Raymond Industrial Limited - Proxy Solicitation & Information Statement 2010

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 you should take, you should consult your stockbroker or other registered dealer in securities, bank manager, solicitor, professional accountant or other professional adviser.

If you have sold or transferred all your shares in Kunlun Energy Company Limited (formerly known as CNPC (Hong Kong) Limited) (the “Company”), you should at once hand this circular to the purchaser or the transferee or to the bank, stockbroker or other agent through whom the sale or transfer was effected for transmission to the purchaser or the transferee.

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

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KUNLUN ENERGY COMPANY LIMITED
(incorporated in Bermuda with limited liability)
昆侖能源有限公司
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(Stock Code: 00135)

(Formerly known as CNPC (Hong Kong) Limited

DISCLOSEABLE AND CONNECTED TRANSACTIONS IN RELATION TO THE DALIAN LNG ACQUISITION

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

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A letter from the Board is set out on pages 4 to 12 of this circular and a letter from the Independent Board Committee, containing its recommendation to the Independent Shareholders of the Company, is set out on page 13 of this circular. A letter from Guangdong Securities containing its advice to the Independent Board Committee and the Independent Shareholders in respect of the Dalian LNG Acquisition is set out on pages 14 to 26 of this circular.

A notice of SGM to be held at Everest Room, Level 5, One Pacific Place, 88 Queensway, Hong Kong on 21 September 2010 (Tuesday) at 11:00 a.m. is set out on page 62 of this circular. A proxy form for use by the Shareholders of the Company at the SGM is enclosed with this circular. Whether or not you intend to attend and vote at the SGM in person, you are requested to complete the proxy form enclosed in accordance with the instructions printed thereon and return it to the principal office of the Company at Rooms 3907 – 3910, 39th Floor, 118 Connaught Road West, Hong Kong as soon as practicable but in any event not later than 48 hours before the time for holding the SGM or adjourned meeting (as the case may be). Completion and return of the proxy form will not preclude you from attending and voting in person at the SGM should you so wish.

* For identification purpose only

4 September 2010

		Page
DEFINITIONS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .		1
LETTER	FROM THE BOARD. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	4
1.	INTRODUCTION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	4
2.	DALIAN LNG ACQUISITION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	5
3.	INFORMATION ON THE COMPANY AND OTHER PARTIES . . . . . . . . . .	10
4.	SGM . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	11
5.	RECOMMENDATION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	11
6.	ADDITIONAL INFORMATION. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	12
LETTER	FROM INDEPENDENT BOARD COMMITTEE . . . . . . . . . . . . . . . . . . .	13
LETTER	FROM GUANGDONG SECURITIES . . . . . . . . . . . . . . . . . . . . . . . . . . . .	14
APPENDIX I VALUATION REPORT ON THE PROPERTY
	INTERESTS OF DALIAN LNG . . . . . . . . . . . . . . . . . . . . . . . .	27
APPENDIX II ASSET VALUATION REPORT ON DALIAN LNG . . . . . . . . . .		35
APPENDIX III GENERAL INFORMATION. . . . . . . . . . . . . . . . . . . . . . . . . . . . .		56
NOTICE	OF THE SGM. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	62

– i –

DEFINITIONS

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

“Acquisition Agreement” the agreement to be entered into between PetroChina and the Company in respect of the Dalian LNG Acquisition

“associate(s)” has the meaning ascribed to it under the Listing Rules
“Board” the board of directors of the Company
“China Beijing Equity Exchange” the China Beijing Equity Exchange ( )
“CNPC” (China National Petroleum Corporation*), a State-owned enterprise established under the laws of the PRC
“CNPC Group” CNPC and its subsidiaries, but excluding members of the Group
“Company” Kunlun Energy Company Limited (formerly known as 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 under the Listing Rules
“controlling shareholder” has the meaning ascribed to it under the Listing Rules
“Dalian Construction” (Dalian Construction Investment Corporation*), holder of 5% equity interest in Dalian LNG
“Dalian LNG” (PetroChina Dalian LNG
Company Ltd*), a limited company established under the PRC laws
“Dalian LNG Acquisition” the acquisition of the Relevant Equity Interest from PetroChina by the Company
“Dalian Port” (Dalian Port (PDA) Company Limited*), holder of 20% equity interest in Dalian LNG
“Directors” directors of the Company
“Group” the Company and its subsidiaries

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DEFINITIONS

“HK$”
Hong Kong dollars, the lawful currency of Hong Kong
“Independent Board Committee”
the independent committee of the Board, comprising Dr. Lau Wah Sum, Mr. Li Kwok Sing Aubrey and Dr. Liu Xiao Feng, being all the independent non-executive Directors of the Company, established for the purpose of, among other things, advising the Independent Shareholders in respect of the Dalian LNG Acquisition
“Independent Financial Adviser” or “Guangdong Securities”
Guangdong Securities Limited, a licensed corporation to carry out type 1 (dealing in securities), type 2 (dealing in futures contracts), type 4 (advising on securities), type 6 (advising on corporate finance) and type 9 (asset management) regulated activities as defined under the SFO and the independent financial adviser to the Independent Board Committee and the Independent Shareholders in respect of the Dalian LNG Acquisition
“Independent Shareholders” the Shareholders other than CNPC and its associates (including PetroChina)
“Latest Practicable Date”
1 September 2010, being the latest practicable date prior to the printing of this circular for ascertaining certain information contained herein
“Listing Rules”
The Rules Governing the Listing of Securities on The Stock Exchange of Hong Kong Limited
“PetroChina”
PetroChina Company Limited, a joint stock limited company incorporated in the PRC, whose shares are listed on the Shanghai Stock Exchange and the Stock Exchange with American Depositary Shares listed on the New York Stock Exchange. PetroChina is a non-wholly owned subsidiary of CNPC and the controlling shareholder of the Company holding approximately 50.74% of its total issued share capital
“PRC”
the People’s Republic of China
“PRC GAAP”
the generally accepted accounting principles in the PRC
“Relevant Equity Interest”
75% equity interest in Dalian LNG currently owned by PetroChina
“RMB”
Renminbi, the lawful currency of the PRC

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DEFINITIONS

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|||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|
|“SFO”|the|Securities|and|Futures|Ordinance|(Chapter|571|of|
|the|Laws|of|Hong|Kong)|
|“SGM”|a|special|general|meeting|of|the|Company|to|be|held|at|
|Everest|Room,|Level|5,|One|Pacific|Place,|88|
|Queensway,|Hong|Kong|on|21|September|2010,|
|Tuesday|at|11:00|a.m.,|the|notice|of|which|is|set|out|on|
|pages|62|to|63|of|this|circular,|any|adjournment|thereof|
|“Shareholders”|holders|of|the|Shares|
|“Shares”|ordinary|shares|of|HK$0.01|each|in|the|share|capital|of|
|the|Company|
|“Stock|Exchange”|The|Stock|Exchange|of|Hong|Kong|Limited|
|“subsidiaries”|has|the|meaning|ascribed|to|it|under|the|Listing|Rules|
|“substantial|shareholder”|has|the|meaning|ascribed|to|it|under|the|Listing|Rules|
|“Valuation|Date”|31|December|2009|
|“Valuer”|Beijing|China|Enterprise|Appraisals|Co.,|Ltd.|
|(|),|an|independent|
|qualified|PRC|valuer|

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Note:

(1) For the purpose of this circular, unless otherwise indicated, the exchange rate at RMB0.8811 = HK$1.00 has been used, where applicable, for purpose of illustration only and does not constitute a representation that any amount have been, could have been or may be exchanged.
(2) If there is any discrepancy or inconsistency between the Chinese names of the PRC entities and their English translations in this circular, the Chinese version shall prevail.
For identification purpose only

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LETTER FROM THE BOARD

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KUNLUN ENERGY COMPANY LIMITED (incorporated in Bermuda with limited liability) 昆侖能源有限公司

(Stock Code: 00135)

(Formerly known as CNPC (Hong Kong) Limited

Directors:

Mr. Li Hualin (Chairman) Mr. Zhang Bowen (Chief Executive Officer) Mr. Cheng Cheng Dr. Lau Wah Sum, GBS, LLD, DBA, JP[#] Mr. Li Kwok Sing Aubrey[#] Dr. Liu Xiao Feng[#]

Registered office: Clarendon House Church Street Hamilton HM11 Bermuda

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

# Independent Non-executive Directors

4 September 2010

To the Shareholders

Dear Sir or Madam,

DISCLOSEABLE AND CONNECTED TRANSACTIONS IN RELATION TO THE DALIAN LNG ACQUISITION

1. INTRODUCTION

Reference is made to the announcement of the Company dated 23 August 2010 in relation to the discloseable and connected transactions regarding the Dalian LNG Acquisition.

The Company will bid in an open tender process at China Beijing Equity Exchange for the transfer of the Relevant Equity Interest in Dalian LNG from PetroChina. The Board wishes to bid at a price not more than RMB2,210.00 million (equivalent to approximately HK$2,508.22 million) in an open tender process at the China Beijing Equity Exchange for the acquisition of the Relevant Equity Interest in Dalian LNG from PetroChina. If the Company is successful in bidding, the Acquisition Agreement will be entered into between the Company and PetroChina.

* For identification purpose only

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LETTER FROM THE BOARD

As at the Latest Practicable Date, PetroChina indirectly owned approximately 50.74% of the issued share capital of the Company. CNPC, the ultimate shareholder of PetroChina and the Company, is deemed to be interested in approximately 57.11% of the issued share capital of the Company. Both CNPC and PetroChina are the controlling shareholders of the Company, thus both CNPC and PetroChina are connected persons of the Company under Chapter 14A of the Listing Rules. Accordingly, the Dalian LNG Acquisition constitutes a connected transaction of the Company.

As one of the applicable percentage ratios referred to in Chapters 14 and 14A for the Dalian LNG Acquisition is more than 5%, and if the Company is successful in the bidding, the Dalian LNG Acquisition (if implemented) will constitute discloseable and connected transactions of the Company under Chapter 14 and 14A respectively and is subject to the reporting and announcement requirements and the approval by the Independent Shareholders at the SGM by way of poll. CNPC and PetroChina and their respective associates shall abstain from voting on the resolution approving the Dalian LNG Acquisition.

2. DALIAN LNG ACQUISITION

2.1 The Dalian LNG Acquisition through China Beijing Equity Exchange

(a) The Proposed Tender

Vendor: PetroChina The proposed purchaser: the Company

The Board proposes to bid in an open tender process at the China Beijing Equity Exchange for the acquisition of the Relevant Equity Interest in Dalian LNG from PetroChina.

(b) Proposed Consideration

PetroChina intends to put up the Relevant Equity Interest in Dalian LNG for sales through an open tender process at the China Equity Exchange at a proposed price with reference to the appraised net asset value of Dalian LNG as per the valuation report and new capital injection took place after Valuation Date in April 2010.

As at Valuation Date, being 31 December 2009, the appraised net asset value of 75% equity interest in Dalian LNG as per a valuation report of Dalian LNG prepared by the Valuer was RMB809.09 million (equivalent to approximately HK$918.27 million). The appraised net asset value of Dalian LNG was computed based on the cost approach. As at the Valuation Date, the audited net assets value of Dalian LNG based on the PRC GAAP was approximately RMB999.17 million (equivalent to approximately HK$1,134.00 million). The Company considers that the valuation of Dalian LNG as of 31 December 2009 is fair and reasonable and formed the basis to determine the bidding price of the open tender for the Relevant Equity Interest. The original investment cost of the Relevant Equity Interest by PetroChina was approximately RMB750.00 million (equivalent to approximately HK$851.21 million), being the registered capital contributed by

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LETTER FROM THE BOARD

PetroChina in Dalian LNG. After the Valuation Date in April 2010, PetroChina made proportionate capital injection into Dalian LNG for an amount of RMB1,200.00 million.

The Directors have decided to bid at a price not more than RMB2,210.00 million (equivalent to approximately HK$2,508.22 million) in cash which is determined by reference to the appraised net asset value of Dalian LNG of RMB809.09 million (equivalent to approximately HK$918.27 million) as per the Valuation Report prepared by the Valuer and the capital injection by PetroChina in Dalian LNG for an amount of RMB1,200.00 million after the Valuation Date in April 2010.

As of the date of this circular, the LNG terminal to be operated by Dalian LNG was still at its construction phase and had not commenced operations. Since the Valuation Date, the construction of the LNG terminal has been under going significant progress. According to the audited accounts of Dalian LNG based on the PRC GAAP, loss of RMB830,000 (equivalent to approximately HK$942,000) was recorded during the period from its establishment at 31 March 2009 to 31 December 2009.

If the Company is successful in the bidding, the final consideration will be determined by the bidding result and the Acquisition Agreement will be entered into between PetroChina and the Company for the acquisition of the Relevant Equity Interest. In any event, the final consideration shall not exceed RMB2,210.00 million which is the maximum bidding price that the Company will seek the approval from the Independent Shareholders at the SGM. The Company intends to make payment for this acquisition out of its internal resources.

(c) The terms of the proposed Acquisition Agreement

The major terms of the proposed Acquisition Agreement will be as follows:

(i) Consideration

The Directors have decided to bid at not more than RMB2,210.00 million (equivalent to approximately HK$2,508.22 million. Therefore, in any event, the consideration of the proposed Dalian LNG Acquisition will not exceed RMB2,210.00 million (equivalent to approximately HK$2,508.22 million).

(ii) Conditions Precedent

Completion of the Dalian LNG Acquisition is subject to the satisfaction or waiver by the Company of certain conditions precedent, including:

(A) the Company and PetroChina having obtained all necessary internal authorisations, consents and approvals;

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LETTER FROM THE BOARD

(B) the remaining two shareholders of Dalian LNG, i.e. Dalian Port and Dalian Construction respectively waiving their preemptive right and Dalian LNG having obtained all necessary internal authorisations, consents and approvals;
(C) all necessary consent, if any, having been obtained from the creditors and other relevant third parties of Dalian LNG in respect of the Dalian LNG Acquisition;
(D) all relevant filing procedures for the valuation report having been completed;
(E) the sale of the equity interest in Dalian LNG having completed the open tender process in accordance with the laws and regulations of the PRC and the China Beijing Equity Exchange;
(F) the Dalian LNG Acquisition having obtained all necessary governmental approvals, including the approval from the Ministry of commerce; and
(G) the representations, warranties and undertakings given by both parties to the Acquisition Agreement remaining true and accurate from the date of the Acquisition Agreement to the date of completion.

(iii) Completion

Completion shall take place, and payment of the consideration shall be made, within 30 days from the satisfaction of all of the above conditions precedent and the Company and PetroChina shall use all their reasonable endeavours to cause the completion of the Dalian LNG Acquisition on or before 31 December 2010.

Below illustrates a simplified structure of the ownership in Dalian LNG upon completion of the proposed Dalian LNG Acquisition:

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The Company Dalian Port Dalian Construction
75% 20% 5%
Dalian LNG
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LETTER FROM THE BOARD

2.2 Tender process at China Beijing Equity Exchange

A summary of the tender process at China Beijing Equity Exchange in relation to the Relevant Equity Interest is as follows:

(a) PetroChina will specify the proposed selling price and the preferred terms of the sale.
(b) China Beijing Equity Exchange will specify a date upon which the Relevant Equity Interest will be openly available for tender.
(c) Upon obtaining of the Independent Shareholders’ approval at the SGM in relation to the proposed Dalian LNG Acquisition, the Company will then submit the bidding application to China Beijing Equity Exchange to bid for the Relevant Equity Interest in Dalian LNG from PetroChina. When submitting the tender offer, the Company has to pay a deposit of RMB50.00 million to China Beijing Equity Exchange.
(d) After the expiration of the period for PetroChina to list the relevant open tender on China Beijing Equity Exchange, China Beijing Equity Exchange will notify the Company as to whether it has succeeded in the bidding.
(e) Within 30 working days of the confirmation of the successful bidding by the Company, the Company will enter into the Acquisition Agreement with PetroChina and will pay the purchase price to PetroChina in accordance with the terms of the Acquisition Agreement.

China Beijing Equity Exchange is responsible for administering the tender process (including the selection and the finalisation of the successful bidder).

It is the intention of the Company to submit the bidding application to China Beijing Equity Exchange upon obtaining the Independent Shareholders’ approval at the SGM in relation to the proposed Dalian LNG Acquisition. Further announcement will be made by the Company upon the announcement of the bidding result by China Beijing Equity Exchange.

Based on the above, the Acquisition Agreement will be entered into by the relevant parties within 30 working days once China Beijing Equity Exchange can confirm with the Company that it has succeeded in the bidding. The RMB50.00 million deposit paid by the Company when submitting the tender offer will be used as part of the purchase price. As the bidding of the Relevant Equity Interest is subject to Independent Shareholders’ approval, such approval has to be obtained by the Company at the SGM before the Company can enter into the Acquisition Agreement. The Company has applied for a waiver from strict compliance with Rules 14.34 and 14A.47 of the Listing Rules in this regard.

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LETTER FROM THE BOARD

The Directors are of the view that (i) this circular provides sufficient information for the Shareholders to make informed decision; and (ii) the Company is able to comply with the requirements under Rule 2.13 of the Listing Rules despite the fact that the date of the Acquisition Agreement is not able to be disclosed in this circular. Further, if the Dalian LNG Acquisition is approved by the Independent Shareholders, the Company intends to publish an additional announcement to disclose the results of the bidding and the date of the Acquisition Agreement.

2.3 Reasons for, and benefits of, the Dalian LNG Acquisition

The Board considers that the Dalian LNG Acquisition is in line with the development strategies of the Group as a whole. Dalian LNG carries the LNG terminal business, including functions of unloading, loading, storage and re-gasification of natural gas. The Board considers that the Dalian LNG Acquisition will enable the Company to have a direct access to natural gas supply infrastructure, ensure natural gas supply from different sources and enhance the Company’s capability to expand the vehicle fuel gas, city gas and other related business.

The Directors, (excluding the independent non-executive Directors, who will express their views after considering the advice of the Independent Financial Adviser) are of the view that the terms of the proposed Dalian LNG Acquisition are fair and reasonable and in the interest of the Shareholders and the Group as a whole.

2.4 Implication of the Listing Rules

PetroChina indirectly owns approximately 50.74% of the issued share capital of the Company. CNPC, the ultimate shareholder of PetroChina and the Company, is deemed to be interested in approximately 57.11% of the issued share capital of the Company. Both CNPC and PetroChina are the controlling shareholders of the Company, thus both CNPC and PetroChina are the connected persons of the Company under Chapter 14A of the Listing Rules. Accordingly, the Dalian LNG Acquisition constitutes a connected transaction of the Company.

As one of the applicable percentage ratios referred to in Chapters 14 and 14A for the Dalian LNG Acquisition is more than 5%, and if the Company is successful in the bidding, the Dalian LNG Acquisition (if implemented) will constitute a discloseable and connected transactions of the Company under Chapter 14 and 14A respectively and is subject to the reporting and announcement requirements and the approval by the Independent Shareholders at the SGM by way of poll.

As each of CNPC and PetroChina is considered to have a material interest in the Dalian LNG Acquisition, CNPC and PetroChina and their respective associates shall abstain from voting on the resolution approving the Dalian LNG Acquisition. The Directors confirm that they do not have a material interest in the Dalian LNG Acquisition.

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LETTER FROM THE BOARD

An Independent Board Committee comprising all the independent non-executive Directors has been established to advise the Independent Shareholders, among other things, in relation to the Dalian LNG Acquisition. Guangdong Securities has been appointed to advise the Independent Board Committee and the Independent Shareholders in this regard.

3. INFORMATION ON THE COMPANY AND OTHER PARTIES

(a) Information on the Company

The Company is an investment holding company. The principal activities of the Group are the exploration and 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 Republic of Indonesia. The Group is also engaged in the vehicle fuel gas, city gas and related businesses in the PRC.

(b) Information on PetroChina

PetroChina and its subsidiaries are mainly engaged in petroleum and natural gas-related activities, including (i) the exploration, development, production and sale of crude oil and natural gas; (ii) the refining, transportation, storage and marketing of crude oil and petroleum products; (iii) the production and sale of basic petrochemical products, derivative chemical products and other petrochemical products; and (iv) the transmission of natural gas, crude oil and refined products, and the sale of natural gas.

(c) Information on CNPC

CNPC is the controlling shareholder of the Company. CNPC is a petroleum and petrochemical conglomerate that was formed in the wake of the restructuring launched by the State Council to restructure the predecessor of CNPC, China National Petroleum Company ( ). CNPC is also a state-authorised investment corporation and state-owned enterprise. CNPC is an integrated energy corporation with businesses covering oil and gas exploration and development, refining and petrochemical, oil product marketing, oil and gas storage and transportation, oil trading, engineering and technical services and petroleum equipment manufacturing.

(d) Information on Dalian LNG

Dalian LNG was set up in March 2009 and was licensed to develop, construct and operate an LNG terminal in Dalian, including functions of unloading, loading, storage and re-gasification of natural gas. As of the Latest Practicable Date, the development of the LNG terminal was still at its construction phase.

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LETTER FROM THE BOARD

4. SGM

The notice convening the SGM to be held at Everest Room, Level 5, One Pacific Place, 88 Queensway, Hong Kong on 21 September 2010, Tuesday at 11:00 a.m., at which ordinary resolutions will be proposed to approve, among other things, the Dalian LNG Acquisition is set out on page 62 of this circular.

A proxy form for use at the SGM is enclosed. If you intend to appoint proxy to attend the SGM, you are requested to complete the proxy form and return it to the Company’s principal office at Rooms 3907 – 3910, 39th Floor, 118 Connaught Road West, Hong Kong not less than 48 hours before the time appointed for holding the SGM or adjourned meeting (as the case may be). Completion and return of the proxy form will not preclude you from attending and voting at the SGM if you so wish.

5. RECOMMENDATION

Your attention is drawn to the letter from the Independent Board Committee set out on page 13 of this circular which contains its recommendation to the Independent Shareholders in relation to the Dalian LNG Acquisition. Your attention is also drawn to the letter of advice from Guangdong Securities set out on pages 14 to 26 of this circular which contains its advice to the Independent Board Committee and the Independent Shareholders in relation to the Dalian LNG Acquisition and the principal factors and reasons taken into account in arriving at its recommendation.

The Independent Board Committee, having taken into account the advice of Guangdong Securities, considers that (i) the bidding by the Company of the Relevant Equity Interest at China Beijing Equity Exchange; and (ii) if the bidding is successful, the entering into of the Acquisition Agreement, the terms and the transactions contemplated thereunder are fair and reasonable and in the interests of the Company and the Shareholders as a whole. Accordingly, the Independent Board Committee recommends the Independent Shareholders to vote in favour of the relevant resolutions to be proposed at the SGM to approve (i) the bidding by the company of the Relevant Equity Interest at China Beijing Equity Exchange and (ii) if the bidding is successful, the entering into of the Acquisition Agreement the terms and the transactions contemplated thereunder. The full text of the letters from the Independent Board Committee are set out on page 13 of this circular.

The Board are of the view that (i) the bidding by the Company of the Relevant Equity Interest at China Beijing Equity Exchange; and (ii) if the bidding is successful, the entering into of the Acquisition Agreement, the terms and the transactions contemplated thereunder are in the interests of the Company and the Shareholders as a whole. Accordingly, the Directors recommend the Independent Shareholders to vote in favour of the relevant resolutions to be proposed at the SGM.

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LETTER FROM THE BOARD

6. ADDITIONAL INFORMATION

Your attention is also drawn to the additional information set out in the appendices to this circular.

By Order of the Board Li Hualin Chairman

– 12 –

LETTER FROM INDEPENDENT BOARD COMMITTEE

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KUNLUN ENERGY COMPANY LIMITED (incorporated in Bermuda with limited liability) 昆侖能源有限公司

(Stock Code: 00135)

(Formerly known as CNPC (Hong Kong) Limited *)

4 September 2010

To the Independent Shareholders

Dear Sir or Madam,

DISCLOSEABLE AND CONNECTED TRANSACTIONS IN RELATION TO THE DALIAN LNG ACQUISITION

We refer to the circular dated 4 September 2010 of the Company (the “ Circular ”) of which this letter forms part. Terms defined in the Circular shall have the same meanings herein unless the context otherwise requires.

We have been appointed as members of the Independent Board Committee to advise the Independent Shareholders on whether (i) the bidding by the Company of the Relevant Equity Interest at China Beijing Equity Exchange; and (ii) if the bidding is successful, the entering into of the Acquisition Agreement, the terms and the transactions contemplated thereunder are fair and reasonable and in the interests of the Company and the Shareholders as a whole. Guangdong Securities has been appointed to advise the Independent Board Committee and the Independent Shareholders in respect of (i) the bidding by the Company of the Relevant Equity Interest at China Beijing Equity Exchange; and (ii) if the bidding is successful, the entering into of the Acquisition Agreement, the terms and the transactions contemplated thereunder.

Having considered the advice given by Guangdong Securities, we are of the opinion that (i) the bidding by the Company of the Relevant Equity Interest at China Beijing Equity Exchange and (ii) if the bidding is successful, the entering into of the Acquisition Agreement, the terms and the transactions contemplated thereunder are fair and reasonable and in the interests of the Company and the Shareholders as a whole. Accordingly, we recommend the Independent Shareholders to vote in favour of the ordinary resolution to approve the Dalian LNG Acquisition as set out in the notice of the SGM to be held on 21 September 2010.

Lau Wah Sum

Yours faithfully, Independent Board Committee Li Kwok Sing Aubrey Liu Xiao Feng

* For identification purpose only

– 13 –

LETTER FROM GUANGDONG SECURITIES

Set out below is the text of a letter received from Guangdong Securities, the Independent Financial Adviser to the Independent Board Committee and the Independent Shareholders in respect of the Dalian LNG Acquisition for the purpose of inclusion in this circular.

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Units 2505-06, 25/F. Low Block of Grand Millennium Plaza 181 Queen’s Road Central Hong Kong

4 September 2010

To: The independent board committee and the independent shareholders of Kunlun Energy Company Limited

Dear Sirs,

DISCLOSEABLE AND CONNECTED TRANSACTIONS IN RELATION TO THE DALIAN LNG ACQUISITION

INTRODUCTION

We refer to our appointment as the Independent Financial Adviser to advise the Independent Board Committee and the Independent Shareholders in respect of the Dalian LNG Acquisition, details of which are set out in the letter from the Board (the “ Board Letter ”) contained in the circular dated 4 September 2010 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.

On 23 August 2010, the Company announced that it intends to bid in an open tender process at China Beijing Equity Exchange for the transfer of the Relevant Equity Interest in Dalian LNG from PetroChina at a price of not more than RMB2,210 million (equivalent to approximately HK$2,508 million) (the “ Proposed Consideration ”) in cash upon obtaining of the approval of the Independent Shareholders at the SGM.

The Proposed Consideration was determined by reference to the appraised net asset value of Dalian LNG as at the Valuation Date of approximately RMB1,078.79 million as per the valuation report prepared by the Valuer (the “ Appraised NAV ”) and the proportionate new capital injection by PetroChina into Dalian LNG for an amount of RMB1,200 million after the Valuation Date in April 2010 (the “ PetroChina New Capital Injection ”).

Each of CNPC (the ultimate shareholder of PetroChina) and PetroChina is the controlling shareholder of the Company. Accordingly, pursuant to the Listing Rules, CNPC and PetroChina are connected persons of the Company. In addition, since one of the applicable percentage ratios as referred to in Chapters 14 and 14A of the Listing Rules for the Dalian LNG Acquisition is more than 5%, and if the Company is successful in the bidding, the Dalian LNG Acquisition (if implemented) will constitute discloseable and connected transactions for the Company under Chapters 14 and 14A of the Listing Rules, and will be subject to the reporting, announcement and independent shareholders’ approval

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LETTER FROM GUANGDONG SECURITIES

requirements at the SGM by way of poll. As each of CNPC and PetroChina is considered to have a material interest in the Dalian LNG Acquisition, CNPC and PetroChina and their respective associates shall be required to abstain from voting on the relevant resolution(s) approving the Acquisition Agreement and the transactions contemplated thereunder.

An Independent Board Committee comprising Dr. Lau Wah Sum, Mr. Li Kwok Sing Aubrey and Dr. Liu Xiao Feng (all being independent non-executive Directors) has been established to advise the Independent Shareholders on (i) whether the terms of the Acquisition Agreement are on normal commercial terms and are fair and reasonable so far as the Independent Shareholders are concerned; (ii) whether the Dalian LNG Acquisition is in the interests of the Company and the Shareholders as a whole; and (iii) how the Independent Shareholders should vote in respect of the relevant resolution(s) to approve the Acquisition Agreement and the transactions contemplated thereunder at the SGM. We, Guangdong Securities Limited, have been appointed as the Independent Financial Adviser to advise the Independent Board Committee and the Independent Shareholders in this respect.

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 that have been provided by the Directors, for which they are solely and wholly responsible, are true and accurate at the time when they were made and continue to be so as at the Latest Practicable Date. We have also assumed that all statements of belief, opinion, expectation and intention made by the Directors in the Circular were reasonably made after due enquiry and careful consideration. We have no reason to suspect that any material facts or information have been withheld or to doubt the truth, accuracy and completeness of the information and facts contained in the Circular, or the reasonableness of the opinions expressed by the Company, its advisers and/or the Directors, which have been provided to us. We consider that we have taken sufficient and necessary steps on which to form a reasonable basis and an informed view for our opinion in compliance with Rule 13.80 of the Listing Rules.

The Directors have collectively and individually accepted full responsibility for the accuracy of the information contained in the Circular and have confirmed, having made all reasonable enquiries, 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, CNPC, PetroChina and Dalian LNG or their respective subsidiaries or associates, nor have we considered the taxation implication on the Group or the Shareholders as a result of the Dalian LNG Acquisition. Our opinion is necessarily based on the financial, economic, market and other conditions in effect and the information made available to us as at the Latest Practicable Date. Shareholders should note that subsequent developments (including any material change in market and economic conditions) may affect and/or change our

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LETTER FROM GUANGDONG SECURITIES

opinion and we have no obligation to update this opinion to take into account events occurring after the Latest Practicable Date or to update, revise or reaffirm our opinion. Nothing contained in this letter should be construed as a recommendation to hold, sell or buy any Shares or any other securities of the Company.

Lastly, where information in this letter has been extracted from published or otherwise publicly available sources, the sole responsibility of Guangdong Securities is to ensure that such information has been correctly extracted from the relevant sources.

PRINCIPAL FACTORS AND REASONS CONSIDERED

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

(1) Background of the Dalian LNG Acquisition

The Acquisition Agreement

On 23 August 2010, the Company announced that it intends to bid in an open tender process at China Beijing Equity Exchange for the transfer of the Relevant Equity Interest in Dalian LNG from PetroChina at a price of not more than the Proposed Consideration in cash upon obtaining of the approval of the Independent Shareholders at the SGM. The Proposed Consideration was determined by reference to the Appraised NAV and the PetroChina New Capital Injection after the Valuation Date.

A summary of the tender process at China Beijing Equity Exchange is included in the Board Letter. In addition, as extracted from the Board Letter, the Company will pay RMB50 million as refundable deposit to China Beijing Equity Exchange when submitting the tender offer. Such deposit will be applied as part of the Proposed Consideration if the Company is successful in the bidding, and the Acquisition Agreement will be entered into by the relevant parties within 30 working days once China Beijing Equity Exchange can confirm with the Company that it has succeeded in the bidding. As the bidding of the Relevant Equity Interest is subject to the approval by the Independent Shareholders, such approval has to be obtained by the Company at the SGM before the Company can enter into the Acquisition Agreement. The Company has applied for a waiver from strict compliance with Rules 14.34 and 14A.47 of the Listing Rules in this regard.

Completion of the Dalian LNG Acquisition is conditional upon certain conditions precedent, being satisfied or waived by the Company (as the case may be), which are detailed in the Board Letter.

As referred to in the Board Letter, the Company intends to make payment for the Dalian LNG Acquisition out of its internal resources.

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LETTER FROM GUANGDONG SECURITIES

The Directors (excluding the independent non-executive Directors) confirmed that they are of the view that the terms of the Acquisition Agreement are on normal commercial terms, fair and reasonable so far as the Independent Shareholders are concerned and are in the interests of the Company and the Shareholders as a whole.

Information on the Group

The Company is an investment holding company. The principal activities of the Group are the exploration and production of crude oil and natural gas in the PRC, the Republic of Kazakhstan (“ Kazakhstan ”), the Sultanate of Oman, Peru, the Kingdom of Thailand, the Azerbaijan Republic and the Republic of Indonesia. The Group is also engaged in the vehicle fuel gas, city gas and related businesses in the PRC.

As referred to in the annual report of the Company for the year ended 31 December 2009 (the “ 2009 Annual Report ”), in 2009, the Group acquired or made capital contribution (as the case may be) into three operating companies, namely CNPC Shennan Oil Technology Development Co., Ltd., (Xinjiang Xinjie Co., Ltd.) and (China Natural Gas Co., Ltd.), which are engaged in the natural gas distribution business. In May and June 2010 respectively, the Company also announced (i) its acquisition of 55% equity interest in (PetroChina LNG Jiangsu Company Ltd.); and (ii) its acquisition of 100% equity interest in and further capital contribution into (Sichuan Shizhong Petroleum and Gas Transmission Technology Co., Ltd.), both being companies engaging in the natural gas related business. Furthermore, we noted that the Company has entered into two joint venture agreements regarding the establishment of two joint venture companies in August 2010. With reference to the relevant announcements of the Company dated 17 August 2010 and 26 August 2010 respectively, one of the joint venture companies will be principally engaged in gas pipeline construction and operation; coordination in gas supply to Tianjin province, the PRC; natural gas processing, storage, transmission and related operations; supply and sale of natural gas, compressed natural gas (CNG) and liquefied natural gas (LNG) and related operations; and leasing of gas facilities and equipment; while the other joint venture company will be principally engaged in gas pipeline construction and operation; coordination in gas supply to Bohai New District; natural gas processing, storage, transmission and related operations; supply and sale of natural gas, CNG and LNG and related operations; and leasing of gas facilities and equipment. As confirmed by the Directors, the aforesaid acquisitions/capital contributions are in line with the Group’s business transition and strategies, as well as the development of its natural gas distribution business.

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LETTER FROM GUANGDONG SECURITIES

Set out below is a summary of the financial information of the Group for the six months ended 30 June 2010 and the two years ended 31 December 2009 and 2008 as extracted from the interim results announcement of the Company for the six months ended 30 June 2010 (the “ 2010 Results Announcement ”) and the 2009 Annual Report:

	For the six	For the	For the
	months	year ended	year ended
Consolidated	ended 30	31 December	31 December
income statement	June 2010	2009	2008
	(unaudited)	(audited)	(audited)
			(restated)
			(Note)
	HK$’000	HK$’000	HK$’000
Revenue	3,726,144	5,280,185	6,787,923
Profit for the period/year	1,671,168	1,463,462	4,680,501
Profit attributable to
owners of the Company	1,247,663	1,203,948	3,385,208

Note: The financial information has been restated to give effect to the acquisitions of the natural gas distribution projects with all periods present as if the operations of the Group and the natural gas distribution projects have always been combined.

As depicted by the above table, the Group’s revenue for the year ended 31 December 2009 amounted to approximately HK$5,280.19 million, representing a decrease of approximately 22.21% as compared to the previous year. The profit attributable to owners of the Company for the year ended 31 December 2009 amounted to approximately HK$1,203.95 million, representing a decrease of approximately 64.44% as compared to the previous year. As stated in the 2009 Annual Report, the decrease in profit was mainly due to (i) the adjustment for tax duties expense by the CNPC-Aktobemunaigas Joint Stock Company (“ Aktobe ”) project carried out by the Group in Kazakhstan; and (ii) a drop in oil price. As a result of an increase in levy on tax duties arising from a change in relevant policies by the Kazakhstan government, the Aktobe project is required to bear additional burden. Moreover, with the drop of the international crude oil price in 2009 as compared to the previous year, the weighted average realised price of the Group’s crude oil per barrel had declined by approximately 35.23% in 2009 as compared to the previous year.

With reference to the 2009 Annual Report, the natural gas distribution business of the Group contributed to approximately 40.32% of the Group’s total revenue for the year ended 31 December 2009, as compared to approximately 23.27% for the year ended 31 December 2008. According to the 2010 Interim Results Announcement, the natural gas distribution business of the Group also contributed to approximately 39.88% of the Group’s total revenue for the six months ended 30 June 2010. We further noted that the financial information of the Group has been restated to give effect to the acquisitions of the natural gas distribution projects with all periods present as if the operations of the Group and

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the natural gas distribution projects have always been combined. As advised by the Directors, the actual contribution of the natural gas distribution business to the Group was nil for the year ended 31 December 2008. Such expansion demonstrates the growing importance of the natural gas distribution business of the Group.

Information on Dalian LNG

As extracted from the Board Letter, Dalian LNG was set up in March 2009 and was licensed to develop, construct and operate a LNG terminal (the “ LNG Terminal ”) in Dalian, the PRC, including the functions of unloading, loading, storage and re-gasification of natural gas.

As at the Latest Practicable Date, Dalian LNG was owned as to 75%, 20% and 5% by PetroChina, Dalian Port and Dalian Construction respectively. In April 2010, the shareholders of Dalian LNG had made proportionate capital injection into Dalian LNG totaling RMB1,600 million. As aforementioned, the PetroChina New Capital Injection was amounted to RMB1,200 million.

Upon completion of the Dalian LNG Acquisition, Dalian LNG would be owned as to 75%, 20% and 5% by the Company, Dalian Port and Dalian Construction respectively. The Directors also confirmed that PetroChina would continue to assist in the project design and construction, and management of the LNG Terminal after the Dalian LNG Acquisition is completed.

As disclosed in the Board Letter, as at the Latest Practicable Date, the LNG Terminal was at the construction phase and had not commenced operations. Therefore, according to the audited accounts of Dalian LNG based on the PRC GAAP, a loss of approximately RMB830,000 (equivalent to approximately HK$942,000) was recorded during the period from its establishment on 31 March 2009 to 31 December 2009. As at 31 December 2009, the audited net asset value of Dalian LNG based on the PRC GAAP was approximately RMB999.17 million (equivalent to approximately HK$1,134.00 million). Based on the unaudited accounts of Dalian LNG, the unaudited net asset value of Dalian LNG as at 30 June 2010 was approximately RMB2,600.00 million (equivalent to approximately HK$2,950.86 million).

Information on the LNG Terminal

Based on the preliminary feasibility report issued in 2008 we obtained from the Company regarding the development of the LNG Terminal (the “ Feasibility Report ”), the target markets of the LNG Terminal are various cities, for example Dalian, Shenyang and Anshan, in Liaoning province, the PRC, and the natural gas processed by the LNG Terminal will be utilised in different applications, such as household, industrial, public utilities and transportation. Currently, energy consumption in Liaoning province is mainly generated from coal. The consumption of natural gas represents only approximately 1.6% of the total energy consumption, which is far below the average natural gas consumption level in

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LETTER FROM GUANGDONG SECURITIES

other provinces of the PRC. Moreover, Liaoning province also recorded substantial persistent growth in GDP of approximately 19.64% from 2006 to 2007 and approximately 22.12% from 2007 to 2008 according to statistics from the National Bureau of Statistics of China (Note: as far as we are aware of, the GDP growth rate of Liaoning province from 2008 to 2009 has not been released by the PRC government) . As a result, the demand for energy in Liaoning province will likely to increase in order to cope with its possible future economic development. Due to the above reasons and in light of that as concluded under the below section headed “Reasons for the Dalian LNG Acquisition”, natural gas is a source of energy which has drawn rising attention and interest from the PRC government and enterprises, it is anticipated that there is plenty of room for expansion of the natural gas related business in Liaoning province.

Besides the Feasibility Report, the Company has made updated evaluation on the future development of the LNG Terminal. In this regard, the Directors advised us that as the CNPC Group is the controlling shareholder of the Company, the Directors expect the CNPC Group to be the major long-term customer of the LNG Terminal. Furthermore, in order to capture the possible demand for natural gas throughout the PRC, the Company also plans to extend the natural gas target markets of the LNG Terminal to other provinces of the PRC other than Liaoning province by using land or/and water transport. In view of the potential positive outlook of the natural gas market in the PRC as being depicted in the section to follow, the Directors expected the prospects of the LNG Terminal to be favourable.

From the Feasibility Report, we further noted that the development of the LNG Terminal consists of two phases, which would require total investment of around RMB5.84 billion and RMB0.23 billion respectively. Dalian LNG may finance such capital requirement either by itself or by shareholders’ fund. According to the Directors, the LNG Terminal will be able to commence operations in the second half of 2011 and may generate profit to the Group soon afterwards.

(2) Reasons for the Dalian LNG Acquisition

As discussed in the foregoing, it is the business strategy of the Group to develop into natural gas distribution business. We consider that the Dalian LNG Acquisition is conducted in the ordinary and usual course of business of the Company given that the Dalian LNG Acquisition is in line with the development strategies of the Group as a whole.

With reference to the Board Letter, upon commencement of operations, Dalian LNG will carry out the LNG Terminal business, including the functions of unloading, loading, storage and re-gasification of natural gas. The Board considers that the Dalian LNG Acquisition will enable the Company to have a direct access to natural gas supply infrastructure, ensure natural gas supply from different sources and enhance the Company’s capability to expand the vehicle fuel gas, city gas and other related business. From our research and discussion with the management of the Company, we

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LETTER FROM GUANGDONG SECURITIES

understand that the existing methods for transmission of natural gas are mainly land and water transport. For land transport, the transmission infrastructure of natural gas is delivery trucks to point of sales as well as long-distance pipelines which are costly and take long time to build. As for water transport, natural gas can be transmitted through LNG terminals. There are a total of three LNG terminals in operation in the PRC at present. Looking forward, the LNG terminal which is held by (PetroChina LNG Jiangsu Company Ltd.) (a 55% owned subsidiary of the Company) and the LNG Terminal which is held by Dalian LNG are expected to be two of the few LNG terminals in the PRC in the foreseeable future. Based on our research, a few other LNG terminal projects are under construction or being planned in the PRC. Given that the planning, the approval process as well as the development of LNG terminals are relatively time-consuming, the number of LNG terminals in the PRC is expected to remain limited.

In order for us to form a better understanding on the future outlook of the natural gas market in the PRC, we have searched and found from an article issued by the National Development and Reform Commission of the PRC dated 5 February 2007 regarding the 11th five-year plan of the PRC (Note: as far as we are aware of, details of the 12th five-year plan has not been released by the PRC government yet) . The said article revealed that the PRC government has decided to (i) improve the efficiency of energy utilisation by the development of natural gas, hydraulic power, renewable energy, new energy and other forms of clean energy; and (ii) advocate additional investments in natural gas infrastructure. Furthermore, we noted that a stimulus plan to spur vehicle demand and promote new energy cars ( ) was announced by the State Council of the PRC in 2009 and the plan may have an indirect positive impact on the natural gas market in the PRC in long term as natural gas is one type of new energies used by the new energy cars. Furthermore, we noted from another article issued by sinopecnew.com.cn dated 19 March 2010 that the demand for natural gas in the PRC was expected to increase given the increase in the number of cars, newly developed apartments and industrial factories using natural gas fuel. In view of also that natural gas is a clean and efficient source of energy which has drawn rising attention and interest from the PRC government and enterprises, and has become one of the most rapidly growing sectors in the PRC energy industry, the Directors are optimistic about the future growth of the natural gas business.

Having taken into account the potential positive outlook of the natural gas market in the PRC and the prospects of the LNG Terminal, together with the business strategy of the Group to develop into the natural gas distribution business, we consider that the Dalian LNG Acquisition is in the interests of the Company and the Shareholders as a whole.

(3) Principal terms of the Acquisition Agreement

The Proposed Consideration

The Proposed Consideration of RMB2,210 million (equivalent to approximately HK$2,508 million) was determined by reference to the Appraised NAV being attributable to the Dalian LNG Acquisition, i.e. 75% of RMB1,078.79

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million, as per the valuation report prepared by the Valuer and the PetroChina New Capital Injection after the Valuation Date. The Appraised NAV as at the Valuation Date was computed by the Valuer based on the cost approach. The said valuation report, including the assumptions and basis of the valuation, is contained in Appendix II to the Circular.

Since the unaudited net asset value of Dalian LNG was approximately RMB2,600.00 million (equivalent to approximately HK$2,950.86 million) as at 30 June 2010, we computed that the Proposed Consideration represents an implied price to book ratio (“ PBR ”) of approximately 1.13 times to “75% of the unaudited net asset value of Dalian LNG as at 30 June 2010” of approximately RMB1,950.00 million.

PBR analysis for the Proposed Consideration

For the purpose of assessing the fairness and reasonableness of the Proposed Consideration, we have performed a PBR analysis. Although common means of the price comparable analyses include also the price to earnings ratio (“ PER ”), due to the fact that Dalian LNG recorded losses from its establishment on 31 March 2009 to 31 December 2009 and the LNG Terminal was still at the construction phase and had not commenced operations as at the Latest Practicable Date, we consider the PER analysis to be inapplicable.

To perform the PBR analysis, we have searched for companies listed on the main board of the Stock Exchange which are carrying out the LNG terminal business. Nevertheless, as far as we are aware of, there is no such comparable company. Thus, we have extended our search to Hong Kong main board listed companies which are in similar lines of business as Dalian LNG, i.e. having business in the down-stream area of the natural gas industry in the PRC (the “ Natural Gas Comparables ”) for comparison. We have also excluded companies which recorded net liabilities during their latest financial years as per the relevant published financial information. To the best of our knowledge and endeavor, we found eight companies which met the said criteria. It should be noted that the businesses, operations and prospects of Dalian LNG are not exactly the same as the Natural Gas Comparables (in particular that the LNG Terminal is still at the construction phase while the Natural Gas Comparables are already in operation), and we have not conducted any in-depth investigation into the businesses and operations of the Natural Gas Comparables. The Natural Gas Comparables are hence only used for illustrative purpose.

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LETTER FROM GUANGDONG SECURITIES

Set out below are the implied PBRs of the Natural Gas Comparables based on their closing prices as at 23 August 2010, being the date of the announcement of the Company regarding the Dalian LNG Acquisition, and their latest published financial information:

Company name		Year	Market
(Stock code)	Principal business	end date	capitalisation	PBR
			(HK$ million)	(times)
			(Note 1)
Kunlun Energy Co.	Exploration and production of crude oil	31/12/2009	49,391.61	3.28
Ltd. (135)	and natural gas in the PRC, Kazakhstan,			(Note 2)
	the Sultanate of Oman, Peru, the
	Kingdom of Thailand, the Azerbaijan
	Republic and the Republic of Indonesia;
	and city gas, vehicle fuel gas and related
	businesses in the PRC.
Sino Gas Group Ltd.	Operation of petroleum, compressed	31/12/2009	781.96	1.33
(260)	natural gas and liquefied petroleum gas			(Note 2)
	refueling stations, and trading of motor
	vehicles conversion parts and gas station
	equipment.
China Gas Holdings	Sales of piped gas, gas connection, sales	31/3/2010	14,115.59	3.43
Ltd. (384)	of LPG and sales of coke and gas
	appliances.
China Oil And Gas	Investments in natural gas and energy	31/12/2009	4,307.24	1.86
Group Ltd. (603)	related businesses.			(Note 2)
Towngas China Co.	Sales of piped gas and gas related	31/12/2009	7,566.75	1.14
Ltd. (1083)	household appliances, and construction			(Note 2)
	of gas pipeline networks under gas
	connection contracts.
China Resources Gas	City gas distribution (including natural and	31/12/2009	15,558.65	11.62
Group Ltd. (1193)	petroleum gas) in the PRC.			(Note 2)
XinAo Gas Holdings	Investment in, and the operation and	31/12/2009	19,007.70	3.04
Ltd. (2688)	management of, gas pipeline			(Note 2)
	infrastructure and the sale and
	distribution of piped and bottled gas in
	the PRC.

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Company name		Year	Market
(Stock code)	Principal business	end date	capitalisation	PBR
			(HK$ million)	(times)
			(Note 1)
Zhengzhou Gas Co.	Sales of natural gas, pressure control	31/12/2009	1,787.14	1.67
Ltd. (3928)	equipments and gas appliances to			(Note 2)
	customers and construction of gas
	pipelines and the provision of renovation
	services of gas pipelines to local
	customers.
Minimum				1.14
Maximum				11.62
Median				2.45
The Proposed Consideration				1.13

Source: the Stock Exchange web site (www.hkex.com.hk)

Note:

As at 23 August 2010, being the date of the announcement of the Company regarding the Dalian LNG Acquisition.
The PBRs for the selected companies were calculated based on their latest published interim results announcements/reports.

As depicted by the above table, the implied PBRs of the Natural Gas Comparables ranged from approximately 1.14 times to approximately 11.62 times, with median of approximately 2.45 times, while the implied PBR of the Proposed Consideration is approximately 1.13 times. We noted that the implied PBR of the Proposed Consideration is lower than the minimum of the Natural Gas Comparables.

On the other hand, based on the sum of “75% of the Appraised NAV and the amount of the PetroChina New Capital Injection after the Valuation Date” of RMB2,009.09 million, we noted that the Proposed Consideration is at premium over the said sum. Taking into account (i) that the Proposed Consideration is only the maximum amount which the Company will pay for the Dalian LNG Acquisition and the construction of the LNG Terminal has been undergoing significant progress since the Valuation Date as represented by the Directors; and (ii) the prospects of the LNG Terminal (despite its possible capital requirement from the Group) as well as the possible benefits and return which the Dalian LNG Acquisition would bring to the Group’s future business development, we are of the opinion that the Proposed Consideration is fair and reasonable so far as the Independent Shareholders are concerned.

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LETTER FROM GUANGDONG SECURITIES

Other terms of the Acquisition Agreement

We have also reviewed the other major terms of the Acquisition Agreement and are not aware of any terms which are uncommon. Consequently, we consider that the terms of the Acquisition Agreement are on normal commercial terms and are fair and reasonable so far as the Independent Shareholders are concerned.

(4) Possible financial effects of the Dalian LNG Acquisition

Dalian LNG would be owned as to 75%, 20% and 5% by the Company, Dalian Port, and Dalian Construction respectively upon completion of the Dalian LNG Acquisition. As confirmed by the Directors, the Group would consolidate the financial results of Dalian LNG into its financial statements.

Effect on net assets

As extracted from the 2010 Interim Results Announcement, the unaudited consolidated net assets of the Group (net of minority interests) were approximately HK$15,049.64 million as at 30 June 2010. The Directors expected that the Group’s net assets would not be materially affected by the Dalian LNG Acquisition.

Effect on earnings

Although the development of the LNG Terminal is still in the construction phase and Dalian LNG will only be able to contribute profit into the Group when in operation, in light of the future business prospects of Dalian LNG as expected by the Directors, the Directors are of the view that the Dalian LNG Acquisition would likely to have a positive impact on the future earnings of the Group.

Effect on gearing and working capital

As at 30 June 2010, the Group’s gearing level (being calculated as total borrowings divided by the total equity and borrowings) according to the 2010 Interim Results Announcement was approximately 13.48%. As confirmed by the Directors, the gearing level of the Group would not change materially as a result of the Dalian LNG Acquisition.

Regarding the working capital position of the Group, in the short run, given that the Company will satisfy the Proposed Consideration by the internal resources of the Group, the Group’s working capital would be reduced following the Dalian LNG Acquisition.

Furthermore, as confirmed by the Directors, the Group may be required to inject further capital into Dalian LNG throughout the course of development of the LNG Terminal, and the Group has not decided on the methods (e.g. equity and

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debt financing) to be used to finance such capital injection. For this reason, the Dalian LNG Acquisition may affect the gearing and/or working capital position of the Group.

It should be noted that the aforementioned analyses are for illustrative purpose only and does not purport to represent how the financial position of the Group will be upon completion of the Dalian LNG Acquisition.

RECOMMENDATION

Having considered the above factors and reasons, we are of the opinion that (i) the terms of the Acquisition Agreement are on normal commercial terms and are fair and reasonable so far as the Independent Shareholders are concerned; and (ii) the Dalian LNG Acquisition is in the interests of the Company and the Shareholders as a whole. Accordingly, we recommend the Independent Board Committee to advise the Independent Shareholders to vote in favour of the relevant resolution(s) to be proposed at the SGM to approve the Acquisition Agreement and the transactions contemplated thereunder and we recommend the Independent Shareholders to vote in favour of the resolution(s) in this regard.

Yours faithfully, For and on behalf of Guangdong Securities Limited Graham Lam Managing Director

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VALUATION REPORT ON THE PROPERTY INTEREST OF DALIAN LNG

APPENDIX I

The following is the text of a letter, summary of values and valuation certificates, prepared for the purpose of incorporation in this circular received from BMI Appraisals Limited, an independent valuer, in connection with its valuations as at 30 June 2010 of the properties located in the People’s Republic of China held/rented by Dalian LNG.

==> picture [227 x 78] intentionally omitted <==

4 September 2010

The Directors

Kunlun Energy Company Limited Rooms 3907-3910, 39[th] Floor No. 118 Connaught Road West Sheung Wan, Hong Kong

Dear Sirs,

INSTRUCTIONS

We refer to the instructions from Kunlun Energy Company Limited (the “Company”) for us to value the properties held or rented by PetroChina Dalian LNG Company Ltd. ( ) (“Dalian LNG”) located in the People’s Republic of China (the “PRC”). We confirm that we have conducted inspections, made relevant enquiries and obtained such further information as we consider necessary for the purpose of providing you with our opinion of the market values of the properties as at 30 June 2010 (the “date of valuation”).

BASIS OF VALUATION

Our valuations of the properties have been based on the Market Value, which is defined as “the estimated amount for which a property should exchange on the date of valuation between a willing buyer and a willing seller in an arm’s-length transaction after proper marketing wherein the parties had each acted knowledgeably, prudently and without compulsion”.

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VALUATION REPORT ON THE PROPERTY INTEREST OF DALIAN LNG

APPENDIX I

PROPERTY CATEGORISATIONS

In the course of our valuations, the properties are categorised into the following Groups:

Group I – Property held by Dalian LNG under construction in the PRC Group II – Property rented by Dalian LNG in the PRC

VALUATION METHODOLOGIES

In valuing the property in Group I, we have assumed that the property will be developed and completed in accordance with the provided development proposal and approvals from relevant Government departments have been obtained. In arriving at our opinion of value of the property, we have attributed no commercial value to this property as relevant title documents have not been obtaind.

We have attributed no commercial value to the property in Group II due to the short-term nature of the leases or the prohibition against assignment or sub-letting or otherwise due to the lack of substantial profit rents.

TITLE INVESTIGATION

We have been provided with extracts of legal documents and have been advised by the Company that no further relevant documents have been produced. However, we have not examined the original documents to verify ownership or to ascertain the existence of any amendment documents, which may not appear on the extracts handed to us. In the course of our valuations, we have relied upon the advice and information given by the Company and its PRC legal adviser, Kaiwen Law Firm ( ) regarding the title of the properties. All documents have been used for reference only.

VALUATION ASSUMPTIONS

Our valuations have been made on the assumption that the properties are sold in the market without the benefit of deferred terms contract, leaseback, joint venture, management agreement or any other similar arrangement which would serve to affect the values of the properties.

In addition, no account has been taken of any option or right of pre-emption concerning or affecting the sale of the properties and no forced sale situation in any manner is assumed in our valuations.

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APPENDIX I

VALUATION CONSIDERATIONS

We have inspected the properties externally and where possible, the interior of the properties. In the course of our inspections, we did not note any serious defects. However, no structural surveys have been made. We are, therefore, unable to report whether the properties are free from rot, infestation or any other structural defects. No tests were carried out on any of the services.

In the course of our valuations, we have relied to a considerable extent on the information given by the Company and have accepted advice given to us on such matters as planning approvals or statutory notices, easements, tenures, particulars of occupancy, site / floor areas, completion dates of the buildings, identification of the properties and other relevant information.

Except otherwise stated, dimensions, measurements and site / floor areas included in the valuation certificates are based on information contained in the leases and other documents provided to us and are therefore only approximations.

We have not carried out detailed on-site measurements to verify the correctness of the site / floor areas in respect of the properties but have assumed that the site / floor areas shown on the documents handed to us are correct.

We have no reason to doubt the truth and accuracy of the information provided to us by the Company and Dalian LNG and we have relied on your advice that no material facts have been omitted from the information provided. We consider that we have been provided with sufficient information for us to reach an informed view.

No allowance has been made in our valuations for any charges, mortgages or amounts owing on the properties or for any expenses or taxation, which may be incurred in effecting a sale or purchase.

Unless otherwise stated, it is assumed that the properties are free from encumbrances, restrictions and outgoings of an onerous nature, which could affect their values.

Our valuations have been prepared in accordance with the HKIS Valuation Standards on Properties (First Edition 2005) published by the Hong Kong Institute of Surveyors.

Our valuations have been prepared under the generally accepted valuation procedures and are in compliance with the requirements contained in Chapter 5 and Practice Note 12 of the Rules Governing the Listing of Securities on The Stock Exchange of Hong Kong Limited.

REMARKS

We hereby certify that we neither have any present nor any prospective interest in the Company and Dalian LNG or the appraised properties or the values reported.

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APPENDIX I VALUATION REPORT ON THE PROPERTY INTEREST OF DALIAN LNG

Unless otherwise stated, all money amounts stated herein are in Renminbi (RMB) and no allowances have been made for any exchange transfer.

Our Summary of Values and the Valuation Certificates are attached herewith.

Yours faithfully, For and on behalf of BMI APPRAISALS LIMITED

Dr. Tony C.H. Cheng

BSc, MUD, MBA (Finance), MSc (Eng), PhD (Econ), MHKIS, MCIArb, AFA, SIFM, FCIM, MASCE, MIET, MIEEE, MASME, MIIE Managing Director

Joannau W.F. Chan

BSc. MSc. MRICS, MHKIS, RPS(GP) Senior Director

Notes:

Dr. Tony C.H. Cheng is a member of The Hong Kong Institute of Surveyors (General Practice) who has over 17 years’ experience in valuations of properties in Hong Kong and the People’s Republic of China.

Ms. Joannau W.F. Chan is a member of The Hong Kong Institute of Surveyors (General Practice) who has over 17 years’ experience in valuations of properties in Hong Kong and over 11 years’ experience in valuations of properties in the People’s Republic of China.

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VALUATION REPORT ON THE PROPERTY INTEREST OF DALIAN LNG

APPENDIX I

SUMMARY OF VALUES

No. Property

Market Value in existing state as at 30 June 2010 RMB

Group I – Property held by Dalian LNG under construction in the PRC

A land parcel together with No Commercial Value various buildings and structures under construction located in Dagushan Peninsula, Dalian City, Liaoning Province, The PRC

==> picture [168 x 51] intentionally omitted <==

Sub-total: Nil

Group II – Property rented by Dalian LNG in the PRC

The whole of Level 34, Units 1807-1810 on Level 18, and No Commercial Value Carparking Space Nos. 102, 124 and 226, Rainbow Building, No. 23 Renmin Road, Zhongshan District, Dalian City, Liaoning Province, The PRC

==> picture [115 x 77] intentionally omitted <==

Sub-total:	Nil
Grand-total:	Nil

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APPENDIX I

VALUATION CERTIFICATE

Group I – Property held by Dalian LNG under construction in the PRC

Market Value Particulars of in existing state No. Property Description and tenure occupancy as at 30 June 2010 RMB 1. A land parcel together The property comprises a The property is under No Commercial Value with various buildings parcel of land with a site area construction. and structures under of approximately 30.7 ha (or construction located in about 307,000 sq.m.) together Dagushan Peninsula, with various buildings and Dalian City, structures which are under Liaoning Province, construction (the “CIP”). The PRC As advised by the Company, the total proposed GFA of the property will be approximately 12,460 sq.m. (or about 134,119.44 sq.ft.) upon completion as scheduled in 2011.

Notes: -

Pursuant to a Dalian LNG Project Receiving Station Construction Land & Sea Area Expropriation Commission Contract ( ) (the “Contract”) entered into between PetroChina Dalian LNG Project Management Division ( ) (the “Division”) and Dalian Free Trade Zone Administration Committee ( ), the land parcel of the property was contracted to be used by the earlier.
As advised by the Company, the total construction cost and the construction cost expended as at the date of valuation for the development of the property are approximately RMB4,205,000,000 and RMB1,470,000,000 respectively.
In arriving at our valuation, we cannot attribute any commercial value to the property due to the absence of relevant title documents as at the date of valuation.
The opinion of the PRC legal adviser to the Company contains, inter alia, the following:
a. The Division is authorized by the investors of Dalian LNG to sign the Contract;
b. Relevant title certificates, planning permits and construction permits have not been obtained by Dalian LNG;
c. Portion of the land parcel of the property with a site area of approximately 18.8 ha is reclamation land (the “reclamation land”). For the reclamation land, Dalian LNG should obtain the relevant Sea Area Use Certificates ( ) in order to exchange the relevant State-owned Land Use Rights Certificates ( ). Dalian LNG is in the process of applying for the relevant permits and Sea Area Use Certificates of the reclamation land;
d. For the remaining portion of the land parcel of the property, Dalian LNG is in the process of applying for the relevant State-owned Land Use Rights Certificates; and

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VALUATION REPORT ON THE PROPERTY INTEREST OF DALIAN LNG

APPENDIX I

e. Dalian LNG might be ordered to stop construction and dismantle the CIP by the relevant government authorities and might be subject to penalty due to the absence of relevant planning and construction permits. Dalian LNG is in the process of applying for the relevant planning and construction permits for the CIP.

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VALUATION CERTIFICATE

Group II – Property rented by Dalian LNG in the PRC

No.

2.

Property
Description and tenure
Particulars of
occupancy
Market Value
in existing state
as at 30 June 2010
RMB
The whole of Level 34,
Units 1807-1810 on
Level 18, and Carparking
Space Nos. 102, 124 and
226,
Rainbow Building,
No. 23 Renmin Road,
Zhongshan District,
Dalian City,
Liaoning Province,
The PRC
The property comprises the
whole of Level 34, a portion
of Level 18 (the “office
portion”) and 3 car parking
spaces of a 39-storey office
building plus a 3-storey
basement completed in about
2002.
The total gross floor area of
the office portion of the
property is approximately
1,833.42 sq.m. (or about
19,734.93 sq.ft.).
Pursuant to 4 tenancy
agreements entered into
between 2 independent third
parties and Dalian LNG, the
property is leased to Dalian
LNG for various terms with
the earliest expiry date on 25
November 2010 at a total
annual rent of RMB1,915,540.
The property is
occupied by Dalian
LNG for office and
car parking purposes.
No Commercial Value

Notes: -

According to the above-mentioned tenancy agreements, the tenant of the property is Dalian LNG.
The opinion given by the PRC legal adviser to the Company contains, inter-alia, the following:
a. The tenancy agreements are legally valid, enforceable and binding on the contracting parties;
b. The tenancy agreements have not been registered in the relevant government authorities; and
c. The non-registration of the tenancy agreements will not affect their validity.

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ASSET VALUATION REPORT OF DALIAN LNG

APPENDIX II

The following is the English translation of the Asset Valuation Report prepared by Beijing China Enterprises Appraisal Co., Ltd. ( ), an independent valuer, in connection with the valuation of Dalian LNG as at 6 August 2010 prepared for the purpose of inclusion in this circular.

Extract of Assets Valuation Report on the Proposed Acquisition by Kunlun Energy Company Limited of the Equity Interest in PetroChina Dalian LNG Co., Ltd. held by PetroChina Company Limited

Zhong Qi Hua Ping Bao Zi (2010) No.304

As PetroChina Company Limited intends to transfer the equity interest held by it in PetroChina Dalian LNG Co., Ltd., PetroChina Company Limited engaged Beijing China Enterprise Appraisals Co., Ltd. to value the entire shareholders’ equity interest of PetroChina Dalian LNG Co., Ltd., for the purpose of providing an advisory opinion on value in respect of the above equity transfer.

For the purpose of this valuation and in accordance with the specific conditions of the valuation subject, it is confirmed that the value to be appraised will be market value. In accordance with the relevant PRC laws, regulations and asset valuation standards, adhering to the principles of being independent, objective and impartial, and based on the necessary valuation procedures, our valuers carried out on-site inspection, market research and enquiries, and valued all the assets and relevant liabilities within the scope of valuation. As such, we provided the fair market value of the valuation subject as at 31 December 2009. In view of the purpose of this valuation and the characteristics of the valuation subject, cost approach was selected as the valuation method in this valuation, and based on the above valuation, we arrived at the following conclusion:

Considering the entity as a going concern on the valuation date, 31 December 2009, the entity had total assets with carrying value of RMB1,617,853.80 thousand, total liabilities with carrying value of RMB618,684 thousand and net assets with carrying value of RMB999,169.80 thousand (the above carrying values were audited by China Rightson YueHua Certified Public Accountant Company Limited based on PRC GAAP, which also provided an auditor’s report with unqualified opinion); and after the valuation the total assets would be RMB1,679,469.90 thousand, total liabilities RMB618,684 thousand and net assets RMB1,078,785.90 thousand, representing an increase in value of RMB79,616.20 thousand or 7.97%. For the details of valuation conclusion, please see the Summary of Results of Assets Valuation and the valuation breakdown.

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Summary of Results of Assets Valuation

						Unit: RMB 0’000
			Carrying	Appraised	Change in	Appreciation
As at 31 December 2009			Value	Value	Value	Rate (%)
Item			A	B	C=B-A	D=C/Ax100%
Current Assets		1	1,163.35	1,163.35	0.00	0.00
Non-current Assets		2	160,622.02	168,583.64	7,961.62	4.96
Of which: Long-term equity
investment		3	0.00	0.00	0.00
Investment properties		4	0.00	0.00	0.00
Fixed assets		5	20.60	20.68	0.08	0.41
Construction	in
progress		6	160,573.75	168,535.28	7,961.53	4.96
Oil and gas properties		7	0.00	0.00	0.00
Intangible assets		8	0.00	0.00	0.00
Of which: Land use
	rights	9	0.00	0.00	0.00
Other non-current
assets		10	27.67	27.67	0.00	0.00
Total assets		11	161,785.38	169,746.99	7,961.62	4.92
Current liabilities		12	61,868.40	61,868.40	0.00	0.00
Non-current liabilities		13	0.00	0.00	0.00
Total liabilities		14	61,868.40	61,868.40	0.00	0.00
Net Assets		15	99,916.98	107,878.59	7,961.62	7.97

The valuation conclusion shown herein is only valid for the valuation subject and the proposed transfer of the equity interests in PetroChina Dalian LNG Co., Ltd. by PetroChina Company Limited. The valid term is one year commencing from 31 December 2009. After one year, the assets shall be revalued.

Users of the valuation report shall pay attention to the impact of special issues and limitations for use on the valuation conclusion.

This valuation report is a professional conclusion issued by the valuers in accordance with PRC laws and regulations, and shall be legally binding with the signatures and seals of appraisal agency and registered certified assets valuers affixed in accordance with the relevant requirements of PRC laws and regulations. This valuation report shall be formally used only after filing with the State-owned assets supervision authorities.

The above contents are extracted from the main text of the Valuation Report. In order to fully understand the valuation and reasonably understand the valuation conclusion, the main text of the Valuation Report should be read carefully.

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APPENDIX II

Assets Valuation Report on the Proposed Acquisition by Kunlun Energy Company Limited of the Equity Interest in PetroChina Dalian LNG Co., Ltd. held by PetroChina Company Limited

Zhong Qi Hua Ping Bao Zi (2010) No.304

Kunlun Energy Company Limited,

Under the commission of your company, Beijing China Enterprise Appraisals Co., Ltd. has conducted a valuation on the market value of the entire shareholders’ equity as at 31 December 2009 of the equity of PetroChina Dalian LNG Co., Ltd. held by PetroChina Company Limited and proposed to be acquired by Kunlun Energy Company Limited in accordance with the relevant laws and regulations, adhering to asset valuation standards and principles, using the cost based approach and following the necessary procedures. The assets valuation is now shown as follows:

1. The Principal, the Entity to be Valued and Other Report Users

Kunlun Energy Company Limited acts as the principal in this valuation. The entity to be valued is PetroChina Dalian LNG Co., Ltd. PetroChina Company Limited is the controlling shareholder of PetroChina Dalian LNG Co., Ltd.

(1) Description of the principal

Company name: Kunlun Energy Company Limited
Registered capital: HK$80 million
Registered address: Room 3907-3910, 39th Floor, 118 Connaught Road West, Hong Kong
Corporate type: Stated-owned investment holding enterprise
Legal representative: Zhang Bowen
Business scope: The company is an investment holding company whose subsidiaries, affiliates and jointly controlled entities are primarily engaged in exploration, production and sale of crude oil and natural gas in China, the Republic of Kazakhstan, the Sultanate of Oman, Peru, the Kingdom of Thailand, the Republic of Azerbaijan and Indonesia.

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(2) Description of the entity to be valued
Company name: PetroChina Dalian LNG Co., Ltd.
Address: Room 401, International Trade Center (Integrated Service Building) Tower D, Dalian Free Trade Zone
Legal representative: Huang Weihe
Registered capital: RMB2.6 billion
Paid-up capital: RMB1 billion
Corporate type: Limited liability company
Date of establishment: 31 March 2009
Business scope: the receiving, storing and gasification of liquefied natural gas and businesses related thereto (the project is in the preparatory stage, during which period no operation shall be commenced) ***
Introduction and history of the company:
- (1) History:

The company is jointly invested and established by PetroChina Company Limited, Dalian Port Co., Ltd. and Dalian Construction Investment Corporation. As CNPC’s first joint venture in LNG business, the company is mainly responsible for the construction and operation of the Dalian LNG Project.

(2) Existing controlling shareholders of the company and the proportion of their capital contributions:

PetroChina Company Limited (herein after referred as “CNPC”) is the leading enterprise in oil and gas industry within China and the largest producer and seller of oil and gas with engagement in various oil related activities. CNPC is among the largest companies in China in terms of sales, and according to the proved reserves of oil and gas in 2000, it is the fourth largest publicly traded listing oil and gas company in the world.

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Set out below are the actual capital contributions and proportion of capital contribution of each of the existing shareholders:

Name PetroChina Company Limited Dalian Port Co., Ltd. Dalian Construction Investment Corporation Total	Actual capital contribution (RMB 0,000) 75000 20000 5000 100000	Proportion of capital contribution 75% 20% 5%
		100%

(3) Brief introduction of the project that represents the main production capacity of the company

Dalian LNG Project is the first LNG project constructed by CNPC, the construction of which was undertaken by PetroChina Dalian LNG Co., Ltd., and China Huanqiu Contracting & Engineering Corporation ( ) acted as the chief contractor. The design, procurement, construction and management in relation to the project were carried out by the company itself.

Dalian LNG Project is located in the waters at Nianyu Bay in the southeastern part of Dagushan Peninsula, Dalian ( ). It is comprised of three parts, namely pier project, terminal project and system-supporting project. The project is constructed in two phases: the scale of the phase one project is 3 million tonnes/year, with a designed annual capacity of 4.2 billion m[3] and a maximum annual capacity of 5 billion m[3] for gas supply. The phase two project will expand the capacity to 6 million tonnes/year with a designed annual capacity of 8.4 billion m[3] and maximum annual capacity of 10 billion m[3] for gas supply. The investment for the construction the pier and terminal phase one project is RMB5.83 billion, of which terminal project accounts for RMB5.22 billion, and the pier accounts for approximately RMB610 million, covering an area of approximately 200,000 m[2] .

The Dalian LNG Project mainly receives LNG resources from countries including Australia and Qatar to be primarily used as urban gas and industrial fuel. Furthermore, on the basis of Dalian LNG Project, downstream natural gas utilisation projects can be developed and a complete LNG industrial supply chain can be established.

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The construction of Dalian LNG Project officially commenced on 18 April 2008, and is expected to be completed and begin production in April 2011. The project was duly approved by the National Development and Reform Commission in 2008.

On 24 November 2008, the foundation work for the storage tank at the terminal of the CNPC Dalian LNG Project was first completed, marking significant progress made on CNPC’s first LNG project, of which construction has fully commenced.

On 16 March 2009, the storage tank installation, for which China Huanqiu Contracting & Engineering Corporation ( ) acted as the EPC contractor, and of which China Petroleum No. Six Construction Company was responsible for the construction of main structures, of the Dalian LNG Project formally commenced.

China Petroleum No. Six Construction Company ( ) was responsible for the inner tank, steel structures, process piping, mechanical equipment installation, electrical instrument installation and commissioning and corrosion prevention of the Dalian LNG Project. Two LNG low-temperature storage tanks were built for phase one, and the design capacity for a each LNG low-temperature storage tank is 160,000 m[3] .

On 27 September 2009, the roof lifting for No. 1 storage tank of the LNG project was successfully completed.

On 25 October 2009, the roof lifting for No. 2 storage tank of the LNG project was successfully completed.

(4) The company has complied with the 2006 Accounting Standards for Business Enterprises and requirements therein since its date of establishment.
(5) The company has a board of directors and a board of supervisors, which are comprised of representatives from shareholders.

The company’s management office is comprised of 1 general manager, 2 deputy general managers and 1 chief accountant. There are eight departments within the company, namely the general office, personnel department, planning department, technical department, production department, quality, safety and environmental protection department, procurement department and financial department.

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(3) Other users (excluding the principal) of the valuation report

The other users of this report are state-owned assets supervisory department, government regulatory departments and industry associations in connection with such economic activity.

2. Purpose of Valuation

As Kunlun Energy Company Limited intends to acquire the equity interest in PetroChina Dalian LNG Co., Ltd. held by PetroChina Company Limited, Kunlun Energy Company Limited engaged Beijing China Enterprise Appraisals Co., Ltd. to value all the assets and related liabilities of PetroChina Dalian LNG Co., Ltd. involved in such economic activity, for the purpose of providing an advisory opinion on value in respect of the above issue.

3. Valuation Subject and Scope of Valuation

The valuation subject is the entire shareholders’ equity of PetroChina Dalian LNG Co., Ltd.

The scope of valuation includes all the assets and related liabilities of PetroChina Dalian LNG Co., Ltd. as at the valuation date. The carrying value of total assets was RMB1,617,853.80 thousand; total liabilities amounted to RMB618,684 thousand; and net assets amounted to RMB999,169.80 thousand.

Specific categories of the assets include: current assets (monetary capital, prepayments and other receivables), construction in progress and current liabilities (account payables, remuneration payables and tax payables).

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APPENDIX II

ASSET VALUATION REPORT OF DALIAN LNG

The audited carrying amounts of the above assets and liabilities before valuation based on PRC GAAP are as follows:

Unit: RMB 0’000

Item Original Carrying Value Current Assets Non-current Assets Of which: Long-term equity investment Investment properties Fixed assets 20.93 Construction in progress Oil and gas properties Intangible assets Of which: Land use rights Other non-current assets Total assets Current liabilities Non-current liabilities Total liabilities Net Assets	Net Carrying Value 1,163.35 160,622.02 0.00 0.00 20.60 160,573.75 0.00 0.00 0.00 27.67
	161,785.38

	61,868.40 0.00
	61,868.40

	99,916.98

The main asset of the valuation was the LNG project under construction, which received the approval from the National Development and Reform Commission in 2008. As of the valuation date, the bank protection, water intake, work boat dock and land formation works of the LNG project have been completed; the roof lifting for No. 1 and 2 storage tanks has been completed; other projects are still under construction, and land use rights have not been obtained.

The scope of assets reported for valuation is consistent with the scope of assets commissioned to be valued. The scope of assets was audited by China Rightson YueHua Certified Public Accountant Company Limited ( ), which also provided an auditor’s report with unqualified opinion.

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4. Type of Value and Definition

For the purpose of this valuation and in accordance with the specific conditions of the valuation subject, it is confirmed that the value to be appraised will be market value.

Market value, which is selected to be used for this valuation, refers to the estimated value of the valuation subject under normal and fair transaction reasonably conducted on the valuation date for valuation between a willing buyer and a willing seller.

5. Valuation Date

The valuation date for the assets of the project is 31 December 2009.

The valuation date is the date most close to the actual date of the implementation of the economic activity of valuation, and shall be confirmed by the principal in accordance with its working plan.

6. Basis of Valuation

(1) Basis of Behaviors

The engagement contract entered into by Kunlun Energy Company Limited and Beijing China Enterprise Appraisals Co., Ltd;
The board resolution of Kunlun Energy Company Limited.

(2) Basis of Laws and Regulations

“Company Law of the People’s Republic of China” (amended at the 18th Session of the Standing Committee of the Tenth National People’s Congress of the People’s Republic of China on 27 October 2005);
“Law of the People’s Republic of China on the State-Owned Assets of Enterprises” (adopted at the 5th Session of the Standing Committee of the 11th National People’s Congress of the People’s Republic of China on 28 October 2008);
“Interim Measures for the Supervision and Administration of State-Owned Assets of Enterprises”(Order of the State Council of the People’s Republic of China (No.378));
“Interim Measures for the Management of the Transfer of State-owned Property Rights of Enterprises” (Order of the State-Owned Assets Supervisory and Regulatory Commission of the State Council (No. 3));

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APPENDIX II

“Administrative Measures on the Evaluation of State-Owned Assets”(Order of the State Council of the People’s Republic of China (No. 91));
“Detailed Rules for the Implementation of the Administrative Measures for State-Owned Assets Assessment” ([1992] No.36 of the Office of the former National State-Owned Assets Administration Bureau);
“Circular of the General Office of the State Council on the Transmission of the Recommendations Submitted by Ministry of Finance Concerning Assessment on the Reform of State-Owned Assets Administration and Strengthening the Supervision and Management of Assets Valuation”(Guo Ban Fa [2001] No. 102);
“Interim Measures for the Administration of Assessment of State-Owned Assets of Enterprises” (Order of the State-Owned Assets Supervision and Administration Commission of the State Council (No. 12));
“Notice of Certain Issues on Strengthening Administration on State-Owned Assets Appraisal” from State-owned Assets Supervision and Administration Commission of the State Council (Guo Zi Wei Chan Quan [2006] No. 274);
Other relevant laws, regulations and notices.

(3) Basis of Valuation Principles

“Notice on Publication of ’Assets Evaluation Principles-Basic Principles’ and ’Assets Evaluation Professional Ethics Principles-Basic Principles’” from the Ministry of Finance (Cai Qi [2004] No.20);
“Notice on the Publication of Seven Assets Evaluation Principles including ’Assets Evaluation Principles-Appraisal Report’” from the China Appraisal Society (Zhong Ping Xie [2007] No. 189);
“Regulatory Opinions on Operations of Assets Appraisal (Trial Implementation)” from the China Appraisal Society (Zhong Ping Xie [1996] No. 03);
“Guidelines on Enterprise State-Owned Assets Appraisal Reports” from the China Appraisal Society (Zhong Ping Xie [2008] No. 218);
“Directive Opinions of Registered Asset Valuers Giving Concern over the Legal Ownership of the Valuation Object” from the Chinese Institute of Certified Public Accountants (Hui Xie [2003] No. 18);

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APPENDIX II

“Enterprise Accounting Standards-Basic Standards” (Order 33, issued by the Ministry of Finance in 2006);
“Accounting Standards for Business Enterprises 2006” from the Ministry of Finance;
“Manual of the Application of 2006 Accounting Standards for Business Enterprises” and “Interpretation of 2006 Accounting Standards for Business Enterprises” from the Ministry of Finance;

(4) Basis of Ownership

1 Vehicle licenses;
Major project contracts;
Articles of Association, business license etc;
Related business contracts and invoices.

(5) Pricing Basis

Contracts in relation to project construction provided by the enterprise;
Project planning, development plan and project information provided by the enterprise;
Regulations on Estimation and Budget Drafting of Construction Engineering of Coastal Harbor, Quota of the Hydraulic Construction Engineering of Coastal Harbor, Charge Quota per Ship of the Machinery Installation Engineering of Hydraulic Construction and Loading and Discharging Mechanical Equipment of Coastal Harbor, Quantity Quota of Concrete and Mortar Materials Used for the Water Transport Engineering, Reference Quota of the Hydraulic Construction Engineering of Coastal Harbor (Jiao Shui Fa [2004] No. 247, Ministry of Communications);
Information on the Waterway Engeering Standard and Construction Cost Management in the 4th Quarter of 2009;
Pricing Quota of A Construction Project, Charge Standard per Time of the Construction Mechanical Equipment, Charge Standard of Construction Project, all of which were pricing basis of construction project in 2008 in Laoning Province;
Related information of Construction Cost in the 4th Quarter of 2009;
Contracts for acquisition of major assets provided by the enterprise;

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Obsolescence Standards on Motor Vehicle promulgated on 15 July 1997 by the two committees, three departments and one bureau of the state and the Notice on the Amendments to Obsolescence Standards on Motor Vehicle promulgated on 18 December 2000;
Notice on the Publication of “Administrative Measures on Fee Collection of Construction Project Supervision and Related Services” by the National Development and Reform Commission and the Ministry of Construction issued on 30 March 2007 (Fa Gai Jia Ge [2007] No. 670);
Notice of the State Planning Committee and the Ministry of Construction with regard to the “Administrative Measures on Fee Collection of Construction Inspection and Design” (Ji Jia Zi [2002] No. 10) on 7 January 2002;
The bank lending rate on the valuation date;
The special audit report on the valuation date;
Financial and accounting system provided by the enterprise;
Other related financial information and project information provided by the enterprise;
Other data collected by valuers.

7. Valuation Methods

Cost approach is addopted in valuating the assets within the scope of valuation, taking into account of the valuation purpose and the characteristics of the valuation subject.

(1) Selection of valuation methods

The basic assets valuation methods comprise market approach, income approach, and cost approach. The valuer shall base on the difference between the valuation subjects, the types of the value and the collection of materials, etc. in assessing the applicability of these three approaches and choose one or more basic assets valuation methods appropriately.

Market approach is a valuation method determining the prices of assets commissioned upon an adjustment by comparing such assets with comparable assets transacted in the market with reference to the transaction prices. Market approach takes the actual market transactions as reference in determining the current fair value of the valuation subject, which is observable during the valuation process while the data for the valuation is on market-based. However, there should be an appropriate reference market transaction in applying the market

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APPENDIX II

approach. Since it is unable to identify any market transaction that is comparable to the case of the entity to be valued, market approach is not applicable to this valuation.

Income approach is a valuation method that discounts the expected future revenue of the assets commissioned into present value with specific discount rates for the purpose of determining their values. The inherent value of the assets commissioned, which means future profitability is the basis of income approach in determining the values of assets which reflect the contribution of the assets commissioned to their owners.

Currently, the LNG project of the entity to be valued is under construction. The company was established at the end of March 2009, 9 months before the valuation date. As of the valuation date, however, PetroChina Company Limited has not entered into any gas supply agreement with other countries nor identified any end customers for the gas sales. Therefore, a stable gas supply and sales channel has not yet been established.

Thus, it is difficult to precisely anticipate the market, customers, unit price, risk exposure to profit-earning and the life of income generation of natural gas by the income approach and, therefore, income approach would not be used in this valuation.

The cost method is also known as the asset-based method. According to the cost method, the value of the valuation subject will be determined on the basis of a reasonable assessment of the value of all assets and liabilities of an enterprise. In this valuation, since the entity to be valued is under construction and is not yet put into normal operation, the adoption of cost method can reasonably reflect the assets composition and corresponding asset values.

(2) Description of cost approach

1. Valuation of current assets

As for the valuation of monetary capital, through monitoring the cash on hand of the reported unit on the current valuation working day, the valuer back-calculates the value on the valuation date. As for bank deposits, a trial balance will be made by using the bank statements and bank reconciliations and after double-checking, the appraised values will be determined based on the verified carrying amounts.

As for receivables (prepayments and other receivables), the valuer, together with the auditors, seek letter confirmation, analyzes the business and aging through examining the books and original evidences and carries out procedures like random checking and letter confirmation in respect of business contracts of large amount, in order to analyze the existence and recoverability of the receivables, on which the appraised values are determined.

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ASSET VALUATION REPORT OF DALIAN LNG

APPENDIX II

2. Valuation of vehicles

The replacement cost method is adopted for the valuation of vehicle assets, the calculation of the appraised values is:

The appraised values = full replacement cost x residue ratio

(1) Determination of the full replacement cost of vehicles

The full replacement cost of vehicles is comprised of the purchase price, purchase tax and other charges (such as examination fee, license fee, handling charges).

The purchase price: determined by referring to the latest market price of the same type of vehicle is the same place, other charges are determined on the basis of the reasonable charges level charged by the local vehicle regulating authorities.

Purchase surtax: pursuant to provisions of “Provisional Regulations on the Vehicle Purchase Tax of the People’s Republic of China” (Decree No. 294 of the State Council, 2001), tax payable for vehicle purchase = assessable price x 10%. Due to the fact that “the assessable price of a vehicle for the taxpayer’s personal use will exclude value-added tax”, therefore: purchase surtax = purchase price ÷ (1+17%) x 10%.

(2) Determination of residue ratio of vehicles

As to vehicles, pursuant to the current mandatory obsolescence standards on vehicles, the residue ratio is calculated using the mileage method of the straight line method or that (whichever is less) and may be subject to adjustment in conjugation with site inspection. Where the results of site inspection are similar to the residue ratio calculated according to the lesser of the above methods, then no adjustment is necessary.

(3) Determination of appraised Value

The appraised value is calculated by multiplying the full replacement cost by the residue ratio.

3. Valuation of construction in progress

In valuating the constructions in progress, the replacement cost method is adopted. The reported LNG constructions in progress are projects not yet completed. The valuers determine the valuation method after taking into account of the actual progress of the constructions in progress, characteristics of group classification and fund classification etc. The

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APPENDIX II

constructions in progress reported by the entity are mainly comprised of construction and installation cost, progress payment , upfront and other costs and capital cost etc.

(1) Determination of construction and installation cost of the project

Where the physical object of the sub-construction in progress has completed a stage on the valuation date, pursuant to the industry quota and related charging requirements, the construction and installation cost is determined based on the work amount completed as at the valuation date verified by three parties after site inspection and the actual project progress and progress payment; where the sub-construction in progress is not completed as at the valuation date, the appraised value is determined based on the verified and audited carrying value net of any unreasonable charges thereof;

(2) Determination of progress payment, upfront and other costs

The valuers determined the appraised value based on the verified an audited carrying value net of any unreasonable charges thereof after verifying the related information in relation to the contract for project settlement and work acknowledgments;

(3) Determination of the appraisal value of capital cost

The capital cost is determined based on the re-measured construction and installation cost as well as the upfront and other costs, taken into account the reasonable construction period and completed period of the LNG project, and calculated by evenly applying the lending rate as at the valuation date in connection to the reasonable construction period.

4. Valuation of current liabilities

Current liabilities includes account payables, payroll payables, tax payables, other payables and other current liabilities. As for liabilities, the valuers determine the appraised value based on the actual liabilities which should be borne by the entity after verifying the carrying value according to the breakdown of each project and related financial information provided by the entity.

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APPENDIX II

8. Implementation and procedure of valuation

The procedure of valuation is detailed as follows:

(1) Acceptance of engagement

In January 2010, the principal confirmed that Beijing China Enterprise Appraisals Co., Ltd. has been engaged as the assets appraisal agency of this project, pursuant to which we entered into an engagement agreement to specify the purpose, subject and scope of the valuation and the valuation date.

(2) Formulation of valuation plan and formation of valuation team

To ensure the quality and that unified valuation methods and parameters are used, we formulated the unified working plan for the asset valuation with reference to the actual condition and asset deployment of this project and formed a valuation team in accordance with the requirement of the project.

(3) Asset Checking

On the basis that the entity honestly reported its assets and conducted an overall self-check on the assets to be valued, the valuer has comprehensively checked the assets within the scope of valuation on site during the period from 15 January to 24 January 2010. Physical asset checking includes construction in progress. The work we carried out was mainly verification of the progress of the projects under construction, physical condition and other important factors that would affect the appraised value.

(4) Determining the estimations

During the period from 25 January to 31 January 2010, the valuer carried out valuation work after determining the parameters and pricing standards on site according to the working plan prepared with reference to the characteristics of this project, taking into account of the pricing principle of each asset catergory in accordance with actual conditions.

(5) Compilation and review

In February 2010, we analyzed and summarized the results for conclusion, prepared the decription and asset valuation report. Before submitting the report to the principal, our internal review committee has made a final review of the report.

(6) Submission of report

The formal report was submitted to the principal after amendments were made in respect of the review opinions.

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ASSET VALUATION REPORT OF DALIAN LNG

APPENDIX II

9. Valuation assumption

(1) There are no material changes in the nation’s existing relevant laws and regulations affecting the enterprise’s business operation as well as the basic policies of the industry in which the enterprise is engaged in; there are no significant changes in macro-economic situation except those known to the public; there are no significant changes in the political, economic and social environment in the region where the enterprise is located except those known to the public; there is no force majeure nor other unexpected factors which would bring negative effect.
(2) It is assumed that the entity operates as a going concern with reference to the actual condition of the assets on the valuation date and that the valuation subject continues to be used for the current purposes under the intended usage, scale, frequency and circumstances.
(3) Information authenticity assumption, i.e. the collected asset information as provided by the principal and title holder is true and legal.
(4) It is assumed that the management of the entity is accountable for and capable of performing its duty.
(5) Unless otherwise specified, it is assumed that the entity is fully in compliance with the related laws and regulations.
(6) It is assumed that the accounting policies adopted are material by the entity in the future is basically consistent with those adopted in preparing this report in all material aspects.
(7) It is assumed that the business scope and mode will be in line with the current trend under the current management approach and standard.
(8) There is no material change in relation to interest rate, exchange rate, taxation basis and tax rate and policy-imposed levies.
(9) It is assumed that the entity is able to implement its significant future investment project as expected and there will be no significant change to the scheduled plan.

Under the requirements of the asset valuation, it is maintained that these assumptions hold on the valuation date. In case the economic environment undergoes significant changes in the future, the valuer is not responsible for any different valuation conclusions as a result of changes of the assumption.

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10. Valuation conclusion

We performed on-site inspection, market research and enquiry on the assets and liabilities within the valuation scope, using cost method in accordance with necessary valuation procedure, according to the relevant requirements on asset valuation of the state, with independent, fair and objective principles, during which the characteristics of the valuation purpose and valuation subject have also been taken into account. In light of the above valuation work, the valuation conclusion is as follows:

Considering the entity as a going concern, on the valuation date, 31 December 2009, the entity had total assets with carrying value of RMB1,617,853.80 thousand, total liabilities with carrying value of RMB618,684 thousand and net assets with carrying value of RMB999,169.80 thousand ; and after the valuation the total asset would be RMB1,679,469.90 thousand, total liabilities RMB618,684 thousand and net assets RMB1,078,785.90 thousand, representing an and increase in value of RMB79,616.20 thousand or 7.97%. For the details of valuation conclusion, please see the Summary of Results of Assets Valuation and the valuation breakdown.

Summary of Results of Assets Valuation

Unit: RMB 0’000

		Carrying	Appraised	Change in	Appreciation
As at 31 December 2009		Value	Value	Value	Rate (%)
Item		A	B	C = B-A	D = C/A x 100%
Current assets	1	1,163.35	1,163.35	0.00	0.00
Noncurrent assets	2	160,622.02	168,583.64	7,961.62	4.96
Of which: Long-term equity investment	3	0.00	0.00	0.00
Real estate for investment	4	0.00	0.00	0.00
Fixed assets	5	20.60	20.68	0.08	0.41
Construction in progress	6	160,573.75	168,535.28	7,961.53	4.96
Oil and gas assets	7	0.00	0.00	0.00
Intangible assets	8	0.00	0.00	0.00
Of which: Land use rights	9	0.00	0.00	0.00
Other noncurrent assets	10	27.67	27.67	0.00	0.00
Total assets	11	161,785.38	169,746.99	7,961.62	4.92
Current liabilities	12	61,868.40	61,868.40	0.00	0.00
Noncurrent liabilities	13	0.00	0.00	0.00
Total liabilities	14	61,868.40	61,868.40	0.00	0.00
Net Assets	15	99,916.98	107,878.59	7,961.62	7.97

11. Explanation of Special Issues

The followings are the relevant issues found during the valuation process that would affect the valuation conclusion and beyond the valuers’ professional proficiency and ability to conduct the valuation estimation (including but not limited to):

(1) The valuation conclusion presented by Beijing China Enterprise Appraisals Co., Ltd., might be affected by the professional proficiency and capacity of the valuers and others involved in this valuation.

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APPENDIX II

(2) This valuation conclusion reflects the current price of the valuation subject based on the open market principle for this valuation purpose, without considering the guarantee and pledge and the impact on the valuation value caused due to higher bidding prices by other parties with special interests nor taking into account the impact on asset price due to change of macro economic policies of the state, or encountering natural disasters and other force majeure. In case of changes in the foregoing conditions and the principle of going concern adopted in the valuation, the valuation result shall become invalid.
(3) All materials such as business activity document, business license, title document, financial statement, accounting evidences, asset breakdown and other related information relating to the valuation provided by the principal and the appraised entity form the basis for preparing the report; whereas the principal, the appraised unit and related parties shall be liable for the truthfulness, validity and completeness of such materials they provided.
(4) For any defect issues regarding the entity that may affect the appraised value of the assets and which the company has not specifically advised the valuers upon engagement and would generally not have been known to the appraisal staff otherwise, the appraisal agency and the valuers assume no responsibility therefor.
(5) The valuers have communicated with the principal before issuing the report, and reminded the user of this report of proper interpretation and use of the report. The valuers appraisal agency are not liable for the decistion-making of the related parties.
(6) Premiums or discounts caused by factors such as controlling interest and minority interest and the effect of the liquidity and the value of the valuation subject have not been taken into consideration in this valuation.

Users of the valuation report shall pay attention to the impact of the above special issues on the valuation conclusion.

12. Explanation of Limitation on the Use of Valuation Report

(1) The valuation conclusion set out in this report is only valid for the proposed acquision by Kunlun Energy Company Limited of the equity interests in PetroChina Dalian LNG Co., Ltd. held by PetroChina Company Limited, the valid period of which is one year form the valuation date; where the purpose of this valuation is realized within one year from the valuation date, the valuation results may be used as reference in realizing this valuation purpose. After one year, revaluation of the assets shall be performed; the valuation conclusion is also susceptible to factors such as changes of external market conditions, and is subject to revaluation if there are significant changes to the market conditions or asset conditions.

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(2) This valuation report is a professional conclusion issued by the valuer in accordance with PRC laws and regulations, shall be legally binding with the signatures and seals of appraisal agency and the valuers affixed in accordance with the relevant requirements of PRC laws and regulations, and shall be valid and formally used only after filing.
(3) The valuation conclusion of this valuation report only serves the appraised assets and the valuation purpose and the registered certified asset valuer who signed the report and the appraisal agency where he serves shall not be liable for the consequences resulted from improper use thereof.
(4) This report is for the sole use of the principal, other users specified in the valuation engagement agreement and users regulated by the laws and regulations of the state, and no institutions or individuals shall become the user of this report as a result of possession thereof; without permission of the principal, we shall not provide or disclose it to others; without our permission, the contents of this report shall not be abstracted, excerpted or disclosed to public media, unless otherwise permitted by laws, regulations and related parties.

13. Date of the Valuation Report

The submission date of the valuation report to the principal is: 6 August 2010.

14. Signature and Seal

Legal Representative: Sun Yuehuan

Registered Certified Registered Certified Asset Valuer: Asset Valuer: Sun Jianzhong Chen Yugang Beijing China Enterprise Appraisals Co., Ltd. 6 August 2010

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APPENDIX II

APPENDIX OF THE ASSETS APPRAISAL REPORT

Copies of the relevant documents of economic activity
Specific Audit Report of the appraised unit
The business licenses of the principal and the appraised unit
Undertaking Letter from the principal and the appraised unit
The assets appraisal qualification certificates of Beijing China Enterprise Appraisals Co., Ltd.
Copy of business license of Beijing China Enterprise Appraisals Co., Ltd.

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GENERAL INFORMATION

APPENDIX III

1. RESPONSIBILITY STATEMENT

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

2. DISCLOSURE OF INTERESTS OF DIRECTORS

As at the Latest Practicable Date, the interests or short positions of the Directors and chief executive of the Company in the shares, underlying shares and debentures of the Company or any associated corporation (within the meaning of Part XV of the SFO) which (a) are required to be notified to the Company and the Stock Exchange pursuant to Divisions 7 and 8 of Part XV of the SFO (including interests and short positions which any such Director and chief executive of the Company is taken or deemed to have under such provisions of the SFO); or which (b) are required, pursuant to section 352 of the SFO, to be entered in the register maintained by the Company; or which (c) are required, pursuant to the Model Code for Securities Transactions by Directors of Listed Companies, to be notified to the Company and the Stock Exchange are set out below.

2.1 Ordinary Shares of HK$0.01 Each of the Company

			Percentage
	Number	Capacity and	of Issued
Name	of Shares	Nature of Interests	Shares
Li Hualin(1)	14,000,000	Beneficial owner	0.28%
Li Kwok Sing Aubrey(1)	1,000,000	Beneficial owner	0.02%

Notes:

(1) The interests held by Mr. Li Hualin and Mr. Li Kwok Sing Aubrey represent long position in the Shares of the Company.

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APPENDIX III

2.2 Share Options

Shares options were granted to the Directors, chief executives and employees of the Company under the executive share option scheme approved by the Board on 3 June 2002, details of which are set out below:

Name Date of Grant Exercise Period Exercise Price HK$ Directors Li Hualin 8 Jan 2007 8 Apr 2007 – 7 Jan 2012 4.186 26 May 2008 26 Aug 2008 – 25 May 2013 4.240 26 Mar 2009 26 Jun 2009 – 25 Mar 2014 3.250 26 Mar 2010 26 Jun 2010 – 25 Mar 2015 10.320 Zhang Bowen 8 Jan 2007 8 Apr 2007 – 7 Jan 2012 4.186 26 May 2008 26 Aug 2008 – 25 May 2013 4.240 26 Mar 2009 26 Jun 2009 – 25 Mar 2014 3.250 26 Mar 2010 26 Jun 2010 – 25 Mar 2015 10.320 Cheng Cheng 8 Jan 2007 8 Apr 2007 – 7 Jan 2012 4.186 26 May 2008 26 Aug 2008 – 25 May 2013 4.240 26 Mar 2009 26 Jun 2009 – 25 Mar 2014 3.250 26 Mar 2010 26 Jun 2010 – 25 Mar 2015 10.320 Lau Wah Sum 26 Mar 2010 26 Jun 2010 – 25 Mar 2015 10.320 Li Kwok Sing Aubrey 26 Mar 2010 26 Jun 2010 – 25 Mar 2015 10.320 Liu Xiao Feng 26 Mar 2010 26 Jun 2010 – 25 Mar 2015 10.320 Employees 27 Apr 2005 27 Jul 2005 – 26 Apr 2010 1.224 8 Jan 2007 8 Apr 2007 – 7 Jan 2012 4.186 14 Sep 2007 14 Dec 2007 – 13 Sep 2012 4.480 26 May 2008 26 Aug 2008 – 25 May 2013 4.240 26 Mar 2009 26 Jun 2009 – 25 Mar 2014 3.250 26 Mar 2010 26 Jun 2010 – 25 Mar 2015 10.320	Outstanding at 1 January 2010 25,000,000 3,200,000 3,200,000 – 20,000,000 2,400,000 2,400,000 – 10,000,000 1,500,000 1,500,000 – – – – 17,500,000 25,000,000 20,000,000 7,000,000 7,000,000 – 145,700,000	Number of Share Options Granted Exercised – – – – – – 3,200,000 – – – – – – – 2,400,000 – – – – – – – 1,500,000 – 400,000 – 400,000 – 400,000 – – 17,500,000 – – – – – – – – 7,000,000 – 15,300,000 17,500,000	Outstanding at the Latest Practicable Date 25,000,000 3,200,000 3,200,000 3,200,000 20,000,000 2,400,000 2,400,000 2,400,000 10,000,000 1,500,000 1,500,000 1,500,000 400,000 400,000 400,000 – 25,000,000 20,000,000 7,000,000 7,000,000 7,000,000
			143,500,000

Save as disclosed above, as at the Latest Practicable Date, none of the Directors, the chief executive of the Company nor their associates, had any other interests or short positions in the shares, underlying shares and debentures of the Company or any

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APPENDIX III

associated corporations (within the meaning of Part XV of the SFO) which (a) were required to be notified to the Company and the Stock Exchange pursuant to Divisions 7 and 8 of Part XV of the SFO (including interests or short positions which any such Director or the chief executive of the Company is taken or deemed to have under such provisions of the SFO); or which (b) were required, pursuant to section 352 of the SFO, to be entered in the register maintained by the Company; or which (c) were required, pursuant to the Model Code for Securities Transactions by Directors of Listed Companies contained in the Listing Rules, to be notified to the Company or the Stock Exchange, and none of the Directors, nor their spouse or children under the age of 18, had any right to subscribe for securities of the Company, or had exercised any such right since 31 December 2009 (being the date of the Company’s latest published audited accounts).

2.3 Competing Business

Save as disclosed below, as at the Latest Practicable Date, none of the Directors and their respective associates had any interest in a business which competes or may compete with the businesses of the Group (as would be required to be disclosed under Rule 8.10 of the Listing Rules if each of them were a controlling shareholder).

Name of	Name of		Nature of
director	company	Nature of interest	competing business
Mr Li Hualin	PetroChina	Vice-President, Company	Exploration, development
		Secretary and	and production and
		authorised	marketing of crude oil
		representative	and natural gas

As the Board of Director is independent of the board of the above entity, the Company has therefore been capable of carrying on its businesses independently of, and at arm’s length from, the above business.

2.4 Additional Disclosure of Interest

There was no contract or arrangement subsisting as at the Latest Practicable Date, in which any of the Directors was materially interested and which was significant in relation to the businesses of the Group.

Save as disclosed herein, none of the Directors, directly or indirectly, has had any interest in any assets which had since 31 December 2009 (being the date to which the latest published audited financial statements of the Company were made up) been 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.

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3. SUBSTANTIAL SHAREHOLDERS

As at the Latest Practicable Date, the register of substantial shareholders maintained under section 336 of the SFO, showed that the Company has been notified of the following interests, being 5% or more of the Company’s issued share capital. These interests are in addition to those disclosed above in respect of the Directors, the chief executive and employees of the Company.

	Number of Shares	Number of Shares
			Percentage of the
			total number of
Name	Direct Interest	Indirect Interest	hares in issue
Sun World Limited (“Sun World”) (1)	2,513,917,342 (L)	–	50.74%
PetroChina Hong Kong (BVI) Ltd.
(“PetroChina (BVI)”) (1)	–	2,513,917,342 (L)	50.74%
PetroChina Hong Kong Ltd.
(“PetroChina Hong Kong”) (1)	–	2,513,917,342 (L)	50.74%
PetroChina Company Limited (1)	–	2,513,917,342 (L)	50.74%
China National Oil and Gas Exploration
and Development Corporation
(“CNODC”) (2)	–	315,312,000 (L)	6.37%
CNPC International Ltd. (“CNPCI”) (2)	–	315,312,000 (L)	6.37%
Fairy King Investments Ltd	315,312,000 (L)	–	6.37%
China National Petroleum
Corporation (1) (2)	–	2,829,229,342 (L)	57.11%

Notes:

(1) Sun World is a wholly-owned subsidiary of PetroChina (BVI), which in turn is wholly owned by PetroChina Hong Kong. PetroChina Hong Kong is wholly owned by PetroChina, which is in turn owned as to 86.35% by CNPC. Accordingly, CNPC is deemed to have interest in the 2,513,917,342 shares held by Sun World. Mr Li Hualin, the Chairman of the Company and Mr Zhang Bowen, the Chief Executive Officer of the Company are also directors of Sun World, which is a substantial shareholder of the Company (within the meaning of Part XV of the SFO).
(2) Fairy King Investments Ltd is a wholly-owned subsidiary of CNPCI, which in turn is wholly owned by CNODC, which is in turn owned as to 100.00% by CNPC. Accordingly, CNPC is deemed to have interest in the 315,312,000 shares held by Fairy King Investments Ltd.

Save as disclosed above, as at the Latest Practicable Date, the Directors and the chief executive of the Company were not aware of any person (other than a Director or chief executive of the Company) who had any interest or short position in the Shares or underlying Shares of the Company which would fall to be disclosed to the Company under Divisions 2 and 3 of Part XV of the SFO.

As at the Latest Practicable Date, the Directors and the chief executive of the Company were not aware of any person (other than a Director or chief executive of the Company) who was, 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 other member of the Group, or any options in respect of such capital.

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GENERAL INFORMATION

APPENDIX III

4. SERVICE CONTRACTS

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

5. MATERIAL ADVERSE CHANGE

The Directors were not aware of any material adverse change in the financial or trading position of the Group since 31 December 2009 (being the date to which the latest published financial statements of the Company have been made up) and up to the Latest Practicable Date.

6. QUALIFICATION AND CONSENT OF EXPERTS

The followings are the qualifications of the experts who have given opinion or advice which is contained in this circular:

Name Qualification Guangdong Securities a licensed corporation to carry out type 1 (dealing in securities), type 2 (dealing in futures contracts), type 4 (advising on securities), type 6 (advising on corporate finance) and type 9 (asset management) regulated activities as defined under the SFO BMI Appraisals Limited Independent Professional Valuer Beijing China Enterprises a China Certified Public Assets Valuer approved Appraisal Co. Ltd. by the Finance Bureau of Beijing Municipal Government

Each of the experts referred to above has given and has not withdrawn its written consent to the issue of this circular with the expert’s statement included in the form and context in which it is included.

Save as aforementioned, as at the Latest Practicable Date, the experts referred to above did not have any shareholding in any member of the Group nor did they have any right (whether legally enforceable or not) to subscribe for securities in any member of the Group.

None of the experts referred to above, directly or indirectly, has had any interest in any assets which had since 31 December 2009 (being the date to which the latest published audited financial statements of the Company were made up) been acquired or disposed of by or leased to any member of the Group, or are proposed to be acquired or disposed of by or leased to any member of the Group.

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APPENDIX III

7. LITIGATION

So far as the Directors are aware, as at the Latest Practicable Date, neither the Company nor any of its subsidiaries was engaged in any litigation or arbitration of material importance and no litigation or arbitration of material importance was pending or threatened against the Company or any of its subsidiaries.

8. GENERAL

(a) The Hong Kong branch share registrar and transfer office of the Company is Tricor Secretaries Limited at 26/F., Tesbury Centre, 28 Queen’s Road East, Hong Kong.
(b) The Company Secretary of the Company is Mr. Lau Hak Woon, member of Hong Kong Institute of Certified Public Accountants in Hong Kong, fellow member of The Chartered Association of Certified Accountants in UK and Certified Management Accountant of the Society of Management Accountants of Ontario in Canada.
(c) In the event of any inconsistency, the English language text of this circular shall prevail over the Chinese language text.

9. DOCUMENTS AVAILABLE FOR INSPECTION

Copies of the following documents will be available for inspection during business hours at the registered office of the Company at Rooms 3907 – 3910, 39th Floor, 118 Connaught Road West, Hong Kong from the date of this circular up to and including 20 September 2010:

(i) the memorandum and the articles of association of the Company;
(ii) the proposed Acquisition Agreement;
(iii) valuation report on the property interests of Dalian LNG;
(iv) asset valuation report of Dalian LNG;
(v) audited accounts of the Group for the two financial years ended 31 December 2009; and
(vi) this circular.

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NOTICE OF THE SGM

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KUNLUN ENERGY COMPANY LIMITED
(incorporated in Bermuda with limited liability)
昆侖能源有限公司
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(Stock Code: 00135)

(Formerly known as CNPC (Hong Kong) Limited

NOTICE OF SGM

NOTICE IS HEREBY GIVEN that the SGM of Kunlun Energy Company Limited (formerly known as CNPC (Hong Kong) Limited) (the “Company”) will be convened at Everest Room, Level 5, One Pacific Place, 88 Queensway, Hong Kong on 21 September 2010 (Tuesday) at 11:00 a.m. for the purpose of considering and, if thought fit, passing with or without modifications, the following resolutions as ordinary resolutions of the Company:–

“ THAT:

(i) The bidding by the Company of the Relevant Equity Interest (as defined in the circular of the Company in respect of the Dalian LNG Acquisition of the Company dated 4 September 2010 (the “ Circular ”)) at a price of not more than RMB2,210.00 million at the China Beijing Equity Exchange and upon such bidding being successful, the entering into of the Acquisition Agreement in respect of the Relevant Equity Interest between the Company and PetroChina and the transactions contemplated under the Acquisition Agreement as defined in the Circular (a copy of which is tabled at the meeting and initialled by the chairman of the meeting for identification purposes) be and are hereby generally and unconditionally approved; and
(ii) any one director (if execution under the common seal of the Company is required, any two directors) of the Company be and is/ are hereby authorised for and on behalf of the Company to sign, and where required, to affix the common seal of the Company to any documents, instruments or agreements, and to do any acts and things deemed by him to be necessary or expedient in order to give effect to the Dalian LNG Acquisition.”

By Order of the Board Lau Hak Woon Company Secretary

Hong Kong, 4 September 2010

Notes:

A member entitled to attend and vote at the meeting 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. Completion and return of the proxy form will not preclude a member from attending and voting in person at the meeting or any adjourned meeting should he so wish.

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NOTICE OF THE SGM

To be valid, the proxy form, together with a power of attorney or other authority (if any) under which it is signed or a notarially certified copy of such power of attorney or authority, must be deposited at the Company’s principal office at Rooms 3907 – 3910, 39th Floor, 118 Connaught Road West, Hong Kong not less than 48 hours before the time appointed for holding the meeting or adjourned meeting (as the case may be). The proxy form must be completed strictly in accordance with the instructions set out therein.
(China National Petroleum Corporation) and its associates will abstain from voting in respect of Resolutions Nos. 1 and 2.
Unless otherwise defined, terms used in this notice shall have the same meanings as those defined in the Circular.

– 63 –

AI assistant

Raymond Industrial Limited — Proxy Solicitation & Information Statement 2010

49052_rns_2010-09-05_ca084739-3301-43a3-b3e8-1693401a2b93.pdf

(Stock Code: 00135)

DISCLOSEABLE AND CONNECTED TRANSACTIONS IN RELATION TO THE DALIAN LNG ACQUISITION

CONTENTS

DEFINITIONS

DEFINITIONS

KUNLUN ENERGY COMPANY LIMITED (incorporated in Bermuda with limited liability) 昆侖能源有限公司

(Stock Code: 00135)

DISCLOSEABLE AND CONNECTED TRANSACTIONS IN RELATION TO THE DALIAN LNG ACQUISITION

1. INTRODUCTION

2. DALIAN LNG ACQUISITION

2.1 The Dalian LNG Acquisition through China Beijing Equity Exchange

(a) The Proposed Tender

(b) Proposed Consideration

(c) The terms of the proposed Acquisition Agreement

(i) Consideration

(ii) Conditions Precedent

LETTER FROM THE BOARD

(iii) Completion

2.2 Tender process at China Beijing Equity Exchange

2.3 Reasons for, and benefits of, the Dalian LNG Acquisition

2.4 Implication of the Listing Rules

3. INFORMATION ON THE COMPANY AND OTHER PARTIES

(a) Information on the Company

(b) Information on PetroChina

(c) Information on CNPC

(d) Information on Dalian LNG

4. SGM

5. RECOMMENDATION

LETTER FROM THE BOARD

6. ADDITIONAL INFORMATION

LETTER FROM INDEPENDENT BOARD COMMITTEE

KUNLUN ENERGY COMPANY LIMITED (incorporated in Bermuda with limited liability) 昆侖能源有限公司

(Stock Code: 00135)

DISCLOSEABLE AND CONNECTED TRANSACTIONS IN RELATION TO THE DALIAN LNG ACQUISITION

DISCLOSEABLE AND CONNECTED TRANSACTIONS IN RELATION TO THE DALIAN LNG ACQUISITION

INTRODUCTION

LETTER FROM GUANGDONG SECURITIES

BASIS OF OUR OPINION

PRINCIPAL FACTORS AND REASONS CONSIDERED

(1) Background of the Dalian LNG Acquisition

Information on the Group

Information on Dalian LNG

Information on the LNG Terminal

(2) Reasons for the Dalian LNG Acquisition

(3) Principal terms of the Acquisition Agreement

PBR analysis for the Proposed Consideration

LETTER FROM GUANGDONG SECURITIES

Other terms of the Acquisition Agreement

(4) Possible financial effects of the Dalian LNG Acquisition

Effect on net assets

Effect on earnings

Effect on gearing and working capital

RECOMMENDATION

INSTRUCTIONS

BASIS OF VALUATION

PROPERTY CATEGORISATIONS

VALUATION METHODOLOGIES

TITLE INVESTIGATION

VALUATION ASSUMPTIONS

VALUATION CONSIDERATIONS

REMARKS

Yours faithfully, For and on behalf of BMI APPRAISALS LIMITED

Joannau W.F. Chan

SUMMARY OF VALUES

No. Property

Group I – Property held by Dalian LNG under construction in the PRC

Group II – Property rented by Dalian LNG in the PRC

VALUATION CERTIFICATE

APPENDIX I

VALUATION CERTIFICATE

Extract of Assets Valuation Report on the Proposed Acquisition by Kunlun Energy Company Limited of the Equity Interest in PetroChina Dalian LNG Co., Ltd. held by PetroChina Company Limited

Summary of Results of Assets Valuation

Assets Valuation Report on the Proposed Acquisition by Kunlun Energy Company Limited of the Equity Interest in PetroChina Dalian LNG Co., Ltd. held by PetroChina Company Limited

1. The Principal, the Entity to be Valued and Other Report Users

(1) Description of the principal

(3) Other users (excluding the principal) of the valuation report

2. Purpose of Valuation

Raymond Industrial Limited Proxy Solicitation & Information Statement 2010