OFFSHORE OIL ENGINEERING CO., LTD.

Transcription

1 To build up an internationally-leading energy engineering company ANNUAL REPORT 2017 OFFSHORE OIL ENGINEERING CO., LTD. Stock abbreviation COOEC Stock code

2 Contents 001 Important Notices 002 Address from the Chairman & President 005 Definitions 006 Company Profile and Primary Financial Indexes 010 Summary of Company Business 016 Discussion and Analysis on Operation 042 Important Matters 059 Ordinary Share Changes and Shareholders 064 Preferred Shares 065 Directors, Supervisors, Senior Managers and Employees 072 Company Governance 079 Relevant Condition of Corporate Bonds 082 Financial Report 193 List of Documents for Further Reference Engineering design Onshore construction c Offshore installation Submarine pipeline laying Welcome to COOEC

3 ooec Important Notices I. The Company s Board of Directors, Board of Supervisors and directors, supervisors and senior managers guarantee that the contents of the annual report are true, accurate and complete, without false records, misleading statements or major omissions, and shall assume joint and several legal liability. II. Absent directors Title Name Description Director Meng Jun Unable to attend due to other important official business Entrustee s name Guo Tao III. BDO China Shu Lun Pan Certified Public Accountants LLP has issued a standard audit report without reserved opinions to the Company. IV. Jin Xiaojian, the principal of the Company, Chen Yonghong, the principal of accounting and Wang Yajun, the principal of accounting agency (accountant in charge) state: authenticity, accuracy and completeness of financial report in this Annual Report are secured. V. The plan of profit distribution or the plan of transferring public accumulation fund to be capital stock during the report period deliberated and approved by board of directors The Company plans to distribute cash dividends of RMB 0.5 (including tax) for each 10 shares to all shareholders, without distributing stock dividends and utilizing capital reserves to increase capital stock, on the basis of yearend total capital stock of 4,421,354,800 shares in The total cash dividends of about RMB 221,000,000 will be allocated this time, accounting for 45% of the merging net profits realized in 2017, and the unallocated profits will be carried forward to subsequent years. This distribution plan needs to be submitted to the annual shareholders meeting of 2017 for deliberation and approval. VI. Risk statement for forward-looking statements Forward-looking statements, such as Section IV in this Annual Report involving operating plans and targets are not regarded as the actual commitment to investors who should be alert to investment risks. VII. Is there any situation relating to nonbusiness funds occupation by the controlling shareholders and their connected parties? No VIII. Is there any situation relating to violating decision-making procedures to tender external guarantee? No IX. Serious Risks Warnings During the report period, there s no significant risk that causes substantial influences on production and operation of the Company. This Report analyzes general risks for the Company, which should raise attention of the investors. See analysis details in (IV) Potential Risks in Section IV Discussion and Analysis on Operation. X. Others Important Notices 001

4 Address from the Chairman & President The Company will continue to make untiring efforts to deepen reform, to revitalize the Company with new growth momentum and vitality, and strive to achieve good performance. Corporate Vision Create an Enterprise for Higher Cost Performance All distinguished shareholders and friends: Here I would like to present you the 2017 annual report of COOEC and show COOEC achievements and developments in this period on behalf of the board of directors. Chairman of the board and the President Jin Xiaojian In 2017, we overcame the difficulties of the industry downturn and continued to maintain steady development Over the past year, the global oil company's investment spending and the demand for ocean oil and gas engineering industry lagged behind the recovery of oil price. The market demand for offshore engineering was still low, the total investment and price level of the global offshore engineering were still at low level, and the operation and development of offshore engineering companies at home and abroad were struggling. Faced with such huge pressure and challenge, the Company proceeded with confidence, cemented its efforts, focused on the development of the main business, continuously innovated, and utilized the opportunity of low oil price to promote the internationalization, the transformation and upgrading of and equipment, and the quality improvement & efficiency increasing measures based on new technology, new material, new process, standardization, facilitation and domestication, thus ensuring the Company developed steadily and the foundation for healthy and sustainable development was even stronger. The Company gained sales revenue of RMB billion for the whole year, including the net profit of RMB 491 million attributable to shareholders of the listed company. The Company achieved a contracting amount of about RMB 10.4 billion, and made important breakthroughs in the domestic deep-water engineering market and the LNG engineering market. The Company successfully completed the Yamal Project of Russia and obtained the high praise from the international owner. Through the operation of the Project, we created the modular construction brand, enriched the operation experience of the international project, and remarkably improved the international market popularity, which helped the Company steadily develop the international market, and achieve considerable benefits. The capacities of sustainable development and risk resistance of the Company were further enhanced. The Company seized the opportunity of industry downturn and relatively low investment price to purchase a batch of major deepwater equipment for production, and three underwater engineering vessels were officially put into service. In 2018, we will deepen the reform and promote the comprehensive internationalization of the Company Since the beginning of the year, the international oil price has stopped to 002 COOEC / ANNUAL REPORT 2017

5 Russia Yamal Project Fabricated in Qingdao Yard Deepened Reform and All-round Construction drop and presented a trend of steady rise and the market environment of the industry has improved, but the trend of oil price remains uncertain and the price of ocean engineering service has not recovered obviously, so the Company is faced with greater pressure in The Company will focus on the establishment of "International Firstclass Energy Engineering Company", comprehensively deepen reform, promote management innovation, and set up a complete set of project management, market development, resource allocation and talent team systems adapting to the fierce competition demand of the current international market. Besides, through organizational structure reform and reform of appraisal mode, the Company will stimulate the creativity of each business link and give full play to the synergistic effect, so as to reduce the comprehensive cost and improve the competitiveness in the international market. At the same time, the Company will concentrate on developing domestic and foreign markets, strengthen the development of the international LNG modular market, the development of the international offshore platform dismantling market, and the development of the domestic deepwater market and LNG receiving station and LNG plant market, achieve a better contracting amount than that in 2017, and provide a solid foundation for the sustainable development of the Company. Through scientific planning and careful organization, the Company will successfully implement the first deepwater EPC project - Liuhua Project, and provide Party A with high-quality and efficient service, so as to effectively improve the comprehensive capability of deepwater engineering, and realize the substantial breakthrough of the Company in deepwater business. Dear friends, in the new year, the Company will continue to make untiring efforts to deepen reform, to revitalize the Company with new growth momentum and vitality, and strive to achieve good performance. At last, on behalf of the board of directors and the management, I really appreciate the hard work of all employees for the development of our Company! Thank you for the help and support of all shareholders and friends of all circles! Chairman of the board and the President Jin Xiaojian Address from the Chairman & President 003

6 004 COOEC / ANNUAL REPORT 2017

7 Definitions Offshore Oil 289 operating in the South China Sea Floatover installation of Wenchang Project completed I. Definitions In the Report, unless otherwise defined, the following words shall have meanings set forth as below: EPCI FPSO LNG Four Capabilities Construction Three new things and three realizations PMI S-LAY J-LAY Reel-LAY Referring to Referring to Referring to Referring to Referring to Referring to Referring to Referring to Referring to Definitions of common words The abbreviation of Engineering design, Procurement, Construction and Installation. The abbreviation of Floating Production Storage and Offloading. The abbreviation of Liquefied Natural Gas. Construction of the general contracting capacity focusing on design; construction of offshore installation supported by large-scale equipment; construction of facility maintenance capacity taking submarine pipe maintenance as breakthrough; and acceleration of deepwater ability construction based on conventional water area market. New technology, new material, new process, standardization, facilitation and domestication. The English abbreviation of Project Management Institute. It is a world-leading professional project management organization for non-profit member association. S-lay technique refers to welding and spreading the subsea pipeline on pipe-laying ship and keeping level on ship during pipe laying and launching. During launching, the pipeline gradually changes into S-shape under the support of stinger, with tensioner and stinger used to control the rear towing tension and S curvature of pipeline, so as to lay the pipelines to the seabed. J-lay technique is to change the horizontal position of pipeline spreading into vertical position on pipe-laying ship, then lay into the water after spreading on vertical pipe-laying tower, and adjust the inclination of the tower to ensure the posture of pipeline connection identical with that of entry. It refers to a deepwater pipe-laying method for solving the problem of large strain on upper bending section of S-lay technique. Reel lay technology is to spread the pipeline in onshore fabrication yard and twine it on special roller, then lay the pipelines continuously to the seabed after it is straightened by pipe-laying tower on pipe-laying ship. Definitions 005

8 Company Profile and Primary Financial Indexes I. Company Information Chinese Name of the Company Company Name in Chinese for Short Company Name in English Company Name in English for Short Company Legal Representative 海洋石油工程股份有限公司海油工程 OFFSHORE OIL ENGINEERING CO.,LTD. COOEC Jin Xiaojian II. Contact Person and Contact Ways Secretary of the Board of Directors Name Liu Lianju Contact Address No. 199, Haibin 15 Road, Tianjin Port Free Trade Zone TEL Fax III. Company Basic Information Registered Address Apartment 202-F105, 2/F, Skirt Building, Ligang Plaza, No. 82, West Road 2, Tianjin Pilot Free Trade Zone (Airport Economic Zone) Postcode of Registered Address Office Address No. 199, Haibin 15 Road, Tianjin Port Free Trade Zone Zip Code of Office Address Website IV. Information Publication and Report Storage Site Name of the media for information disclosure selected by the Company Website designated by China's Securities Regulatory Commission (CSRC) for publishing annual report Annual Report Preparation Place V. Company Stock Briefing China Securities Journal, Shanghai Securities News Secretary Office of Board Chairman Dept. Offshore Oil Engineering Co., Ltd. Company Stock Briefing Stock Classes Stock Exchange Stock Name for Short Stock Code A-share Shanghai Stock Exchange COOEC COOEC / ANNUAL REPORT 2017

9 VI. Other Related Information Accounting firm employed by the Company (in China) Name Business Address Name of Signatory Accountant BDO China Shu Lun Pan Certified Public Accountants LLP (Special general partnership) 28F, Maotai Building, Building 3, No.29 North Third Ring Middle Road, Xicheng District, Beijing Cai Xiaoli, An Hang VII. Main accounting data and financial indexes of last three years (i) Main Accounting Data Unit: Yuan Currency: RMB Major accounting data 2017 year 2016 year Increase and decrease of current period compared with 2015 year that of the same period of previous year (%) Operating income 10,252,537, ,991,683, ,201,506, Net profit attributable to shareholders of the listed company 491,055, ,315,307, ,409,945, Net profit attributable to shareholders of the listed company after deducting non-recurring 169,816, ,555, ,110,671, profit and loss Net cash flow from business operation 531,374, ,287,991, ,625,658, Net assets attributable to shareholders of the listed company End of 2017 End of 2016 Increase or decrease at end of current period compared with that of the same period of previous year (%) End of ,117,079, ,155,451, ,976,458, Total assets 28,395,956, ,811,198, ,442,831, Total capital stock at end of the period (shares) 4,421,354,800 4,421,354, ,421,354,800 (ii) Main Financial Indexes Primary financial indexes 2017 year 2016 year Increase and decrease of current period compared with that of the same period of previous year (%) 2015 year Basic earnings per share (EPS) (yuan / share) Diluted EPS (yuan / share) Basic EPS after deducting non-recurring profit and loss (yuan / share) Return on weighted average net assets (%) Down 3.59 percentage points Rate of earnings of weighted average net assets after deducting non-recurring profit and loss (%) Down 2.50 percentage points Major accounting data and financial indexes in the last three years at the end of report period Company Profile and Primary Financial Indexes 007

10 VIII. Differences of accounting data under domestic and foreign accounting standards (i) Differences of net profits and net assets attributable to shareholders of the listed company in financial reports disclosed under international accounting standards and Chinese accounting standards (ii) Differences of net profits and net assets attributable to shareholders of the listed company in financial reports disclosed under foreign accounting standards and Chinese accounting standards (iii) Differences between domestic and foreign accounting standards IX. Major financial data by quarters in 2017 First quarter (January - March) Second quarter (April - June) Third quarter (July - September) Fourth quarter (October - December) Operating income 1,398,428, ,779,909, ,670,729, ,403,470, Net profit attributable to shareholders of the listed company -170,255, ,105, ,276, ,928, Net profit attributable to shareholders of listed company after deducting nonrecurring profit and -231,833, ,116, ,077, ,456, loss Net cash flow from business operation -454,904, ,644, ,364, ,557, Differences between quarterly data and data in disclosed regular reports X. Items and amount of non-recurring profit and loss Nonrecurring profit and loss items Amount of 2017 Note (if applicable) Amount of 2016 Amount of 2015 Disposal profits and losses of non-current assets -2,528, ,157, ,639, Government subsidies debited into the current items, except the ones gained continuously in close relation with company normal business operation, in line with national policies and regulations, and in accordance with some normal quota or quantity Loss and profit from investing or managing assets by others entrusted In addition to effective hedging business relating to normal operating activities of the Company, variable loss and profit of fair value generated from held transaction financial assets and trading financial liabilities as well as investment income gained from disposal of transaction financial assets, trading financial liabilities and available-for-sale financial assets Other non-business income and expense except the respective items above 138,350, ,664, ,922, It is mainly appropriation for national scientific research projects and consumption tax reimbursement. Income from buying bank financial. It mainly resulted from forward foreign exchange settlement contract delivery of Qingdao subsidiary. 1,059,926, ,254, ,915, ,840, ,912, ,742, ,176, ,912, ,291, COOEC / ANNUAL REPORT 2017

11 Nonrecurring profit and loss items Amount of 2017 Note (if applicable) Amount of 2016 Amount of 2015 Other loss and profit items conforming to nonrecurring profit and loss definition 36,546, ,201, Effect on minority interest -413, , , Amount effected by income tax -66,480, ,535, ,866, Total 321,238, ,751, ,274, XI. Items accounted by fair value Unit: 10,000 Yuan Currency: RMB Project name Opening balance Ending balance Available-for-sale financial assets - Lanpec Technologies' shares Financial liabilities accounted by fair value with their changes accounted to current profits and losses - forward foreign exchange settlement contract of Yamal Changes in current period Affected amount of profit in current period 24, , , , , , Total 2, , , , XII. Others Company Profile and Primary Financial Indexes 009

12 Summary of Company Business I. Major Businesses Engaged in the Report Period, Operating Modes and Industry Conditions (I) Core businesses The Company is a large-scale EPCI company which integrates engineering design of offshore oil and natural gas development, onshore manufacturing and offshore installation, commissioning, maintenance and LNG engineering, which is the only one at home. It is also one of the biggest general contractors for EPCI (engineering design, procurement, construction and installation) of offshore oil engineering in the Asian-Pacific region. The Company provides engineering services for oil and gas companies developing offshore oil and gas resources, including engineering design, supplies procurement, onshore manufacturing, marine transport and offshore installation, subsea pipeline laying, commissioning, delivery, maintenance, etc centering on offshore oil production platform. Through construction and development over many years, the Company has built eight major types of capacity, including offshore engineering design, offshore engineering construction, offshore engineering installation, offshore oil and gas field maintenance, underwater engineering inspection and installation, high-end skidmounted product manufacturing, offshore engineering quality inspection and offshore EPCI management. It also has a high comprehensive capability of oil and gas field construction in conventional sea areas within water depth of 300m. The Company owns large offshore engineering manufacturing base of over 1.4 million m 2 in Tanggu of Tianjin and Qingdao of Shandong, and a same base of 2.07 million m 2 in Zhuhai of Guangdong in the form of joint venture COOEC-Fluor Heavy Industries Co., Ltd. (Holding 51% shares) and Fluor. The Company owns diversified offshore construction fleets consisting of 22 deep water and shallow water engineering vessels, including deepwater pipeline laying ship, 7500t crane vessels, underwater engineering vessels, deepwater trenching vessels, 50,000t semi-submersible type self-propelled vessels. 300 m Strong comprehensive abilities in oil and gas field engineering construction in traditional waters within 300 m depth million m2 It owns large offshore engineering manufacturing base of over 1.4 million m 2 in Tanggu of Tianjin and Qingdao of Shandong million m2 It owns an offshore engineering manufacturing base of 2.07 million m 2 in Zhuhai of Guangdong 010 COOEC / ANNUAL REPORT 2017

13 In last five years, the Company has quickened its step toward international market and contracted a batch of influencing overseas projects such as Yamal from Russia, Ichthys from Australia, Zawtika from Thailand and FPSO from Brazil, which significantly promoted its international operation ability; deepwater fleet has almost been formed, phase I and phase II of Zhuhai JV sites have been completed, which greatly enhanced its hard power and ability for strategic resources; the Company has promoted the development and extension on the basis of main businesses, creating new growth poles such as module construction, deepwater and underwater engineering, high-end skid-mounting, LNG receiving stations and liquidation plants; a batch of key engineering technologies have been mastered such as design, construction and installation of 30,000 t super-large jackets and modules, offshore floatover installation, 1,500 m underwater pipe laying and operation, underwater jumper pipe and low-temperature welding. Thus, the Company s strength has been strongly enhanced with development space further expanded. 22 sets 30,000 t 1,500 m It owns a diversified marine construction fleet consisting of 22 deepwater and shallow water engineering ships It has mastered the design, construction and installation technology of 30,000 t super-large jacket and module 1,500 m deep water pipe-laying and operation technology Summary of Company Business 011

14 (II) Operation models The Company undertakes engineering contracts in the capacity of a general contractor or a subcontractor, to be engaged in the construction of oil and gas field project and onshore LNG project. The Company successively provides domestic and foreign customers, such as CNOOC Limited, ConocoPhillips, Shell, Saudi Aramco, Petrobras, Husky, Kerr-McGee, Technip, MODEC, AkerSolutions and FLUOR with engineering services for oil and gas resource development, covering more than 20 countries and regions such as Southeast Asia, the Middle East, Australia, Russia, Brazil, Europe and Africa, in addition to sea areas of China. 012 COOEC / ANNUAL REPORT 2017

15 (iii) Industry situation 1. The demand of offshore oil & gas engineering industry in 2017 was still in short. International crude oil price stayed at middle and low level in first half of 2017 and began to rebound gradually in the second half, but capital expenditure of global petroleum company fell behind of the oil price rise and investment in the industry showed no obvious increase in Therefore, the demand of downstream oil & gas industry was not improved obviously, the original planned commencement date of some projects was delayed, the market competition tended to be fierce, and the price level of newly signed projects was low, so there still needs time for offshore oil & gas industry to revive. 2. Gradual rising of international crude oil price shored up the expectation of industry development Benefiting from the gradual recovery of such major economic entities as the US and Europe, petroleum demand somehow increased, and consumption of crude oil inventory sped up. Besides, main oilproducing countries kept restricted and reduced production policies, and the geopolitics in the Middle East and other regions was tight, which led to short supply of crude oil, and further balancing of supply and demand of crude oil. Moreover, the improvement of supply-demand structure also helped international oil price (Brent crude oil price) to break away from the repeated oscillating mode of USD 45/barrel - USD 55/ barrel and enter into stable rise gradually in the second half. Entering January 2018, Brent crude oil price once broke USD 70/barrel. Along with the center of gravity of oil price moved up, the profits of global oil companies were expected to undergo continuous improvement. Large oil companies may have their investment recovered gradually. According to the prediction of market intelligence company IHS Markit, the investment of global upstream oil & gas exploration & development in 2018 will recover to USD 422 billion, viz. an increase of 11% compared with that of It is believed that oil company will gradually expand the investment scale along with moving up of the center of gravity of crude oil price, and improvement of industry profit and market confidence. Relevant demand of offshore oil & gas engineering industry will be gradually improved as time passes by. However, we also notice that large uncertainty exists in the change of crude oil price, and the investment of global upstream oil & gas exploration & development at present is far lower than the peak value of USD 740 billion in 2014 by nearly 40%. So the demand improvement of offshore oil & gas engineering industry is still short, hence not so optimistic. II. Significant Changes in Main Assets of the Company in the Report Period No great change occurs in long-term equity investment, fixed assets and intangible assets in the report period. Original value of fixed assets increased by RMB billion, viz. 7.17%, mainly because the Company purchased two ships Offshore Oil 285 and Offshore Oil 287 at the value of RMB billion and finished construction of Offshore Oil 295 which valued RMB 314 million and turned into fixed assets. Project under construction decreased by RMB 84 million, viz % compared with that at the end of previous year, mainly because some projects under construction at the beginning of the period, such as deepwater flexible pipe laying system, were changed into fixed assets. Wherein: Overseas assets is RMB (unit: 100,000,000 yuan, currency: RMB), accounting for 5.57% of total assets. Tianjin LNG Substitutionary Project of 160,000 m 2 tanks Offshore Oil 295 Summary of Company Business 013

16 Floatover installation of Wenchang Project completed The 1st layer of panels were hoisted for WHPB module of BZ 34-9 Project III. Analysis on Core Competitiveness in the Report Period The Company insists on developing its core businesses, continuously strengthens four capabilities construction and constantly improves general contracting capacity and deepwater engineering ability, achieving fast increase in overseas businesses, gradual rising in the proportion of overseas revenues, significantly enhancing strength and international competitiveness. Unique market position. The Company is a large scale offshore oil and gas development EPCI company, which is the only one at home. As a pioneer in technical level of Chinese offshore petroleum engineering, it is the representative in international offshore petroleum engineering industry. In addition, it is a holding subsidiary of China National Offshore Oil Corporation, being the important force in Chinese offshore oil and gas resource development. For decades, over 100 offshore oil and gas field engineering construction projects are implemented by the Company, with its unique position in the domestic market and dominant advantages in financial support, equipment development, research and development, etc. High EPCI contracting capacity. Based on years of development and accumulation, the Company has possessed a complete set of mature technology, equipment and capacity system of design, construction, installation and maintenance in offshore oil and gas field development within water depth of 300 m, and completed engineering construction of hundreds of oil and gas fields at home. Through success in implementing Liwan 3-1 deepwater gas field project in the South China Sea, the Company achieved leap in EPCI contracting capacity of engineering, construction and installation from 10,000t to 30,000t and subsea pipe-laying capacity from less than 300m to 1,500m, thus gaining important experience in deepwater engineering. Rich experience in offshore oil engineering project management. The Company owns more than 160 project managers with qualification certified and operates more than 20 large and medium-scale offshore engineering projects annually in recent years. They are distributed in the Bohai Sea, the South China Sea, and the East China Sea. The Company possesses abundant experience in construction and management in conventional sea areas with water depth less than 300m. In terms of international project operation, in the past five years, the Company has won more than 40 overseas orders and provided engineering services for owners from Russia, Australia, Saudi Arabia, Myanmar, Brunei, Malaysia and Northern Europe, with offshore operation footprint throughout Southeast Asia and the Middle East areas, accumulating certain international project management and operation experience. 014 COOEC / ANNUAL REPORT 2017

17 Offshore Oil 289 Integration testing for the first subsea control system in China High detail design capacity. The Company has more than 1,300 designers to provide professional services to feasibility study, concept design, FEED, detailed design, processing design, installation design, etc. It possesses design capacity for completely developing different oil and gas fields in conventional waters with water depth less than 300 m, which has reached the advanced design level in the world. Meanwhile, it actively reserves deepwater design technologies, makes efforts in key design technologies of deepwater such as deepwater floating platform system, deepwater subsea pipeline and vertical pipe, underwater system, has finished basic design of tension leg platform (TLP) in South China Sea for the first time, and its deepwater detailed design capability is being formed gradually. 30,000-ton extra-large marine structure constructing capacity. In the areas such as Tanggu and Qingdao, the Company has constructed manufacturing sites with area more than 1.4 million square meters, with annual processing and manufacturing capacity over 200,000 steel structure tons, and owns construction capacity of 30,000- ton extra-large offshore structures such as jackets and modules as well as large-scale modules and skids. Phase I & II of Zhuhai JV base with area of more than about 1.95 million square meters have been built, and the whole base after completion will better serve South China Sea market and international market, and will quicken the formation of construction capacity for deepwater offshore engineering structures. Modular construction capacity of global competitiveness. In recent years, relying on strong onshore construction resources and capabilities, the Company has won the bid of a large number of international LNG modular construction projects, implementing Gorgon LNG and Ichthys LNG modular construction projects in Australia. The Company has completed Russia Yamal LNG modular construction project within this year, in which core process module of LNG modular factory is constructed in China for the first time, showing that large international oil and gas suppliers recognize the Company s professional capability in modular construction. Fully equipped shallow water and deepwater service vessel fleet with advanced performance. The Company owns Offshore Oil 201, which is the first deepwater pipe-laying crane vessel in the world concurrently having 3,000m deepwater pipe-laying capacity, 4,000- ton heavy hoisting capacity and dynamic positioning capacity at level III. It also has 22 engineering vessels inclusive of Blue Whale which is the world s first crane vessel with single hoisting capacity of 7,500 ton, 50,000 ton semisubmersible self-propelled vessel, multi-purpose underwater vessels with operating depth of 3,000 meters, multi-purpose deepwater installation vessels, and deepwater trenching vessels. Each vessel has short age and excellent performance. Besides, the Company has the offshore transportation and installation capacity of 30,000 ton extra-large offshore structures, possesses multiple installation technologies like hoisting, DP floating installation, moored floatover installation, slipping launching, etc. The single jacket or module installed by it reach as heavy as 32,000 tons, the subsea pipelines laid by it are as deep as 1,409 meters, and the laying speed of subsea pipeline with single vessel exceeds 6 km/day. Rapidly increased comprehensive underwater engineering ability. In recent years, the Company is continuously promoting the capability construction of deep underwater engineering equipment to have the underwater engineering ability obviously enhanced. It now owns such large equipment as 5 dynamic positioning (DP) underwater engineering ships, 17 underwater robots and 1 set of deepwater flexible pipe-laying system, is capable of 3,000 m underwater engineering work, has carried out tens of underwater engineering projects in last five years, involves such underwater engineering works as underwater production system installation, mooring system processing, deepwater flexible pipe laying, seabed trenching, and underwater facilities detection and maintenance, and has mastered the technical capacity of relevant underwater engineering work. Summary of Company Business 015

18 Discussion and Analysis on Operation I. Discussion and analysis on operation In 2017, international crude oil price generally showed a V-shape trend, oil price rise in the second half was not synchronous with the capital expenditure of oil company, and the capital expenditure of oil company and demand increase of offshore oil & gas engineering industry fell behind the oil price, so the market demand of offshore engineering is still depressed in the report period, with total investment of global offshore engineering and price level remaining in low level. Facing the complicated internal and external environment and great production and operation pressure, the Company gathered strength, responded actively, and insisted on the principle of Quality First and Benefit Priority to strongly promote the projects under construction, resulting in successful completion of Yamal Project and others in the report period; along with international market development, the Company won its first deepwater EPCI project and large LNG project; with the successive ranking of three underwater engineering vessels, the Company s underwater and deepwater engineering ability was further enhanced; the Company constantly promoted the normalization of Quality and Benefit Year activity and insisted on three new things and three realizations to make certain achievements in cost decreasing and benefit increasing. Benefiting from its management performance in Zawtika Project, the Company won the annual award for PMI (China) for the first time and received high appraisal from the owners of Yamal Project and Shell SDA Project. The Company achieved business income of RMB billion with net profit of RMB 491 million in the whole year. By the end of 2017, the Company had the total assets of RMB billion, including net assets of RMB 23,117 billion attributable to shareholders of listed company, with asset-liability ratio of 18.55%. Its closing cash balance exceeded RMB 7 billion (including bank financial product balance of RMB 2.4 billion). 016 COOEC / ANNUAL REPORT 2017

19 Floatover installation of gas field module for Wenchang 9-2/9-3 Project (i) All projects were promoted rapidly as scheduled In the whole year, the Company operated 21 offshore oil & gas field exploitation projects and 4 modular onshore construction projects in total. In the report period, it successively commenced 10 new projects, including Dongfang 13-2 project, Saudi Arabia CRPO3648 offshore transport and installation project, Nigeria Dangote project and Weizhou 6-13 oilfield development project, and completed 7 projects, including Russia Yamal Project, Indonesia BD Project, Holland Shell SDA Project and overall equipment and facilities upgrade and renovation project of Chengbei Oilfield. It has completed onshore construction of 6 jackets and 3 modules, and implemented offshore installation of 4 jackets and 4 modules and laying of 172 km subsea pipelines within the year In the whole year, the Company operated 21 offshore oil & gas field exploitation projects and 4 modular onshore construction projects in total 6onshore construction of 6 jackets and 3 modules 3 4offshore installation of 4 jackets and 4 modules laying of 172 km subsea pipelines Discussion and Analysis on Operation 017

20 Russia Yamal Project Fabricated in Qingdao Yard 018 COOEC / ANNUAL REPORT 2017

21 International projects took up over 50%. In the report period, it ran 8 international projects, including Russia Yamal Project, Brazil FPSO, Shell SDA, and the income created therefrom accounted for 53%. Construction of Brunei single-point mooring and subsea pipeline project was commenced onshore, and offshore removal of 4 modules of Thailand Chevron was completed successfully. The third ship module of Shell SDA Project left the port, indicating that all modules of the project had been delivered so far. In Brazil FPSO Project, the Company overcome such difficulties as complicated technology and material shortage and won the appraisal of the owners in terms of progress control, setting up a good reputation for the Company s further marching into South America market. Successfully completed Russia Yamal Project, created the brand of modular construction and obviously promoted its popularity in international market. In strict accordance with contract provisions, the Company successfully finished all works of Russia North Pole Yamal LNG Core Process Module Construction Project in August 2017 after three years of continuous efforts, announcing a successful ending of Yamal Project. This project refers to the overseas project with the largest bidding amount and highest technical level since its establishment. Through the operation management, the Company not only obtains good economic benefits, but also greatly promotes the Company s technological level in project management and operation, design, process control, procurement control and construction. It achieved major breakthroughs in a series of LNG key technologies such as core process module construction of LNG factory, pipeline cryopreservation and welding technology in extremely cold environment, which promotes the technology upgrading of relevant industry of the Company or even China, makes Made by COOEC enter into international high-end oil & gas equipment market and enables China to ascend into the first echelon of international LNG module construction, hence laying a good foundation for the Company s further exploiting of LNG modular construction business and expanding of international market. Dismantling of chevron platform in Thailand by Blue Whale Discussion and Analysis on Operation 019

22 Double-hook linkages centralized for jacket by Blue Whale All domestic projects sped up the progress as scheduled. Dome hoisting and erection of Tianjin LNG 160,000 m 2 Tanks Project Domestic large projects such as Penglai, Dongfang, Bozhong and Huizhou projects stepped into construction peak, Bozhong, Dongfang and Penglai projects were successively commenced in Qingdao construction yard, and module of Huizhou 32-5/33-1 project was fabricated in Zhuhai Yard. Among them, jacket construction of some projects had been finished with module fabrication and assembly commenced, while offshore installation of jacket had been completed for Dongfang Project. The Company applied 5 domestic autonomous patented technologies to successfully finish the pneumatic jacking of Tianjin LNG substitutionary project of 5 160,000 m 2 tanks and jack the 700 t dome structure from the ground up to the air of about 50 m, which Items breaks the monopoly of foreign technology, hence m 2 tanks of positive significanc e to the development of China s LNG industry. It successfully finished vertical 160,000 laying of 5 km 6 flexible pipe of Wenchang 9-2/9-3/10-3 gas fields development project, marking that the Company has mastered the technology of deepwater vertical laying. The Company applied 5 domestic autonomous patented technologies to successfully finish the pneumatic jacking of Tianjin LNG substitutionary project of 160,000 m 2 tanks 020 COOEC / ANNUAL REPORT 2017

23 BZ 34-9CEPA jacket being fabricated in Tanggu Yard Discussion and Analysis on Operation 021

24 Laying of 195 km subsea pipelines for Dongfang 13-2 Gasfield Project was finished. It refers to the longest subsea pipeline autonomously laid by the Company so far, including the laying of two 18 stainless single-wall composite pipes and gas pipes, one 24 gas pipe and one 6 oil pipe. The workload of subsea pipeline of the project accounts for 70% of the total of The Company s pipe-laying team successfully finished the laying work in the Spring Festival 022 COOEC / ANNUAL REPORT 2017

25 Pipe-laying of Dongfang 13-2 Project by Offshore Oil km / day Offshore Oil 201 renewed the S-LAY laying rate record of 24" subsea pipeline in China, with the maximum oneday laying rate reaching 4.02 km/day. of 2018 by overcoming such difficulties as frequent winter typhoon and strong surge in the South China Sea, large diameter of subsea pipeline, thick wall and cement coating and deep water at operation position since its launching in September. Offshore Oil 201, as the main working ship, took part in the laying and renewed the S-LAY laying rate record of 24 subsea pipeline in China, with the maximum one-day laying rate reaching 4.02 km/day. Depending on years of technology reserve and in combination with the input of advanced equipment, the Company greatly pushed forward the subsea pipeline laying ability of China and constantly created surprises for China s offshore oil engineering construction field: daily laying rate increased from less than 2 km to over 6 km, and laying depth leaped from hundred meter to thousand meter, covering various pipes and common sizes, including single-wall pipe, double-wall pipe, child-mother pipe and composite double-wall pipe. Discussion and Analysis on Operation 023

26 COOEC / ANNUAL REPORT 2017

27 Progress of key projects: No. Project name Actual progress 1 Nigeria Dangote project 4% 2 Qatar NFA EPCI project 26% 3 Huizhou 33-1/32-5 project 35% 4 Penglai 19-3 oilfield zone 1/3/8/9 overall adjustment project 42% 5 Central Bohai Bay 34-9 oilfield development project 44% 6 Dongfang 13-2 project 46% 7 Tianjin substitutionary project of 160,000 m 2 tanks 77% 8 Brazil FPSO module project 84% 9 Wenchang 9-2/9-3/10-3 gas fields development project 87% 10 Later project of Liwan 3-1 Phase I 95% 11 Royal Dutch Shell SDA project 100% 12 Russia Yamal Project 100% 13 Weizhou 12-2 oilfield phase II development engineering project 100% 10 8 Discussion and Analysis on Operation 025

28 Successful loadout of PRP jacket for Dongfang 13-2 Project (ii) Market development makes new progress in the difficult environment. In the report period, the market occupancy of about RMB billion was realized. This includes RMB billion in overseas markets and RMB billion in the domestic market. By the end of report period, the amount of in-hand uncompleted orders is about RMB 12 billion yuan. 1. Seize the opportunity to achieve rapid growth in domestic market occupancy In the report period, by seizing the opportunities of domestic market recovery and capital expenditure increase, the Company always keeps well communication with client, closely tracks project planning and the progress of approval, understands the client s demands on technology, procurement and resource configuration in advance and helps the client to form a more cost-based development and construction program, to further promote the bidding quality of the Company. The Company won orders of RMB 9.3 billion, showing a year-onyear growth of over 90%. 026 COOEC / ANNUAL REPORT 2017 Especially the Company won the EPCI project of Liuhua and Zhangzhou LNG EPCI Project in Fujian, marking the great progress made by it in market development of deepwater and LNG engineering field. Liuhua Project, with operating water depth of more than 500 m and nearly 1,200 at the deepest place, refers to the first time of the Company to contract deepwater EPCI project, hence of great significance to promoting its deepwater ability. Zhangzhou LNG Project in Fujian will complete the construction of two 160,000 m3 full-capacity storage tanks and corresponding receiving stations, which refers to the largest project won by the Company in domestic LNG market in recent years and will impose positive effect on expanding LNG market in the future. 2. Contract FPSO and platform dismantling works of EU for the first time in international market The Company and FLUOR formed a consortium to successfully win the bidding of Shell North Sea Oil Field Penguin FPSO EPCI Project. This is the first cylinder-shaped FPSO construction project of the Company and also the first time of it to break into the market of North Sea Oil Field. This project refers to another important milestone project for both parties cooperation after the Company obtained HSE certification of Shell, hence accumulating rich engineering experience for contracting FPSO EPCI project.

29 Through active effort, it obtained the EPCI quality certification of the world s largest oil company - Saudi Aramco, signifying that it can get direct involved in EPCI bidding of Saudi Aramco in the future, hence beneficial for the Company to gradually expand its market shares in the Middle East. Moreover, it actively exploited overseas offshore platform dismantling market and won Chevron Thailand platform dismantling project. Involving the removal of 4 modules, this project refers to the first time of the Company to carry out overseas platform dismantling project and also the first pilot offshore platform dismantling project of Thailand, creating a good beginning in overseas dismantling market and ensuring a good market prospect. (Iii) Continuously promote deepwater and underwater capabilities construction and made new breakthroughs in deepwater equipment and technologies. 1. Offshore Oil 285, Offshore Oil 287 and Offshore Oil 295 were ranked Pipeline trenching DP engineering ship Offshore Oil 295 was constructed and delivered to the Company in the report period, thus promoting the seabed trenching ability and enhancing subsea pipeline laying capability of the Company. Two underwater engineering ships, saturation diving supporting ship Offshore Oil 285 and deep underwater detection and maintenance ship Offshore Oil 287, were newly purchased by the Company at RMB 1.06 billion, which will obviously promote the working ability of the Company in terms of deepwater and submerged production system installation. Besides, the Company also purchased a set of deepwater flexible pipe-laying system and a set of deepwater plough trencher for the configuration of Offshore Oil 286 and Offshore Oil 291. Till then, the Company owned 7 deepwater and underwater engineering ships, including deepwater pipe-laying & hoisting ship Offshore Oil 201 and underwater engineering ship Offshore Oil 289, all of which formed a deepwater fleet together with corresponding auxiliary vessels, so as to further improve its deepwater core competitiveness and endow it with serialized deepwater equipment capability that is competitive with international firstclass energy engineering company, thus providing equipment foundation for Liuhua Project and other deepwater projects to be carried out and creating important conditions for exploiting the wide international deepwater market. 2. Do well in deepwater research project and technological reserve down-to-earth In the whole year, the Company totally carried out 25 deepwater and underwater research projects, including 11 national projects. Through national 863 research on key technology and equipment of deep underwater production system connection, it successfully developed the engineering prototype of 6 vertical collet connector and the installation tool, and successfully carried out the sea test in the South China Sea, which formed the complete design, manufacturing, testing and offshore installation technology of 2,000-m deep collet connector with intellectual property. The engineering prototype of underwater control module and distribution unit applicable to 500 m deep water was researched and developed in underwater control system and key equipment R&D project. Through light-duty semisubmersible production platform research project, it finished the overall concept design, platform structure analysis and basic design of three-column light-duty semi-submersible production platform with proprietary intellectual property rights for the first time. Next, the Company will take the implementation of deepwater project as an opportunity to get a complete master of the design, manufacture and installation technology of semi-submersible floating platform, to completely possess the design and manufacture ability of TTR (top tension riser) and master the subsea pipeline laying technology of J-LAY and Reel-LAY in 1,500 m deep water. Offshore Oil 285 berthing at Shenzhen Chiwan wharf Offshore Oil 287 Discussion and Analysis on Operation 027

30 (iv) Went deep into creating Quality and Benefit Year, Version 4.0 to further strengthen cost control and efficiency excavation 1. Aggressively promote new technology, new material, new process, standardization, facilitation, and domestication, and give play to science and technology to lower cost The Company continuously promoted new technology, new material and new process, as well as standardization, facilitation and domestication, and tries to reduce overseas procurement cost and cycle by developing and using new technology, material and process and applying domestic equipment, to optimize the scheme, thus more favorable to reducing raw material and saving working time. In the whole year, it applied new technology, new material, new process, standardization, facilitation, and domestication in over 200 projects. Among them, such achievements as leg coupling butt joint buffer and underwater flexible pipe were widely popularized and applied. Integration technology applied in Yamal project saved the cost of about RMB 35 million. Designers of Dongfang 13-2 project adopted the new technology subsea pipeline stability design based on wave current extreme direction combination to optimize the counter weight layer scheme of 24 and 195 km long subsea pipeline, which reduced concrete counter weight of over 4,000 t and saved total cost of RMB 26 million. 2. Explore and innovate project management mode and try to maximize the resource configuration efficiency In order to fully exert the professional advantages of each business section and try to maximize the resource configuration efficiency, the Company formulated Management Measures for Company Project Authorization to form the long-term project management mechanism with authorization based on discipline features. During implementation of Wenchang 9-2/9-3/10-3project, the Company broke the traditional mode that Project Management Center organizes project team to carry out project at company level, authorized the affiliated Engineering Company for EPCI management, gave active play to the leading role of design business in EPCI business chain, and promoted the integration of scientific research and production, to give maximum play to the leading role of design and deeply cultivate the cost-reducing potential of design link, with over hundred million cost saved for the project. II. Core businesses in report period In 2017, the Company realized operating income of RMB billion with a year-on-year decrease of 14.50%, including core businesses income of RMB 6.4 billion from offshore engineering projects and RMB 3.8 billion from non-offshore engineering projects. Net profits attributable to shareholders of listed company were RMB 491 million, with a yearon-year decrease of 62.67%. Performance of the Company decreased in report period mainly because that capital expenditure of global oil companies was still low in 2017 with no obvious recovery, relevant demands of offshore oil & gas engineering industry, esp. overseas engineering market, was very low, the commencement date of some projects was later than that scheduled and industry recovery fell behind the oil price. Affected by many adverse effects, the total workload of the Company was decreased compared with that of last year, esp. that the price level of contracted projects was low, causing a year-on-year decrease in the income and net profit of the current period. Operation by remotely operated vehicle 028 COOEC / ANNUAL REPORT 2017

31 (i) Analysis on major business Change Analysis on Items Relating to Profit Statement and Cash Flow Statement Item Amount of current period Amount of same period of previous year Change ratio (%) Operating income 10,252,537, ,991,683, Operating costs 8,084,528, ,095,206, Sales cost 13,983, ,047, Management cost 878,706, ,660, Financial cost 353,581, ,825, Inapplicable Net cash flow from business operation 531,374, ,287,991, Net cash flow from investment activities -640,634, ,243, Inapplicable Net cash flow from financing activities -1,621,610, ,174,578, Inapplicable R&D expenditure 620,680, ,950, Assets impairment loss 434,541, ,896, Income from changes in fair value 212,302, ,707, Inapplicable Investment income -121,516, ,561, Inapplicable Gain on assets disposal 0 452,878, Other incomes 95,371, Inapplicable Non-business income 83,419, ,077,355, Income tax expense 137,041, ,452, Net profits attributable to shareholders of the parent company 491,055, ,315,307, Net of tax of other composite incomes -75,285, ,871, , Income and cost analysis In the report period, the Company realized the operating income of RMB billion with a year-on-year decrease of 14.50%. It was mainly because that capital expenditure of global oil companies was still low in Oil price gradually rose in second half of 2017, but the capital expenditure of oil company and the demand increase of offshore oil & gas engineering industry still fell behind the oil price. Therefore, engineering demand was still depressed in the year and overall workload of the Company was further decreased compared with that of last year. Among them, steel processing capacity of onshore construction business was 7% less than that of the same period of last year, days for offshore service vessel installation is 21% less than that of the same period of last year, accordingly pulling down the operating income compared with that of last year. Operating cost was RMB billion, showing a year-on-year decrease of 19.92%. The following causes accounted for such decrease: workload decline pulls down production cost and the Company makes efforts to decrease cost. The variable cost was RMB billion, viz. a year-on-year decrease of 29.10%. The net profits attributable to shareholders of listed company were RMB 491 million, viz. a year-on-year decrease of 62.67%, mainly because the project price level is low apart from the year-on-year decrease in overall workload. Most projects carried out in the report period were orders won after Influenced by sharp decrease of international crude oil price, rapid decline of industry demand and extremely fierce market competition, the gross profit rate of signed orders obviously decreased and the order price was always at low position, even losses for some projects. In report period, the value withdrawn from project contracts decreased by RMB 360 million, including RMB 263 million decrease from Qatar NFA Project. Year-on-year Changes of Main Work Quantity Indicators Time Steel processing volume (10,000 structural tons) Vessel-day input (10,000 days) Subsea pipeline laying (km) 2017 year year Increase or decrease on year-on-year basis -7% -21% 126% Discussion and Analysis on Operation 029

32 (1) Core businesses by industries, and areas Unit: 100,000,000 Yuan Currency: RMB Industry Offshore engineering industry Non offshore engineering industry Area Operating income Operating costs Main business by industries Gross profit ratio (%) Increase and decrease of operating income over that of last year (%) Increase and decrease of operating cost over that of last year (%) Operating income Operating costs Core businesses by areas Gross profit ratio (%) Increase and decrease of operating income over that of last year (%) Increase and decrease of operating cost over that of last year (%) Inland Bohai Sea South China Sea East China Sea Abroad Total Increase and decrease of gross profit rate in last year (%) Down 1.79 percentage points Increase by percentage points Increase and decrease of gross profit rate in last year (%) Down percentage points Down 9.19 percentage points Down 5.27 percentage points Down percentage points Increase by percentage points Increase by 5.43 percentage points Statement of core businesses by industries, and areas The income, cost and gross profit of offshore engineering industry somehow declined compared with that of last year mainly because that gross profit of the projects under construction was relatively low as the oil price was low during contract signing. Income from non-offshore engineering industry was RMB billion, decreased by RMB billion compared with RMB billion of last year, viz. 33%, mainly because that onshore construction project of Yamal LNG module had been finished in the third quarter of 2017 and income in this year was RMB billion, viz. a decrease of RMB billion compared with RMB billion of last year. Gross profit from non-offshore engineering industry increased obviously compared with that of last year, mainly because workload change and cost saving of Yamal project increased gross profit of RMB billion, hence pulling gross profit rise of the whole non-offshore engineering industry. Income from domestic projects was RMB billion, showing a year-on-year decrease of 2.27%, the cost was RMB billion, viz. a year-on-year increase of 10.62% and the gross profit declined by 11.34%, mainly because that the price level of projects in Bohai Sea, the South China Sea and the East China Sea was low. Income from overseas projects was RMB billion, decreased by 22.93% compared with RMB billion of last year, mainly because that income from Yamal project decreased in this year. Besides, increase in gross profit of overseas project was also attributed from Yamal project. (2) Analysis schedule of production and sales 030 COOEC / ANNUAL REPORT 2017

33 (3) Analysis schedule of costs Unit: RMB 100 million Industry Oil and gas engineering Cost composition Items Amount of current period Proportion to the total cost in current period (%) By industry Amount in the same period of last year Proportion to the total cost in the same period of last year (%) Proportion of change in amount in current period compared with that in the same period of last year (%) Material costs Labor costs Depreciation and amortization Fuel costs Engineering cost Total Other statement on cost analysis According to industry features, engineering costs accounted for a high proportion to the cost, mainly including onshore construction sub-contracting cost and vessel sub-contracting cost etc. The Company completed some works in the form of sub-contracting. The cost composition details are shown as follows: Unit: RMB 100 million Cost composition Items Engineering cost Cost composition details Amount of current period Proportion to the total cost in current period (%) Amount in the same period of last year Proportion to the total cost in the same period of last year (%) Proportion of change in amount in current period compared with that in the same period of last year (%) Onshore construction subcontracting cost Vessel subcontracting cost Vessel berthing cost, port surcharges, etc Total (4) Information of major sales customers and suppliers The sales amount of the top five customers was RMB billion, accounting for 91.59% of the total annual sales amount, among which the sales amount of the affiliated parties was RMB billion, accounting for % of the total annual sales amount. The purchase amount of the top five suppliers was RMB billion, accounting for 26.47% of the total annual purchase amount, among which the sales amount of the affiliated parties was RMB billion, accounting for 19.85% of the total annual purchase amount. Other descriptions: Purchase amount of the top five suppliers covered the total amount of RMB 1.06 billion used by the Company to purchase Offshore Oil 701 and Offshore Oil 702 from COSL. 2. Costs Discussion and Analysis on Operation 031

34 (1) The management cost was RMB 879 million with a year-on-year decrease of RMB 71 million, viz. 7.47%. It is mainly due to research expenditure decreased by RMB 83 million in current period. (2) The financial cost was RMB 354 million with a year-on-year increase of RMB 563 million. It was mainly because the exchange net loss of the current period was RMB 344 million under the impact of RMB-USD exchange rate fluctuation, and exchange net income of RMB 254 million was achieved in the same period of last year. 3. R&D investment Table of R&D investment Unit: yuan Expensing R&D investment in current period 620,680, Capitalized R&D investment in current period 0 Total research investment 620,680, Proportion of total R&D investment to operating income (%) 6.05 Number of R&D personnel in the Company 1,194 Proportion of R&D personnel to total number of the Company (%) 15 Proportion of R&D investment capitalization (%) 0 Description In the report period, the Company centered on core business and orderly organized and carried out deepwater and underwater technical breakthroughs in close combination with production and operation. In the whole year, it totally implemented 25 deepwater and underwater research projects, among which 7 projects, including Research on key technology of deepwater working ability improvement of Offshore Oil 201, got the project approval. The Company took a series of management measures promoting program operation to ensure all programs are carried forward as scheduled, and staged achievements are made in such R&D projects as underwater production facilities, collet connector and semi-submersible production platform successively. The Company had the new protection device for underwater production facilities applied in Wenchang project, then successfully developed the engineering prototype of 6 vertical collet connector and the installation tool, and successfully carried out the sea test in the South China Sea, which formed the complete design, manufacturing, testing and offshore installation technology of 2,000-m deep collet connector with intellectual property. It finished the domestication research of deepwater riser monitoring technology, and researched and developed a set of deepwater riser monitoring system. Through light-duty semisubmersible production platform research project, it finished the overall concept design, platform structure analysis and basic design of three-column light-duty semi-submersible production platform with proprietary intellectual property rights for the first time. R&D investment plays an important role in helping the Company solve technical problems, promote the strength, improve the working efficiency and effectively reduce the cost. R&D investment of the current period was RMB 621 million, showing some decrease compared with RMB 704 million of last year, mainly because of investment reduction due to decreased income scale in industry low ebb. 4. Cash flow (1) Net cash inflow from business activities was RMB 531 million, showing a year-on-year decrease of RMB billion, viz %. It was mainly due to that income scale of the Company decreased and the receiving node of some projects was not due, leading to decrease in cash inflow and outflow from business activities. (2) Net cash flow from investment activities was RMB -641 million, showing a year-on-year outflow of RMB 102 million, mainly for the following reasons: 1) investment on bank financial with net withdrawal in the current period was RMB billion, showing a year-on-year investment decrease of RMB billion and outflow decrease if RMB billion; 2) cash paid for purchasing fixed assets, intangible assets and other long-term assets increased by RMB billion compared with that of the same period of last year, with outflow increased by RMB billion; 3) Zhuhai subsidiary finished the third funding of USD 27 million, viz. RMB 178 million, to the joint venture COOEC- Flour Heavy Industries Co., Ltd. in current period, while the cash inflow of Zhuhai subsidiary disposing of fixed assets and intangible assets to the joint venture was RMB billion, hence leading to outflow increase of RMB billion. According to comprehensive comparison, net cash inflow generated by current investment activities deceased, while net cash outflow increased. 032 COOEC / ANNUAL REPORT 2017

35 (3) Net cash flow from financing activities was RMB billion, showing a year-on-year outflow increase of RMB 447 million, mainly for the following reasons: 1) profit distribution of 2016 was carried out in the current period with total cash dividend of RMB 442 million distributed, while cash dividend of RMB billion was distributed in the same period of last year and outflow decreased by RMB 663 million in current period; 2) entrusted loan of RMB 90 million appropriated by CNOOC was received in current period; 3) the principal and interest of RMB 1.2 billion corporate bond which was due, totaling RMB billion, was paid in current period, hence outflow increase of RMB 1.2 billion. Therefore, cash outflow from financing activities in the report period increased compared with the same period of last year. (ii) Description of significant profit change due to non-major business (1) Assets impairment loss was RMB 435 million, showing a year-on-year increase of RMB 308 million, viz % mainly for the reasons below: 1) withdrawing falling price reserves of raw materials were RMB 67 million; 2) some projects were estimated to be on loss due to preparation of assets impairment of RMB 360 million withdrawn according to construction contract criteria. (2) Income from change of fair value was RMB 212 million, showing a year-on-year growth of RMB 218 million, mainly resulting from forward exchange settlement and sale contract delivery of Yamal project of Qingdao subsidiary. (3) Income from investment was RMB -122 million, showing a year-on-year growth of RMB 701 million mainly because that in the same period of last year, Zhuhai subsidiary invested and sold assets to the joint venture COOEC-Flour Heavy Industries Co., Ltd., and the confirmed income on investment due to unfulfilled profits and losses on internal transaction was RMB -733 million, but there was no relevant matter in current period. (4) Income from assets disposal was RMB 0, showing a year-on-year decrease of RMB 453 million mainly because that in the same period of last year, income from assets disposal was RMB 453 million due to funding and assets selling to COOEC-Flour Heavy Industries Co., Ltd., but there was no relevant matter in current period. (5) Other incomes were RMB 95 million, showing a year-on-year increase of RMB 95 million, mainly because that according to requirements in No. 16 of Accounting Standards for Business Enterprises - Government Subsidy revised by Ministry of Finance of the PRC in 2017, government subsidy related to daily activities of the Company should be counted into other incomes, and relevant consumption tax drawback and scientific research subsidy were listed into other incomes. (6) Non-business income was RMB 83 million, showing a year-on-year decrease of 92.26%. This was mainly due to that Zhuhai subsidiary invested and sold assets to COOEC-Flour Heavy Industries Co., Ltd. in the same period of last year, with non-business income of RMB 928 million due to carry-over of deferred income, while no non-business income was gained in the current period, resulting in a year-on-year decrease of non-business income. (7) Income tax expense was RMB 137 million with a year-on-year decrease of RMB 167 million, viz %. It was mainly due to total profit decline in current period. (8) After-tax net amount of other comprehensive income was RMB -75 million, showing a year-on-year decrease of RMB 78 million, mainly for the following reasons: 1) an impact of RMB -62 million was incurred due to price change of Lanpec Technologies shares held; 2) an impact of RMB -13 million was imposed on translation reserve of the current period. (iii) Analysis of assets and liabilities 1. Assets and liabilities Unit: Yuan Project name Amount at the end of current period Ratio of the amount at the end of current period to total assets (%) Amount at the end of last period Proportion of amount at the end of last period to total assets (%) Change ratio of the amount at the end of current period compared with that at the end of last period (%) Currency capital 4,632,161, ,706,031, Accounts receivable 2,820,783, ,992,778, Interest receivable 7,816, ,891, Discussion and Analysis on Operation 033

36 Project name Amount at the end of current period Ratio of the amount at the end of current period to total assets (%) Amount at the end of last period Proportion of amount at the end of last period to total assets (%) Change ratio of the amount at the end of current period compared with that at the end of last period (%) Projects under construction 179,879, ,630, Deferred income tax assets 673,825, ,726, Financial liabilities measured by fair value with their changes accounted ,302, to current profits and losses Interest payable 9, ,193, Other payables 81,889, ,296, Non-current liabilities due within one year ,198,558, Other composite incomes 109,380, ,399, Total assets 28,395,956, ,811,198, Net assets attributable to the shareholders of the listed company 23,117,079, ,155,451, Description of change in item: (1) Currency capital decreased by RMB 2.074, viz %, compared with that at the end of last year mainly due to the combined influence of business activities, investment activities and financing activities. On one hand, net flow of business activities in current period was small, and on the other hand, the principal of RMB 1.2 billion corporate bond was repaid in current period, hence increasing the cash outflow. (2) Accounts receivable increased by RMB 828 million, viz %, compared with that at the end of last year, mainly because that the receiving node of some contracts was undue according to contract terms. (3) Interest receivable decreased by RMB 12 million, viz %, compared with that at the end of last year, mainly because of decreased interest of the bank financial purchased by the Company. (4) Project under construction decreased by RMB 84 million, viz %, mainly because some projects under construction at the beginning of the period were changed into fixed assets. (5) Deferred income tax assets increased by RMB 168 million, viz %, compared with that at the end of last year, mainly because of deferred income tax assets generated from deductible loss, depreciation reserves and estimated liabilities of the Company. (6) Financial liability calculated based on fair value with their change included in current P/L decreased by RMB 212 million compared with that at the end of last year, mainly due to that delivery of long-term exchange settlement and sale contract signed on YAMAL Project between Qingdao subsidiary and Standard Chartered Bank was finished. (7) Interest payable decreased by RMB 10 million, viz %, compared with that at the end of last year, mainly because of the interest of corporate bond repaid in current period. (8) Other payables decreased by RMB 43 million, viz %, compared with last year, mainly because that insurance claim compensation for Tianjin Port explosion accident received by the Company was gradually paid to the third party. (9) Non-current liability due in one year was RMB 0, showing a year-on-year decrease of RMB billion, mainly due to that RMB 1.2 billion corporate bond was paid upon expiration. (10) Other comprehensive incomes decreased by RMB 75 million, viz %, compared with last year mainly for the following reasons: first other comprehensive income decreased by RMB 62 million due to price change of Lanpec Technologies shares; second, translation reserve decreased by RMB 13 million in current period. 034 COOEC / ANNUAL REPORT 2017

37 (11) Total assets decreased by RMB billion, viz. 4.75%, compared with last year, mainly because the Company repaid the principal and interest of RMB 1.2 billion corporate bond. (12) Net assets attributable to shareholders of listed company decreased by RMB 38 million compared with last year, mainly due to the combined influences of changes in other comprehensive incomes, retained income and special reserve items. Among them, other comprehensive incomes decreased by RMB 75 million, retained income increased by RMB 49 million influenced by net profit and bonus achieved in current period, and special reserve withdrawn from work safety cost decreased by RMB 12 million compared with last year. 2. Main asset limitation by the end of report period 3. Other descriptions: (iv) Analysis on industry business information (v) Investment analysis 1. General analysis on foreign equity investment (1) Significant equity investment (2) Significant non-equity investment (3) Financial assets calculated by fair value By the end of the report period, the Company reduced the holding-shares of Lanpec Technologies Limited by 17,770,000 shares, showing no change in the report period, and the shareholding proportion is 5.01%. Unit: RMB 10,000 yuan Stock code Stock abbreviation Lanpec Technologies Initial investment cost Shareholding proportion at the beginning of period (%) Shareholding proportion at the end of period (%) Book value at end of the period Profit and loss in the report period Changes in fair value in report period 3, , , Accounting Items Financial Assets Available for Sale Source of shares Investment in original issue stock Total 3, / / 16, , / / (vi) Significant assets and equity offering (vii) Analysis of main stock holding and participating companies 1. Basic information of main holding subsidiaries Unit: 10,000 Yuan Currency: RMB Discussion and Analysis on Operation 035

38 No Company name COOEC Subsea Technology Co., Ltd. Offshore Oil Engineering (Qingdao) Co., Ltd. Offshore Oil Engineering (Zhuhai) Co., Ltd. COOEC International Engineering Co., Ltd. COOEC (Indonesia) Co., Ltd. COOEC (Nigeria) Co., Ltd. Paid-in capital 215, , , , COOEC NIGERIA FZE A.E.S. Destructive & Non-destructive Testing Ltd. Bluocean Technology Inspection Co., Ltd. Gaotai Deep-sea Technologies Co., Ltd. Beijing Gaotai Deep-sea Technologies Co., Ltd. COOEC International Co., Ltd. COOEC Canada Co., Ltd. Offshore International Engineering (Thailand) Co., Ltd , Major business and Technical services, subsea pipeline maintenance and other services of offshore oil underwater engineering Construction, installation, design and maintenance, etc. of offshore oil and gas engineering Construction, installation, design and repair of offshore oil-gas engineering EPCI contract and specialized contract Oil-gas field development and repair service business Contract, design, installation, repair and relevant business of offshore oil-gas development engineering Offshore oil & gas engineering contracting Nondestructive testing and welding experiments EPCI contract of offshore oil engineering EPCI contract of offshore oil engineering Consulting services for deepsea engineering EPCI contract and design, construction and installation, etc. of oil-gas development engineering Design, procurement, construction and installation of offshore oil engineering Total assets Net assets Net profit Shareholding ratio 526, , , % 827, , , % 432, , , % 14, , % 14, , , % % 10, % 1, , % % 1, , % 3, , % 115, , , % 1, , % Project contracting 1, % (1) Analysis on single subsidiary with net profit proportion taking up more than 10% of that of the Company: In 2017, Offshore Oil Engineering (Qingdao) Co., Ltd. insisted on the product positioning of large-scale, highend, deepwater and internationalization to vigorously construct the most competitive international first-class offshore engineering construction yard, achieved operating revenue of RMB billion with operating profit of RMB 1.87 billion and net profit of RMB billion which showed a year-on-year increase of 56% compared with RMB 1.03 billion in the same period of last year. It was mainly because that Yamal project implemented by Qingdao subsidiary in report period was completed, which brought about increase of project income in the report period. (2) Analysis on large performance fluctuation of single subsidiary which causes significant impacts on net profits of the Company: In 2017, Offshore Oil Engineering (Zhuhai) Co., Ltd. had operating income of RMB 20 million, operating profit of RMB -35 million, and net profit of RMB -35 million which showed a decrease of 107% compared with RMB 486 million in the same period of last year. It was mainly because that Zhuhai subsidiary contributed capital of USD 364 million in the form of Zhuhai base assets and cash, to the joint venture COOEC-Flour Heavy Industries Co., 036 COOEC / ANNUAL REPORT 2017

39 Ltd. in the same period of last year, which contributed to net profit of the same period of last year by RMB 436 million, while there is no such profit in the report period. Net profit of RMB -36 million was mainly due to loss of RMB -251 million of the joint venture in report period. The 51% shares of the joint venture held by Zhuhai subsidiary brought about investment income of RMB -128 million to Zhuhai subsidiary, which resulted in loss in net profit accordingly. In 2017, COOEC Subsea Technology Co., Ltd. achieved business income of RMB 982 million, operating profit of RMB 6 million and net profit of RMB 12 million which decreased by 89% compared with RMB 104 million in the same period of last year because underwater works completed by Shenzhen subsidiary decreased due to industry downturn. (3) Acquisition and disposal of subsidiaries in report period: Inapplicable. 2. Basic conditions of the Company s major shareholding enterprises in the report period Company Name CNOOC Finance Co., Ltd. Gansu Lanke Petrochemical Equipment Co., Ltd. Registered capital (RMB 10,000) Registration time 400,000 June, ,453 December, 2008 Business scope Taking deposits, loan and financial leasing, etc. of member organizations Oil drilling machineries, refining chemical equipment, offshore and desert oil equipment and engineering, and refining chemical, etc. Actual capital contribution (RMB 10,000) Shareholding Ratio 7, % 3, % 3. Conditions of key joint ventures COOEC-Flour Heavy Industries Co., Ltd. is a key joint venture held by the wholly-owned subsidiary Offshore Oil Engineering (Zhuhai) Co., Ltd. For its basic information, please refer to the information of related joint ventures disclosed in financial notes IX. Rights and Interests in Other Entities of the Report. (viii) Structured entity controlled by the Company III. Discussion and analysis on the company s future development (i) Industry structure and tendency 1. International oil price rises gradually, hopeful to drive the demand recovery of offshore oil & gas engineering industry In the second half of 2017, oil price shook off fluctuation and began to rise gradually, while future price of Brent crude oil broke USD 70/barrel at the maximum, obviously stabilizing the market confidence in the industry. Due to time lag between capital expenditure of oil company and oil price, it needs time for oil company to adjust annual plan and actual input. Therefore, despite that oil price rise in second half of 2017 neither resulted in obvious capital expenditure increase of oil company in 2017 nor led to significant demand growth of offshore engineering, the capital expenditure of oil company in 2018 can expect certain growth based on the current oil price level. According to the prediction of IHS Markit, the investment of global upstream oil & gas exploration & development in 2018 is expected to recover to USD 422 billion, viz. an increase of 11% compared with that of Seen from the announced data of China, the investment budget of China s offshore oil & gas industry is RMB billion, showing certain growth compared with RMB 50 billion of However, some standpoints stated that great uncertainty still exists in the rise of international crude oil price and project price is not synchronous with oil price. Oil price restored gradually, but project price at low level will still continue. As a result, the recovery of international offshore engineering contracting market may be a slowly rising process. 2. The Company operates prudently and gradually promotes its comprehensive strength, providing good foundation for future development Firstly, the comprehensive strength is strengthened significantly. In recent years, the Company constantly performs development strategies, focuses on the core business and pays special attention to four capabilities construction Discussion and Analysis on Operation 037

40 and global market development, which significantly improves the capacity of design, onshore construction and offshore installation operation, enhances deep water capability and project management capacity and efficiency, thus ensuring stable exploitation of international market, and making the employee team constantly grow, which lay a solid foundation for coping with various challenges and difficulties. Secondly, the international market is preliminarily opened with the international popularity and competitiveness promoted. In the past few years, the Company completed or implemented some large projects in Russia, Australia, the Middle East, Europe, Southeast Asia and Brazil with high quality, thus enhancing the knowledge and understanding of overseas oil & gas giants toward the Company and significantly promoting the degree of trust. The Company established good cooperation relations with oil & gas giants such as Shell and project giants such as Technip, and was listed as qualified supplier for general contracting of Saudi Aramco. The Company became a flag in international LNG modular construction field and promoted its competitiveness in FPSO field. The Company will continue to firmly give first priority to international market development and vigorously exploit the overseas market to promote overseas operation ability and realize internationalization. Thirdly, the Company owns strong equipment power. Equipment resource is a vital factor in oil and gas development. The Company has advanced facilities, manufacturing resources in a large scale with world competitiveness and selfowned engineering ships of different types, most of which are the latest ones with advanced techniques. And those factors are just what international engineering companies lack of, therefore promoting the Company to participate in market competition in a better way. Fourthly, through adjustment of the entire oil and gas engineering industry over three years, superiors finally survived and inferiors were eliminated, some international peer companies went bankrupt. And the Company had its cost control capability further enhanced by improving the capability and solidifying the foundation in recent years. Meanwhile, it also kept a good financial status with certain fund accumulated. At present, the Company s assetliability ratio is 18.55% and closing cash balance exceeds RMB 7 billion (including bank financial product balance of RMB 2.4 billion), which will lay a good foundation for its sound development. (ii) Development strategies of the Company The Company owns a strategic target of constructing international first-class energy engineering company and plans to push forward the construction in three stages. Stage I ( ): this is the starting stage of overall internationalization construction which emphasizes on enhancing company foundation, reform and transformation development and opening of overall internationalization construction, and aims at stepping out of industry low ebb, gentle workload and peak valley amplitude of income by adopting such means as international benchmarking, reform and innovation with informatization and intelligentized construction as the strengthening measures, so as to constantly promote the Company s development quality and level. The stage target is to constantly expand the economic scale; continuously improve the degree of internationalization to ensure overseas income of 40%-45% and technical service income of around 30% till 2020; carry out pluralistic development of industrial structure and continue keeping the dominant position of traditional shallow water oil & gas project EPCI; upgrade the deepwater, underwater, LNG and other new businesses and transform to general contractor; form the technology and market foundation for new energy engineering industry, in order to significantly improve the management level, constantly enhance the soft power, obviously expand the market area and gain a high international popularity. Stage II ( ): it plans to preliminarily construct itself into an international first-class energy engineering company till 2035, with comprehensive capacity ranking top five among the peers in the world. During the construction, the safety indicators shall first reach the world first-class level and such monomial competencies as Qingdao base, deepwater and underwater capabilities, offshore installation ability shall reach the world first-class level. By reference to and chancing from modular international brand and capability construction of Qingdao yard, it will really break the international barrier as well as traditional fixed mode of thinking and management mode and follow the construction route of part to whole and single to entirety, to promote the construction of international first-class energy engineering company. Stage III ( ): it plans to comprehensively build itself into an international first-class energy engineering company till Till then, its comprehensive strengths such as overall market operation ability, performance level, technological content, team quality and enterprise brand will reach the world first-class level on the whole, and it will build itself into a comprehensive international first-class energy engineering enterprise with both traditional industrial spirit and intelligent industrial capacity, which owns strong rallying point and leadership in energy field and shares wide popularity among global enterprises. Its development and construction will gain the acknowledgment of the public, acception of peers, confidence of all circles and trust of clients, to make the Company an international first-class engineering enterprise that is to the satisfaction of the people and the staff can be proud of, showing lasting power and permanent vitality on international stage. 038 COOEC / ANNUAL REPORT 2017

41 (iii) Business plan The Company s income, net profit and other operation targets in 2017 were lower than the estimation at the beginning of the year, mainly because that the commencement date of some projects are later than the schedule and the total workload was further reduced than that of last year, esp. the price level of newly signed projects was constantly low. In 2018, the Company plans to carry out projects successively, with overall workload showing a year-on-year growth. It is estimated that some key projects, including Zone 4 adjustment of Penglai 19-3 Oilfield / Phase II development project of Penglai 19-9 Oilfield, development project of Lvda 21-2 / Lvda 16-3 Oilfields, comprehensive adjustment project of CFD 11-11/11-6 oilfield, EPCI project of Liuhua oilfields, Zhangzhou LNG receiving station and storage tank project and Penguin FPSO construction project, will be commenced gradually. Along with recovery of oil price, investment increase of oil company and certain demand growth of offshore oil & gas engineering industry, the industry development is faced with gratifying changes. However, the impact of oil price low ebb in past few years on the industry will still appear in As a result, the Company still needs to vigorously exploit the international market, lower the composite production cost, and improve the technical capacity, to make unremitting endeavor for ultimately achieving sustainable & sound development and constructing an international first-class energy engineering company. It is predicted that the Company s income of 2018 will be better than that of It will try to control the proportion of operating costs to operating income below 91%, and the proportion of three expenditures (selling expenses, management expenses and financial expenses) to operating income below 8%. Main work schedule of 2018: 1. Strengthen 7 transformations, free our mind and deepen the reform to endow the Company with new growth power and vitality. Reform is an inevitable requirement for a company to remain changing and always keep forward momentum and development vitality. In the new year, the Company will practically strengthen 7 transformations (transforming knowledge to cope with severe new challenges; transforming mechanism to profoundly activate the new engine for project operation; transforming mode to deepen reform and make new breakthroughs; transforming ideas to continuously improve safety management new level; transforming the center of gravity to systematically solidify the new foundation for new development; transforming way of thinking to deeply release the new vitality of human resources; transforming thought to implement the new requirements for the work of Party building), practically free our mind, further form the resultant reform force, do well in reform planning, plan to push forward reform and insist on the direction of marketization, to facilitate the promotion of operation efficiency and level. The aspects below are the emphasis of 2018: thoroughly implement the spirit of the 19th National Congress of the Communist Party of China, comprehensively carry out new requirements for the work of Party building, always insist on deep integration of Party building and operation, give full play to the core competitiveness of Party building, solidify Party building work of the basic level and develop the strengthening of Party self-discipline in depth and breadth by emphasizing rectification the implementation. In terms of business transformation, it will actively explore to set up a more agile and efficient management and operation mode as well as a more scientific and rational project assessment mode. Keep carrying forward the reform of sharing procurement center and try to achieve substantial promotion of procurement efficiency and capability. Explore the new mode of intelligent manufacturing to improve the scientific content of product. Explore the new mode of performance assessment, strengthen the synergistic effect between all sections and project, try to set up the long-term mechanism of special award for projects and practically give play to motivating the advanced and encouraging action. Strengthen team construction, pay attention to cultivation of young cadres, speed up preparing the construction of commercial college and improve the business competence, risk control ability and international business capability of cadres and staff at all levels, to solve the longstanding shortcomings step by step. 2. Deeply plan a way of strategic development and promote the overall internationalization construction of the Company As the inevitable course for international first-class energy engineering company, internationalization strategy refers to an inevitable choice for solving long-term predicament and reaching long-term goal. There s still a long way to go for the Company to reach the goal of international first-class energy engineering company, so the strategic guideline shall be further clarified for overall internationalization. Be determinate inwardly to actively push forward the self-revolution of management idea, give up inherent thinking mode and carry out all-level, all-field and allround international benchmarking, systematically plan the international development strategy, international business organization and control system and international operation capability, objectively analyze the solve the impending hard problems in internationalization, including international brand building, construction of overseas professional Discussion and Analysis on Operation 039

42 branch, international talent cultivation and introduction, existing assets reforming and promotion of per-capita output value and efficiency, to accelerate the overall going out step. 3. Spare no effort in exploiting overseas market with full concentration The Company has bidden and is biding more than 100 international projects. Key follow-up projects are mainly distributed in the Middle East, Southeast Asia, Canada, the US and Africa. The Company will closely follow up these projects and make good preparations for market development. Enhance the development of core process module construction market on the occasion of LNG modular construction business recovery. Based on the platform dismantling project in Thailand carried out by the Company, enhance the development dismantling market in Beihai and the Middle East and cultivate new competitive advantages. Expand the EPCI business in the Middle East by virtue of joining in EPCI supplier namelist of Saudi Arabia. And push forward the exploitation of such businesses as oil sand and oil field surface engineering via international cooperation. 4. Do a good job in carrying out and operate the existing projects and provide Party A with high-quality and efficient service In terms of international project, get a full understanding of project complexity and difficulty, do well in managing and controlling Brazil FPSO, Qatar and Penguina projects, effectively control the project quality and progress in strict accordance with contract, make proactive judgment on project difficulties and formulate proper handling plans, esp. strengthening cost control. Summarize and inherit the experiences of successful international project like Yamal, actively cope with difficulties and safeguard the hard-won international reputation and trust brand. As for domestic projects, organize the implementation of conventional projects including Dongfang 13-2 and Penglai Meanwhile, do well in carrying out Ningbo Phase II and Zhangzhou LNG projects, and open the domestic LNG market with higher quality and efficiency. 5. Make careful preparation and spare no effort to carry out the Company s first deepwater EPCI project - Liuhua Project Liuhua Deepwater EPCI Project refers to the first deepwater project of true sense implemented by the Company by completely using self-owned resources based on years of deepwater technology, equipment and capability accumulation, hence of great significance. The Company will well organize strength to complete the design, construction and installation of deep underwater development facilities and equipment including deepwater subsea pipeline, flexible pipe, cross-under pipe, manifold, subsea pipe terminal and umbilical cable, provide the owner with high-quality and efficient services and practically improve the comprehensive deepwater engineering capability. Besides, it also plans to implement Lingshui Project and other deepwater projects to practically take a firm step in deepwater business in Continuously promote four capabilities construction and constantly improve core competitiveness Strengthen leading role of design, and improve the value of EPC through scientific and effective design optimization. Push forward the operation management of newly ranked ships, improve the operation efficiency, expand international offshore installation business market and continuously improve its comprehensive offshore working capacity. Continue to improve the Company s technical level in LNG engineering, deepwater oil and gas field development, underwater engineering, FPSO engineering and other businesses. Continue to carry out three new things and three realizations, and give play to cost reduction by science and technology, to enhance the market competitiveness. 7. Continuously improve the safety quality management level Always give priority to work safety, go deep into creating safety culture, innovate mobile carrier, implement the system of responsibility by both Party committee and the government, dual responsibility for one post, and holding responsible for dereliction of duty, push forward the leadership, executive force and integrity construction for safety management, strengthen the management system construction and enhance contractor management by means of management benchmarking, potential risks identification and thorough rectification with emphasis on implementing the requirements of national Notice on Comprehensively Strengthening Work Safety Responsibility System for All Staff of Enterprises, so as to improve the executive force of teams at basic level and truly create a HSE management capability matching with international first-class. (iv) Potential risks 1. Industry risks incurred by the low international oil prices Depressed international oil price in past few years brought about industry investment shrinkage, resulting in large decline in market demand of the whole offshore oil & gas engineering industry, decrease of service price level and fierce market competition, which does not obviously recover till now. It is hard to predict the trend of international 040 COOEC / ANNUAL REPORT 2017

43 oil price. If it drops in the future, the confidence of industry investors will be shocked, which will lead to long-time depression of oil & gas engineering industry and bring challenges to the Company s development. Countermeasures: strengthen the Company s capacity building and unswervingly push forward the construction of the main business capacity, and vigorously explore the international market, constantly promote the management level and technical capacity, further reduce cost, and raise market competition to ensure that the Company can overcome difficulties and depression in a long time, thus achieving long-term sustainable development. 2. Risks brought by international operation For the short-time participation in international market, international talents are relatively insufficient, the management system is inadequate, the capacity on operation management remains relatively weak, and policies, marine environment, remote resource allocation of different kinds in different countries may bring risks in operation of international projects. Countermeasures: firstly, strengthen training and exercise for international talents and improve internationalization level and operation capability of staff; secondly, enhance study on the policies to keep up with the international industry development & policy trends and analyze scientifically risks in overseas project operation to perfect related management system; thirdly, gradually integrate and improve overseas organizing structure, set up regional centers, promote the application of global labor, property and material resources, and enhance prevention of and control over risks. 3. Risks in exchange rate fluctuation The recording currency is RMB, so exchange rate fluctuation may affect the Company s profits and losses with the expansion of oversea business scale and increase in foreign exchange income of the Company. Countermeasures: the Company shall enhance ability of response to exchange rate fluctuation in the routine funds management through measures of taking exchange rate risks into cost control when in contract price offering, taking hedging in import and export into consideration and using financial instruments in forward settlement. 4. Implementation risks in engineering project Offshore oil-gas field development project is stepping toward the deepwater area above 300 m, but the Company is relatively weak in technology, management and construction experience in the deepwater engineering field, resulting in higher construction difficulties and risks. Countermeasures: strengthen construction safety and quality control, expedite deepwater technique reserve and manufacturing of deepwater equipment, and accumulate experience in technique, management and operation of deepwater projects through practical operation and employment of foreign experts, so as to eliminate construction risks. 5. Risks brought by factors as natural disaster and bad weather. Unpredictable natural disaster and severe weather like frequent typhoon may cause negative effects and unpredictable risks to manufacturing and operation, especially offshore installation of the Company Countermeasures: safety management has long been regarded as the top priority in the Company and close attention has always been paid to keep close attention to severe weather as typhoon for tracking and preparation, emergency shall be prevented earlier, tracked closely and reported timely, and start the emergency response to cut losses at the lowest level. (v) Others IV. Situations of disclosure not in accordance with criteria due to inapplicable criteria, national secrets, business secrets or other special reasons and the cause description Discussion and Analysis on Operation 041

44 Important Matters I. Plan on common share profit distribution or capital reserve capitalization (i) Formulation, implementation and adjustment of cash bonus policy According to requirements in Notice of Implementation on Relevant Affairs of Cash Bonus in Listed Companies of China Securities Regulatory Commission in 2012 and actual operation of the Company, related terms in Articles of Association and Rules of Procedure for the General Shareholders Meeting have been revised, and fundamental principles, specific distribution policies, procedures and mechanism of decision deliberation as well as implementation involved in profits distribution have been further clarified by the Company. No further adjustment on cash dividend policies has been made by the Company in 2017 Distribution policies in Articles of Association are: 1. Basic principles of profit distribution of the Company (1) In taking fully consideration of the shareholder s return and without violating rules of cash bonus in Articles of Association, profits of shareholder shall be distributed according to stipulated ratio of net profits that belongs to parent company in consolidated statement of the year. (2) Profit distribution policies of the Company remains continuous and stable and gives consideration to the long-term interests of the Company and whole benefits of shareholders and sustainable development. (3) Cash bonus is the preferential method adopted for profits distribution. 2. Concrete policies on profits distribution (1) Profits distribution method Methods for profits distribution are: cash, stock, cash and stock or other means allowed in laws and regulations; medium-term profit distribution is also feasible. (2) Conditions and ratios of cash bonus Except for special occasion and under the case that the financing can guarantees continuous operation and long-term development of the Company and the Company made profit in the current year and the accumulative un-distributed profits (the calculation of which shall be subject to the net profits attributable to shareholders of the parent company in consolidated financial statement) of the year is positive without violating distribution stipulations of Company Law, cash bonus shall be adopted for distribution and the profits distributed in this manner shall account for no less than 10% of the net profits belonging to the parent company s shareholders in consolidated financial statement. Accumulated profits distributed in cash bonus in the latest three years shall account for no less than 30% of average distributable profits of last three years. Special occasions: 1 Major investment or cash outflow in the coming 12 months of the Company (except project of raised fund) reaches or is higher than 30% of the net assets audited in the latest term; investment plan or cash outflow includes proposed external investment, asset acquisition, external debt payment or equipment procurement, etc. 2 Standard audit report without reserved opinions to the annual financial report of the Company is not issued by audit agency. (3) Specific condition for distribution of stock dividend When the Company runs well and the stock price and equity size are regarded as mismatched in the opinion of Board of Directors, and the distribution of stock dividend is for the overall benefit of all shareholders of the Company, preliminary distribution plan of stock dividend can be put forward under the premise of satisfying the above cash bonus conditions. 042 COOEC / ANNUAL REPORT 2017

45 3. Procedures o f deliberating profit distribution plan (1) The profit distribution plan shall be put forward and drawn up by the management in combination with the regulations of Articles of Association, profit condition and capital demand plan for submission to Board of Directors for review. Board of Directors of the Company shall fully discuss the rationality of profit distribution plan, and then submit to shareholders meeting for deliberation after special resolution is formed. When deliberating concrete cash bonus scheme, the Company shall fully listen to minority shareholders opinions and demands on shareholders meeting, and communicate with shareholders, esp. minority shareholders by means of hotline or fax to reply to the issues that minority shareholders concern in a timely manner. (2) In case the Company fails to determine profit distribution plan of the year according to the existing cash bonus policy due to special conditions stated above in Item 2, the Board of Directors shall specially explain detailed reasons for no conducting of cash bonus, purpose of company s retained earnings, expected investment income, etc., submit to shareholders meeting after independent directors show their opinions, and then disclose on media specified by the Company. When profit distribution plan of the year is submitted to shareholders meeting for review, it shall be agreed by more than 2/3 of the shareholders attending the meeting. (3) Decision-making process for profit distribution policy adjustment or modification of the Company In case company production and management is significantly impacted by war, natural disaster or change of external business environment or the Company s own business status changes greatly, the Company can adjust or modify cash bonus policy determined in the Articles of Association if necessary after detailed demonstration. Board of Directors shall fully discuss the rationality of profit distribution policy, and then submit to shareholders meeting for deliberation after independent directors shows their opinions and special resolution is formed. During deliberation on the shareholders meeting, it shall be agreed by more than 2/3 voting power held by shareholders attending the meeting. 4. Implementation of profit distribution plan After resolution on profit distribution plan is made at shareholders meeting of the Company, Board of Directors shall complete matters of dividends (or share) distribution within two months after holding of shareholders meeting. (II) Scheme or plan on common share profit distribution or capital reserve capitalization of the Company during last three years (including report period) Unit: 10,000 Yuan Currency: RMB Bonus Year No. of presented bonus every 10 shares (shares) No. of dividend every 10 shares (including tax) Capitalizing No. every 10 shares (shares) Amount of cash dividends (Including tax) Net profits attributable to ordinary shareholders of the Company in the consolidated statements of dividend year Proportion to net profits attributable to ordinary shareholders of the Company in the consolidated statements (%) 2017 year , , year , , year , , (iii) Offering for share repurchase with cash to account into cash dividends (iv) In case it is gained during report period and undistributed profits of the parent company to ordinary shareholders is positive but no plan for profit distribution is proposed, the Company shall disclose the reasons, purposes and use plan of undistributed profits. II. Performance of the commitment (i) Commitments of the Company, shareholders, actual controller, purchaser or other related parties in report period or continued to report period Important Matters 043

46 Commitment background Commitment related to initial public offering Commitment Type Solve horizontal competition Committed by CNOOC (Group) Co., Ltd. Commitment Contents During existence of the Company, CNOOC and controlled legal person thereof shall not conduct any business the same as or similar to business scope of the Company now or in the future and shall not hold activities in any way which might reduce the Company s benefit. Date and duration of commitment Date of commitment: August 15, 2001, duration: existence of the Company. Whether there is performance duration No Whether the commitment is performed strictly in a timely manner Yes (ii) If company assets or project profits are expected to be promising, and the report period is still in the profit forecast period, the Company shall state if assets or project profits fulfill the forecast and explain the reasons. Whether reach the original profit forecast and explanation to the reasons Fulfilled Unfulfilled Inapplicable III. Fund occupation or progress of debt paying off during report period IV. Statement on Non-standard Audit Report of Accounting Firm from the Company V. Analysis on reasons and effects caused by changes in accounting policies, accounting estimate or major accounting mistakes by Board of Directors (I) Analysis on reasons for and effects of the changes in accounting policies, accounting estimate by the Company Accounting policy change Carry out Accounting Standards for Business Enterprises, No Non-current Assets Held for Sale, Disposal Groups and Discontinuing Operation and No Government Subsidy, and Notice of the Ministry of Finance on Revising and Printing the Financial Statement Format of General Enterprises. Ministry of Finance released Accounting Standards for Business Enterprises, No Non-current Assets Held for Sale, Disposal Groups and Discontinuing Operation in 2017, which takes effect since May 28, Non-current assets held for sale, disposal groups and discontinuing operation existing on the day of enforcement should be disposed as per prospective application. Ministry of Finance revised Accounting Standards for Business Enterprises, No.16 - Government Subsidy in 2017, which takes effect on June 12, Government subsidy existing on January 1, 2017 should be disposed as per prospective application; while government subsidies newly increased from January 1, 2017 to the day of enforcement should be adjusted according to the revised criteria. Ministry of Finance released Notice of the Ministry of Finance on Revising and Printing the Financial Statement Format of General Enterprises in 2017 to revise the financial statement format of general enterprises, applicable to the financial statements of 2017 and later. Major influences of the Company executing the above three provisions: The content and reason for change of accounting policy (1) Net profit from continuous operation and net profit from discontinuing operation are listed in profit statement respectively. Comparative data are adjusted accordingly. Name and amount of report items influenced The current period: listed net profit from continuous operation in current year is RMB 489,852,030.12; listed net profit from discontinuing operation in current year is RMB -219,867.41; last period: listed net profit from continuous operation in current year is RMB 1,312, ; listed net profit from discontinuing operation in current year is RMB 8, COOEC / ANNUAL REPORT 2017

47 The content and reason for change of accounting policy (2) Government subsidy related to daily activity of the Group is accounted into other incomes rather than non-business income. Comparative data are not adjusted. (3) Divided as assets held for sale in balance sheet is adjusted into assets held for sale, divided as liabilities held for sale is adjusted into liabilities held for sale. (4) The item income from asset disposal is added in profit statement, and partial P/L on assets disposal originally listed as non-business income is reclassified into profit on assets disposal. Comparative data are adjusted accordingly. Name and amount of report items influenced Other incomes: RMB 95,371, No amount is affected for assets held for sale and liabilities held for sale. The current period: non-business income reduced by RMB 0, reclassified into profit on assets disposal; last period: nonbusiness income reduced by RMB 0 and that reclassified into profit on assets disposal was RMB 452,878, For details, please refer to Announcement of the Company on Accounting Policy Changes announced on website of SSE on August 22, 2017 and Announcement of the Company on Accounting Policy Changes announced on website of SSE on the same day of the annual report. (ii) Analysis on reasons for and effects of major accounting mistakes by the Company (iii) Communication with former accounting firms (iv) Other description VI. Recruitment and decruitment of accounting firms Unit: 10,000 Yuan Currency: RMB Currently engaged Name of domestic accounting firms BDO China Shu Lun Pan Certified Public Accountants LLP Reward of domestic accounting firms 170 Audit term of domestic accounting firms 2 Name Reward Accounting firm responsible for internal control and audit BDO China Shu Lun Pan Certified Public Accountants LLP 30 Recruitment and decruitment of accounting firms Proposal on Further Employment of Financial and Internal Control & Audit Institution of the Company in 2017 was deliberated on the 26th meeting of the 5th Board of Directors convened on March 17, It was agreed to employ BDO China Shu Lun Pan Certified Public Accountants as the financial and internal control audit organization of the Company in 2017 to offer internal control audit service and other services centered on financial statement audit and financial report. The employment term is one year. The issue above has been approved upon deliberation on the 2016 general meeting of stockholders held on May 19, Changing the accounting firm during audit VII. Facing the risk of suspending listing (i) Reasons for suspending listing (ii) Actions to follow by the Company Important Matters 045

48 VIII. Conditions and causes of suspending listing IX. Bankruptcy and reorganization matters X. Significant litigation or arbitration There s significant litigation or arbitration occurred to the Company in the year. There s no significant litigation or arbitration occurred to the Company in the year. XI. Punishment and rectification to listed company and its director, supervisor, senior manager, controlling shareholder, actual controller and purchaser XII. Honesty condition of the Company and its controlling shareholder and actual controller in report period Good honesty records. No bad faith record issued by supervision organization. XIII. Condition and impact of Company stock incentive plan, employee stock ownership plan or other employee incentive measures (i) Incentives disclosed in the temporary announcement without subsequent implementation progress or change (ii) Incentives not disclosed in the temporary announcement or with subsequent progress Equity incentive Other description Employee stock ownership plan Other incentive measures XIV. Significant related transaction (i) Transaction related to daily operation 1. Matters disclosed in the temporary announcement without subsequent implementation progress or change 2. Matters disclosed in the temporary announcement with subsequent implementation progress or change 3. Matters not disclosed in interim announcement 046 COOEC / ANNUAL REPORT 2017

49 Related transaction party CNOOC Energy Development Co., Ltd. CNOOC Bohai Co., Ltd. China Oilfield Services Ltd. CNOOC (Group) Co., Ltd. China Offshore Oil Service (Hong Kong) Co., Ltd. COOEC- Fluor Heavy Industries Co., Ltd. CNOOC Industrial Co., Ltd. CNOOC Gas & Power Group CNOOC Nanhai West Co., Ltd. CNOOC Oil & Petrochemicals Co., Ltd. CNCCC International Tendering Co., Ltd. Connected relation Holding subsidiary of parent company Wholly owned subsidiary of parent company Wholly owned subsidiary of parent company Parent company Wholly owned subsidiary of parent company Joint venture Wholly owned subsidiary of parent company Wholly owned subsidiary of parent company Wholly owned subsidiary of parent company Wholly owned subsidiary of parent company Wholly owned subsidiary of parent company Related party transaction type Purchasing goods Purchasing goods Accepting labor service Purchasing goods Accepting labor service Accepting labor service Accepting labor service Accepting labor service Leasing Accepting labor service Accepting labor service Related party transactions Provide the Company with following services: engineering subcontracting, material procurement, transportation, fuel, estate management, etc. Provide water, electricity and staff physical examination for the Company Provide the Company with following services: transportation, vessel, etc. Provide insurance, software use and other services for the Company Provide material purchase for the Company Provide the Company with engineering subcontracting Provide estate management for the Company Provide the Company with engineering subcontracting Provide the Company with house leasing service Provide the Company with engineering subcontracting Provide the Company with engineering subcontracting Pricing principle for related party transactions Determine contract price by tendering based on market principle. Determine contract price by tendering based on market principle. Determine contract price by tendering based on market principle. Determine contract price by tendering based on market principle. Determine contract price by tendering based on market principle. Determine contract price by tendering based on market principle. Determine contract price by tendering based on market principle. Determine contract price by tendering based on market principle. Determine contract price by tendering based on market principle. Determine contract price by tendering based on market principle. Determine contract price by tendering based on market principle. Related party transaction prices Amount of related party transactions Proportion to the total amount of same transactions (%) 736,843, ,843, ,437, ,437, ,739, ,739, ,836, ,836, ,685, ,685, ,092, ,092, ,936, ,936, ,279, ,279, ,804, ,804, , , , , Settlement method of related party transactions Normal clearing according to the contract agreement Normal clearing according to the contract agreement Normal clearing according to the contract agreement Normal clearing according to the contract agreement Normal clearing according to the contract agreement Normal clearing according to the contract agreement Normal clearing according to the contract agreement Normal clearing according to the contract agreement Normal clearing according to the contract agreement Normal clearing according to the contract agreement Normal clearing according to the contract agreement Important Matters 047

50 Related transaction party CNOOC Research Institutes Co., Ltd. China Offshore Oil Nanhai East Corporation CNOOC Limited CNOOC Limited CNOOC Gas & Power Group CNOOC Research Institutes Co., Ltd. COOEC- Fluor Heavy Industries Co., Ltd. CNOOC Oil & Petrochemicals Co., Ltd. CNOOC Energy Development Co., Ltd. CNOOC (Group) Co., Ltd. Connected relation Wholly owned subsidiary of parent company Wholly owned subsidiary of parent company Holding subsidiary of parent company Holding subsidiary of parent company Wholly owned subsidiary of parent company Wholly owned subsidiary of parent company Joint venture Wholly owned subsidiary of parent company Wholly owned subsidiary of parent company Parent company Related party transaction type Accepting labor service Accepting labor service Accepting labor service Providing labor service Providing labor service Providing labor service Providing labor service Providing labor service Providing labor service Providing labor service Related party transactions Provide the Company with engineering subcontracting Provide the Company with engineering subcontracting Provide the Company with wharf service The Company provides specialized services such as design, installation, construction, etc. The Company provides specialized services such as design, installation, construction, etc. The Company provides specialized services such as design, installation, construction, etc. The Company provides related party with labors and material sales The Company provides specialized services such as design, installation, construction, etc. The Company provides specialized services such as design, installation, construction, etc. The Company provides specialized services such as design, installation, construction, etc. Pricing principle for related party transactions Determine contract price by tendering based on market principle. Determine contract price by tendering based on market principle. Determine contract price by tendering based on market principle. Determine contract price by tendering based on market principle. Determine contract price by tendering based on market principle. Determine contract price by tendering based on market principle. Determine contract price by tendering based on market principle. Determine contract price by tendering based on market principle. Determine contract price by tendering based on market principle. Determine contract price by tendering based on market principle. Related party transaction prices Amount of related party transactions Proportion to the total amount of same transactions (%) 292, , , , , , ,399,241, ,399,241, ,866, ,866, ,144, ,144, ,074, ,074, ,290, ,290, ,195, ,195, , , Total / / 5,659,100, / Settlement method of related party transactions Normal clearing according to the contract agreement Normal clearing according to the contract agreement Normal clearing according to the contract agreement Normal clearing according to the contract agreement Normal clearing according to the contract agreement Normal clearing according to the contract agreement Normal clearing according to the contract agreement Normal clearing according to the contract agreement Normal clearing according to the contract agreement Normal clearing according to the contract agreement 048 COOEC / ANNUAL REPORT 2017

51 Related transaction party Connected relation Details of large sales returns Related party transaction type Description of connected transactions Related party transactions Pricing principle for related party transactions None. Related party transaction prices (ii) Related transaction from asset or equity acquisition and sale Amount of related party transactions Proportion to the total amount of same transactions (%) Settlement method of related party transactions (1) Main content of connected transactions The Company is one of the largest EPCI contract companies of Offshore Oil Engineering in Asia. It mainly provides professional technical service for the oil exploitation of China Sea area. There are comparatively many connected transactions in offshore engineering services between the Company and related parties such as CNOOC Limited. For instance, the Company provides EPCI contract professional service for connected company, and the connected company provides engineering subcontract, transportation, vessel, fuel, water and electricity for the Company. (2) Price and fairness of connected transactions The connected transaction provides long-term stable market for the Company and serves as an integrated part of the Company s development. The contract price for connected transaction is determined by public tender. In addition, the Company signed long-term service agreement with related party, so as to ensure the fairness of connected transaction price, reflecting principles of equity, fairness, and openness, which helps develop major business of the Company and maximize the interests of shareholders. (3) Continuity of connected transactions It is proved by facts that these connected transactions are necessary, and in the foreseeable future, connected transactions between the Company and connected companies will continue with the rapid development of Chinese offshore oil industry. 1. Matters disclosed in the temporary announcement without subsequent implementation progress or change Event description The Company convened the 3rd Meeting of the 6th Board of Directors on October 25, 2017, on which the matters concerning the Ship Trade Contract signed between the wholly-owned subsidiary - COOEC Subsea Technology Co., Ltd. and COSL as well as purchase of two vessels Offshore Oil 701 and Offshore Oil 702 from COSL at the price of RMB 1.06 billion (including VAT) were adopted upon deliberation. Index of query For details, please refer to No Announcement of Offshore Oil Engineering Co., Ltd. on Connected Transaction of Purchasing Two Vessels from COSL disclosed by the Company on China Securities Journal, Shanghai Securities News and website of SSE on October 27, It needs to be specially explained that this matter do not constitute major connected transaction as the amount fails to reach 10% of the net assets. 2. Matters disclosed in the temporary announcement with subsequent implementation progress or change 3. Matters not disclosed in interim announcement 4. Performance fulfillment in the report period to be disclosed in case of performance agreement involved (iii) Significant related transaction of joint external investment 1. Matters disclosed in the temporary announcement without subsequent implementation progress or change 2. Matters disclosed in the temporary announcement with subsequent implementation progress or change 3. Matters not disclosed in interim announcement Important Matters 049

52 (iv) Related credits and debts 1. Matters disclosed in the temporary announcement without subsequent implementation progress or change 2. Matters disclosed in the temporary announcement with subsequent implementation progress or change 3. Matters not disclosed in interim announcement (v) Others For entrusted research subjects, the Company s related party deposits and interest income, investment income, etc. in CNOOC Finance Co., Ltd., please refer to note XII. Related Parties and Related Transactions to Section XI Financial Reports in this Report. XV. Significant contracts and performance (i) Trusteeship, contracting and leasing 1. Trusteeship 2. Contracting 3. Leasing (ii) Guarantee Applicable Inapplicabl e Unit: 100,000,000 dollars Currency: USD External guarantee ( excluding guarantee for subsidiaries) Total guarantee accrual in the report period (excluding guarantee to subsidiaries) 0 Total guarantee balance at end of report period (A) (excluding guarantee to subsidiaries) 0 The Company and its subsidiary s guarantee to subsidiaries Total guarantee accrual to subsidiaries in the report period Total guarantee balance to subsidiaries at end of report period (B) Total guarantee amount of the Company (including guarantee to subsidiary company) Total guarantee amount (A + B) Proportion (%) of total guarantee amount to net assets of the Company Wherein: Total guaranteed amount towards shareholders, actual controllers and related parties (C) 0 Guarantee amount directly or indirectly provided to the guaranteed party whose asset liability ratio is 0 more than 70% (D) Amount with total guarantee amount more than 50% of net assets (E) 0 Total guarantee amount of three items above (C+D+E) COOEC / ANNUAL REPORT 2017

53 Guarantee The Company provided the following 6 guarantees to subsidiaries as of the end of the report period: (1) As approved by the 13th Meeting of the 4th Board of Directors held on April 24, 2012, the Company provided parent company guarantee with JKC being the beneficiary for Qingdao Subsidiary as well as letter of commitment for the bank guarantee that Qingdao subsidiary opened in the Standard Chartered Bank for JKC. The maximum claim amount of the above two guarantees is 100% of the contract amount, USD million. Guarantee period of the parent company is from the issue date to May 2, Commitments as above have been reviewed and approved by the shareholders meeting of 2011 held on May 11, 2012 (See resolution announcement and guarantee announcement of Board of Directors and resolution announcement of shareholders meeting published on website of Shanghai Stock Exchange on April 26, 2012 and May 12, 2012 respectively) (2) As approved by the 3rd Meeting of the 5th Board of Directors held on April 25, 2014, the Company provided parent company guarantee for Nyhamna project undertaken by Qingdao Subsidiary. The guaranteed party is Norway KVAERNER (general contractor of Nyhamna project). The contract of Nyhamna project is a unit price contract with estimated contract amount of USD 110 million. Based on the agreement, the maximum claim amount is 10% of the contract amount, and the guarantee period starts from guarantee issuing date to October 30, (See resolution announcement and guarantee announcement of Board of Directors published on website of Shanghai Stock Exchange on April 29, 2014) (3) As approved by the 4th Meeting of the 5th Board of Directors held on July 23, 2014, the Company provided parent company guarantee for Russia Yamal project undertaken by Qingdao Subsidiary. The guaranteed party is Yamgaz SNC Company (general contractor of Yamal project). The guarantee amount is 35% of the total contract amount (about USD million), thereof the maximum accumulated liability upper limit is 25% and the maximum delay penalty is 10% of the contract amount. The guarantee period starts from the issue date to September 23, Commitments as above have been reviewed and approved by the second extraordinary shareholders meeting of 2014 held on September 16, (See resolution announcement and guarantee announcement and resolution announcement of shareholders meeting published on website of Shanghai Stock Exchange on July 25, 2014 and September 17, 2014 respectively) (4) As approved by the 12th Meeting of the 5th Board of Directors held on July 9, 2015, the Company provided guarantee for performance guarantee and advance payment guarantee opened for Russia Yamal project undertaken by Qingdao Subsidiary. The guarantee amount is RMB 1.54 billion yuan and the guarantee period is from the issue date to July 20, The above guarantee does not have to be submitted to the shareholders meeting of the Company for approval. (See resolution announcement and guarantee announcement of Board of Directors published on website of Shanghai Stock Exchange on July 10, 2015) Later, as approved on the 26th Meeting of the 5th Board of Directors on March 17, 2017, the Company would reissue three performance guarantees for three columns of modules involved in Yamal project of Qingdao subsidiary, with the validity period same as the warranty period of respective modules. The total amount guaranteed is USD 131 million and the original guarantee of RMB 1.54 billion will be reduced by RMB 0.94 billion after the performance guarantee expires, while the rest RMB 0.6 billion will continue as guarantee for USD 82 million advance payment guarantee, till its closure on January 20, (See resolution announcement and guarantee announcement of Board of Directors published on www. sse.com.cn, website of Shanghai Stock Exchange on March 21, 2017) (5) As approved upon deliberation by the 19th Meeting of the 5th Board of Directors held on July 06, 2016, the Company provided parent company guarantee for Shell SDA project undertaken by Qingdao Subsidiary. The guaranteed party is the owner of the project, Shell Netherland. Total guarantee amount is USD 2,692,000. The guarantee period is from the issue date to April 7, The above guarantee does not have to be submitted to the shareholders meeting of the Company for deliberation and approval. (See resolution announcement and guarantee announcement of Board of Directors published on website of Shanghai Stock Exchange on July 08, 2016) (6) As approved by the 27th Meeting of the 5th Board of Directors held on April 26, 2017, the Company provided COOEC NIGERIA FZE with performance guarantee and advance payment guarantee for Dangote petrochemical offshore transport installation project, with the amount of USD 332 million. The above guarantee does not have to be submitted to the shareholders meeting of the Company for approval. (See resolution announcement and guarantee announcement of Board of Directors published on website of Shanghai Stock Exchange on April 28, 2017) Guarantees released in the report period: (1) In Guarantee (4) mentioned above, the Company issued guarantee for performance guarantee and advance payment guarantee of Yamal project undertaken by Qingdao subsidiary, and the original guarantee of RMB 1.54 billion would be closed and reduced by RMB 940 million, with a guarantee of RMB 600 million still serving as guarantee for USD 82 million advance payment guarantee till its closure on January 20, This guarantee item was closed in advanced on July 20, 2017 based on actual conditions. (2) As approved by the 3rd Meeting of the 5th Board of Directors held on April 25, 2014, the Company provided parent company guarantee for BSP project undertaken by Qingdao Subsidiary. The guaranteed party is Brunei-based Shell Oil Company (owner of BSP project). The contract of BSP project is a unit price contract with estimated contract amount of USD 460 million. Based on the agreement, the maximum claim amount, i.e. the amount guaranteed is USD 8.25 million, and the guarantee period starts from guarantee issuing date to March 31, The above guarantee does not have to be submitted to the shareholders meeting of the Company for approval. (See resolution announcement and guarantee announcement of Board of Directors published on website of Shanghai Stock Exchange on April 29, 2014) This guarantee item was closed in advanced in January 2017 based on actual conditions. Subsequent events: The Company issued parent company guarantee for Qingdao subsidiary s undertaking of Nyhamna project, with the guarantee amount adjusted from USD 1.1 million to USD 12.1 million and guarantee period adjusted from issuing date till October 30, 2017 to the date of the owner issuing receiving certificate, i.e. expected to be June 14, The above events had been approved upon deliberation on the 6th Meeting of the 6th Board of Directors convened on January 22, (See resolution announcement and guarantee announcement of Board of Directors published on website of Shanghai Stock Exchange on January 23, 2018) Important Matters 051

54 (iii) Entrusting others for cash assets management 1. Entrusted financing (1) Overview of entrusted financing Type Capital source Amount incurred Undue balance Bank financial Other conditions (2) Single entrusted financing Self-owned fund and funds raised through private placement Amount not withdrawn upon expiration 3,600,000, ,392,052, The trustee Development Zone Branch of Everbright Bank Beijing Chongwenmen Branch of China Merchants Bank Development Zone Branch of Everbright Bank Beijing Chongwenmen Branch of China Merchants Bank Beijing Chongwenmen Branch of China Merchants Bank Development Zone Branch of Everbright Bank Beijing Chongwenmen Branch of China Merchants Bank Development Zone Branch of Everbright Bank Development Zone Branch of Everbright Bank Development Zone Branch of Everbright Bank Development Zone Branch of Everbright Bank Development Zone Branch of Everbright Bank Zhuhai Port Branch of Bank of China Type of entrusted financing Principalguaranteed bank financial Principalguaranteed bank financial Principalguaranteed bank financial Principalguaranteed bank financial Principalguaranteed bank financial Principalguaranteed bank financial Principalguaranteed bank financial Principalguaranteed bank financial Principalguaranteed bank financial Principalguaranteed bank financial Principalguaranteed bank financial Principalguaranteed bank financial Incomeguaranteed financial Amount of entrusted financing Start date of entrusted financing End date of entrusted financing 500,000, ,000, ,000, ,000, ,000, ,000, ,000, ,000, ,000, ,000, ,000, ,000, ,000, Funds source Selfowned funds Selfowned funds Selfowned funds Selfowned funds Selfowned funds Selfowned funds Selfowned funds Selfowned funds Selfowned funds Selfowned funds Selfowned funds Selfowned funds Selfowned funds Funds allocation Customized bank financial Customized bank financial Customized bank financial Customized bank financial Customized bank financial Customized bank financial Customized bank financial Customized bank financial Customized bank financial Customized bank financial Customized bank financial Customized bank financial Customized bank financial Mode of determining remuneration Principalguaranteed + floating income Principalguaranteed + floating income Principalguaranteed + floating income Principalguaranteed + floating income Principalguaranteed + floating income Principalguaranteed + floating income Principalguaranteed + floating income Principalguaranteed + floating income Principalguaranteed + floating income Principalguaranteed + floating income Principalguaranteed + floating income Principalguaranteed + floating income Guaranteed return Annual yield rate Actual income or loss Amount actually withdrawn Passing legal procedures or not Entrusted financing plan or not in the future Withdrawn amount of provision for the impairment (if any) 3.60% 1,676, ,000,000 Yes Yes % 2,972, ,000,000 Yes Yes % 380, ,000,000 Yes Yes % 1,117, ,000,000 Yes Yes % 5,356, ,000,000 Yes Yes % 5,983, ,000,000 Yes Yes % 4,130, ,000,000 Yes Yes % 2,016, ,000,000 Yes Yes % 4,099, ,000,000 Yes Yes % 1,995, ,000,000 Yes Yes % 2,328, ,000,000 Yes Yes % 147, ,000,000 Yes Yes % 5,930, ,000,000 Yes Yes COOEC / ANNUAL REPORT 2017

55 The trustee Development Zone Branch of Everbright Bank Beijing Chongwenmen Branch of China Merchants Bank Development Zone Branch of Everbright Bank Beijing Chongwenmen Branch of China Merchants Bank Beijing Chongwenmen Branch of China Merchants Bank Development Zone Branch of Everbright Bank Beijing Chongwenmen Branch of China Merchants Bank Development Zone Branch of Everbright Bank Zhuhai Port Branch of Bank of China Zhuhai Port Branch of Bank of China Zhuhai Branch of Bank of Communications Zhuhai Branch of Bank of Communications Zhuhai Port Branch of Bank of China Zhuhai Branch of Bank of Communications Zhuhai Port Branch of Bank of China Zhuhai Branch of Bank of Communications Zhuhai Branch of Bank of Communications Zhuhai Branch of Bank of Communications Zhuhai Port Branch of Bank of China Type of entrusted financing Principalguaranteed bank financial Principalguaranteed bank financial Principalguaranteed bank financial Principalguaranteed bank financial Principalguaranteed bank financial Principalguaranteed bank financial Principalguaranteed bank financial Principalguaranteed bank financial Incomeguaranteed financial Incomeguaranteed financial Incomeguaranteed financial Incomeguaranteed financial Incomeguaranteed financial Incomeguaranteed financial Incomeguaranteed financial Incomeguaranteed financial Incomeguaranteed financial Incomeguaranteed financial Incomeguaranteed financial Amount of entrusted financing Start date of entrusted financing End date of entrusted financing 500,000, ,000, ,000, ,000, ,000, ,000, ,000, ,000, ,000, ,000, ,000, ,000, ,000, ,000, ,000, ,000, ,000, ,000, ,000, Funds source Selfowned funds Selfowned funds Selfowned funds Selfowned funds Selfowned funds Selfowned funds Selfowned funds Selfowned funds Selfowned funds Selfowned funds Funds raised through private placement Funds raised through private placement Funds raised through private placement Selfowned funds Funds raised through private placement Funds raised through private placement Selfowned funds Selfowned funds Funds raised through private placement Funds allocation Customized bank financial Customized bank financial Customized bank financial Customized bank financial Customized bank financial Customized bank financial Customized bank financial Customized bank financial Customized bank financial Customized bank financial Customized bank financial Customized bank financial Customized bank financial Customized bank financial Customized bank financial Customized bank financial Customized bank financial Customized bank financial Customized bank financial Mode of determining remuneration Principalguaranteed + floating income Principalguaranteed + floating income Principalguaranteed + floating income Principalguaranteed + floating income Principalguaranteed + floating income Principalguaranteed + floating income Principalguaranteed + floating income Principalguaranteed + floating income Guaranteed return Guaranteed return Guaranteed return Guaranteed return Guaranteed return Guaranteed return Guaranteed return Guaranteed return Guaranteed return Guaranteed return Guaranteed return Annual yield rate Actual income or loss Amount actually withdrawn Passing legal procedures or not Entrusted financing plan or not in the future Withdrawn amount of provision for the impairment (if any) 3.60% 1,676, ,000,000 Yes Yes % 2,972, ,000,000 Yes Yes % 380, ,000,000 Yes Yes % 1,117, ,000,000 Yes Yes % 5,356, ,000,000 Yes Yes % 5,983, ,000,000 Yes Yes % 4,130, ,000,000 Yes Yes % 2,016, ,000,000 Yes Yes % 710, ,000,000 Yes Yes % 4,993, ,000,000 Yes Yes % 383, ,000,000 Yes Yes % 8,835, ,000,000 Yes Yes % 1,663, ,000,000 Yes Yes % 947, ,000,000 Yes Yes % 1,957, ,000,000 Yes Yes % 5,347, ,000,000 Yes Yes % 6,956, ,000,000 Yes Yes % 1,133, ,000,000 Yes Yes % 3,133, ,000,000 Yes Yes 0 Important Matters 053

56 The trustee Development Zone Branch of Everbright Bank Beijing Chongwenmen Branch of China Merchants Bank Development Zone Branch of Everbright Bank Beijing Chongwenmen Branch of China Merchants Bank Beijing Chongwenmen Branch of China Merchants Bank Development Zone Branch of Everbright Bank Beijing Chongwenmen Branch of China Merchants Bank Development Zone Branch of Everbright Bank Zhuhai Port Branch of Bank of China Zhuhai Branch of Bank of Communications Zhuhai Branch of Bank of Communications Zhuhai Port Branch of Bank of China Zhuhai Branch of Bank of Communications Zhuhai Branch of Bank of Communications Zhuhai Port Branch of Bank of China Zhuhai Port Branch of Bank of China Zhuhai Branch of Bank of Communications Zhuhai Branch of Bank of Communications Type of entrusted financing Principalguaranteed bank financial Principalguaranteed bank financial Principalguaranteed bank financial Principalguaranteed bank financial Principalguaranteed bank financial Principalguaranteed bank financial Principalguaranteed bank financial Principalguaranteed bank financial Incomeguaranteed financial Incomeguaranteed financial Incomeguaranteed financial Incomeguaranteed financial Incomeguaranteed financial Incomeguaranteed financial Incomeguaranteed financial Incomeguaranteed financial Incomeguaranteed financial Incomeguaranteed financial Amount of entrusted financing Start date of entrusted financing End date of entrusted financing 500,000, ,000, ,000, ,000, ,000, ,000, ,000, ,000, ,000, ,000, ,000, ,000, ,000, ,000, ,000, ,000, ,000, ,000, Funds source Selfowned funds Selfowned funds Selfowned funds Selfowned funds Selfowned funds Selfowned funds Selfowned funds Selfowned funds Funds raised through private placement Funds raised through private placement Selfowned funds Funds raised through private placement Selfowned funds Selfowned funds Funds raised through private placement Selfowned funds Funds raised through private placement Selfowned funds Funds allocation Customized bank financial Customized bank financial Customized bank financial Customized bank financial Customized bank financial Customized bank financial Customized bank financial Customized bank financial Customized bank financial Customized bank financial Customized bank financial Customized bank financial Customized bank financial Customized bank financial Customized bank financial Customized bank financial Customized bank financial Customized bank financial Mode of determining remuneration Principalguaranteed + floating income Principalguaranteed + floating income Principalguaranteed + floating income Principalguaranteed + floating income Principalguaranteed + floating income Principalguaranteed + floating income Principalguaranteed + floating income Principalguaranteed + floating income Guaranteed return Guaranteed return Guaranteed return Guaranteed return Guaranteed return Guaranteed return Guaranteed return Guaranteed return Guaranteed return Guaranteed return Annual yield rate Actual income or loss Amount actually withdrawn Passing legal procedures or not Entrusted financing plan or not in the future Withdrawn amount of provision for the impairment (if any) 3.60% 1,676, ,000,000 Yes Yes % 2,972, ,000,000 Yes Yes % 380, ,000,000 Yes Yes % 1,117, ,000,000 Yes Yes % 5,356, ,000,000 Yes Yes % 5,983, ,000,000 Yes Yes % 4,130, ,000,000 Yes Yes % 2,016, ,000,000 Yes Yes % 1,972, ,000,000 Yes Yes % 2,094, ,000,000 Yes Yes % 2,191, ,000,000 Yes Yes % 4,761, ,000,000 Yes Yes % 312, ,000,000 Yes Yes % 2,140, ,000,000 Yes Yes % 738, ,000,000 Yes Yes % 416, ,000,000 Yes Yes % 912, ,000,000 Yes Yes % 1,775, ,000,000 Yes Yes COOEC / ANNUAL REPORT 2017

57 The trustee Development Zone Branch of Everbright Bank Beijing Chongwenmen Branch of China Merchants Bank Development Zone Branch of Everbright Bank Beijing Chongwenmen Branch of China Merchants Bank Beijing Chongwenmen Branch of China Merchants Bank Development Zone Branch of Everbright Bank Beijing Chongwenmen Branch of China Merchants Bank Development Zone Branch of Everbright Bank Qingdao Economic Development Zone Branch of China Industrial Bank Beijing Branch of Standard Chartered Bank Type of entrusted financing Principalguaranteed bank financial Principalguaranteed bank financial Principalguaranteed bank financial Principalguaranteed bank financial Principalguaranteed bank financial Principalguaranteed bank financial Principalguaranteed bank financial Principalguaranteed bank financial Incomeguaranteed financial Incomeguaranteed financial Amount of entrusted financing Start date of entrusted financing End date of entrusted financing 500,000, ,000, ,000, ,000, ,000, ,000, ,000, ,000, ,000, Funds source Selfowned funds Selfowned funds Selfowned funds Selfowned funds Selfowned funds Selfowned funds Selfowned funds Selfowned funds Selfowned funds 60,000,000 USD Selfowned funds Funds allocation Customized bank financial Customized bank financial Customized bank financial Customized bank financial Customized bank financial Customized bank financial Customized bank financial Customized bank financial Customized bank financial Customized bank financial Mode of determining remuneration Principalguaranteed + floating income Principalguaranteed + floating income Principalguaranteed + floating income Principalguaranteed + floating income Principalguaranteed + floating income Principalguaranteed + floating income Principalguaranteed + floating income Principalguaranteed + floating income Guaranteed return Guaranteed return Annual yield rate Actual income or loss Amount actually withdrawn Passing legal procedures or not Entrusted financing plan or not in the future Withdrawn amount of provision for the impairment (if any) 3.60% 1,676, ,000,000 Yes Yes % 2,972, ,000,000 Yes Yes % 380, ,000,000 Yes Yes % 1,117, ,000,000 Yes Yes % 5,356, ,000,000 Yes Yes % 5,983, ,000,000 Yes Yes % 4,130, ,000,000 Yes Yes % 2,016, ,000,000 Yes Yes % 70, ,000,000 Yes Yes % USD 7,562 USD 60,000,000 Yes Yes 0 Description of the amount actually withdrawn from entrusted financing: entrusted financings with expiration date within 2017 in the table above have had the principal recovered on schedule. Those with ending date in 2018 also have had the principal recovered before the disclosure date of the Report. Other conditions (3) Provision for impairment of entrusted financing 2. Entrusted loans (1) Overview of entrusted loans Other conditions (2) Single entrusted loans Other conditions (3) Provision for impairment of entrusted loans Important Matters 055

58 3. Other conditions The Company didn t entrust others to manage cash and provide a loan. The Company received an entrusted loan from the controlling shareholder in 2017, with details below: The Company didn t entrust others to manage cash and provide a loan. The Company received an entrusted loan from the controlling shareholder in 2017, with details below: The State Administration of Work Safety entrusted COOEC Subsea Technology Co., Ltd. (hereinafter referred to as Shenzhen Subsidiary ), a wholly-owned subsidiary of the Company to build the national oil and gas pipe for emergency rescue of the South China Sea (Zhuhai) Base, so as to provide emergency rescue service for subsea pipelines laid in the offshore oil and gas field in the South China Sea and East China Sea. The State Administration of Work Safety allocated RMB 90 million, which is used specially for construction of the national oil and gas pipe for emergency rescue of the South China Sea (Zhuhai) Base, to CNOOC (Group) Co., Ltd. (hereinafter referred to as CNOOC ), a controlling shareholder of the Company. In March 2017, CNOOC allocated the above said financial capital to the Company in an entrusted loan manner through its finance company, with the amount of entrusted loan of RMB 90 million, loan period of 5 years and loan rate of 0.5%. Then the Company invested the funds to the Shenzhen Subsidary in a capital increase manner. The funds will be provided for the Shenzhen Subsidary to purchase related equipment for construction of the national oil and gas pipe for emergency rescue of the South China Sea (Zhuhai) Base. The Company didn t make a temporary announcement of this matter since the entrusted loan didn t reach the requirements of information disclosure. Subsequent events: The State Administration of Work Safety allocated again RMB 130 million to CNOOC, which is used specially for construction of the national oil and gas pipe for emergency rescue of the South China Sea (Zhuhai) Base. CNOOC will allocate the above said capital to the Company in an entrusted loan manner through its finance company, with the amount of entrusted loan of RMB 130 million, loan period of 5 years and loan rate of 0.5%. See Announcement on Related Transaction of Entrusted Loan Provided to the Company by a Controlling Shareholder published on com.cn, website of Shanghai Stock Exchange on January 23, (iv) Other significant contracts Significant contracts and corresponding performances Payer Content of contract Contract amount Accumulative payment amount by the end of December 2017 CNOOC Limited Contract of offshore oil engineering RMB billion RMB billion YAMGAZ Contract of liquefied natural gas for Russia Yamal Project USD billion USD billion The above contracts are daily production and operation business contracts with amount accounting for 10% and above of net assets of the Company. XVI. Other significant matters XVII. Positive fulfillment of social responsibilities (i) Poverty alleviation work of listed companies 1. Summary of targeted poverty alleviation in this year The Company always pays high attention to poverty alleviation and public charity, prudently fulfills social responsibilities of central enterprises, and strives to make more contributions in poverty alleviation & student assistance, supporting science & education, culture & health, sports and other social and public welfare undertakings, 056 COOEC / ANNUAL REPORT 2017

59 as well as young volunteer activities such as community service. The total investment amount is RMB 798,000. (1) Poverty alleviation work The Company prepared and distributed poverty alleviation work management rules, specified management interfaces and work responsibilities, specified 8 aid methods in details, such as poverty worker aid, medical aid for serious diseases, etc., and followed these in a strict manner. The Company timely adds and adjusts the list of workers in difficulties annually, according to the latest subsidy standards, local minimum living allowances and wage rates. Currently, 9 poverty workers of CNOOC have been registered, 13 children of school age have obtained aids of RMB 46,000 in total according to relevant standards. Management level of the Company visit some party members and worker s families in difficulties in this city just before the Spring Festival annually, to solve problems within the scope of power. In the CNOOC special activity Visit Underprivileged Families of Workers, the Company visited underprivileged families of 64 workers, with poverty alleviation amount of RMB 405, families suffered sudden natural disasters were helped, with the total assistance amount of RMB 38,000. In 2017, the Company also provided one-time assistance to 8 staff who suffered major diseases (6 kinds in total), with the assistance amount of RMB 125,000. The total investment amount is RMB 614,000. (2) Community charitable contribution Offshore Oil Engineering (Qingdao) Co., Ltd., a subsidiary of the Company established the COOEC naming sponsorship fund of RMB 3.5 million for , during which 3% added value of the fund (RMB 105,000) is donated annually to Charity Federation of Qingdao Economic and Technical Developing Zone for the purpose of nursery education. RMB 105,000 was donated in In order to vigorously promote the socialist core values, help people in straitened circumstances, and more effectively help them to solve practical difficulties, under the arrangement of Charitable Donation Day organized by Huangdao District, most of workers of Qingdao Subsidiary voluntarily and actively made donation of RMB 79,000 in total. The donation was given to the Charity Federation of Huangdao District, for the purpose of implementing student assistance, aged assistance, disaster relief and other programs in Huangdao District. The total investment amount is RMB 184, Performance of targeted poverty alleviation Unit: 10,000 Yuan Currency: RMB Quantity and Indexes implementation I. General condition 1. Capital Materials converted into cash 0 3. Number of registered workers overcoming poverty with help (people) 9 II. Items 1. Shaking off poverty on industry development 2. Shaking off poverty on transfer employment 3. Shaking off poverty on relocation 4. Shaking off poverty on education 4.1 Amount for helping poverty students Number of assisted poverty students (people) Poverty alleviation on health 5.1 Amount for inputing medical & health resources in poverty areas Poverty alleviation on ecological protection 7. Safeguard measures 7.3 Amount for helping poverty disabled Number of poverty disabled getting help (people) Social poverty alleviation 8.2 Amount for fixed-point poverty alleviation Charitable fund for poverty alleviation Other items Important Matters 057

60 (ii) Work of implementing social responsibility Refer to Social Responsibility Report on Offshore Oil Engineering Co., Ltd. in 2017 disclosed at website of Shanghai Stock Exchange, on the same day. (iii) Environmental information 1. Environmental protection of companies and their major branches listed as main pollutant discharging companies by national department of environmental protection 2. Companies other than main pollutant discharging companies 3. Other notes (iv) Other descriptions XVIII. Convertible Corporate Bonds (i) Issuance of convertible bonds (ii) Holder and guarantor of convertible bonds in the report period (iii) Change in convertible bonds in the report period Cumulative debt-to-equity in the report period (iv) All adjustments of conversion price (v) Liabilities, change in credit standing and cash arranged for debt payment in the future (vi) Other statement on convertible bonds 058 COOEC / ANNUAL REPORT 2017

61 Ordinary Share Changes and Shareholders I. Changes in ordinary share capital (i) List of change in ordinary share 1. List of change in ordinary share In the report period, total shares and capital structure of the Company have no change. 2. Statement on change in ordinary share 3. Impact of changes in ordinary share on return and net asset per share and other financial indexes in the most recent year and recent term (if any) 4. Other matters considered as necessary by Company or required to be disclosed by securities regulators (ii) Changes in shares subject to the restrictions on sales II. Securities issuance and listing (i) Securities issuance by the end of report period Securities issuance by the end of report period (separately describe securities with variable interest rates in existence period): (ii) Total ordinary shares and changes in shareholder structure, asset and liability structure of the Company (iii) Existing staff shares III. Shareholder and actual controller (i) Total number of shareholders: Total number of shareholders by the end of report period (nos.) 134,255 Total number of ordinary shareholders by the end of last month prior to disclosure of annual report (nos.) Total number of preferred shares shareholders with recovered voting right by the end of report period Total number of preferred shareholders with voting right recovered by the end of last month prior to disclosure of annual report (nos.) 124, Ordinary Share Changes and Shareholders 059

62 (ii) Table of shareholding of top ten shareholders, and top ten floating shareholders (or shareholders not subject to restriction on sales) by the end of report period Unit: share Name of shareholders (Full name) Shareholding of Top 10 Shareholders Increase and decrease in the report period Amount of holding shares by the end of period Proportion (%) Number of held shares subject to the restrictions on sales Pledge or freezing conditions Share status Quantity Shareholders nature China National Offshore Oil Corporation 0 2,270,969, Nil 0 State CNOOC Nanhai West Corporation 0 294,215, Nil 0 China Securities Finance Co., Ltd ,943, Nil 0 Central Huijin Asset Management Co., Ltd. 0 89,714, Nil 0 Bosera Funds - Agricultural Bank of China - Bosera CSF Financial Assets Management Plan E Fund - Agricultural Bank of China - E Fund CSF Financial Assets Management Plan Dacheng Funds - Agricultural Bank of China - Dacheng CSF Financial Assets Management Plan Harvest Fund - Agricultural Bank of China - Harvest Fund CSF Financial Assets Management Plan Guangdong Development Fund - Agricultural Bank of China - Guangdong Development Fund CSF Financial Assets Management Plan Lombarda China Fund - Agricultural Bank of China - Lombarda China Fund CSF Financial Assets Management Plan China Asset Management - Agricultural Bank of China - China Asset Management CSF Financial Assets Management Plan Yinhua Fund - Agricultural Bank of China - Yinhua Fund CSF Financial Assets Management Plan China Southern Fund - Agricultural Bank of China - China Southern Fund CSF Financial Assets Management Plan ICBCCS Funds - Agricultural Bank of China - ICBCCS CSF Financial Assets Management Plan State-owned legal-person State-owned legal-person State-owned legal-person 0 36,704, Nil 0 Unknown 0 36,704, Nil 0 Unknown 0 36,704, Nil 0 Unknown 0 36,704, Nil 0 Unknown 0 36,704, Nil 0 Unknown 0 36,704, Nil 0 Unknown 0 36,704, Nil 0 Unknown 0 36,704, Nil 0 Unknown 0 36,704, Nil 0 Unknown 0 36,704, Nil 0 Unknown Shareholding of top 10 shareholders not subject to restrictions on sales Amount of held circulating Types and number of shares Name of shareholders shares not subject to restriction on sales Type Quantity China National Offshore Oil Corporation RMB ordinary 2,270,969,554 shares 2,270,969,554 CNOOC Nanhai West Corporation RMB ordinary 294,215,908 shares 294,215,908 China Securities Finance Co., Ltd. RMB ordinary 113,943,823 shares 113,943, COOEC / ANNUAL REPORT 2017

63 Shareholding of top 10 shareholders not subject to restrictions on sales Amount of held circulating Types and number of shares Name of shareholders shares not subject to restriction on sales Type Quantity RMB ordinary Central Huijin Asset Management Co., Ltd. 89,714,500 89,714,500 shares Bosera Funds - Agricultural Bank of China - Bosera CSF Financial Assets Management Plan E Fund - Agricultural Bank of China - E Fund CSF Financial Assets Management Plan Dacheng Funds - Agricultural Bank of China - Dacheng CSF Financial Assets Management Plan Harvest Fund - Agricultural Bank of China - Harvest Fund CSF Financial Assets Management Plan Guangdong Development Fund - Agricultural Bank of China - Guangdong Development Fund CSF Financial Assets Management Plan Lombarda China Fund - Agricultural Bank of China - Lombarda China Fund CSF Financial Assets Management Plan China Asset Management - Agricultural Bank of China - China Asset Management CSF Financial Assets Management Plan Yinhua Fund - Agricultural Bank of China - Yinhua Fund CSF Financial Assets Management Plan China Southern Fund - Agricultural Bank of China - China Southern Fund CSF Financial Assets Management Plan ICBCCS Funds - Agricultural Bank of China - ICBCCS CSF Financial Assets Management Plan Particulars about connected relation or concerted action among the shareholders mentioned above Particulars about preferred shareholders with restored voting rights and the amount of shareholdings 36,704,400 36,704,400 36,704,400 36,704,400 36,704,400 36,704,400 36,704,400 36,704,400 36,704,400 36,704,400 RMB ordinary shares RMB ordinary shares RMB ordinary shares RMB ordinary shares RMB ordinary shares RMB ordinary shares RMB ordinary shares RMB ordinary shares RMB ordinary shares RMB ordinary shares 36,704,400 36,704,400 36,704,400 36,704,400 36,704,400 36,704,400 36,704,400 36,704,400 36,704,400 36,704,400 Among the top 10 shareholders, CNOOC Nanhai West Co., Ltd. is a wholly-owned subsidiary of and connected to CNOOC. It is unknown whether there is association or concerted action among other shareholders. No preferred shares, inapplicable. Statement on change in corporate names of CNOOC and CNOOC Nanhai West Corporation: According to the requirements for deep reform of state-owned enterprises of the State Council, the Company s controlling shareholder CNOOC is reformed from an enterprise owned by the whole people to a solely state-owned enterprise. CNOOC has officially changed its name to CNOOC (Group) Co., Ltd. since November 1, The above said name change is approved by the Beijing Administration for Industry and Commerce on November 1, Since the shareholders name and shareholding data in the shareholding list are disclosed in strict accordance with the register of shareholders provided by the China Securities Depository and Clearing Co., Ltd. Shanghai Branch as of December 31, 2017, as of December 31, 2017, CNOOC is still dealing with the change of stock account name in China Securities Depository and Clearing Co., Ltd. The Company s original name is used when the shareholding situation is disclosed in this annual report. According to our understanding of the controlling shareholder, the controlling shareholder has completed the change of stock account name on February As a wholly-owned subsidiary of the controlling shareholder, CNOOC Nanhai West Corporation has changed its name in November 2017, as required by the reform of state-owned enterprises. It has changed its name from CNOOC Nanhai West Corporation to CNOOC Nanhai West Co., Ltd. CNOOC Nanhai West Corporation has completed the change of stock account name on February 2018 in the China Securities Depository and Clearing Co., Ltd. Number of shares held by top 10 shareholders subject to restrictions on sales and the restrictions (iii) Strategic investor or ordinary legal person becomes top ten shareholders due to new shares issued Ordinary Share Changes and Shareholders 061

64 IV. Controlling shareholder and actual controller (i) Controlling shareholder 1 Legal person Name CNOOC (Group) Co., Ltd. Unit leader or legal representative Yang Hua Date of establishment 2/15/1982 Main operating businesses Equity of other domestic and foreign listed companies holding and sharing stocks during report period Other Presentation 1 Allowed businesses: offshore oil (gas) production, drilling, geophysical exploration, well logging, logging, borehole operation, storage and transportation, etc.; wholesale of gasoline, kerosene and diesel. 2 General operating items: organization of exploration, development, production and sale of petroleum and natural gas, refining of petroleum, processing and utilization of petroleum and chemicals and natural gas, sale and storage of, development and utilization of liquefied natural gas, transport of petroleum and natural gas by pipeline and pipe network, development, development and sale of fertilizer and chemical and relevant businesses, provision of services for exploration and exploitation of petroleum, natural gas and other geological mining, EPC, technology research, technology consulting, technical service and technology transfer related to exploration, development and production of petroleum and natural gas, import of crude oil and product oil, compensation trade and intermediary trade; undertaking sino-foreign joint venture; cooperative production; international bidding of mechanical and electrical ; production, sales of wind energy, biomass energy, aquo-complex, coal chemical industry, solar energy, etc. and relevant services. During report period, other domestic and foreign listed companies whose shares are held by CNOOC (Group) Co., Ltd. are listed as follows: CNOOC Limited, China Oilfield Services Limited, China Blue Chemical Ltd. and CNOOC Shandong Chemical Engineering Co., Ltd. CNOOC (Group) Co., Ltd. is a central enterprise directly controlled by State-owned Assets Supervision and Administration Commission of the State Council. 2. Natural person 3. No special statement on the controlling shareholder of the Company 4. List and date of changes in the controlling shareholder in the report period 5. Block diagram of property right and controlling relations between the Company and the controlling shareholder State-owned Assets Supervision and Administration Commission of the State Council 100% 100% CNOOC (Group) Co., Ltd. 100% 62.90% CNOOC Nanhai West Co., Ltd. CNOOC Bohai Co., Ltd. CNOOC Finance Co., Ltd. 6.65% Offshore Oil Engineering Co., Ltd % 0.28% 0.04% 062 COOEC / ANNUAL REPORT 2017

65 (ii) Actual controller 1 Legal person The actual controller of the Company is CNOOC (Group) Co., Ltd. See details in this sections of controlling shareholder. 2. Natural person 3. No special statement on the actual controller of the Company 4. List and date of changes in the actual controller in the report period 5. Block diagram of property right and controlling relations between the Company and its actual controller State-owned Assets Supervision and Administration Commission of the State Council 100% 100% CNOOC (Group) Co., Ltd. 100% 62.90% CNOOC Nanhai West Co., Ltd. CNOOC Bohai Co., Ltd. CNOOC Finance Co., Ltd. 6.65% Offshore Oil Engineering Co., Ltd % 0.28% 0.04% 6. Actual controller controls the Company by means of trust or other ways of assets management (iii) Other information of controlling shareholder and actual controller V. Institutional shareholder holding over 10% of shares VI. Reducing holding shares Ordinary Share Changes and Shareholders 063

66 Preferred Shares 064 COOEC / ANNUAL REPORT 2017

67 Directors, Supervisors, Senior Managers and Employees I. Shareholding change and remuneration (I) Shareholding change and remuneration of incumbent or outgoing directors, supervisors and senior managers in the report period Unit: share Name Position Gender Age Lv Bo Chairman Male 55 Jin Xiaojian Director, President and Secretary of the Party Committee Male 58 Meng Jun Director Male 57 Lin Yaosheng Qiu Xiaohua Guo Tao Huang Yongjin Director, Executive Vicepresident, Deputy Party Secretary and Chairman of Labor Union Independent director Independent director Independent director Starting date of term of office November 23, 2016 January 22, 2017 January 10, 2014 Ending date of term of office March 27, 2018 Shares held at the beginning of the year Shares held at the end of the year Increase and decrease of stocks in the year Reasons of increase and decrease Total pre-tax remuneration obtained from the Company during the report period (RMB 10,000) Receive remuneration from related parties of the Company or not Yes No 22,680 22, Yes Male 56 May 19, No Male 59 November 23, No Male 62 May 20, No Male 51 May 20, No Wei Junchao Chairman of the Board of Male 59 April 23, Yes Supervisors Zhao Yanbo Supervisor Female 45 April 23, Yes Rao Shicai Chen Yonghong Supervisor and the Leader of Discipline Group of the Party Group of Group Company in the Company Chief Financial Officer Male 49 Male 44 September 16, 2013 August 29, No 60,000 60, No Chen Rongqi Chief Engineer Male 54 April 22, No Directors, Supervisors, Senior Managers and Employees 065

68 Name Position Gender Age Starting date of term of office Ending date of term of office Shares held at the beginning of the year Shares held at the end of the year Increase and decrease of stocks in the year Reasons of increase and decrease Total pre-tax remuneration obtained from the Company during the report period (RMB 10,000) Receive remuneration from related parties of the Company or not Yu Changsheng Vice President Male 52 July 6, No Chen Baojie Vice President Male 52 July 6, ,000 10, No Li Xiaowei Vice President Male 48 July 6, ,000 15, No Zhou Xuezhong Zhu Lei Former Director and President Original Director, Secretary of the Party Committee and Executive Vice President Male 60 Male 48 December 02, 2010 March 15, 2016 January 22, 2017 April 26, , ,300 Personal holding reduction after outgoing No Yes Liu Lianju Secretary of the Board of Male 52 April 10, ,000 40, No Directors Total / / / / / 418, , ,300 / / Name Lv Bo Jin Xiaojian Meng Jun Lin Yaosheng Qiu Xiaohua Main working experiences Since 1985, he successively took office in Ministry of Coal Industry, Ministry of Energy and the Organization Department of the Central Committee of the CPC, served as the deputy department director in Department of Personnel and Labor under Ministry of Energy, the deputy director and then the director in Economic and Technology Director Department under Organization Department of the Central Committee of the CPC, the director in 4th and 5th Director Department under Organization Department of the Central Committee of the CPC. In 2002, he jointed in CNOOC (Group) Co., Ltd., and served as the General Manager in Human Resources Dept. Offshore Oil Engineering Co., Ltd.; in November 2006, he was appointed as the General Manager Assistant of CNOOC (Group) Co., Ltd.; in April 2010, he was appointed as the Deputy General Manager of CNOOC (Group) Co., Ltd. In December 2012, he took an additional post of the Chairman in CNOOC Energy Technology & Services Limited. From December 2016 to March 2018, he took an additional post of the Chairman in China Oilfield Services Limited. From November 2016 to March 2018, he took an additional post of the Chairman in COOEC. He started to work in CNOOC from 1982, and successively acted as Drilling Director, Vice-Director of Production Department and Vice- Director of Production Office in the Drilling and Production Department of CNOOC Bohai Co., Ltd.; from March 1996 to October 2001, he served successively as Chief Engineer, Deputy General Manager and General Manager of CNOOC Technology Service Company; from October 2001 to October 2005, he served as Deputy General Manager and Executive Vice-President of China Oilfield Services Limited; from October 2005 to February 2007, he was the Deputy General Manager of Tianjin Branch of CNOOC (China); from February 2007 to December 2013, he was the General Manager of the Engineering Construction Department of CNOOC (Group) Co., Ltd.; from December 2013 to January 2017, he served as the General Manager of the Planning Department of CNOOC and the Director of the Engineering Management Office of CNOOC. From January 2017 to present, he served as the President of COOEC; from February 2017, he took an additional post of the Director of COOEC; from March 2017 to present, he served as the Secretary of the Party Committee of COOEC. From March 2018, he served as the Chairman of COOEC. From April 2007 to August 2017, he served as the Deputy General Manager of Financial Department of CNOOC (Group) Co., Ltd. From August 2017, he served as the General Manager of Financial Department of CNOOC (Group) Co., Ltd. From January 2014, he took an additional post of the Director of COOEC. Since taking the job from 1984, he always served in affiliated companies of CNOOC. He successively served as the Deputy Manager of Huizhou 32-5 Underwater Development Project, the Project Manager of Huizhou 26-1N Underwater Development Project and Huizhou 19-3/2/1 Project of CACT Operators Group, the Project Manager of Xijiang 23-1 Project of CNOOC, and the General Manager of Offshore Oil 981 Deepwater Drilling Vessel Engineering Project. From February 2012 to June 2016, he served as the Deputy General Manager in the Engineering Construction Department of CNOOC (Group) Co., Ltd. From July 2016 to present, he served as the Executive Vice-president of COOEC; from March 2017, he took an additional post of a member of the Party Committee; from May 2017, he took an additional post of the Director of COOEC; from December 2017, he served as the Deputy Secretary of the Party Committee and Chairman of Labor Union of COOEC. Since February 13, 1982, he was assigned to National Bureau of Statistics, and successively served as the Deputy Director, the Director, the Deputy Head of Comprehensive Division under National Bureau of Statistics, the Chief Economist and the News Spokesman, the Deputy Director General, and the Director General of National Bureau of Statistics; from August 1998 to September 1999, he served as the Governor Assistant of People s Government of Anhui Province; from June 2008 to September 2012, he served as the Chief Economist (Policy Research Center) in the Energy Economy Research Institute of CNOOC (Group) Co., Ltd. He now serves as the Director of Research Institute of China Oceanwide Holdings Group, the Chief Economist of Guangdong Huaxing Bank, the Professor of Newhuadu Business School, the Professor of City University of Macau, the Independent Director of Fujian Newchoice Pipe Technology Co., Ltd., the Independent Director of Qilu Securities (Shanghai) Asset Management Co., Ltd., the Academic Committee Member and the Senior Researcher of CCIEE. From November 2016, he took an additional post of the Independent Director of COOEC. 066 COOEC / ANNUAL REPORT 2017

69 Name Guo Tao Huang Yongjin Wei Junchao Zhao Yanbo Rao Shicai Chen Yonghong Chen Rongqi Yu Changsheng Chen Baojie Li Xiaowei Liu Lianju Main working experiences From October 2012 to present, he served as the partner of Zhongzhun Certified Public Accounts (Special General Partnership). From May 2015, he took an additional post of the Independent Director of COOEC. From June 2017, he took an additional post of the Independent Director of Guorong Securities. From January 2011 to present, he served as the Vice President of Shanghai Geotechnical Investigation & Design Institute Co., Ltd. From December 2013 to present, he served as the President of Shanghai Skygeo Information Technology Co.,Ltd. From May 2015, he took an additional post of the Independent Director of COOEC. From October 2004 to December 2013, he served as the Director of the General Office of CNOOC (Group) Co., Ltd. From December 2013 to present, he served as the Chairman of Board of Supervisors of CNOOC (Group) Co., Ltd. From April 2014, he took an additonal post of the Chairman of Board of Supervisors of COOEC. From August 2003 to February 2012, he served as the Senior Auditor of Audit Dept. of CNOOC (Group) Co., Ltd. From March 2012 to the end of 2015, he served as the full-time Supervisor of CNOOC (Group) Co., Ltd. From December 2015 to present, he served as the Deputy Director General of Division I under Ministry of Supervision of CNOOC (Group) Co., Ltd. From April 2014 to present, he took an additional post of the Supervisor of COOEC. From September 2007 to March 2014, he served as the General Manager in Human Resources Dept. Offshore Oil Engineering Co., Ltd. From March 2014 to December 2017, he served as the Deputy Secretary of the Party Committee, the Secretary of Committee of the Discipline Inspection, the Chairman of the Labor Union of COOEC. From December 2017, he served as the Leader of Discipline Group of the Party Group of CNOOC (Group) Co., Ltd. in COOEC. From August 2011 to present, he took an additional post of the Staff Supervisor of COOEC. From July 2006 to September 2009, he served as the General Manager of the Capital Management Department of China Blue Chemical Ltd. From October 2009 to July 2012, he served as the General Manager of the Financial Management Department of China Blue Chemical Ltd. From August 2012 to present, he took an additional post of the Chief Financial Officer of COOEC. From December 2004 to June 2006, he served as the R&D Director in the Development and Design Department under the Research Center of CNOOC; from June 2007 to October 2007, he served as the Deputy Manager in the Development and Design Department under the Research Center of CNOOC; from October 2007 to February 2010, he served as the Manager in the Development and Design Department under the Research Center of CNOOC; from February 2010 to October 2012, he served as the Dean of the Engineering Research and Design Institute under the Research Institute of CNOOC; from October 2012 to November 2014, he served as the Deputy Chief Engineer of Offshore Engineering and the Dean of the Engineering Research and Design Institute under the Research Institute of CNOOC; from November 2014 to June 2015, he served as the Chief Engineer (offshore engineering) and the Dean of the Engineering Research and Design Institute under the Research Institute of CNOOC; from July 2015 to March 2016, he served as the Chief Engineer (offshore engineering) of the Research Institute of CNOOC. From April 2016, he served as the Chief Engineer of COOEC. He successively served as the Deputy Director and then the Director in the process office of COOEC Engineering Company, the Director in the process office, the Project Manager of Penglai 19-3 Project and Penglai 19-3 Phase II Development Engineering Project, the Class-A Project Manager and the General Manager in the Production Management Department of COOEC. From September 2008 to April 2016, he served as the General Manager in the Installation Branch of COOEC. From July 2016, he served as the Vice President of COOEC. He served as the Director in the welding workshop of CNOOC Platform Construction Company, the Project Manager of COOEC, the Deputy General Manager and the General Manager of COOEC Fabrication Company. From March 2012 to May 2016, he served as the General Manager of Offshore Oil Engineering (Qingdao) Co., Ltd. From July 2016, he served as the Vice President of COOEC. He successively served as the Deputy Director in the Technical Development Department of COOEC Engineering Company, the Director in the Material and Welding Process Development Department of COOEC Engineering Company, the Project Manager and the Class-A Project Manager of COOEC, and the Deputy General Manager of Offshore Oil Engineering (Qingdao) Co., Ltd. From December 2010 to May 2016, he served as the General Manager in Marketing & Sales Dept. Offshore Oil Engineering Co., Ltd. From July 2016, he served as the Vice President of COOEC. From February 2001 to present, he served as the Secretary of Board of Directors of COOEC. From March 2005 to December 2010, he served as the General Manager of the Bond Department. From December 2010, he served as the General Manager of Secretary Office of Board Chairman Dept. Offshore Oil Engineering Co., Ltd.. Other Subsequent events: Mr Lv Bo proposed and resigned from the director and corporate Chairman title for work arrangement on March 27, Wherein, the 7th meeting of 6th Board of Directors held on March 27, 2018 elected Mr. Jin Xiaojian Chairman of the Company. For reaching the age for retirement, Mr Wei Junchao applied for resigning from the supervisor and Chairman of Board of Supervisors with the board of supervisors on March 27, Mr. Wu Hanming was nominated as a candidate of supervisor on the 5th meeting of 6th Board of Supervisors held on March 27, For specific conditions, please refer to Announcements on Resolutions of Board of Directors and Board of Supervisors disclosed on the same day of annual report. (II) Equity incentive awarded to the directors and senior managers in report period Directors, Supervisors, Senior Managers and Employees 067

70 II. Posts of current and outgoing directors, supervisors and senior managers (i) Post-holding in the shareholder entity Name of staff Name of shareholder entity Position at shareholder entity Starting date of term of office Lv Bo CNOOC (Group) Co., Ltd. General Manager and Member of Party Group April, 2010 Meng Jun CNOOC (Group) Co., Ltd. General Manager of Financial Department August, 2017 Wei Junchao CNOOC (Group) Co., Ltd. Chairman of the Board of Supervisors December, 2013 Zhao Yanbo Zhu Lei CNOOC (Group) Co., Ltd. CNOOC (Group) Co., Ltd. Deputy Director General of Discipline Inspection and Supervision Division I under Ministry of Supervision General Manager of HR Dept. Offshore Oil Engineering Co., Ltd. December, 2015 April, 2017 Ending date of term of office Note: post-holding is on going, so the end of term is unknown. (ii) Post-holding in other entities Name of staff Name of other entity Lv Bo Guo Tao Huang Yongjin Post-holding in other entities Position at other units Starting date of term of office Ending date of term of office China Oilfield Services Limited Chairman December, 2016 March 2018 CNOOC Energy Technology & Services Limited Chairman December, 2012 Overseas Oil and Gas Co., Ltd. Director June, 2009 Overseas Oil and Gas Co., Ltd. Secretary of the Board of Directors November, 2016 CNOOC BVI Director and Secretary of the Board of Directors November, 2016 China Offshore Oil Services (Hong Kong) Co., Ltd. Chairman November, 2016 Zhongzhun Certified Public Accountants (Special General Partner) Partner 2012 years Guorong Securities Co.,Ltd. Independent director June, 2017 Shanghai Geotechnical Investigation & Design Institute Co., Ltd. Vice President 2011 years Shanghai Skygeo Information Technology Co.,Ltd. Chairman 2013 years For post-holding of the Independent Director, Qiu Xiaohua in other entities, please refer to major professional experience of director, supervisor and senior manager in Section I of this chapter. Note: post-holding is on going, so the end of term is unknown. III. Remuneration of the directors, supervisors and senior managers Process of decision-making for remuneration of directors, supervisors and senior managers Basis of decision-making for remuneration of directors, supervisors and senior managers Actual payment of remuneration of directors, supervisors and senior managers Establish the remuneration standards according to the responsibility and complexity of the post as well as the work performance and achievement, and by sticking to the principle of stabilizing personnel and combining the incentive and restriction. Refer to the remuneration of directors, supervisors and senior managers of this industry 1. Director s subsidies The subsidy for the three independent directors of the Company is RMB 128,000 (before tax) per person year. Travel expenses for participating in the meetings of board of directors and shareholders and other expenses required for exercising their powers in accordance with the Articles of Association can be reimbursed by the Company. 2. Directors and supervisors who do not receive their remunerations and subsidies from the Company include Lv Bo, Meng Jun, Wei Junchao and Zhao Yanbo. Above mentioned directors and supervisors would receive their remunerations and subsidies from CNOOC (Group) Co., Ltd., the first largest shareholder entity of the Company. 068 COOEC / ANNUAL REPORT 2017

71 Total remunerations actually gained by all directors, supervisors and senior managers by the end of report period RMB million IV. Turnover of directors, supervisors and senior managers Name Post Change Reasons for change Jin Xiaojian Director, President and Secretary of the Party Committee Election Lin Yaosheng Director and Executive Vice-president Election Zhou Xuezhong Zhu Lei According to corporate requirements on management and development According to corporate requirements on management and development Former Director and President Outgoing Resign because of mandatory age for retirement Original Director, Secretary of the Party Committee and Executive Vice President Outgoing Job change V. Punishments by security supervision organization in recent three years VI. Employees in parent company and main subsidiaries (i) Employees Number of in-service employees in parent 5,296 company Number of in-service employees in main 2,514 subsidiaries Total number of in-service employees 7,810 Number of retired employees whose payment was borne by parent company and 0 main subsidiaries Specialty component Category of specialty component Number of specialty component Production personnel 2,677 Technical personnel 3,321 Financial personnel 105 Operation management and project management personnel 1,707 Total 7,810 Education background Type of education background Quantity (people) Master degree or above 915 Bachelor degree 3,713 Junior college 1,526 Secondary school and below 1,656 Total 7, ,526 1,707 3,321 1,656 7, ,713 Production personnel Technical personnel 2,677 Financial personnel 7,810 Operation management and project management personnel Total Master degree or above Bachelor degree Junior college Secondary school and below Total Directors, Supervisors, Senior Managers and Employees 069

72 (ii) Remuneration policy The Company formulates an overall remuneration and welfare system according to development strategies and economic benefits. The remuneration system is improved regularly to ensure the system is implemented reasonably and effectively. Employee s remuneration and welfare level are properly adjusted according to the profit status of the Company, local living standard and price index. The distribution system of benefit bonus is strictly connected with performance assessment results of the Company. The Company sets performance indicators for employees according to post responsibilities and annual key works and strictly carries out assessment to fully arouse the enthusiasm, initiative and innovation of employees and motivate their sense of responsibility and crisis awareness, so as to make them play a positive role in fulfilling operation objectives of the Company. (iii) Training plan The Company establishes the training and reeducation mechanism for employees, and formulates and implements training plans for all employees based on employee growth and corporate demand. The Company establishes the training and management system to make the training effective, and strengthens guidance, inspection, and management on training, making sure that work at each levels and department can be carried out in line with the training requirements orderly as planned, ensuring promptness, pertinence and efficiency of the training. In 2017, 2216 times of trainings were carried out, with 640,000 h in total and 82 h per capita. Trainings mainly cover safety, production, technology, skill, management and other relevant business knowledge and post skills. In combination with the Company s actual situations, the above trainings effectively enhanced quality and ability, performance of employees, and safeguard the healthy development and fulfillment of strategic objectives. (iv) Labor outsourcing Riding activity of Special Equipment Company VII. Others Closing of the 3rd Engineering Ship Skill Contest of COOEC 070 COOEC / ANNUAL REPORT 2017

73 Flag-giving ceremony for three activities of Construction Company Directors, Supervisors, Senior Managers and Employees 071

74 Company Governance I. Company governance The Company establishes standardized and clear corporate governance structure and forms scientific and effective assignment of responsibilities and balance mechanism meeting requirements of Company Law, Securities Law, Code of Corporate Governance for Listed Companies in China, Rules Governing the Listing of Stocks on Shanghai Stock Exchange, etc., and supervision requirements of China Securities Regulatory Committee, Shanghai Stock Exchange, etc. The shareholders meeting enjoys all rights specified by laws, regulations and Articles of Association, exerts decisionmaking rights to guideline for management, financing, investment, profit distribution and other significant matters of the Company legally; Board of Directors is responsible for the shareholders meeting, and enjoys implementation rights to resolutions of the shareholders meeting and operating decision rights specified; Board of Supervisors shall be responsible for the shareholders meeting and inspect and supervise implementation, etc. of corporate financial staff, internal control personnel and senior managers; and management layer is responsible for organizing and implementing resolutions of the shareholders meeting and Board of Directors and being in charge of daily operation and management of the Company. The actual governance of the Company shall comply with requirements in the Company Law and relevant regulations of CSRC. 072 COOEC / ANNUAL REPORT 2017

75 (i) Establishment and soundness of company governance system The Company formulates Articles of Association, Rule of Procedure for Shareholders Meeting, Rule of Procedure for Board of Directors, Rule of Procedure for Board of Supervisors, Description of President s Work, System of Independent Directors, Management System of Information Disclosure and Investor Relations, Investment Management System and other standardized documents for corporate governance and forms systematical framework of corporate governance based on Company Law, Securities Law, Guide for Charter of Listed Companies, and relevant documents and requirements of securities market supervision authorities. The Company pays high attention to internal control work, continuously optimizes and improves the internal control procedures, and has formulated 479 internal control procedures of 15 internal control systems including administrative management, human resource management, financial management, business contract management, engineering project management, etc. In 2017, the Company mainly formulated/revised 172 internal control procedures in respect of party group management, discipline inspection supervision, internal control & audit and QHSE, including 35 new procedures and 137 revised procedures, forming the more scientific, reasonable and efficient controllable internal control systems. (ii) Shareholders meeting The Company complies with Company Law, Securities Law, Rules Governing the Listing of Stocks and Rules of Procedure for Shareholders Meeting and meets relevant requirements during meeting convening, holding, meeting bill, meeting procedure, meeting resolution, information disclosure, etc. to ensure all shareholders, especially minority shareholders, can exert their own legal rights and enjoy equal positions. The Company has invited the lawyer to participate in all shareholders meeting to confirm and witness holding procedures and audited events of the meeting and identification of participants and provide legal opinion ensuring legal and efficient shareholders meeting. In 2017, the two shareholders meeting were held by the Company in February, May and November. Important proposals such as profit distribution schemes, work reports of Board of Directors, work reports of Board of Supervisors, final account report, further employment of financial and internal control audit institutions of the Company, election of directors and Board of Directors and Board of Supervisors, change of corporate business scope, the Articles of Association, rule of procedure for shareholders meeting and rule of procedure for Board of Directors were deliberated and approved, which safeguarded the shareholders legal rights practically. (iii) Board of Directors 1. Composition of Board of Directors The Company, strictly following the selecting and engaging procedures stipulated in the Articles of Association, selects and engages directors with the legal quorum and member constitution. The Board of Directors is composed of seven people, including three independent directors and the number of independent directors occupies more than one-third of total number of Board of Directors. Jin Xiaojian, the new President and Secretary of the Party Committee of the Company joined into the Board of Directors in the report period. Lin Yaosheng, the Executive Vice-president and Deputy Secretary of the Party Committee of the Company also joined into the Board of Directors. New board members will make professional suggestions to the Board of Directors with their rich specialized knowledge, which plays an important role in healthy and sustainable development of the Company. Zhou Xuezhong, the former director and President resigned from his post for mandatory age for retirement, and Zhu Lei, the former director and Executive Vice-president resigned from his post for work change. The Company expresses heartfelt thanks to them for their important contributions in their tenure terms. 2. Performance of Board of Directors The Board of Directors enhances the principle of standard operation and legal management, perseverely follows the principle of group discussion for decision making, and pays high attention to the role of independent directors. All the proposals in the board meeting and reporting matters are jointly discussed by the Board of Directors, guarantying all the important decisions in the Company are made after discussion of the Board of Directors, and maintaining overall interests of the shareholders. The Company held eight board meetings in January, February, March, April, May, August, October and December 2017, deliberated the regular reports, plans of the profit allocation, plans of senior manager recruitment, financial budget and capital expenditure plans and provided guarantee and equipment investment for subsidiaries. In addition, the Company deliberated international market layout, including establishing subsidiaries in Singapore, Thailand, Qatar etc., and made scientific decisions for normal production and operation of the Company. In the report period, the Board of Directors paid high attention to the conditions of international market development, international project operation management, cost decreasing and benefit increasing, safety and quality management, cash management, prudent investment and operation of joint venture company. The Board Company Governance 073

76 of Directors required the Company to aware of severity and complexity of external environment, orderly organize, carefully deploy and advance projects in progress and vigorously exploit market, especially the international market. Besides, the Board of Directors continually enhances capacity building, pays high attention to work safety, actively implements the idea of new technology, new material, new process, standardization, facilitation, and domestication, so as to exploit potentialities, improve construction efficiency and reduce production cost. The Company reported to the Board of Directors the resolutions and the following implementation of resolutions made by Boards of Directors at regular intervals. The Board of Directors also paid high attention to communication with capital market, chairman,president and independent directors attended three shareholders meeting personally in this year, and communicated patiently on questions concerned by investors, such as development strategies and trend of the Company, impact on the Company due to oil prices and industrial changes, measures taken by the Company to overcome industry difficulties capacity building of the Company, development of market, etc. 3. Examination and approval authority division of the Board of Directors and the management Articles of Association made a very clear division on responsibilities of the Board of Directors and the management, which keep consistency with the requirements in Company Law and Securities Law (for more details, please log in the Company s website for Articles of Association). What s more, division on investment decision-making of the Board of Directors and the management are specified in the special systems of the Company: equity investment (stock right) is under approval of the Board of Directors (these beyond a certain amount shall be decided by the Shareholders Meeting), and other capital investment (fixed capital) (less than RMB 100 million) shall be approved by the management. 074 COOEC / ANNUAL REPORT 2017

77 (iv) Board of Supervisors The composition of Board of Supervisors conforms to the laws requirements. It is composed of three supervisors, including two supervisors of shareholders, one supervisor of employee s representative, and some supervisors with professional knowledge and work experience in terms of accounting, auditing, human resources management, etc. The supervisors can perform their duties in accordance with Articles of Association and the Rules of Procedure for Board of Supervisors, supervise production and operation management and internal control of the Company and regularly conduct investigation and research on the Company and propose suggestions for improvement, so they gave full play to their supervision function and protected the legal rights and interests of the Company and all shareholders. The Board of Supervisors held 5 meetings in the year. Supervisors attended the shareholders meeting and all meetings of directors, reviewed regular reports, internal control evaluation reports, financial statements, profit distribution scheme, usage of raised money etc., and provided review opinion in writing form to regular report prepared by the Board of Directors. All supervisors shall fulfill their own responsibilities carefully and pay high attention to supervision of legal operation, finance, regular report and responsibility implementation of Board of Directors and senior managers of the Company, etc. The Board of Supervisors often attended manager meetings, effectively supervised the group decision made by the management, major issue decision making, appointment or dismissal of important cadres in important positions, major project investment decision making and usage of large mount of money. (v) Management and senior managers There is 1 President, several Executive Vice-presidents, 1 Chief Financial Officer, 1 Chief Engineer and several Vice Presidents in the Company with pragmatic, professional, and experienced managers. According to relevant regulations of Company Law and Articles of Association, the Company formulated Description of President s Work, etc. Assignment of businesses among senior managers was explicit with clear rights and liabilities. Board of Directors and Board of Supervisors could supervise and control senior managers effectively. Company Governance 075

78 In the report period, the management and all senior managers were diligent and responsible and actively implemented all resolutions of the Board of Directors and the development strategies. Facing the operation difficulties brought up by small demand and low price of the offshore oil & gas engineering industry, the management led all staff to vigorously promote four capabilities construction, fully exploit the domestic and international market, continuously lower the cost, strictly implement the programs and do well in safety assurance to steadily push forward 21 offshore oil-gas field development projects and 4 module onshore fabrication projects. Russia Yamal Project was well implemented, which created the module fabrication brand, promoted the Company s reputation significantly both at home and abroad; FPSO Project in Brazil overcame technology complexity, missing materials and other difficulties for progressing and is well controlled. (vi) Information disclosure During the report period, the Company carefully studied requirements of securities market supervision authorities for legal supervision, strict supervision and overall supervision, timely learned the new rules and requirements of information disclosure for Shanghai Stock Exchange, and completed the preparation and disclosure of 4 periodic reports and 33 interim notices under the guide of regulations and compilation related to information disclosure of listed companies. Each disclosure document was thought seriously, carefully prepared and strictly checked and reviewed, thus continuously promoting effectiveness and quality of information disclosure and performing the obligation of legal information disclosure well. Especially in the regular reports, the Company tried to disclose business key points and detailed production data, and analyzed financial indexes according to industry changes to offer references for investors decisionmaking. Beside, the Company also paid special attention to voluntary disclosure through enterprise portals, released nearly 15 news of the Company, timely fed the dynamic conditions of the Company back to the capital market. Indicate if the actual governance of the Company greatly deviates from requirements of CSRC. If so, explain the causes. II. Brief introduction to the shareholders meeting Session Date Index of query on specified website where the resolution is published Disclosure date of published resolution 1st Extraordinary Shareholders Meeting in 2017 February 17, February 20, Shareholders Meeting May 19, May 22, nd Extraordinary Shareholders Meeting in 2017 November 17, November 20, 2017 Shareholders Meeting III. Responsibilities fulfillment of directors (i) Directors participation in Board of Directors and shareholders meeting Director Name Whether independent director or not Number of board meeting attendances this year Number of attendances in person Board meeting attendance Attendance in the form of communication Number of attendances by entrustment Number of absences Failure to attend board meeting in person for two times consecutively Shareholders meeting attendance Number of shareholders meeting attendance Lv Bo No No 3 Jin Xiaojian No No 2 Meng Jun No No 1 Lin Yaosheng No No 1 Qiu Xiaohua Yes No COOEC / ANNUAL REPORT 2017

79 Director Name Whether independent director or not Number of board meeting attendances this year Number of attendances in person Board meeting attendance Attendance in the form of communication Number of attendances by entrustment Number of absences Failure to attend board meeting in person for two times consecutively Shareholders meeting attendance Number of shareholders meeting attendance Guo Tao Yes No 3 Huang Yongjin Yes No 0 Zhou Xuezhong No No Inapplicable Zhu Lei No No 1 Explanation of failure to attend board meeting in person for two times consecutively Number of board meetings held in the year 8 Including: number of on-site meetings 6 Number of meetings held in the form of communication 2 Number of meetings held on site in combination with communications 0 (ii) Objection of independent directors to the related issues of the Company During the report period, the independent directors held no objection against the proposals made by Board of Directors and other proposals not made by the Board of Directors of the Company. (iii) Others IV. Important opinions and suggestions proposed by special committee directly under Board of Directors while fulfilling responsibilities during report period, and disclosure of specific situations (if any disputed items) During report period, special committee directly under Board of Directors shall carefully fulfill their duties and implement their own responsibilities fairly and transparently according to relevant work systems. (i) Performance of audit committee The audit committee of Boards of Directors held 4 on-site meetings during the report period, carefully audited 9 proposals, including regular reports, financial situation, internal control evaluation reports, annual audit work of 4 terms, further employment of audit agency, performance of audit committee, accounting policy change, and published a clear opinion and issued resolution and minutes of audit committee meeting. In addition, in terms of effects of industry environment and oil prices, workload, business trend, market development and order status, forward foreign exchange settlement of Yamal Project, non-recurring profit and loss, investment profit and loss, impact on the Company of replacing business tax with value added tax, cost control, risk management, undistributed profit, cash flow management, payment nodes and collection risk of overseas project, operation of COOEC-Flour Heavy Industries Co., Ltd., performance of the annual budget, audit committee did sufficient communication and discussion with the management of the Company. The audit committee recommended the Company to strengthen the management of the joint venture company, pay attention to the operating risk of overseas projects, do well in financial information disclosure and better serve the shareholders. The audit committee requested the Company to strengthen financial management and pay attention to financial risk, and actively expand the market, exploit cost reduction potentiality and strive to realize the budget target of the year. Company Governance 077

80 Before the annual board meeting, the audit committee and the certified public accountants made a private conversation, and fully understand the audit condition, risk warning, note keypoint disclosure, management proposal, rectification, etc. (ii) Performance of nomination committee In the report period, the nomination committee held 2 on-site meetings, deliberated and approved the 3 proposals of nominating Jin Xiaojian as the President of the Company and candidate of the Director, proposal of Board of Directors change & director candidates of 6th Board of Directors, and agreed to submit relevant proposals to the Board of Directors of the Company for deliberation. The committee regarded the nominator meets all the relevant provisions of Company Law and Articles of Association, his qualification is legal and meets the qualification conditions of directors and senior managers in listed company, agreed to submit the nominator to the Boards of Directors for deliberation, making sure that the nomination work is in compliance with laws and regulations. V. Risks of the Company discovered by Board of Supervisors The Board of Supervisors raised no objection to the supervision issues in the report period. VI. Non-guaranteed independence and the non-retained independent operation capacity of the Company relative to the controlling shareholder in the businesses, human resources, assets, institutions or finance Solutions, work progress and subsequent work plan of the Company in case of horizontal competition VII. Establishment and implementation status in the report period of the appraisal system and the incentive system for senior managers During the report period, the Company carried out the assessment towards the senior managers in accordance with their work performance and the completion of annual objectives and plans. VIII. Whether to disclose the internal control self-evaluation report Refer to Internal Control Self-assessment Report disclosed at website of Shanghai Stock Exchange. Major defects in internal control during report period IX. Relevant situations of internal control audit reports BDO China Shu Lun Pan Certified Public Accountants LLP audited internal control of the Company in 2017, provided standardized Internal Control Audit Report without remained opinions and believed the Company kept effective internal control of financial report on all important aspects according to Guidelines for Enterprise Internal Control and relevant regulations. Refer to Internal Control Audit Report disclosed at website of Shanghai Stock Exchange. Whether to disclose the internal control audit report: Yes. X. Others 078 COOEC / ANNUAL REPORT 2017

81 Relevant Condition of Corporate Bonds I. Basic information of corporate bonds Name of bond COOEC Bonds (2007) Abbreviation Code Issue date Due date Bond balance 07 COOEC Bond November 9, 2007 November 8, 2017 Interest rate (%) 1,200,000, Way of repaying capital and interest Repaying interest every year and capital upon expiration Trading place Shanghai Stock Exchange Corporate bonds interest payment and cashing (i) The Company pays interests of 07 COOEC Bond every year The face interest rate of 07 COOEC Bond is 5.77%. The distributed interest per RMB 1,000 yuan of face value of 07 COOEC Bond is RMB yuan (before tax). After tax, the distributed interest per RMB 1,000 yuan of face value for individual bond holder is RMB yuan; after tax, the distributed interest per RMB 1,000 yuan of face value for overseas institutional investor (including QFII and RQFII) bond holder is RMB yuan. On November 9 (the first workday following statutory holiday) every year is the interest payment date of last interest accrual year. The Company has paid interests in full amount to bond holders in November every year; see details in Announcement on 07 COOEC Bond Interest Payment disclosed every year. (ii) Company has paid the principal and interests of 07 COOEC Bond with cash in November 2017 and delisted In 2017, the Company s 07 COOEC Bond marks the last year (10 years in total) and will expire this year. The Company has paid the last year s interests and principal of the current bonds with duration from November 9, 2016 to November 8, 2017 on November 9, 2017, and delisted the Bond from Shanghai Stock Exchange from now on. Refer to 2017 Announcement on Principal and Interests Payment in Cash and Delisting Relative to 2007 COOEC Bonds disclosed on websites of Shanghai Stock Exchange on November 2, 2017 by the Company. Other information of corporate bonds II. Contact ways of corporate bonds trustee and credit rating organization Entrusted bonds manager Credit rating institution Name China International Capital Corporation Limited Business address 27/F and 28/F, Block 2, Guomao Mansion, No. 1, Jianguomenwai Avenue, Chaoyang District, Beijing Contact person Qin Bo TEL Name Business address China Chengxin Securities Rating Co., Ltd. 21/F, Anji Mansion, No.760, Xizang South Road, Huangpu District, Shanghai Other descriptions: Relevant Condition of Corporate Bonds 079

82 III. Use of raised funds by corporate bonds Totally RMB 1.2 billion yuan was raised by 07 COOEC Bond, which was respectively used to purchase 7,000 t floating crane Blue Whale (RMB 0.54 billion yuan), construct deepwater pipe-laying floating crane Offshore Oil 201 (RMB 0.4 billion yuan) and construct shallow water pipe-laying floating crane Offshore Oil 202 (RMB 0.26 billion yuan),, viz. RMB 1.2 billion yuan in total. All above funds were input in ,000 t floating crane Blue Whale was completed in 2008, deepwater pipe-laying floating crane Offshore Oil 201 was completed in 2012 and shallow water pipe-laying floating crane Offshore Oil 202 was completed in IV. Corporate bonds rating In report period, CCXR maintained 07 COOEC Bond at credit rating AAA and bond issuing subject at AAA, with stable rating prospect. V. Corporate bond credit increasing mechanism, debt repayment plan and other conditions in report period The Company pays the interest on time every year and will repay the principal with cash in November 2017 upon maturity date. The Company has paid the principal and interest of 07 COOEC Bond with cash in November 2017 and delisted the Bond. VI. Holding of corporate bond holder meeting VII. Performance of corporate bond trustee In corporate bond duration, bond trustee continuously tracked the credit status, raised funds management and application and bond principal and interest repayment of COOEC in strict accordance with Bond Trustee Management Agreement, supervised COOEC to fulfill the obligations stipulated in Corporate Bond Raising Specification, actively exercised the responsibilities and safeguarded the legal interests of bond holders. VIII. Accounting data and financial indexes of the Company in the recent two years by the end of report period Unit: 100,000,000 Yuan Currency: RMB Key indicators 2017 years 2016 years Increase and decrease of current period compared with that of last year (%) Reasons for change Earnings before interest, taxes, depreciation and amortization Caused by total profit decrease Current ratio Quick Ratio Asset liability ratio (%) EBITDA total debt ratio Times interest earned Caused by total profit decrease Times interest earned of cash Caused by cash balance decrease EBITDA times interest earned Loan repayment rate Interest coverage COOEC / ANNUAL REPORT 2017

83 IX. Interest payment and cashing of other bonds and debt financing instruments of the Company X. Bank credit of the Company in report period Proposal on Bank Credit Line of 2017 was approved upon deliberation on the 21st meeting of the 5th Board of Directors. It is agreed that the Company can sign the credit line agreement with ten banks, totally RMB billion yuan. As of June 31, 2017, RMB 7 billion is used for credit granting. XI. Company implementing relevant agreements or commitments in corporate bond raising specification in report period The Company timely disclosed the announcement of bond interest payment, paid bond interest as announced and paid principal with cash in November 2017 upon maturity date, and carefully and strictly fulfilled relevant obligations. XII. Significant matters in the Company and effects on operation and debt paying ability of the Company Relevant Condition of Corporate Bonds 081

84 Financial Report I. Audit Report Audit Report XKSBZ [2018] No. ZG10095 All shareholders of Offshore Oil Engineering Co., Ltd.: I. Audit opinions We have audited the financial statements of Offshore Oil Engineering Co., Ltd. (hereinafter referred to as the COOEC), including the consolidated balance sheet and balance sheet of parent company on December 31, 2017, consolidated profit statement and the profit statement of parent company, consolidated cash flow statement and that of parent company, and consolidated statement of changes in equity and notes to financial statement of parent company in In our opinion, all significant aspects of the financial statements attached have been prepared based on the Accounting Standards for Business Enterprises and present fairly the consolidation and financial position of COOEC as of December 31, 2017, and the consolidation, operating results and cash flows of COOEC in II. Basis for the formation of audit opinions We carried out the audit work in accordance with the provisions of the China CPA audit guidelines. Certified Public Accountants Responsibility for Audit of Financial Statements in audit report further elaborates on our responsibility under these guidelines. In accordance with the Code of Ethics of Certified Public Accountants in China, we are independent of COOEC and have fulfilled other responsibilities in professional ethics. We believe that our audit evidence is sufficient and appropriate to provide the basis for the issuance of audit opinions. III. Key items for audit The key items for audit are items that we consider the most important for the audit of the financial statements of the current period according to the professional judgment. The response of these items is based on an audit of the overall financial statements and the formation of audit opinions, and we do not individually express views on these items. We have determined that the following are key items for audit that need to be communicated in the audit report. Key items for audit: confirmation of construction contract revenue Description of items: The company revenue mainly comes from the construction contract confirmed by the percentage of completion method. The percentage of completion method involves the major judgment and estimation of management, including the completion of progress, the scope of delivery and the services required, the total cost of the contract, the outstanding cost, the total contract income and the estimated contract risk. In addition, due to changes in the situation, the total cost of the contract and the total contract income will vary from the original estimate (sometimes significant) Audit response: (1) We evaluate and test the internal control of the Company s accounting contract cost, contract income and completion schedule calculation process; (2) We obtain major construction contracts, verify contract income and review key contract terms; (3) We sample the relevant documents to verify the contract cost that has occurred; (4) We implement the cut-off test procedure to check if the relevant contract costs are recorded during the proper accounting period; (5) We select construction contract samples, and check the cost budget data according to the estimated total cost; (6) We re-calculate the completion percentage based on the incurred cost and the estimated total cost of the contract; (7) We conduct an analytical review procedure on the gross profit rate of the main contract; (8) We select the construction contract sample to view the visual progress of the project, discuss and confirm the completion progress of the project with the engineering management department, compare with the book record, and perform further inspection procedure on the abnormal deviation. 082 COOEC / ANNUAL REPORT 2017

85 IV. Other information The COOEC management (hereinafter referred to as management) is responsible for other information. Other information includes information covered in the 2017 annual report, but does not include financial statements and our audit reports. We do not cover other information on the audit opinions issued for the financial statements, nor do we have any form of attestation conclusions on other information. In conjunction with our audit of the financial statements, our responsibility is to read other information, and in this process, consider whether other information is materially inconsistent with the financial statements or what we have learned in the audit process or it appears to be significant misstatement. Based on the work we have carried out, we should report the fact if we determi230ne the existence of a significant misstatement in other information. In this regard, we have no item for report. V. Responsibilities of management and governance for the financial statements The management is responsible for preparing the financial statements in accordance with the provisions of the Accounting Standards for Enterprises to make it fair reflection, then designing, implementing and maintaining the necessary internal controls so that the financial statements do not have any significant misstatement resulting from fraud or error. In the preparation of financial statements, management is responsible for assessing the constant operational capacity of COOEC, disclosing matters related to constant operations (if applicable), and applying constant operational assumptions, unless they plan liquidation, suspension of operations, or have no other realistic option. The management is responsible for overseeing the financial reporting process of COOEC. VI. Certified public accountant s responsibility for audit of financial statements Our goal is to ensure that the overall financial statements get reasonable assurance whether they have no major misstatement resulting from fraud or error and issue audit reports with opinions. The reasonable assurance is a high level assurance, but it is not guaranteed that the audit carried out in accordance with the audit guidelines can always find out major misstatement in the presence. The misstatement may be caused by fraud or error. If misstatement alone or in summary is reasonably expected to affect the economic decision of the users of financial statements, the misstatement is generally considered to be significant. In the process of performing the audit in accordance with the audit guidelines, we apply professional judgment and maintain professional doubts. Meanwhile, we also execute the following works: (1) Identify and evaluate the risks of major misstatement in financial statements due to fraud or error, design and implement audit procedures to address these risks, and obtain sufficient and appropriate audit evidence as the basis for issuing audit opinions. Since fraud may involve collusion, forgery, intentional omission, false representation or not be subject to internal control, failure to find the risk of significant misstatement due to fraud is higher than the risk of failure to find a major misstatement due to errors. (2) Understand internal controls related to auditing to design appropriate audit procedures. (3) Evaluate the appropriateness of accounting policies adopted by management and the rationality of accounting estimation and related disclosure. (4) Make an appropriate conclusion of the management s use of constant operational assumptions. At the same time, on the basis of the acquired audit evidence, make a conclusion whether there is a significant uncertainty in matters or circumstances that cause significant doubts about constant operational capacity of COOEC. If we come to the conclusion that there are significant uncertainties, the audit guidelines require that we draw the attention of the report users to the relevant disclosures in the financial statements in the audit report; If the disclosure is not sufficient, we should issue a modified audit report. Our conclusions are based on information available as of the date of the audit report. However, future events or conditions may cause COOEC to discontinue operation. (5) Evaluate the overall presentation, structure and content of the financial statements (including disclosures) and whether the financial statements represent the underlying transactions and events in a manner that achieves fair presentation. (6) Obtain sufficient and appropriate audit evidence on the financial information of entities or business activities under COOEC to make an audit opinion on the financial statements. We are responsible for directing, supervising and implementing the Group s audits and assuming full responsibility for the audit opinion. We communicate with governance regarding the planned scope and timing of the audit and significant audit matters, including any significant deficiencies in internal control that we identify during our audit. Financial Report 083

86 We also provide a statement to governance regarding compliance with the independence-related professional ethics requirements and communicate with the governance all the relationships and other matters that may reasonably be considered to affect our independence, as well as the relevant preventive measures (if applicable). In items communicated with the governance, we determine those items most important to the audit of the financial statements of the current period and constitute a key item for audit. We describe these items in the audit report unless laws and regulations prohibit the disclosure of these items, or in rare cases, the negative consequences of communicating an item in the audit report are beyond the benefits of public interest, we determine that the item should not be communicated in the audit report. BDO China Shu Lun Pan Certified Public Accountants LLP (Special general partnership) Chinese certified public accountant: Cai Xiaoli (partner) Chinese certified public accountant: An Hang Shanghai, China March 27, COOEC / ANNUAL REPORT 2017

87 II. Financial Statements Prepared by: Offshore Oil Engineering Co., Ltd. Consolidated Balance Sheet Unit: Yuan December 31, 2017 Currency: RMB Item Notes Ending balance Beginning balance Current assets: Currency capital VII (i) 4,632,161, ,706,031, Settlement reserves Funds for inter-banking lending Financial assets measured at their fair values and with the variation included in the current profits and losses Derivative financial assets Notes receivable Accounts receivable VII (ii) 2,820,783, ,992,778, Advance payment VII (iii) 177,224, ,711, Premium receivable Reinsurance accounts receivable Reinsurance contract reserves receivable Interest receivable VII (iv) 7,816, ,891, Dividends receivable Other Receivables VII (v) 134,847, ,927, Redemptory monetary capital for sale Inventory VII (vi) 1,694,988, ,611,161, Assets held for sale Non-current assets due within one year Other current assets VII (vii) 2,668,665, ,679,958, Total current assets 12,136,486, ,286,460, Non-current assets: Issue loans and advances Financial assets available for sale VII (viii) 238,775, ,277, Held-to-maturity investment Long-term receivables Long-term equity investment VII (ix) 2,133,054, ,046,600, Investment real estate Fixed assets VII (x) 12,141,262, ,484,633, Projects under construction VII (xi) 179,879, ,630, Engineering materials Clearance of fixed assets Productive biological assets Oil and gas assets Intangible assets VII (xii) 804,397, ,170, Development expenditure Business reputation VII (xiii) 13,075, ,075, Long-term unamortized expenses VII (xiv) 75,200, ,623, Deferred income tax assets VII (xv) 673,825, ,726, Other non-current assets Total non-current assets 16,259,470, ,524,737, Financial Report 085

88 Item Notes Ending balance Beginning balance Total assets 28,395,956, ,811,198, Current liabilities: Short-term loan Loans from the Central Bank Deposits from customers and interbank Loans from other banks Financial liabilities measured by fair value with their changes accounted to current profits and losses VII (xvi) 212,302, Financial derivative liabilities Notes payable VII (xvii) 2,268, Accounts payable VII (xviii) 3,777,537, ,065,799, Advance receipts VII (xix) 140,476, , Financial assets sold for repurchase Handling charges and commission payable Employee salary payable VII (xx) 303,853, ,991, Taxes payable VII (xxi) 534,774, ,301, Interest payable VII (xxii) 9, ,193, Dividends payable Other payables VII (xxiii) 81,889, ,296, Reinsurance accounts payable Insurance contract reserves Receiving from vicariously traded securities Receiving from vicariously sold securities Liabilities held for sale Non-current liabilities due within one year VII (xxiv) 1,198,558, Other current liabilities VII (xxv) 5,677, ,266, Total current liabilities 4,846,486, ,391,798, Non-current liabilities: Long-term loan VII (xxvi) 90,000, Bond payable Wherein: preferred shares Perpetual capital securities Long-term payables Employee salary payable for long-term Special accounts payable VII (xxvii) 28,213, ,111, Estimated liabilities VII (xxviii) 105,746, Deferred income VII (xxix) 170,054, ,426, Deferred income tax liabilities VII (xv) 27,087, ,432, Other non-current liabilities Total non-current liabilities 421,101, ,969, Total liabilities 5,267,587, ,642,768, Owner s equity Capital stock VII (xxx) 4,421,354, ,421,354, Other equity instruments Wherein: preferred shares Perpetual capital securities Capital reserves VII (xxxi) 4,247,940, ,247,940, Less: treasury stock 086 COOEC / ANNUAL REPORT 2017

89 Item Notes Ending balance Beginning balance Other composite incomes VII (xxxii) 109,380, ,399, Special reserve VII (xxxiii) 503,278, ,551, Surplus reserves VII (xxxiv) 1,449,944, ,364,424, Generic risk reserve Undistributed profit VII (xxxv) 12,385,180, ,421,780, Total owners equity attributable to the parent company 23,117,079, ,155,451, Minority stockholders interest 11,288, ,978, Total owners equity 23,128,368, ,168,429, Total liabilities and owners equity 28,395,956, ,811,198, Legal representative: Jin Xiaojian Person in charge of accounting affairs: Chen Yonghong Person in charge of accounting department: Wang Yajun Financial Report 087

90 Balance Sheet of the Parent Company December 31, 2017 Prepared by: Offshore Oil Engineering Co., Ltd. Unit: Yuan Currency: RMB Item Notes Ending balance Beginning balance Current assets: Currency capital 1,012,305, ,829,859, Financial assets measured at their fair values and with the variation included in the current profits and losses Derivative financial assets Notes receivable Accounts receivable XVII (i) 2,723,731, ,195,387, Advance payment 139,027, ,083, Interest receivable 168, ,251, Dividends receivable Other receivables XVII (ii) 685,778, ,183, Inventory 1,437,290, ,174,595, Assets held for sale Non-current assets due within one year Other current assets 1,194,553, ,404,071, Total current assets 7,192,854, ,578,431, Non-current assets: Financial assets available for sale 238,775, ,277, Held-to-maturity investment Long-term receivables Long-term equity investment XVII (iii) 9,075,974, ,985,974, Investment real estate Fixed assets 5,628,018, ,744,802, Projects under construction 9,944, ,113, Engineering materials Clearance of fixed assets Productive biological assets Oil and gas assets Intangible assets 32,464, ,727, Development expenditure Business reputation Long-term unamortized expenses 71,628, ,025, Deferred income tax assets 442,121, ,761, Other non-current assets Total non-current assets 15,498,928, ,475,682, Total assets 22,691,782, ,054,114, Current liabilities: Short-term loan Financial liabilities measured by fair value with their changes accounted to current profits and losses Financial derivative liabilities Notes payable 2,268, Accounts payable 4,498,880, ,121,861, COOEC / ANNUAL REPORT 2017

91 Item Notes Ending balance Beginning balance Advance receipts 72,818, , Employee salary payable 210,696, ,820, Taxes payable 57,222, ,920, Interest payable 9, ,193, Dividends payable Other payables 76,034, ,908, Liabilities held for sale Non-current liabilities due within one year 1,198,558, Other current liabilities 4,033, ,033, Total current liabilities 4,921,963, ,722,306, Non-current liabilities: Long-term loan 90,000, Bond payable Wherein: preferred shares Perpetual capital securities Long-term payables Employee salary payable for long-term Special accounts payable 28,213, ,111, Estimated liabilities Deferred income 86,094, ,654, Deferred income tax liabilities 21,364, ,109, Other non-current liabilities Total non-current liabilities 225,673, ,875, Total liabilities 5,147,636, ,856,181, Owner s equity: Capital stock 4,421,354, ,421,354, Other equity instruments Wherein: preferred shares Perpetual capital securities Capital reserves Less: treasury stock Other composite incomes 98,742, ,577, Special reserve 462,845, ,862, Surplus reserves 1,440,302, ,354,782, Undistributed profit 6,875,513, ,547,966, Total owners equity 17,544,146, ,197,932, Total liabilities and owners equity 22,691,782, ,054,114, Legal representative: Jin Xiaojian Person in charge of accounting affairs: Chen Yonghong Person in charge of accounting department: Wang Yajun Financial Report 089

92 Consolidated Profit Statement January to December 2017 Item Notes The amount incurred Accrued in last in current period period I. Gross operating income VII (xxxvi) 10,252,537, ,991,683, Wherein: operating income VII (xxxvi) 10,252,537, ,991,683, Interest income Earned premiums Income from handling charges and commissions II. Gross operating cost 9,892,647, ,063,045, Wherein: operating costs VII (xxxvi) 8,084,528, ,095,206, Interest expenses Expenditure on handling charges and commissions Surrender value Net amount of compensation payout Net amount of reserves for reinsurance contract Policyholder dividends Reinsurance expenses Taxes and surcharges VII (xxxvii) 127,305, ,060, Sales cost VII (xxxviii) 13,983, ,047, Management cost VII (xxxix) 878,706, ,660, Financial cost VII (xl) 353,581, ,825, Assets impairment loss VII (xli) 434,541, ,896, Plus: income from changes in fair value (loss indicated with - ) VII (xlii) 212,302, ,707, Investment income (loss indicated with - ) VII (xliii) -121,516, ,561, Wherein: investment income from Associates and Joint Venture VII (xliii) -91,269, ,122, Profit from disposal of assets (loss indicated by ) 452,878, Exchange gain (loss indicated by ) Other incomes VII (li) 95,371, III. Operation profit (loss indicated with ) 546,047, ,246, Plus: non-business income VII (xliv) 83,419, ,077,355, Less: non-operating expenses VII (xlv) 2,793, ,237, IV Total profit (total loss indicated with - ) 626,673, ,617,364, Less: income tax expense VII (xlvi) 137,041, ,452, V. Net profit (net loss indicated with - ) 489,632, ,312,911, (i) Classified as per business continuity 1. Net profit from continuing operation (net loss indicated by - ) 489,852, ,312,902, Net profit from discontinuing operation (Net loss indicated by - ) -219, , (ii) Classified as per attribution of ownership 1. Profit and loss of minority shareholders -1,423, ,395, Net profits attributable to shareholders of the parent company 491,055, ,315,307, VI. Net of tax of other composite incomes -75,285, ,871, Net of tax for other comprehensive incomes -75,019, ,588, (i) Not to be reclassified into other comprehensive income of profit and loss 1. Change due to re-measurement of net liabilities or net assets of defined benefit plans 090 COOEC / ANNUAL REPORT 2017

93 Item Notes The amount incurred in current period Accrued in last period 2. Shares cannot be reclassified into other comprehensive income of profit and loss under the equity law (ii) Other comprehensive income which will be reclassified into the profit and loss -75,019, ,588, Shares to be reclassified into other comprehensive income of profit and loss under the equity law 2. Change of fair value recognized in profits or losses of availablefor-sale financial assets -61,626, ,951, Held-to-maturity financial investment reclassified as available for sale investments profit and loss account 4. The effective portion of hedging profits and losses for cash flow 5. Translation differences of foreign currency financial statements -13,393, ,540, Others The net of tax for other comprehensive incomes attributable to minority stockholders -266, , VII. Total consolidated Income 414,346, ,315,783, Total consolidated income attributable to holding company 416,036, ,317,896, Total consolidated income attributable to minority shareholder -1,689, ,112, VIII. Earnings per share: (i) Basic earnings per share (yuan/share) XVIII (ii) (ii) Diluted Earnings Per Share (yuan/share) XVIII (ii) Consolidation of enterprises under same control doesn t exist in current period. Legal representative: Jin Xiaojian Person in charge of accounting affairs: Chen Yonghong Person in charge of accounting department: Wang Yajun Financial Report 091

94 Profit Statement of Parent Company January to December 2017 Item Notes The amount incurred Accrued in last in current period period I. Operating income XVII (iv) 6,222,149, ,014,230, Less: operating costs XVII (iv) 6,582,822, ,973,888, Taxes and surcharges 13,988, ,490, Sales cost 2,123, ,669, Management cost 586,708, ,632, Financial cost 123,031, ,827, Assets impairment loss 360,412, ,236, Plus: income from changes in fair value (loss is marked by ) Investment income (loss indicated with - ) XVII (v) 2,022,082, ,630, Wherein: investment income from Associates and Joint Venture Profit from disposal of assets (loss indicated by ) Other incomes 69,019, II Operation profit (loss is marked by ) 644,165, ,229, Plus: non-business income 6,061, ,438, Less: non-operating expenses 2,019, ,402, III. Total profits (loss indicated with - ) 648,208, ,193, Less: income tax expense -206,993, ,044, IV Net profits (net loss is marked by ) 855,202, ,149, (i) Net profit from continuing operation (net loss indicated by -.) 855,202, ,149, (ii) Net profit from discontinuing operation (net loss indicated by -.) V. Net of tax of other composite incomes -48,835, ,568, (i) Not to be reclassified into other comprehensive income of profit and loss 1. Change due to re-measurement of net liabilities or net assets of defined benefit plans 2. Shares cannot be reclassified into other comprehensive income of profit and loss under the equity law (ii) Other comprehensive income which will be reclassified into the profit and loss -48,835, ,568, Shares to be reclassified into other comprehensive income of profit and loss under the equity law 2. Change of fair value recognized in profits or losses of availablefor-sale financial assets -61,626, ,951, Held-to-maturity financial investment reclassified as available for sale investments profit and loss account 4. The effective portion of hedging profits and losses for cash flow 5. Translation differences of foreign currency financial statements 12,790, ,616, Others VI. Total comprehensive income 806,366, ,718, VII. Earnings per share (i) Basic earnings per share (yuan/share) (ii) Diluted Earnings Per Share (yuan/share) Legal representative: Jin Xiaojian Person in charge of accounting affairs: Chen Yonghong Person in charge of accounting department: Wang Yajun 092 COOEC / ANNUAL REPORT 2017

95 Item Consolidated Cash Flow Statement Notes The amount incurred in current period January to December 2017 Accrued in last period I. Cash flows from operating activities: Cash received from sale of goods or provisions of services 9,275,380, ,226,130, Net increases from customer s deposit and Deposit from other banks Net increase in borrowings from Central Bank Net increases from borrowing funds to other financial institutions Cash received from premium of original insurance contract Net cash received from reinsurance business Net cash received from policyholder deposit and investment Disposal of net increase of financial assets accounted at their fair values and with the variation included in the current profits and losses Cash received as interest, handling charges and commission Net increase in capital borrowed Net increase in capital from repurchase business Refund of tax and fare received 440,906, ,829, Other cash received relating to operating activities VII (xlviii) 442,299, ,687, Sub-total of cash inflows from operating activities 10,158,586, ,124,647, Cash paid for goods and services 6,825,437, ,767,427, Net increases from customer lending and advances Net increases from deposits in the Central Bank and deposits of the same trade or business Cash paid as compensation under the original insurance contract Cash paid as interest, handling charges and commission Cash paid for policy dividend Cash paid to and on behalf of employees 1,976,969, ,827,207, Payments for various taxes 637,125, ,107,267, Other cash paid relating to operating activities VII (xlviii) 187,679, ,753, Sub-total of cash outflows from operating activities 9,627,212, ,836,656, Net Cash Flow from Business Operation 531,374, ,287,991, II. Cash Flows from Investment Activities: Cash received from withdrawing investments 11,600,000, ,977,337, Cash received from returns on investments 110,525, ,020, Net cash received from disposal of fixed assets, intangible assets and other long-term assets ,590,193, Net cash received from disposing subsidiaries and other business units Other cashes received relating to investment activities Subtotal of cash inflows of investment activity 11,710,525, ,659,551, Cash paid to acquire fixed assets, intangible assets and other long-term assets 1,652,853, ,651, Cash paid to acquire investments 10,573,927, ,463,957, Net increase in hypothecated loan Net cash used for acquiring subsidiaries and other business units Other cashes paid relating to investment activities VII (xlviii) 124,379, ,186, Sub-total of cash outflows from investment activities 12,351,160, ,197,794, Net Cash Flow from Investment Activities -640,634, ,243, Financial Report 093

96 Item Notes The amount incurred Accrued in last in current period period III. Cash Flows from Financing Activities Cash received from absorbing investment Wherein: Cash received from increase in minority interest by subsidiary Cash received from borrowings 90,000, Cash received from issuing debentures Other cash received relating to financing activities Sub-total of cash inflows from financing activities 90,000, Cash paid for debt repayment 1,200,000, Cash paid for distribution of dividends, profits and repayment of interests 511,610, ,174,578, Wherein: Cash paid for distribution of dividends or profit or reimbursing interests by subsidiary Other cashes paid relating to financing activities Sub-total of cash outflows from financing activities 1,711,610, ,174,578, Net Cash Flow from Financing Activities -1,621,610, ,174,578, IV. Effect of exchange rate fluctuation on cash and cash equivalents -268,827, ,728, V. Net increase in Cash and Cash Equivalents -1,999,699, ,818,897, Plus: Balance of cash and cash equivalents at the beginning of the period 6,628,261, ,809,364, VI. Balance of cash and cash equivalents at the end of the period 4,628,562, ,628,261, Legal representative: Jin Xiaojian Person in charge of accounting affairs: Chen Yonghong Person in charge of accounting department: Wang Yajun 094 COOEC / ANNUAL REPORT 2017

97 Item Cash flow statement of the parent company Notes The amount incurred in current period January to December 2017 Accrued in last period I. Cash flows from operating activities: Cash received from sale of goods or provisions of services 5,487,898, ,618,920, Refund of tax and fare received 179,226, ,944, Other cash received relating to operating activities 200,814, ,222, Sub-total of cash inflows from operating activities 5,867,939, ,985,087, Cash paid for goods and services 5,803,789, ,955,306, Cash paid to and on behalf of employees 1,433,612, ,264,868, Payments for various taxes 40,946, ,295, Other cash paid relating to operating activities 33,309, ,338, Sub-total of cash outflows from operating activities 7,311,657, ,820,809, Net Cash Flow from Business Operation -1,443,717, ,164,277, II. Cash Flows from Investment Activities: Cash received from returns on investments 4,535,119, ,375,158, Cash received from returns on investments 2,023,958, ,285, Net cash received from disposal of fixed assets, intangible assets and other long-term assets , Net cash received from disposing subsidiaries and other business units Other cashes received relating to investment activities Subtotal of cash inflows of investment activity 6,559,078, ,618,445, Cash paid to acquire fixed assets, intangible assets and other long-term assets 190,895, ,666, Cash paid to acquire investments 4,090,000, ,500,007, Net cash used for acquiring subsidiaries and other business units Other cashes paid relating to investment activities Sub-total of cash outflows from investment activities 4,280,895, ,665,673, Net cash flow from investment activities 2,278,182, ,227, III. Cash Flows from Financing Activities Cash received from absorbing investment Cash received from borrowings 90,000, Cash received from issuing debentures Other cash received relating to financing activities Sub-total of cash inflows from financing activities 90,000, Cash paid for debt repayment 1,200,000, Cash paid for distribution of dividends, profits and repayment of interests 511,610, ,174,578, Other cashes paid relating to financing activities Sub-total of cash outflows from financing activities 1,711,610, ,174,578, Net cash flow from financing activities -1,621,610, ,174,578, IV. Effect of exchange rate fluctuation on cash and cash equivalents -30,408, ,990, V. Net increase in Cash and Cash Equivalents -817,554, ,538, Plus: Balance of Cash and cash equivalents at the beginning of the period 1,829,859, ,853,398, VI. Balance of cash and cash equivalents at the end of the period 1,012,305, ,829,859, Legal representative: Jin Xiaojian Person in charge of accounting affairs: Chen Yonghong Person in charge of accounting department: Wang Yajun Financial Report 095

98 Consolidated statement of changes in owner s equity January to December 2017 Item Capital stock Current period Equity attributable to the owners of parent company Other equity instruments Preferred shares Perpetual Capital Securities Others Capital reserves I. Balance at end of last year 4,421,354, ,247,940, Plus: Accounting policy change Corrections of prior period errors Business combination under common control Others II. Balance at beginning of current year 4,421,354, ,247,940, III. Increase/decrease change of the year (decrease is marked by - ) (I) Total comprehensive income (II) Capital invested and decreased by the owner 1. Shareholders common share 2. Invested capital from other equity instruments 3. Fund paid for shares held recorded into the owners equity 4. Others (III) Profit distribution 1. Withdrawal of surplus reserves 2. Withdrawal of general risk reserves 3. Distribution to owners (or shareholders) 4. Others (iv) Internal transfer of owner s equity 1. Capital reserves transferred to capital (or share capital) 2. Surplus reserves transferred to capital (or share capital) 3. Loss covered by surplus reserves 4. Others (V) Special reserve 1. Withdrawal in current period 2. Use in current period (VI) Others IV. Balance at end of current year 4,421,354, ,247,940, Less: treasury stock 096 COOEC / ANNUAL REPORT 2017

99 Unit: Yuan Currency: RMB Other composite incomes Special reserve Surplus reserves Generic risk reserve Undistributed profit Minority stockholders interest Total owners equity 184,399, ,551, ,364,424, ,421,780, ,978, ,168,429, ,399, ,551, ,364,424, ,421,780, ,978, ,168,429, ,019, ,272, ,520, ,600, ,689, ,061, ,019, ,055, ,689, ,346, ,520, ,655, ,135, ,520, ,520, ,135, ,135, ,272, ,272, ,092, ,092, ,365, ,365, ,380, ,278, ,449,944, ,385,180, ,288, ,128,368, Financial Report 097

100 Item Capital stock Last period Equity attributable to the owners of parent company Other equity instruments Preferred shares Perpetual Capital Securities Others Capital reserves I. Balance at end of last year 4,421,354, ,247,940, Plus: Accounting policy change Corrections of prior period errors Business combination under common control Others II. Balance at beginning of current year 4,421,354, ,247,940, III. Increase/decrease change of the year (decrease is marked by - ) (I) Total comprehensive income (II) Capital invested and decreased by the owner 1. Shareholders common share 2. Invested capital from other equity instruments 3. Fund paid for shares held recorded into the owners equity 4. Others (III) Profit distribution 1. Withdrawal of surplus reserves 2. Withdrawal of general risk reserves 3. Distribution to owners (or shareholders) 4. Others (iv) Internal transfer of owner s equity 1. Capital reserves transferred to capital (or share capital) 2. Surplus reserves transferred to capital (or share capital) 3. Loss covered by surplus reserves 4. Others (V) Special reserve 1. Withdrawal in current period 2. Use in current period (VI) Others IV. Balance at end of current year 4,421,354, ,247,940, Less: treasury stock Legal representative: Jin Xiaojian Person in charge of accounting affairs: Chen Yonghong Person in charge of accounting department: Wang Yajun 098 COOEC / ANNUAL REPORT 2017

101 Other composite incomes Special reserve Surplus reserves Generic risk reserve Undistributed profit Minority stockholders interest Total owners equity 181,810, ,115, ,364,424, ,211,812, ,091, ,991,549, ,810, ,115, ,364,424, ,211,812, ,091, ,991,549, ,588, ,564, ,968, ,112, ,880, ,588, ,315,307, ,112, ,315,783, ,105,338, ,105,338, ,105,338, ,105,338, ,564, ,564, ,770, ,770, ,334, ,334, ,399, ,551, ,364,424, ,421,780, ,978, ,168,429, Financial Report 099

102 Statement of changes in equity of the Owners of parent company January to December 2017 Item Capital stock Other equity instruments Preferred shares Perpetual Capital Securities Others Current period Capital reserves I. Balance at end of last year 4,421,354, ,245,387, Plus: Accounting policy change Corrections of prior period errors Others II. Balance at beginning of current year 4,421,354, ,245,387, III. Increase/decrease change of the year (decrease is marked by - ) (I) Total comprehensive income (II) Capital invested and decreased by the owner 1. Shareholders common share 2. Invested capital from other equity instruments 3. Fund paid for shares held recorded into the owners equity 4. Others (III) Profit distribution 1. Withdrawal of surplus reserves 2. Distribution to owners (or shareholders) 3. Others (iv) Internal transfer of owner s equity 1. Capital reserves transferred to capital (or share capital) 2. Surplus reserves transferred to capital (or share capital) 3. Loss covered by surplus reserves 4. Others (V) Special reserve 1. Withdrawal in current period 2. Use in current period (VI) Others IV. Balance at end of current year 4,421,354, ,245,387, COOEC / ANNUAL REPORT 2017

103 Unit: Yuan Currency: RMB Less: treasury stock Other composite incomes Special reserve Surplus reserves Undistributed profit Total owners equity 147,577, ,862, ,354,782, ,547,966, ,197,932, ,577, ,862, ,354,782, ,547,966, ,197,932, ,835, ,016, ,520, ,546, ,214, ,835, ,202, ,366, ,520, ,655, ,135, ,520, ,520, ,135, ,135, ,016, ,016, ,514, ,514, ,531, ,531, ,742, ,845, ,440,302, ,875,513, ,544,146, Financial Report 101

104 Item Capital stock Other equity instruments Preferred shares Perpetual Capital Securities Others Last period Capital reserves I. Balance at end of last year 4,421,354, ,245,387, Plus: Accounting policy change Corrections of prior period errors Others II. Balance at beginning of current year 4,421,354, ,245,387, III. Increase/decrease change of the year (decrease is marked by - ) (I) Total comprehensive income (II) Capital invested and decreased by the owner 1. Shareholders common share 2. Invested capital from other equity instruments 3. Fund paid for shares held recorded into the owners equity 4. Others (III) Profit distribution 1. Withdrawal of surplus reserves 2. Distribution to owners (or shareholders) 3. Others (iv) Internal transfer of owner s equity 1. Capital reserves transferred to capital (or share capital) 2. Surplus reserves transferred to capital (or share capital) 3. Loss covered by surplus reserves 4. Others (V) Special reserve 1. Withdrawal in current period 2. Use in current period (VI) Others IV. Balance at end of current year 4,421,354, ,245,387, Legal representative: Jin Xiaojian Person in charge of accounting affairs: Chen Yonghong Person in charge of accounting department: Wang Yajun 102 COOEC / ANNUAL REPORT 2017

105 Less: treasury stock Other composite incomes Special reserve Surplus reserves Undistributed profit Total owners equity 173,146, ,854, ,354,782, ,831,455, ,531,981, ,146, ,854, ,354,782, ,831,455, ,531,981, ,568, ,992, ,283,488, ,334,049, ,568, ,149, ,718, ,105,338, ,105,338, ,105,338, ,105,338, ,992, ,992, ,189, ,189, ,181, ,181, ,577, ,862, ,354,782, ,547,966, ,197,932, Financial Report 103

106 III. Basic Information of the Company 1. Profile of the Company (1) Establishment Offshore Oil Engineering Co., Ltd. (hereinafter referred to as the Company or Company ) established on April 20, 2000 is a joint stock company with limited liabilities jointly sponsored by China Offshore Oil Development & Engineering Corporation (COODEC), CNOOC Platform Manufacturing Company (the Platform Company ), CNOOC Maritime Engineering Company (the Maritime Engineering Company ), CNOOC Bohai Co., Ltd. and CNOOC Nanhai West Co., Ltd.. Uniform social credit code: Y. The Company listed the shares on Shanghai Stock Exchange on February 5, It is engineering construction industry. As of December 31, 2017, the Company issued share capital of billion shares totally with registered capital of RMB billion; registered address: Apartment 202-F105, 2/F, Skirt Building, Ligang Plaza, No. 82, West 2nd Road, Tianjin Port Free Trade Zone; headquarter address: No. 199, Haibin 15 Road, Tianjin Port Free Trade Zone. (2) Business scope The Company and its subsidiaries (collectively called the Group ) are mainly engaged in EPCI contract; design of oil and gas (offshore oil) and construction engineering, planning consultation and evaluation consultation of oil & gas engineering; construction of various offshore oil construction projects and other offshore engineering projects as well as construction of onshore petrochemical engineering projects; fabrication and installation of various steel structures and grid structure projects; design and manufacture of pressure vessel, design of pressure pipeline; R&D, manufacture and sale of electrical instrument & automation ; quality control and detection, physicochemical property, surveying and mapping and related technical services; export of self-made and technologies; import of raw and auxiliary materials, instruments, meters, machinery, equipment, parts, accessories and technologies necessary for the production of the Company; processing of imported materials, processing of supplied materials, processing of supplied samples, assembling of supplied components and compensation trade; contracting of overseas offshore oil projects and domestic international bidding projects; contracting of the survey, consultation, design and supervision of the above overseas projects; export of equipment and materials necessary for the above overseas projects; labor service for above overseas projects; transportation of domestic coastal general cargo; general goods transportation of international route; and leasing of self-owned house; sales of steel, pipes, cables, valves, instruments, meters, hardwares and electrical equipment (projects requiring approval according to laws can have business activities carried out upon approval of relevant departments). (3) Initial offering of corporate stock Upon the approval (Zh.J.F.X.Z.[2002] No.2) of China Securities Regulatory Commission (CSRC), the Company offered 80 million social public shares on January 21, and listed the shares on Shanghai Stock Exchange on February 5, 2002 after relevant funds were paid (code: ). The Company finished the procedures of industry & commerce alteration registration on July , with the number of the Business License for Legal Person being after alteration and the registered capital being RMB 250 million. (4) Capital increases after Initial Public Offering 1) The Company approved the Plan of Increasing Share Capital with Capital Reserves at the first extraordinary shareholders meeting in 2003, deciding to issue additional 1 share for each 10 shares with the capital reserves based on the total of 250 million shares. Upon the completion of the above plan, total shares of the Company reached 275 million, including 88 million tradable shares. The Company finished the procedures of industry & commerce alteration registration on January 12, 2004, with registered capital of RMB 275 million after the alteration; 2) The Company approved the Plan of Increasing Share Capital with Capital Reserves and Undistributed Profits at the shareholders meeting in 2003, deciding to issue 1 additional share for each 10 shares (27.5 million shares in total) to the shareholders with the capital reserves and distribute 1 dividend share for each 10 shares (27.5 million shares in total) to the shareholders based on the total of 27.5 million shares, which increased the share capital by 55 million shares aggregately. The Company finished the procedures of industry & commerce alteration registration on October 27, 2004, with registered capital of RMB three hundred and thirty million yuan after the alteration. 3) The Company approved the 2004 Profit Distribution Plan and the Plan of Converting Capital Reserve to Share Capital for 2004 at the shareholders meeting in 2004, deciding to distribute share dividend of 1 share for each 10 shares to the shareholders with the undistributed profit (33 million shares in total) and issue 1 additional share for each 10 shares to the shareholders with the capital reserves (33 million shares in total) based on the total of 330 million shares, which increased the share capital by 66 million shares aggregately The Company finished the 104 COOEC / ANNUAL REPORT 2017

107 procedures of industry & commerce alteration registration on July 15, 2005, with registered capital of RMB 396 million after the alteration. 4) The Company approved the 2005 Profit Distribution Plan and the Plan of Converting Capital Reserve to Share Capital for 2005 at the shareholders meeting in 2005, deciding to distribute share dividend of 7 share for each 10 shares to the shareholders with the undistributed profit (277.2 million shares in total) and issue 3 additional share for each 10 shares to the shareholders with the capital reserves (118.8 million shares in total) based on the total of 396 million shares, which increased the share capital by 396 million shares aggregately. The Company finished the procedures of industry & commerce alteration registration on January 31, 2007, with registered capital of RMB 792 million after the alteration. 5) The Company approved the 2006 Profit Distribution Plan at the shareholders meeting in 2006, deciding to distribute share dividends of 2 shares for each 10 shares to the shareholders with the undistributed profit (158.4 million shares in total) to the shareholders based on the total of 792 million shares. The Company finished the procedures of industry & commerce alteration registration on September 6, 2007, with registered capital of RMB nine hundred fifty million and four hundred thousand yuan after the alteration. 6) The Company approved the 2007 Profit Distribution Plan at the shareholders meeting in 2007, deciding to distribute share dividends of 5 shares for each 10 shares to the shareholders with the undistributed profit (475.2 million shares in total) and issue 5 additional share for each 10 shares to the shareholders with the capital reserve (475.2 million shares in total) based on the total of million shares, which increased the share capital by million shares aggregately. The Company finished the procedures of industry & commerce alteration registration on July 31, 2008, with registered capital of RMB billion after the alteration. 7) As approved in CSRC Permit [2008] No.1091, the Company issued 260 million ordinary shares (A share) by means of non-public offering of stocks to 8 specific investors including China National Offshore Oil Corporation. After the raised funds were in place, the Company handled the procedures for A Share registration and restrictions on sales of the shares in China Securities Depository and Clearing Co., Ltd. Shanghai Branch on December 29, 2008, and completed the registration of alteration on industry and commerce on February 16, The registered capital of the Company after the alteration is RMB billion. 8) The Company approved the 2008 Profit Distribution Plan at the shareholders meeting in 2008, deciding to distribute share dividends of 1 shares for each 10 shares to the shareholders with the undistributed profit ( million shares in total) and issue 4 additional share for each 10 shares to the shareholders with the capital reserve ( million shares in total) based on the total of 2,160.8 million shares, which increased the share capital by 1,080.4 million shares aggregately. The Company finished the procedures of industry & commerce alteration registration on December 31, 2009, with registered capital of RMB billion after the alteration. 9) The Company approved the 2009 Plan of Increasing Share Capital with Reserves at the shareholders meeting in 2009, deciding to issue 2 additional share for each 10 shares to the shareholders with the capital reserve ( million shares in total) based on the total of 3, million shares, which increased the share capital by million shares aggregately. The registered capital of Company is RMB three point eight billion and eighty-nine point forty-four million yuan after the alteration. 10) As approved in CSRC Permit [2013] No.1180, the Company issued 531,914,800 ordinary shares (A share) by means of non-public offering of stocks to 6 specific investors including China National Offshore Oil Corporation. After the raised funds were in place, the Company handled the procedures for A Share registration and restrictions on sales of the shares in China Securities Depository and Clearing Co., Ltd. Shanghai Branch on October 9, 2013, and completed the registration of alteration on industry and commerce on October 14, The registered capital of the Company is RMB billion after alteration. (5) Equity Change to the Initiators 1) On September 28, 2003, by means of agreement without payment, the actual controller of the Company CNOOC (Group) Co., Ltd was transferred with shares totaling 159,233,800 shares held by CNOOC Platform Construction Company, CNOOC Offshore Engineering Company and COODEC, which accounted for 57.91% of shares of the Company at that time. CNOOC (Group) Co., Ltd became the first majority shareholder of the Company. The formality of share transfer was gone through on February 13, The 3 sponsors CNOOC Platform Manufacturing Company, CNOOC Offshore Engineering Company and COODEC no longer held the Company's shares. 2) According to the non-tradable share reform plan approved by the Official Replies to Relevant Issues of nontradable Share Reform of Offshore Oil Engineering Co., Ltd. (G.Z.Ch.Q.[2006] No.2) issued by the State-owned Assets Supervision and Administration Commission of the State Council and approved at the shareholders meeting on non-tradable share reform held on January 16, 2006, holders of non-tradable shares of the Company should pay a consideration of 2.4 shares for each 10 shares to the holders of tradable shares registered Financial Report 105

108 with Shanghai Branch of China Securities Depository and Clearing Corporation Limited as of January 20, 2006, involving total payment of 30,412,800 shares by the holders of non-tradable shares. After the consideration was paid, CNOOC (Group) Co., Ltd, CNOOC Bohai Co., Ltd. and CNOOC Nanhai West Co., Ltd., holders of nontradable shares of the Company, held 203,399,600 shares, 1,414,800 shares and 34,052,800 shares respectively in the Company, representing a ratio of 51.36%, 0.36% and 8.60% respectively. On the first trading day after the non-tradable share reform was executed, all non-tradable shares held by the holders of the Company obtained the rights of circulation. 3) As approved in CSRC Permit [2008] No.1091, the Company issued 260 million ordinary shares (A share) by means of non-public offering of stocks to 8 specific investors including CNOOC (Group) Co., Ltd. After the raised funds were in place, the Company handled the procedures for A Share registration and restrictions on sales of the shares in China Securities Depository and Clearing Co., Ltd. on December 29, After the private placement this time, CNOOC (Group) Co., Ltd, CNOOC Nanhai West Co., Ltd. and CNOOC Bohai Co., Ltd. held 1,054,318,252 shares, 163,453,282 shares and 6,791,026 shares respectively, accounting for 48.79%, 7.56% and 0.32% respectively. 4) As approved in CSRC Permit [2013] No.1180, the Company issued 531,914,800 ordinary shares (A share) by means of non-public offering of stocks to 6 specific investors including CNOOC (Group) Co., Ltd. After the raised funds were in place, the Company handled the procedures for A Share registration and restrictions on sales of the shares in China Securities Depository and Clearing Co., Ltd. on October 9, After the private placement this time, CNOOC, CNOOC Nanhai West Co., Ltd. and CNOOC Bohai Co., Ltd. held 2,270,113,454 shares, 294,215,908 shares and 12,223,847 shares respectively, accounting for 51.34%, 6.65% and 0.28% respectively. 5) In 2015, the controlling shareholder CNOOC and persons acting in concert - CNOOC Finance Co., Ltd. purchased 856,100 shares and 1,571,800 shares of the Company during July 9, 2015 and August 25, 2015 respectively on trading system of SSE. After buy-ins, CNOOC and CNOOC Finance Co., Ltd. held 2,270,969,554 shares and 1,571,800 shares respectively, accounting for 51.36% and 0.04% respectively. The parent company and the actual controller of the Company is CNOOC (Group) Co., Ltd.. The financial statement was approved and reported by the Board of Directors of the Company on March 27, Consolidated financial statement scope As of December 31, 2017, subsidiaries within the consolidated financial statement scope of the Company are listed as follows: Subsidiary name A.E.S. Destructive & Non-destructive Testing Ltd. Offshore Oil Engineering (Qingdao) Co., Ltd. COOEC Subsea Technology Co., Ltd. COOEC (Indonesia) Co., Ltd. COOEC (Nigeria) Co., Ltd. COOEC International Co., Ltd. COOEC International Engineering Co., Ltd. Bluocean Technology Inspection Co., Ltd. Offshore Oil Engineering (Zhuhai) Co., Ltd. COOEC NIGERIA FZE Gaotai Deep-sea Technologies Co., Ltd. Beijing Gaotai Deep-sea Technologies Co., Ltd. COOEC Canada Co., Ltd. Offshore International Engineering (Thailand) Co., Ltd. Note: Gaotai Deep Sea Technology Co., Ltd. (Originally named COTEC) For details about the consolidated financial statement scope and changes, see Note VIII Consolidated Financial Statement Scope Change and IX Other Subject Interests. 106 COOEC / ANNUAL REPORT 2017

109 IV. Basis for Preparing Financial Statement 1. Preparation basis Based on constant operation, according to the actual occurred transactions and events, financial statements are prepared with reference to Accounting Standards for Business Enterprises - Basic Standards issued by the Ministry of Finance, specific accounting standards, accounting standard for business enterprises application guide and interpretations, and other relevant provisions (hereinafter referred to as Accounting Standards for Business Enterprises), and Disclosure of Corporate Information Disclosure Rules No General Provisions on Financial Reporting issued by China Securities Regulatory Commission. 2. Constant operation Since the end of the report period, the Group has had constant operation ability for at least 12 months, with no major event affecting the ability. V. Significant Accounting Policy and Accounting Estimate Notes to accounting policies and accounting estimate: 1. Statement of obeying the enterprise accounting standards The financial statements prepared by the Group was compliant with the requirements of Accounting Standards for Business Enterprises, which truly and completely reflected the Company s financial status, operating results, change in the shareholder s equity, cash flow and other related information. 2. Accounting period The Company s fiscal year is from January 1 to December Operating cycle The operating cycle of the Group is 12 months. 4. Recording currency The Company adopts RMB as the recording currency. The Company and its domestic subsidiaries, COOEC Subsea Technology Co., Ltd., Offshore Oil Engineering (Qingdao) Co., Ltd., COOEC International Engineering Co., Ltd., Offshore Oil Engineering (Zhuhai) Co., Ltd. and Beijing Gaotai Deep-sea Technology Co., Ltd. all adopt RMB as recording currency. USD is the recording currency of the Company's overseas subsidiaries, Offshore International Engineering Co., Ltd., COOEC (Indonesia) Co., Ltd., COOEC (Nigeria) Co., Ltd., COOEC Nigeria FZE, Blue Sea International and controlled company Gaotai Deep Sea Technology Co., Ltd. (originally named as Ketai Co., Ltd.). A.E.S. Destructive and Non-destructive Testing Limited adopts Hong Kong dollar as recording currency. COOEC (Canada) Co., Ltd. adopts Canadian dollar as recording currency. Offshore International Engineering (Thailand) Co., Ltd. adopts Thai baht as recording currency. 5. Accounting Treatment for Mergers under the Same or Different Control Consolidation under the same control: assets and debts obtained by the Company in consolidation, is accounted in book value in the consolidated financial statement of the final controller based on the assets and debts of the consolidated party on the consolidation date. For the difference between the book value of the net assets gained from consolidation and the paid consolidation reconciliation book value (or total book value of the issued share), the capital stock premium in the capital reserve is adjusted; if the capital stock premium in the capital reserve is insufficient to charge off, the retained earnings are adjusted. Combination of enterprises under different controls: the Group shall, on the acquisition date, measure the assets given and liabilities incurred or assumed by an enterprise for a business combination in light of their fair values, and shall account the balances between air value and book value into the profits and losses at current period. The Group Financial Report 107

110 recognizes the difference of the merger cost more than the fair value of the net identifiable assets gained by the acquiree in merger as the goodwill. The difference of the merger cost lower than the fair value of the net identifiable assets gained by the acquiree in merger is accounted into the current profit or loss after re-checking. Intermediary expense of audit, legal, and evaluation consultation services and other directly related expense generated during the consolidation are accounted into the current profit and loss. Transaction expenses of equity securities for consolidation offset equity. 6. Preparation method for consolidated financial statements Consolidation scope The consolidation scope of the consolidated financial statement for the Group is defined based on control scope. The statement covers all subsidiaries, including divisible parts of the investee controlled by the Group. Consolidation procedure The Company prepares the financial statement based on the subsidiary and its financial statements, with reference to other related materials. The Group s financial statement considers the Group as an accounting entity, indicates the Group s financial situation, business performance, and cash flow based on requirements of accounting standards confirmation, measurement, and presentation as well as the unified accounting policies. The accounting policies and the accounting period adopted by the subsidiaries included in the consolidation scope of the consolidated financial statements are consistent with that of the Company. If the accounting policies and the accounting period adopted by the subsidiaries are inconsistent with that of the Company, necessary adjustment is made as per the Company s accounting policies and the accounting period in preparation of the consolidated financial statements. As to the subsidiaries acquired through consolidation under different control, their financial statements are adjusted based on the fair value of the net identifiable assets on the date of acquisition. For the subsidiaries from consolidation under the same control, adjust the financial statement based on the book value of the assets and debts (including goodwill generated from acquisition of the subsidiary by the final control party) in the financial statement of the final control party. Shares of minority shareholders in the ownership interest, current net profits and losses and comprehensive income are respectively listed under the ownership interest item in the consolidated balance sheet and net profit item in the consolidated profit statement. Should the current profit or loss shared by the minority shareholders of the subsidiary exceed the balance of the beginning owner s equity vested in the minority shareholders of this subsidiary, the equity of the minority shareholders is offset. (1) Expanding subsidiaries or businesses During report period, in case of expanding subsidiaries due to consolidation under the same control, the beginning balance of the consolidated balance sheet is adjusted. The income, expenses and profits of the subsidiary from the beginning of the current consolidation period to the end of report period are included in the consolidated profit statement. The cash flow of the subsidiary from the beginning of the current consolidation period to the end of report period is included in the consolidated cash flow statement. Meanwhile, the relevant items of compared statements are adjusted as if the reporting main body after consolidation has come into being all the time from the start control point of the final control party. Where the investees under the same control can be controlled due to additional investment and the like, all parties involved in consolidation are deemed to adjust the present status before the final controller starting control. Profits and losses from equity investment held before the consolidated parties being controlled, from acquiring original equity date (or the date when the consolidating party and the consolidated party are under the same control, whichever is the later) to the consolidation date, and other comprehensive profits and the net profit change offset the original retained earnings or the current profit and loss during the financial statement comparison date. During report period, in case of expanding subsidiaries or business due to consolidation under the same control, the beginning balance of the consolidated balance sheet is not adjusted. The income, expenses and profits of the subsidiary from the beginning of the current consolidation period to the end of report period are included in the consolidated profit statement. The cash flow of the subsidiary from the beginning of the current consolidation to the end of report period is included in the consolidated cash flow statement. If the Group can control the enterprises under the non-the-same control due to additional investment, the Group will re-measure the equity owned by the acquiree prior to the date of acquisition at the fair value of such equity on the date of acquisition. The difference between the fair value and its book value is accounted into the current investment income. Where acquiree equity held before the acquisition date involves other comprehensive profits calculated with the equity method, and other owner s equity change except net profits and losses, other comprehensive income and 108 COOEC / ANNUAL REPORT 2017

111 allocation profits, other related comprehensive income and profits from equity change are transferred to the current investment profits at the acquisition date, except for other comprehensive profits generated from re-measurement of net liabilities or net assets of defined benefit plans by investee. (2) Processing subsidiaries or businesses 1 General disposal method During report period, when the Company disposes the subsidiary or business, then the income, expenses and profits of this subsidiary or business from the beginning of period to the date of disposal are included in the consolidated profit statement, and the cash flow of this subsidiary from the beginning of period to the date of disposal is included in the consolidated cash flow statement. When the Group loses the control over the investee due to disposal of part of equity investment or other reasons, the Group will re-measure the remaining equity investment after disposal at the fair value on the date when the Group loses its control power over the investee. The balance between the sum of consideration generated from equity disposal and the fair value of the remaining equity and the sum of net assets share and goodwill of the original subsidiary enjoyed based on original stake ratio from the purchase or consolidation date is accounted into the investment income of current period when the control power is lost. Other comprehensive income related to the equity investment of the original subsidiary or other owner s equity changes except for net profit or loss, other comprehensive profits, and profit distribution are transferred to the current investment income when losing the control power, except for other comprehensive profits generated from re-measurement of net liabilities or net assets of defined benefit plans by investee. If the Company loses control because of the Company shareholding reduces due to investee s additional investment to subsidiaries, the accounting will be subject to above rules. 2 Disposing of subsidiaries by steps Where subsidiary equity investment is disposed in steps through multiple transactions until losing control, if the clauses, conditions and economic impact of all transactions involving subsidiary equity investment disposal conform to one or several of the following conditions, multiple transactions are treated as package deal for accounting treatment: i. These transactions are made simultaneously or under the consideration of mutual influence; ii. All these transactions can achieve an overall commercial result; iii. The occurrence of a transaction is based on the occurrence of at least one of other transactions; iv. A single transaction is regarded as uneconomic, while being economic when being regarded along with other transactions. Where subsidiary equity investment is disposed in steps through multiple transactions until losing control, and multiple transactions are treated as package deal for accounting treatment, the Company would implement accounting treatment, regarding such multiple transactions as one transaction; however, the difference of net asset share balance of the subsidiary enjoyed corresponding to the disposal price and investment for each transaction before loss of control is recognized as the other comprehensive incomes in the consolidated financial statement, and it is transferred to the current profits and losses when the control power is lost. Where subsidiary equity investment is disposed of through multiple transactions until losing control, and multiple transactions are not treated as package deal, accounting is subject to methods for disposing of subsidiary investment as not-lose-control before losing the control. If the Company loses the control, accounting is subject to general accounting methods. (3) Purchasing minor equity from subsidiaries According to the difference between the long-term equities after purchasing minor equity from subsidiaries, and the net assets shares from purchasing date (consolidation date) based on the new shareholding ratio, adjust share premium of capital reserve in the asset balance sheet. If the share premium of capital reserve is insufficient to offset, adjust the retained earnings. (4) Partially disposing subsidiary equity investment without losing control For the balance between disposal price and net asset shares of continuous calculation of the subsidiary generated from disposal of some long-term equity investment from the acquisition or consolidation date without losing control, adjust share premium of capital reserve in the consolidated asset balance sheet. If the share premium of capital reserve is insufficient to offset, adjust the retained earnings. Financial Report 109

112 7. Joint operation classification and joint operation accounting methods Joint operation means joint and cooperative venture. If the Group is the operating party of the joint venture and enjoys related assets and undertakes related liabilities, this mode is the joint operation. The Group acknowledges the following terms related to profit shares of the joint operation, and performs accounting based on related accounting standards: (1) The assets separately held by the Group and the assets jointly held based on the share ratio. (2) The liabilities separately undertook by the Group and the liabilities jointly undertook based on the share ratio. (3) Income from selling of the output share generated from joint operation; (4) Income from selling of the output share generated from joint operation based on the group share ratio; (5) Separately incurred expanse and the expanse generated from joint operation based on the group share ratio. 8. Standard-setting for cash and cash equivalent Cash equivalent refers to the investment held by enterprises, which features short-term (due in 3 months since the purchase date), strong floating, prone to convert to known amounts of cash and little risk on change of value. In preparation of the cash flow statement, the Group identifies its cash at hand and bank deposits readily available for use as the cash. The cash equivalent refers to the investment with short term (generally due within 3 months from the date of purchase), strong flowability and small value change risk, and readily convertible into cash. 9. Foreign currency transaction and conversion of foreign currency statement Foreign currency transaction The foreign currency amount is converted into RMB at the exchange rate released by People s Bank of China on the last workday of last month of the transaction date of foreign currency transaction. On balance sheet date, the balances of foreign currency monetary items are translated at the spot exchange rate intraday, and exchange differences arising thereof, except for exchange differences related to the acquisition, construction, and other eligible assets for capitalization, are accounted in current loss or profit. Conversion of foreign currency financial statement The assets and liabilities in the balance sheets shall be converted at a spot exchange rate on the balance sheet date. In the owner s equity items, except the ones as undistributed profits, others shall be converted at the spot exchange rate at the date of incurring. The income and expenses as stated in the profit statement are converted at the spot exchange rate at the date of incurring. When disposing the oversea operation, the translation balance of foreign currency financial statement related to the overseas operation is converted from owner s equity to the current disposal profits and losses. 10. Financial instruments Financial instruments include financial assets, financial liabilities and equity instruments. (1) Classification of financial instruments Financial assets and debts are divided into the following categories when they are initially confirmed: the financial assets or the financial liabilities that are measured at the fair value and of which changes are accounted into the current profit or loss, including transactional financial assets or financial liabilities (and financial assets or financial liabilities that are directly measured at the fair value as specified and of which changes are accounted into the current profit or loss), held-to-maturity investment, accounts receivable, available-for-sale financial assets and other financial liabilities, etc. (2) Recognition basis and measurement method of financial instruments 1) Financial assets (financial liabilities) that are measured at the fair value and of which changes are accounted into the current profit or loss The relevant transaction expenses are accounted into the current profit or loss at the fair value as the initially 110 COOEC / ANNUAL REPORT 2017

113 recognized amount in acquisition (deducting the cash dividends that have been announced but have not been released or the bond interest that has been due but has not been received). The interest and cash dividends generated during holding period are regarded as the investment income, and fair value change is included in the current profits and losses at end of period. In the process of disposal, the difference between its fair value and initially recorded amount is confirmed as profit and loss on investment, with profit and loss of fair value adjusted. 2) Held-to-maturity investment The sum of the fair value (deducting the bond interest that has been due but has not been received) and the relevant transaction expenses in acquisition are regarded as the initially recognized amount. Confirm the interest income based on the amortized cost and the actual interest rate during the holding time and account it into the investment profit. The actual interest rate is recognized in acquisition, and remains unchanged during this anticipated duration or the shorter applicable term. In disposal, the balance between the gained funds and the book value of the investment is accounted into the investment income. 3) Accounts receivable Receivable rights gained from goods sale or labor service provision, receivable rights of the debt instrument excluding those quoted instruments in the active market, including receivables and other accounts due are recognized as the initially recognized amount based on contact or agreement price paid to the buyer. The financial receivables are initially recognized based on the present value. When the accounts receivable are paid back or disposed, the difference between the obtained amount and the book value of the accounts receivable shall be accounted in the current losses and profits. 4) Available-for-sale financial assets The sum of the fair value (deducting cash dividends that have been announced but have not been released yet and the bond interest that has been due but has not been received) and the relevant transaction expenses are recognized as the initially recognized amount in acquisition. During the holding period, the gained interests or the cash dividends are recognized as the investment income. Financial assets measured at the fair value and the changes to the fair value are accounted into other comprehensive income. The equity instrument investments for which there is no quotation in the active market and whose fair value cannot be measured reliably, and the derivative financial assets which are connected with the said equity instrument and must be settled by delivering the said equity instrument shall be measured on the basis of their costs. In disposal, the balance between the gained funds and the book value of these financial assets is accounted into the investment profit or loss. Meanwhile, the disposal amount corresponding to the accumulated fair value change amount that is directly accounted into the other comprehensive profits is transferred out and accounted into the current profit and loss. 5) Other financial liabilities The sum of its fair value and the relevant transaction expenses is regarded as the initially recognized amount. Cost after amortization is used for subsequent measurement. (3) Recognition basis and measurement methods for financial asset transfer In case of financial assets transfer of the Group, if almost all risks and remuneration in the ownership of the financial assets have been transferred to the transferee, recognition of the financial assets shall be terminated; if almost all risks and remuneration in the ownership of the financial assets have been kept, the determination of the financial assets shall not be terminated. In judgment whether the transfer of the financial assets meets the above-mentioned recognition termination conditions of financial assets, the principle of substance surpassing form is adopted. The Group divides financial asset transfer into overall and partial financial asset transfer. If the overall transfer meets the recognition termination conditions, the difference between the following two amounts will be accounted into the current profit or loss: 1) Book value of the transferred financial assets; 2) The sum of the consideration received due to the transfer and the accumulated amount of changes in the fair value which is initially accounted in the owners equity (in case the financial asset related to the transfer is the financial asset available for selling) Financial Report 111

114 In case the partial transfer of the financial asset meets the recognition termination conditions, the entire book value of the transferred financial asset shall be respectively amortized at the relative fair values of the part whose recognition is terminated and the part whose recognition is not terminated, and the difference between the following two items shall be accounted into current profit and loss: 1) The book value of the part whose recognition is terminated; 2) The sum of consideration of the part whose recognition is terminated, and the part whose recognition is terminated, which is corresponding to accumulative amount of changes in the fair value originally accounted in the owner s equities (in the event that the financial asset involved in the transfer is a financial asset available for sale). If the transfer of the financial assets does not meet the recognition termination conditions, such financial assets will continue being recognized, and the received consideration will be recognized as a financial liability. (4) Conditions on recognition termination of financial liabilities If the current obligations of the financial liabilities have been relieved in whole or part, then recognition of such financial liabilities or part thereof is terminated. If the Group has signed an agreement with the creditor, the existing financial liabilities are substituted with new financial liabilities. If the new financial liabilities are substantially inconsistent with the contract terms and conditions of the existing financial liabilities, then recognition on the existing financial liabilities is terminated. Meanwhile, the new financial liabilities are recognized. If the contract terms and conditions of the existing financial liabilities are modified in whole or part substantially, the recognition of the existing financial liabilities or a part thereof is terminated. Meanwhile, the financial liabilities after the modification of the terms and conditions are recognized as a new financial liability. When recognition of the financial liabilities is terminated in whole or part, the difference between the book value of the financial liabilities for which the recognition is terminated and the payment consideration (including the transferred non-cash assets or the borne new financial liabilities) is accounted into the current profit or loss. If the Group repurchases part of the financial liabilities, the entire book value of such financial liabilities will be allocated at the relative fair value between the liabilities for which recognition continues and the liabilities for which recognition is terminated on the date of repurchase. The difference between the book value which is distributed to the part whose recognition is terminated and the considerations paid (including the non-cash assets it has transferred out and the new financial liabilities it has assumed) is accounted into current profits and losses. 5) Recognition methods for fair value of financial assets and financial liabilities The fair value of financial instruments having active market is determined by its quoted price. Valuation techniques are adopted to determine the fair values of financial instruments having no active market. During valuation, the Group uses valuation technique with enough available data and other information support, which is applicable to the current situation, selects the input values with consistent characteristics of assets and liabilities concerned by the participants in the asset or liabilities transaction, and uses observable input values preferably. The unobservable input values can be used only when the observable input values are unavailable or impractical. (6) Test method and accounting method of financial asset (excluding receivables) impairment Except for the financial assets that are measured at the fair value and of which the changes are accounted into the current profit or loss, the Group will check the book value of the financial assets on the balance sheet date. If objective evidences indicate that some financial assets are depreciated, the impairment reserves will be calculated and withdrawn. For equity instrument available for sale of the Group, the fair value which is verified based on the closing price of the equity instrument and shareholding on December 31 shows a decrease of or exceeding over 50% compared with the fair value of the equity instrument at purchasing plus the cost verified for transaction fees; or if the continuous declining time up to balance sheet date has reached or exceeded 12 months, the Group would confirm the cumulative withdrawable impairment reserves according to the difference between cost and year-end fair value. 1) Impairment reserve for available-for-sale financial assets: If the fair value of the available-for-sale financial assets drops considerably at end of period, or such downtrend is expected not so temporary according to comprehensive consideration of various relevant factors, then it holds that impairment has incurred. The accumulated losses formed under the drop of the original fair value that is directly accounted into the owner s equity are transferred out together, and is recognized as impairment losses. If the fair value of available-for-sale debt instruments which has been confirmed as impaired, rises in the subsequent accounting period, and is objectively related to the matters occurring after initial impairment 112 COOEC / ANNUAL REPORT 2017

115 recognition, the original recognized impairment loss is transferred out and accounted into current profits and losses. The impairment losses of available-for-sale equity instruments investment should not be turned back through profits and losses. 2) Depreciation reserves for held-to-maturity investment: The impairment loss of held-to-maturity investment shall be measured by reference to that of receivables. 11. Accounts receivable (1) Receivables with significant single amount and independent provision for bad debts Judgment basis or amount standard for significant single amount Withdrawal methods with significant single amount and separate withdrawal of bad debt reserves A receivable with single amount more than RMB 10 million is an important receivable. Provision for bad debts according to the difference of future cash flow less than book value. (2) Receivables with consolidated provision for bad debts based on credit risk characteristics Other provision method with combined provision for bad debt reserves according to the credit risk characteristics (accounting age analysis method, percentage balance method, and other methods). Accounting age combination Provision for bad debts with accounting age analysis method Related party combination No provision for bad debts Imprest fund and deposit combination No provision for bad debts In the combination, the accounting age analysis method is used to calculate and withdraw the bad debt reserves: Accounting age Calculation and withdrawal ratio of receivables (%) Calculation and withdrawal ratio of other receivables (%) Within 1 year (including 1 year) years years Above 3 years In the combination, the accounts receivable with provision for bad debt reserves by percentage balance method In the combination, the bad debt reserve is calculated and withdrawn with the other methods (3) Receivables with less significant single amount and independent provision for bad debts Reasons of provision for individual bad debts The method for calculating and withdrawing for bad debts reserves Receivables whose individual amount is not significant and the provision for bad debts by combination cannot reflect its risk characteristics Provision for bad debts according to the difference of future cash flow less than book value. Financial Report 113

116 12. Inventory (1) Classification of inventories The inventories of the Group involve materials preparation and engineering constructions that have terminated but not settled. Project construction reflects the cumulative incurred cost of the contract under construction and the debit balance between the cumulative verified gross profit and cumulative settled amount. (If there is credit balance, show it in accounts received in advance to reflect the amount of the project with progress unfinished and settlement handled). (2) Valuation method on delivery of inventories The weighted average method is used when issuing the inventory. (3) Determination basis for net realizable value of different inventories For the finished, merchandise inventories, materials for sale, and other inventories of merchandise that can be sold directly, the net realizable value is determined by subtracting the estimated selling expenses and related expenses of taxation from the estimated sale price during normal production process; for the materials that need processing, the net realizable value is determined by subtracting the cost going to occur at the time of completion, estimated selling expenses and related expenses of taxation from the estimated sale price of finished being produced during normal production process; for the inventories held for the execution of sales contract or labor contract, the net realizable value is calculated on the basis of contract value, and if the quantity of inventories is more than the ordered quantity of sales contract, the net realizable value of surplus part is calculated on the basis of general sale price. The inventory falling price reserves are calculated and withdrawn based on single inventory item at end of period: for the inventories of many quantities and lower unit price, the inventory falling price reserves are calculated and withdrawn based on the category of the inventories; for inventories that are related to the product series produced and sold in the same area, of the same or similar ultimate usage or purpose and hard to be measured separately from other items, the inventory falling price reserves are calculated and withdrawn in the form of combination. The net realizable value of the inventory is confirmed based on market price on the date of the balance sheet except for clear evidence showing the market price exceptions on the date of the balance sheet. The net realizable value of the inventory is confirmed based on market price on the date of the balance sheet. (4) Inventory system The perpetual inventory system shall be adopted. (5) Amortization of low-value consumables and packing materials 1) Low-value and easily-worn articles are amortized with one-time amortization method. 2) Packages are amortized with one-time amortization method. 13. Assets held for sale Non-current assets or disposal groups meeting the following requirements at the same time are regarded as availablefor-sale by the Group. (1) According to the practice in the similar transaction selling this such assets or disposal groups, it can be immediately sold out under the present situation. (2) Selling is rather likely to happen, that is, the Group has made resolution on one selling plan with ascertained purchase commitment, and the selling is to be finished in one year. Those that can be sold after approval of relevant authority of the Group or supervision department have been approved. 14. Long-term equity investment (1) Judgment basis on joint control and significant impact Joint control refers to the joint control over certain arrangement based on relevant agreement. Decisions on the activities of the arrangement can be made only when the parties sharing control agree. Where the Group and other parties jointly control and have right over the investee, such investee is a joint venture of the Group. 114 COOEC / ANNUAL REPORT 2017

117 Significant influence refers that the Group has the right to make decision about the finance and business policy of one enterprise but cannot control the formulation of policies separately or with other parties. Where the Group is able to have significant influences on an investee, the investee shall be associated venture of the Group. (2) Determination of initial investment cost 1) Long-term equity investment formed under consolidation Consolidation under the same control: if the Company regards payment of cash, transfer of non-cash assets or assuming of debts and issuance of equity securities as the consolidation consideration, the book value of owner s equity of the consolidated party in the consolidated financial statements of final control side on the consolidation date is regarded as the initial investment cost of the long-term equity investment. Where the investee under the same control can be controlled due to additional investment, original investment cost of long-term equity investment is measured based on the consolidated party s net asset share ratio in book value in the consolidated financial statement of the final control party. Adjust the share premium based on the balance between the original investment cost of long-term equity investment on the consolidation date and the sum of long-term equity investment book value before consolidation date and the compensatory payment rate book value of newly gained shares at the consolidation date. If the share premium is insufficient to offset, offset the retained earnings. Corporate consolidation under non-the-same control: the consolidation cost determined by the Company on the date of acquisition is regarded as the initial investment cost of the long-term equity investment. Where the investee under the same control can be controlled due to additional investment, the sum of original book value of holding shares and the newly added investment cost is recognized as the original investment cost measured with cost method. 2) Long-term equity investment gained in other forms For the long-term equity investment gained in the form of payment in cash, the acquisition price paid actually is regarded as the initial investment cost. For the long-term equity investment gained in the form of issuance of equity securities, the fair value of the issued equity securities is regarded as the initial investment cost. Provided that the non-monetary assets swap is of commercial essence and the fair value of the swap-in assets or the swap-out assets can be measured reliably, the initial investment cost of the swap-in long-term equity investment with the non-monetary assets is determined based on the fair value of the swap-out assets, unless otherwise there is unambiguous evidence showing that the fair value of the swap-in assets is more reliable. For the non-monetary assets swap that does not meet the above-mentioned conditions, the book value of the swapout assets and the relevant payable taxes are regarded as the initial investment cost of the swap-in long-term equity investment. For long-term equity investment gained through debt restructuring, its initial investment cost is determined based on the fair value. (3) Subsequent measurement and profit and loss recognition method 1) Investment of long-term equity measured with cost method The cost method is used by the Company to calculate the long-term equity investment of its subsidiaries. The Company recognizes the current investment income based on the cash dividends or profits that the Company is entitled to and that are announced to be released by the investee, except for the price actually paid in acquisition of investment, or the consideration that are included in the cash dividends or profits that has been announced but have not been released. 2) Long-term equity investment accounted with equity method The equity method is used to calculate the long-term equity investment of associated and joint ventures. Recognizing the difference that initial investment cost exceeds the identifiable net assets fair value share of invested entity, adjustment for initial investment cost of long-term equity investment is not required; acquired in the combination as good will; account the difference into current profits and losses recognizing the difference that initial investment cost is less than the identifiable net assets fair value share of invested entity. The Company measures the net profit or loss and other comprehensive income based on the ratio of the net profit or loss and other comprehensive income fulfilled by the investee that is to be enjoyed or shared, and adjust book value of long-term equity investment. The Company calculates the deserved part based on the profits and cash announced by the investee, and reduce the book value of long-term equity investment. For change of the owner s equity except for net profit and loss, other comprehensive profits and profit distribution, adjust book Financial Report 115

118 value of long-term equity investment and include the value in the owner s equity. Upon recognition of the share of net profits and losses of the investee, based on the fair value of identifiable assets of the investee when obtaining the investment, recognize the adjusted net profit of the investee in accordance with the Company s accounting policies and accounting periods. During period of holding investment, where consolidated financial statement is prepared by the investee, calculate based on the net profit in the statement, other comprehensive profit, and the amount attributable to the investee due to owner s equity change. Offset the unrealized gains or losses of the internal transaction between the Company, associated and cooperative ventures and the part belongs to the Company based on enjoyed ratio, and recognizes the investment profit on this basis. Losses generated from the unrealized internal transaction with the investee are impairment loss and fully recognized by the Company. Where asset sale transaction occurs between the Group and associated and joint ventures, and such assets forms a business, accounting is subject to methods revealed in III (V) Accounting Treatment for the Combination of Enterprises under Same/Different Control and III (VI) Preparation Method of the Consolidated Financial Statement. When the Group is required to share loss occurred in investee, treatment shall be conducted in following order: first, offset against the book value of the long-term equity investment correspondingly. Moreover, where the net loss from the investment in investee is reorganized to the extent that the book value of the long-term equity investment and other long-term interest in substance in the investee are written down till nil, offset book account of long-term receivables. Last, after above treatment, where the Company still takes other obligations as agreed in investment contract or agreement, contingent liabilities shall be recognized and included into current investment loss based on the estimated obligations to assume. 3) Disposal of long-term equity investment During disposal of long-term equity investments, the difference between book value and the actual price is accounted into current profits and losses. For the long-term equity investment accounted with the equity method, dispose the investment on the same basis as that of directly disposing the related assets or liabilities of the investee, and implement accounting treatment on the part originally accounted into the other comprehensive profits based on the corresponding ratio. The owner s equity recognized from change of other owner s equity other than net profit and loss, other comprehensive profit, and profit distribution by the investee are transferred to the current profit and loss based the ratio, excluding other comprehensive profit generated from change of planned net debt or assets due to the investee re-measurement of the set profits. In case of losing joint control over or significant impact on the investee due to disposal of partial equity investment, the remaining equity after disposing is recognized and measured by financial instrument. The balance between the fair value and book value when losing the joint control or significant impact occurred is accounted into the current profit and loss. The recognized comprehensive income accounted by equity method for the original equity investments is subject to accounting treatment for direct disposal of the relevant assets invested entity or basis of same liabilities at the time of termination using the equity method. All equities recognized due to other owner s equity change of the investee except for net gains and losses, other comprehensive income and profit distribution are transferred to the current gains and losses when the equity accounting method is terminated. If the Company loses control over the investee due to some equity investment and shareholding ratio decrease caused by other invest party increasing capital, in preparing individual financial statement, the remaining equity which can impose joint control or significant impact on the investee is calculated with equity method and is adjusted as it acquired. Otherwise, the remaining equity is recognized and measured with financial instruments and related specifications of measurement rules. The balance between the fair value and the book value when the control power is lost is accounted into the current profit and loss. If equity disposed is acquired through consolidation due to causes, such as additional investment, and the remaining equity is accounted using the cost or equity method when preparing individual financial statement, other comprehensive profits and owner s equity confirmed from equity investment using the equity method before the purchasing date are transferred proportionally. Remaining equity is recognized using the financial instrument and accounted using measurement standards, and other comprehensive profits and owner s equity are completely transferred. 15. Investment real estate (1) If to use the cost measurement model: Depreciation or Amortization methods 116 COOEC / ANNUAL REPORT 2017

119 For the investing real estate measured with cost method, the buildings used to rent is measured with the same depreciation policy as for the fixed assets of the Group, and the rented land use rights are measured with same amortization policy as for the intangible assets. 16. Fixed assets (1) Recognition conditions The fixed assets refer to tangible assets which are held for producing commodity, providing labor, lease or operation and management and whose useful life is more than a fiscal year. The fixed assets are to be confirmed when satisfying both the following conditions: 1) It is highly possible that the economic benefits related to the fixed assets flow into the enterprise: 2) Cost for the fixed assets can be reliably calculated. (2) Depreciation methods Category Depreciation method Depreciation period (year) Residual ratio (%) Annual depreciation rate House buildings Straight-line depreciation Machinery equipment Straight-line depreciation Transportation equipment Straight-line depreciation Electronic equipment Straight-line depreciation (3) Basis of recognition for fixed assets acquired under financial leases, valuation and depreciation methods Applicable Inapplicable If one of the following conditions listed in leasing agreement signed by the Group and the lessee is met, the asset involved is recognized as financing leased asset: 1) The leased asset is owned by the Group when the lease term expires; 2) The Group has the right of choice to purchase the assets, and the purchase price is much lower than fair value of the asset when the Group performs the right. 3) The leasing period occupies large part of service life of the leased asset. 4) There is no great difference between the present value of the minimum lease payment and the fair value of the asset on the leasing date. The Group sets the lower one between the fair value on the lease commencement day and the present value of the minimum lease payment as the entry value of leased assets, and regards the minimum lease payment as the entry value of the long-term payables. The difference thereof is recognized as the unacknowledged financial charges. 17. Construction in progress Necessary expenses generated before the project construction reaching the serviceable condition as preplanned are recognized as the entry value of the fixed assets. If the constructed fixed asset project has reached the serviceable condition as preplanned but final completion settlement has not been conducted, the project is transferred to the fixed asset at the estimated value based on the project budget, costs or the project actual cost from the project reaches the serviceable condition as preplanned, and the depreciation of the fixed asset is calculated and withdrawn as per the Group s depreciation policy for fixed assets. After the final completion settlement has been conducted, the temporarily original estimated value is adjusted based on the actual cost, but the calculated and withdrawn original depreciation amount is not adjusted. 18. Borrowing expenses (1) Recognition principle of borrowing cost capitalization The borrowing costs shall include interest on borrowings, amortization of discounts or premiums on borrowings, ancillary expenses, and exchange balance on foreign currency borrowings. Financial Report 117

120 Borrowing costs incurred by the Group that may be directly attributable to the acquisition or construction of assets eligible for capitalization or production, are capitalized and included in the cost of relevant assets; while other borrowing costs are recognized as expense and included into current profit or loss whenever occurred. The assets complying with the capitalization condition refer to the fixed assets, investment real estate, inventories and other assets which need quite a long time of purchasing or construction activities to reach use or sales status. Borrowing costs can be capitalized initially when the following conditions are met simultaneously: 1) The asset expenditure has been incurred, which includes the cash paid to purchase, construct or produce the assets in line with the capitalization conditions and expenditures incurred to transfer the non-monetary assets or bear the debts with interest; 2) The borrowing costs have been incurred; 3) Purchase, construction or production activities required for the assets to reach the anticipated usable state or salable state have begun. (2) Borrowing cost capitalization period Capitalization period refers to period from the beginning of borrowing cost capitalization to the cessation of capitalization, excluding period of suspension of capitalization of borrowing costs. When the acquired and constructed or produced assets eligible for capitalization reaches the intended usable or salable status, the capitalization of borrowing costs shall be terminated. Among the acquired and constructed or produced assets eligible for capitalization, when parts of the project were completed respectively and can be used separately, the capitalization of borrowing costs for such part of assets shall be terminated. If each portion of the purchased or produced assets is completed separately, but can be put into operation or sold only after the whole asset is completed, then capitalization of borrowing costs can be terminated only after the whole asset is completed. (3) Capitalization suspension period Asset eligible for capitalization conditions occurring in the acquisition, construction or production process is interrupted abnormally and the interruption lasts for more than three months, the capitalization of borrowing costs shall be suspended; if the interruption is the acquisition, construction or production conditions meeting the capitalization the asset for its intended use or sale necessary procedures, the borrowing costs continue to be capitalized. Borrowing costs incurred during current period shall be recognized as a gain or loss, until after the acquisition, construction or production of the asset re-start borrowing costs continue to be capitalized. (4) Calculation method of borrowing cost capitalization rate and amount As for special borrowing for the acquisition and construction or production of assets eligible for capitalization, the capitalization amount of interests shall be determined in light of the actual cost incurred of the specially borrowed loan at the present period minus the income of interests earned on the unused borrowing loans as a deposit in the bank or as a temporary investment. For general borrowings for the acquisition, construction or production of assets eligible for capitalization, weighted average of asset expenditure exceedance over special borrowings is multiplied by capitalization rate of occupied general borrowing, to obtain general borrowing cost to be capitalized. The capitalization rate is ascertained based on the weighted average interest rate of general borrowings. 19. Intangible assets (1) Valuation method, service life, and impairment test Valuation method for intangible assets 1) Intangible assets are measured initially based on cost when the Company gains the intangible assets. The cost of outsourcing intangible assets includes the purchase price, relevant taxes and other necessary expenditures directly attributable to intangible assets for the expected purpose. If the price to purchase the intangible assets is postponed to pay beyond normal credit conditions and of financing nature substantially, the cost of the intangible asset is determined based on the current value of the purchase price. For the intangible assets acquired from debt restructuring, which are used by the debtor to pay a debt, the entry value will be determined at fair value of these intangible assets. The difference between the book value of the 118 COOEC / ANNUAL REPORT 2017

121 debt to be restructured and the fair value of the intangible assets that are used to pay a debt shall be included into the current profits and losses. If the non-monetary assets swap is commercial in nature and the fair values of both the assets swap-in and swapout can be reliably measured, the fair value of the assets swap-out shall be the basis for the determination of the cost of the assets swap-in, unless there is any exact evidence showing that the fair value of the assets swap-in is more reliable; where a non-monetary assets swap cannot satisfy the above-mentioned conditions, the cost of the intangible assets swap-in shall be the result of the book value of the assets swap-out and relevant payable taxes, and no profit or loss may be recognized. 2) Subsequent measurement When acquiring the intangible assets, the service life of the intangible asset shall be analyzed and judged. Intangible assets with limited service life are amortized through straight-line method in the term bringing economic benefits for the enterprise. It is impossible to foresee that the intangible assets will bring economic benefits to the enterprise, so it is regarded as an intangible asset with uncertain service life, which is not going to be amortized. Service life estimate of intangible assets with limited service life Land use right of this Group is amortized averagely according to transfer term from transfer date. Software and other intangible assets of this Group according to expected use term. The shortest beneficial years provided by the contract and validity year stipulated by law among the three are amortized averagely by period. The amortized amount shall be included in relevant asset cost and the current profit and loss according to the beneficiaries. Judgment basis on intangible assets with uncertain service life and re-check procedures of service life Assets whose useful period for benefiting the Group cannot be foreseen by the Group, or assets whose service life is uncertain are recognized as the assets with uncertain service life. Judgment basis for assets with uncertain service life: 1) Service life depends on contract rights or other legal rights, or contracts or other legal provisions do not expressly define service life; 2) The duration of the assets to bring profits to the Company cannot be determined based on peer feedback and expert argumentation; At the end of each year, recheck the intangible assets with uncertain service life with from-bottom-to-top method. The relevant department who uses such intangible assets performs the basic recheck of the assets to determine whether to change the judgment basis for assets with uncertain service life. (2) Internal research and development expenditures accounting policies Specific standards for dividing of research and development stage The Group expenditures for research and development projects are divided into expenditures in research stage and expenditures in development stage. Research stage: a stage to carry out the creative and planed investigation and research activities in order to obtain and understand the new scientific or technological knowledge. Development stage: a stage to apply the research achievements or other knowledge in some plans or designs in order to produce new and substantially improved materials, devices, and prior to commercial production or use. Specific conditions for expenditure capitalization in development stage Expenditures for internal research and development projects at the development stage are recognized as intangible assets when the following conditions are met at the same time: 1) The intangible asset is completed, so that it is feasible technically to use or sell such intangible asset; 2) There is intention to finish and use or sell such intangible asset; 3) The ways of intangible assets to generate economic benefits include the ability to prove the existence of the market where there are the produced by the intangible assets or the existence of that of the intangible assets, and prove its usefulness if intangible assets will be used internally; 4) There are enough technical and financial resources and other resources support in order to finish the Financial Report 119

122 development of such intangible asset, and the Company is able to use or sell such intangible asset; 5) The expenditure attributable to the development stage of such intangible asset can be measured reliably. If the expenditures at the development stage do not meet the above-mentioned conditions, such expenditures are accounted into the current profit or loss at the time of when the expenditure occurs. Expenditures at the research stage are accounted into the current profit or loss at the time when the expenditure occurs. 20. Long-term asset impairment The Group will perform the impairment test when the impairment evidence exists on the long-term assets such as long-term equity investment, investment real estate measured with cost model, fixed assets, project under construction, intangible assets identified by expected service life on each balance sheet date. If impairment test result shows that recoverable amount of assets is lower than their book value, calculate and withdraw asset impairment reserves according to the difference between the recoverable amount and book value and include it in impairment loss. The recoverable amount is the higher one between the fair value of assets deducting the net value of asset disposal and present value of expected future cash flow. The impairment reserves of assets are calculated and recognized based on single asset, if it is difficult to estimate the recoverable amount of single asset, determine recoverable amount of asset group to which the single asset belongs. Asset group is the minimum asset portfolio that can independently produces cash inflow. As for the intangible assets with uncertain goodwill and service life, the impairment test shall be conducted at the end of each year at least. When the Company makes an impairment test of assets, it shall, as of the purchasing day, apportion the book value of the business reputation formed by consolidation to the relevant asset groups with a reasonable method. Where it is difficult to do so, it shall be apportioned to the relevant combination of asset groups. When apportioning the book value of the business reputation to the relevant asset groups or combination of asset groups, it shall be apportioned on the basis of the proportion of the fair value of each asset group or combination of asset groups to the total fair value of the relevant asset groups or combination of asset groups. Where it is difficult to measure the fair value reliably, it shall be apportioned on the basis of the proportion of the book value of each asset group or combination of asset groups to the total book value of the relevant asset groups or combination of asset groups. When making an impairment test on the relevant asset groups or combination of asset groups containing business reputation, if any evidence shows that the impairment of asset groups or combination of asset groups is possible, the enterprise shall first make an impairment test on the asset groups or combination of asset groups not containing business reputation, calculate the recoverable amount, compare it with the relevant book value and recognize the corresponding impairment loss. Then the Group shall make an impairment test of the asset groups or combination of asset groups containing business reputation, and compare the book value of these asset groups or combination of asset groups (including the book value of the business reputation apportioned thereto) with the recoverable amount. Where the recoverable amount of the relevant assets or combination of the asset groups is lower than the book value thereof, it shall recognize the impairment loss of the business reputation. Once recognized, the above-mentioned assets will not be transferred back in later accounting period. Once recognized, the above-mentioned assets will not be transferred back in later accounting period. 21. Long-term unamortized expenses Long-term unamortized expense refers to all expenses which are already incurred but shall be borne during current period and the following periods and with amortization duration over one year. Long-term unamortized expenses are amortized based on benefit period of the expense. As for items of long-term unamortized expense which do not yield any benefits in later accounting period, the amortized values will be filed into current profit or loss. 22. Employee salary (1) Accounting treatment methods for short-term salary During the accounting period when employees provide service for the Group, the actual short-term salary is recognized as liabilities and included in the current profit and loss or the relevant assets costs. The Group calculates and determines employee salary based on social insurance charges and housing fund, labor union expenditure, and personnel education fund afforded by the Group during the accounting period when employees provide service for the Group, and specified withdrawal base and proportion. 120 COOEC / ANNUAL REPORT 2017

123 Where welfare expenses for employees are non-monetary, and if the welfare expenses can be measured reliably, measure the expense based on fair value. (2) The accounting treatment method for the post-employment benefits 1) Defined contribution plan The Group pays basic endowment insurance and unemployment insurance according to the relevant regulations of the local government. During the accounting period when employees provide service for the Group, the amount to be paid is calculated based on local payment cardinality and proportion and recognized as liabilities, and included in the current profits and losses or related asset costs. Besides basic endowment insurance, the Group has established the enterprise annuity payment (supplementary endowment insurance or company pension plan) system based on related policies of state enterprise annuity. The Group pays a certain rate of employee salary to local social insurance agencies/pension plan, and the expenses are included in the current profits and losses or the related asset costs. 2) Defined benefit plans The Group counts the welfare obligations generated from defined benefit plans for period when employees provide service for the Group based on the formula confirmed according to the provision of expected accumulative total welfare unit, and includes the expense in the current profits and losses or the related asset costs. The deficit or surplus generated by subtracting fair value of defined benefit plans from the current value of defined benefit plans are recognized as the net liabilities or assets of a defined benefit plan. Where surplus is generated from the defined benefit plan, the Group defines the lower item between the asset upper limit and the surplus as the net asset of the defined benefit plan. All obligations of the defined benefit plan including obligations 12 months after the annual reporting when employees provide service for the Group will be paid in cash at the market rate at return at balance sheet date, of national bonds and the corporate bonds corresponding to obligation period of the defined benefit plan and the currency. Service cost and net interest of the net liabilities or asset generated from the defined benefit plan are included in current profits and losses or the related asset costs. The changes generated from rechecking net liabilities or asset of the defined benefit plan are counted in the other comprehensive profits, and will not be transferred back to the profits and losses in the following accounting period. Transfer all the parts counted in the comprehensive income to the undistributed profit when the defined benefit plan terminates, within the equity scope. During the settlement of the defined benefit plan, recognize profit or loss based on the difference between the current obligation value of the defined benefit plan and the settlement price measured at settlement date. (3) The accounting treatment method for the termination benefits The Group cannot unilaterally withdraw the dimission welfare generated from severing labor relation or layoff proposal. The expense or costs involved in paying dimission welfare reconstructing is recognized as the employee salary liabilities and counted in the current profit and loss. (4) The accounting treatment method for other long-term employee benefits 23. Estimated liabilities (1) Recognition standard of estimated liabilities Where obligations relating to lawsuit, debt guarantee, onerous contract, restructuring and other contingent events meet all the following conditions, the expenses are recognized as estimated liabilities: 1) This obligation is a current obligation undertaken by the Group; 2) Fulfillment of such obligations is likely to lead to outflow of the economic benefits from the Group; 3) The amount of this obligation can be reliably measured. Financial Report 121

124 (2) Measurement methods of estimated liabilities The Group s estimated liabilities are initially measured based on the best estimates of expenses required by fulfillment of the relevant current obligations. When determining the best estimates, the Group comprehensively considers the contingent matters related risks, uncertainty, currency time value and other factors. In case of great significance on the currency time value, the best estimates are determined after the relevant future cash outflow is discounted. The best estimates are dealt with respectively according to the following circumstances: If the required expenditure has a continuous range (or area), and probability on occurrence of various results within such range is the same, then the best estimates are determined based on the median of such range, that is, the average of the upper limit and the lower limit. If the required expenditure does not have a continuous range (or area), or although there is a continuous range but the probability of occurrence of various results within such range is different, and the contingent matters involve single item, then the best estimates are determined based on the most possible amount; if the contingent matters involve multiple items, then the best estimates are calculated and determined based on various possible results and relevant probabilities. When all or some of the expenses required for the liquidation of an estimated debt of the Group is expected to be compensated by the third-party, they should be separately recognized as an asset only when it is virtually certain that the amount of compensation will be obtained, and the recognized amount of compensation doesn t exceed the book value of the estimated liabilities. 24. Stock payment Share-based payment of the Group refers to the transaction of granting the equity instrument or undertaking the liabilities determined based on the equity instruments in order to obtain the service provided by the employees or other parties. The share-based payments shall consist of equity-settled share-based payments and cash-settled sharebased payments. Stock payment settled by equities and equity instrument The equity-settled share-based payment in return for employee services shall be measured at the fair value of the equity instruments granted to the employees. Where the Group uses restricted stock for share-based payment, and employees contribute capital to purchase stock, the stock before fulfilling the unlocking conditions and unlocking cannot be circulated in the market or transferred. If the unlocking conditions required in the equity incentive plan are not fulfilled, the Group will buy back stocks based on price agreed in advance. When the Group gets the capital of the restricted stocks purchased by employees, recognize the share capital and capital reserve (capital stock premium) based on the obtained share capital and perform full-amount recognition of a liability in terms of repurchasing obligations and recognize the treasury stock. On each balance sheet date during the waiting period, the Group makes an optimal estimation of the number of the exercisable equity instruments based on the newly obtained information, such as the changes of number employees with exercisable rights, conformity with required performance criteria. On this basis, the services acquired during current period are accounted into related costs or expenses at the fair value during the granting date, and the capital reserves are increased correspondingly. An enterprise shall, after the vesting date, make no adjustment to the relevant costs or expenses as well as the total amount of the owner s equity which have been confirmed. Expense with immediate vesting rights is accounted into related costs and expenses based on fair value, and the capital reserve is increased accordingly. For share-based payment with failed vesting, the cost and expense will not be recognized unless the vesting conditions are the market conditions or non-vesting conditions. In this situation, the stock meeting the non-market conditions in all vesting conditions is regarded as the vesting, irrespective of market conditions or not-vesting conditions. If provision of share-based payment with equity-settled is modified, service is recognized at least based on the provision before it is modified. In addition, any modification increasing fair value of equity instruments or modification beneficial to employees at the modification date is recognized as service increase. If share-based payment with equity-settled is canceled, accelerate right performance at the day of cancel to immediately recognize the unrecognized amount. If employees or other parties can choose to fulfill non-vesting conditions but fail to fulfill the conditions during the waiting period, it is taken as shares to be paid not by sharebased payment with equity-settled. However, if new equity instruments are granted and the new instrument is recognized as replacing the canceled equity instruments, the replaced instrument is treated with the same method on provisions of original equity instrument as that on the modified conditions. 122 COOEC / ANNUAL REPORT 2017

125 Stock payment settled by cash and equity instrument The cash-settled share-based payment will be measured at the fair value of the liabilities determined based on the share or other equity instruments undertaken by the Group. It is initially measured with fair value at granting date, considering provisions and conditions of the granted equity instruments. If the right may be exercised immediately after being granted, it can be recorded into relevant cost or expense based on the fair value of liabilities on the grant date, with the liabilities increased correspondingly; if the right may not be exercised until the vesting period comes to an end or until the specified performance conditions are met, the services obtained in current period shall, based on the best estimate of the information about the exercisable right, be recorded into the relevant costs or expenses at the fair value of the liability undertaken by the Group, with the liabilities increased correspondingly. On each balance sheet date and settlement date prior to the settlement of relevant liabilities, the fair value of the liabilities will be remeasured, with the change recorded into the profits and losses at current period. 25. Income (1) Recognition and measurement methods of income from sales of goods Income is realized when the Company has transferred main risks and rewards of commodity s ownership to the buyer, and the Company no longer retained the continuously managing right related to the ownership, and no longer implemented effective control to the commodity, meanwhile, the related costs which have occurred or will be occurred can be measured reliably. Income amount from sale of goods is recognized based on the received or receivable contract or agreement prices from the buyer, except for the not-fair part of the received or receivable contract or agreement price. Contract or agreement price is acquired in the deferred way. Where the price bears financing nature, the income amount is recognized at the fair value of contract or agreement price. (2) Provision of labor services At the date of balance sheet, labor income is recognized by using the percentage of completion method when the results of providing service transaction can be estimated reliably; otherwise the amount of labor income should be recognized by labor costs which have occurred and is expected to be compensated. Service transaction result can be reliably evaluated in accordance with following conditions simultaneously: incurred service cost can be reliably calculated; related economic interest of the Group may occur; agreed completion schedule can be reliably determined; cost taken or to be taken can be calculated reliably. Completion schedule of labor service transaction is determined by the Group based on proportion between cost incurred and predicted total cost of the Group. The Group ascertains the total income from the providing of labor services based on the received or to-be-received price of the party that receives the labor services as stipulated in the contract or agreement, unless the received or to-bereceived price as stipulated in the contract or agreement is unfair. (3) Transfer of assets use rights The Group recognizes income of transferred assets use rights when economic interests related to transaction may flow into the Company and the sum of the income can be calculated reliably. (4) Basis and method to determine the contract completion progress when the income from provision of labor service and the income from construction contract are recognized with the completion percentage method. The income from provision of labor services shall be determined with the percentage-of-completion method in case the result of the provided labor service transaction can be reliably estimated on the date of the balance sheet. The completion progress of the service transaction is determined based on the percentage of completed work measurement and cumulative actual cost investment in the budget cost. Ascertain the total income from providing of labor services at received or to-be-received contract or agreement prices, except for the not-fair part of the received or to-be-received contract or agreement prices. The total income from providing labor service in balance sheet date is multiplied by completion progress, deducting previously recognized amount after providing labor service during the accounting period is recognized as current income from providing labor service. Meanwhile, total estimated labor cost is multiplied by completion progress, deducting previously recognized amount after providing labor service during the accounting period is transferred to the cost of current labor service. If the results of provision of labor service transaction cannot be estimated reliably on the balance sheet date, following conditions shall be fulfilled: 1) In case it is estimated that the occurred labor cost can be compensated, the income from provision of labor services shall be determined based on the occurred labor cost amount, and the labor cost shall be carried over at the same amount. Financial Report 123

126 2) In case it is estimated that the occurred labor cost cannot be compensated, the occurred labor cost will be included in the gain or loss of current period, and the income from provision of labor services will not be determined. The Group recognizes contract income and expenditure as the percentage of completion on balance sheet date when the contract overall income can be measured reliably, the economic interests related to contract may flow into the Group, and the actual incurred cost can be distinguished explicitly and measured reliably, and contract completion progress and costs necessary for completing contract can be reliably determined. When completion percentage is adopted, the contract completion progress will be determined based on the proportion of actually incurred contract cost in expected total contract cost. If the contract cost can be recovered and the contract income can be determined based on the actual recoverable contract cost, the contract cost is counted as expenditure during incurred period when the outcome of construction contract cannot be estimated reliably; if the contract cost cannot be recovered, it shall be recognized as expenditure immediately with income not recognized. The Group inspects the construction contract at the end of the term. If the estimated overall cost of construction cost surpasses estimated overall contract income, make the loss provision and count the expected loss as current expense. 26. Government subsidies (1) The criterion and accounting treatment method for government subsidy related to assets Government subsidy related to assets refers to that obtained by the Group and used for purchase and construction of long-term assets or formation by other ways. The Group divides government subsidies into asset related subsidies because the subsidies are appropriation with nature of asset allocated by the government. Where the government doesn t specify subsidy objects, the Company divides the government subsidy into assets related subsidy or income related subsidy according to following basis: whether the subsidy is used to construct or form long-term assets by other means. Government subsidy related to assets shall have the book value of underlying assets offset or be confirmed as deferred income. Those confirmed as deferred income shall be accounted into current profit and loss by reasonable and systematic method within service life of underlying assets (those related to daily activities of the Group accounted into other income; while irrelevant to daily activities, accounted into non-business income). (2) The criterion and accounting treatment method for government subsidy related to income The government subsidies pertinent to income refer to all the government subsides except those pertinent to assets. The Group divides government subsidies into government subsidies other than those relating to assts. Where the government doesn t specify subsidy objects, the Company divides the government subsidy into assets related subsidy or income related subsidy according to following basis: whether the subsidy is used to construct or form long-term assets by other means. If the income-based government subsidies are used for compensating the Group s future relevant cost expenses or losses, such subsidies are recognized as the deferred income and accounted into the current profit and loss (those related to daily activities of the Group accounted into other income; while irrelevant to daily activities, accounted into non-business income) at the time of confirming relevant cost or loss or used for offsetting relevant cost or loss; if it is used for compensating the incurred relevant cost expenses or losses, such subsidies are directly accounted into the current profit and loss (those related to daily activities of the Group accounted into other income; while irrelevant to daily activities, accounted into non-business income) or used for offsetting relevant cost or loss. The policy preferential loan with discounted interest obtained by the Group shall have accounting treatment by the following two cases: 1) As for the case that the financial department allocates discounted interest to lending bank which offers loan to the Group by policy preferential interest rate, the Group will regard the actually received loan amount as the entry loan value and calculate relevant borrowing costs based on loan principal and such policy preferential interest rate. 2) As for the case that financial department directly allocates discounted interest to the Group, the Group will offset relevant borrowing costs with discounted interest accordingly. 124 COOEC / ANNUAL REPORT 2017

127 27. Deferred income tax assets/liabilities As to the deductible temporary difference, the deferred income tax assets are recognized with the future taxable income that is likely to be used to offset the deductible temporary difference as limit. As for any deductible loss or tax deduction that can be carried forward to the next year, the corresponding deferred income tax assets shall be determined to the extent that the amount of future taxable income to be offset by the deductible loss or tax deduction to be likely obtained. As to taxable temporary difference, the deferred income tax liabilities are recognized except for special circumstances. The special circumstances under which the differed income tax assets or the deferred income tax liabilities are not recognized include initial recognition of goodwill and other transactions or matters than consolidation that affects neither the accounting profits nor the taxable income (or deductible losses) at the time of coming into being. When the Group has the legal right to settle with net amount, and intends to settle with net amount or gains assets and pays off the liabilities at the same time, the Group presents and lists the net offset amount of the current income tax assets and the tax liabilities of the current income. The Group presents and lists the net offset amount of the deferred income tax assets and the deferred income tax liabilities when the Group has the legal rights to settle the current income tax assets and the current income tax liabilities with the net amount, and the deferred income tax assets and the deferred income tax liabilities are related to the income taxes imposed by the same competent tax department against the same taxpayer or different taxpayers; however, the involved taxpayer intends to settle the current income tax assets and liabilities with net amount or gains assets and pays off liabilities at the same time during each future period when significant deferred income tax assets and liabilities are transferred back. 28. Lease (1) The accounting treatment method for the operating lease 1) The rent paid by the Company to hire assets is amortized with the straight-line method during the whole lease period without rent-free period deducted, and is accounted into the current expenses. The initial direct expenses paid by the Company that are related to the lease transactions are accounted into the current expenses. If the lessor of assets has borne the lease related expenses that shall be borne by the Group, the remaining rents after the Group deducts such expenses from the total rents are amortized during the lease period, and accounted into the current expenses. 2) The rent received by the Company to lease assets is amortized with the straight-line method during the whole lease period without rent-free period deducted, and is recognized as lease-related income. The initial direct expenses paid by the Company that are related to the lease transaction are accounted into the current expenses; if the amount is considerably hung, then such expenses are capitalized, and accounted into the current income at the same recognition base of the lease income during the whole lease period. If the Company has borne the expenses related to the lease that shall be borne by the lessee, the remaining rents after the Group deducts such expenses from the total rents are allocated during the lease period. (2) The accounting treatment method for the finance lease 1) Financing lease-in assets: the Company sets the lower one between the fair value on the lease commencement day and the present value of the minimum lease payment as the entry value of leased assets, and regards the minimum lease payment as the entry value of the long-term payables. The difference thereof is recognized as the unacknowledged financial charges. The Company amortizes unrecognized financial charges with effective interest method during the asset lease period and accounts the charges in financial expense. The initial direct expenses incurred by the Company are accounted into the value of the leased assets. 2) Financing lease-out assets: the Company recognizes the balance between the sum of receivable financing lease payment and non-guarantee remaining value and the present value as the unrealized financing income, and as lease income after receiving rent. The initial direct expense related to lease transactions incurred by the Company is accounted into the initial measurement of receivable financing lease payment, and recognized income amount during the lease period is reduced. Financial Report 125

128 29. Other significant accounting policy and accounting estimate Discontinuing operation Discontinuing operation indicates the constituent part that meets any of the following conditions and can be distinguished separately when the part has been disposed of or been characterized as available for sale. 1) The constituent part represents one independent major business or one independent major operation area; 2) The constituent part is one part of the disposal plan of one independent major business or one major operation area; 3) The constituent part is the subsidiary obtained only for resales. 30. Other significant accounting policy and change of accounting estimate (1) Significant change of accounting policy The content and reason for change of accounting policy Carry out Accounting Standards for Business Enterprises, No Noncurrent Assets Held for Sale, Disposal Groups and Discontinuing Operation. Execute Accounting Standards for Enterprises No Government Subsidies Carry out Notice of the Ministry of Finance on the Revision of the Forms of General Enterprises Financial Statements Approval procedure The Company held the 2nd Meeting of the 6th Board of Directors and approved the Bill on Accounting Policy Change through deliberation. The Company held the 2nd Meeting of the 6th Board of Directors and approved the Bill on Accounting Policy Change through deliberation. The Company held the 7th Meeting of the 6th Board of Directors and approved the Bill on Accounting Policy Change through deliberation. (2) Changes of significant accounting estimate Notes (name and amount of report items influenced by the significant impact) Net profit from continuing operation and discontinuing operation are listed in profit statement respectively. Comparative data are adjusted accordingly. Current period: RMB 489, 852, for the net profit of continuing operation; RMB -219, for net profit of discontinuing operation; Last period: RMB 1,312, 902, for net profit of continuing operation; RMB 8, for net profit of discontinuing operation. Government subsidy related to daily activity of the Group is accounted into other incomes rather than non-business income. Comparative data are not adjusted. Listed in other incomes at an amount of RMB 95,371, Items divided as assets held for sale in balance sheet are adjusted into items of assets held for sale, items divided as liabilities held for sale are adjusted into items of liabilities held for sale. No amount is affected for assets held for sale and liabilities held for sale. 2 The item income from asset disposal is added in profit statement, and partial P/L on assets disposal originally listed as non-business income is reclassified into profit on assets disposal. Comparative data are adjusted accordingly. The current period: non-business income reduced by RMB 452,878,180.44, reclassified into profit on assets disposal; last period: nonbusiness income reduced by RMB 0 and that reclassified into profit on assets disposal was RMB 452,878, VI. Taxes 1. Key tax and tax rate Key tax and tax rate Tax categories Tax basis Tax rate VAT Urban maintenance and construction tax The taxable income is accounted into output tax and shall be based on the balance of output tax for the period after deducting the input tax for the period. Use value-added tax payable and tax amount for the exempted value-added tax reviewed and approved by the state tax bureau as tax base 17% 11% 6% 3% 0% 7% 126 COOEC / ANNUAL REPORT 2017

129 Tax categories Tax basis Tax rate Corporate income tax Educational additional tax Local educational additional fee Due to the subject of taxation for different corporate income tax rate, the relevant situations see the following content Use value-added tax payable and tax amount for the exempted value-added tax reviewed and approved by the state tax bureau as tax base Use value-added tax payable and tax amount for the exempted value-added tax reviewed and approved by the state tax bureau as tax base With the subject of taxation for different corporate income tax rate, disclosure statement 25%15% Name of tax subject Income tax rates Offshore Oil Engineering Co., Ltd. 15% Offshore Oil Engineering (Qingdao) Co., Ltd. 15% Offshore Oil Engineering (Zhuhai) Co., Ltd. 25% COOEC Subsea Technology Co., Ltd. 15% COOEC International Engineering Co., Ltd. 25% Beijing Gaotai Deep-sea Technologies Co., Ltd. 15% Note: other taxes are calculated and paid in accordance with relevant tax provisions of the country. The taxes of overseas holding subsidiaries of the Company are calculated and paid in accordance with relevant tax provisions in the places where such subsidiaries are located. 2. Tax preference 1) In August 2015, the Company was jointly identified as a high-tech enterprise by Tianjin Municipal Science and Technology Commission, Tianjin Finance Bureau, Tianjin Municipal Office, SAT, and Tianjin Local Taxation Bureau, and obtained the Certificate of Hi-tech Enterprise with No. of GF and validity of 3 years ( ). 2) In October 2015, Offshore Oil Engineering (Qingdao) Co., Ltd. was jointly identified as a high-tech enterprise by the Qingdao Municipal Science and Technology Commission, Finance Bureau of Qingdao, Qingdao Provincial Office, SAT, and Qingdao Local Taxation Bureau, and obtained the Certificate of Hi-tech Enterprise with No. of GF and validity of 3 years ( ). (3) In October 2017, COOEC Subsea Technology Co., Ltd. was jointly identified as a high-tech enterprise by Science and Technology Innovation Committee of Shenzhen Municipality, Financial Commission of Shenzhen Municipality, Shenzhen Municipal Office, SAT, and Shenzhen Local Taxation Bureau, and obtained the Certificate of Hi-tech Enterprise with No. of GR and validity of 3 years ( ). 4) In December 2016, Beijing Gaotai Deep-sea Technology Co., Ltd. was jointly identified as a high-tech enterprise by Beijing Municipal Science and Technology Commission, Beijing Finance Bureau, Beijing Municipal Office, SAT, and Beijing Local Taxation Bureau, and obtained the Certificate of Hi-tech Enterprise with No. of GR and validity of 3 years ( ). 3. Others 1) The method of tax exemption, offset and reimbursement is adopted during the sales of originating offshore engineering structure for the offshore oil and gas exploitation enterprises by the Company and its subsidiary Offshore Oil Engineering (Qingdao) Co., Ltd., Offshore Oil Engineering (Zhuhai) Co., Ltd., according to Notice of the Ministry of Finance and the State Administration of Taxation on VAT for Consumption Tax Policies for Exported Goods and Labor Services (C.SH. [2012] No. 39). The policy of tax exemption, offset and reimbursement is no longer applicable to the contract of the sales of originating offshore engineering structure to the offshore oil and gas exploitation enterprises after January 1, 2017 by the Company and its subsidiary Offshore Oil Engineering (Qingdao) Co., Ltd., Offshore Oil Engineering (Zhuhai) Co., Ltd., according to Notice of Specifying VAT Policies of Financial Services, Real Estate Development, Education Ancillary Services, etc. (CS [2016] No. 140). 3% 2% Financial Report 127

130 2) According to Replies of the State Administration of Taxation on Relevant Matters Concerning Charging Value Added Tax and Implementing Tax Exemption, Offset and Reimbursement on COOEC (GSH. [2004] No.1043), value added tax shall be charged for the revenue earned from providing of self-produced and rendering of value added tax service, and business tax shall be charged for the revenue earned from construction service provided the Company has specified, in the EPC contract or subcontract, the price for construction service and that for providing of self-produced and rendering of value added tax service. The Company would implement the Replies from January 1, 2004 and its subsidiary Offshore Oil Engineering (Qingdao) Co., Ltd. would implement the Replies from March 2005 (the founding time). Since May 1, 2016, the Company and its subsidiary Offshore Oil Engineering (Qingdao) Co., Ltd. implemented relevant policies in CS [2016] No.36. 3) According to the notification of CSH. [2011] No.111, the unit and individual that provide the service of transportation industry and some modern service industry (hereinafter referred to as taxable service) in the People s Republic of China (hereinafter referred to as China) are regarded as added-value tax payer. The taxpayer provides the taxable service and shall pay the added-value tax according to the document, with no business tax paid. On the basis of 17% standard rate and 13% low rate of the existing added-value tax, two types of low tax rate of 11% and 6% are added, and the notification took effect on January 1, On July 31, 2012, upon the approval of the State Council, Ministry of Finance and the State Administration of Taxation released Finance and Tax [2012] No.71 Notice on the Pilot Work of Levying Value-Added Tax in Lieu of Business Tax in the Transportation Industry and Some Modern Service Industries in Beijing and Other Seven Provinces and Cities. According to the above notification, Beijing shall have completed the transition from the old to new tax system by September 1, Therefore, relevant regulations of Business Tax Change into VAT would be applicable to the service income of COOEC International Engineering Co., Ltd. within the consolidation scope of the Group and the design income of Beijing Gaotai Deep Sea Technology Co., Ltd. in paying the added-value tax by tax rate of 6% from September ) As stated above, according to Notice on the Pilot Work of Levying Value-Added Tax in Lieu of Business Tax in the Transportation Industry and Some Modern Service Industries in Beijing and Other Seven Provinces and Cities, relevant regulations of Change and Add of Business Tax would be applicable to the design income and the modern service income of the Company from December 2012, with the tax rate of 6%. 5) On March 23, 2016, upon the approval of the State Council, Ministry of Finance and the State Administration of Taxation released CS [2016] No.36 Notice on the Pilot Work of Levying Value-Added Tax in Lieu of Business Tax. The pilot work of levying value-added tax in lieu of business tax is performed in the country since May 1, According to the above notice, relevant regulations of Business Tax Change into VAT are applicable to the Company and its subsidiaries in China since May 01, VII. Notes to Items of Consolidated Financial Statement 1. Monetary fund Item Ending balance Beginning balance Cash on hand 17, , Bank deposits 4,628,544, ,628,243, Other monetary capital 3,599, ,769, Total 4,632,161, ,706,031, Wherein: total amount of the deposit abroad 386,280, ,640, Other description Item Ending balance Balance at the beginning of the year Guarantee security 3,599, ,769, Total 3,599, ,769, COOEC / ANNUAL REPORT 2017

131 2. Receivables (1) Classification disclosure of receivables Category Book balance Amount Proportion (%) Ending balance Bad debt reserves Amount Provision proportion (%) Book value Receivables with significant unit amount and single provision for bad debts Accounts receivable with consolidated provision for bad debt reserves according to the 2,832,584, ,801, ,820,783, credit risk characteristics Receivables with less significant unit amount and single provision for bad debts Total 2,832,584, / 11,801, / 2,820,783, Category Receivables with significant unit amount and single provision for bad debts Accounts receivable with consolidated provision for bad debt reserves according to the credit risk characteristics Book balance Amount Proportion (%) Beginning balance Bad debt reserves Amount Provision proportion (%) Book value 1,999,204, ,425, ,992,778, Receivables with less significant unit amount and single provision for bad debts Total 1,999,204, / 6,425, / 1,992,778, Accounts receivable with significant unit amount and single provision for bad debt reserves at the end of the period Account receivables with provision for bad debts by aging analysis method in combination: Ending balance Accounting age Accounts Provision Bad debt reserves receivable proportion (%) < 1 year Of which: subentry within 1 year < 1 year 516,694, Subtotal within 1 year 516,694, to 2 year(s) 4,385, ,315, years 7,130, ,278, Above 3 years 6,207, ,207, Total 534,418, ,801, Financial Report 129

132 (2) Provision for bad debts withdrawn, reclaimed or turned back in current period: The amount for provision for bad debts withdrawn in current period is RMB 5,445,715.44, and that reclaimed or turned back in current period is RMB 41, Reduce provision for bad debt of RMB 27, yuan due to converted balance in foreign currency statements. (3) Receivables canceled actually after verification in current period (4) Receivables gathered based on debt party with top five balances at end of period: Company name Accounts receivable Ending balance Proportion to total number of receivables at end of year (%) CNOOC Limited 2,090,928, YAMGAZ 244,643, CNOOC Gas & Power Group 120,761, Shell Nederland Raffinaderij BV 95,580, CNOOC Research Institutes Co., Ltd. 56,361, Total 2,608,276, Advance payment (1) Advance payment listed by the accounting age Bad debt reserves Accounting age Ending balance Beginning balance Amount Proportion (%) Amount Proportion (%) < 1 year 175,241, ,957, to 2 year(s) 1,983, ,753, years Above 3 years Total 177,224, ,711, (2) Repayment of the top five of ending balance collected by advance payment objects: Prepayment object Ending balance Proportion to the total number of prepayment balance at end of year (%) SUMITOMO CORPORATION (HONG KONG) LTD 35,973, Oil States Industries Inc 27,815, Shashi Steel Pipe Branch of Sinopec Petroleum Machinery Co., Ltd. 11,416, VALVOSPAIN INDUSTRIAL.SA 11,154, Tianjin Tianguanlin Industry and Trade Co., Ltd. (Hong Kong) 9,456, Total 95,816, COOEC / ANNUAL REPORT 2017

133 4. Interest receivable (1) Classification of interest receivable Item Ending balance Beginning balance Fixed deposit Entrusted loans Bond investment Interest of bank financial product 6,333, ,835, Interest on deposit of CNOOC Finance Co., Ltd. 1,483, ,056, Total 7,816, ,891, Other receivables (1) Classification disclosure of other receivables Category Book balance Amount Proportion (%) Ending balance Bad debt reserves Amount Provision proportion (%) Book value Other receivables with significant unit amount and single provision for bad debts Other receivables with consolidated withdrawal of bad debt reserves according to credit 135,610, , ,847, risk characteristics Other receivables of single amount insignificant but separate 1,997, ,997, withdrawal of bad debt serves Total 137,608, / 2,761, / 134,847, Category Other receivables with significant unit amount and single provision for bad debts Other receivables with consolidated withdrawal of bad debt reserves according to credit risk characteristics Book balance Amount Proportion (%) Beginning balance Bad debt reserves Amount Provision proportion (%) Book value 112,885, , ,927, Other receivables of single amount insignificant but separate withdrawal of bad debt serves Total 112,885, / 958, / 111,927, Other receivables of single amount insignificant but separate withdrawal of bad debt serves Kvearner - COOEC (Qingdao) Engineering Technology Co., Ltd. Financial Report 131

134 Other receivable with significant unit amount and single provision for bad debt reserves at the end of the period Other receivables (By unit) Kvearner - COOEC (Qingdao) Engineering Technology Co., Ltd. Other receivables Bad debt reserves Ending balance Provision proportion (%) 1,997, ,997, Withdrawal cause Serious loss, unrecoverable as expected Total 1,997, ,997, / / Other receivables with provision for bad debts by aging analysis method in combination: Ending balance Accounting age Provision Other receivables Bad debt reserves proportion (%) < 1 year Of which: subentry within 1 year < 1 year 116,469, Subtotal within 1 year 116,469, to 2 year(s) 20, , years 24, , Above 3 years 742, , Total 117,257, , (2) Provision for bad debts withdrawn, reclaimed or turned back in current period: The amount for provision for bad debts withdrawn in current period is RMB 1,925,287.09, and that reclaimed or turned back in current period is RMB 122, Including recovered or withdrawn amount of important provision for bad debt in this period: (3) Other receivables actually canceled after verification in current period Canceling of other significant receivables: Notes to charge-off of other receivables: 132 COOEC / ANNUAL REPORT 2017

135 (4) Classification of other receivables by nature Payment nature Ending book balance Beginning book balance Insurance claim payment 37,145, Refunding export taxes 88,790, ,949, Deposit, Imprest-fund and Margin 17,990, ,687, Advance money 12,868, ,102, Consumption tax rebate 17,958, Total 137,608, ,885, (5) Other receivables with top five balance gathered by debt party at end of period: Company name Qingdao Municipal Office of SAT in Development Zone Ministry of Finance of the PRC Shenzhen Customs District People s Republic of China COOEC-Fluor Heavy Industries Co., Ltd. City Construction Bureau of Qingdao District, Huangdao City Nature of accounts Refunding export taxes Consumption tax drawback (Note 1) Ending balance Accounting age Proportion of other receivables accounting for the total balance at end of the period (%) 88,790, < 1 year ,958, < 1 year Security 5,691, RMB 82, within 1 year; RMB 2,573, for 1 to 2 years; RMB 3,035, for more than 3 years 4.14 Advance money 2,564, < 1 year 1.86 Security 2,371, < 1 year 1.72 Total / 117,376, / Bad debt reserves Ending balance Note 1: According to provisions in Notice of Ministry of Finance and State Administration of Taxation on Returning Taxpayer the Consumption Tax Collected for Self-used Refined Oil Product Manufactured by Oil (Gas) Field Enterprises (CS [2011] No.7), the consumption tax paid for internally purchased refined oil product used during production of the Group shall be uniformly applied for return by CNOOC (Group) Co., Ltd.. (6) Accounts receivable involving government subsidies Financial Report 133

136 6. Inventory (1) Inventory classification Item Book balance Ending balance Falling price reserve Book value Book balance Beginning balance Falling price reserve Book value Raw materials Work-inprocess Commodity Stocks Revolving materials Consumable biological assets Asset completed but not settled under construction contract Project construction 1,510,368, ,289, ,039,079, ,020,540, ,770, ,770, Project material preparation 743,252, ,343, ,908, ,585, ,194, ,391, Total 2,253,620, ,632, ,694,988, ,754,126, ,964, ,611,161, Engineering material preparation is detailed as follows: Item Project material preparation Wherein: Common steel Imported material Electrical engineering materials Other materials Book balance Ending balance Falling price reserve Book value Balance at the beginning of the year Book balance Falling price reserve Book value 743,252, ,343, ,908, ,585, ,194, ,391, ,161, ,342, ,818, ,989, ,194, ,794, ,913, ,741, ,172, ,221, ,221, ,826, , ,034, ,563, ,563, ,351, ,468, ,882, ,811, ,811, COOEC / ANNUAL REPORT 2017

137 (2) Inventory falling price reserves Item Opening balance Increase amount in current period Accrual Others Decrease amount in current period Retaken or Write-off Others Ending balance Raw materials Work-in-process Commodity Stocks Revolving materials Consumable biological assets Asset completed but not settled under construction contract Project construction 116,770, ,412, ,893, ,289, Project material preparation 26,194, ,922, ,773, ,343, Total 142,964, ,334, ,666, ,632, Engineering material preparation is detailed as follows: Item Balance at the beginning of the year Increase amount in current period Accrual Others Decrease amount in current period Retaken or Write-off Others Ending balance Project material preparation 26,194, ,922, ,773, ,343, Including: common steels 26,194, ,921, ,773, ,342, Imported material 2,741, ,741, Electrical engineering materials 791, , Other materials 10,468, ,468, (3) Asset completed but not settled under construction contract at end of period: Item Balance Accumulated cost incurred 3,546,441, Accumulated confirmed gross profit 103,005, Anticipated loss of the contract 471,289, Settled amount 2,139,078, Asset completed but not settled under construction contract 1,039,079, Financial Report 135

138 7. Other current assets Item Ending balance Beginning balance Prepaid corporate income tax 246, , Offset against VAT input tax 276,367, ,681, Bank financial 2,392,052, ,600,000, Total 2,668,665, ,679,958, Available-for-sale financial assets (1) Financial assets available for sales Item Ending balance Book balance Depreciation reserves Book value Beginning balance Book balance Depreciation reserves Book value Debt instrument available for sale: Equity instrument available for sale 238,775, ,775, ,277, ,277, Calculated based on fair value 168,104, ,104, ,605, ,605, Calculated based on cost 70,671, ,671, ,671, ,671, Total 238,775, ,775, ,277, ,277, (2) Financial assets available for sales calculated based on fair value at end of period Asset classification available for sale Equity instrument available for sale Debt instrument available for sale Amortized cost for cost/debt instrument of equity instrument 36,684, ,684, Fair value 168,104, ,104, Cumulative changed amount of fair value credited into other consolidated income Impairment amount withdrawn (3) Financial assets available for sales calculated based on cost at end of period Investee Unit Beginning of period Book balance Increase in current period Decrease in current period End of period Opening balance Total 131,420, ,420, Depreciation reserves Increase in current period Decrease in current period End of period Shareholding ratio of invested unit (%) Cash dividend of this current CNOOC Finance 70,671, ,671, ,468, Co., Ltd. Total 70,671, ,671, ,468, COOEC / ANNUAL REPORT 2017

139 9. Long-term equity investment Investee Opening balance - Additional investment Negative investment Increase and decrease variation in current period Recognized profit and loss on investment under equity method Other composite incomes adjustment Other equity variation Announcement to release cash dividends or benefit issue Withdrawal of depreciation reserves Others Ending balance - I. Cooperative enterprise COOEC- Fluor Heavy Industries Co., Ltd. 2,046,600, ,723, ,816, ,546, ,133,054, Subtotal 2,046,600, ,723, ,816, ,546, ,133,054, II. Joint venture Kvearner - COOEC (Qingdao) Engineering Technology Co., Ltd. Subtotal Total 2,046,600, ,723, ,816, ,546, ,133,054, Other description Ending balance of depreciation reserve Note: Shareholding ratio of the subsidiary, Offshore Oil Engineering (Qingdao) Co., Ltd in Kvearner - COOEC (Qingdao) Engineering Technology Co., Ltd. in Qingdao by is 40%, with initial investment cost of RMB 8,125, yuan, and adjusted profit & loss of RMB -8,125, yuan, and ending balance of RMB Fixed assets (1) Condition of fixed assets Item Housings and buildings Machinery equipment Transportation means Electronic equipment I. Original book value: 1. Opening balance 3,588,231, ,888,284, ,768,212, ,399, ,423,127, Increase amount in current period -7,589, ,083, ,293,328, ,355, ,355,179, (1) Purchase 54,280, ,103, ,349, ,733, (2) Transferred from project under 10,544, ,303, ,390,452, , ,414,313, construction (3) Increased from consolidation (4) Converted from foreign currency -141, , ,226, , ,876, statement (5) Others (Note 1) -17,991, ,991, Decrease amount in current period 775, ,791, ,664, ,671, ,903, (1) Disposal or scrapping 775, ,791, ,416, ,671, ,655, Total Financial Report 137

140 Item Housings and buildings Machinery equipment Transportation means Electronic equipment (2) Others (Note 2) 937,248, ,248, Ending balance 3,579,866, ,940,576, ,121,876, ,083, ,815,403, II. Accumulated depreciation 1. Opening balance 1,104,694, ,975,791, ,564,639, ,873, ,772,998, Increase amount in current period 154,591, ,785, ,901, ,048, ,326, (1) Accrual 154,660, ,214, ,073, ,049, ,997, (2) Converted from foreign currency -69, , ,172, ,671, statement 3. Decrease amount in current period 697, ,285, ,774, ,922, ,679, (1) Disposal or scrapping 697, ,285, ,173, ,922, ,078, (2) Others (Note 2) 122,600, ,600, Ending balance 1,258,587, ,163,291, ,949,766, ,999, ,508,645, III. Depreciation reserves 1. Opening balance 154,675, ,820, ,495, Increase amount in current period (1) Accrual 3. Decrease amount in current period (1) Disposal or scrapping 4. Ending balance 154,675, ,820, ,495, IV. Book value 1. Book value at end of period 2,166,603, ,464, ,172,110, ,083, ,141,262, Book value at beginning of period 2,328,861, ,672, ,203,573, ,526, ,484,633, Note 1: Other increase in original book value of fixed assets of the Group in the current period refers to adjustment of final settlement of office building. Note 2: other decrease in original book value and accumulated depreciation of fixed assets of the Group in current period is due to that engineering ship reconstruction is changed into construction in progress. (2) Temporarily idle fixed assets (3) Fixed assets leased in through financing lease (4) Fixed assets leased out through operating lease Item Book value at end of period House buildings 0 Transportation equipment 671,498, Total 138 COOEC / ANNUAL REPORT 2017

141 (5) Fixed assets with uncompleted certificate of property title Item Book value Reasons for the property certificate failure House buildings 632,306, In progress 11. Projects under construction (1) Conditions of projects under construction Item Book balance Ending balance Depreciation reserves Book value Book balance Beginning balance Depreciation reserves Book value Purchasing of two 3,000 m working ROVs in Shenzhen 69,820, ,820, ,066, ,066, Gutter plough purchase project 55,091, ,091, , , VENOM 5 (rov33) upgrading and reconstruction 14,157, ,157, ,157, ,157, Preliminary study of portsurrounding base construction 6,501, ,501, , , project Deepwater winding and laying multi-purpose engineering vessel 5,457, ,457, , , construction project Equipment installation 3,741, ,741, ,972, ,972, Offshore engineering resource price information system development 952, , , , project (phase II) Investment in transformation of pipeline connection with existing 153, , pipelines of Blue Whale National oil and gas pipe for emergency rescue of the South 58, , China Sea Base project Installation of crane A for Offshore Oil 291 2, , Deepwater flexible pipe laying system 97,335, ,335, Pipe ditching (DP) project vessel construction project 68,644, ,644, Blasting workshop organic exhaust gas purification equipment 1,057, ,057, reconstruction Others 23,942, ,942, ,368, ,368, Total 179,879, ,879, ,630, ,630, Financial Report 139

142 (2) Changes in major construction projects of current period Project name Budget amount Opening balance Increase amount in current period Amount transferred into fixed assets in current period Purchasing of two 3,000 m working ROVs in Shenzhen 99,077, ,066, , Deepwater flexible pipe laying system 1,258,777, ,335, ,291, ,046,626, VENOM 5 (rov33) upgrading and reconstruction 53,170, ,157, Pipe ditching engineering vessel (DP) feasibility study project Blasting workshop organic exhaust gas purification equipment reconstruction Preliminary study of port-surrounding base construction project Offshore engineering resource price information system development project (phase II) Deepwater winding and laying multi-purpose engineering vessel construction project 372,910, ,644, ,822, ,467, ,900, ,057, , ,740, ,850, , ,890, ,225, , , ,980,300, , ,359, Gutter plough purchase project 132,546, , ,083, Saturated diving support vessel project 575,360, ,587, ,587, Deep underwater detection and maintenance ship project National oil and gas pipe emergency rescue project Investment in transformation of pipeline connection with existing pipelines of Blue Whale 582,170, ,683, ,683, ,000, , ,500, , Installation of crane A for Offshore Oil ,925, , Equipment installation 1,972, ,695, ,341, Others 10,368, ,427, ,864, Total 5,274,712, ,630, ,335,136, ,414,313, COOEC / ANNUAL REPORT 2017

143 Other amount decrease in current period Ending balance Proportion of project accumulative investment to budget (%) Project schedule 69,820, % % 14,157, % % % - 6,501, % 952, % 5,457, % 55,091, % 58, % % 153, Accumulated amount of interest capitalization Wherein: amount of interest capitalization in this period Interest capitalization ratio in current period (%) Capital source Self-raised funds Self-raised funds Self-raised funds Self-raised funds Self-raised funds Self-raised funds Self-raised funds Self-raised funds Self-raised funds Self-raised funds Self-raised funds Self-raised funds Self-raised funds 2, Self-raised funds 1,584, ,741, Self-raised funds 2,988, ,942, ,573, ,879, / / / / Financial Report 141

144 12. Intangible assets (1) Condition of Intangible assets Item Land-use right Patent right Non-patent technology Software I. Original book value 1. Opening balance 938,529, ,983, ,084,513, Increase amount in current period 9,408, ,408, (1) Purchase 7,304, ,304, (2) Internal R&D (3) Increased from consolidation (4) Transferred from project under 2,130, ,130, construction (5) Converted from foreign currency -26, , statement 3. Decrease amount in current period (1) Disposal 4. Ending balance 938,529, ,392, ,093,921, II. Accumulated amortization 1. Opening balance 140,708, ,633, ,342, Increase amount in current period 19,354, ,826, ,181, (1) Accrual 19,354, ,837, ,192, (2) Converted from foreign currency -11, , statement 3. Decrease amount in current period (1) Disposal 4. Ending balance 160,063, ,459, ,523, III. Depreciation reserves 1. Opening balance 2. Increase amount in current period (1) Accrual 3. Decrease amount in current period (1) Disposal 4. Ending balance IV. Book value 1. Book value at end of period 778,465, ,932, ,397, Book value at beginning of period 797,820, ,350, ,170, Intangible asset formed balance by internal R&D takes up 0% of the phase-end book value of intangible assets. Total 142 COOEC / ANNUAL REPORT 2017

145 13. Goodwill (1) Goodwill original book value Investee name or goodwillrelated matters A.E.S. Destructive & Nondestructive Testing Ltd. Opening balance Increased in current period Formed by consolidation of enterprise Decrease in current period Handling Ending balance 13,075, ,075, Total 13,075, ,075, (2) Depreciation reserves for goodwill Explain the process and parameters of goodwill impairment testing as well as the method of confirming impairment loss Other description The goodwill of the Group was formed by means of the M&A of 90% equities from A.E.S. Destructive & Non- Destructive Testing Ltd. other than under the same control in 2009, and at period end, there wasn t any sign for the impairment in the goodwill. 14. Long-term unamortized expenses Item Opening balance Increase amount in current period Current amortization amount Other amount of decrease Ending balance Parking place rental fee 67,025, ,976, ,174, ,827, Improved expenditure of rented fixed assets 1,598, ,143, ,170, ,571, Charges for software 1,801, ,801, Total 68,623, ,921, ,344, ,200, Financial Report 143

146 15. Deferred income tax assets/liabilities (1) Non-offset deferred income tax assets Item Ending balance Deductible temporary difference Deferred income tax asset Beginning balance Deductible temporary difference Deferred income tax asset Assets depreciation reserve 697,495, ,867, ,699, ,704, Internal unrealized profit 667,655, ,922, ,201, ,059, Deductible loss 2,113,085, ,556, ,122, ,160, Not-invoiced costs on account 245,751, ,862, ,306, ,445, Deferred income 202,416, ,362, ,685, ,802, Change in fair value of transactional financial liabilities 212,302, ,845, Termination benefits 2,612, , ,612, , Amortization of intangible assets 2,097, , Estimated liabilities 105,746, ,861, Total 4,034,762, ,825, ,893,029, ,726, (2) Non-offset deferred income tax liability Item Ending balance Taxable temporary difference Deferred income tax Liabilities Beginning balance Taxable temporary difference Deferred income tax Liabilities Asset evaluation increment of business combination under different common control Fluctuation of fair value of sellable financial assets 131,420, ,713, ,921, ,588, Depreciation of fixed assets 49,163, ,374, ,958, ,843, Total 180,583, ,087, ,880, ,432, (3) Deferred tax assets and deferred tax liabilities listed by the offset net amount: (4) Details of unrecognized deferred income tax (5) Deductible losses of unrecognized deferred income tax assets will expire in the following years 144 COOEC / ANNUAL REPORT 2017

147 16. Financial assets which are accounted at the fair value and of which the fluctuations are counted as the gains and losses of current period Item Ending balance Beginning balance Transactional financial liabilities 212,302, Wherein: issued trading bond Financial derivative liabilities 212,302, Others Designated as financial liabilities measured by fair value with their changes accounted to current profits and losses Total 212,302, Others: The derivative financial liability is the fair value of YAMAL project related to forward sale and purchase contract between the subsidiary, COOEC (Qingdao) Co., Ltd, and Standard Chartered Bank. 17. Notes payable Type Ending balance Beginning balance Commercial acceptance bill Bank acceptance bill 2,268, Total 2,268, The total of notes payable due but not paid at the end of the current period is RMB Accounts payable (1) List of payables Item Ending balance Beginning balance Engineering project and material collections 3,777,537, ,065,799, Total 3,777,537, ,065,799, Financial Report 145

148 (2) Major payables with accounting age over 1 year Item Ending balance Reasons for arrear or carry down Tianjin, Zhongtie Jianye, Group Co., Ltd. 57,990, Unfinished settlement S.B.SUBMARINE SYSTEMS CO.,LTD 30,384, Unfinished settlement China Railway Port and Channel Engineering Group Co., Ltd 30,000, Unfinished settlement Tianjin TEDA Bluewhale Offshore Engineering Technology Co., Ltd. 19,277, Unfinished settlement Manworld International Logistics Ltd. 17,455, Unfinished settlement Shenzhen Chiwan Sembawang Engineering Co., Ltd. 15,962, Unfinished settlement MCC TianGong Group Corporation Limited 15,138, Unfinished settlement OFFTECH INTERNATIONAL LIMITED 13,764, Unfinished settlement Sinopec Fourth Construction Co., Ltd. 11,046, Unfinished settlement Jiangsu Huaxicun Offshore Engineering Service Co., Ltd. 10,106, Unfinished settlement Total 221,125, / 19. Advance receipts (1) List of advance receipts Item Ending balance Beginning balance Engineering project payment 140,193, Others 282, , Total 140,476, , (2) Major advance receipts with accounting age over 1 year (3) Condition of project settled not completed in construction contract at end of period: Item Amount Accumulated cost incurred 1,727,801, Accumulated confirmed gross profit 145,764, Anticipated loss of the contract Settled amount 2,013,760, Not-settled completed project in construction contract at end of period 140,193, COOEC / ANNUAL REPORT 2017

149 20. Salary payable (1) List of salary payable: Item Opening balance Increased in current period Decrease in current period Ending balance I. Short-term compensation 278,769, ,740,931, ,719,069, ,632, II. Defined contribution plans for welfare after dimission 608, ,486, ,486, , III. Dimission welfare 2,612, , , ,612, IV. Other welfares to expire within one year Total 281,991, ,997,544, ,975,682, ,853, (2) List of short-term salary: Item Opening balance Increased in current period Decrease in current period Ending balance I. Salary, bonus, allowance, and subsidy 253,870, ,280,868, ,280,366, ,372, II. Employee welfare ,151, ,133, , III. Social insurance fee 147,603, ,603, Inc.: Medical insurance premiums 134,191, ,191, Industrial injury insurance 6,877, ,877, Birth insurance premium 6,533, ,533, IV. Legal reserves of housing acquisition 137,616, ,616, V. Labor union expenditure and personnel education fund 20,289, ,230, ,332, ,187, VI. Short-term compensated absences VII. Short-term profits sharing plan VIII. Others 4,608, ,460, ,017, ,051, Total 278,769, ,740,931, ,719,069, ,632, (3) List of defined contribution plans Item Opening balance Increased in current period Decrease in current period 1. Primary endowment insurance 198,686, ,686, Unemployment insurance expense 6,926, ,926, Ending balance 3. Enterprise annuity 608, ,873, ,873, , Total 608, ,486, ,486, , Financial Report 147

150 21. Taxes payable Item Ending balance Beginning balance VAT 194,490, ,897, Consumption tax Business tax Corporate income tax 244,329, ,514, Individual income tax 35,967, ,738, Urban maintenance and construction tax 11,889, ,278, Land value increment tax 24,072, ,072, Real estate tax 2,949, ,974, Stamp tax 1,904, ,654, Land use tax 3,198, ,411, Educational additional tax 8,491, ,626, Anti-flood fee 236, , Others 7,243, ,848, Total 534,774, ,301, Interests payable Item Ending balance Beginning balance Interest of long-term loans for which the interest is paid by installment and principal is repaid on maturity Corporate bond interest Payable interest of short-term loans Preferred shares\perpetual bond interest of financial liabilities Corporate bond interest 10,193, Payable interest of long-term loans 9, Total 9, ,193, Interest of major overdue payment: Others: 148 COOEC / ANNUAL REPORT 2017

151 23. Other payables (1) Other payables listed by nature of payment Item Ending balance Beginning balance Appropriate funds for scientific research 31,672, ,494, Suspense credits 50,216, ,801, Total 81,889, ,296, (2) Other major payables with accounting age over 1 year 24. Non-current liabilities due within one year Item Ending balance Beginning balance Long-term loans expired within one year Bonds payable expired within one year 0 1,198,558, Long-term payables within one year Total 0 1,198,558, Others: Approved by CSRC ZJFXZ [2007] No.383, the Company issued the 2007 COOEC bonds with total face value of RMB 1.2 billion to the public from November 9, 2007 to November 13, 2007, and raised RMB 1.2 billion of funds. After deducting the issuance expenses of RMB million, the actual funds entering the accounts amount to RMB billion till November 14, The term of the bond is 10 years, from November 9, 2007 to November 8, The coupon rate is 5.77%, which will remain unchanged during the term. The annual interest of bonds will be calculated on the basis of single interest instead of compound interest, and no additional interest will occur in case of overdue status. The interest will be paid once a year and the principals will be returned once for all upon maturity. The last interest will be paid together with the cash-in principals. The Bank of China Limited will authorize its Tianjin Branch to provide irrevocable joint responsibility of guarantee for the Company s bonds. The Company honored the cheque s principal and interest on the due date of bonds and delisted in November Other current liabilities Condition of other current liabilities Item Ending balance Beginning balance Short-term bond payable Government subsidies 5,677, ,266, Total 5,677, ,266, Increase/decrease of short-term bond payable: Financial Report 149

152 Others: Description of projects with government subsidy Items of government subsidy Balance at the beginning of the year Newly-added subsidy amount in current period Amount accounted into the current P/L in the report period Other changes Ending balance Financial allocation for scientific research of significant national projects 4,548, ,488, ,077, ,959, Return of site supporting facilities fee 1,365, ,365, ,365, ,365, Deed tax return of office building in bonded area 353, , , , Total 6,266, ,206, ,796, ,677, Related to assets/income Related to income Related to assets Related to assets Note: Other current liabilities of the Group is deferred income expected to be carried forward within one year; RMB 5,398, yuan in added amount is government subsidies expected to be carried forward to interests or losses within one year. 26. Long-term loan (1) Long-term loan classification Item Ending balance Beginning balance Pledge loan Mortgage loan Guaranteed loan Credit loan 90,000, Total 90,000, Description on long-term loan classification: In March 2017, the Company signed three-party entrusted loan contract with CNOOC (Group) Co., Ltd and CNOOC Finance Co., Ltd. CNOOC (Group) Co., Ltd entrusted CNOOC Finance Co., Ltd. to borrow a loan of RMB 90 million yuan from the Company with the contract duration of five years. All loan funds will be used in constructing national oil and gas pipe for emergency rescue of the South China Sea (Zhuhai) Base project. 27. Special payables Item Opening balance Increased in current period Decrease in current period Ending balance Causes Appropriation of scientific research funds for National 863 Project 29,111, , ,213, State appropriation Total 29,111, , ,213, / 150 COOEC / ANNUAL REPORT 2017

153 28. Estimated liabilities Item Opening balance Ending balance Causes Provide external guarantee Pending suit Product quality guarantee Obligation to restructure Onerous contract to be executed Others Pending matters 105,746, Total 105,746, / Other description, including description of relevant important assumption and estimation of important estimated liabilities: Note: The subsidiary - Offshore Oil Engineering (Qingdao) Co., Ltd. received question investigation report from painter supplier and insulation subcontractor of ICHTHYS project respectively on February 24, 2017 and June 1, 2017, stating that quality problem was discovered in the paint used in and insulation system of the module constructed by Offshore Oil Engineering (Qingdao) Co., Ltd., but no consensus was reached upon the reasons of defect by the parties till the balance sheet date. Based on the fact that quality guarantee is a demand guarantee and according to the contract term that Offshore Oil Engineering (Qingdao) Co., Ltd. should bear certain guarantee liability for no defect of project in terms of material, design, construction and process, the guarantee amount of USD 16,183,600 will be the estimated compensation. 29. Deferred income Condition of deferred income Item Opening balance Increased in current period Decrease in current period Ending balance Causes Government subsidies 185,426, ,231, ,603, ,054, Fund allocated by the government Total 185,426, ,231, ,603, ,054, / Projects involving government subsidies: Liabilities items Financial allocation for scientific research of significant national projects Return of site supporting facilities fee Deed tax return of office building in bonded area Opening balance Newly-added subsidy amount in current period Amount accounted into non-business income in current period Other changes Ending balance 126,524, ,231, ,967, ,918, ,870, ,694, ,365, ,329, ,206, , ,853, Related to assets/ income Related to income Related to assets Related to assets Total 185,426, ,231, ,967, ,636, ,054, / Note: Other changes in government subsidy of this year refer to the amount transferred to cooperating organization or amount of carried forward to profits & losses in one year which is reclassified into other current liabilities, including the amount of RMB 4,237, transferred to cooperating organization and 5,398, transferred to other current liabilities at the end of period. Financial Report 151

154 30. Capital stock Opening balance Issued new shares Increase and decrease in this change (+, -) Bonus shares Accumulation fund Shares transferred from Others Subtotal Ending balance Total shares 4,421,354, ,421,354, Capital reserve Item Opening balance Increased in current period Decrease in current period Ending balance Capital premium (share capital premium) 4,229,620, ,229,620, Other capital reserve 18,319, ,319, Total 4,247,940, ,247,940, Other comprehensive income Item I. Other comprehensive incomes which cannot be reclassified into the profit and loss in the future Wherein: re-compute the set net debt of benefits plan and change in net assets. Shares to be reclassified into other comprehensive income of profit and loss of the invested entity under the equity law II. Other comprehensive income which will be reclassified into the profit and loss in the future Wherein: shares to be reclassified into other comprehensive income of profit and loss of the invested entity under the equity law Opening balance Pre-tax accrual in current period The amount incurred in current period Minus: amount calculated into other delayed consolidated income and then converted into current profit and loss Less: income tax expense Attributable to the parent company after tax Attributable to minority stockholders after tax Ending balance 184,399, ,160, ,875, ,019, , ,380, COOEC / ANNUAL REPORT 2017

155 Item Change of fair value recognized in profits or losses of available-for-sale financial assets Held-to-maturity financial investment reclassified as available for sale investments profit and loss account The effective portion of hedging profits and losses for cash flow Translation differences of foreign currency financial statements Other composite incomes sum Opening balance Pre-tax accrual in current period The amount incurred in current period Minus: amount calculated into other delayed consolidated income and then converted into current profit and loss Less: income tax expense Attributable to the parent company after tax Attributable to minority stockholders after tax Ending balance 173,333, ,501, ,875, ,626, ,707, ,066, ,659, ,393, , ,326, ,399, ,160, ,875, ,019, , ,380, Special reserve Item Opening balance Increased in current period Decrease in current period Ending balance Safe production assurance 515,551, ,092, ,365, ,278, Total 515,551, ,092, ,365, ,278, Surplus reserves Item Opening balance Increased in current period Decrease in current period Ending balance Legal surplus reserves 1,275,278, ,520, ,360,799, Other surplus reserves 89,145, ,145, Reserve funds Enterprise development fund Others Total 1,364,424, ,520, ,449,944, Financial Report 153

156 35. Undistributed profits Item Current period Last period Undistributed profit in former part period of adjustment 12,421,780, ,211,812, Total undistributed profit at beginning of adjustment (increase +, decrease -) Undistributed profit at beginning of later period of adjustment 12,421,780, ,211,812, Plus: Net profit attributable to owners of the parent company 491,055, ,315,307, Less: withdrawal legal surplus 85,520, Appropriated other surplus reserves Withdrawal of general risk reserves Common-stock dividends payable 442,135, ,105,338, Common stock dividends that converted to capital stock Undistributed profit at end of period 12,385,180, ,421,780, Operating income and costs The amount incurred in current Item period Accrued in last period Income Cost Income Cost Major business 10,189,023, ,053,025, ,908,025, ,059,060, Other business 63,513, ,503, ,657, ,145, Total 10,252,537, ,084,528, ,991,683, ,095,206, Top 5 clients operating income: Client name Operating income Proportion to total business income (%) CNOOC Limited 4,399,241, YAMGAZ 3,509,389, TUPI B.V. 1,025,851, ECOVIX-ENGEVIXCONSTRUCOES OCEANICAS S/A 243,985, Shell Nederland Raffinaderij BV 211,082, Total 9,389,549, COOEC / ANNUAL REPORT 2017

157 Major business income classified by : Product name The amount incurred in current period Accrued in last period (1) Revenue from offshore engineering EPCI contract project 5,259,364, ,343,467, (2) Revenue from offshore engineering Non-EPCI contract project 1,146,739, ,263, Wherein: revenue from offshore installation and subsea pipe-laying 341,802, ,861, Maintenance service income 452,061, ,399, Revenue from onshore construction 256,336, ,359, Engineering design income 96,538, ,643, (3) Income from non-ocean engineering projects 3,782,919, ,688,295, Total 10,189,023, ,908,025, Taxes and surcharges Item The amount incurred in current period Accrued in last period Consumption tax Business tax Urban maintenance and construction tax Educational additional tax Resource tax Real estate tax 19,881, ,363, Land use tax 13,131, ,198, Vehicle and vessel use tax 533, , Stamp tax 5,170, ,530, Turnover tax and additional tax 83,679, ,380, Others 4,909, ,227, Total 127,305, ,060, Selling expenses Item The amount incurred in current period Accrued in last period Publicity and exhibition expenses 6,779, ,798, Employee salary 4,337, ,027, Traveling expense 2,081, ,125, Office, water, electricity and communication expenses 48, , Depreciation cost and amortization of intangible assets , Others 735, ,045, Total 13,983, ,047, Financial Report 155

158 39. Management expenses Item The amount incurred in current period Accrued in last period R&D costs 620,680, ,950, Employee salary 155,699, ,633, Depreciation cost and amortization of intangible assets 24,084, ,200, Tax 2,921, ,672, Property management and forestation expense 8,984, ,746, Auditing and consulting expense 10,549, ,705, Office, water, electricity and communication expenses 4,392, ,323, Rental fee 4,527, ,045, Transportation expense 4,757, ,286, Traveling expense 5,232, ,980, Business entertainment expenses 236, , Others 36,639, ,823, Total 878,706, ,660, Financial expenses Item The amount incurred in current period Accrued in last period Interest expenses 60,733, ,732, Minus: Interest return -67,192, ,494, Exchange gain/loss 344,282, ,123, Others 15,757, ,059, Total 353,581, ,825, Assets impairment loss Item The amount incurred in current period Accrued in last period I. Bad debt loss 7,206, ,454, II. Loss of inventory devaluation 427,334, ,351, III. Impairment loss of financial assets available for sale IV. Impairment losses on held-to-maturity investments V. Impairment loss of value of long-term equity investment VI. Impairment losses on investment property VII. Fixed assets impairment loss VIII. Impairment losses on construction materials IX. Impairment losses on projects under construction X. Productive biological asset impairment losses 156 COOEC / ANNUAL REPORT 2017

159 Item The amount incurred in current period Accrued in last period XI. Impairment losses on oil and gas assets XII. Impairment losses of intangible assets XIII. Goodwill impairment loss XIV. Others Total 434,541, ,896, Income from changes in fair value Sources for gains from change in fair value The amount incurred in current period Accrued in last period Financial assets which are accounted at the fair value and of which the fluctuations are counted as the gains and losses of current period Wherein: income from changes in fair value generated by derivative financial instruments. Financial liabilities which are accounted at the fair value and of which the fluctuations are counted as the gains and losses of current period 212,302, ,707, Investment real estate calculated based on fair value Total 212,302, ,707, Investment income Item The amount incurred in current period Accrued in last period Investment income of long-term equity accounted by equity method -91,269, ,122, Investment income during disposing long-term equity investment Investment income gained in the holding period of financial assets measured at their fair values and with the variation included in the current profits and losses Investment income gained in the disposition period of financial assets measured at their fair values and with the variation included in the current profits and losses -124,379, ,186, Held-to-maturity investment income during holding period Investment income gained by available-for-sale financial assets etc. 6,468, ,849, Investment income gained by disposing available-for-sale financial assets 1,982, Gains by metering residual stick rights by fair value after losing of control rights Investment income from bank financial 87,664, ,915, Total -121,516, ,561, Financial Report 157

160 44. Non-business income Non-business income Item The amount incurred in current period Accrued in last period Amount calculated into non-recurring profit and loss of current period Disposal income sum on non-current liability Wherein: Disposal income on fixed assets Disposal income on intangible assets Debt restructuring gains Non-monetary assets exchange gains Donation received Government subsidies 42,979, ,059,926, ,979, Others 40,440, ,428, ,440, Total 83,419, ,077,355, ,419, Government subsidies calculated into current profit and loss Item of subsidy The amount incurred in current period Amount incurred in last period Related to assets/ income Financial allocation for scientific research of significant national projects 0 50,201, Related to income Consumption tax return 0 54,075, Related to income Return of site supporting facilities fee 1,365, ,296, Related to assets Bounty on export from finance bureau in free trade zone 0 20,000, Related to income Xuejiadao Office support fund 35,976, ,000, Related to income Appropriation of scientific research funds for 863 Project 0 1,841, Related to income Appropriation for technical transformation 0 973, Related to assets Subsidy of Financial Bureau 966, , Related to income Deed tax return of office building in bonded area 353, , Related to assets Financing cost for scientific R&D of Shenzhen 3,855, Related to income Others 464, , Related to income Total 42,979, ,059,926, / Others: Gain on assets disposal: Item The amount incurred in current period Accrued in last period Gains from disposal of fixed assets 452,878, Total 452,878, Amount calculated into non-recurring profit and loss of current period 158 COOEC / ANNUAL REPORT 2017

161 45. Non-operating expenses Item The amount incurred in current period Accrued in last period Amount calculated into non-recurring profit and loss of current period Disposal loss sum on non-current assets 2,528, ,720, ,528, Wherein: Disposal loss on fixed assets Disposal losses on intangible assets Debt restructuring losses Non-monetary assets exchange losses Foreign donation 185, , , Others 78, , , Total 2,793, ,237, ,793, Income tax expense (1) Table of Income Tax Expense Item The amount incurred in current period Accrued in last period Income tax expense for current period 303,610, ,187, Deferred income tax expense -166,568, ,734, Total 137,041, ,452, (2) Accounting profit and income tax expense adjustment process: The amount Item incurred in current period Total profits 626,673, Income tax expense calculated according to legal/applicable tax rate 94,001, Influence of different tax rate application of subsidiary corporation 3,269, Adjustment for influence of income tax in former period 8,195, Influence for non-taxable income 30,983, Influence for cost, expense and losses that cannot be deductible 3,332, Influence of deductible losses from using unconfirmed deferred income taxes in former period 0 Deductible temporary difference or Influence for deductible losses of unconfirmed deferred income taxes in this period 1,749, Others -4,489, Income tax expense 137,041, Other descriptions: Financial Report 159

162 47. Items of cash flow statement (1) Other cashes received in connection with operating activities: Item The amount incurred in current period Accrued in last period R&D and fund allocated by the government 107,736, ,194, Insurance claim payment 50,899, ,455, Interest income 68,765, ,555, Imprest, deposit and cash deposit 45,325, ,967, Others 169,572, ,514, Total 442,299, ,687, (2) Other cash paid relating to operating activities: Item The amount incurred in current period Accrued in last period Imprest, deposit and cash deposit 91,265, ,383, Service charge 15,757, ,059, Publicity and advertising expense 6,779, ,798, Property management and forestation expense 8,984, ,746, Auditing and consulting expense 10,549, ,705, Office expense 4,440, ,360, Rental fee 4,527, ,045, Transportation expense 4,757, ,286, Traveling expense 7,314, ,105, Article of consumption and repair charge 3,195, ,043, Healthy, safety and environmental protection fee 1,106, , Business entertainment expenses 236, , Property insurance 152, , Meal fee 119, , Meeting expense 66, , Others 28,424, ,342, Total 187,679, ,753, (3) Other cashes received relating to investment (4) Other cashes paid in connection with investment Item The amount incurred in current period Accrued in last period Future foreign exchange settlement contract loss 124,379, ,186, Total 124,379, ,186, COOEC / ANNUAL REPORT 2017

163 (5) Other received cash related to financing activities (6) Other cashes paid in connection with financing activities 48. Supplementary data of cash flow statement (1) Supplementary data of cash flow statement Supplementary data Amount of current period Amount of current period 1. Adjust the net profit into business cash flow: Net Profit 489,632, ,312,911, Plus: Assets depreciation reserve 434,541, ,896, Depreciation of fixed assets, depreciation of oil and gas assets and depreciation of productive biological assets 934,997, ,019,269, Amortization of intangible assets 36,192, ,378, Amortization of long-term unamortized expenses 4,344, ,267, Loss on disposal of fixed assets, intangible assets and other long-term assets (list earnings with - ) -452,878, Loss on retirement of fixed assets (list earnings with - ) 2,528, ,720, Loss from fair value change (list earnings with - ) -212,302, ,707, Financial expense (list earnings with - ) 405,015, ,390, Investment loss (list earnings with - ) 121,516, ,561, Decrease of deferred tax assets (list increase with - ) -168,099, ,861, Increase of deferred income tax liabilities (list decrease with - ) 1,530, ,127, Inventory decrease (list increase with - ) -499,494, ,704, Decrease of business receivables (list increase with - ) -928,597, ,679,281, Increase of business receivables (list decrease with - ) -78,159, ,816,732, Others -12,272, ,564, Net Cash Flow from Business Operation 531,374, ,287,991, Major investment and financing activities excluding cash deposit and withdrawal: Conversion of debt into capital Convertible corporate bonds to mature within one year Fixed assets acquired under finance leases 3. Net amount variations of cash and cash equivalent: Ending balance of cash 4,628,562, ,628,261, Minus: Opening balance of cash 6,628,261, ,809,364, Plus: Ending balance of cash equivalent Minus: Opening balance of cash equivalent Net increase of cash and cash equivalent -1,999,699, ,818,897, (2) Net cash paid for obtaining subsidiaries in current period Financial Report 161

164 (3) Net cash received for disposal of subsidiaries in current period Amount The cash or cash equivalent which is received by the subsidiaries disposed in current period 4,028, COOEC Australia Co., Ltd. 4,028, Subtract: the cash and cash equivalent held by subsidiaries on the day of losing control 4,028, COOEC Australia Co., Ltd. 4,028, Plus: the cash or cash equivalent which is received by the subsidiaries in current period disposed in previous period Disposal of net cash received by subsidiaries (4) Composition of cash and cash equivalents Item Ending balance Beginning balance I. Cash 4,628,562, ,628,261, Wherein: Cash on hand 17, , Bank deposits payable anytime 4,628,544, ,628,243, Other monetary funds payable anytime Deposits and required reserve in the central bank Deposits in other banks Inter-bank borrowing II. Cash equivalents Wherein: Bond investment maturing within three months III. Balance of cash and cash equivalents at the end of the period 4,628,562, ,628,261, Wherein: Cash and cash equivalent in limited use for the parent company or subsidiaries of the Group Other descriptions: 49. Assets with the ownership or use right limited Item Book value at end of period Limit reason Currency capital 3,599, Guarantee security Notes receivable Inventory Fixed assets Intangible assets Total 3,599, / 162 COOEC / ANNUAL REPORT 2017

165 50. Foreign currency monetary items (1) Foreign currency monetary items: Unit: Yuan Item Ending balance of foreign currency Exchange rate for conversion RMB converted at end of period Balance Currency capital Wherein: USD 519,528, ,394,701, EUR HKD 6,804, ,688, THB 4,691, , BND 208, ,013, AED 302, , CAD 326, ,697, AUD IDR 206,658,078, ,925, NGN 5,436, , SAR 3,172, ,527, Qatari Rial 152, , Accounts receivable Wherein: USD 62,609, ,104, EUR 363, ,839, HKD 4,338, ,626, CAD 1,724, ,969, IDR 2,979,445, ,440, Long-term loan Wherein: USD EUR HKD RMB RMB Other receivables USD 523, ,422, HKD 786, , CAD 63, , THB 554, , IDR 2,880,144, ,392, Singapore dollar 26, , Accounts payable USD 45,472, ,127, HKD 766, , EUR 3,132, ,442, AUD 104, , IDR 5,398,645, ,610, BND 120, , Singapore dollar 197, , CAD 1,047, ,445, Financial Report 163

166 Item Ending balance of foreign currency Exchange rate for conversion RMB converted at end of period Balance Pound 62, , THB 35,652, ,123, Other payables USD 5,421, ,424, HKD 198, , EUR 29, , Pound , IDR 61,412, , BND 8, , CAD 220, ,145, THB 1,216, , (2) Specification for business entity overseas, including the disclosure of the core business location overseas, recording currency and selection basis for the important business entity overseas as well as the reason for the change of recording currency. Important overseas operation entities Bluocean Technology Inspection Co., Ltd. Gaotai Deep Sea Technology Co., Ltd. (originally translated into Ketai Co., Ltd.) Main overseas operation location British Virgin Islands Houston USA Recording currency COOEC International Co., Ltd. Hong Kong USD A.E.S. Destructive & Non-destructive Testing Ltd. Hong Kong HKD COOEC (Nigeria) Co., Ltd. Nigeria USD COOEC (Indonesia) Co., Ltd. Indonesia USD COOEC NIGERIA FZE Nigeria USD COOEC Canada Co., Ltd. Canada CAD Offshore International Engineering (Thailand) Co., Ltd. Thailand THB USD USD Selection criterion Operation business is mainly priced and settled with the currency. Operation business is mainly priced and settled with the currency. Operation business is mainly priced and settled with the currency. Operation business is mainly priced and settled with the currency. Operation business is mainly priced and settled with the currency. Operation business is mainly priced and settled with the currency. Operation business is mainly priced and settled with the currency. Operation business is mainly priced and settled with the currency. Operation business is mainly priced and settled with the currency. 164 COOEC / ANNUAL REPORT 2017

167 51. Government subsidies (1) Basic information of government subsidies Type Government subsidy irrelevant to business activities but relevant to assets Amount 1,718, Projects presented Non-business income Amount accounted into the P/L of the current period 1,718, Government subsidy relevant to both business activities and income 95,371, Other incomes 95,371, Government subsidy irrelevant to business activities but relevant to income (2) Government subsidies return 52. Others Other incomes Item of subsidy 41,261, The amount incurred in current period Non-business income Accrued in last period 41,261, Related to assets/ income R&D subsidy 51,000, Related to income Consumption tax drawback 44,370, Related to income Total 95,371, VIII. Change of Consolidation Scope 1. Consolidation under different control 2. Consolidation under same control 3. Counter purchase 4. Disposing subsidiaries or businesses Whether single disposal of subsidiary investment will lead to loss of control right. Others: Level-3 company COOEC Australia Co., Ltd. was canceled in current period. Whether disposal of subsidiary investment through multiple transactions in stepped way will lead to loss of control right lost in the current period. 5. Change of consolidation scope due to other reasons Specify the change of consolidation scope and other related situation caused by other reasons (such as new establishment of subsidiaries and liquidation of subsidiaries). Financial Report 165

168 A new level-3 company, COOEC NIGERIA FZE, was invested and founded in the report period. IX. Equities in Other Subjects 1. Equities in subsidiaries (1) Composition of enterprise group Subsidiary Name A.E.S. Destructive & Nondestructive Testing Ltd. Offshore Oil Engineering (Qingdao) Co., Ltd. COOEC Subsea Technology Co., Ltd. Main operation location Registration place Business nature Hong Kong Hong Kong Detection Shareholding proportion (%) Direct Indirect Mode of acquisition Subsidiary obtained through business combination not under common control Qingdao Qingdao Project contracting Establishment Shenzhen Shenzhen Engineering contracting and labor service Establishment COOEC (Indonesia) Co., Ltd. Indonesia Indonesia Project contracting Establishment COOEC (Nigeria) Co., Ltd. Nigeria Nigeria Project contracting Establishment COOEC International Co., Ltd. Hong Kong Hong Kong Project contracting Establishment COOEC International Engineering Co., Ltd Beijing Beijing Project contracting Establishment Bluocean Technology Inspection Co., Ltd. Offshore Oil Engineering (Zhuhai) Co., Ltd. British Virgin Islands British Virgin Islands Project contracting Establishment Zhuhai Zhuhai Project contracting Establishment COOEC NIGERIA FZE Nigeria Nigeria Project contracting Establishment Gaotai Deep-sea Technologies Co., Ltd. Beijing Gaotai Deep-sea Technologies Co., Ltd. Houston USA Houston USA COOEC Canada Co., Ltd. Canada Canada Offshore International Engineering (Thailand) Co., Ltd. Engineering contracting and labor service Establishment Beijing Beijing Labor service Establishment Engineering contracting and labor service Establishment Thailand Thailand Project contracting Establishment Other descriptions: Gaotai Deep Sea Technology Co., Ltd. (originally translated into Ketai Co., Ltd.). The financial data of Gaotai Deep Sea Technology Co., Ltd. below are all consolidated statement data. (2) Important non-wholly-owned subsidiaries 166 COOEC / ANNUAL REPORT 2017

169 Subsidiary name Shareholding of minority shareholders Proportion of shareholding Profit/loss attributable to minority shareholders in the current period Dividends declared to distribute to minority stockholders in current period Balance of minority stockholders equities at end of period A.E.S. Destructive & Non-destructive Testing Ltd , ,255, Gaotai Deep Sea Technology Co., Ltd. (originally translated into Ketai Co., Ltd.) ,459, ,033, Beijing Gaotai Deep-sea Technologies Co., Ltd , ,914, (3) Main financial information of important non-wholly-owned subsidiaries Subsidiary name A.E.S. Destructive & Nondestructive Testing Ltd. Gaotai Deep Sea Technology Co., Ltd. (originally translated into Ketai Co., Ltd.) Beijing Gaotai Deep-sea Technologies Co., Ltd. Subsidiary name A.E.S. Destructive & Nondestructive Testing Ltd. Gaotai Deep Sea Technology Co., Ltd. (originally translated into Ketai Co., Ltd.) Beijing Gaotai Deep-sea Technologies Co., Ltd. Current assets Non-current assets Ending balance Total assets Current liabilities Non-current liabilities Total liabilities 13,474, ,621, ,095, ,538, ,538, ,754, , ,179, ,734, ,734, ,028, , ,166, ,117, ,117, Current assets Non-current assets Beginning balance Total assets Current liabilities Non-current liabilities Total liabilities 13,764, ,939, ,703, ,624, ,624, ,712, , ,171, ,270, ,270, ,974, , ,293, ,159, ,159, Subsidiary name Operating income The amount incurred in current period Net Profit Total comprehensive income Cash flow from operating activities A.E.S. Destructive & Non-destructive Testing Ltd. 14,914, , , ,589, Gaotai Deep Sea Technology Co., Ltd. (originally translated into Ketai Co., Ltd.) 27,789, ,865, ,457, ,813, Beijing Gaotai Deep-sea Technologies Co., Ltd. 16,805, ,084, ,084, ,210, Subsidiary name Operating income Accrued in last period Net Profit Total comprehensive income Cash flow from operating activities A.E.S. Destructive & Non-destructive Testing Ltd. 15,728, , ,354, ,875, Gaotai Deep Sea Technology Co., Ltd. (originally translated into Ketai Co., Ltd.) 31,070, ,161, ,494, ,222, Beijing Gaotai Deep-sea Technologies Co., Ltd. 21,420, ,152, ,152, ,182, Financial Report 167

170 2. Transactions causing the owner s equity share change but still controlling the subsidiary 3. Equities in cooperative or associated venture (1) Important cooperative or associated venture Name of the cooperative or associated venture COOEC-Fluor Heavy Industries Co., Ltd. Kvearner - COOEC (Qingdao) Engineering Technology Co., Ltd. Main operation location Zhuhai Qingdao Registration place Zhuhai Qingdao Business nature Project contracting Design and technical consultation services Shareholding proportion (%) Direct Indirect Accounting arrangement method for investment of cooperative enterprises or associated enterprises Perform subsequent measurement based on equity method Perform subsequent measurement based on equity method Proportion of shareholding in cooperative or associated venture is inconsistent with description of proportion of votes: The Company s subsidiary and Fluor Co., Ltd. subordinated to Fluor Corporation jointly invested to found COOEC- Fluor Heavy Industries Co., Ltd. in February 2016, with 51% equity held by Offshore Oil Engineering (Zhuhai) Co., Ltd. in the form of assets and cash, and 49% equity held by Fluor Co., Ltd.. The Board of Directors of the joint venture comprises 7 directors, including 4 from Offshore Oil Engineering (Zhuhai) Co., Ltd. and 3 from Fluor Co., Ltd. Any board meeting needs at least 5 directors to vote, including two directors from each side. According to the joint venture agreement and articles of association, major operation decisions need to be agreed by all directors present at the board meeting. Any party cannot individually control and can prevent the counterparty controlling such decisions. Therefore, COOEC-Fluor Heavy Industries Co., Ltd. is a joint venture. (2) Main financial information of important cooperative enterprises Ending balance/ amount incurred in current period COOEC-Fluor Heavy Industries Co., Ltd. Opening balance/ amount incurred in last period COOEC-Fluor Heavy Industries Co., Ltd. Current assets 1,245,921, ,088,056, Wherein: cash and cash equivalent Non-current assets 4,691,087, ,456,173, Total assets 5,937,009, ,544,230, Current liabilities 444,959, ,117, Non-current liabilities 6,960, Total liabilities 451,919, ,117, Minority stockholders interest Stockholders equity attributable to the parent company 5,485,090, ,388,113, COOEC / ANNUAL REPORT 2017

171 Ending balance/ amount incurred in current period COOEC-Fluor Heavy Industries Co., Ltd. Opening balance/ amount incurred in last period COOEC-Fluor Heavy Industries Co., Ltd. Net assets share calculated based on shareholding proportion 2,797,396, ,747,937, Adjusting events -664,341, ,337, Goodwill --Profit unrealized in internal transaction -667,655, ,201, Others 3,313, ,864, Book value for equity investment of cooperative enterprises 2,133,054, ,046,600, Fair valve for equity investment of cooperative enterprises with public offer Operating income 494,478, ,640, Financial cost 18,321, ,960, Income tax expense -79,966, ,660, Net profit -250,620, ,982, Net profit for discontinuing operation Other composite incomes Total comprehensive income -250,620, ,982, Dividend received from cooperative enterprises in current year (3) Main financial information of important associated venture Ending balance/ amount incurred in current period Kvearner - COOEC (Qingdao) Engineering Technology Co., Ltd. Opening balance/ amount incurred in last period Kvearner - COOEC (Qingdao) Engineering Technology Co., Ltd. Current assets 6,205, ,059, Non-current assets 2,998, ,822, Total assets 9,204, ,882, Current liabilities 31,738, ,592, Non-current liabilities Total liabilities 31,738, ,592, Minority stockholders interest Stockholders equity attributable to the parent company -22,534, ,710, Net assets share calculated based on shareholding proportion -9,013, ,284, Adjusting events Financial Report 169

172 - Goodwill --Profit unrealized in internal transaction - Others Book value for equity investment of cooperative venture Fair valve for equity investment of cooperative venture with public offer Ending balance/ amount incurred in current period Kvearner - COOEC (Qingdao) Engineering Technology Co., Ltd. Opening balance/ amount incurred in last period Kvearner - COOEC (Qingdao) Engineering Technology Co., Ltd. Operating income Net profit Net profit for discontinuing operation 518, Other composite incomes Total comprehensive income -1,824, ,758, Dividend received from cooperative venture in current year (4) Excess deficit incurred in cooperative enterprises or associated enterprises Name of the cooperative or associated venture Accumulated unrealised preperiod loss Unrealised loss at end of current period (or net profit shared in current period) Accumulated unrealised loss at end of current period Kvearner - COOEC (Qingdao) Engineering Technology Co., Ltd. 8,284, , ,013, Important joint operation 5. Rights and interests in structured entity not included into combined financial statement Description of structured entity not included into combined financial statement: X. Risks in Connection to Financial Instruments The main financial instruments of the Group include loan, receivables, payables, transaction financial assets and trading financial liabilities. For details of all financial instruments see Annex V. The risks in connection to the financial instruments and the risk management policies adopted by the Group for reducing those risks are as follows. Management of the Group shall manage and supervisory control the risk exposure to ensure to control the risks within limited scope. (i) Credit risk On December 31, 2017, the maximum credit risk exposure that may cause financial loss of the Company was mainly from the loss of financial assets of the Company caused by failure of obligation performance by the other party under the contract and the financial guarantee undertaken by the Company, including: 170 COOEC / ANNUAL REPORT 2017

173 In particular, to reduce the credit risk, the Group sets special department to determine credit lines and conduct credit approval as well as execute other monitoring procedures, so as to ensure to take necessary measures to recycle stale claim. In addition, the Group examined and verified the recovery of each receivable at every date of balance sheet to ensure that bad debt reserves could be fully drawn for accounts irrecoverable. Therefore, the management layer of the Company thinks that the credit risk has been significantly reduced. The Group adopts necessary policies to ensure good credit record for all trade debtors. Besides top five amount of payables, the Group has no major centralized credit risks. On December 31, 2017, the receivables of top five clients of the Company took up 92.08% of the total of the Company. The credit risks of current capital of this group is very low since it deposits in a bank with higher credit rating (ii) Market risks Market risks of financial instruments indicate the fluctuation risks caused by changes of the fair value of financial instruments and future cash flow due to market price, including foreign exchange risks and other risks. (1) Exchange rate risk Foreign exchange risks indicate the fluctuation risks caused by changes of the fair value of financial instruments and future cash flow due to foreign exchange rate change. The Company makes efforts to balance the foreign currency income and expense to reduce foreign exchange risks. Besides, the Company may sign the forward foreign exchange contract or currency swap contract to avoid foreign exchange risks. The core business of the Company is located within Chinese territory and is settled in RMB; however, FX risk exists still for foreign currency assets and liabilities confirmed by the Company as well as foreign currency exchange in the future. The FX risk of the Company is mainly related to US dollar. On December 31, 2017, the foreign currency financial assets and foreign currency financial liabilities held by the Group were shown as follows. The FX risk incurred for the assets and liabilities of USD balance may have impact on the business performance of the Group. Item Amount at end of period Amount at beginning of year Currency capital - USD 519,528, ,021, Accounts receivable - USD 62,609, ,797, Other receivables - USD 523, , Accounts payable - USD 45,472, ,281, Other payables - USD 5,421, ,401, Advance receipts - USD 10,153, Advance payment - USD 18,907, ,274, The Company pays close attention to the impact of exchange rate fluctuation on itself and emphasizes on the study of exchange rate risk management policy and strategy. To avoid the fluctuation risk of exchange rate, the Company has signed forward foreign exchange contracts with banks for some receivables to be settled in foreign currency, so as to lock the exchange rate at the time of receiving and avoid adverse effect on the Company s operation due to exchange rate fluctuation. Meanwhile, with the constant development of the Company on international market and in case of uncontrolled risks for the Company as appreciation of the RMB, the Company shall adjust the relevant policies to reduce the risks aroused. (2) Other price risk The Group provides design, building and marine installation services for offshore oil-gas field development and supporting engineering based on market price, and, therefore, will be affected by the price fluctuation. (iii) Liquidity risk Liquidity risk refers to the risk that the financial obligation of the Group is failed to be performed before expiring date. The method for liquidity risk management of the Group is to ensure enough financial liquidity to perform the matured debts without causing unacceptable loss or damage to enterprise reputation. The Group analyzes the liability structure and duration regularly to ensure abundant fund reserves. Management layer will monitor the use of bank loans, ensure the use is in compliance with the borrowing agreements, and meanwhile, negotiate with financial institutions on financing, to keep certain line of credit and lower liquidity risk. Financial Report 171

174 Financial liability of the Group is listed as follows by undiscounted contract cash flow at due date: Item < 1 year 1-2 year (s) 2-5 years Total Notes payable 2,268, ,268, Accounts payable 3,777,537, ,777,537, Employee salary payable 303,853, ,853, Other payables 81,889, ,889, Interest payable 9, , Long-term loan 90,000, ,000, Total 4,165,557, ,000, ,255,557, (iv) Sensitivity analysis Sensitivity analysis technology is used by the Group to analyze the rationality for risk variable and possible impact of potential change on current P/L or owner s equity. Risk variable always occurs not in isolation, and the dependency between variables will have a great effect on the final influence amount with a risk variable changed, so the following are performed supposing that the each variable is changed independently. Supposing other variables do not change, the impact of the possible reasonable change for exchange rate on current P/L and entities is as follows: Item All foreign currencies All foreign currencies Exchange rate fluctuation Appreciation of RMB by 5% Appreciation of the RMB by 5% Current period Impact on net profit Impact on owner s equity 153,092, ,092, ,092, ,092, XI. Disclosure of Fair Value 1. Fair value at end of period of assets and liabilities Measured by fair value Item Measuring of the first layer fair value Fair value at end of period Measuring of the second layer fair value Measuring of the third layer fair value I. Measuring of the continuous fair value (i) Financial assets which are measured at the fair value and of which the fluctuations are counted as the gains and losses of current period 1.Transaction financial assets (1) Debt instrument investment (2) Equity instrument investment (3) Derivative financial assets 2. Designation of financial assets measured at their fair values and with the variation included in the current profits and losses (1) Debt instrument investment (2) Equity instrument investment (II) Financial assets available for sale 168,104, ,104, (1) Debt instrument investment Total 172 COOEC / ANNUAL REPORT 2017

175 Item Measuring of the first layer fair value Fair value at end of period Measuring of the second layer fair value Measuring of the third layer fair value (2) Equity instrument investment 168,104, ,104, (3) Others (III) Investment real estate 1. Right to use for lands for rent 2. Buildings leased 3. Use to right for lands held and prepared for transfer after value-adding (IV) Biological assets 1. Consumable biological assets 2. Productive biological assets Total Total assets calculated continuously by fair value (V) Trading financial liabilities Wherein: issued trading bond Financial derivative liabilities Others (VI) Designated as financial liabilities measured by fair value with their changes accounted to current profits and losses 168,104, ,104, Total liabilities measured continuously by fair value II. Metering of the non-continuous fair value (I) Assets held for sale Total assets calculated non-continuously by fair value Total liabilities calculated non-continuously by fair value 2. Basis for determining of the continuous and non-continuous project market price metered by the first layer of fair value The financial assets available for sale metering by fair value of the Group are the stock of listed company held, and the fair value of the assets shall be determined based on the closing price of the stock at end of period. 3. Valuation technique adopted for continuous and noncontinuous level-2 fair value measurement items, and qualititive and quantitive information of important parameters 4. Valuation technique adopted for continuous and noncontinuous level-3 fair value measurement items, and qualititive and quantitive information of important parameters Financial Report 173

176 5. Information of adjustment between beginning book value and ending book value of continuous level-3 fair value measurement items, and sensitivity analysis of unobservable parameters 6. Reason for conversion of continuous fair value measurement items among all levels in current period and the policy of determining conversion time-point 7. Change of valuation technique in current period and reasons for change 8. Financial assets not calculated by fair value and fair value of financial assets 9. Others XII. Related Parties and Associated Transactions 1. Profile of parent company of the Company Unit: 10,000 Yuan Currency: RMB Parent company name CNOOC (Group) Co., Ltd. Registration place Beijing Business nature Offshore oil and gas exploration, development, production and refining; petroleum and chemical sales Registered capital Shareholding proportion of parent company to the enterprise (%) Proportion of voting rights of parent company to the enterprise (%) 11,380, Description of parent company of the enterprise CNOOC (Group) Co., Ltd. holds the stock rights of 6.65%, 0.28% and 0.04% respectively via the wholly-owned subsidiaries CNOOC Nanhai West Co., Ltd., CNOOC Bohai Co., Ltd. and CNOOC Finance Co., Ltd., so the proportion for voting rights is 58.33%. The final controlling party of the enterprise is CNOOC (Group) Co., Ltd.. Note: China National Offshore Oil Corporation, CNOOC Nanhai West Corporation and CNOOC Bohai Company are respectively renamed as CNOOC (Group) Co., Ltd., CNOOC Nanhai West Co., Ltd. and CNOOC Bohai Co., Ltd. via company system reform in this year. 2. Profile of subsidiaries of the enterprise For details of the subsidiaries of the Company, please refer to the Note IX. Equities in other subjects. 3. Profile of cooperative enterprises or associated enterprises of the enterprise For details of key joint ventures and associated enterprise of the Company, please refer to Note IX. Equities in Other Subjects. Other cooperative or associated ventures having related-party transaction in current period or in previous period to form balance are listed as follows. Other description 174 COOEC / ANNUAL REPORT 2017

177 4. Profile of other related parties Name of other related parties CNOOC Bohai Co., Ltd. CNOOC Nanhai West Co., Ltd. CNOOC Limited China Oilfield Services Ltd. CNOOC Finance Co., Ltd. China Offshore Oil Nanhai East Corporation CNOOC Industrial Co., Ltd. CNOOC Gas & Power Group CNOOC Energy Development Co., Ltd. CNOOC Oil & Petrochemicals Co., Ltd. China Offshore Oil Service (Hong Kong) Co., Ltd. CNOOC Research Institutes Co., Ltd. CNCCC International Tendering Co., Ltd. CNOOC Infrastructure Management Co., Ltd. China National Chemical Construction Co., Ltd. China Blue Chemical Ltd. Relationship between other related parties and the enterprise Wholly owned subsidiary of parent company Wholly owned subsidiary of parent company Holding subsidiary of parent company Holding subsidiary of parent company Holding subsidiary of parent company Wholly owned subsidiary of parent company Wholly owned subsidiary of parent company Wholly owned subsidiary of parent company Wholly owned subsidiary of parent company Wholly owned subsidiary of parent company Wholly owned subsidiary of parent company Wholly owned subsidiary of parent company Wholly owned subsidiary of parent company Wholly owned subsidiary of parent company Wholly owned subsidiary of parent company Holding subsidiary of parent company Note: CNOOC Industrial Company, CNOOC Research Institutes and China National Chemical Construction Corporation are respectively renamed as CNOOC Industrial Co., Ltd., CNOOC Research Institutes Co., Ltd. and China National Chemical Construction Co., Ltd. via company system reform in this year. 5. Related transactions (1) Related transactions for purchasing and selling commodities and providing and accepting labor service Table for Purchasing Commodities and Accepting Labor Service Related parties Related party transactions The amount incurred in current period Accrued in last period China Oilfield Services Ltd. Transportation, vessel, etc. 44,739, ,990, CNOOC Energy Development Co., Ltd. Engineering subcontracting, material procurement, transportation, fuel, 736,843, ,706, estate management, etc. CNOOC Bohai Co., Ltd. Water, electricity and staff physical examination 46,437, ,916, CNOOC (Group) Co., Ltd. Staff insurance, software use and other services 27,836, ,585, China Offshore Oil Service (Hong Kong) Co., Ltd. Material procurement 13,685, ,318, COOEC-Fluor Heavy Industries Co., Ltd. Engineering subcontracting 136,092, ,786, CNOOC Industrial Co., Ltd. Subcontracting, transportation, vessel, fuel and hydroelectricity, etc. 8,936, ,082, CNOOC Gas & Power Group Engineering subcontracting 5,279, ,697, CNOOC Nanhai West Co., Ltd. House leasing service 1,804, ,963, CNOOC Oil & Petrochemicals Co., Ltd. Engineering subcontracting 983, ,544, CNCCC International Tendering Co., Ltd. Engineering subcontracting 322, CNOOC Research Institutes Co., Ltd. Engineering subcontracting, etc. 292, , Financial Report 175

178 Related parties Related party transactions The amount incurred in current period Accrued in last period China Offshore Oil Nanhai East Corporation Engineering subcontracting 193, CNOOC Limited Wharf service 153, CNOOC Infrastructure Management Co., Ltd. Engineering subcontracting 0 3,109, Table for Selling Commodities/Providing Labor Services Related parties CNOOC Limited CNOOC Gas & Power Group CNOOC Research Institutes Co., Ltd. COOEC-Fluor Heavy Industries Co., Ltd. CNOOC Oil & Petrochemicals Co., Ltd. CNOOC Energy Development Co., Ltd. Related party transactions Design, installation, construction and other professional services Design, installation, construction and other professional services Design, installation, construction and other professional services Provision of personnel sent abroad and material sales Design, installation, construction and other professional services Design, installation, construction and other professional services The amount incurred in current period Accrued in last period 4,399,241, ,548,345, ,866, ,523, ,144, ,632, ,074, ,023, ,290, ,450, ,195, ,469, CNOOC (Group) Co., Ltd. Design, installation, construction and other professional services 687, ,043, China Oilfield Services Ltd. Fuel sales 0 719, Description for connected transactions for purchasing and selling commodities and providing and accepting labor service. (2) Associated commissioned management/contracting and entrusted management/outsourcing Table for Trusteeship Management and Contracting of the Company: Associated management/contract description Associated trustee research Subject client CNOOC Limited Subject name Construction technology research of Liwan 3-1 and its peripheral deepwater oil and gas fields, development of key construction machinery, application research of Liwan 3-1 and its peripheral gas field underwater pipeline back jointing technology and supporting equipment, underwater production system failure mode analysis, and emergency maintenance technology application Subject funds Balance at the Ending balance beginning of the year 28,800, ,738, COOEC / ANNUAL REPORT 2017

179 Subject client CNOOC (Group) Co., Ltd. CNOOC Research Institutes Co., Ltd. Subject name Light semi-submersible, deepwater riser monitoring, real-time analysis of pipe 201 laying system, new SAPR oil storage technology (phase II) Technology research of floating platform construction and installation, design and research of FLNG/FLPG device oil and gas pretreatment and upper liquidation module, key technology research of outward transportation system and cross-over pipe connection of West Africa deepwater technology research subject, research of platform module construction and installation technology, deepwater semi-submersible hoisting pipe-laying ship and auxiliary works Subject funds Balance at the Ending balance beginning of the year 4,107, ,216, ,342, ,045, Commissioned management/contracting out of the Company Related Management/Contracting Out (3) Associated lease The Company is the lessor: Lessee name Type of leasing asset Lease income confirmed in current period Lease income confirmed in last period CNOOC Limited House buildings 0 14,017, The Company is the leasee: Description of related lease (4) Associated guarantee The Company is the guarantor The Company is the guarantee Description of associated guarantee Financial Report 177

180 (5) Borrowing of funds by related party Related parties Amount borrowed Starting day Due date Remarks Borrowed CNOOC (Group) Co., Ltd. 90,000, March 2017 March 2022 Lending (6) Asset transfer and debt restructuring of related parties Related parties Related party transactions The amount incurred in current period Accrued in last period COOEC-Fluor Heavy Industries Co., Ltd. Selling related assets in engineering equipment manufacturing base to related party 1,607,093, China Oilfield Services Ltd. Buying saturated diving support vessel and deep underwater detection and maintenance ship from related party 1,029,133, (7) Remuneration of key management personnel Unit: 10,000 Yuan Currency: RMB Item The amount incurred in current period Accrued in last period Remuneration of key management personnel (8) Other associated transactions 1) Interest income on deposit of related parties Type and name of related parties The amount incurred in current period Amount Proportion to the total amount of same transactions (%) Accrued in last period Amount Proportion to the total amount of same transactions (%) Other enterprises controlled by the same controlling shareholder and final controlling party CNOOC Finance Co., Ltd. 15,710, ,158, Total 15,710, ,158, COOEC / ANNUAL REPORT 2017

181 2) Interest income on deposit of related parties Related parties Ending balance Balance at the beginning of the year Other enterprises controlled by the same controlling shareholder and final controlling party CNOOC Finance Co., Ltd. 1,450,643, ,737,842, Total 1,450,643, ,737,842, ) Investment incomes gained by related parties Type and name of related parties The amount incurred in current period Amount Proportion to the total amount of same transactions (%) Accrued in last period Amount Proportion to the total amount of same transactions (%) Other enterprises controlled by the same controlling shareholder and final controlling party CNOOC Finance Co., Ltd. 6,468, ,475, Subtotal 6,468, ,475, Joint venture COOEC-Fluor Heavy Industries Co., Ltd. -91,269, ,122, Subtotal -91,269, ,122, ) Interest expense of related party The amount incurred in current period Type and name of related parties Proportion to the total amount of Amount same transactions (%) Other enterprises controlled by the same controlling shareholder and final controlling party CNOOC (Group) Co., Ltd. 245, Total 245, Accrued in last period Amount Proportion to the total amount of same transactions (%) 6. Receivables and payables of related parties (1) Receivables Ending balance Project name Related parties Bad debt Book balance reserves Book balance Accounts receivable CNOOC Limited 2,090,928, ,331,493, Accounts receivable CNOOC Gas & Power Group 120,761, ,704, Accounts receivable CNOOC Research Institutes Co., Ltd. 56,361, ,587, Accounts receivable CNOOC Oil & Petrochemicals Co., Ltd. 28,518, ,706, Accounts receivable COOEC-Fluor Heavy Industries Co., Ltd. 12,299, ,023, Accounts receivable CNOOC Energy Development Co., Ltd. 1,314, ,461, Beginning balance Bad debt reserves Financial Report 179

182 Ending balance Beginning balance Project name Related parties Bad debt Bad debt Book balance Book balance reserves reserves Accounts receivable CNOOC (Group) Co., Ltd. 280, Accounts receivable China Oilfield Services Ltd. 841, Advance Payment CNOOC Bohai Co., Ltd. 5,779, Advance Payment CNOOC Energy Development Co., Ltd. 964, Other receivables COOEC-Fluor Heavy Industries Co., Ltd. 2,564, ,319, Other receivables Kvearner - COOEC (Qingdao) Engineering Technology Co., Ltd. 1,997, ,997, ,711, Other receivables CNOOC Energy Development Co., Ltd. 273, Other receivables CNOOC Limited 88, , Other receivables CNCCC International Tendering Co., Ltd. 450, Interest receivable CNOOC Finance Co., Ltd. 1,483, ,056, (2) Payables Project name Related parties Ending book balance Beginning book balance Accounts payable CNOOC Energy Development Co., Ltd. 428,460, ,193, Accounts payable COOEC-Fluor Heavy Industries Co., Ltd. 88,317, ,156, Accounts payable China Oilfield Services Ltd. 27,905, ,603, Accounts payable CNOOC Gas & Power Group 17,117, ,282, Accounts payable CNOOC Bohai Co., Ltd. 11,728, ,317, Accounts payable China Offshore Oil Service (Hong Kong) Co., Ltd. 2,713, ,531, Accounts payable CNOOC Nanhai West Co., Ltd. 1,100, ,192, Accounts payable CNOOC (Group) Co., Ltd. 922, , Accounts payable CNOOC Oil & Petrochemicals Co., Ltd. 486, ,577, Accounts payable China Offshore Oil Nanhai East Corporation 168, Accounts payable CNOOC Infrastructure Management Co., Ltd. 246, Advance Receipts CNOOC Limited 68,278, Other payables COOEC-Fluor Heavy Industries Co., Ltd. 2,467, ,951, Other payables CNOOC Energy Development Co., Ltd. 105, , Other payables China National Chemical Construction Co., Ltd. 75, , Other payables CNOOC (Group) Co., Ltd. 47,828, Other payables CNOOC Oil & Petrochemicals Co., Ltd. 2, Interests payable CNOOC (Group) Co., Ltd. 9, Long-term loan CNOOC (Group) Co., Ltd. 90,000, Commitment of related parties XIII. Stock Payment 1. General condition of stock payment 2. Stock payment settled by equities 180 COOEC / ANNUAL REPORT 2017

183 3. Stock payment settled by cash 4. Modification and termination of shares payment XIV. Commitments and Contingencies 1. Important commitments External important commitments, property and amount on balance sheet date. (1) Major commitments for investments abroad Resolution on Establishing Joint Venture with Fluor - Changing the Investment Project into Joint Venture was adopted upon deliberation at the 13th Meeting of the 5th Board of Directors convened on August 19, 2015 and the first extraordinary shareholders meeting of 2015 held on September 15, It was agreed to change Zhuhai Deepwater Ocean Engineering Equipment Manufacturing Base Project into joint venture mode. According to above documents, Offshore Oil Engineering (Zhuhai) Co., Ltd. and Fluor jointly found CNOOC Fluor Heavy Industry Co., Ltd. on January 8, 2016, with registered capital of USD billion, including USD billion from Offshore Oil Engineering (Zhuhai) Co., Ltd. in the form of fixed assets and cash. As of December 31, 2017, USD million was contributed, and the rest contribution obligation of USD 54 million will be performed before December 31, (2) Up to December 31, 2017, the Group has no contract that has been signed but not paid: 2. Contingencies (1) Important contingencies on balance sheet date Providing guarantee for subsidiary 1) As approved upon deliberation by the 13th Meeting of the 4th Board of Directors held on April 24, 2012, the Company provided parent company guarantee with JKC being the beneficiary for Offshore Oil Engineering (Qingdao) Co., Ltd. as well as letter of commitment of the bank guarantee that Offshore Oil Engineering (Qingdao) Co., Ltd. opened in the Standard Chartered Bank for JKC. The maximum compensation liability of the above two guarantees is 100% of the contract amount, viz. USD million. Guarantee period of the parent company is from the issue date to May 2, Commitments as above have been reviewed and approved by the shareholders meeting of 2011 held on May 11, 2012 (See resolution announcement and guarantee announcement of Board of Directors and resolution announcement of shareholders meeting published on www. sse.com.cn, website of Shanghai Stock Exchange on April 26, 2012 and May 12, 2012 respectively) 2) As approved upon deliberation by the 3rd Meeting of the 5th Board of Directors held on April 25, 2014, the Company provided parent company guarantee for Nyhamna Project and BSP Project undertaken by Offshore Oil Engineering (Qingdao) Co., Ltd., as well as Norway KVAERNER Company - general contractor of Nyhamna Project, and Brunei Shell Petroleum - the owner of BSP Project. The contract of Nyhamna Project is unit price contract, and its estimated contract amount is USD 11,000,000; according to the contract, the maximum claim payment is 10% of the contract amount; the guarantee period will last from the day of providing guarantee to October 30, The contract of BSP Project is unit price contract, and its estimated contract amount is USD 46,000,000; according to the contract, the maximum claim payment is USD 8,250,000; the guarantee period will last from the day of providing guarantee to March 31, The above guarantee does not have to be submitted to the shareholders meeting of the Company for approval. (See resolution announcement and guarantee announcement of Board of Directors published on website of Shanghai Stock Exchange on April 29, 2014) The guarantee of USD 8.25 million for BSP project was expired in advance in January 2017 and closed. 3) As approved upon deliberation by the 4th Meeting of the 5th Board of Directors held on July 23, 2014, the Company provided the parent company guarantee for the general contractor Yamgaz for Russia Yamal project undertaken by Offshore Oil Engineering (Qingdao) Co., Ltd. The guaranteed person is Yamgaz Company (general contractor of Yamal project). The guarantee amount is 35% of the total contract amount (about USD million), thereof the maximum accumulated liability upper limit is 25% and the maximum defer penalty Financial Report 181

184 is 10% of the contract amount. The guarantee period starts from the issue date to September 23, Commitments as above have been reviewed and approved by the second extraordinary shareholders meeting of 2014 held on September 16, (See resolution announcement and guarantee announcement and resolution announcement of shareholders meeting published on website of Shanghai Stock Exchange on July 25, 2014 and September 17, 2014 respectively) 4) As approved upon deliberation by the 12th meeting of the 5th Board of Directors held on July 9, 2015, the Company provides guarantee for performance guarantee and advance payment guarantee opened for Russia Yamal project undertaken by Offshore Oil Engineering (Qingdao) Co., Ltd. The guarantee amount is RMB 1.54 billion yuan and the guarantee period is from the issue date to July 20, The above guarantee does not have to be submitted to the shareholders meeting of the Company for approval. (See resolution announcement and guarantee announcement of Board of Directors published on website of Shanghai Stock Exchange on July 10, 2015) Later, as approved on the 26th Meeting of the 5th Board of Directors on March 17, 2017, the Company would reissue three performance guarantees for three columns of module involved in Yamal project of Offshore Oil Engineering (Qingdao) Co., Ltd., with the validity period same as the warranty period of respective modules. The total amount guaranteed is USD 131 million and the original guarantee of RMB 1.54 billion yuan will be reduced by RMB 0.94 billion yuan after the performance guarantee expires, while the rest RMB 0.6 billion yuan will continue as guarantee for USD 82 million advance payment guarantee, till its closure on January 20, (See resolution announcement and guarantee announcement of Board of Directors published on website of Shanghai Stock Exchange on March 21, 2017) The rest RMB 600 million which serves as guarantee for advance payment of USD 82 million was expired in advanced and closed on July 20, 2017 according to actual conditions. 5) As approved upon deliberation by the 19th Meeting of the 5th Board of Directors held on July 6, 2016, the Company provides parent company guarantee for Shell Netherland Company based on Shell SDA project undertaken by Offshore Oil Engineering (Qingdao) Co., Ltd. The contract of Shell SDA project is a unit price contract with estimated contract amount of USD 26,920,000 (the final contract amount is subject to actual work quantity). Based on the agreement, the maximum claim amount is 10% of the contract amount, i.e. about USD 2,692,000, and the guarantee period starts from guarantee issuing date to April 7, The guarantee does not have to be submitted to the shareholders meeting of the Company for approval. (See resolution announcement and guarantee announcement of Board of Directors published on website of Shanghai Stock Exchange on July 08, 2016) 6) As approved upon deliberation by the 27th Meeting of the 5th Board of Directors held on April 26, 2017, the Company issues parent guarantee for its new subsidiary COOEC NIGERIA FZE contracting Dangote petrochemical offshore transport installation project to DANGOTE PETROLEUM REFINERY AND PETROCHEMICALS FREE ZONE ENTERPRISE and DANGOTE OIL REFINING COMPANY LIMITED, with contract amount of USD 166 million. According to contract agreement, the maximum payment amount is USD 33.2 million and the guarantee will keep effective from the date of issuance till December 31, The guarantee does not have to be submitted to the shareholders meeting of the Company for approval. (See resolution announcement and guarantee announcement of Board of Directors published on website of Shanghai Stock Exchange on April 28, 2017) (2) The important contingencies not required to be disclosed shall be explained as well: 1) Matters to be arbitrated On November 9, 2016, S. B. Submarine Systems Co., Ltd. initiate an arbitration to Hong Kong International Arbitration Centre for KJO Project sub-contract payment, requiring Saudi branch of the Company to pay changed engineering fund borne by it during implementing the project sub-contracting and requiring the Company to bear the liability to guarantee. For this issue, the Company and Saudi branch of the Company did not reach an agreement with S. B. Submarine Systems Co., Ltd., so the Company employed Pinsent Masons to defend the Company. Currently, the arbitration is in early stage. According to the lawyer comment letter of Pinsent Masons, the arbitration result is of great uncertainty. As of the date approving the financial report, the arbitration has no progress. 2) Matters relating to paint of Yamal project After experiencing the extremely cold weather in Russia Sabetta field at the end of 2016, the passive fire protection paint and cryogenic spill protection paint of some module of the Train 1 in YAMAL project cracked in Russia field, while the Train 2 and Train 3 were free from such defect after delivery in As such issue involves various factors such as general contractor, material supplier and the constructor, the three parties are 182 COOEC / ANNUAL REPORT 2017

185 negotiating on investigation and analysis of the root cause and responsibility division, however with no final conclusion formed yet. The paint supplier selected according to suppliers list and paint specifications provided by the owner, so till not, the general contractor and paint supplier have finished the repair work of the cracked module in Train 1 which has been put into operation. As for the cracked modules in Train 1, the Company is basically impossible to undertake the compensation liability and unable to determine the estimated compensation amount. 3. Others XV. Events after the Balance Sheet Date 1. Major non-adjusting events 2. Profit distribution Unit: 100,000,000 Yuan Currency: RMB Profits or dividends to be allocated 2.21 Profits or dividends to be released upon approval Sales return 4. Explanation to events after the balance sheet date Guarantee for subsidiaries: Upon approval on the 6th Meeting of the 6th Board of Directors of the Company held on January 22, 2018, the Company issued parent company guarantee for Nyhamna project undertaken by Offshore Oil Engineering (Qingdao) Co., Ltd., with the guarantee amount adjusted from USD 1.1 million to USD 12.1 million and guarantee period adjusted from issuing date till October 30, 2017 to the date of the owner issuing Take-over Certificate, i.e. expected to be June 14, (See resolution announcement and guarantee announcement of Board of Directors published on website of Shanghai Stock Exchange on January 23, 2018) XVI. Other Important Matters 1. Correction of early accounting error (1) Retrospective restatement approach (2) Prospective application approach 2. Debt restructuring 3. Assets replacement (1) Exchange of non-monetary assets (2) Other assets replacement Financial Report 183

186 4. Annuity plan 5. Discontinuing operation Item Income cost Total profits Australia subsidiary is canceled Income tax expense Net Profit Profits from discontinuing operation attributable to the parent company s owner 219, , , , Other descriptions: 1) P/L from continuing operation and discontinuing operation attributable to the parent company s owner Item The amount incurred in current period Accrued in last period P/L from continuing operation attributable to the parent company s owner 491,275, ,315,298, P/L from discontinuing operation attributable to the parent company s owner -219, , ) Net profit for discontinuing operation Item The amount incurred in current period Accrued in last period P/L from discontinuing operation: -219, , Income 341, Cost expenses 219, , Total profits -219, , Income tax (income) Net profit -219, , ) Cash flow of discontinuing operation Item The amount incurred in current period Accrued in last period Net cash flow from operation activities -4,090, , Division information (1) Determination basis and accounting policy of report divisions: (2) Financial information of report divisions (3) If there s no report segments or total assets or liabilities of report divisions cannot be disclosed, explain the reasons. (4) Other descriptions: 184 COOEC / ANNUAL REPORT 2017

187 7. Other critical transactions or matters impacting investment decision 8. Others XVII. Notes to Main Items of Financial Statements of the Parent Company 1. Receivables (1) Classification disclosure of receivables: Ending balance Book balance Bad debt reserves Type Provision Amount Proportion (%) Amount proportion (%) Book value Receivables with significant unit amount and single provision for bad debts Accounts receivable with consolidated provision for bad debt reserves 2,731,126, ,395, ,723,731, according to the credit risk characteristics Receivables with less significant unit amount and single provision for bad debts Total 2,731,126, / 7,395, / 2,723,731, Type Receivables with significant unit amount and single provision for bad debts Accounts receivable with consolidated provision for bad debt reserves according to the credit risk characteristics Book balance Beginning balance Bad debt reserves Amount Proportion (%) Amount Provision proportion (%) Book value 2,201,388, ,001, ,195,387, Receivables with less significant unit amount and single provision for bad debts Total 2,201,388, / 6,001, / 2,195,387, Financial Report 185

188 Receivables with significant unit amount and single provision for bad debts at end of period Account receivables with provision for bad debts by aging analysis method in combination: Accounting age Accounts receivable < 1 year 102,068, Subtotal within 1 year 102,068, Ending balance Bad debt reserves Provision proportion (%) 1 to 2 year(s) 4,275, ,282, years 215, , Above 3 years 5,983, ,983, Total 112,543, ,395, Receivables with provision for bad debts by percentage of balance in the combination: In combination, the receivable with provision for bad debts by other methods: (2) Provision for bad debts withdrawn, reclaimed or turned back in current period: The amount for provision for bad debts withdrawn in current period is RMB 1,435,434.21, and that reclaimed or turned back in current period is RMB 41, Including withdrawn or recovered amount of important bed-debt reserves in this period: (3) Receivables gathered based on debt party with top five balances at end of period: Company name Accounts receivable Ending balance Proportion to total number of receivables at end of year (%) CNOOC Limited 1,868,855, Offshore Oil Engineering (Qingdao) Co., Ltd. 287,229, COOEC Subsea Technology Co., Ltd. 165,652, CNOOC Gas & Power Group 120,761, CNOOC Research Institutes Co., Ltd. 56,361, Total 2,498,861, Bad debt reserves 186 COOEC / ANNUAL REPORT 2017

189 2. Other receivables (1) Classification of other receivables: Category Book balance Amount Proportion (%) Ending balance Bad debt reserves Amount Provision proportion (%) Book value Other receivables with significant unit amount and single provision for bad debts Other receivables with consolidated withdrawal of bad debt reserves 686,228, , ,778, according to credit risk characteristics Other receivables of single amount insignificant but separate withdrawal of bad debt serves Total 686,228, / 450, / 685,778, Category Other receivables with significant unit amount and single provision for bad debts Other receivables with consolidated withdrawal of bad debt reserves according to credit risk characteristics Other receivables of single amount insignificant but separate withdrawal of bad debt serves Book balance Amount Proportion (%) Beginning balance Bad debt reserves Amount Provision proportion (%) Book value 898,626, , ,183, ,626, / 443, / 898,183, Other receivables with significant single amount and separate withdrawal of bad debt reserves at end of period: Other receivables with provision for bad debts by aging analysis method in combination: Ending balance Accounting age Provision Other receivables Bad debt reserves proportion (%) < 1 year 21,891, Subtotal within 1 year 21,891, to 2 year(s) 2-3 years 24, , Above 3 years 435, , Total 22,351, , Financial Report 187

190 Other receivables with provision for bad debts by percentage of balance in the combination: In combination, other receivables for which the bad debt reserve is withdrawn with other methods (2) Provision for bad debts withdrawn, reclaimed or turned back in current period: The amount of bad debt reserves withdrawn in current period is RMB 1,718,653.13, and that reclaimed or turned back in current period is RMB 0. Including recovered or withdrawn amount of important provision for bad debt in this period: (3) Other receivables actually canceled after verification in current period (4) Classification of other receivables by nature Payment nature Ending book balance Beginning book balance Loan and interest of related parties and other related current account 655,382, ,294, Insurance claim payment 37,145, Imprest, deposit and cash deposit 8,495, ,377, Refunding export taxes 17,958, ,642, Advance money 6,103, ,166, Total 687,940, ,626, (5) Other receivables with top five balance gathered by debt party at end of period: Company name COOEC International Co., Ltd. COOEC International Engineering Co., Ltd Ministry of Finance of the PRC Shenzhen Customs District People s Republic of China Nature of accounts Ending balance Loan and interest 598,870, Advance money 49,662, Consumption tax drawback Security 5,691, Accounting age RMB 4,693, for below 1 year; RMB 594,176, for above 3 years RMB 18,932, for below 1 year; RMB 17,209, for 1-2 years; RMB 13,520, for 2-3 years Proportion of other receivables accounting for the total balance at end of the period (%) ,958, < 1 year 2.61 RMB 82, yuan for 1 year at most; RMB 2,573, yuan for 1-2 years; RMB 3,035, yuan for more than 3 years 0.83 Ending balance of bad debt reserve 188 COOEC / ANNUAL REPORT 2017

191 Company name Offshore Oil Engineering (Qingdao) Co., Ltd. Nature of accounts Transaction expense Ending balance Accounting age Proportion of other receivables accounting for the total balance at end of the period (%) 4,548, < 1 year 0.66 Total / 676,731, / Ending balance of bad debt reserve 3. Long-term equity investment Item Ending balance Book balance Depreciation reserves Book value Beginning balance Book balance Depreciation reserves Book value Investment for subsidiaries 9,075,974, ,075,974, ,985,974, ,985,974, Investment for associated companies and cooperative venture Total 9,075,974, ,075,974, ,985,974, ,985,974, (1) Investment for subsidiaries Investee Offshore Oil Engineering (Zhuhai) Co., Ltd. Offshore Oil Engineering (Qingdao) Co., Ltd. COOEC Subsea Technology Co., Ltd. COOEC International Engineering Co., Ltd A.E.S. Destructive & Non-destructive Testing Ltd. Bluocean Technology Inspection Co., Ltd. COOEC International Co., Ltd. COOEC (Nigeria) Co., Ltd. Opening balance Increased in current period Decrease in current period Ending balance 3,950,000, ,950,000, ,970,000, ,970,000, ,972,473, ,000, ,062,473, ,000, ,000, ,094, ,094, ,698, ,698, ,186, ,186, , , Total 8,985,974, ,000, ,075,974, Provision for impairment loss of this period Ending balance of depreciation reserves Financial Report 189

192 4. Operating income and costs: The amount incurred in current Item period Accrued in last period Income Cost Income Cost Major business 6,173,935, ,574,909, ,968,993, ,958,713, Other business 48,214, ,912, ,237, ,174, Total 6,222,149, ,582,822, ,014,230, ,973,888, Others: Top 5 clients operating income Client name Operating income Proportion to total business income (%) CNOOC Limited 4,117,641, TUPI B.V. 1,025,851, ECOVIX-ENGEVIXCONSTRUCOES OCEANICAS S/A 243,985, CNOOC Gas & Power Group 147,866, Zhejiang Petrochemical Co., Ltd. 84,456, Total 5,619,801, Investment income Item The amount incurred in current period Accrued in last period Investment income of long-term equity measured by cost method 1,984,347, ,040, Investment income of long-term equity accounted by equity method Investment income during disposing long-term equity investment -336, Investment income gained in the holding period of financial assets measured at their fair values and with the variation included in the current profits and losses Investment income gained in the disposition period of financial assets measured at their fair values and with the variation included in the current profits and losses Held-to-maturity investment income during holding period Investment income for financial assets available for sale during holding period 6,468, ,849, Investment income gained by disposing available-for-sale financial assets 1,982, Gains by metering residual stick rights by fair value after losing of control rights Others 31,267, ,095, Total 2,022,082, ,630, COOEC / ANNUAL REPORT 2017

193 XVIII. Supplementary Data 1. Details of non-recurring profits and losses of current period Item Amount Remarks Disposal profits and losses of non-current assets -2,528, Government subsidies examined beyond the authority, or without formally approved document with tax returns and exemption included in current P/L (except the government subsidies closely related to enterprise business and enjoyed in the unified standard quota or fixed amount of the state) Government subsidy accounted into current profit and loss (closely related to business events, excluding government subsidy enjoyed in quota or fixed amount as per unified national standard Tax for the use of funds which is charged from non-financial enterprises and recorded in current current gains or losses Revenues generated by the fair value of identifiable net assets of investee enjoyed by enterprise when its investment cost in subsidiary, associate and joint venture is less than investment returns. Non-monetary assets exchange gains and losses 138,350, Loss and profit from investing or managing assets by others entrusted 87,664, Various assets depreciation reserves accrued due to force majeure such as natural disaster Debt restructuring gains and losses Corporate restructuring expenses, such as expenditure for staffing, integration expenses, etc. Gains and losses exceeding fair value generated from the transaction with unfair transaction price Current net gains and losses generated from enterprise merger under the same control from the beginning of subsidiary to the merger day Gains and losses unrelated to normal operating activities or generated from events In addition to effective hedging business relating to normal operating activities of the Company, variable loss and profit of fair value generated from held transaction financial assets and trading financial liabilities as well as investment income gained from disposal of transaction financial assets, trading financial liabilities and available-for-sale financial assets 87,922, Return from receivables impairment reserve tested with impairment solely Gains and losses from foreign entrusted loans Gains and losses generated from variable fair value of investment property and measured subsequently with fair value model Affect from one-off adjustment on current gains and losses according to the requirements of laws and regulations in terms of taxation and accounting Custody fee income from entrusted management Other non-business income and expense except the respective items above 40,176, Other loss and profit items conforming to non-recurring profit and loss definition 36,546, It is mainly appropriation for national scientific research projects and consumption tax reimbursement. Income from buying bank financial. It is mainly resulted from future foreign exchange settlement contract delivery of Qingdao subsidiary. Amount effected by income tax -66,480, Financial Report 191

194 Item Amount Remarks Effect on minority interest -413, Total 321,238, Net assets income ratio and earnings per share Profit in the report period Return on weighted average net assets (%) Earnings per share Basic earnings per share Diluted earnings per share Net profit attributable to ordinary shareholders of the Company Net profits attributable to ordinary shareholders of the Company after deducting non-recurring profit and loss Differences of accounting data between domestic and foreign accounting standards 192 COOEC / ANNUAL REPORT 2017

195 List of Documents for Further Reference List of Documents for Further Reference List of Documents for Further Reference List of Documents for Further Reference Accounting statements signed and stamped by the legal representative, the person in charge of accounting affairs and the person in charge of accounting department. Original copy of auditing report stamped by accounting firm and signed and stamped by certified public accountants. Original copy of all documents and announcements disclosed on com.cn and newspaper appointed by China Securities Regulatory Commission in the report period. Chairman: an: Lv Bo Date of Submission sion to and Approval by Board of Directors: March 27, 2018 List of Documents for Further Reference 193