Promulgated by Order No.131 of the State Council of the People's Republic of China on October 7, 1993, revised for the first time in accordance with the Decision of the State Council on Revising the Regulations of the People's Republic of China Concerning Chinese-Foreign Cooperation in Exploiting Continental Petroleum Resources on September 23, 2001, and revised for the second time in accordance with the Decision of the State Council on Revising the Regulations of the People's Republic of China Concerning Chinese-Foreign Cooperation in Exploiting Continental Petroleum Resources on September 18, 2007

Chapter I General Rules

Article 1 The present Regulations are formulated in order to safeguard the development of the petroleum industry and promote the international economic cooperation and technical exchange.

Article 2 The present Regulations shall apply to the Chinese-foreign cooperation in exploiting continental petroleum resources within the territory of the People's Republic of China.

Article 3 The petroleum resources within the territory of the People's Republic of China belong to the People's Republic of China.

Article 4 The cooperative exploitation activities, investments, profits as well as other legitimate rights and interests of foreign enterprises participating in the cooperative exploitation of continental petroleum resources shall be protected by the Chinese Government.

The Chinese-foreign cooperation in exploiting continental petroleum resources within the territory of the People's Republic of China shall conform to the related laws, regulations and rules of the

People's Republic of China, and be under supervision and administration of the related departments of the Chinese Government.

Article 5 The investments and income of foreign enterprises participating in the cooperative exploitation of continental petroleum resources shall not be expropriated by the state. Under special circumstances and in view of needs of public interests, the state may expropriate part or all of the petroleum due to foreign enterprises in relation to cooperative exploitation in accordance with legal procedures, and shall give appropriate compensations.

Article 6 The department designated by the State Council shall, within the areas of cooperation as approved by the State Council, take charge of sectioning cooperative blocks, deciding the cooperation form, organizing the formulation of related plans and policies, and examining and approving the overall exploitation programs for Chinese-foreign cooperative oil (gas) fields.

Article 7 China National Petroleum Corporation and China Petrochemical Corporation (hereinafter referred to as "Chinese petroleum companies") shall take charge of the business operation in relation to the Chinese-foreign cooperation in exploiting continental petroleum resources; take charge of negotiating, signing and executing contracts concerning cooperative exploitation of continental petroleum resources with foreign enterprises; and shall enjoy the exclusive right to prospect, exploit and produce petroleum in cooperation with foreign enterprises within the areas approved by the State Council for Chinese-foreign cooperation in exploiting continental petroleum resources.

Article 8 Chinese petroleum companies shall, within the areas approved by the State Council for Chinese-foreign cooperation in exploiting petroleum resources, sign with foreign enterprises the contracts concerning cooperative exploitation of continental petroleum resources based on the demarcated cooperative blocks and by means of bid invitation or negotiation. Before being approved by the Ministry of Commerce of the People's Republic of China, such contracts shall not come into effect.

Within the areas approved by the State Council for cooperative exploitation of continental petroleum resources, Chinese petroleum companies may sign with foreign enterprises cooperation contracts other than those mentioned in the preceding Paragraph. Such contracts shall be filed with the Ministry of Commerce of the People's Republic of China for record.

Article 9 After Chinese-foreign cooperative blocks are publicized, no other enterprise may enter these blocks for doing petroleum prospecting activities, nor may it sign agreements concerning economic and technological cooperation with foreign enterprises in exploiting petroleum within these blocks, except for the cooperative exploitation of continental petroleum resources by Chinese petroleum companies together with foreign enterprises.

Those enterprises that enter the above mentioned blocks for petroleum prospecting (at the stage of regional assessment and prospecting stage) before Chinese-foreign cooperative blocks are publicized shall retreat from such blocks after Chinese petroleum companies have concluded contracts with foreign enterprises. The prospecting data acquired by these enterprises shall be sold by Chinese petroleum companies in order to appropriately compensate for their investments. Where any oil (gas) field of commercial exploitation value has been discovered in the blocks, the enterprises retreated from the blocks may engage in the exploitation by means of investment.

The department designated by the State Council shall, on a regular basis, adjust Chinese-foreign cooperative blocks in accordance with the conditions about signing and executing contracts.

Article 10 The Chinese-foreign cooperation in exploiting continental petroleum resources shall conform to the principle of balancing the interests of the Central Government and the local government, and take the interests of the local government into account by means of absorbing local funds of the oil (gas) fields so as to invest in the exploitation of oil (gas) fields of commercial exploitation value.

The normal production and business activities within the cooperative blocks shall be protected by the related local people's government and effective assistance regarding the use of land, road passage and logistic services, etc. shall be provided.

Article 11 Taxes and block loyalties shall be paid for the Chinese-foreign cooperation in exploiting continental petroleum resources.

Employees in the enterprises for Chinese-foreign cooperation in exploiting continental petroleum resources shall pay taxes on their income.

Article 12 According to related provisions of the state, tax reduction, tax exemption or other preferential tax treatments shall be granted to the equipment and materials imported for execution of contracts. The Ministry of Finance shall formulate the specific measures therefor together with the General Administration of Customs.

Chapter II Rights and Obligations of Foreign Contractors

Article 13 Contracts shall be concluded between Chinese petroleum companies and foreign enterprises for the cooperative exploitation of continental petroleum resources and, except otherwise provisioned by laws, regulations or contracts, foreign enterprises that have signed the contracts (hereinafter mentioned as "foreign contractors") shall, all by themselves, invest for prospecting, take charge of prospecting operations and undertake all prospecting risks. Both the foreign contractor and the Chinese petroleum company shall, after an oil (gas) field of commercial exploitation value is discovered, make investment for cooperative exploitation, and the foreign contractor shall take charge of the exploitation operations and production operations until the production operations are taken over by the Chinese petroleum company in light of the contract.

Article 14 The foreign contractor may recover its investment and expenses and obtain remunerations out of the petroleum produced in accordance with the stipulations of the contract.

Article 15 The foreign contractor may export the petroleum due to itself and the purchased petroleum in accordance with the related state provisions and contracts, and may also remit abroad the recovered investment, profits and other legitimate income in accordance with law.

In the case that the foreign contractor sells the petroleum due to itself within the territory of the People's Republic of China, in general, the petroleum shall be purchased by the Chinese petroleum company, and may also be sold in other ways agreed upon in the contract by both parties; however, it shall not go against the state provisions about the sale of petroleum products within the territory of the People's Republic of China.

Article 16 To open foreign exchange accounts or handle other foreign exchange issues, the foreign contractor shall comply with the Regulations of the People's Republic of China on the Management of Foreign Exchanges and other related state provisions.

The foreign contractor may invest in U.S. dollars or other freely convertible currencies.

Article 17 The foreign contractor shall set up branch companies, subsidiary companies or representative offices within the territory of the People's Republic of China in accordance with law.

The foreign contractor and the Chinese petroleum company shall negotiate as for where the agencies mentioned in the preceding Paragraph are to be established.

Article 18 When implementing the contracts, the foreign contractor shall report the situation of petroleum operations to the Chinese petroleum company in a timely and accurate manner, and shall obtain complete and accurate data, records, samples, vouchers and other original materials in respect of various kinds of petroleum operations, and report the materials and samples as well as various kinds of technological, economic, financial and accounting and administrative reports to the Chinese petroleum company in accordance with the provisions.

Article 19 All the assets purchased and built by the foreign contractor in accordance with the plans and budgets for implementing the contracts, except for those rented from the third party, shall be under the ownership of the Chinese petroleum company after investment by the foreign contractor has been compensated in accordance with the contract or after the production period of the oil (gas) fields has expired. The foreign contractor may use these assets as stipulated in the contract within the contract period.

Chapter III Petroleum Operations

Article 20 Operators shall, according to the state provisions on the exploitation of petroleum resources, formulate the entire exploitation programs for oil (gas) fields, and start the exploitation and production until the approval of such programs by the department designated by the State Council.

Article 21 In the petroleum contract the personnel needed for petroleum operations may be agreed upon, and the operators may give preference to Chinese citizens in respect of employment.

Article 22 When carrying out petroleum operations, operators and contractors shall observe the laws, regulations and standards of the state regarding environmental protection and safe operations, and shall respect international practices in the operations, protect the farmland, aquatic products, forests and other natural resources, and shall not pollute and damage the air, sea, rivers, lakes, underground water and other land environment.

Article 23 The use of land in petroleum operations shall be subject to the provisions in the Land Management Law of the People's Republic of China and other related state provisions.

Article 24 All the data, records, samples, vouchers and other original materials about various kinds of petroleum operations as specified in Article 18 of the present Regulations shall be under the ownership of Chinese petroleum companies.

The use, transfer, donation, exchange, sale, publication as well as shipping or delivering out of the territory of the People's Republic of China of the data, records, samples, vouchers and other original materials mentioned in the preceding Paragraph shall be carried out subject to the related state provisions.

Chapter IV Settlement of Disputes

Article 25 Any dispute between the parties to a contract on cooperative exploitation of continental petroleum resources out of the implementation of the contract shall be solved through negotiation or mediation. Where the related parties object to the negotiation or mediation, or the negotiation and mediation fail, the case may be submitted to a Chinese arbitration body or any other arbitration body for arbitration in accordance with the arbitration clause in the contract or the written arbitration agreement reached afterwards.

Where such arbitration clause in the contract or written arbitration agreement made afterwards is absent, the case may be brought before a Chinese people's court by the parties concerned.

Chapter V Legal Liabilities

Article 26 In case any of the following acts in violation of the present Regulations happens, the department designated by the State Council shall order the violator to make corrections within a prescribed period and impose a warning; where the violator fails to make corrections within the prescribed period, it may be ordered to suspend operating petroleum. In case a crime is constituted, criminal liabilities shall be imposed upon the violator:

(1) Entering the Chinese-foreign cooperative blocks to conduct petroleum prospecting or concluding agreements with foreign enterprises for cooperation of petroleum exploitation within the cooperative blocks without authorization by violating Paragraph 1 of Article 9 of the present Regulations;

(2) Failing to report petroleum operations to Chinese petroleum companies in a timely and accurate manner during the process of performing the contracts or failing to present data, samples, technological, economic, financial and accounting and administrative reports on petroleum operations to Chinese petroleum companies in accordance with the provisions by violating Article 18 of the present Regulations;

(3) Starting petroleum exploitation or production without authorization prior to the approval of the overall exploitation program for the oil (gas) field in violation of Article 20 of the present Regulations; or

(4) Utilizing the data, records, samples, vouchers and other original materials about petroleum operations, or transferring, donating, exchanging, selling or publishing them, or shipping or delivering them out of the territory of the People's Republic of China without authorization by violating Paragraph 2 of Article 24 of the present Regulations.

Article 27 When Articles 11, 16, 22 or 23 of the present Regulations are violated, the violator shall be punished by the competent department of the state in accordance with the laws and regulations; and in case a crime is constituted, criminal liabilities shall be imposed upon the violator.

Chapter VI Supplementary Rules

Article 28 The meanings of the following terms as mentioned in the present Regulations:

(1) The "petroleum" means crude oil and natural gas deposited underground, under extraction at present or already extracted.

(2) The "continental petroleum resources" mean the underground petroleum resources beneath all land (covering beaches, islands and sea waters outreaching five meters deep).

(3) The "exploitation" means such activities as prospecting, exploitation, producrion and sale of petroleum, as well as other related activities.

(4) The "petroleum operations" mean the prospecting, exploitation, production operations and other related activities carried out for the execution of contracts.

(5) The "prospecting operations" mean all the work conducted to locate the petroleum-bearing traps through geological, geophysical, geochemical methods and other ways including drilling exploratory wells, etc. as well as all the work conducted to decide the commerciality of petroleum traps discovered, e.g. drilling of assessment wells, doing feasibility studies and formulating overall exploitation programs for an oil (gas) field.

(6) The "exploitation operations" mean all the work on designing, construction, installation, drilling etc., and the related research conducted for petroleum production from the approval of the overall exploitation program, including the production activities conducted prior to the beginning of the commercial production.

(7) The "production operations" mean all the operations and related activities conducted for producing petroleum after the commercial production of an oil (gas) field begins.

Article 29 The provisions of Articles 4, 11, 12, 15, 16, 17 and 21 of the present Regulations shall apply to foreign contractors.

Article 30 The exclusive operation right to the Chinese-foreign cooperation in exploiting coal bed gas resources shall be enjoyed by China United Coalbed Methane Corp. Ltd. and other companies designated by the State Council, and shall be conducted with reference to the present Regulations.

Article 31 The present Regulations shall go into effect as of the promulgation day.

(Source:www.fdi.gov.cn)