Laws of the People's Republic of China

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

    Article 2  These Regulations must be observed in all activities involving
Chinese-foreign cooperative exploitation of on-shore petroleum resources in
the People's Republic of China.

    Article 3  Ownership of the petroleum resources within the territory of
the People's Republic of China shall vest in the State of the People's
Republic of China.

    Article 4  The Government of China protects according to law the
cooperative exploitation activities, investments, profit and other lawful
rights and interests of foreign enterprises participating in the cooperative
exploitation of on-shore petroleum resources.

    Activities in the People's Republic of China involving the cooperative
exploitation of on-shore petroleum resources must comply with the relevant
laws, rules and regulations of the People's Republic of China and shall be
subject to supervision and control by the relevant authorities of the
Chinese Government.

    Article 5  The State Will not requisition the investment and gains of
foreign enterprises participating in the cooperative exploitation of on-shore
petroleum resources. In special circumstances, when the public interest
requires, part or all of the petroleum due to the foreign enterprise in
connection with cooperative exploitation may be requisitioned according to
legal procedures. In case of such requisitioning, appropriate compensation
shall be paid.

    Article 6  A department or unit authorized by the State Council shall be
responsible for demarcating cooperation blocks, determining the forms of
cooperation, arranging for the formulation of relevant plans and policies,
and examining and approving overall development programs for oil(gas) fields
in cooperation with foreign enterprises, for the cooperation areas approved
by the State Council.

    Article 7  China National Petroleum and Natural Gas Corporation shall be
responsible for business matters in respect of the exploitation of on-shore
petroleum resources in cooperation with foreign enterprises, and for
negotiating, entering into and implementing contracts for the cooperative
exploitation of on-shore petroleum resources with foreign enterprises. China
National Petroleum and Natural Gas Corporation shall have the exclusive right
to engage in petroleum exploration, development and production in cooperation
with foreign enterprises in areas approved by the State Council for
exploitation of on-shore petroleum resources in cooperation with foreign
enterprises.

    Article 8  Following invitations to bid or negotiations, China National
Petroleum and Natural Gas Corporation shall enter into contracts with foreign
enterprises for the cooperative exploitation of on-shore petroleum resources
in the cooperation blocks demarcated in the areas approved by the State
Council for exploitation of on-shore petroleum resources in cooperation with
foreign enterprises. Such contracts shall be formed only after they have been
approved by the Ministry of Foreign Trade and Economic Cooperation of the
People's Republic of China.

    In addition to the contracts referred in the preceding paragraph, China
National Petroleum and Natural Gas Corporation may also enter into other
cooperation contracts with foreign enterprises in respect of areas approved
by the State Council for cooperative exploitation of on-shore petroleum
resources. Such contracts must be submitted to the Ministry of Foreign Trade
and Economic Cooperation of the People's Republic of China for the record.

    Article 9  After a block has been declared open to foreign cooperation,
China National Petroleum and Natural Gas Corporation may engage in
cooperative exploitation of on-shore petroleum resources with foreign
enterprise(s) and, other than that, no enterprise may enter such block to
prospect for petroleum or may enter into an economic and technical cooperation
agreement with foreign enterprise(s) for petroleum exploitation in such block.

    Any enterprise that has entered and is prospecting for petroleum (in the
area appraisal prospecting stage) in a block declared open to foreign
cooperation prior to the time such declaration has been made shall withdraw
from such block when China National Petroleum and Natural Gas Corporation and
the foreign enterprise have entered into a contract. China National Petroleum
and Natural Gas Corporation shall be responsible for selling the prospecting
data obtained by such withdrawing enterprise, so as to compensate the
enterprise for its investment in an appropriate manner. After an oil(gas)
field with commercial exploitation value is discovered in such block, the
enterprise that withdraws from the block may participate in development by
investment.

    A department or unit authorized by the State Council shall periodically
adjust the blocks which have been determined as open blocks based on the
circumstances of entry into and implementation of the contracts.

    Article 10  In the exploitation of on-shore petroleum resources in
cooperation with foreign enterprises, the principle of taking both central
and local interests into consideration shall be observed. Appropriate
consideration shall be given to local interests by methods such as attracting
funds from the place where an oil(gas) field with commercial exploitation
value is located for investment in the development of such field.

    The relevant local People's Governments shall protect normal production
and business activities carried out in cooperation areas according to law
and shall render effective assistance in respect of land use, road access and
living amenities, etc.

    Article 11  In the cooperative exploitation of on-shore petroleum
resources, taxes shall be paid according to law; in addition, royalties shall
be paid.

    Employees of enterprises engaged in the cooperative exploitation of
on-shore petroleum resources shall pay tax on their income according to law.