital:

3.1 Interests in the Shares

					Approximate
					percentage
			Nature of	Number	(%) of
Name	of	Shareholder	Interest	of Shares	interest held
				(Notes)
CNPC			Interest of	Long position:	51.95
			controlled	2,513,917,342
			corporation(1)

– 30 –

GENERAL INFORMATION

APPENDIX

			Approximate
			percentage
	Nature of	Number	(%) of
Name of Shareholder	Interest	of Shares	interest held
		(Notes)
China Petroleum Hong	Interest of	Long position:	51.95
Kong (Holding) Limited	controlled	2,513,917,342
	corporation(1)
Sun World Limited	Beneficial	Long position:	51.95
	interest(1)	2,513,917,342
J.P. Morgan Chase & Co.	Interest of	Long position:	11.99
	controlled	580,267,228
	corporation(2)	Lending pool:	2.86
		138,547,228(3)

Notes:

As at the Latest Practicable Date:

the entire issued share capital of Sun World Limited was held by China Petroleum Hong Kong (Holding) Limited which was in turn 100% held by CNPC. Accordingly, China Petroleum Hong Kong (Holding) Limited and CNPC were each deemed to be interested in the 2,513,917,342 Shares held by Sun World Limited;
J.P. Morgan Chase & Co. through its various controlled corporations is interested in an aggregate of 580,267,228 Shares:
(a) of these 580,267,228 Shares, 138,547,228 Shares are directly held by JP Morgan Chase Bank, N.A., J.P. Morgan Chase & Co. is deemed to be interest in these 138,547,228 Shares by virtue of its 100% interest in JP Morgan Chase Bank, N.A.; 400,000 Shares are directly held by J.P. Morgan Securities Ltd., by virtue of J.P. Morgan Chase International Holdings Limited’s 98.95% interest in J.P. Morgan Securities Ltd., J.P. Morgan Chase (UK) Holdings Limited’s 100% interest in J.P. Morgan Chase International Holdings Limited, J.P. Morgan Capital Holdings Limited’s 100% interest in J.P. Morgan Chase (UK) Holdings Limited and J.P. Morgan International Finance Limited’s 72.72% interest in J.P. Morgan Capital Holdings Limited, J.P. Morgan Chase International Holdings Limited, J.P. Morgan Chase (UK) Holdings Limited, J.P. Morgan Capital Holdings Limited and J.P. Morgan International Finance Limited are deemed to be interested in these 400,000 Shares; 5,030,000 Shares are directly held by J.P. Morgan Whitefriars Inc., J.P. Morgan Overseas Capital Corporation is deemed to be interested in these 5,030,000 Shares by virtue of its 100% interest in J.P. Morgan Whitefriars Inc.; 12,460,000 Shares are directly held by JF International Management Inc., JP Morgan Asset Management (Asia) Inc. is deemed to be interested in these 12,460,000 Shares by virtue of its 100% interest in JF International Management Inc.; 402,780,000 Shares are directly held by JF Asset Management Limited, JP Morgan Asset Management (Asia) Inc. is deemed to be interested in these 402,780,000 Shares by virtue of its 100% interest in JF Asset Management Limited; 800,000 Shares are directly held by JF Asset Management (Singapore) Limited - Co Reg #:197601586K, JP Morgan Asset Management (Asia) Inc. is deemed to be interested in these 800,000 Shares by virtue of its 100% interest in JF Asset Management (Singapore) Limited; and 20,250,000 Shares are directly held by JP Morgan Asset Management (Japan) Limited, JP Morgan Asset Management (Asia) Inc. is deemed to be interested in these 20,250,000 Shares by virtue of its 100% interest in JP Morgan Asset Management (Japan) Limited; and

– 31 –

GENERAL INFORMATION

APPENDIX

(b) of these 580,267,228 Shares, 5,430,000 Shares are indirectly held by J.P. Morgan International Finance Limited, by virtue of Bank One International Holdings Corporation’s 100% interest in J.P. Morgan International Finance Limited, J. P. Morgan International Inc.’s 100% interest in Bank One International Holdings Corporation, JP Morgan Chase Bank, N.A.’s 100% interest in J. P. Morgan International Inc, J.P. Morgan Chase & Co.’s 100% interest in JP Morgan Chase Bank, N.A., Bank One International Holdings Corporation, J. P. Morgan International Inc., JP Morgan Chase Bank, N.A. and J.P. Morgan Chase & Co. are also deemed to be interested in these 5,430,000 Shares; 5,030,000 Shares are also indirectly held by J. P. Morgan Overseas Capital Corporation, J. P. Morgan International Finance Limited is also deemed to be interested in these shares by virtue of its 100% interest in J. P. Morgan Overseas Capital Corporation; 436,290,000 Shares are also indirectly held by JP Morgan Asset Management Holdings Inc., J.P. Morgan Chase & Co. is also deemed to be interested in these shares by virtue of its 100% interest in JP Morgan Asset Management Holdings Inc.; and 436,290,000 Shares are also indirectly held by JP Morgan Asset Management (Asia) Inc., JP Morgan Asset Management Holdings Inc. is also deemed to be interested in these shares by virtue of its 100% interest in JP Morgan Asset Management (Asia) Inc.;
comprising 138,547,228 Shares in the lending pool as described in the SFO. The term “lending pool” is defined as (i) shares that the approved lending agent holds as agent for a third party which he is authorized to lend and other shares that can be lent according to the requirements of the Securities Borrowing and Lending Rules; and (ii) shares that have been lent by the approved lending agent, and only if the right of the approved lending agent to require the return of the shares has not yet been extinguished.

3.2 Interests in subsidiaries of the Company

		Approximate	Approximate
			percentage
		Number	(%) of
Name of subsidiary of the		of shares	interest
Company	Name of shareholder	owned	held
Thai Offshore Petroleum	Siam Citizens	436,874	14.56%
Limited	Corporation Limited
SAPET Development	CNODC International	50	50%
Corporation	Holding Limited
Marina Ventures Hong Kong	Marina Ventures	250	25%
Limited	International Limited
Continental-Geopetro	Continental Energy	9,000	18%
(Bengara- II) Limited	Corporation
	Geopetro Resources	6,000	12%
	Company

Save as disclosed in this circular and so far as the Directors and chief executive of the Company were aware, as at the Latest Practicable Date, there were no other persons who had interests or short positions in the 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, or who were, directly or

– 32 –

GENERAL INFORMATION

APPENDIX

indirectly, interested in 10% or more of the nominal value of any class of share capital carrying rights to vote in all circumstances at general meetings of any member of the Group or had any options in respect of such capital.

4. ADDITIONAL DISCLOSURE OF INTERESTS

As at the Latest Practicable Date:

(a) none of the Directors and their respective associates had any interest in any business which competes or may compete, either directly or indirectly, with any business of the Group;
(b) none of the Directors was materially interested in any contract or arrangement subsisting at the date of this circular which is significant in relation to the business of the Group;
(c) none of the Directors had entered, or proposed to enter, into a service contract with any member of the Group which is not determinable by the relevant member of the Group within one year without payment of compensation, other than statutory compensation; and
(d) none of the Directors had any direct or indirect interest in any asset which, since 31 December 2005 (the date to which the latest published audited financial statements of the Group were made up), had been acquired or disposed of by, or leased to, any member of the Group, or was proposed to be acquired or disposed of by, or leased to, any member of the Group.

5. MATERIAL ADVERSE CHANGE

As at the Latest Practicable Date, the Board was not aware of any material adverse change in the financial or trading position of the Group since 31 December 2005 (the date to which the latest published audited financial statements of the Group were made up).

6. LITIGATION

As at the Latest Practicable Date, no member of the Group was engaged in any litigation or claim of material importance and, so far as the Board was aware, no litigation or claim of material importance was pending or threatened against any member of the Group.

– 33 –

GENERAL INFORMATION

APPENDIX

7. EXPERT AND CONSENT

The following is the qualification of the expert who has been named in this circular or has given opinion or advice which is contained in this circular:

Name Qualification South China Capital Limited A deemed licensed corporation to carry on type 6 (advising on corporate finance) regulated activities under the SFO

South China Capital Limited has given and has not withdrawn its consent to the issue of this circular with the inclusion of its letter or reference in the form and context in which it appears.

As at the Latest Practicable Date, South China Capital Limited did not have any 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 and did not have any interest, direct or indirect, in any assets which had been, since 31 December 2005, acquired or disposed of by or leased to any member of the Group, or were proposed to be acquired or disposed of by or leased to any member of the Group.

8. MISCELLANEOUS

(a) The English text of this circular will prevail over the Chinese text.
(b) The qualified accountant of the Company is Mr. Lau Hak Woon, who is a member of Hong Kong Institute of Certified Public Accountants in Hong Kong, 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.
(c) The company secretary of the Company is Mr. Lau Hak Woon, who is a member of Hong Kong Institute of Certified Public Accountants in Hong Kong, 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 head office and the principal place of business of the Company is at Room 3907-10, 39/F., 118 Connaught Road West, Hong Kong. The registered office of the Company is at Clarendon House, Church Street, Hamilton HM 11, Bermuda. The branch share registrars of the Company in Hong Kong is Secretaries Limited whose address is situated at 26/F., Tesbury Centre, 28 Queen’s Road East, Hong Kong.

– 34 –

GENERAL INFORMATION

APPENDIX

9. DOCUMENTS AVAILABLE FOR INSPECTION

The Xinjiang Contract, the Liaohe Contract (including the Leng Jiapu Entrustment Contract and the Leng Jiapu Extension Agreement) and the Master Agreement (including the Supplemental Agreement) are available for inspection during normal business hours at the head office and the principal place of business of the Company up to and including 14 December 2006.

– 35 –

NOTICE OF THE SPECIAL GENERAL MEETING

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

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

CNPC (HONG KONG) LIMITED
(incorporated in Bermuda with limited liability)
CNPC (HONG KONG)
----- End of picture text -----

(Stock Code: 135)

NOTICE IS HEREBY GIVEN that a special general meeting of the shareholders of CNPC (Hong Kong) Limited (the “ Company ”) will be held at Vinson Room, Pacific Place Conference Centre, Level 5, One Pacific Place, 88 Queensway, Central, Hong Kong, on Friday, 15 December 2006 at 11 a.m. for the purpose of considering, and if thought fit, passing the following resolution as an ordinary resolution:

ORDINARY RESOLUTION

“ THAT ,

(a) the supplemental agreement dated 14 November 2006 entered into between (China National Petroleum Corporation) (“ CNPC* ”) and the
Company amending certain terms of a master agreement dated 19 November 2003 entered into between the same parties, a copy of which has been produced to the meeting marked “A” and initialled by the chairman of the meeting for identification purpose;
(b) the continuing connected transactions between the Company and its subsidiaries (the “ Group ”) and CNPC, its subsidiaries and associates (but excluding members of the Group) (the “ CNPC Group ”) regarding (i) the provision of certain products and services by the CNPC Group to the Group and (ii) the purchase of the Group’s share of crude oil by the CNPC Group, as set out in the “Letter from the Board” in the circular of the Company dated 28 November 2006; and
(c) the proposed annual caps in respect of the continuing connected transactions mentioned in (b) above for each of the three financial years ending 30 December 2009 as set out in the “Letter from the Board” in the circular of the Company dated 28 November 2006;

be and are hereby approved, ratified and confirmed, and that the directors of the Company be and are hereby authorised to do such acts and things and execute all such documents which in their opinion may be necessary, desirable or expedient to carry out or give effect to any of the foregoing with such modifications (if any) as they may consider appropriate, and to exercise the powers and rights of the Company in connection therewith.”

By Order of the Board CNPC (Hong Kong) Limited Li Hualin

Chief Executive Officer

Hong Kong, 28 November 2006

* For identification only.

– 36 –

NOTICE OF THE SPECIAL GENERAL MEETING

Notes:

A member entitled to attend and vote at the meeting convened by this notice is entitled to appoint one or more proxies to attend and vote in his/her stead. A proxy need not be a member of the Company.
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, must be deposited at the Company’s principal office at Room 3907 - 3910, 39/F., 118 Connaught Road West, Hong Kong not less than 48 hours before the time appointed for holding of the meeting or adjourned meeting, as the case may be.
A form of proxy for use at the meeting is enclosed. Completion and return of form of proxy will not preclude you from attending and voting at the meeting or any adjournment thereof.
Where there are joint registered holders of any share, any one of such persons may vote at the meeting, either personally or by proxy, in respect of such share as if he were solely entitled thereto; but if more than one of such joint registered holders are present at the meeting personally or by proxy, then one of the registered holders so present whose name stands first on the Company’s register of members in respect of such share will alone be entitled to vote in respect thereof.

– 37 –

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

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

CNPC (HONG KONG) LIMITED
(incorporated in Bermuda with limited liability)
CNPC (HONG KONG)
----- End of picture text -----

(Stock Code: 135)

Form of Proxy for Special General Meeting

I/We [(Note][1)]

being the registered holder(s) of [(Note][2)]

shares of HK$0.01 each in the capital of

CNPC (Hong Kong) Limited (the “ Company ”) hereby appoint [(Note][3)] the Chairman of the Meeting or

of

as my/our proxy to attend and vote for me/us on my/our behalf at the Special General Meeting of the Company to be held at Vinson Room, Pacific Place Conference Centre, Level 5, One Pacific Place, 88 Queensway, Central, Hong Kong on Friday, 15 December 2006 at 11:00 a.m. (Hong Kong time) and at any adjournment thereof on the resolution as hereunder indicated:

hereunder indicated:
RESOLUTION	FOR (Note 4)	AGAINST (Note 4)
Proposed approval, ratification and confirmation of (a) the
supplemental agreement dated 14 November 2006 entered into
between CNPC and the Company amending certain terms of a
master agreement dated 19 November 2003 entered into between the
same parties; (b) the continuing connected transactions between the
Group and the CNPC Group regarding (i) the provision of certain
products and services by the CNPC Group to the Group and (ii) the
purchase of the Group’s share of crude oil by the CNPC Group; and
(c) the proposed annual caps in respect of the continuing connected
transactions mentioned in (b) above for each of the three financial
years ending 30 December 2009; and the authorisation for the
Directors to do such acts and things and execute all such documents
which in their opinion may be necessary, desirable or expedient to
carry out or give effect to any of the foregoing with such
modifications (if any) as they may consider appropriate, and to
exercise the powers and rights of the Company in connection
therewith.

Dated this day of , 2006 Signature [(Note][5)] :

Notes:

Full name(s) and address(es) to be inserted in BLOCK CAPITALS.
Please insert the number of shares registered in your name(s). If no number is inserted, this form of proxy will be deemed to relate to all the shares in the capital of the Company registered in your name(s).
Any member entitled to attend and vote at this Meeting is entitled to appoint a proxy or proxies to attend and vote in their stead. The proxy need not be a member of the Company but must attend the meeting in person to represent the appointor. If you wish to appoint a proxy other than the Chairman of the Meeting, strike out the words “Chairman of the Meeting” and insert the name and address of the person desired in the space provided. Any alteration made to this Form of Proxy must be initialled by the person(s) signing it. In the case of joint holders, if more than one of such joint holders be present, personally or by proxy, one of the persons so present whose name stands first in the Register of Members in respect of the relevant joint holding shall alone be entitled to vote.
Please indicate with an “x” in the space provided how you wish your vote(s) to be cast on a poll. Should this form be returned duly signed but without a specific direction, the proxy will vote or abstain at his discretion.
The form of proxy must be signed by you or your attorney duly authorised in writing or, in case of a corporation, must be either under seal or under the hand of an officer or attorney duly authorised.
The instrument appointing a proxy and the power of attorney or other authority (if any) under which it is signed or a notarially certified copy of such power of authority must be deposited at the principal office of the Company 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.
Completion and delivery of this Form of Proxy will not preclude you from attending and voting at the Meeting if you so wish.

* For identification purpose only

AI assistant

Raymond Industrial Limited — Proxy Solicitation & Information Statement 2006

49052_rns_2006-11-28_2babd2d2-88aa-4a25-b629-576473285599.pdf

CNPC (HONG KONG) LIMITED

CONTINUING CONNECTED TRANSACTIONS

South China Capital Limited

CONTENTS

DEFINITIONS

DEFINITIONS

DEFINITIONS

DEFINITIONS

(Stock Code: 135)

CONTINUING CONNECTED TRANSACTIONS

1. INTRODUCTION

2. CONTINUING CONNECTED TRANSACTIONS

PSAs

Synopsis:

LETTER FROM THE BOARD

(a) The Xinjiang Contract

(b) The Liaohe Contract

Master Agreement (as amended by the Supplemental Agreement)

LETTER FROM THE BOARD

2.4 Other rights and obligations

2.5 Terms and termination

(B) PURCHASE OF THE GROUP’S SHARE OF CRUDE OIL BY THE CNPC GROUP

3. REASONS FOR, AND BENEFITS OF THE CONTINUING CONNECTED TRANSACTIONS

4. CAPS

Historical annual values of the Continuing Connected Transactions for each year ended 31 December 2004 and 2005

5. BASIS FOR THE CAPS

(a) Products and services provided by the CNPC Group to the Group

(b) Purchase of the Group’s share of crude oil by the CNPC Group

6. REQUIREMENTS OF THE LISTING RULES

7. SGM

8. RECOMMENDATION

9. PROCEDURE TO DEMAND A POLL

10. ADDITIONAL INFORMATION

CNPC (HONG KONG) LIMITED

CONTINUING CONNECTED TRANSACTIONS

Dr. Lau Wah Sum Mr. Li Kwok Sing Aubrey Dr. Liu Xiao Feng

CONTINUING CONNECTED TRANSACTIONS

INTRODUCTION

LETTER FROM THE INDEPENDENT FINANCIAL ADVISER

BASIS OF OUR OPINION

PRINCIPAL FACTORS AND REASONS CONSIDERED

1. Information of the Company

2. Information of the CNPC Group

3. Background of the Continuing Connected Transactions

PSAs

Master Agreement (as amended by the Supplemental Agreement)

4. Reasons for and benefits of the Continuing Connected Transactions

Supplementing requisite manpower, expertise, facilities and products to facilitate the Group’s business operation

Enhancing the competitiveness of the Group

Likely purchaser

Long smooth cooperation

5. Basis of price determination

Acquisition of products and services from the CNPC Group

Purchase of the Group’s share of crude oil by the CNPC Group

6. Proposed Caps of the Continuing Connected Transactions

(1) Products and Services Caps

(a) Acquisition of products and services under the PSAs

(2) Oil Caps

7. Listing Rules implications

Recommendation and Conclusion

1. RESPONSIBILITY STATEMENT

2. DIRECTORS’ INTERESTS IN SECURITIES

(A) Interests pursuant to the SFO

2.1 Interests in underlying shares through equity derivatives (within the meaning of Part XV of the SFO)

2.2 Interests in qualifying shares

(B) Directorships in substantial shareholder

3. SUBSTANTIAL SHAREHOLDERS

3.1 Interests in the Shares

3.2 Interests in subsidiaries of the Company

4. ADDITIONAL DISCLOSURE OF INTERESTS

5. MATERIAL ADVERSE CHANGE

6. LITIGATION

7. EXPERT AND CONSENT

8. MISCELLANEOUS

9. DOCUMENTS AVAILABLE FOR INSPECTION

(Stock Code: 135)

ORDINARY RESOLUTION

Raymond Industrial Limited Proxy Solicitation & Information Statement 2006