OFFSHORE OIL ENGINEERING CO., LTD.

Transcription

1 To build up an internationally-leading energy engineering company 2016 ANNUAL REPORT OFFSHORE OIL ENGINEERING CO., LTD. Stock abbreviation COOEC Stock code

2 Engineering design Onshore construction Offshore installation Welcome to COOEC Contents 001 Important Notices 003 Chairman s Statement 004 President s Statement 005 Definitions 006 Company Profile and Primary Financial Indexes 010 Summary of Company Business 014 Discussion and Analysis on Operation 042 Important Matters 058 Ordinary Share Changes and Shareholders 062 Preferred Shares 063 Directors, Supervisors, Senior Managers and Employees 069 Company Governance 075 Relevant Condition of Corporate Bonds List of Documents for Further Reference

3 COOEC / ANNUAL REPORT 2016 Important Notices 001 Maintenance and commissioning Important Notices I. The Company's Board of Directors, Board of Supervisors and directors, supervisors and senior managers guarantee the contents of the annual report are true, accurate and complete, without false records, misleading statements or major omissions, and assume individual and joint legal responsibilities. II. All directors of the Company attend the board meeting. 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 statements in the annual report are secured. V. The Plan of Profit Distribution or the Plan of Transferring Public Accumulation Fund to be Stock Capital Reviewed by Board of Directors The Company plans to distribute cash dividends of RMB 1.00 yuan (including tax) for each 10 shares to all shareholders, without distributing stock dividends and utilizing capital reserves to increase capital stocks, on the basis of year-end total capital stocks of 4,421,354,800 shares in The total cash dividends about RMB 442,000,000 yuan will be allocated this time, accounting for 33.61% of the merging net profits realized in 2016, and the unallocated profits will be carried forward to subsequent years. This distribution plan needs to be submitted to the general shareholders' meeting in 2016 for deliberation and approval. VI. Risk statement for forward-looking statements Applicable Inapplicable Forward-looking statements, such as Section IV in the annual report are not regarded as the actual commitment of the Company to investors who should be alert to investment risks. VII. Is there any situation relating to non-business funds occupation by the shareholders and their affiliated parties? No VIII.Is there any situation relating to violating decisionmaking procedures to tender external guarantee? No IX. Notice of significant risks Applicable Inapplicable During the report, there s no significant risk that causes substantial influences on production and operation of the Company. This Report analyzes general risks for the Company, so investors need to pay attention to it. See analysis details in (IV) Potential Risks in Section IV Discussion and Analysis on Operation. X. Others Applicable Inapplicable

4 002 COOEC / ANNUAL REPORT 2016 Chairman s Statement

5 COOEC / ANNUAL REPORT 2016 Chairman s Statement 003 Chairman s Statement All distinguished shareholders and friends: Here, on behalf of the board of directors, I would like to present you the annual report of COOEC in 2016 and show achievements and developments in this of COOEC. Facing the gloomy industry situation in 2016, COOEC still kept steady development. Last year is a very tough year for the Company due to the extremely difficult market environment for the whole organization. At the beginning of the year, the international oil price was even below $30.00, and the domestic and international oil companies reduced investment vigorously. However, the good news is that the Company not only resisted the pressure, but also responded effectively. We even improved our competitiveness by reducing the overall cost constantly, striving to explore the domestic and international markets and creating high-quality overseas projects. In 2016, our business income is RMB 12 billion and the net profit is RMB 1.3 billion. In spite of the low international oil price and difficult market environment, the Company developed in a stable and healthy way. In particular, the risk resistance capacity and sustainable development capability of the Company were further strengthened. On one hand, we achieved new developments in international market and won several new projects in the Middle East and West Africa. On the other hand, the asset--liabilities ratio of the Company was low, only 22%. Besides, the Company was in good cash flow state, with over RMB 10 billion cash reserve, all of which allowed the Company to handle the industrial changes gracefully. In 2017, we will expand the market and struggle to move forward. As the international oil price increased slightly in these months, the market environment was recovered to some extent. However, as the trend of the oil price is unpredictable, the Company still faces high pressure in 2017 as the industry still needs more time to recover significantly. The board of the directors will pay close attention to the market changes of the international oil and gas industry and offshore engineering industry. We will also ensure the Company follows the formulated development strategy and enhances the core competitiveness to deal with all kinds of changes and challenges flexibly. At present, the Company is working closely on the international development strategy. To enlarge the market share, the company will take advantages of general contracting and low cost, develop the international market with full strength, and continuously expand the market in Southeast Asia, Middle East, Africa, Brazil and Russia following the promotion of the One Belt and One Road Initiative. In addition, the Company will properly conduct the existing international projects by improving the management and control capability and the level of profitableness for the international projects to improve the enterprise brand and influence in the industry. The board of directors also pays attention to the four capabilities construction of the Company, urges the Company to have an eye on the contributions of the technical innovation to cost control and benefits promotion, and expedites the core technologies accumulation and breakthrough in deep water, LNG project and other fields and speeds up the conversion of scientific and technological achievements. Meanwhile, we will lay more emphasis on the management over safety, quality and risk, and enhance risk determination and control ability under low oil price condition. In the new year, the Company will keep struggling and forging ahead to make better achievements. At last, on behalf of the board of directors, I sincerely appreciate the hard work done for the development of the Company by all staffs. Thank all shareholders and friends for your supports and help! Board Chairman Lv Bo

6 004 COOEC / ANNUAL REPORT 2016 President s Statement President s Statement All distinguished shareholders and friends: With disclosure of the annual report, please allow me, on behalf of COOEC management, to show thanks to all shareholders for your consistent trust and support, to all friends from all walks of life who care about the development of the Company. In 2016, the international oil price was still low, and the engineering quantity was further reduced in the transitional stage of the five-year plan. Facing the severe international and domestic market environment, as well as the unprecedented pressure in production and operation, COOEC, under the leading of the board of the directors, focused on creation of "quality and benefit year" (version 3.0), and worked hard to improve strength, enhance the foundation, improve quality and create benefits. In 2016, the business income of COOEC is RMB billion and net profit is RMB billion, which was a good start for the 13th five-year plan. The Company undertook 21 offshore oil and gas field development projects, 5 modular construction projects, and 9 new projects such as Weizhou 6-13 field development project and Qatar NFA project. It also completed onshore construction of 2 jackets and 6 modules, and carried out offshore installation of 7 jackets and 11 modules as well as laying of 76 km subsea pipeline. The Company developed the international market steadily and made new progress by a series of measures such as innovative cooperation model. Our market deals are RMB billion, including domestic deals of RMB billion and overseas deals of RMB billion. Besides, the Qatar NFA project is the first EPCI project in the Middle East market independently and wholly contracted by the Company. The Company took quality improvement, efficiency increase and cost reduction as the long-term measures to promote new technology, new process, new material, standardization, facilitation and domestication, which have saved RMB 0.3 billion for the Company in the whole year. The Company also struggled to reduce the cost through technological innovation and development. Safety and quality management performance was further enhanced. According to statistics of OSHA, the lost time injury rate is 0.04, the same with last year; the recordable incident rate is 0.05, with a year-on-year reduction of 28.6%. All quality objectives were realized is not only an important year for the 13th five-year plan, but also a year with more challenges for the Company. Facing the situation in which the international energy companies reduced investments vigorously, in order to promote its reputation in the international energy engineering field in the slump market with more fierce competition, the Company will speed up the expanding of international market, and create international brands such as modular construction continuously. With effective supports from all shareholders and friends, COOEC will surely achieve all production and business tasks and objectives in 2017 and keep creating values steadily and continuously for all shareholders. Director and President Jin Xiaojian

7 COOEC / ANNUAL REPORT 2016 Definitions 005 Definitions I. Definitions In the Report, unless otherwise defined, the following words shall have meanings set forth as below: Definitions of common words EPCI Referring to The abbreviation of Engineering Design, Procurement, Construction and Installation. FPSO Referring to The abbreviation of Floating Production Storage and Offloading LNG Referring to Short for Liquefied Natural Gas Construction of the general contracting capacity focusing on design; construction of offshore installation supported by large-scale equipment; construction of "Four capabilities" construction Referring to facility maintenance capacity taking subsea pipe maintenance as breakthrough; acceleration of deepwater ability construction based on conventional water filed market. TLP Referring to The abbreviation of Tension Leg Platform. LMU Referring to The abbreviation of Leg Mating Units. Installation completed of Enping 23-1 Project

8 006 COOEC / ANNUAL REPORT 2016 Company Profile and Primary Financial Indexes Company Profile and Primary Financial Indexes I. Company Information Company Name in Chinese Company Name in Chinese for Short Company Name in English Company Name in English for Short Company Legal Representative China Offshore Oil Engineering Co., Ltd. COOEC OFFSHORE OIL ENGINEERING CO.,LTD. COOEC Jin Xiaojian II. Contact Information Secretary of the Board of Directors Name Liu Lianju Address No. 199, Haibin 15 Road, Tianjin Port Free Trade Zone Telephone number Fax mingyf@mail.cooec.com.cn III. Basic Introduction Registered address Apartment 202-F105, 2/F, Skirt Building, Ligang Plaza, No. 82, West Road 2, Tianjin Airport Economic Zone Zip code of registered address Business address No. 199, Haibin 15 Road, Tianjin Port Free Trade Zone Zip code of business address Internet website mingyf@mail.cooec.com.cn IV. Introduction to Information Disclosure and Preparation Location Change Name of newspaper for information disclosure selected by the Company Website designated by China Securities Regulatory Commission (CSRC) for publishing annual report Annual report preparation place China Securities Journal, Shanghai Securities News Company Board Secretary Office V. Brief Description of Stocks Brief description of stocks Stock type Listed on stock exchange Stock abbreviation Stock code A-share Shanghai Stock Exchange COOEC Bonds Shanghai Stock Exchange 07 COOEC Bond

9 COOEC / ANNUAL REPORT 2016 Company Profile and Primary Financial Indexes 007 VI. Other related materials Name of appointed CPA firm (in China) Name Business address Name of signatory CPA BDO China Shu Lun Pan Certified Public Accountants LLP F28, Maotai Building, Building 3, No.29 North Third Ring Middle Road, Xicheng District, Beijing Cai Xiaoli, An Xing VII. Major Accounting Data and Financial Indexes in the Recent Three Years (I) Major Accounting Data Major accounting data Increase and decrease of current compared with that of last year (%) 2014 Operating income 11,991,683, ,201,506, ,031,375, Net profit attributable to shareholders of the listed company 1,315,307, ,409,945, ,266,871, Net profit belonging to shareholders of listed company after deducting non-recurring gains/ 742,555, ,110,671, ,962,660, losses Net cash flow from operating activities 3,287,991, ,625,658, ,351,011, End of 2016 End of 2015 Increase or decrease at end of current compared with that of last year (%) End of 2014 Net assets attributable to the shareholders of the listed company 23,155,451, ,976,458, ,557,302, Total assets 29,811,198, ,442,831, ,147,771, Total capital stocks at end of the (shares) 4,421,354,800 4,421,354, ,421,354,800 (II) Primary Financial Indexes Primary financial indexes Increase and decrease of current compared with 2014 that of last year (%) Basic earnings per share (yuan/share) Diluted earnings per share (yuan/share) Basic earnings per share after deducting nonrecurring gains and losses (yuan/share) Return on weighted average net assets (%) Down percentage points Rate of weighted average return on net assets after deduction of non-recurring gains and losses (%) Decrease by percentage points Major Accounting Data and Financial Indexes in the Previous Three Years at the end of Report Period 21.17

10 008 COOEC / ANNUAL REPORT 2016 Company Profile and Primary Financial Indexes VIII. Differences of Accounting Data under Domestic and Foreign Accounting Standards (I) Differences of net profits and net assets attributable to shareholders of 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 2016 First quarter (January- March) Second quarter (April-June) Third quarter (July- September) Forth quarter (October- December) Operating incomes 1,619,901, ,475,739, ,949,598, ,946,443, Net profit attributable to shareholders of listed company 498,017, ,174, ,668, ,446, Net profits attributable to shareholders of listed company after deducting nonrecurring losses and -96,940, ,299, ,733, ,463, profits Net cash flow from operating activities 868,777, ,277, ,027, ,076,908, Differences between quarterly data and data in disclosed regular reports X. Items and Amount of Non-recurring Profits and Losses Items of Non-recurring profits and losses Disposal profits and losses of non-current assets Governmental subsidy accounted for profits and losses of current, except for those closely associated with normal business operations, in line with national policies and regulations, and continuously obtained in certain standard quotas or quantities. Losses and profits from investing or managing assets by others entrusted Amount of ,157, ,059,926, ,915, Note (if applicable) No-current assets disposal profits mainly come from contributing capital to and selling assets to COOEC-Fluor Heavy Industries Co., Ltd. Joint Venture. Governmental subsidy is mainly used for Zhuhai base construction. During the report, the Company uses Zhuhai base related assets to contribute capital or sell assets to the joint venture. The deferred income related to these assets is carried forward to non-operating income. Income from buying bank financial products Amount of 2015 Amount of ,639, ,607, ,254, ,507, ,840, ,517,984.08

11 COOEC / ANNUAL REPORT 2016 Company Profile and Primary Financial Indexes 009 Items of Non-recurring profits and losses Losses and profits from changes in fair value generated from possessing trading financial assets, trading financial liabilities, except valid hedging business related with normal business of the Company, as well as investment income gained from disposal of trading financial assets, trading financial liabilities and available-for-sale financial assets. Other non-operating income and expense except the respective items above Other profits and losses in conformity with definition of non-recurring profits and losses Amount of ,912, Note (if applicable) This is mainly resulted from future foreign exchange settlement contract delivery of Qingdao subsidiary. Amount of 2015 Amount of ,742, ,828, ,912, ,291, ,509, ,201, Zhuhai subsidiary uses Zhuhai base related assets to contribute capital or sell assets to the COOEC-Fluor Heavy Industries Co., Ltd. Joint Venture. Assets accretion and deferred income related to above assets are carried forward to non-operating income. Contributing capital or selling assets to the joint venture based on requirements of accounting standards are downstream transactions. If this transaction fails to realize profits and losses on internal transactions, the part calculated based on the percentage owned by the Company is not recognized, so investment income is reduced by RMB 733,000,000 yuan. At the end of 2016, RMB 29,000,000 yuan was realized, so affected investment income is RMB - 704,000,000 yuan. Amount affected of minority shareholders equity -511, , ,178, Amount effected of income tax -180,535, ,866, ,925, Total 572,751, ,274, ,210, XI. Items Accounted by Fair Value Unit: 10,000 Yuan Currency: RMB Item Balance at beginning of Balance at end of Changes in current Affected amount of profit in current Available-for-sale financial assets 26, , , Financial liabilities accounted by fair value with their changes accounted to current profits and losses 20, , , Total 47, , , ,053.78

12 010 COOEC / ANNUAL REPORT 2016 Summary of Company Business Summary of Company Business Offshore jacket installation of Enping 18-1 Project I. Core businesses engaged in, operating modes and industry conditions in the report (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 the 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 skid-mounted product manufacturing, offshore engineering quality inspection and offshore EPCI management. It also has a high comprehensive capability of oil and gas field construction under a traditional water depth, 300m. The Company has large offshore engineering manufacturing bases in Tanggu, Tianjin City, Qingdao in Shandong Province, Zhuhai, Guangdong Province, etc., of which the total area is about 3.5 million m2. The Company owns diversified offshore construction fleets comprised of 19 deep water and shallow water engineering vessels, including deepwater pipeline laying vessels, 7,500t crane vessels, deepwater multi-purpose installation vessels, deepwater trenching vessels, 50,000t semi-submersible type self-propelled vessels. In last five years, the Company has preliminarily opened international market and contracted a batch of influencing large overseas projects such as Austrilia Gorgon, Ichthys, Russia Yamal and Myanmar Zawtika, with a cumulative overseas contract amount of about RMB 18.6 billion, which obviously promoted its international operation ability; deepwater team and Zhuhai field were basically constructed, which greatly enhanced its hard power and strategic resources ability; with expansion on the basis of core businesses, a batch of new economic growth points such as module construction, deepwater and underwater engineering, highend skid-mounting and LNG module construction LNG receiving terminals and liquidation plant projects, offshore wind power projects have been developed and created; a batch of key engineering technologies such as design, construction and installation of 30,000 t super-large jackets and modules, comprehensive offshore floatover installation, 1,500 m underwater pipe laying and operation, and underwater cross-over pipe and low temperature welding have been mastered. (II) Operation models The Company undertakes engineering contracts in the capacity of a general contractor or a sub-contractor, to be engaged in oil and gas field project construction. The Company successively provides domestic and foreign customers, such as CNOOC, ConocoPhillips, Shell, Saudi Aramco,

13 COOEC / ANNUAL REPORT 2016 Summary of Company Business 011 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. (III) Industry conditions and development phases The same as cycle in economic development, there is cycle in industry development. International raw oil price and petroleum industry underwent fluctuation and adjustment for many times in the development history over hundred years. Currently, oil and gas are still the most important and competitive energy sources. Many research institutions believe that the position of oil and gas cannot be replaced by other energy resources at least within 30 years. Oil and gas industry has a good development prospect in medium and long term. Offshore oil and gas resources especially deep sea oil and gas have replaced onshore oil and gas and become the main source of incremental oil and gas resources. Therefore, the offshore oil industry development potential and the offshore oil and gas engineering industry development potential are promising. In the short term, since June 2014, under the influences of global economy slowdown and raw oil supply over demand, the international crude oil price (Brent crude oil price) dropped sharply and kept dropping in the Q1 of 2016, and once dropped below USD 30/bbl, so global oil companies cut down capital expenditures in 2015 and Global oil and gas exploration and development capital expenditure is USD 541 billion in 2015, which is USD 200 billion less than Global oil and gas exploration and development capital expenditure is about USD 380 billion in 2016, which reduces greatly compared with Accordingly, many oil and gas development projects have to be canceled or delayed, related demands of offshore oil and gas engineering industry decreases greatly, even some international companies of the industry in Singapore and Europe go bankrupt. The entire industry is stuck in a predicament. In recent half a year, the international crude oil price finally rebounds after several fluctuations above USD 40, and now has been above USD 50 for three consecutive months. As a result, market confidence and industrial investment have been slightly recovered. Some research institutes consider that the crude oil price is gently rebounding, and the industry has stepped out from the predicament. II. Significant changes in main assets of the Company in report By the end of the report, long-term equity investment, intangible assets and projects under construction of the Company have changed significantly, which causes more than 30% change increment compared with last year. The long-term equity investment balance is RMB 2,047 million yuan, increasing by RMB 2,047 million yuan compared with last year; intangible assets are RMB 831 million yuan, decreasing by RMB 966 million yuan compared with last year with a year-on-year drop rate of 54%; the ending balance of projects under construction is RMB 264 million yuan, decreasing by RMB 643 million yuan with a yearon-year drop rate of 71%. Above asset changes are resulted from COOEC-Fluor Heavy Industries Co., Ltd. (hereinafter referred to as the joint venture ) incorporated within the report through joint contribution by COOEC (Zhuhai) Co., Ltd. (hereinafter referred to as the Zhuhai subsidiary ) subordinated to the Company and Fluor Corporation. By December 31, 2016, Zhuhai subsidiary has contributed USD million to the joint venture, in the form of partial fixed assets of Zhuhai deepwater offshore engineering equipment manufacturing base, intangible assets, projects under construction and cash. Such contribution has formed into the initial long-term equity investment of RMB 2,824 million yuan, which causes deduction of fixed assets, intangible assets, projects under construction accordingly. Please refer to analysis on related items and description in statement notes for details. Overseas assets is RMB (unit: 100,000,000 yuan, currency: RMB), accounting for 5.50% of total assets.

14 012 COOEC / ANNUAL REPORT 2016 Summary of Company Business Analysis on core competitiveness in report The Company insists on developing its core businesses, focuses on from shallow water to deep water, from home to abroad to continuously strengthen four capabilities construction, constantly improves general contracting capacity and deepwater engineering ability and further embodies its low cost advantage, with fast increase in overseas businesses, gradual rising in overseas revenues proportion, significant enhancement in comprehensive strength and international competitiveness. South module lifting of Chengbei Oilfield newly-built comprehensive process platform A B C 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 engineering, it is the representative in the international offshore engineering industry. In addition, it is a holding subsidiary of China National Offshore Oil Corporation, a national oil company, 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. In the international market development, it also gains support from the state and strong stockholders, so it possesses a stronger competitiveness. High EPCI capacity Through development and accumulation over many years, the Company has possessed a complete set of mature technology, equipment and capacity system of engineering, construction, installation and maintenance in offshore oil and gas field development within water depth of 300m, 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 great leap in general contracting capacity of engineering, construction and installation from 10,000 tons to 30,000 tons and subsea pipe-laying capacity from less than 300m to 1,500m, thus gaining important experience in deepwater engineering. Rich experience in engineering project management The Company owns more than 120 project managers with qualification certified, operates more than 30 large and medium-scale offshore engineering projects which are distributed in the Bohai Sea, the South China Sea, and the East China Sea annually in recent years, and possesses abundant experience in construction and management of conventional seas 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 operation footprint throughout Southeast Asia and the Middle East areas. It gradually possesses certain international project management and operation experience.

15 COOEC / ANNUAL REPORT 2016 Summary of Company Business 013 D High detailed 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 products 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. Shipping of Enping 18-1 Project Operating site of flexible pipe laying project in Enping 23-1 Project 30,000-ton extra-large offshore structure construction 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 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 construction capacity formation of deepwater offshore engineering structures. E Successful development of special dummy robot for underwater production facility integration testing F G H Modular construction capacity with global competitiveness In recent years, relying on the strong onshore construction resources and capabilities, the Company has won the bid of a large number of international LNG modular construction projects, implemented Gorgon LNG and Ichthys LNG modular construction projects in Australia. Now the Company is implementing Russia Yamal LNG modular construction project, in which LNG modular factory core process module 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 pipelaying crane vessel in the world and has 3,000m deepwater pipe-laying capacity, 4,000-ton heavy hoisting capacity and dynamic positioning capacity at level III, as well as 19 engineering vessels inclusive of Blue Whale which is a world s first crane vessel with single hoisting capacity of 7,500 ton and 50,000 ton semisubmersible self-propelled vessel; multi-purpose underwater vessels with operating depth of 3,000 meters, multipurpose deepwater installation vessels, and deepwater trenching vessels. Each vessel for main operation features young 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 floating 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 invested to construct a series of underwater engineering equipment and facilities. The Company has a 3,000m deepwater operation fleet and 9 sets of 3,000m level underwater robots, thus having the capacity of installation of underwater structure and mooring in 3,000m depth. It has implemented more than 10 underwater engineering projects, including designing, manufacturing and installation of underwater crossover pipe of 300m depth, subsea pipeline terminal, subsea pipeline end manifold, deepwater connector and other subsea connections, thus having the ability of laying and installation of flexible hose of 500m depth, umbilical cable; the maximum operation depth of the underwater robots reaches up to 1,500m.

16 014 COOEC / ANNUAL REPORT 2016 Discussion and Analysis on Operation Discussion and Analysis on Operation I. Discussion and analysis on operation In 2016, the Company, like the entire oil industry encountered great difficulties in production and operation management and market development, reflecting further impacts by the lower international oil prices and offshore engineering industry work quantities. However, the Company coped with the challenges bravely and exploited international market with great effort to win the EPCI project in the Middle East market for the first time and to make the proportion of overseas revenue rise near 60% for the first time. As for internal management, it continuously promoted quality and efficiency advancing, strove to lower the cost, strengthened project management and kept stable and ordered operation, so active results have been obtained in all aspects and business performance was kept at a satisfactory level. The annual operating income was RMB 11,992 million yuan and the net profits were RMB 1,315 million yuan. By the end of 2016, the Company has the total assets of RMB 29,811 million yuan, net assets of RMB 23,155 million yuan, asset-liability ratio of 22%, closing cash balance exceeding RMB 10,200 million yuan (including bank financial product balance of RMB 3,600 million yuan). Asset-liability ratio reduced continuously, cash current was in good condition, and resistance to industry fluctuations was further enhanced. (I) Engineering project operation was safe and stable with international project execution ability continuously enhanced All year round, the Company operated 21 offshore oil and gas field development projects and 5 modular construction projects, started 9 new projects, such as the Tianjin substitutionary project of 160,000 m2 tanks, Royal Dutch Shell SDA project, Qatar NFA EPCI project, Weizhou 6-13 oil field development project, and has completed 8 projects, such as Weizhou 6-9/10, Enping 23-1, central Bohai Bay 13-1 project, South China Sea TLP project (FEED design). It has completed onshore construction of 2 jackets and 6 modules, and implemented offshore installation of 7 jackets and 11 modules and laying of 76 km subsea pipelines. Although the overall work quantity decreased, project management potency and operating efficiency kept increasing. It only took 13 days to complete 9 large offshore hoisting operations in the Enping 23-1 project with zero error and standby, advancing the duration by 12 days. Production recovery of natural gas pipeline of Ya Cheng 13-1 project is advanced by 30 days. In Chengbei Oilfield equipment and facility upgrading and reconstruction project, only 24 hours were taken to complete major offshore operation risk management and control of class A, namely, removal of 3 crude oil tanks.

17 COOEC / ANNUAL REPORT 2016 Discussion and Analysis on Operation 015 international Over 60% work quantity proportion to international project The Company operated 8 large and medium-sized international projects including Yamal in Russia, and Zawtika in Myanmar, FPSO in Brazil. Quantities of these projects play an important role in offsetting domestic project quantity reduction. The first train of core modules in Yamal project has been delivered, while the second and third train are being delivered. The project is expected to be completed in July Since construction of the project, the Company has made a great breakthrough in pipeline cryogenic insulation, hoisting of extra-large irregular equipment, welding procedures in extremely cold environment, etc., set multiple new records of construction, made great achievements in 38 million hours of zero-accident safety management, and promoted industrial technology upgrading of the Company, which bring COOEC products to the international high-end oil and gas equipment market and accumulate key experience and technologies for the Company further expanding global LNG modular construction businesses and markets.

18 016 COOEC / ANNUAL REPORT 2016 Discussion and Analysis on Operation Progress of key projects: No. Project name Actual progress 1 Penglai 19-3 oilfield zone 1/3/8/9 overall adjustment project 0.1% 2 Huizhou 32-5 project 0.1% 3 Central Bohai Bay 34-9 oilfield development project 0.1% 4 Brunei Hengyi single-point and subsea pipeline project 4% 5 Qatar NFA EPCI project 5% 6 Royal Dutch Shell SDA project 11% 7 Later project of Liwan 3-1 Phase I 37% 8 Tianjin substitutionary project of 160,000 m2 tanks 43% 9 Wenchang 9-2/9-3/10-3 gasfield group development project 46% 10 Brazil FPSO module project 54% 11 Weizhou 12-2 oilfield phase II development engineering project 73% 12 Russia Yamal project 87% 13 Chengbei oilfield equipment and facility upgrading and reconstruction project 97% 14 Indonesia BD project 98% 15 Enping 23-1 oilfields development project 100% 16 Central Bohai Bay 13-1 oilfield decompression and production increase project 100% 17 Weizhou 6-9/10 overall adjustment and newly added subsea pipeline engineering project 100% East module placed in place of Enping 23-1 Project (II) International market development makes new progress in the extremely difficult global market environment In the report, the market occupancy of about RMB 7,828 million yuan was realized. This includes RMB 3,016 million yuan in overseas markets and RMB 4,812 million yuan in the domestic market. By the end of the report, the amount of in-hand uncompleted orders was about RMB 10.4 billion yuan.

19 COOEC / ANNUAL REPORT 2016 Discussion and Analysis on Operation 017 Oil storage barge site of Brazil FPSO Project Offshore lifting site of Chengbei Oilfield Project Module under construction of Yamal Project Offshore Installation of Weizhou 6-9/10 Project

20 018 COOEC / ANNUAL REPORT 2016 Discussion and Analysis on Operation Module shipping and leaving port of Yamal Project

21 COOEC / ANNUAL REPORT 2016 Discussion and Analysis on Operation 019

22 020 COOEC / ANNUAL REPORT 2016 Discussion and Analysis on Operation 1. Actively develop the Middle East market In the report, the Company has won Qatar NFA EPCI project, Saudi Arabia offshore transport and installation project in the Middle East market, with total amount exceeding RMB 1.2 billion yuan. It has also won Qatar crane maintenance project and other projects. In these projects, Qatar EPCI project is the first EPCI project independently undertaken by the Company in the Middle East. In recent three years, the Company focuses on the Middle East market. The Company has founded Saudi Arabia subsidiary, Abu Dhabi subsidiary and Qatar subsidiary. Since foundation, these subsidiaries actively develop local markets, have obtained operation qualification necessary for project contracting in local areas, contracted more than 10 projects, successively been selected into qualified supplier bases of Abu Dhabi ZADCO, Qatar QP and other oil companies, and received invitation for bidding long-term service providers from Saudi Aramco. Once being approved, COOEC is qualified for bidding subsequent projects of Saudi Aramco in the capacity of a general contractor, which is helpful for the Company gradually expanding market shares in the Middle East.

23 COOEC / ANNUAL REPORT 2016 Discussion and Analysis on Operation Undertake large projects in West Africa for the first time Nigeria Dangote project is a large project undertaken by the Company in sea areas of West Africa, with the amount exceeding RMB 1 billion yuan. This project mainly involves offshore structure installation and subsea pipeline laying, being the first large-scale offshore engineering project in West Africa. Offshore oil 286 and 291 Jointly perform Enping 23-1 Project installation in South China Sea 3. Market development work is advanced and bidding quality is improved On the basis of advancing market development work and improving bidding quality, the Company further increased intensity and strength of work advancement. During the bidding process, the Company developed specific procurement and resource allocation plans, made bidding fit well with project implementation, and helped to improve bid winning rate and quality. In Brunei single-point and subsea pipeline project, the Company advanced the work progress and got involved in project in advance to win subsequent EPCI contracts by using the design company to undertake FEED design work.

24 First module M15 of Brazil FPSO Project (III) The Company continued to promote quality improvement and efficiency increase, further enhanced cost control and made efforts to improve development quality and efficiency 1. Aggressively promote new technology, new process, new material, standardization, facilitation, and domestication, and give play to science and technology to lower cost The Company took quality and efficiency increasing and cost decreasing and efficiency improvement as the long-term measures to promote new technology, new process, new material; standardization, facilitation and domestication, implements 16 new processes, 53 new technologies, 4 new materials, 32 standardizations, 42 simplications and 25 domestications. For example, implement EPC management with the design as the core, and optimize overall design scheme and process of the project from the design source to reduce project development costs. The Company carried out 87 design optimizations for each production project, thus saving project investment of about RMB 200 million yuan. In Wenchang project, one floating operation replaced 6 offshore lifting operations, thus reducing more than 80 operating vessel-days and saving composite cost of about RMB 40 million yuan. All projects involving new technology, new process, new material; standardization, facilitation and domestication save cost of about RMB 300 million yuan for the Company. 2. Further elaborating and enhancing vessel cost control Offshore installation work quantities reduced greatly in the report, so the vessel cost control is very important. The Company further elaborated and enhanced the vessel cost control, and offshore installation vessel fleets vigorously controlled the variable cost. In terms of vessel self-repair, accessories self-making, equipment domestication, standby status energy conservation, materials and spare parts management, etc., the variable cost of vessels was reduced more than 20% on year-on-year basis, the concept of overall elaborate management was further enhanced, and remarkable achievements in quality and efficiency increasing was made through strengthening of all staff s sense of cost control, detailed analysis of cost decreasing plans, precise calculation of cost decreasing goals, layer-by-layer analysis and elaborate management of tasks.

25 3. Make reasonable investment as needed by the Company To cope with the severe industry condition, under the premise of meeting basic production needs, the Company condensed or postponed some partial investment, and has condensed the 2016 investment plan for two times. The planned total investment of production and construction in 2016 was RMB 860 million yuan. It was mainly used for Zhuhai base construction and engineering equipment investment. In 2016, the Company completed investment of RMB 844 million yuan, which decreased gradually compared with previous years. (IV) Continuous innovation and breakthrough were made in offshore oil engineering technologies, providing a strong guarantee for core business development. In 2016, the Company mainly centered on core businesses and carried out 75 large scientific research projects, including 10 national major special projects projects, 4 national programs of Ministry of Science and Technology and 11 national programs of Ministry of Industry and Information Technology close to production requirements such as conventional technology, deepwater technology, underwater technology, emergency maintenance technology, welding technology, installation technology and LNG technology. Research progress was made in some scientific research programs. The first TLP wave tank test and vortex-induced motion test with the engineering design in the state was completed for the deepwater technology. The first set of underwater distribution unit prototype model in the state was successfully developed for the underwater technology. One set of sustainable marginal oil field storage, transport and development scheme was formed was formed. Nationalization study and actual application of LMU, compressor, electronic instrument and steel column turner series products were completed for key traditional technology upgrading. The Company further enhanced popularization and application of scientific research achievements, to make many scientific and technological innovation products applied to the first production line, such as underwater production system and product design technologies, LMU development, LNG core process building technologies, offshore oil and gas field power station management Shipping completed of Zhuhai Base dual-module

26 024 COOEC / ANNUAL REPORT 2016 Discussion and Analysis on Operation Tianjin LNG project construction

27 COOEC / ANNUAL REPORT 2016 Discussion and Analysis on Operation 025

28 026 COOEC / ANNUAL REPORT 2016 Discussion and Analysis on Operation system and central control integration technologies, hot tapping blocking technologies, underwater friction stitch welding technologies, underwater surveillance system image enhancement technologies, highly efficient full-automatic welding of subsea pipe with carbon steel, 6000t full-steering self-propelled hydraulic flat car roll-on-roll-off technologies, etc. As a result, the engineering projects were implemented and the market competitiveness was improved. (V) COOEC-Flour Heavy Industries Co., Ltd. officially comes into operation. The joint venture COOEC-Flour Heavy Industries Co., Ltd. with consolidated capital from Zhuhai subsidiary and FLUOR was established and officially came into operation at the beginning of 2016, with the registered capital of USD million. The Company holds 51% shares in the joint venture. The joint venture was established to undertake subsequent construction and daily operation and management of the Zhuhai deepwater offshore engineering equipment manufacturing base, which is a strategic measure with great significance for the Company to cope with current industry difficulties and to expand international market together with FLUOR to improve the international project operation and management ability. The joint venture develops steadily and rapidly in cultural fusion, system construction, management mode, company operation, etc. COOEC-Flour Heavy Industries Co., Ltd. integrating the advantages of parent companies American FLUOR and COOEC will further create and improve deepwater offshore engineering equipment manufacturing capacity, project management capacity, design and R&D capacity and international market development capacity, expand the international market channels, and build world-class deepwater offshore engineering equipment manufacturing base.

29 COOEC / ANNUAL REPORT 2016 Discussion and Analysis on Operation 027 II. Core businesses in report In 2016, the Company realized operating income of RMB 11,992 million yuan with a year-on-year decrease of 25.98%, including core businesses income of RMB 6,220 million yuan from offshore engineering projects and RMB 5,688 million yuan from nonoffshore engineering projects. Net profits realized the Company vesting in shareholders of the listed company were RMB 1315 million yuan with a year-on-year decrease of 61.43%. In 2016, performance of the Company descended due to the industry impact in the overall context of low oil price. In recent two years, oil companies all over the world continued capital expenditures, offshore oil and gas engineering industry related demands drop significantly, and many projects therefore had to be canceled or delayed. As a result, overall work quantities and service prices dropped slightly, which lead to income and net profits of the Company decreases compared with last years. (I) Core business analysis Change Analysis on Items Relating to Income Statement and Cash Flow Statement Item Amount of current Amount of same of previous year Change ratio (%) Operating income 11,991,683, ,201,506, Operating cost 10,095,206, ,220,432, Sales cost 13,047, ,674, Management cost 949,660, ,211,672, Financial cost -209,825, ,558, Inapplicable Net cash flow from operating activities 3,287,991, ,625,658, Net cash flow from investment activities -538,243, ,250, Inapplicable Net cash flow from financing activities -1,174,578, ,732,843, Inapplicable R&D expenditures 703,950, ,602, Income and cost analysis In the report, the Company realized the operating income of RMB 11,992 million yuan with a year-on-year decrease of 25.98%. This was because the international crude oil price kept low since the drop of more than USD 100/bbl in June The price even dropped below USD 30/bbl in the first quarter of Oil companies all over the world had to successively cut down capital expenditures in 2015 and Many oil and gas development projects were canceled or delayed, making the offshore oil and gas engineering industry related demands decreased, and relevant service prices dropped also. Depressed industry conditions pulled down the entire work quantities of the Company, among which steel processing volume of land construction business was 34% less than that of the same of last year, days for offshore service vessel installation is 43% less than that of the same of last year, accordingly pulling down the operating income compared with the last year. Year-on-year Changes of Main Work Quantity Indicators Time Steel processing volume (10,000 structural tons) Vessel-day (10,000 days) Subsea pipeline laying (km) Increase or decrease year-on-year -34% -43% -42% Panorama of jacket on-site fabrication of Penglai 19-9 Project

30 028 COOEC / ANNUAL REPORT 2016 Discussion and Analysis on Operation (1) Core businesses by industries, products and areas Unit: 100,000,000 Yuan Currency: RMB Industry Offshore engineering industry Non offshore engineering industry Area Operating income Operating cost Core businesses by industries Gross profit rate (%) Increase and decrease of operating income over that of last year (%) Increase and decrease of operating costs over that of last year (%) Operating income Operating cost Core businesses by areas Gross profit rate (%) Increase and decrease of operating income over that of last year (%) Increase and decrease of operating costs over that of last year (%) Domestic Bohai Sea South China Sea East China Sea Overseas Total Increase and decrease of gross profit rate over that of last year (%) Decrease by percentage points Increase by 0.52 percentage points Increase and decrease of gross profit rate over that of last year (%) Decrease by percentage points Decrease by percentage points Decrease by percentage points Increase by percentage points Increase by 2.25 percentage points Decrease by percentage points Statement of core businesses by industries, products and areas Both the income and the costs of offshore engineering industry decreased on a year-on-year basis mainly due to severe industry environment and total work quantity reduction of the Company, among which work quantity reduction of East China Sea and Bohai Sea areas was significant. Income from non-offshore engineering projects increased greatly, which mainly owed to gradual implementation of some large international modular onshore construction projects such as Yamal project, as well as onshore projects such as Guangxi LNG storage tank project and Tianjin LNG project, which contribute much income. Yamal project realized income of RMB 5,340 million yuan in this year, accounting for 54% of total contract amount, while remaining contract amount of RMB 2,727 million yuan will be completed in Overseas income increased by 23% on year-on-year basis, mainly because Yamal project, Myanmar Zawtika project and Brazil FPSO project of large contract amount were executed successively, which made the revenue from overseas contract increase quickly. (2) Analysis schedule of production and sales (3) Analysis schedule of costs Unit: RMB 100,000,000 Yuan Industry Oil and gas engineering Cost composition item Current amount By industries Proportion to the total cost in current (%) Amount in the same of last year Proportion to the total cost in the same of last year (%) Proportion of change in amount in current compared to that in the same of last year (%) Material costs Labor costs Depreciation and amortization Fuel costs Construction costs Total

31 COOEC / ANNUAL REPORT 2016 Discussion and Analysis on Operation 029 ROV of COOEC is advancing toward deepwater field Reduction of material, fuel and engineering costs was mainly due to total work quantity reduction of the Company, causing corresponding cost reduction. Reduction of depreciation and amortization costs was mainly due to the Company s vessel depreciation extension since 2016, which is of accounting estimate change and details are as described in Section V in this report in terms of accounting estimate changes. 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 100,000,000 Yuan Cost composition item Engineering cost Cost composition details Current amount Proportion to the total cost in current (%) Amount in the same of last year Proportion to the total cost in the same of last year (%) Proportion of change in amount in current compared to that in the same of last year (%) Onshore construction subcontracting cost Vessel subcontracting cost Vessel berthing cost, port surcharges, etc Total

32 030 COOEC / ANNUAL REPORT 2016 Discussion and Analysis on Operation Domestic first APL single point mooring FPSO dynamic stand pipe extraction operation (4) Information of major sales customers and suppliers The sales amount of the top five customers was RMB 11,298,606,100 yuan, accounting for 94.22% of the total annual sales amount, among which the sales amount of the affiliated parties was RMB 4,562,363,800 yuan, accounting for 38.05% of the total annual sales amount. The purchase amount of the top five suppliers was RMB 648,554,000 yuan, accounting for 22.92% of the total annual purchase amount, among which the sales amount of the affiliated parties was RMB 190,485,000 yuan, accounting for 6.73% of the total annual purchase amount. Other description The supplier purchase amount refers to the supplies purchase amount, excluding business subcontracting. 2. Costs (1) The management cost was RMB 950 million yuan with a year-on-year decrease of RMB 262 million yuan, 21.62%. It was mainly because the research cost decreased by RMB 212 million yuan, and the Company strictly controlled the management expenditures. (2) The financial cost was RMB -210 million yuan with a year-on-year decrease of RMB 58 million yuan. It was mainly because the net interest expense reduces by RMB 20 million yuan and exchange net income increases by RMB 44 million yuan compared with same of last year due to exchange rate fluctuation.

33 COOEC / ANNUAL REPORT 2016 Discussion and Analysis on Operation R&D investment Table of R&D investment Unit: yuan Expensing R&D investment in current 703,950, Capitalized R&D investment in current 0 Total research investment 703,950, Proportion of total R&D investment to operating income (%) 5.87 Number of R&D personnel in the Company 1,347 Proportion of R&D personnel to total number of the Company (%) 17 Proportion of R&D investment capitalization (%) 0 Notes In the report, the Company mainly used the R&D investment in core businesses and organized 75 scientific research projects of the company level and above, including 25 national programs close to production requirements such as conventional technology, deepwater technology, underwater technology, emergency maintenance technology, welding technology, installation technology, LNG technology, etc. The Company took a series of management measures promoting program operation to ensure all programs are carried forward as scheduled, made staged achievements in TLP wave tank test, underwater distribution unit prototype model, marginal oil field storage, transport and development scheme and other R&D programs. R&D investment plays an important role in helping the Company solving technical problems, promoting the strength, improving the working efficiency and effectively reducing the cost of the Company. R&D investment somehow decreases in current mainly due to income scale reduction. The Company fully considered the income changes and R&D investment ratio necessary for new high-tech enterprise authentication, when making R&D investment plan at the beginning of year. 4. Cash flow (1) The net cash inflow from operating activities was RMB 3288 million yuan, with a year-on-year decrease of RMB 338 million yuan, 9.31%. Because the income scale of the Company decreases, inflow and outflow of operating activities decrease accordingly. (2) Net cash flow from investment activities was RMB -538 million yuan,and cash outflow increased by RMB 21 million yuan. The following causes mainly account for such change: 1 Cash flow of RMB 1,590 million yuan generated from Zhuhai subsidiary disposing fixed assets and intangible assets to the joint venture COOEC-Fluor Heavy Industries, increased by RMB 1,409 million yuan compared with the same of last year. Disposing vessel Offshore oil 697 brought RMB 172 million yuan in the same of last year; 2 The Company reduced the capital expenditure, and the cash paid for purchase and construction of fixed assets, intangible assets, and long-term assets decreased by RMB 1,216 million yuan compared with the same of last year, which made the cash flow outflow decrease by RMB 1,216 million yuan; 3 The Company with Qingdao and Zhuhai subsidiaries buying bank financing products increased net investment by RMB 1,500 million yuan, and the net returning investment of the same of last year was RMB 900 million yuan, so the cash outflow increased by RMB 2,400 million yuan compared with the same of last year; 4 Cash of received investment income was RMB 92 million yuan, decreased by RMB 112 million yuan compared with the same of last year. According to comprehensive comparison, net cash inflows generated by current investment activities deceased. (3) Net cash flow from financing activities was RMB million yuan, and the cash outflow decreased by RMB 558 million yuan compared with the same of last year. Due to implementation of 2015 profit distribution plan in current, totally cash dividends of RMB 1,105 million yuan were distributed. The Company distributed cash dividends of RMB 1,017 million yuan in the same of last year, spent RMB 576 million yuan on repurchasing Offshore oil 289 and in paying the rent for the fifth, and repaid USD 9.18 million, RMB 56 million yuan mortgage loan of the subsidiary, Offshore International Engineering Co., Ltd. Therefore, cash outflow from financing activities in the report decreased compared with the same of last year.

34 032 COOEC / ANNUAL REPORT 2016 Discussion and Analysis on Operation (II) Description of significant profit change due to non-core business Zhuhai subsidiary contributed the capital of USD million in the form of Zhuhai base assets and cash, to the joint venture COOEC-Flour Heavy Industries Co., Ltd., which contributed the current profit increase by RMB 647 million yuan, the net profit by RMB 485 million yuan of the Company. This does not constitute sustainability of the Company profits. (III) Analysis of assets and liabilities 1. Assets and liabilities Unit: yuan Project name Amount at the end of current Ratio of the amount at the end of current to total assets (%) Amount at the end of last Proportion of amount at the end of last to total assets (%) Change ratio of the amount at the end of current compared with that at the end of last (%) Currency capital 6,706,031, ,869,365, Bill receivable ,746, Account receivable 1,992,778, ,712,806, Prepayment 164,711, ,283, Interests receivable 19,891, ,684, Other receivables 111,927, ,551, Other current assets 3,679,958, ,141,976, Projects under construction 263,630, ,253, Intangible assets 831,170, ,797,604, Long-term unamortized expenses 68,623, ,571, Deferred income tax assets 505,726, ,864, Advance receipts 88, ,402, Other payables 125,296, ,179, Other current liabilities 6,266, ,360, Bond payable ,197,065, Deferred income 185,426, ,020,001, Description of change in item (1) Monetary capital increased by RMB 1,837 million yuan, 37.72% compared with the end of last year, mainly because partial project was completed in the report and funds were received timely and converted into monetary capital. (2) Bill receivable is 0, decreased by RMB 41 million yuan compared with the end of last year, mainly because of receivables of bank s acceptance bill current. (3) Receivables decreased by RMB 2,720 million yuan, 57.72% compared with the end of last year, mainly because project funds were continuously returned in current and receivables reduces accordingly. (4) Prepayment increased by RMB 44 million yuan, 36.94% compared with the end of last year, mainly because project fund payment to domestic and overseas suppliers increased slightly. (5) Interest receivable increased by RMB 9 million, 86.16% compared with the end of last year, mainly because of increased interests of the bank financial products purchased by the Company. (6) Other receivables decreased by RMB 60 million yuan, 34.76%, mainly because of return of export rebates and insurance claims. (7) Other current assets increased by RMB 1,538 million yuan, 71.80% compared with the end of last year, mainly because of increased balance of bank financial products not yet due at the end of year.

35 COOEC / ANNUAL REPORT 2016 Discussion and Analysis on Operation 033 (8) Projects under construction decreased by RMB 643 million yuan, 70.91% compared with the end of last year, mainly because of the completion of Zhuhai base construction project phase II work and the contribution of Zhuhai subsidiary to the new joint venture COOEC-Flour Heavy Industries Co., Ltd. (9) Intangible assets decreased by RMB 966 million yuan, 53.76% compared with the end of last year, mainly because of the Zhuhai subsidiary making capital contribution to the joint venture COOEC-Flour Heavy Industries Co., Ltd. In the form of fixed assets and intangible assets. (10) Long-term unamortized expenses increased by RMB 19 million yuan, 38.43% compared with the end of last year, mainly because of increased rental from added parking space in office buildings in Tianjin Port Free Trade Zone. (11) Deferred income tax assets increased by RMB 231 million yuan compared, 83.99% with the end of last year, mainly because of profits or losses on internal transaction from the Zhuhai subsidiary making capital contribution to and selling assets to the joint venture. (12) Prepayment decreased by RMB 60 million yuan, 99.85% compared with the end of last year, mainly because of decreased engineering project quantities, and also large advance receipt base of some large projects at commencement in last year as well as less large projects commenced in this year. (13) Other payables increased by RMB 37 million yuan, 42.09% compared with the end of last year, mainly because of received R&D funds from controlling shareholders. (14) Other current liabilities decreased by RMB 52 million yuan, 89.26% compared with the end of last year, mainly because of the Zhuhai subsidiary making capital contribution and selling assets to the joint venture COOEC-Flour Heavy Industries Co., Ltd. (15) Bonds payable was 0, decreased by RMB 1,197 million yuan compared with the end of last year, mainly because the company bond 07 COOEC Bond will be due in November 2017 and accounted into current liabilities due within one year. (16) Deferred income decreased by RMB 835 million yuan, 81.82% compared with the end of last year, mainly because of the Zhuhai subsidiary making contribution and selling assets to the joint venture COOEC-Flour Heavy Industries Co., Ltd., and related deferred income was carried forward to non-operating income. Flexible pipe laying operation of Enping 23-1 Project

36 034 COOEC / ANNUAL REPORT 2016 Discussion and Analysis on Operation 2. Main asset limitation by the end of report 3. Other notes (IV) Analysis on industry business information Successful completion of roll-on-roll-off shipping of a project module of East China Sea at Zhuhai site

37 COOEC / ANNUAL REPORT 2016 Discussion and Analysis on Operation 035 (V) Investment analysis 1. General analysis on foreign equity investment The subsidiary COOEC (Zhuhai) Co., Ltd. and Fluor jointly invested to found CNOOC Fluor Heavy Industry Co., Ltd. on January 8, 2016, with registered capital of USD million. By December 31, 2016, contributed capital was USD million, forming ending balance of long-term equity investment of RMB 2,047 million yuan. Refer to notes to financial statements in terms of long-term equity investment items. In addition, there was no other significant equity investment in the report. (1) Significant equity investment Proposal 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 resolution, The subsidiary COOEC (Zhuhai) Co., Ltd. (Hereinafter referred to as Zhuhai subsidiary) and Fluor jointly invested to found CNOOC Fluor Heavy Industry Co., Ltd. on January 8, 2016, with registered capital of USD million, including USD million in the form of Zhuhai related fixed assets, intangible assets and cash from Zhuhai subsidiary. By December 31, 2016, USD million was contributed, and the rest contribution obligation of USD 81 million will be performed before September 30, This increased the total profits by RMB 556 million yuan and the net profits by RMB 417 million yuan of the Company in current. (2) Significant non-equity investment (3) Financial assets calculated by fair value By the end of the report, the Company reduced the holding-shares of Lanpec Technologies Limited by 17,770,000 shares, decreased by 940,000 shares in the report, and the shareholding proportion is 5.01%. Unit: 10,000 Yuan Security code Securities abbreviation Lanpec Technologies Limited Initial investment cost Shareholding ratio at beginning of (%) Shareholding proportion at end of (%) Book value at end of Profit and loss in report 3, , , Changes in fair Accounting value in items report Share source Availablefor-sale Investment in original financial issue stock assets Total 3, / / 24, , / / (VI) Significant assets and equity offering Large-asset sales matters As one part of the joint venture agreement to promote Zhuhai base construction and operation, Zhuhai subsidiary needs to transfer some assets of Zhuhai base in the form of selling assets to the joint venture that was founded by joint contribution of Zhuhai subsidiary and Fluor, to facilitate the overall operation by the joint venture. These assets were evaluated as RMB 1,607 million yuan, increased by RMB 185 million yuan, and the offering price was RMB 1,607 million yuan. This increased the total profits by RMB 91 million yuan and net profits by RMB 68 million yuan of the Company in current. The offering price accounts for 99.38% of the total profits of the Company. The amount involved did not reach 10% of net assets in the report, so it did not constitute significant assets for sales.

38 036 COOEC / ANNUAL REPORT 2016 Discussion and Analysis on Operation (VII) Analysis of main stock holding and participating companies 1. Basic information of subsidiaries Unit: 10,000 Yuan Currency: RMB No Company name Shenzhen COOEC Subsea Technology Co., Ltd. COOEC (Qingdao) Co., Ltd. COOEC (Zhuhai) Co., Ltd. COOEC International Engineering Co., Ltd. COOEC Indonesia Co., Ltd. COOEC Nigeria Co., Ltd. A.E.S. Destructive & Non-destructive Testing Ltd. Blue Ocean International Co., Ltd. Gaotai Deep Sea Technology Co., Ltd. (originally translated into Ketai Co., Ltd.) Beijing COTEC Offshore Engineering Co., Ltd. COOEC International Co., Ltd. COOEC Canada Co., Ltd. COOEC Australia Co., Ltd. Offshore International Engineering (Thailand) Co., Ltd. Registered capital 206, , , Core business and products Total assets Net assets Net profits Shareholding proportion Technical services, subsea pipe maintenance and other services of offshore oil underwater engineering Construction, installation, design and repair, etc. of offshore oil and gas engineering Construction, installation, design and repair of offshore oil and gas engineering 454, , , % 842, , , % 526, , , % 6, EPC and specialized contract 11, , % Oil and gas field development and repair service business Contract, design, installation, repair and relevant business of offshore oil and gas development engineering Nondestructive testing and welding testing 16, , , % % 1, , % EPCI of offshore oil engineering % EPCI of offshore oil engineering 1, , % Consulting services of deep-sea engineering EPCI of oil and gas development engineering 4, , % 133, , , % 1, EPCI of offshore oil engineering % EPCI of offshore oil engineering % Engineering contracting % (1) Analysis on single subsidiary with net profit proportion taking up more than 10% of that of the Company: In 2016, COOEC (Qingdao) Co., Ltd. realized operating income of RMB 5,858 million yuan, operating profits of RMB1,201 million yuan, and net profits of RMB 1,030 million yuan, increased by 59% compared with RMB 647 million yuan in same of last year, because the onshore construction work quantities completed by Qingdao subsidiary increased compared with the same of last year. In 2016, COOEC (Zhuhai) Co., Ltd. realized operating income of RMB 138 million yuan, operating profits of RMB -706 million yuan, and net profits of RMB 486 million yuan with a significant increase of RMB 81 million yuan compared with the same of last year, because Zhuhai subsidiary contributed the first capital of USD million in the form of Zhuhai base assets and cash, to the joint venture COOEC-Flour Heavy Industries Co., Ltd., which increased the current profits by RMB 647 million yuan and the net profit by RMB 485 million yuan of the Company in current.

39 COOEC / ANNUAL REPORT 2016 Discussion and Analysis on Operation 037 Module in shipment at Qingdao site of Yamal Project (2) Analysis on large performance fluctuation of single subsidiary which causes significant impacts on net profits of the Company: Refer to analysis on operation of COOEC (Qingdao) Co., Ltd. and COOEC (Zhuhai) Co., Ltd.. (3) Acquisition and disposal of subsidiaries in this year: Inapplicable. 2. Basic conditions of the Company s major shareholding enterprises in report Name of company CNOOC Finance Co., Ltd. Gansu Lanke Petrochemical Equipment Co., Ltd. Registered capital (RMB 10,000 yuan) Registration time 400,000 June ,453 December 2008 Business scope Taking deposit, loan, financial leasing, etc. of member organizations Oil drilling machineries, refining chemical equipment, offshore and desert oil equipment and engineering, and refining chemical, etc. Actual contribution (RMB 10,000 yuan) Shareholding proportion 7, % 3, % (VIII) Structured entity controlled by the Company

40 038 COOEC / ANNUAL REPORT 2016 Discussion and Analysis on Operation III. Discussion and Analysis on the Company s Future Development (I) Competition and development tendency 1. International oil price increase to USD 50/bbl, and industry investment is recovered gently Due to production freezing and reduction by OPEC, following the first quarter of 2016, the international oil price gradually rebounded, and fluctuated between USD 40 and 55 for more than 9 months, which was higher than USD 50. Therefore, the industry turned to a better condition, and the industry investment was gently recovered. The domestic offshore oil and gas investment budget for 2017 is RMB 60 to 70 billion yuan, increased by 19% to 39% compared with RMB 50.3 billion yuan in Company operation is stable and sound, so favorable development conditions are available Firstly, the comprehensive strength is strengthened significantly. In recent years, the Company constantly performs development strategies and focuses on four capabilities construction 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 gradually opening the international market, and making the employee team constantly grow, which lay a solid foundation for coping with difficulties due to industry downturn. Secondly, the international market has been gradually opened and the international competitiveness is promoted. The increasing comprehensive strength and international market development capability of the Company contribute to the increase of the share in the international market. Since the 12th Five-year Plan, the Company has won bids of some large projects in Australia, Middle East, Europe, Southeast Asia, Brazil, Middle East and other regions, which is critical for eliminating ic fluctuation in the domestic market. Proper implementation of these projects further expands the Company s brand effect and influence, and helps the Company continue to exploit the overseas market. Thirdly, the low-cost advantages help the Company to improve competitiveness. The dropped and depressed oil price makes international companies concern more about lowering the costs and be more willing to choose the companies who accept lower price and are capable of meeting the requirements on quality and safety. The Company has cost advantages on manufacturing, labor and duration of the projects and has accumulated relatively abundant international project implementation experience. In addition, in recent three years, to cope with the industry difficulties, the Company extensively Onshore module construction

41 COOEC / ANNUAL REPORT 2016 Discussion and Analysis on Operation 039 carries out activities targeted on quality and efficiency improvement, such as Quality and Efficiency Year 1.0 to Quality and Efficiency Year 3.0, which have made great achievements in lowering the comprehensive cost. All these are conducive to increasing the domestic and overseas market shares. Fourthly, through adjustment of the entire oil and gas industry over two years, superiors finally survived and inferiors were eliminated, some international peer companies in Singapore, Europe, etc. went bankrupt. The Company has accumulated a certain amount of capital through development of these years. Currently, the Company s asset-liability ratio is 22%, cash balance exceeds RMB 10.2 billion yuan (including ending balance of cash and cash equivalent RMB 6.6 billion yuan, and balance of bank financial products RMB 3.6 billion yuan), which is conducive to coping with the industry difficulties in a longer and laying a solid foundation for future development. (II) Development strategies of the Company Development strategies of the Company in next five years: Module slippage shipment of Chengbei Project 1. Focus on core businesses and continuously improve core competence Continue to promote four capabilities construction, constantly improve management level, increase product efficiency and technology level, and further lower the cost, so as to make the Company more competitive in the traditional offshore oil and gas engineering below 300m. Further optimize the industrial structure, speed up the industry upgrading, and upgrade and convert new businesses closely relating to core businesses, such as deepwater engineering, underwater engineering, LNG engineering, etc. into EPC businesses. Fully hold the design and construction capacity of 1,500m deepwater and underwater engineering, even 3,000m in some fields, and create the capacity of 3000m deepwater and underwater work and equipment operation. Continue to improve the LNG engineering technology level to enhance the Company s competitiveness in the global market. 2. Unswervingly implements international development strategies Being oriented to the market demands, unswervingly implements international development strategies, closely follow up the national One Belt One Road strategy, constantly develop the international market, increase market shares, operate well international projects, and create excellent projects and brands. By 2021, overseas income proportion of the Company will keep stable, above 40%, and the international project profitability and the international market competitiveness will be enhanced constantly. (III) Business plan Operation objective of 2016 conforms to the plan at the beginning of year, and the objectives at the beginning of year have been satisfied. In 2017, the Company successively has implemented 18 to 20 engineering projects, and overall work qualities increases compared with the same of last year. The Company will strive to make income of 2017 be better than that of 2016 and control the proportion of operating costs to operating income below 87%, and the proportion of three expenditures (expense on selling expenses, management expenses and financial expenses) to operating income at or below 8%. If international oil price and market conditions becomes better, the business status of the Company will also be better. Main work schedule of 2017

42 040 COOEC / ANNUAL REPORT 2016 Discussion and Analysis on Operation 1. Continue to vigorously exploit domestic and overseas markets The Company has bidden and is biding more than 50 international projects and following up more than 55 international projects, which are mainly distributed in Middle East, Southeast Asia, Brazil, Canada, Africa, Mexico, Russia, etc. The Company will closely follow up these projects and make good preparations for market development. The Company will optimize the market competition policies based on the market situation changes, so as to improve the international market development and bidding level. Create new cooperation modes and develop more business opportunities based on the original foundation of cooperation with international partners. In the domestic market, meet the requirements of owners, provide the owners with more value-added services, and help the owners to lower the oil and gas development cost to achieve win-win. 2. Operate existing international projects with high quality, and create brand effects. The Company is implementing large international projects including Russia Yamal, Brazil FPSO, Qatar NFA, etc. Effective implementation of these projects has model significance for the Company to continuously develop the international market, and to deepen business cooperation with original owners. The Company constantly promotes project construction as per strict standards, effectively controls the project quality and progress based on contract requirements, estimates the project difficulties, develops response plans, and continuously improves overseas project profitability. In addition, accelerate the cultivation of high-quality international business, management, and technical personnel, and promote the company brand. 3. Faithfully carry out the Quality and Efficiency Year 4.0 activity to continuously improve quality and efficiency. Elaborately sort, summarize and collect experience and practices in the Quality and Efficiency Year activities over 3 years, enhance achievement popularization and application, intensify process resource summary and conclusion, and solidify and reinforce achievements through procedures, standards and specifications or in other means, to create and consolidate the low-cost advantage. Strengthen project management and use the EPC advantages to further improve resource allocation ability and integrated operation level, and continuously enhance the linkage and coordination of design, procurement, construction, and offshore installation, thus further improving the production efficiency. Improve the procurement and subcontracting management capacity, further expand the scope of centralized and contracting procurement, make use of market mechanism and scale effects, improve overall bargaining power, vigorously promote engineering material localization and shorten the procurement cycle. Give full play to science and technology in efficiency improvement, accelerate science and technology achievement transformation, and provide strong support for production operation while lowering the cost, in terms of process and technology optimization, new technology application and core technology mastering. 4. Unswervingly promote four capabilities construction and constantly improve core competitiveness Strengthen leading role of design, and improve the value of EPC businesses through scientific and effective design optimization. Steadily integrate management and culture of the joint venture COOEC-Flour Heavy Industries Co., Ltd., and accelerate Zhuhai base exploiting international markets and deepwater business development. Steadily carry forward operation of Offshore oil 201, exploit the international market, and continuously improve the comprehensive offshore operation capability. Continue to improve the Company s technical level in LNG engineering, deepwater oil and gas field development, underwater engineering, FPSO engineering and other businesses. 5. Take full control over quality management with high standards Adhere to the concept of people orientation, take safe production as the first consideration, further strengthen the red line consciousness and bottom-line thinking, take the world-class quality safety management level as the goal, and further improve the health, safety and quality management system, continuously promote the safety awareness of crew, and tighten up the management on operation site to make ensure a safe and orderly operation. (IV) Potential risks 1. Industry risks incurred by the continuous low international oil price It is hard to predict the trend of the international oil price. If the oil price keeps low for a long time, the whole international oil & gas exploration industry will be in a depressed state for a long time, which imposes adverse effect on the industry development, reduces the investment and intensifies the competition, further presenting challenges to the Company. Countermeasures: practice our techniques and unswervingly push forward the construction of the owner s capacity, and vigorously explore the international market, constantly promote the management level and technical capacity, further reduce comprehensive cost, keep good cash flow situation, and raise market competition to ensure that the Company can overcome difficulties and depression in a long time, thus achieving long-term sustainable development.

43 COOEC / ANNUAL REPORT 2016 Discussion and Analysis on Operation Risks incurred by international market operation For the short-time participation in international market, international talents are 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, analyze scientifically operation risks in oversea project operation to perfect management system in overseas project operation; thirdly, gradually integrate and improve overseas organize structure, set to 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 rate fluctuation may affect the project 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 techniques in reserves and construction of deepwater equipment, and accumulate experience in techniques of deepwater projects, management and operation through practical operation and employment of foreign experts, so as to reduce construction risks. 5. Risks incurred by factors as natural disaster, severe weather and other natural factors 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: the Company regards the security management as the top priority in long term and pays close attention to severe weather like typhoon, prevent and make preparations in case of emergency in advance, track closely and report timely, and start the emergency response as appropriate, and take various measures to minimize the losses. (V) Others IV. Situations of publification not in accordance with criteria due to inapplicable criteria, state secrets, business secrets or other special reasons and the cause description

44 042 COOEC / ANNUAL REPORT 2016 Important Matters Important Matters I. Plan on Common Share Profit Distribution or Capital Reserve Capitalization (I) Preparation, execution or adjustment of cash dividend policies 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 2016 Distribution policies in the Articles of Association: 1. Fundamental principles of profit distribution policies of the Company (1) In taking fully consideration of the shareholder s return and without violating rules of cash dividends in Articles of Association, annually distribute profits of shareholders at the stipulated ratio of net profits vesting in shareholders of the parent company in consolidated statement of the year. (2) Distributing policies remains continuous and stable, and give consideration to the long-term interests of the Company and whole benefits of shareholders and continuous development. (3) Cash dividends is the preferential method for profits distribution. 2. Policies on profits distribution of the Company (1) Profits distribution method Methods for profits distribution are cash, stock, cash and stock or other means allowed in laws and regulations, and the medium - term profit distribution is also feasible. (2) Conditions and ratios of cash dividends Except for special occasion and the cash can guarantee continuous operation and long-term development of the Company and the un-distributed profits (calculation format is subject to net interests vesting in shareholders of the parent company in the consolidated financial statements) of the year is positive without violating distribution stipulations of the Company Law, adopt cash dividends and profits distributed in the form of cash are not less than 10% of the net profits vesting in shareholders of the parent company of this year in the consolidated financial statements. Accumulated profits distributed in cash bonus in the latest three years shall account for not less than 30% of average distributable profits of the three years. Special occasions: 1 The amount in major external investment or large cash expenditure in the future twelve months (except for fund-raising projects) reaches or exceeds 30% of the latest audited net assets of the Company; investment plan or cash expenditure include possible outward investment, acquisition of assets, external debt payment or equipment procurement, etc; 2 No standard audit report without reserved opinions to the Annual of the Company is issued by audit agency. (3) Requirement to distribution of stock dividends Preliminary distribution plan of stock dividend can be proposed, when the Company runs well and the stock price and equity size are regarded mismatched by Board of Directors, when distribution of stock dividend benefits the whole shareholders and meet the above conditions of cash dividends.

45 COOEC / ANNUAL REPORT 2016 Important Matters Deliberation procedures of profit distribution scheme of the Company (1) Profit distribution scheme of the Company is proposed and prepared by the management of the Company according to provisions of Articles of Association, profits and fund demand plan, and submitted to Board of Directors of the Company for deliberation. Board of Directors of the Company discusses reasonability of profit distribution scheme completely. After the special resolution is formed, it is submitted to the general meeting of shareholders for deliberation. When the Company deliberates detailed cash dividend scheme, consider minority shareholders opinions and demands. In addition to considering minority shareholders opinions at general meeting of shareholders, communicate and exchange with shareholders, especially minority shareholders, by shareholders hotline, fax, etc. to reply to problems concerned by minority shareholders. (2) In case the Company fails to determine the profit distribution scheme of the year complying with existing cash dividend policies due to special conditions stated above in Paragraph 2, it is no need for Board of Directors to specially explain detailed reasons for cash dividends, purpose of corporate retained income, expected investment income, etc. After independent directors shows their opinions, submit them to general meeting of shareholders for deliberation and disclose them on media specified by the Company. When the profit distribution scheme of the year is submitted to general meeting of shareholders for deliberation, it shall be agreed by more than 2/3 of shareholders participating in general meeting of shareholders. (3) Decision-making process of profit distribution policy adjustment or change of the Company In case of force majeure of war, natural disasters or exterior environment change which causes serious effect to company operation, or issues to its operation and if it is thought necessary after detailed discussion of the Company, adjustment or change to distribution policies shall be made. Board of Directors discusses reasonability of profit distribution policy completely. After independent directors shows their opinions, special resolution is formed, then it is submitted to general meeting of shareholders for deliberation. During deliberation on general meeting of shareholders, it shall be agreed by more than 2/3 of shareholders participating in general meeting of shareholders. 4. Implementation of profit distribution scheme of the Company After general meeting of shareholders of the Company makes resolutions on the profit distribution scheme, Board of Directors shall complete dividends (or stocks) distribution within two months after holding general meeting of shareholders. (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 Dividend Year Number of presented bonus shares per 10 shares (shares) Number of dividend per 10 shares (including tax) Number of capitalization per 10 shares (shares) Amount of cash dividends (Including tax) Net profits attributable to common stockholders of the Company in the consolidated statements of dividend year Proportion to net profits attributable to common stockholders of the Company in the consolidated statements (%) , , , , , , (III) Offering for share repurchase with cash to account into cash dividends (IV) In case it is gained during report and undistributed profits of the parent company to common shareholders is positive but no plan of the profit distribution is proposed, the Company shall disclose the reasons, purposes and use plan of undistributed profits.

46 044 COOEC / ANNUAL REPORT 2016 Important Matters II. Performance of the Commitment (I) Commitments of the Company, shareholders, actual controller, purchaser or other related parties in report or continued to report Commitment background Commitment related to initial public offering Commitment related to refinancing Commitment Type Cope with horizontal competition Restricted stock circulation Committed by China National Offshore Oil Corporation China National Offshore Oil Corporation Commitment Contents During existence of the Company, CNOOC and its legal representative shall not be engaged in any business the same as or similar to business scope of the Company now or in the future and shall not carry out activities in any way that might damage the Company's interests. In non-public issuing of COOEC in 2013, restricted of 372,340,600 non-public offering of shares subscribed by CNOOC is 36 months. Commitment date and duration Date of commitment: August 15, 2001, duration: existence of the Company. From October 10, 2013 to October 9, 2016 Any performance duration or not No Yes Implemented timely or strictly or not? Yes Yes (II) If company assets or project profits is expected to be promising, and the report is still in the profit forecast, the Company states if assets or project profits fulfill the forecast and explain 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 and effects caused by changes in accounting policies, accounting estimate by the Company Changes of accounting estimate In recent years, the Company accelerated deepwater strategies, built deepwater fleet and increased high-end deepwater vessels Offshore Oil 201, Offshore Oil 286, Offshore Oil 289 and Offshore Oil 291 with high value. According to relevant provisions, the service life of vessels is basically above 30 years, but the current vessel depreciation life of the Company is years. Therefore, in order to more accurately reflect the actual condition of fixed asset depreciation life of the Company s vessels, the Company adjusted the vessel depreciation life in accordance with Accounting Standards for Business Enterprises and relevant provisions. The principle is to adjust the maximum depreciation life of pipe-laying ship, crane vessel and multi-purpose vessel from 15 years to 20 years. On December 8, 2015, the Company held the 15th Meeting of the 5th Board of Directors and approved the Proposal on Accounting Estimate Change upon deliberation.

47 COOEC / ANNUAL REPORT 2016 Important Matters 045 Depreciation life of vessel is adjusted as follows: Vessel type Depreciation life before adjustment Depreciation life after adjustment Pipe-laying vessel years years Crane vessel years Multi-purpose vessel See details in Announcement on Accounting Estimate Change disclosed by the Company on December 10, 2015 (L2015-No.031). The above accounting estimate change will be implemented from January 1, 2016, prospective application is used and no retroactive adjustment is made, so no influence will be generated on total capital, net assets and net profits disclosed by the Company in all s. This causes decreasing of the depreciation cost by RMB 205,507, yuan of the total profits and increasing of the total profits by RMB 205,507, yuan from January to June in (II) Analysis on reasons and effects caused by major accounting mistakes by the Company (III) Communication with former accounting firms (IV) Other description VI. Engagement and Decruitment of Accounting Firms Unit: 10,000 Yuan Currency: RMB Current engagement Name of domestic accounting firm BDO China Shu Lun Pan Certified Public Accountants LLP Remuneration of domestic accounting firm 170 Audit term of domestic accounting firm 1 Accounting firm of internal control and audit Name BDO China Shu Lun Pan Certified Public Accountants LLP Remuneration 30 Recruitment and decruitment of accounting firms The 17th meeting of the 5th Boards of Directors held on March 15, 2016 deliberated the Engagement of Audit Institution for Company s Financial and Internal Control in 2016, and planned to change the audit organization for financial and internal control. The original audit organization for Company s financial and internal control, Shinewing International fulfilled the time specified by the country after providing financial audit services for ten years. It was agreed to employ BDO China Shu Lun Pan Certified Public Accountants LLP as the financial and internal control audit organization of the Company in 2016 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 2015 general meeting of stockholders held on May 17, Changing the accounting firm during audit VII. Facing the risk of suspending listing (I) Reasons for suspending listing

48 046 COOEC / ANNUAL REPORT 2016 Important Matters (II) Actions to follow by the Company 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 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

49 COOEC / ANNUAL REPORT 2016 Important Matters 047 Related transaction party CNOOC Energy Technology & Services Limited China Offshore Oil Bohai Corporation China Oilfield Services Limited CNOOC Gas & Power Group China National Offshore Oil Corporation China Ocean Oilfields Services Hong Kong Limited Sea Industrial International Co., Limited CNOOC Oil & Petrochemicals Co., Ltd. CNOOC Infrastructure Management Co., Ltd. China Offshore Oil Nanhai West Corporation Related transaction Wholly owned subsidiary of parent company Wholly owned subsidiary of parent company Holding subsidiary of parent company Wholly owned subsidiary of parent company 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 Related transaction types Labor acceptance Labor acceptance Labor acceptance Labor acceptance Labor acceptance Labor acceptance Labor acceptance Labor acceptance Labor acceptance Labor acceptance Related transaction items Provide the Company with following services: engineering subcontracting, transportation, vessel, fuel, water & power, etc. Provide the Company with following services: engineering subcontracting, transportation, vessel, fuel, water & power, etc. Provide the Company with following services: engineering subcontracting, transportation, vessel, fuel, water & power, etc. Provide the Company with following services: engineering subcontracting, transportation, vessel, fuel, water & power, etc. Provide the Company with following services: engineering subcontracting, transportation, vessel, fuel, water & power, etc. Provide the Company with following services: engineering subcontracting, transportation, vessel, fuel, water & power, etc. Provide the Company with following services: engineering subcontracting, transportation, vessel, fuel, water & power, etc. Provide the Company with following services: engineering subcontracting, transportation, vessel, fuel, water & power, etc. Provide the Company with following services: engineering subcontracting, transportation, vessel, fuel, water & power, etc. Provide the Company with following services: engineering subcontracting, transportation, vessel, fuel, water & power, etc. Pricing principle for related transaction Determine contract price by bidding based on market principle. Determine contract price by bidding based on market principle. Determine contract price by bidding based on market principle. Determine contract price by bidding based on market principle. Determine contract price by bidding based on market principle. Determine contract price by bidding based on market principle. Determine contract price by bidding based on market principle. Determine contract price by bidding based on market principle. Determine contract price by bidding based on market principle. Determine contract price by bidding based on market principle. Prices of related transaction Amount of related transaction Proportion to the similar transaction amount (%) 764,706, ,706, ,916, ,916, ,990, ,990, ,697, ,697, ,585, ,585, ,318, ,318, ,082, ,082, ,544, ,544, ,109, ,109, ,963, ,963, Settlement method of related transaction Settle normally according to contract Settle normally according to contract Settle normally according to contract Settle normally according to contract Settle normally according to contract Settle normally according to contract Settle normally according to contract Settle normally according to contract Settle normally according to contract Settle normally according to contract

50 048 COOEC / ANNUAL REPORT 2016 Important Matters Related transaction party CNOOC Research Institutes COOEC- Fluor Heavy Industries Co., Ltd. Related transaction Wholly owned subsidiary of parent company Joint venture Related transaction types Labor acceptance Labor acceptance Related transaction items Provide the Company with following services: engineering subcontracting, transportation, vessel, fuel, water & power, etc. Provide the Company with following services: engineering subcontracting, transportation, vessel, fuel, water & power, etc. Pricing principle for related transaction Determine contract price by bidding based on market principle. Determine contract price by bidding based on market principle. Prices of related transaction Amount of related transaction Proportion to the similar transaction amount (%) 886, , ,786, ,786, Settlement method of related transaction Settle normally according to contract Settle normally according to contract CNOOC Limited CNOOC Gas & Power Group CNOOC Oil & Petrochemicals Co., Ltd. CNOOC Research Institutes CNOOC Energy Technology & Services Limited China National Offshore Oil Corporation China Oilfield Services Limited COOEC- Fluor Heavy Industries Co., Ltd. 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 Parent company Holding subsidiary of parent company Joint venture Provision of labor Provision of labor Provision of labor Provision of labor Provision of labor Provision of labor Goods sales Provision of labor The company provides related parties with production services in relation to design, construction, installation and other disciplines. The company provides related parties with production services in relation to design, construction, installation and other disciplines. The company provides related parties with production services in relation to design, construction, installation and other disciplines. The company provides related parties with production services in relation to design, construction, installation and other disciplines. The company provides related parties with production services in relation to design, construction, installation and other disciplines. The company provides related parties with production services in relation to design, construction, installation and other disciplines. Fuel sales The company provides related party with personnel sent abroad and material sales Determine contract price by bidding based on market principle. Determine contract price by bidding based on market principle. Determine contract price by bidding based on market principle. Determine contract price by bidding based on market principle. Determine contract price by bidding based on market principle. Determine contract price by bidding based on market principle. Determine contract price by bidding based on market principle. Determine contract price by bidding based on market principle. 4,548,345, ,548,345, ,523, ,523, ,450, ,450, ,632, ,632, ,469, ,469, ,043, ,043, , , ,023, ,023, Total / / 5,808,796, / Details of large-amount sales return Inapplicable Settle normally according to contract Settle normally according to contract Settle normally according to contract Settle normally according to contract Settle normally according to contract Settle normally according to contract Settle normally according to contract Settle normally according to contract

51 COOEC / ANNUAL REPORT 2016 Important Matters 049 Related transaction party Related transactions Related transaction Related transaction types Related transaction items Pricing principle for related transaction (II) Related transaction from assets or equity acquisition and sale Prices of related transaction Amount of related transaction Proportion to the similar transaction amount (%) Settlement method of related transaction (1) Main contents of related transactions The Company is one of the largest EPCI companies of offshore oil engineering in Asia. It mainly provides professional technical services for the oil exploitation of China Sea area. There are comparatively many related transactions in offshore engineering services between the Company and related parties such as CNOOC Limited. For instance, the Company provides EPCI service for affiliated companies, and the affiliated companies provide engineering subcontracted transportation, vessel, fuel, water & power for the Company. (2) Price and fairness of related transactions These related transactions provide 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 parties, so as to ensure the fairness of related transaction price, reflecting principles of equity, fairness, and openness, which helps develop core businesses of the Company and maximize the interests of shareholders. (3) Continuity of related transactions It is proved by facts that these related transactions are necessary, and in the foreseeable future, related transactions between the Company and affiliated companies will continue with the rapid development of China offshore oil industry. 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 4. Performance fulfillment in the report 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 In the report, there s no significant related transaction of joint external investment in the Company. (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 In the report, the Company did not provide funds to related parties, and related parties did not provide funds to the Company. For related credits and debts, such as receivables and payables, please refer to note XII. Related Parties and Related

52 050 COOEC / ANNUAL REPORT 2016 Important Matters Transactions to Section XI s in this Report. (V) Others For entrusted research subjects, related party leasing, 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 s in this Report. XV. Significant Contracts and Performance (I) Trusteeship, contracting and leasing 1. Trusteeship 2. Contracting 3. Leasing (II) Guarantee Unit: 100,000,000 Currency: RMB External guarantee (excluding guarantee to subsidiaries) Total guarantee accrual in report 0 (excluding guarantee to subsidiaries) Total guarantee balance at end of report (A) (excluding guarantee to 0 subsidiaries) The Company and its subsidiary's guarantee to subsidiaries Total guarantee accrual to subsidiaries during report Total guarantee balance to subsidiaries at end of report (B) Total guarantee amount (including guarantee to subsidiaries) Total guarantee amount (A + B) Proportion (%) of total guarantee amount to net assets of the Company Wherein: Total guarantee amount to shareholders, 0 actual controllers and related parties (C) Guarantee amount directly or indirectly provided to the guaranteed party whose 0 asset-liability ratio is more than 70% (D) Amount with total guarantee amount 0 more than 50% of net assets (E) Total guarantee amount of three items 0 above (C+D+E)

53 COOEC / ANNUAL REPORT 2016 Important Matters 051 Description of guarantee The Company provided the following 5 guarantees to subsidiaries as of the end of the report : (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 of the parent company is from the issue date to May 2, Guarantee as above have been deliberated and approved by the general meeting of shareholders of 2011 held on May 11, (See resolution announcement and guarantee announcement of Board of Directors and resolution announcement of general meeting of shareholders published on website of Shanghai Stock Exchange on April 26, 2012 and May 12, 2012 respectively) (2) As approved by the 3th 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 Qingdao Subsidiary. The guaranteed parties are respectively Norway KVAERNER (general contractor of Nyhamna project) and Brunei-based Shell Oil Company (owner of BSP project). The contract of Nyhamna project is a unit price contract, and its estimated contract amount is USD 11 million; according to the contract, the maximum claim amount is 10% of the contract amount; the guarantee 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 million; according to the contract, the maximum claim amount is USD 8.25 million; the guarantee will last from the day of providing guarantee to March 31, The above guarantee does not have to be submitted to the general meeting of shareholders 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 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 limit is up to 25% and the maximum defer penalty is 10% of the contract amount. The guarantee is from the issue date to September 23, Guarantee as above have been deliberated and approved by the second extraordinary general meeting of 2014 held on September 16, (See resolution announcement and guarantee announcement and resolution announcement of general meeting of shareholders 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 is from the issue date to July 20, The above guarantee does not have to be submitted to the general meeting of shareholders 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 Friday, July 10, 2015) (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 is from the issue date to April 7, The above guarantee does not have to be submitted to the general meeting of shareholders 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 Friday, July 8, 2016) Gurantees released in the report : (1) As approved upon deliberation by the 13th Meeting of the 5th Board Meeting held on August 19, 2015, Zhuhai Subsidiary entered into a Chinese-foreign equity joint venture contract of establishing the joint venture with Fluor Co., Ltd. subordinate to Fluor Corporation. Zhuhai Subsidiary plans to invest USD million, accounting for 51% of the total registered capital. The Company provided parent company guarantee for Zhuhai Subsidiary in fulfilling registered capital contribution obligation, with guarantee amount of USD million. The guarantee is from the founding date of joint venture to September 30, The above guarantee has been submitted to the first extraordinary general meeting of the Company of 2015 for deliberation and approval. (See resolution announcement and guarantee announcement of Board of Directors and resolution announcement of general meeting of shareholders published on website of Shanghai Stock Exchange on August 21, 2015 and September, 2015 respectively) Since the joint venture was founded in January 2016, this guarantee has been released on September 30, 2016 as specified in the guarantee agreement.

54 052 COOEC / ANNUAL REPORT 2016 Important Matters (III) Entrusting others for cash assets management (1) Entrusted financing Trustee Type of entrusted financing products Amount of entrusted financing Start date of entrusted financing End date of entrusted financing Remuneration determination method Amount of actually recovered principal Actual income Passing legal procedures or not Amount of withdrawal of depreciation reserves Related transactions or not Get involved in lawsuit or not Branch of Everbright Bounded Bank Principalguaranteed bank financial products 500,000,000 November 27, /25/2016 Principalguaranteed + floating income 500,000,000 2,828,767 Yes 0 No No Beijing Chongwenmen Branch of China Merchants Bank Principalguaranteed bank financial products 500,000,000 12/29/2015 2/6/2016 Principalguaranteed + floating income 500,000,000 2,244,000 Yes 0 No No Branch of Everbright Bounded Bank Principalguaranteed bank financial products 500,000,000 1/25/2016 2/24/2016 Principalguaranteed + floating income 500,000,000 1,397,260 Yes 0 No No Beijing Chongwenmen Branch of China Merchants Bank Principalguaranteed bank financial products 500,000,000 1/27/2016 3/4/2016 Principalguaranteed + floating income 500,000,000 1,672,500 Yes 0 No No Branch of Everbright Bounded Bank Principalguaranteed bank financial products 500,000,000 2/19/2016 3/21/2016 Principalguaranteed + floating income 500,000,000 1,443,836 Yes 0 No No Beijing Branch of Standard Chartered Bank Incomeguaranteed financial products 500,000,000 2/26/2016 5/27/2016 Guaranteed income 500,000,000 4,612,329 Yes 0 No No Beijing Chongwenmen Branch of China Merchants Bank Principalguaranteed bank financial products 500,000,000 3/16/2016 4/22/2016 Principalguaranteed + floating income 500,000,000 1,698,000 Yes 0 No No Binhai Branch of Bank of Communications Incomeguaranteed financial products 300,000,000 4/1/2016 5/6/2016 Guaranteed income 300,000, ,466 Yes 0 No No Beijing Chongwenmen Branch of China Merchants Bank Principalguaranteed bank financial products 500,000,000 4/11/2016 6/8/2016 Principalguaranteed + floating income 500,000,000 2,741,000 Yes 0 No No Beijing Chongwenmen Branch of China Merchants Bank Principalguaranteed bank financial products 800,000,000 4/29/2016 6/3/2016 Principalguaranteed + floating income 800,000,000 2,608,000 Yes 0 No No Beijing Chongwenmen Branch of China Merchants Bank Principalguaranteed bank financial products 500,000,000 5/31/2016 7/8/2016 Principalguaranteed + floating income 500,000,000 1,744,000 Yes 0 No No Beijing Chongwenmen Branch of China Merchants Bank Principalguaranteed bank financial products 500,000,000 6/20/2016 8/12/2016 Principalguaranteed + floating income 500,000,000 2,468,500 Yes 0 No No

55 COOEC / ANNUAL REPORT 2016 Important Matters 053 Trustee Type of entrusted financing products Amount of entrusted financing Start date of entrusted financing End date of entrusted financing Remuneration determination method Amount of actually recovered principal Actual income Passing legal procedures or not Amount of withdrawal of depreciation reserves Related transactions or not Get involved in lawsuit or not Beijing Chongwenmen Branch of China Merchants Bank Principalguaranteed bank financial products 500,000,000 7/19/2016 9/14/2016 Principalguaranteed + floating income 500,000,000 2,576,500 Yes 0 No No Development Zone Branch of Everbright Bank Principalguaranteed bank financial products 500,000,000 8/22/ /22/2016 Principalguaranteed + floating income 500,000,000 4,158,904 Yes 0 No No Development Zone Branch of Everbright Bank Principalguaranteed bank financial products 500,000,000 9/14/ /14/2016 Principalguaranteed + floating income 500,000,000 4,113,699 Yes 0 No No Development Zone Branch of Everbright Bank Principalguaranteed bank financial products 500,000,000 9/26/ /26/2016 Principalguaranteed + floating income 500,000,000 4,113,699 Yes 0 No No Development Zone Branch of Everbright Bank Principalguaranteed bank financial products 500,000,000 11/28/2016 2/3/2017 Principalguaranteed + floating income Yes 0 No No Beijing Chongwenmen Branch of China Merchants Bank Principalguaranteed bank financial products 500,000,000 11/29/2016 3/3/2017 Principalguaranteed + floating income Yes 0 No No Development Zone Branch of Everbright Bank Principalguaranteed bank financial products 200,000,000 12/23/2016 1/23/2017 Principalguaranteed + floating income Yes 0 No No Beijing Chongwenmen Branch of China Merchants Bank Principalguaranteed bank financial products 200,000,000 12/26/2016 2/17/2017 Principalguaranteed + floating income Yes 0 No No Zhuhai Branch of Bank of Communications Incomeguaranteed financial products 1,100,000,000 11/30/2015 2/26/2016 Guaranteed income 1,100,000,000 9,821,603 Yes 0 No No Zhuhai Branch of Bank of Communications Incomeguaranteed financial products 1,100,000,000 2/29/2016 5/26/2016 Guaranteed income 1,100,000,000 8,390,137 Yes 0 No No Zhuhai Branch of Bank of Communications Incomeguaranteed financial products 1,100,000,000 6/3/2016 7/5/2016 Guaranteed income 1,100,000,000 3,086,027 Yes 0 No No Zhuhai Port Branch of Bank of China Incomeguaranteed financial products 700,000,000 6/8/2016 9/8/2016 Guaranteed income 700,000,000 5,469,589 Yes 0 No No Zhuhai Port Branch of Bank of China Incomeguaranteed financial products 400,000,000 6/8/2016 6/14/2017 Guaranteed income Yes 0 No No Zhuhai Port Branch of Bank of China Incomeguaranteed financial products 100,000,000 6/8/2016 3/23/2017 Guaranteed income Yes 0 No No

56 054 COOEC / ANNUAL REPORT 2016 Important Matters Trustee Type of entrusted financing products Amount of entrusted financing Start date of entrusted financing End date of entrusted financing Remuneration determination method Amount of actually recovered principal Actual income Passing legal procedures or not Amount of withdrawal of depreciation reserves Related transactions or not Get involved in lawsuit or not Zhuhai Branch of Bank of Communications Incomeguaranteed financial products 700,000,000 7/12/2016 8/15/2016 Guaranteed income 700,000,000 1,956,164 Yes 0 No No Zhuhai Branch of Bank of Communications Incomeguaranteed financial products 400,000,000 7/12/ /12/2016 Guaranteed income 400,000,000 3,226,301 Yes 0 No No Zhuhai Branch of Bank of Communications Incomeguaranteed financial products 700,000,000 8/24/2016 9/26/2016 Guaranteed income 700,000,000 1,645,479 Yes 0 No No Zhuhai Port Branch of Bank of China Incomeguaranteed financial products 700,000,000 9/30/2016 4/3/2017 Guaranteed income Yes 0 No No Zhuhai Branch of Bank of Communications Incomeguaranteed financial products 200,000,000 11/1/2016 1/26/2017 Guaranteed income Yes 0 No No Zhuhai Branch of Bank of Communications Qingdao Economic Development Zone Branch of Bank of Communications Incomeguaranteed financial products Incomeguaranteed financial products 800,000,000 11/18/2016 5/19/2017 Guaranteed income 300,000,000 4/1/2016 6/30/2016 Guaranteed income Yes 0 No No 300,000,000 2,773,973 Yes 0 No No Beijing Branch of Standard Chartered Bank Incomeguaranteed financial products 265,248,000 6/8/2016 9/8/2016 Guaranteed income 265,248, ,640 Yes 0 No No Qingdao Economic Development Zone Branch of Bank of Communications Qingdao Economic Development Zone Branch of Bank of Communications Qingdao Economic Development Zone Branch of Bank of Communications Incomeguaranteed financial products Incomeguaranteed financial products Incomeguaranteed financial products 300,000,000 6/30/2016 9/28/2016 Guaranteed income 100,000,000 9/29/ /2/2016 Guaranteed income 100,000,000 9/29/ /2/2016 Guaranteed income 300,000,000 2,700,000 Yes 0 No No 100,000, ,397 Yes 0 No No 100,000, ,849 Yes 0 No No Total / 18,565,248,000 / / / 14,965,248,000 82,197,619 / 0 / / Accumulated amount of overdue uncollected principal and income (RMB) 0

57 COOEC / ANNUAL REPORT 2016 Important Matters 055 (2) Entrusted loans (3) Other entrusted financing and investment on derivative products Type of investment Signatory Investment share Investment Product type Investment profits and losses Get involved in lawsuit or not Forward foreign exchange settlement of Yamal project Standard Chartered Bank (China) Co., Ltd. Total amount of USD million 3 Forward foreign exchange settlement Investment income of RMB --154,754,800 yuan No Other entrusted financing and investment on derivative products Purpose of project forward foreign exchange settlement: to avoid risks in exchange rate between US dollar and RMB, foreign exchange settlement shall be conducted by the Company to make the exchange risk of project controllable. (IV) Other significant contracts Significant Contracts and Performance Unit: 10,000 Yuan Currency: RMB Payer Content of contract Contract amount CNOOC Limited YAMGAZ SNC PTTEP INTERNATIONAL LIMITED Contract of offshore oil engineering Contract of LNG for Russia Yamal project Contract of offshore oil engineering for Burma Zawtika project Accumulative payment amount by the end of December , , USD 156, USD 109, USD 38, USD 35, 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

58 056 COOEC / ANNUAL REPORT 2016 Important 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, as well as young volunteer activities such as community service. The total investment amount is RMB 827,700 yuan. (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. Currently, 12 poverty workers of CNOOC have been registered, 11 children of school age have obtained aids of RMB 35,000 yuan in total according to relevant standards, and workers in special difficulties have obtained subsidies of RMB yuan. 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. Leaders 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 in Special Difficulties, the Company visited underprivileged families of 50 workers, with poverty alleviation amount of RMB 334,000 yuan. In the Company annual special activity Assist Workers in Difficulties, the Company assisted 81 workers with poverty alleviation amount of RMB 222,000 yuan. The total investment amount is RMB 596,800 yuan. (2) Hope primary school consolation & assistance and voluntary work In 2016, the Company organized consolation & assistance of two hope primary schools, Tongzhaizi Primary School and Xiaotangtougou Primary School in Longhua County, Hebei Province, rewarded merit students and prominent teachers, assisted students in difficulties, and donated RMB 11,600 yuan. As the International Children s Day approaching, the Company organized young volunteers to the two primary schools for supporting education and brought them 20 computers and school supplies. The Company organized young volunteers to participate in the Charity Bazaar and Friends & Entertainment Activity for Helping the Disabled organized by Working Committee of Tanggu Sub-district, organized 6 young volunteers to participate in the 5th Blue Power Coastal Environment Protection Voluntary Activity organized by Bohai Petroleum Administration Bureau, carried out beach cleaning, ocean protection awareness campaign, and ocean awareness campaign. The total investment amount is RMB 11,600 yuan. (3) Community charitable contribution COOEC (Qingdao) Co., Ltd., a subsidiary of the Company established the COOEC naming sponsorship fund of RMB 3.5 million yuan for , during which 3% added value of the fund (RMB 105,000 yuan) is donated annually to Charity Federation of Qingdao Economic and Technical Developing Zone for the purpose of nursery education. RMB 105,000 yuan 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 City, Qingdao) Subsidiary voluntarily and actively made donation of RMB 114,300 yuan 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 219,300 yuan. 2. Statistics of Targeted Poverty Alleviation of Listed Companies in 2016 Unit: 10,000 Yuan Currency: RMB Indexes Quantity and implementation I. General condition 1. Capital Number of registered workers overcoming poverty with help (people) 12 II. Items 1. Shaking off poverty on education Help poverty students in hope primary schools

59 COOEC / ANNUAL REPORT 2016 Important Matters 057 Indexes Quantity and implementation 1.1 Amount for helping poverty students Safeguard measures Help poverty workers 2.1 Amount for helping poverty disabled Number of poverty disabled getting help (people) Social poverty alleviation Charitable donation in Qingdao 3.1 Amount for fixed-point poverty alleviation Charitable fund for poverty alleviation (II) Work of implementing social responsibility Refer to Social Responsibility Report on China Offshore Oil Engineering Co., Ltd. in 2016 disclosed at website of Shanghai Stock Exchange, on the same day. (III) Environmental protection of companies and their branches listed as main pollutant discharging companies by national department of environmental protection (IV) Other descriptions XVIII. Convertible Corporate Bonds The Company has issued no convertible corporate bonds.

60 058 COOEC / ANNUAL REPORT 2016 Ordinary Share Changes and Shareholders Ordinary Share Changes and Shareholders I. Changes in Ordinary Share Capital (I) List of Changes in Ordinary Shares 1. List of Changes in Ordinary Shares In the report, total shares and capital structure of the Company have no change. 2. List of Changes in Ordinary Shares 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 Unit: Share Shareholder name China National Offshore Oil Corporation Shares subject to the restrictions on sales at the beginning of the year Shares released from restrictions on sales in this year Shares subject to the restrictions on sales increased in this year Shares subject to the restrictions on sales at the end of the year 372,340, ,340, Restriction reasons Non-public offering of shares restriction Date of release from the restrictions Monday, October 10, 2016 Total 372,340, ,340, / / II. Securities Issuance and Listing (I) Securities issuance by the end of report Securities issuance by the end of report (separately describe securities with variable interest rates in existence ): (II) Total ordinary shares and changes in shareholder structure, asset and liability structure of the Company (III) Existing staff shares

61 COOEC / ANNUAL REPORT 2016 Ordinary Share Changes and Shareholders 059 III. Shareholder and Actual Controller (I) Total shareholders Total number of shareholders by the end of report (nos.) Total number of ordinary shareholders by the end of last month prior to disclosure of annual report (nos.) Total number of preferred shareholders with recovered voting right by the end of report (nos.) Total number of preferred shareholders with voting right not recovered by the end of last month prior to disclosure of annual report (nos.) 144, , (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 Unit: share Shareholder name (Full name) Increase or decrease in report Shareholding of Top 10 Shareholders Amount of holding shares by the end of Percentage (%) Number of holding shares subject to restrictions on sales Pledge or freezing Share Status Quantity Shareholders nature China National Offshore Oil Corporation 0 2,270,969, None 0 State China Offshore Oil Nanhai West State-owned 0 294,215, None 0 Corporation legal-person China Securities Finance Co., Ltd. 12,704, ,943, None 0 State-owned legal-person Central Huijin Asset Management Co., State-owned 0 89,714, None 0 Ltd. legal-person Bosera Funds - Agricultural Bank of China - Bosera CSF Financial Assets 0 36,704, None 0 Unknown Management Plan E Fund - Agricultural Bank of China - E Fund CSF Financial Assets Management 0 36,704, None 0 Unknown Plan Dacheng Funds - Agricultural Bank of China - Dacheng CSF Financial Assets 0 36,704, None 0 Unknown Management Plan Harvest Fund - Agricultural Bank of China - Harvest Fund CSF Financial 0 36,704, None 0 Unknown Assets Management Plan Guangdong Development Fund - Agricultural Bank of China - Guangdong Development Fund CSF Financial Assets 0 36,704, None 0 Unknown Management Plan Lombarda China Fund - Agricultural Bank of China - Lombarda China Fund 0 36,704, None 0 Unknown CSF Financial Assets Management Plan China Asset Management - Agricultural Bank of China - China Asset Management 0 36,704, None 0 Unknown CSF Financial Assets Management Plan Yinhua Fund - Agricultural Bank of China - Yinhua Fund CSF Financial 0 36,704, None 0 Unknown Assets Management Plan China Southern Fund - Agricultural Bank of China - China Southern Fund CSF 0 36,704, None 0 Unknown Financial Assets Management Plan ICBCCS Funds - Agricultural Bank of China - ICBCCS CSF Financial Assets Management Plan 0 36,704, None 0 Unknown

62 060 COOEC / ANNUAL REPORT 2016 Ordinary Share Changes and Shareholders Shareholding of Top 10 Shareholders Not Subject to Restrictions on Sales Amount Types and number of shares of holding Shareholder name circulating shares not subject to Type Quantity restriction on sales China National Offshore Oil Corporation 2,270,969,554 RMB ordinary shares 2,270,969,554 China Offshore Oil Nanhai West Corporation 294,215,908 RMB ordinary shares 294,215,908 China Securities Finance Co., Ltd. 113,943,823 RMB ordinary shares 113,943,823 Central Huijin Asset Management Co., Ltd. 89,714,500 RMB ordinary shares 89,714,500 Bosera Funds - Agricultural Bank of China - Bosera CSF Financial Assets Management Plan 36,704,400 RMB ordinary shares 36,704,400 E Fund - Agricultural Bank of China - E Fund CSF Financial Assets Management Plan 36,704,400 RMB ordinary shares 36,704,400 Dacheng Funds - Agricultural Bank of China - Dacheng CSF Financial Assets Management Plan 36,704,400 RMB ordinary shares 36,704,400 Harvest Fund - Agricultural Bank of China - Harvest Fund CSF Financial Assets Management Plan 36,704,400 RMB ordinary shares 36,704,400 Guangdong Development Fund - Agricultural Bank of China - Guangdong Development Fund CSF Financial Assets 36,704,400 RMB ordinary shares 36,704,400 Management Plan Lombarda China Fund - Agricultural Bank of China - Lombarda China Fund CSF Financial Assets Management Plan 36,704,400 RMB ordinary shares 36,704,400 China Asset Management - Agricultural Bank of China - China Asset Management CSF Financial Assets Management Plan 36,704,400 RMB ordinary shares 36,704,400 Yinhua Fund - Agricultural Bank of China - Yinhua Fund CSF Financial Assets Management Plan 36,704,400 RMB ordinary shares 36,704,400 China Southern Fund - Agricultural Bank of China - China Southern Fund CSF Financial Assets Management Plan 36,704,400 RMB ordinary shares 36,704,400 ICBCCS Funds - Agricultural Bank of China - ICBCCS CSF Financial Assets Management Plan 36,704,400 RMB ordinary shares 36,704,400 Among the top 10 shareholders, CNOOC Nanhai West Description of the above shareholder association or concerted action Corporation is a wholly-owned subsidiary of and connected to CNOOC. It is unknown whether there is association or concerted action among other shareholders. Preferred shareholders with recovered voting right and the amount of holding shares No preferred shares, inapplicable. 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 VI. Controlling shareholder and actual controller (I) Controlling shareholder 1. Legal person Name China National Offshore Oil Corporation Person in charge or legal representative Yang Hua Date of foundation 2/15/1982

63 COOEC / ANNUAL REPORT 2016 Ordinary Share Changes and Shareholders 061 Main businesses Equity of other domestic and foreign listed companies holding and sharing stocks during report Others 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 businesses: organization of exploration, development, production and sale of oil and gas, oil refining, petrochemical industry and processing and utilization of gas, sale and storage of products, development and utilization of liquefied natural gas, transport of oil and gas by pipeline and pipe network, development, production and sale of fertilizer and chemical products and relevant businesses, provision of services for exploration and production of oil, gas and other geological mining products, EPC, technology research, technology consultation, technical service and technology transfer related to exploration, development and production of oil and 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 products; production, sales of wind energy, biomass energy, aquo-complex, coal chemical industry, solar energy, etc. and relevant services. During report, other domestic and foreign listed companies whose shares are held by CNOOC are listed as follows: CNOOC Limited, China Oilfield Services Limited, China Blue Chemical Ltd. and Shandong Haihua Co., Ltd. CNOOC is a central enterprise directly controlled by State-owned Assets Supervision and Administration Commission of the State Council. 2. List and date of changes in controlling shareholders in report 3. Block diagram of property right and controlling relations between the Company and controlling shareholders State-owned Assets Supervision and Administration Commission of the State Council 100% 100% China National Offshore Oil Corporation 100% 62.90% China Offshore Oil Nanhai West Corporation China Offshore Oil Bohai Corporation China's oil Financial Co., Ltd 6.65% 51.36% 0.28% 0.04% Offshore Oil Engineering Co., Ltd. (II) Actual controller 1. Legal person The actual controller of the Company is CNOOC. See details in this sections of controller shareholder. 2. 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

64 062 COOEC / ANNUAL REPORT 2016 Preferred Shares Preferred Shares

65 COOEC / ANNUAL REPORT 2016 Directors, Supervisors, Senior Managers and Employees 063 Directors, Supervisors, Senior Managers and I. Shareholding Changes and Remuneration Employees (I) Shareholding changes of incumbent or outgoing directors, supervisors and senior managers in report Unit: share Name Position Gender Age Lv Bo Chairman Male 54 Jin Xiaojian Zhu Lei Director, President and Deputy Secretary of the Party Committee Director, Secretary of the Party Committee and Executive Vice President Male 57 Male 47 Meng Jun Director Male 56 Qiu Xiaohua Guo Tao Huang Yongjin Wei Junchao Independent director Independent director Independent director Chairman of the Board of Supervisors Male 58 Male 61 Male 50 Male 58 Zhao Yanbo Supervisor Female 44 Rao Shicai Lin Yaosheng Chen Yonghong Supervisor, Vice Secretary of the Party Committee, Secretary of Discipline Inspection Commission, Chairman of the Labor Union Executive Vice President Chief Financial Director Male 48 Male 55 Male 43 Chen Rongqi Chief Engineer Male 53 Starting date of term of office Wednesday, November 23, 2016 Sunday, January 22, 2017 Tuesday, March 15, 2016 Friday, January 10, 2014 Wednesday, November 23, 2016 Wednesday, May 20, 2015 Wednesday, May 20, 2015 Wednesday, April 23, 2014 Wednesday, April 23, 2014 Monday, September 16, 2013 Wednesday, July 6, 2016 Wednesday, August 29, 2012 Friday, April 22, 2016 Ending date of term of office Number of shares at the beginning of the year Number of shares at the end of the year Increase and decrease of shares in the year Reasons of increase and decrease Total pre-tax remuneration obtained from the Company during the report (RMB 10,000 yuan) Receive remuneration from related parties of the Company or not Yes No No 22,680 22, Yes No No No Yes Yes No No 60,000 60, No No

66 064 COOEC / ANNUAL REPORT 2016 Directors, Supervisors, Senior Managers and Employees Name Position Gender Age Yu Changsheng Vice President Male 51 Chen Baojie Vice President Male 51 Li Xiaowei Vice President Male 47 Liu Jian Former Chairman Male 58 Zhou Xuezhong Wang Tao Li Youcheng Li Zhigang Zhu Wuxiang Former Director and President Former Executive Vice President Former Vice President Former Chief Engineer Former Independent Director Secretary of the Board of Directors Male 59 Male 50 Male 54 Male 51 Male 51 Starting date of term of office Wednesday, July 6, 2016 Wednesday, July 6, 2016 Wednesday, July 6, 2016 Thursday, December 2, 2010 Thursday, December 2, 2010 Friday, March 14, 2014 Monday, August 6, 2007 Monday, August 6, 2007 Friday, January 10, 2014 Ending date of term of office Wednesday, November 23, 2016 Sunday, January 22, 2017 Wednesday, July 6, 2016 Wednesday, July 6, 2016 Friday, April 22, 2016 Thursday, May 26, 2016 Number of shares at the beginning of the year Number of shares at the end of the year Increase and decrease of shares in the year Reasons of increase and decrease Total pre-tax remuneration obtained from the Company during the report (RMB 10,000 yuan) Receive remuneration from related parties of the Company or not No 10,000 10, No 15,000 15, No Yes 271, , No 77,200 77, Yes 60,000 60, No 40,000 33,000-7,000 Personal holding reduction after outgoing 6.47 Yes No Liu Lianju Male 51 Tuesday, April 10, ,000 40, No Total / / / / / 596, ,180-7, / Name Lv Bo Jin Xiaojian Zhu Lei Meng Jun Qiu Xiaohua Guo Tao Huang Yongjin Wei Junchao Professional experience Since 1985, he successively 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, and served as the General Manager in Human Resources Department of CNOOC; in November 2006, he was appointed as the General Manager Assistant of CNOOC; in April 2010, he was appointed as the Deputy General Manager of CNOOC. In December 2012, he took an additional post of the Chairman in CNOOC Energy Technology & Services Limited. In November 2016, he took an additional post of the Chairman in China Offshore Oil Engineering Co., Ltd. In December 2016, he took an additional post of the Chairman in China Oilfield Services Limited. In 1982, he jointed in CNOOC, and successively served as the Drilling Supervisor in the drilling department and the production department, the Deputy Director in the production department and the deputy director in the production office of China Offshore Oil Bohai Corporation; from March 1996 to October 2001, he was successively appointed as the Chief Engineer, the Deputy General Manager and the General Manager in China Oilfield Services Limited; from October 2001 to October 2005, he was successively appointed as the Deputy General Manager and the Executive Vice-President; from October 2005 to February 2007, he served as the Deputy General Manager of CNOOC Tianjin Branch; from February 2007 to December 2013, he served as the General Manager in the engineering construction department of CNOOC; from December 2013 to January 2017, he was appointed as the General Manager in the planning department of CNOOC, and the Director in the engineering management office of CNOOC. Since January 2017, he served as the President and the Deputy Secretary of the Party Committee of COOEC. In February 2017, he took an additional post of the director in COOEC. From April 2003 to January 2009, he served as the Planning Statistic Manager in the planning department of CNOOC; from January 2009 to December 2011, he served as the Vice General Manager in the planning department of CNOOC; from January 2012 to January 2016, he served as the Vice General Manager in the planning department of CNOOC. Since January 2016, he served as the Secretary of the Party Committee of COOEC, and he serves as the Executive Vice-President since March In May 2016, he took an additional post of the director in COOEC. From April 2007 to present, he served as the Deputy General Manager in the financial department of CNOOC. Since January 2014 to present, he took an additional post of the Director 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. He now serves as the Chief Economist of Minsheng Securities, the Director 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 October 2012 to present, he served as the partner of Zhongzhun Certified Public Accounts. From May 2015 to present, he served as the Independent Director of COOEC. 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 SkyGeo Information. From May 2015 to present, he served as the Independent Director of COOEC. From October 2004 to December 2013, he served as the Director of the General Office of CNOOC. From December 2013 to present, he served as the Chairman of Board of Supervisors of CNOOC. From April 2014, he took an additonal post of the Chairman of Board of Supervisors of COOEC.

67 COOEC / ANNUAL REPORT 2016 Directors, Supervisors, Senior Managers and Employees 065 Name Professional experience From August 2003 to February 2012, he served as the Senior Auditor of the Division of Auditing & Supervision of CNOOC. From March 2012 to the Zhao Yanbo end of 2015, he served as the full-time Supervisor of CNOOC. From December 2015 to present, he served as the Deputy Director General of Division I under Ministry of Supervision of CNOOC. 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 Department of COOEC. From March 2014 to present, Rao Shicai he served as the Deputy Secretary of the Party Committee, the Secretary of Committee of the Discipline Inspection, the Chairman of the Trade Union of COOEC. From August 2011, he took an additional post of the Employee Supervisor 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 Lin Operators Group, the Project Manager of Xijiang 23-1 Project of CNOOC, and the General Manager of 981 Deepwater Drilling Vessel Engineering Yaosheng Project of COOEC. From February 2012 to June 2016, he served as the Deputy General Manager in the Engineering Construction Department of CNOOC. Since July 2016, he served as the Executive Vice-President of COOEC. From July 2006 to September 2009, he served as the General Manager of the department of the capital management of China Blue Chemical Ltd. Chen From October 2009 to July 2012, he served as the General Manager of the financial management department of China Blue Chemical Ltd. From Yonghong August 2012 to present, he served as 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; Chen Rongqi 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, served as the Chief Engineer of COOEC. Yu Changsheng Chen Baojie Li Xiaowei Liu Lianju Other description He successively served as the Deputy Director and then the Director in the process office of COODEC, 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. Since July 2016, he served as the Vice President of COOEC. He served as the Director in the welding workshop of China Offshore Oil International Engineering Company, the Project Manager of COOEC, the Deputy General Manager and the General Manager of COOEC. From March 2012 to May 2016, he served as the General Manager of COOEC (Qingdao) Co., Ltd.. Since July 2016, he served as the Vice President of COOEC. He successively served as the Deputy Director in the technical development department of CNOOC Offshore Engineering Company, the Director in the material and welding process development department of CNOOC Offshore Engineering Company, the Project Manager and the Class-A Project Manager of COOEC, and the Deputy General Manager of COOEC (Qingdao) Co., Ltd. From December 2010 to May 2016, he served as the General Manager in the Market Development Department of COOEC. Since 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. Since December 2010, he served as the General Manager of Board Secretary Office. (II) Equity incentive awarded to the directors and senior managers in report II. Post-holding of incumbent or outgoing directors, supervisors and senior managers in report (I) Post-holding in the shareholder entity Name of person holding the post Liu Jian Lv Bo Meng Jun Wei Junchao Zhao Yanbo Name of shareholder entity China National Offshore Oil Corporation China National Offshore Oil Corporation Position at shareholder entity General Manager, Deputy Secretary of Party Committee and Member of Party Group General Manager and Member of Party Group Vice General Manager of Financial Department Starting date of term of office September 2015 April 2010 China National Offshore Oil Corporation April 2007 China National Offshore Oil Corporation Chairman of the Board of Supervisors December 2013 Deputy Director General of Division December China National Offshore Oil Corporation I under Ministry of Supervision 2015 Ending date of term of office Note: post-holding is on going, so the end of term is unknown.

68 066 COOEC / ANNUAL REPORT 2016 Directors, Supervisors, Senior Managers and Employees (II) Post-holding in other entities Name of person holding the post Name of other entities Post in other entities Starting date of term of office China Oilfield Services Limited Chairman December 2016 CNOOC Energy Technology & Services Limited Chairman December 2012 Overseas Oil and Gas Corporation, Ltd. Director June 2009 Lv Bo Overseas Oil and Gas Corporation, Ltd. Secretary of the Board of Directors November 2016 CNOOC BVI Director and Secretary of the Board of Directors November 2016 China Ocean Oilfields Services Hong Kong Limited Chairman November 2016 Guo Tao Zhongzhun Certified Public Accountants Partner 2012 Huang Yongjin Post-holding in other entities Shanghai Geotechnical Investigation & Design Institute Co., Ltd. Vice President 2011 SkyGeo Information Chairman 2013 Ending date of term of office 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 Directors, Supervisors and Senior Managers Process of decision-making on the remuneration of directors, supervisors and senior managers. Basis for recognition of the remuneration of directors, supervisors and senior managers Actual payment of remuneration of directors, supervisors and senior managers Total remunerations actually gained by all directors, supervisors and senior managers by the end of report 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. Subsidy for directors The subsidy for the three independent directors of the Company is RMB 128,000 Yuan (before tax) per person year. Travel expenses for participating in the general meeting of shareholders and the Board Meeting 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 Liu Jian, Lv Bo, Meng Jun, Wei Junchao and Zhao Yanbo. Above mentioned directors and supervisors would receive their remunerations and subsidies from CNOOC, the first majority shareholder entity of the Company. RMB 6,830,700 yuan IV. Changes of Directors, Supervisors and Senior Managers Name Post Change Reasons Lv Bo Chairman Election As needed by corporate management and development Jin Xiaojian Director, President and Deputy Secretary of the Party Committee Election As needed by corporate management and development

69 COOEC / ANNUAL REPORT 2016 Directors, Supervisors, Senior Managers and Employees 067 Name Post Change Reasons Zhu Lei Director, Secretary of the Party Committee and Executive Vice Election As needed by corporate management and development President Qiu Xiaohua Independent director Election As needed by corporate management and development Lin Yaosheng Executive Vice President Recruitment As needed by corporate management and development Chen Rongqi Chief Engineer Recruitment As needed by corporate management and development Yu Changsheng Vice President Recruitment As needed by corporate management and development Chen Baojie Vice President Recruitment As needed by corporate management and development Li Xiaowei Vice President Recruitment As needed by corporate management and development Liu Jian Former Chairman Outgoing Resign as needed Zhou Xuezhong Former Director and President Outgoing Resign because of mandatory age for retirement Zhu Wuxiang Former Independent Director Outgoing Resign as needed Wang Tao Former Executive Vice President Outgoing Job change Li Youcheng Former Vice President Outgoing Job change Li Zhigang Former Chief Engineer 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 company 5,300 Number of in-service employees in main subsidiaries 2,609 Total number of in-service employees 7,909 Number of retired employees whose payment was borne by parent company and main subsidiaries 0 Specialty component Category of specialty component Number of specialty component Production personnel 2,771 Technician 3,405 Financial personnel 107 Operation management and project management personnel 1,626 Total 7,909 Education background Type of education background Quantity (people) Master degree or above 920 Bachelor degree 3,655 Junior college 1,508 Secondary school and below 1,826 Total 7,909 (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

70 068 COOEC / ANNUAL REPORT 2016 Directors, Supervisors, Senior Managers and Employees 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 established the training and reeducation mechanism for employees, and formulated and implemented training plans for all employees based on employee growth and corporate demand. The Company established a 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 2016, 2091 times of trainings were carried out, with 670,300 h in total and 84.6 h per capita. Trains mainly cover safety, production, technology, skill, management and other relevant business knowledge. 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 VII. Others

71 COOEC / ANNUAL REPORT 2016 Company Governance 069 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 general shareholders meeting enjoys all rights specified by laws, regulations and Articles of Association, exerts decision-making rights to guideline for management, financing, investment, profit distribution and other significant matters of the Company legally; Board of Directors is responsible for the general shareholders meeting, and enjoys implementation rights to resolutions of the general shareholders meeting and operating decision rights specified; Board of Supervisors shall be responsible for the general shareholders meeting and inspect and supervise implementation, etc. of corporate financial personnel, internal control personnel and senior managers; and management layer is responsible for organizing and implementing resolutions of the general 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 of the People s Republic of China and relevant regulations of CSRC. (I) Establishment and soundness of company governance system The Company formulates Articles of Association, Rule of Procedure for General Meeting of Shareholders, 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 of the People s Republic of China, 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 452 internal control procedures of 14 internal control systems including administrative management, human resource management, financial management, business contract management, engineering project management, etc. In 2016, the Company formulated and revised 102 internal control procedures, including 18 new procedures and 84 revised procedures, forming the more scientific, reasonable and efficient controllable internal control systems. The Company set the original Auditing and Supervisory Department as the Auditing Department and Supervisory Department, so as to give full play to internal auditing and supervisory work. (II) General meeting of shareholders The Company complies with Company Law of the People s Republic of China, Securities Law, Rules Governing the Listing of Stocks and Rules of Procedure for General Meeting of Shareholders and meet 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 general meetings of shareholders to confirm and witness holding procedures and audited events of the meeting and identification of participants and provide legal opinion ensuring legal and efficient general meeting of shareholders. In 2016, the two general shareholders meeting were held by the Company in 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 independent directors, which safeguarded the shareholders legal rights practically. (III) Board of Directors 1. Composition of Board of Directors The Company, strictly following the selection and recruitment procedures stipulated in the Articles of Association, selects and recruits 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.

72 070 COOEC / ANNUAL REPORT 2016 Company Governance In the report, Lv Bo served as the Chairman of the Board of Directors. Zhu Lei, the Secretary of of the Party Committee and the Executive Vice-President of the Company joined in the Board of Directors, and Qiu Xiaohua served as the Independent Director. In February 2017, Jin Xiaojian, the President of the Company joined into the Board of Directors upon deliberation and approval by the General Meeting of Shareholders. 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. Liu Jian, the former President resigned from his post for work arrangement, Zhou Xuezhong, the former Chief Executive Director resigned from his post for mandatory age for retirement, and Zhu Wuxiang, the former Independent Director resigned from his post for work arrangement. The Company expresses heartfelt thanks to them for their important contributions in their tenure terms. 2. Performance of the 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 were held in February, March, April, July, August, October, November and December 2016, 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, the Board of Directors paid attention to the conditions of international market development, international project operation management, prudent investment, cost decreasing and benefit increasing, Four Capabilities Construction and financial management of the Company. The Board of Directors required the Company to grasp economic and industrial situation changes, vigorously exploit international market, lower the cost, cope with the difficulties and improve the competitiveness to ensure sustainable development, and put forward specific requirements for safety quality management and investor relations management. The Company reported to the Board of Directors the resolutions and the following implementation of resolutions made by Boards of Directors. With the harsh and complex operation situation in 2016, the Board of Directors coped with difficulties more actively. Firstly, the Board of Directors paid more attention to the safety and risk management to make the Company constantly improve the safety management level, continuously promote the risk management normalization construction, and enhance the risk research, identification and control strength. Secondly, the Board of Directors paid more attention to the expansion of the international market, continuously and vigorously expand the international market while creating module construction brand

73 COOEC / ANNUAL REPORT 2016 Company Governance 071 and effects, closely followed up the market changes and the customer demand changes to increase business shares of the Company in Middle East, West Africa and other regions so as to further speed up the Company internationalization progress. Thirdly, the Board of Directors paid more attention to the cash flow management, did well in lowering cost and improving efficiency and advancing quality & efficiency, strictly controlled the investment and did prudently in investment. The Board of Directors also paid high attention to communication with capital market, chairman and all directors attended the annual general meeting of shareholders personally, 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, comprehensive capacity changes of the Company, development of overseas 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 of the People s Republic of China 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 is under approval of the Board of Directors (these beyond a certain amount shall be decided by the General Meeting of Shareholders), and other capital investment (less than RMB 100,000,000 yuan) shall be approved by the management. (IV) Board of Supervisors The composition of Board of Supervisors conforms to the laws requirements. It is composed of three supervisors, including two are 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 General Meeting of 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 4 meetings in the year. Supervisors attended the General Meeting of Shareholders and attended all meetings of directors as nonvoting delegates, 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 fulfill their own responsibilities carefully and pay high attention to supervision of legal operation, financial condition, regular reports and responsibility implementation of Board of Directors and senior managers of the Company, etc. The Board of Supervisors often attended senior 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, as well as the study on party constitution and party rules, study on series of speech and performance as qualified party members.

74 072 COOEC / ANNUAL REPORT 2016 Company Governance (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 of the People s Republic of China and Articles of Association, the Company formulated Description of President s Work, etc. Assignment of businesses among senior managers were explicit with clear rights and liabilities. Board of Directors and Board of Supervisors could supervise and control senior managers effectively. In the report, 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 great impact and difficulties brought up by continuous low international oil price, the management led all staff to vigorously promote Four Capabilities Construction, fully exploit the international market, continuously lower the cost, strictly implement the programs and do well in safety assurance to steadily push forward 26 projects, such as onshore construction and offshore installation. The international large-scale projects with high coefficient of difficulty, such as Russia YAMAL Project were well implemented, which achieved promising project benefits and also pushed COOEC products to the international high-end oil and gas equipment market and accumulated important experience for the Company steadily implementing international LNG module construction projects. (VI) Relationship between information disclosure and investors During the report, 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 ic reports and 23 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, so there is no mistakes and announcement released relating to the rectification or supplementation, thus 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 decision-making. Beside, the Company also paid special attention to voluntary disclosure through enterprise portals, released nearly 32 news of the Company, timely fed the dynamic conditions of the Company back to the capital market. The management paid high attention to communication with investors. In 2016, the Company communicated with more than domestic and overseas 100 investors, and received about 55 people from 48 domestic and overseas investors for field research in the Company. The President and the Chief Financial Officer of the Company received investors for visit and research for several times. The Company seriously treated all investors for visit and research, and actively communicated with them to make them know the Company easily. The Board Secretary Office of the Company actively replied questions from investors and keep good communication with them through communication platforms of the Shanghai Stock Exchange and the Shenzhen Stock Exchange. Indicate if the actual governance of the Company greatly deviates from requirements of CSRC. If so, explain the causes. II. Brief Introduction to the General Meeting of Shareholders Meeting frequency 2015 Annual General Meeting of Shareholders 2016 First Extraordinary General Meeting of Shareholders Holding date Index of query on specified website where the resolution is published Disclosure date of published resolution Tuesday, May 17, Wednesday, May 18, 2016 Wednesday, November 23, Thursday, November 24, 2016 General Meeting of Shareholders

75 COOEC / ANNUAL REPORT 2016 Company Governance 073 III.Responsibilities Fulfillment of Directors (I) Attendance of directors in the board meeting and the general meeting of shareholders 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 General meeting of shareholders attendance Number of general meeting of shareholders attendance Lv Bo No No 0 Zhou Xuezhong No No 2 Zhu Lei No No 1 Meng Jun No No 2 Qiu Xiaohua Yes No 0 Guo Tao Yes No 2 Huang Yongjin Yes 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 7 Number of meetings held in the form of communication 1 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, 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, 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 meetings during the report, carefully audited 9 proposals, including regular reports, financial situation, internal control evaluation reports, annual audit work of 4 terms, further employment of audit agency, and published a clear opinion. In addition, in terms of effects of industry environment and oil prices, profits and losses of fair value, exchange, forward foreign exchange settlement, management costs, cost control, non-operating income, increase of operating costs, capital usage efficiency, work quantity and business trends, the audit committee did sufficient communication and discussion with the management of the Company. The audit committee considered that cost reduction is higher than income reduction with decrease of management and financial costs mainly because the Company did a lot of effective works in cost control and cost decreasing & benefit increasing. Under the great impact brought up by continuous depressed international oil price, the Company still made good achievements, with the profit, asset quality and cash flow superior to international and domestic counterparts. International income share rose quickly with income more diversified. Before the annual meeting of Board of Directors, the Audit committee and the certified public accountants made a private

76 074 COOEC / ANNUAL REPORT 2016 Company Governance conversation, and fully understand the audit condition, risk warning, note keypoint disclosure, management proposal, rectification, etc. Audit committee proposes specific suggestions and reasonable advice for the Company management and development: 1. The Company should reinforce the internal potential tapping and try to do a good job in cost decreasing & benefit increasing under the condition of low international oil price, to cope with industry risks more effectively. 2. It is suggested to further improve the financial accounting ability and increase the accounting information volume. (II) Performance of nomination committee In the report, the nomination committee held 4 field meetings, deliberated and approved the 7 proposals of nominating Lv Bo as the candidate of the Director, Zhu Lei as the Executive Vice-president and the candidate of the Director, Qiu Xiaohua as the candidate of the Independent Director, Lin Yao as the Executive Vice-president, Chen Rongqi as the Chief Engineer, Yu Changsheng, Chen Baojie and Li Xiaowei as the Vice President of the Company, and agreed to submit relevant proposals to the Board of Directors of the Company for deliberation. The committee regarded the nominator meet all the relevant provisions of Company Law of the People s Republic of China 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. 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. The Establishment and Implementation Status in the Report Period of the Appraisal System and the Incentive System for Senior Managers During the report, 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 IX. Relevant situations of internal control audit reports BDO China Shu Lun Pan Certified Public Accountants LLP audited internal control of the Company in 2016, 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

77 COOEC / ANNUAL REPORT 2016 Relevant Condition of Corporate Bonds 075 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 Friday, November 9, 2007 Wednesday, 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 bond interest payment and cashing According to Announcement on Face Interest Rate of 2007 COOEC Bonds, 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. Other information of corporate bonds. II. Contact Ways of Corporate Bonds Trustee and Credit Rating Organization Entrustee Credit rating institution Name China International Capital Corporation Limited (CICC) Business address 27/F and 28/F, Block 2, Guomao Mansion, No.1, Jianguomenwai Avenue, Chaoyang District, Beijing Contact person Qin Bo Telephone number Name Business address China Chengxin Securities Rating Co., Ltd. 21/F, Anji Mansion, No.760, Xizang South Road, Huangpu District, Shanghai Other description: 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). All above funds were input in

78 076 COOEC / ANNUAL REPORT 2016 Relevant Condition of Corporate Bonds ,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 the report, 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. VI. Holding of Corporate Bond Holder Meeting VII. Performance of Corporate Bond Trustee In the 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 indexes Increase and decrease of current compared with that of last year (%) Earnings before interest, taxes, depreciation and amortization Current ratio Quick ratio Asset-liability ratio 22.28% 26.88% EBITDA total debt ratio Reasons The Company s income scale decreases due to industry predicament Earnings before interest, taxes, depreciation and amortization decrease Times interest earned Cash flow from operating activities and income tax paid in cash decrease Times interest earned of cash EBITDA times interest earned Earnings before interest, taxes, depreciation and amortization decrease Loan repayment rate 100% 100% 0.00 Interest coverage 100% 100% 0.00

79 COOEC / ANNUAL REPORT 2016 Relevant Condition of Corporate Bonds 077 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 about Bank Credit Line of 2016 was approved upon deliberation on the 14th meeting of the 5th board of directors. It is agreed that the Company can sign the credit line agreement with ten banks, totally RMB 23,820 million yuan. As of December 31, 2016, RMB 6,537 million yuan was 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 carefully and strictly fulfilled relevant obligations. XII. Significant Matters in the Company and Effects on Operation and Debt Paying Ability of the Company

80 078 COOEC / ANNUAL REPORT 2016 I. Audit report XHSBZ [2017] Document No To the shareholders of China Offshore Oil Engineering Co., Ltd.: We have audited the accompanying financial statements of China Offshore Oil Engineering Co., Ltd. (Hereinafter referred to as the COOEC), including consolidated and company balance sheet on December 31, 2016 and consolidated and company profit statement, consolidated and company cash flow statement, and consolidated and company statement of changes in equity of the owners and notes to financial statement of I. Responsibilities of the Management for the Financial Statements The management of the COOEC is responsible for the preparation and fair presentation of financial statements, The responsibility includes: (1) Prepare financial statements according to Accounting Standards for Business Enterprises and realize its reflection of fair presentation; (2) Design, implement and maintain necessary internal control to avoid significant misstatement due to fraud or mistake. II. Responsibilities of Certified Public Accountants Our responsibility is to provide audit opinions on financial statements based on our audit work. We carried out audit work in compliance with regulations in China Auditing Standards for Certified Public Accountants. Those standards require that we should obey China Code of Ethics for Certified Public Account plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes auditing process implementation in order to obtain statistics in related financial statements and disclose auditing evidence. The auditing process, including the evaluation of material misstatement caused by cheat or mistakes, is dependent on the choice of the certified public accountant. When making the risk assessment, we need to design appropriate auditing procedures according to the internal control related to the preparation of the financial statements. The audit work also includes evaluation on the suitability of the accounting policies selected by the management and the rationality of the accounting estimate made, and evaluation on the overall listing and reporting of financial statements. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our audit opinion. III. Audit Opinions In our opinion, all significant aspects of the financial statements of COOEC 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, 2016, and the consolidation, operating results and cash flows of COOEC in BDO China Shu Lun Pan Certified Public Accountants LLP Chinese Certified Public Accountant: Cai Xiaoli Chinese Certified Public Accountant An Xing Shanghai, China March 17, 2017

81 COOEC / ANNUAL REPORT II. Financial Statements Prepared by: China Offshore Oil Engineering Co., Ltd. Item Notes Consolidated Balance Sheet Balance at end of December 31, 2016 Balance at beginning of Current assets: Monetary fund VII. 1 6,706,031, ,869,365, Settlement reserves Funds for inter-banking lending Financial asset accounted with fair value with their changes accounted into the current profits and losses Derivative financial assets Notes receivable VII. 2 40,746, Receivables VII. 3 1,992,778, ,712,806, Prepayment VII ,711, ,283, Premium receivable Reinsurance accounts receivable Reinsurance contract reserves receivable Interest receivable VII. 5 19,891, ,684, Dividends receivable Other receivables VII ,927, ,551, Redemptory monetary capital for sale Inventory VII. 7 1,611,161, ,690,135, Incur assets divided for sale Non-current assets due within one year Other current assets VII. 8 3,679,958, ,141,976, Total current assets 14,286,460, ,757,550, Non-current assets: Issued loans and advances Available-for-sale financial assets VII ,277, ,043, Held-to-maturity investment Long-term receivables Long-term equity investment VII. 10 2,046,600, Investment real estate Fixed assets VII ,484,633, ,308,869, Projects under construction VII ,630, ,253, Engineering materials Clearance of fixed assets Productive biological assets Oil and gas assets Intangible assets VII ,170, ,797,604, Development expenditures Business reputation VII ,075, ,075, Long-term unamortized expenses VII ,623, ,571, Deferred income tax VII ,726, ,864,257.55

82 080 COOEC / ANNUAL REPORT 2016 Prepared by: China Offshore Oil Engineering Co., Ltd. Item Notes Balance at end of Balance at beginning of Other non-current assets Total non-current assets 15,524,737, ,685,280, Total assets 29,811,198, ,442,831, Current liabilities: Short-term loan Loan from central bank Accepting money deposits and due from banks Loans from other banks Financial liabilities which are accounted at the fair value and of which the fluctuations are counted as the gains and losses of VII ,302, ,594, current Financial derivative liabilities Notes payable Accounts payable VII. 18 4,065,799, ,713,696, Advance receipts VII , ,402, Financial assets sold for repurchase Handling charges and commission payable Employee compensation payable VII ,991, ,904, Taxes payable VII ,301, ,797, Interest payable VII ,193, ,193, Dividends payable Other payables VII ,296, ,179, Reinsurance accounts payable Insurance contract reserves Receiving from vicariously traded securities Receiving from vicariously sold securities Incur debts divided for sale Non-current liabilities due within one year VII. 24 1,198,558, Other current liabilities VII. 25 6,266, ,360, Total current liabilities 6,391,798, ,167,129, Non-current liabilities: Long-term loan Bond payable VII. 26 1,197,065, Including: preferred stock Perpetual capital securities Long-term payables Employee compensation payable for long-term Special accounts payable VII ,111, ,672, Estimated liabilities Deferred income VII ,426, ,020,001, Deferred income tax liabilities VII ,432, ,413, Other non-current liabilities Total non-current liabilities 250,969, ,284,152, Total liabilities 6,642,768, ,451,282,375.79

83 COOEC / ANNUAL REPORT Prepared by: China Offshore Oil Engineering Co., Ltd. Item Notes Balance at end of Balance at beginning of Owner s equity: Capital stock VII. 29 4,421,354, ,421,354, Other equity instruments Including: preferred stock Perpetual capital securities Capital reserves VII. 30 4,247,940, ,247,940, Less: treasury stock Other composite incomes VII ,399, ,810, Special reserve VII ,551, ,115, Surplus reserves VII. 33 1,364,424, ,364,424, Generic risk reserve Undistributed profit VII ,421,780, ,211,812, Total owners' equity attributable to the parent company 23,155,451, ,976,458, Minority stockholders equity 12,978, ,091, Total owners equity 23,168,429, ,991,549, Total liabilities and owners' equity 29,811,198, ,442,831, Legal representative: Jin Xiaojian Person in charge of accounting affairs: Chen Yonghong Person in charge of accounting department: Wang Yajun

84 082 COOEC / ANNUAL REPORT 2016 Balance Sheet of the Parent Company December 31, 2016 Prepared by: China Offshore Oil Engineering Co., Ltd. Item Notes Balance at end of Balance at beginning of Current assets: Monetary fund 1,829,859, ,853,398, Financial asset accounted with fair value with their changes accounted into the current profits and losses Derivative financial assets Notes receivable 40,746, Receivables XVII. 1 2,195,387, ,667,759, Prepayment 75,083, ,458, Interest receivable 1,251, , Dividends receivable Other receivables XVII ,183, ,065,358, Inventory 1,174,595, ,286,094, Incur assets divided for sale Non-current assets due within one year Other current assets 1,404,071, ,000,000, Total current assets 7,578,431, ,955,391, Non-current assets: Available-for-sale financial assets 311,277, ,043, Held-to-maturity investment Long-term receivables Long-term equity investment XVII. 3 8,985,974, ,126,075, Investment real estate Fixed assets 5,744,802, ,053,570, Projects under construction 73,113, ,408, Engineering materials Clearance of fixed assets Productive biological assets Oil and gas assets Intangible assets 39,727, ,900, Development expenditures Business reputation Long-term unamortized expenses 67,025, ,040, Deferred income tax 253,761, ,465, Other non-current assets Total non-current assets 15,475,682, ,815,504, Total assets 23,054,114, ,770,896, Current liabilities: Short-term loan Financial liabilities which are accounted at the fair value and of which the fluctuations are counted as the gains and losses of current Financial derivative liabilities

85 COOEC / ANNUAL REPORT Prepared by: China Offshore Oil Engineering Co., Ltd. Item Notes Balance at end of Balance at beginning of Notes payable Accounts payable 4,121,861, ,039,035, Advance receipts 10, ,856, Employee compensation payable 204,820, ,862, Taxes payable 68,920, ,119, Interest payable 10,193, ,193, Dividends payable Other payables 113,908, ,875, Incur debts divided for sale Non-current liabilities due within one year 1,198,558, Other current liabilities 4,033, ,033, Total current liabilities 5,722,306, ,891,976, Non-current liabilities: Long-term loan Bond payable 1,197,065, Including: preferred stock Perpetual capital securities Long-term payables Employee compensation payable for long-term Special accounts payable 29,111, ,672, Estimated liabilities Deferred income 72,654, ,415, Deferred income tax liabilities 32,109, ,783, Other non-current liabilities Total non-current liabilities 133,875, ,346,937, Total liabilities 5,856,181, ,238,914, Owner s equity: Capital stock 4,421,354, ,421,354, Other equity instruments Including: preferred stock Perpetual capital securities Capital reserves 4,245,387, ,245,387, Less: treasury stock Other composite incomes 147,577, ,146, Special reserve 480,862, ,854, Surplus reserves 1,354,782, ,354,782, Undistributed profit 6,547,966, ,831,455, Total owners equity 17,197,932, ,531,981, Total liabilities and owners' equity 23,054,114, ,770,896, Legal representative: Jin Xiaojian Person in charge of accounting affairs: Chen Yonghong Person in charge of accounting department: Wang Yajun

86 084 COOEC / ANNUAL REPORT 2016 Consolidated Profit Statement January to December 2016 Prepared by: China Offshore Oil Engineering Co., Ltd. Item Notes Accrued in current Accrued in last I. Gross operating income VII ,991,683, ,201,506, Including: operating income VII ,991,683, ,201,506, Interest income Earned premiums Income from handling charges and commissions II. Gross operating cost 11,063,045, ,565,348, Including: operating costs VII ,095,206, ,220,432, Interest expenses Handling charges and commission expenditure Surrender value Net amount of compensation payout Net amount of reserves for reinsurance contract Policyholder dividends Reinsurance expenses Taxes and surcharges VII ,060, ,470, Sales cost VII ,047, ,674, Management cost VII ,660, ,211,672, Financial cost VII ,825, ,558, Assets impairment loss VII ,896, ,656, Plus: income from changes in fair value (loss indicated with - ) VII. 41-5,707, ,742, Investment income (loss indicated with - ) VII ,561, ,827, Including: Investment gains from joint ventures VII ,122, Exchange gain (loss indicated by "- ) III. Operation profit (loss indicated with "- ) 100,368, ,699,243, Plus: non-operating income VII. 43 1,530,233, ,199, Including: disposal income on non-current liability VII ,878, ,112, Less: non-operating expenses VII ,237, ,012, Including: loss from disposal of non-current assets VII ,720, ,472, IV. Total profit (total loss indicated with - ) 1,617,364, ,012,429, Less: income tax expense VII ,452, ,160, V. Net profit (net loss indicated with - ) 1,312,911, ,410,269, Net profits vested in owner of parent company 1,315,307, ,409,945, Profit and loss of minority stockholders -2,395, ,095.25

87 COOEC / ANNUAL REPORT Prepared by: China Offshore Oil Engineering Co., Ltd. Item Notes Accrued in current Accrued in last VI. Net of tax of other composite incomes 2,871, ,317, Net of tax for other comprehensive incomes 2,588, ,621, (I) Other comprehensive incomes which cannot be reclassified into the profits and losses 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 profits and losses under the equity law (II) To be reclassified into other comprehensive income of profits and losses 2,588, ,621, Shares to be reclassified into other comprehensive income of profits and losses under the equity law 2. Change of fair value recognized in profits or losses of available-for-sale financial assets -11,951, ,463, Held-to-maturity financial investment reclassified as available for sale investments profits and losses 4. The effective portion of hedging profits and losses for cash flow 5. Translation differences of foreign currency financial statements 14,540, ,842, Miscellaneous The net of tax for other comprehensive incomes attributable to minority stockholders 282, , VII. Total comprehensive income 1,315,783, ,405,952, Total comprehensive income attributable to owners of the parent company 1,317,896, ,405,324, Total comprehensive income attributable to the minority shareholders -2,112, , VIII. Earnings per share: (I) Basic earnings per share (RMB/share) XVIII (II) Diluted earnings per share (RMB/share) XVIII Consolidation under same control doesn t exist in current Legal representative: Jin Xiaojian Person in charge of accounting affairs: Chen Yonghong Person in charge of accounting department: Wang Yajun

88 086 COOEC / ANNUAL REPORT 2016 Profit Statement of Parent Company January to December 2016 Prepared by: China Offshore Oil Engineering Co., Ltd. Item Notes Accrued in current Accrued in last I. Operating income XVII. 4 6,014,230, ,859,800, Less: operating cost XVII. 4 5,973,888, ,379,339, Taxes and surcharges 34,490, ,733, Sales cost 1,669, ,925, Management cost 511,632, ,222, Financial cost -30,827, ,720, Assets impairment loss 115,236, ,612, Plus: income from changes in fair value (loss indicated with - ) Investment income (loss indicated with - ) XVII ,630, ,958, Including: Investment gains from joint ventures II. Operating profits (loss indicated with "-" ) -348,229, ,162,646, Plus: non-operating income 98,438, ,217, Including: disposal income on non-current liability 6, Less: non-operating expenses 11,402, , Including: loss from disposal of non-current assets 11,335, , III. Total profits (loss indicated with "-") -261,193, ,338,005, Less: income tax expense -83,044, ,530, IV. Net profits (net loss indicated with "-") -178,149, ,906,475, V. Net of tax of other comprehensive income -25,568, ,823, (I) Other comprehensive incomes which cannot be reclassified into the profits and losses 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 profits and losses under the equity law (II) To be reclassified into other comprehensive income of profits and losses -25,568, ,823, Shares to be reclassified into other comprehensive income of profits and losses under the equity law 2. Change of fair value recognized in profits or losses of available-for-sale financial assets -11,951, ,463, Held-to-maturity financial investment reclassified as available for sale investments profits and losses 4. The effective portion of hedging profits and losses for cash flow 5. Translation differences of foreign currency financial statements -13,616, ,359, Miscellaneous VI. Total comprehensive income -203,718, ,881,652, VII. Earnings per share: (I) Basic earnings per share (RMB/share) (II) Diluted earnings per share (RMB/share) Legal representative: Jin Xiaojian Person in charge of accounting affairs: Chen Yonghong Person in charge of accounting department: Wang Yajun

89 COOEC / ANNUAL REPORT Prepared by: China Offshore Oil Engineering Co., Ltd. Item Notes Consolidated Cash Flow Statement Accrued in current January to December 2016 Accrued in last I. Cash flows from operating activities: Cash received from sale of goods or provisions of services 14,226,130, ,706,478, Net increases in customer s deposit and deposits 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 530,829, ,300, Other cash received relating to operating activities VII ,687, ,971, Sub-total of cash inflows from operating activities 15,124,647, ,465,749, Cash paid for purchasing goods and accepting labor services 8,767,427, ,604,414, Net increase of customer loans 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 for staff and workers 1,827,207, ,795,515, Payment of all types of taxes 1,107,267, ,225,785, Other cash paid relating to operating activities VII ,753, ,375, Sub-total of cash outflows from operating activities 11,836,656, ,840,091, Net cash flow from operating activities 3,287,991, ,625,658,238.06

90 088 COOEC / ANNUAL REPORT 2016 Prepared by: China Offshore Oil Engineering Co., Ltd. Item Notes Accrued in current Accrued in last II. Cash flows from investment activities: Cash received from returns on investments 14,977,337, ,810,840, Cash received from returns on investments 92,020, ,692, Net cash received from disposal of fixed assets, intangible assets and other long-term assets 1,590,193, ,965, Net amount of cash received on disposal of subsidiary companies and other operating units Other cashes received relating to investment activities Subtotal of cash inflows of investment activity 16,659,551, ,195,498, Cash paid to acquire fixed assets, intangible assets and other longterm assets 586,651, ,803,043, Cash paid to acquire investments 16,463,957, ,909,705, Net increase in hypothecated loan Net cash used for acquiring subsidiaries and other business units Other cashes paid relating to investment activities VII ,186, Sub-total of cash outflows from investment activities 17,197,794, ,712,749, Net cash flow from investment activities -538,243, ,250, III. Cash flows from financing activities: Cash received from absorbing investment Including: Cash received from investment in minority shareholder by subsidiary Cash received from borrowings Cash received from issuing debentures Other cash received relating to financing activities Sub-total of cash inflows from financing activities Cash paid for debt repayment 56,281, Cash paid for distribution of dividends, profits and repayment of interests 1,174,578, ,100,312, Including: Cash paid for distribution of dividends or profit or reimbursing interests by subsidiary Other cashes paid relating to financing activities 576,249, Sub-total of cash outflows from financing activities 1,174,578, ,732,843, Net cash flow from financing activities -1,174,578, ,732,843, IV. Effect of exchange rate changes on cash and cash equivalents 243,728, ,973, V. Net increase in cash and cash equivalents 1,818,897, ,527,537, Plus: Balance of cash and cash equivalents at the beginning of 4,809,364, ,281,826, VI. Balance of cash and cash equivalents at end of 6,628,261, ,809,364, Legal representative: Jin Xiaojian Person in charge of accounting affairs: Chen Yonghong Person in charge of accounting department: Wang Yajun

91 COOEC / ANNUAL REPORT Cash Flow Statement of the Parent Company January to December 2016 Prepared by: China Offshore Oil Engineering Co., Ltd. Item Notes Accrued in current Accrued in last I. Cash flows from operating activities: Cash received from sale of goods or provisions of services 8,618,920, ,555,813, Refund of tax and fare received 170,944, ,627, Other cash received relating to operating activities 195,222, ,719, Sub-total of cash inflows from operating activities 8,985,087, ,918,160, Cash paid for purchasing goods and accepting labor services 5,955,306, ,864,519, Cash paid to and for staff and workers 1,264,868, ,182,222, Payment of all types of taxes 536,295, ,269, Other cash paid relating to operating activities 64,338, ,429, Sub-total of cash outflows from operating activities 7,820,809, ,970,441, Net cash flow from operating activities 1,164,277, ,719, II. Cash flows from investment activities: Cash received from returns on investments 8,375,158, ,256,528, Cash received from returns on investments 243,285, ,091, Net cash received from disposal of fixed assets, intangible assets and other long-term assets 2, ,853, Net amount of cash received on disposal of subsidiary companies and other operating units Other cashes received relating to investment activities Subtotal of cash inflows of investment activity 8,618,445, ,875,474, Cash paid to acquire fixed assets, intangible assets and other longterm assets 165,666, ,766, Cash paid to acquire investments 8,500,007, ,009,705, 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 8,665,673, ,606,471, Net cash flow from investment activities -47,227, ,002, III. Cash flows from financing activities: Cash received from absorbing investment Cash received from borrowings Cash received from issuing debentures Other cash received relating to financing activities Sub-total of cash inflows from financing activities Cash paid for debt repayment Cash paid for distribution of dividends, profits and repayment of interests 1,174,578, ,086,151, Other cashes paid relating to financing activities Sub-total of cash outflows from financing activities 1,174,578, ,086,151, Net cash flow from financing activities -1,174,578, ,086,151, IV. Effect of exchange rate changes on cash and cash equivalents 33,990, ,292, V. Net increase in cash and cash equivalents -23,538, ,863, Plus: Balance of cash and cash equivalents at the beginning of 1,853,398, ,688,534, VI. Balance of cash and cash equivalents at end of 1,829,859, ,853,398, Legal representative: Jin Xiaojian Person in charge of accounting affairs: Chen Yonghong Person in charge of accounting department: Wang Yajun

92 090 COOEC / ANNUAL REPORT 2016 Consolidated statement of changes in owner s equity January to December 2016 Prepared by: China Offshore Oil Engineering Co., Ltd. Item Capital stock Current 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 errors Consolidation under same control Others II. Balance at beginning of current year 4,421,354, ,247,940, III. Increase/decrease change of current (decrease indicated with "-") (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 of 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 2. Use in current (VI) Others IV. Balance at end of current year 4,421,354, ,247,940, Less: treasury stock

93 COOEC / ANNUAL REPORT Other composite incomes Special reserve Surplus reserves Generic risk reserve Undistributed profit Minority stockholders equity 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, ,168,429,694.27

94 092 COOEC / ANNUAL REPORT 2016 Prepared by: China Offshore Oil Engineering Co., Ltd. Item Capital stock Last 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 errors Consolidation under same control Others II. Balance at beginning of current year 4,421,354, ,247,940, III. Increase/decrease change of current (decrease indicated with "-") (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 of 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 2. Use in current (VI) Others IV. Balance at end of current year 4,421,354, ,247,940, Legal representative: Jin Xiaojian Person in charge of accounting affairs: Chen Yonghong Person in charge of accounting department: Wang Yajun Less: treasury stock

95 COOEC / ANNUAL REPORT Other composite incomes Special reserve Surplus reserves Generic risk reserve Undistributed profit Minority stockholders equity Total owners equity 186,432, ,372, ,073,777, ,109,425, ,462, ,571,765, ,432, ,372, ,073,777, ,109,425, ,462, ,571,765, ,621, ,743, ,647, ,102,386, , ,419,784, ,621, ,409,945, , ,405,952, ,647, ,307,559, ,016,911, ,647, ,647, ,016,911, ,016,911, ,743, ,743, ,421, ,421, ,677, ,677, ,810, ,115, ,364,424, ,211,812, ,091, ,991,549,539.02

96 094 COOEC / ANNUAL REPORT 2016 Statement of Change in Owner s Equity of the Parent Company January to December 2016 Prepared by: China Offshore Oil Engineering Co., Ltd. Item Capital stock Other equity instruments Preferred shares Perpetual capital securities Others Current Capital reserves I. Balance at end of last year 4,421,354, ,245,387, Plus: accounting policy change Corrections of prior errors Others II. Balance at beginning of current year 4,421,354, ,245,387, III. Increase/decrease change of current (decrease indicated with "-") (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 of 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 2. Use in current (VI) Others IV. Balance at end of current year 4,421,354, ,245,387,997.87

97 COOEC / ANNUAL REPORT 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, ,197,932,211.92

98 096 COOEC / ANNUAL REPORT 2016 Prepared by: China Offshore Oil Engineering Co., Ltd. Item Capital stock Other equity instruments Preferred shares Perpetual capital securities Others Last Capital reserves I. Balance at end of last year 4,421,354, ,245,387, Plus: accounting policy change Corrections of prior errors Others II. Balance at beginning of current year 4,421,354, ,245,387, III. Increase/decrease change of current (decrease indicated with "-") (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 of 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 2. Use in current (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

99 COOEC / ANNUAL REPORT Less: treasury stock Other composite incomes Special reserve Surplus reserves Undistributed profit Total owners equity 197,969, ,779, ,064,134, ,232,539, ,635,166, ,969, ,779, ,064,134, ,232,539, ,635,166, ,823, ,075, ,647, ,598,916, ,896,815, ,823, ,906,475, ,881,652, ,647, ,307,559, ,016,911, ,647, ,647, ,016,911, ,016,911, ,075, ,075, ,813, ,813, ,738, ,738, ,146, ,854, ,354,782, ,831,455, ,531,981,710.97

100 098 COOEC / ANNUAL REPORT 2016 III. Basic information of the Company 1. Company profile (1) Establishment China 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 promoted by CNOOC Design Company (the Design Company ), CNOOC Platform Manufacturing Company (the Platform Company ), CNOOC Maritime Engineering Company (the Maritime Engineering Company ), CNOOC Bohai Corporation (the Bohai Corporation ) and CNOOC Nanhai West Corporation (the West Corporation ). Registration number of business license for the legal entity: The Company listed the shares on Shanghai Stock Exchange on February 5, It is engineering construction industry. As of Saturday, December 31, 2016, the Company issued share capital of 4,421,354,800 shares totally with registered capital of RMB 4,421,354,800 yuan; registered address: Apartment 202-F105, 2/F, Skirt Building, Ligang Plaza, No. 82, West Road 2, 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 ) mainly engage in EPCI contract; design of oil and gas (offshore oil engineering, manufacturing and repairing project of oil machinery, pipeline transportation engineering, oil and gas processing engineering, oil and gas chemical engineering and comprehensive utilization of oil and gas) and construction engineering; construction of various offshore oil construction engineering and other offshore engineering; fabrication and installation of various steel structures and grid structure engineering; manufacturing of pressure vessels; export of self-made products and technologies; import of raw and auxiliary materials, instruments, meters, mechanical equipment, parts, accessories and technologies necessary for production of the Company; processing of imported materials, processing of supplied materials, processing of supplied samples, assembling of supplied components and compensation trade; external management and cooperation (contracting of overseas offshore oil projects and domestic and international bidding; contracting of the survey, consultation, design and supervision of the above overseas projects; export of equipment and materials necessary for the above projects home and abroad; sending abroad needed labor service for the work of the above-mentioned overseas projects); domestic coastal transportation of general cargo; international route transportation of cargo; and leasing of self-owned house; sales of steel, pipes, cables, valves, instruments, metals and AC electric apparatus; the research and development, manufacturing and sales of electrical and instrument automation products (special provisions shall prevail provided the state has promulgated special provisions on operation of the above items). (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 raised (stock code: ). The Company completed the procedures of industrial and commercial registration alteration on July , with the number of the Business License for Legal Person being and the registered capital being RMB 250 million yuan after alteration. (4) Previous capital increases after initial offering of corporate stock 1) This Company approved the Plan of Increasing Share Capital with Capital Reserves at the first interim general 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, general capital of the Company reached 275 million shares, 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 yuan after the alteration; 2) The Company approved the Plan of Increasing Share Capital with Capital Reserves and Undistributed Profits at the general meeting of shareholders 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 330 million yuan after the alteration. 3) The Company approved the 2004 Profi t Distribution Plan and the Plan of Converting Capital Reserve to Share Capital for 2004 at the general meeting of shareholders 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 procedures of industry & commerce alteration registration on July 15, 2005, with registered capital of RMB 396 million yuan after the alteration.

101 COOEC / ANNUAL REPORT ) The Company approved the 2005 Profi t Distribution Plan and the Plan of Converting Capital Reserve to Share Capital for 2005 at the general meeting of shareholders in 2005, deciding to distribute share dividend of 7 share for each 10 shares to the shareholders with the undistributed profit (396 million shares in total) and issue 3 additional share for each 10 shares to the shareholders with the capital reserves (277.2 million shares in total) based on the total of 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 yuan after the alteration. 5) The Company approved the 2006 Profi t Distribution Plan at the general meeting of shareholders 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 million yuan after the alteration. 6) The Company approved the 2007 Profi t Distribution Plan at the general meeting of shareholders 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 RMB1, million yuan 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 2, million yuan. 8) The Company approved the 2008 Profit Distribution Plan at the general meeting of shareholders in 2008, deciding to distribute share dividends of 1 shares for each 10 shares to the shareholders with the undistributed profit (2, 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 million shares, which increased the share capital by 1, million shares aggregately. The Company finished the procedures of industry & commerce alteration registration on December 31, 2009, with registered capital of RMB million yuan after the alteration. 9) The Company approved the 2009 Plan of Increasing Share Capital with Reserves at the general meeting of shareholders 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 3, 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 09, 2013, and completed the registration of alteration on industry and commerce on October 14, The registered capital of the Company after the alteration is RMB 4,421,354,800 yuan. (5) Equity change to the initiators 1) On September 28, 2003, by means of agreement without payment, the actual controller of the Company CNOOC was transferred with shares totaling 159,233,800 shares held by CNOOC Platform Construction Company, CNOOC Offshore Engineering Company and CNOOC Engineering Design Company, which accounted for 57.91% of shares of the Company at that time. CNOOC became the first majority shareholder of the Company. The formality of share transfer was gone through on February 13, CNOOC Platform Construction Company, CNOOC Offshore Engineering Company and CNOOC Engineering Design Company 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 non-tradable 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 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, China National Offshore Oil Corporation, CNOOC Bohai Corporation and CNOOC Nanhai West Corporation, holders of non-tradable shares of the group, hold

102 100 COOEC / ANNUAL REPORT ,399,600 shares, 1,414,800 shares and 34,052,800 shares respectively in the Group, 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 group 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 China National Offshore Oil Corporation. After the raised funds were in place, the Group 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 directional add-issuance this time, CNOOC, China Offshore Oil Nanhai West Corporation and China Offshore Oil Bohai Corporation would hold 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 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. on October 9, After the directional add-issuance this time, CNOOC, China Offshore Oil Nanhai West Corporation and China Offshore Oil Bohai Corporation would hold 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. would hold 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. The financial statement was approved and reported by the Board of Directors of the Company on March 17, Consolidated financial statement scope As of December 31, 2016, subsidiaries within the consolidated financial statement scope of the Company are listed as follows: Subsidiary name A.E.S. Destructive & Non-destructive Testing Ltd. COOEC (Qingdao) Co., Ltd. Shenzhen COOEC Subsea Technology Co., Ltd. COOEC Indonesia Co., Ltd. COOEC Nigeria Co., Ltd. COOEC International Co., Ltd. COOEC International Engineering Co., Ltd. Blue Ocean International Co., Ltd. COOEC (Zhuhai) Co., Ltd. COOEC Australia Co., Ltd. Gaotai Deep-sea Technologies Co., Ltd. Beijing COTEC Offshore Engineering Co., Ltd. COOEC Canada Co., Ltd. Offshore International Engineering (Thailand) Co., Ltd. Note: Gaotai Deep Sea Technology Co., Ltd. (originally translated into Ketai Co., Ltd.) For details about the consolidated financial statement scope and changes, see Note VIII Consolidated Financial Statement Scope Change and IX Other Subject Interests.

103 COOEC / ANNUAL REPORT IV. Basis for Preparing Financial Statement 1. Preparation basis Financial statement of the Company is prepared based on continuous operation. According to the actual occurred transactions and events, prepare the financial statements 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 Companies Publicly Issuing Securities Information Disclosure Preparation Rules General Provisions of the. 2. Continuous operation Since end of the report, the Company has continued operation ability at least 12 months, without affecting the continued operation ability of a major event. V. Significant Accounting Policy and Accounting Estimate Notes to accounting policies and accounting estimate: 1. Declaration in compliance with the Accounting Standards for Business Enterprises (ASBE) The financial statements prepared by the Company 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 The Company s fiscal year is from January 1 to December Operating cycle The operating cycle of the Company is 12 months. 4. Recording currency The Company adopts RMB as the recording currency. The Company and its domestic subsidiaries, Shenzhen Offshore Oil Engineering Underwater Technology Co., Ltd., COOEC (Qingdao) Co., Ltd., COOEC International Engineering Co., Ltd., COOEC (Zhuhai) Co., Ltd. and Beijing Gaotai Deep-sea Technology Co., Ltd. all adopt RMB as recording currency. The Company s overseas subsidiaries Offshore International Engineering Co., Ltd., COOEC (Indonesia) Co., Ltd., COOEC (Nigeria) Co., Ltd., COOEC (Australia) Co., Ltd., Blue Ocean International Co., Ltd. and its share-controlled subsidiary, COTEC (the original translation as Ketai Co., Ltd.,) all adopt USD as recording currency. 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 Consolidation 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.

104 102 COOEC / ANNUAL REPORT 2016 Consolidation under different controls: the Company shall, on the acquisition date, measure the assets given and liabilities incurred or assumed by an enterprise for consolidation in light of their fair values, and shall account the balances between air value and book value into the profits and losses at current. The Company recognizes the difference of the consolidation cost more than the fair value of the net identifiable assets gained by the acquiree in consolidation as the goodwill. The difference of the consolidation cost lower than the fair value of the net identifiable assets gained by the acquiree in consolidation 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 methods of the consolidated financial statements Consolidation scope The consolidation scope of the consolidated financial statement for the Company is defined based on control scope. The statement covers all subsidiaries, including divisible parts of the investee controlled by the Company. Consolidation procedure The Company prepares the financial statement based on the subsidiary and its financial statements, with reference to other related materials. The Company s financial statement considers the Company as an accounting entity, indicates the Company 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 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 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 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, in case of expanding subsidiaries due to consolidation under the same control, then 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 to end of report are included in the consolidated income statement. The cash flow of the subsidiary from the beginning of the current consolidation to the end of report 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, in case of expanding subsidiaries or business due to consolidation under the same control, then 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 to the end of report are included in the consolidated income statement. The cash flow of the subsidiary from the beginning of the current consolidation to the end of report is included in the consolidated cash flow statement. If the Company can control the enterprises under the non-the-same control due to additional investment, the Company 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

105 COOEC / ANNUAL REPORT other owner s equity change except net profits and losses, other comprehensive income and 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, when the Company disposes the subsidiary or business, then the income, expenses and profits of this subsidiary or business from the beginning of to the date of disposal are included in the consolidated income statement, and the cash flow of this subsidiary from the beginning of to the date of disposal is included in the consolidated cash flow statement. When the Company loses the control over the investee due to disposal of part of equity investment or other reasons, the Company will re-measure the remaining equity investment after disposal at the fair value on the date when the Company 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 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 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 through multiple transactions until losing control, and multiple transactions are not treated as package deal, accounting is subject to methods for disposing 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.

106 104 COOEC / ANNUAL REPORT Joint operation classification and joint operation accounting methods Joint operation means joint and cooperative venture. If the Company is the operating party of the joint venture and enjoys related assets and undertakes related liabilities, this mode is the joint operation. The Company 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 Company and the assets jointly held based on the share ratio. (2) The liabilities separately undertook by the Company 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. Criteria for cash and cash equivalents Cash equivalent refers to the investment held by enterprises, which features short-term (due in 3 months since the purchase date), strong fluidity, prone to convert to known amounts of cash and little risk on change of value. 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 income 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 instrument (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 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 are regarded as the investment income, and fair value change is included in the current profits and losses at end of.

107 COOEC / ANNUAL REPORT 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, 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 Company 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) 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:

108 106 COOEC / ANNUAL REPORT ) 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 Company 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 Company 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 Company 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 Company 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. 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, 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, and is objectively related to the matters occurring after initial impairment recognition, the original organized 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 accounted with reference to that of receivables impairment loss. 11. Accounts receivables (1) Receivables with significant single amount and separate withdrawal of bad debt reserves

109 COOEC / ANNUAL REPORT 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 yuan is an important receivable. The bad debt reserve is calculated and withdrawn at the balance of the present value of its future cash flow being lower than the book value. (2) Receivables with withdrawal of bad debts reserves based on credit risk feature combination Withdrawal methods of bad debts reserves based on credit risk feature combinations (accounting age analysis method, percentage balance method, and other methods). Accounting age combination Related party combination Imprest fund and deposit combination Bad debt reserves shall be withdrawn with accounting age analysis method. Bad debt reserves are not calculated and withdrawn Bad debt reserves are not calculated and withdrawn In 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 combination, the bad debt reserve is calculated and withdrawn with the balance percentage method In combination, the bad debt reserve is calculated and withdrawn with the other methods (3) Receivables with insignificant single amount and separate withdrawal of bad debt reserves The reason for separate withdrawal of bad debt reserves The method for calculating and withdrawing for bad debts reserves The receivables whose single amount is insignificant but risk characteristics cannot be shown by withdrawing the bad-debt reserves in combination. The bad debt reserve is calculated and withdrawn at the balance of the present value of its future cash flow being lower than the book value. 12. Inventory (1) Inventory classification The inventories of the Company involve materials preparation and engineering constructions that have completed 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.

110 108 COOEC / ANNUAL REPORT 2016 (3) Determination basis for net realizable value of different inventories For the finished products, 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 products 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 : 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 consolidation. 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 easily-worn articles 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 The Company confirms component (or non-current assets) meeting following conditions as assets held for sale: (1) The component can be sold at the present sate based on the regulations on selling the component. (2) This Company has made the decision of disposing the component (or non-current assets). For example, approval as needed has been obtained from the general meeting of stockholders or corresponding authority. (3) The Company has entered the irrevocable transfer agreement with the transferee. (4) The transfer will be completed in one year. 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 Company and other parties jointly control and have right over the investee, such investee is a joint venture of the Company. Significant influence refers that the Company 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 Company is able to have significant influences on an investee, the investee shall be associated venture of the Company. (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

111 COOEC / ANNUAL REPORT 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 swap-out 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. Recognize 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; account the difference into current profits and losses by 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 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 s. During 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 Company and associated and joint ventures, and such assets forms a business, accounting is subject to methods revealed in Note V Accounting Treatment for the Consolidation under Same/Different Control and Preparation Method of the Consolidated Financial Statement. When the Company 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 longterm 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 is still take other obligations as agreed in investment contract or agreement,

112 110 COOEC / ANNUAL REPORT 2016 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 tool and accounted using measurement standards, and other comprehensive profits and owner s equity are completely transferred. 15. Investment real estate (1) Cost measurement model Depreciation or amortization methods 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 Company, 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 the tangible assets that are held for production of commodities, provision of labor services, lease or operation management and of which the service life exceeds a fiscal year. When all following conditions are met, an asset can be recognized as the fixed asset: 1) It is highly possible that the economic benefits related to the fixed assets flow into the Company; 2) Cost for the fixed assets can be reliably calculated.

113 COOEC / ANNUAL REPORT (2) Depreciation methods Category Depreciation method Depreciation (year) Residual ratio (%) Annual depreciation rate (%) House buildings Straight-line depreciation method Machinery equipment Straight-line depreciation method Transportation equipment Straight-line depreciation method Electronic equipment Straight-line depreciation method (3) Basis of recognition for fixed assets acquired under financial leases, valuation and depreciation methods 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 Company when the lease term expires; 2) The Company has the right of choice to purchase the assets, and the purchase price is much lower than fair value of the asset when the Company performs the right. 3) The leasing 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 in the leasing date. 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. 17. Projects under construction 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 Company 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 costs 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. Borrowing costs incurred by the Company 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, investing 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.

114 112 COOEC / ANNUAL REPORT 2016 Borrowing cost capitalization Capitalization refers to from the beginning of borrowing cost capitalization to the cessation of capitalization, excluding 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. Capitalization suspension 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 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. Calculation method of borrowing cost capitalization rate and amount For the special borrowings for the purpose of purchasing, constructing or producing assets in line with the capitalization conditions, the capitalization amount of the borrowing costs is determined with the borrowing costs actually incurred in current of the special borrowings minus the interest income gained from deposit of borrowings that have not been utilized or the investment income gained from 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 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 swap-out 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 The service life of the intangible asset is analyzed and judged when the intangible assets are gained. The intangible assets with the limited service life are amortized with the straight-line method during when the intangible assets bring in economic benefits to the enterprises; if when the intangible assets bring in economic benefits to the Company is unforeseeable, then such intangible assets are deemed as the assets for which the service life is undefined, and are not amortized.

115 COOEC / ANNUAL REPORT Service life estimate of intangible assets with limited service life Land use right of this Company is amortized averagely according to transfer term from transfer date. Other intangible assets of this Company are amortized averagely according to the shortest one among the expected service life, the beneficial years provided by contract and the effective limit of years stipulated by law. 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 for benefiting the Company cannot be foreseen by the Company, 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 Company 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 products 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 products 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 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 Company will perform the impairment test when the impairment evidence exists on the long-term assets such as longterm equity investment, investment real state 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

116 114 COOEC / ANNUAL REPORT 2016 minimum asset portfolio that can independently produces cash inflow. Impairment testing is exercised for goodwill 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 Company 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 Company 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. Once recognized, the above-mentioned assets will not be transferred back in later accounting. 21. Long-term unamortized expense Long-term unamortized expense refers to all expenses which are already incurred but shall be borne during current and the following s and with amortization duration over one year. Long-term unamortized expenses are amortized based on benefit of the expense. As for items of long-term unamortized expense which do not yield any benefits in later accounting, 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 when employees provide service for the Company, the actual short-term salary is recognized as liabilities and included in the current profit and loss or the relevant assets costs. The Company calculates and determines employee salary based on social insurance charges and housing fund, labor union expenditure, and personnel education fund afforded by the Company during the accounting when employees provide service for the Company, and specified withdrawal base and proportion. 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) Accounting treatment methods for post-employment benefits 1) Defined contribution plan The Company pays basic endowment insurance and unemployment insurance according to the relevant regulations of the local government. During the accounting when employees provide service for the Company, 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 Company has established the enterprise annuity payment (supplementary endowment insurance or company pension plan) system based on related policies of state enterprise annuity. The Company 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 Company counts the welfare obligations generated from defined benefit plans for when employees provide service for the Company 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.

117 COOEC / ANNUAL REPORT 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 Company 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 Company will be paid in cash at the market rate at return at balance sheet date, of national bonds and the Company bonds corresponding to obligation 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. 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) Accounting treatment method of dismission welfare The Company cannot unilaterally withdraw the dismission welfare generated from severing labor relation or layoff proposal. The expense or costs involved in paying dismission welfare reconstructing is recognized as the employee compensation liabilities and counted in the current profit and loss. 23. Estimated liabilities 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 Company; (3) The amount of this obligation can be reliably measured. Measurement methods of estimated liabilities The Company 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 Company 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 Company is expected to be compensated by the third-party, theyshould 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 Company 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

118 116 COOEC / ANNUAL REPORT 2016 share-based payments shall consist of equity-settled share-based payments and cash-settled share-based 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 Company 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 Company will buy back stocks based on price agreed in advance. When the Company 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, 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 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, it is taken as shares to be paid not by share-based payment with equitysettled. 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. Stockpayment 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 Company. 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 comes to an end or until the specified performance conditions are met, the services obtained in current 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 Company, 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 re-measured, with the change recorded into the profits and losses at current. 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 Company may occur; agreed completion schedule can be reliably determined; cost taken or to be taken can

119 COOEC / ANNUAL REPORT be calculated reliably. Completion schedule of labor service transaction is determined by the Company based on proportion between cost incurred and predicted total cost of the Company. The Company 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-be-received price as stipulated in the contract or agreement is unfair. (3) Transfer of assets use rights Recognize 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 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 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. 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, and the income from provision of labor services will not be determined. The Company 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 Company, 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 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 Company inspects the construction contract at end of. If the estimated overall cost of construction cost surpasses estimated overall contract income, withdraw the loss reserves and account 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 the government subsidy obtained by the Company for the purpose of construction or forming into long-term assets in other forms, including fiscal appropriation used to purchase fixed or intangible assets, or finance discount of fixed asset loan. The Company 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 subsidies related to assets are recognized as the deferred income, and are accounted into the non-operating income based on the service life of the constructed or purchased assets.

120 118 COOEC / ANNUAL REPORT 2016 (2) The criterion and accounting treatment method for government subsidy related to assets The government subsidies pertinent to income refer to all the government subsides except those pertinent to assets. The Company divides government subsidies into government subsidies other than those relating to assets. If the income-based governmental subsidies are used for compensating the Company s future relevant expenses or losses, such subsidies are recognized as the deferred income in acquisition and included in the current non-operating income during when the relevant expenses are recognized; if the income related government subsidies are used for compensating the incurred relevant expenses or losses, such subsidies are directly included in the current non-operating income in acquisition. 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 Company 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 Company presents and lists the net offset amount of the current income tax assets and the tax liabilities of the current income. The Company presents and lists the net offset amount of the deferred income tax assets and the deferred income tax liabilities when the Company 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 when significant deferred income tax assets and liabilities are transferred back. 28. Lease (1) Accounting treatment method for operating lease 1) The rent paid by the Company to hire assets is amortized with the straight-line method during the whole lease without rent-free 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 Company, the remaining rents after the Company deducts such expenses from the total rents are amortized during the lease, 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 without rent-free 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. 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. (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 and accounts the charges in financial expense. The initial direct expenses incurred by the Company are

121 COOEC / ANNUAL REPORT 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 is reduced. 29. Other significant accounting policies and accounting estimate Discontinuing operation Discontinuing operation indicates the constituent part that can be distinguished separately in operation and preparing financial statement when the group has been disposed or been characterized as available for sale. (1) The constituent part represents one independent major business or one 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. Change of significant accounting policies and accounting estimate (1) Change of significant accounting policies Other description Regulations for Accounting Treatment for Value Added Tax applies. The Ministry of Finance issued Regulations for Accounting Treatment for Value Added Tax (CK [2016] No.22) on December 3, 2016, which is applicable to relevant transactions occurred on May 1, Effects due to the Company implementing the regulations are described as follows. The content and reason for change of accounting policy (1) Changed the Business Taxes and Surcharges in the income statement into Taxes and Surcharges. (2) Reclassified the house property tax, land use tax, vehicle and vessel use tax and stamp tax incurred from operating activities since May 1, 2016 from Management Cost into Taxes and Surcharges, while taxes incurred before May 1, 2016 were unchanged. Comparative data were unchanged. (2) Change of significant accounting estimate Name and amount of report items influenced Taxes and surcharges Increased taxes and surcharges in this year was RMB 30,248, yuan, and decreased management costs in this year was RMB 30,248, yuan. Contents of and reasons for the changes in accounting estimate Due to high value of vessel and many new technologies adopted, the status and expected economic benefit of vessels changed, and depreciation life of vessels is extended as follows: the maximum depreciation life of pipe-laying vessel, crane vessel and multi-purpose vessel is changed from 15 years to 20 years. Approval procedure On December 8, 2015, the Company held the 15th Meeting of the 5th Board of Directors and approved the Proposal on Accounting Estimate Change upon deliberation. Applicable commencement date The applicable commencement date is January 1, Notes (name and amount of report items influenced by the significant impact) This accounting estimate causes decreasing of the depreciation cost by RMB 205,507, yuan of the total profit amount and increasing of the total profit amount by RMB 205,507, yuan in 2016.

122 120 COOEC / ANNUAL REPORT 2016 VI. Taxes 1. Key tax and tax rate Key tax and tax rate Tax type Tax basis Tax rate VAT The taxable income is accounted into output tax and shall be based on the balance of 17% 11% output tax for the after deducting the input tax for the. 6% 3% 0% Business tax The business tax on the construction business of the Company and its domestic subsidiaries and the construction business of other offshore engineering is subject to 3% of the operating income. If the construction project is subcontracted to other entities, the Company will adopt the balance after deducting the subcontract costs to other entities from the total price and non-contract price as the basis for paying the business tax. 3% Urban maintenance Use value-added tax payable, business tax and tax amount for the exempted valueadded tax reviewed and approved by the state tax bureau as tax base and construction tax 7% Corporate income Due to the subject of taxation for different corporate income tax rate, the relevant tax situations see the following content 25% 15% Educational surtax Use value-added tax payable, business tax and tax amount for the exempted valueadded tax reviewed and approved by the state tax bureau as tax base 3% Local educational Use value-added tax payable, business tax and tax amount for the exempted valueadded tax reviewed and approved by the state tax bureau as tax base surtax 2% With the subject of taxation for different corporate income tax rates, disclosure statement Name of subject of taxation Income tax rates China Offshore Oil Engineering Co., Ltd. 15% COOEC (Qingdao) Co., Ltd. 15% COOEC (Zhuhai) Co., Ltd. 25% Shenzhen COOEC Subsea Technology Co., Ltd. 15% COOEC International Engineering Co., Ltd. 25% Beijing COTEC Offshore Engineering Co., Ltd. 15% Note: 1. 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. On October, 2015, COOEC (Zhuhai) Co., Ltd. was jointly identified as a high-tech enterprise by the Guangdong Provincial Department of Science and Technology, Department of Finance of Guangdong Province, Guangdong Provincial Office, SAT, and Guangdong Local Taxation Bureau, and obtained the Certificate of Hi-tech Enterprise with No. of GR and validity of 3 years ( ). Since great changes occur in business nature of COOEC (Zhuhai) Co., Ltd., the possibility for it meeting requirements of high-tech enterprises during current is uncertain to a large degree; the income tax during current is calculated at the tax rate of 25%. 2. Tax preference (1) On 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 Certifi cate of Hi-tech Enterprise with No. of GF and validity of 3 years ( ). (2) On October 2015, COOEC (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 Certifi cate of Hi-tech Enterprise with No. of GF and validity of 3 years ( ). (3) In September 2014, COOEC Subsea Technology Co., Ltd. was jointly identified as a high-tech enterprise by Shenzhen

123 COOEC / ANNUAL REPORT Technological Trade and Informatization Committee, Financial Commission of Shenzhen Municipality, Shenzhen Municipal Office, SAT, and Shenzhen Local Taxation Bureau, and obtained the Certifi cate of Hi-tech Enterprise with No. of GF 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 Certifi cate 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 products for the offshore oil and gas exploitation enterprises by the Company and its subsidiary COOEC (Qingdao) Co., Ltd., COOEC (Zhuhai) Co., Ltd., according to Notice of the Ministry of Finance and the State Administration of Taxation on VAT and 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 products to the offshore oil and gas exploitation enterprises after January 1, 2017 by the Company and its subsidiary COOEC (Qingdao) Co., Ltd., COOEC (Zhuhai) Co., Ltd., according to Notice of Specifying VAT Policies of Financial Services, Real Estate Development, Education Ancillary Services, etc. (CS [2016] No. 140). (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 products 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 products and rendering of value added tax service. The Company would implement the Replies from January 1, 2004 and its subsidiary COOEC (Qingdao) Co., Ltd. would implement the Replies from March 2005 (the founding time). Since May 1, 2016, the Company and its subsidiary COOEC (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 Offshore International Engineering Co., Ltd. within the consolidation scope of the Company 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 (4) 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 Business Tax Change into VAT would be applicable to the design income and the modern service income of the Company in paying the added-value tax by tax rate of 6% from December (5) On May 24, 2013, upon the approval of the State Council, Ministry of Finance and the State Administration of Taxation released CS [2013] No.37 Notice on the Pilot Tax Polices of Levying Value-Added Tax in Lieu of Business Tax in the Transportation Industry and Some Modern Service Industries in the Country. According to the above notice, relevant regulations of Business Tax Change into VAT are applicable to the Company and its subsidiaries in China since August 1, (6) 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 Sunday, May 1, (7) VAT related transactions affecting amounts of assets, liabilities, etc., incurred after May 1, 2016 were adjusted according to Regulations for Accounting Treatment for Value Added Tax (CS [2016] No.22). Changed the Business Taxes and Surcharges in the income statement into Taxes and Surcharges, stamp tax and other expenses originally accounted into management expenses were accounted into Taxes and Surcharges since May 1, 2016.

124 122 COOEC / ANNUAL REPORT 2016 VII. Notes to Items of Consolidated Financial Statement 1. Monetary fund Item Balance at end of Balance at beginning of Cash on hand 18, , Bank deposit 6,628,243, ,809,344, Other monetary fund 77,769, ,001, Total 6,706,031, ,869,365, Including: total amount of the deposit abroad 215,640, ,006, Other description Details of limited monetary capital are as follows Item Balance at end of Balance at beginning of year Guarantee security 77,769, ,001, Total 77,769, ,001, Notes receivable (1) Classification list of notes receivable Item Balance at end of Balance at beginning of Bank's acceptance note 40,746, Trade acceptance Total 40,746, (2) Notes receivable pledged by the Company at the end of (3) Notes receivable endorsed or discounted by the Company at the end of and not due yet on balance sheet date: (4) Notes converted into receivables at the end of due to unfulfillment of drawer Other description 3. Receivables (1) Classification disclosure of receivables

125 COOEC / ANNUAL REPORT Category Receivables of single significant amount and separate withdrawal of bad debt reserves Receivables with consolidated withdrawal of bad debt reserves according to credit risk characteristics Book balance Amount Percentage (%) Balance at end of Bad debt reserves Amount Withdrawal proportion (%) Book value 1,999,204, ,425, ,992,778, Receivables of single amount insignificant but separate withdrawal of bad debt reserves Total 1,999,204, / 6,425, / 1,992,778, Category Receivables of single significant amount and separate withdrawal of bad debt reserves Receivables with consolidated withdrawal of bad debt reserves according to credit risk characteristics Book balance Amount Percentage (%) Balance at beginning of Bad debt reserves Amount Withdrawal proportion (%) Book value 4,725,658, ,851, ,712,806, Receivables of single amount insignificant but separate withdrawal of bad debt reserves Total 4,725,658, / 12,851, / 4,712,806, Receivables with significant single amount and separate withdrawal of bad debt reserves at end of In combination, the accounts receivable with withdrawal of bad debt reserves by accounting age analysis method: Applicable Inapplicable Accounting age Receivables Balance at end of Bad debt reserves Withdrawal proportion (%) Within 1 year Including: sub-item within 1 year Within 1 year 401,226, Subtotal within 1 year 401,226, to 2 years 689, , % 2 to 3 years 689, , % Above 3 years 5,804, ,804, % Total 408,410, ,425,507.47

126 124 COOEC / ANNUAL REPORT 2016 (2) Withdrawn, reclaimed or turned back bad debt reserves in current : The amount of bad debt reserves withdrawn in current is RMB 5,373, yuan, and that reclaimed or turned back in current is RMB 11,826, yuan, Increase bad-debt reserve of RMB 25, yuan due to converted balance in foreign currency statements. (3) Receivables actually canceled after verification in current (4) Receivables with top five balance gathered by debt party at end of : Balance at end of Company name Proportion to Receivables total number of receivables (%) CNOOC Limited 1,331,493, PTTEP International Limited 199,663, CNOOC Gas & Power Group 197,704, CNOOC Oil & Petrochemicals Co., Ltd. 31,706, Husky Oil (Madura) Ltd. 28,078, Total 1,788,645, Bad debt reserves 4. Prepayment (1) Prepayment listed by the accounting age Accounting age Balance at end of Balance at beginning of Amount Percentage (%) Amount Percentage (%) Within 1 year 155,957, ,389, to 2 years 8,753, ,338, to 3 years 555, Above 3 years Total 164,711, ,283, (2) Repayment of the top five of balance at end of collected by prepayment objects: Prepayment object Balance at end of Proportion to the total number of prepayment balance at end of year (%) InterDam B.V. 60,871, CSSC Huangpu Wenchong Shipbuilding Company Limited 20,067, Wugang Iron and Steel Sales Company Tianjin Ltd. 16,752, Huisman Far East Services Pte Ltd 11,809, Tianjin Haishenghao Offshore Engineering Co., Ltd. 11,297, Total 120,799,

127 COOEC / ANNUAL REPORT Interest receivable (1) Classification of interest receivable Item Balance at end of Balance at beginning of Fixed deposit 6,454, Entrusted loan Bond investment Interest of bank financial product 16,835, ,568, Interest on deposit of CNOOC Finance Co., Ltd. 3,056, , Total 19,891, ,684, Other receivables (1) Classification disclosure of other receivables Category Other receivables with significant single amount and separate withdrawal of bad debt reserves Other receivables with consolidated withdrawal of bad debt reserves according to credit risk characteristics Book balance Amount Percentage (%) Balance at end of Bad debt reserves Amount Withdrawal 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, Category Other receivables with significant single amount and separate withdrawal of bad debt reserves Other receivables with consolidated withdrawal of bad debt reserves according to credit risk characteristics Book balance Amount Percentage (%) Balance at beginning of Bad debt reserves Amount Withdrawal proportion (%) Book value 172,512, , ,551, Other receivables of single amount insignificant but separate withdrawal of bad debt serves Total 172,512, / 960, / 171,551,749.18

128 126 COOEC / ANNUAL REPORT 2016 Other receivables with significant single amount and separate withdrawal of bad debt reserves at end of In the combination, other receivables with withdrawal of bad debt reserves by accounting age analysis method: Applicable Inapplicable Balance at end of Accounting age Other Bad debt Withdrawal receivables reserves proportion (%) Within 1 year Including: sub-item within 1 year Within 1 year 81,482, Subtotal within 1 year 81,482, to 2 years 310, , to 3 years Above 3 years 865, , Total 82,658, , (2) Withdrawn, reclaimed or turned back bad debt reserves in current : The amount of bad debt reserves withdrawn in current is RMB 213, yuan, and that reclaimed or turned back in current is RMB 215, yuan, Including recovered or withdrawn amount of important bad debt reserves in current : (3) Other receivables actually canceled after verification in current Canceling of other significant receivables: (4) Classification of other receivables by nature Payment nature Book balance at end of Book balance at beginning of Refunding export taxes 30,949, ,911, Deposit, imprest-fund and margin 29,687, ,130, Insurance claim payment 37,145, ,250, Advance money 15,102, ,845, Consumption tax rebate 28,374, Total 112,885, ,512,480.14

129 COOEC / ANNUAL REPORT (5) Other receivables with top five balance gathered by debt party at end of : Company name Nature of accounts Balance at end of Accounting age Proportion to the total number of other receivable balance at end of year (%) China Pacific Property Insurance Co., Ltd. Insurance Within 1 37,145, Tianjin Branch claim payment year Shenzhen Customs District People s Republic of China Security 20,834, Note Tianjin Municipal Office of SAT, Offshore Refunding Within 1 19,642, Oil Taxation Branch Bureau export taxes year Qingdao Provincial Office, SAT Refunding Within 1 11,307, export taxes year COOEC-Fluor Heavy Industries Co., Ltd. Advance Within 1 11,319, money year Total / 100,248, / Bad debt reserves Balance at end of Note: for Shenzhen Customs District People s Republic of China, RMB 15,298, yuan for 1 year at most; RMB 845, yuan for 2-3 years; RMB 4,690, yuan for more than 3 years (6) Accounts receivable involving government subsidies 7. Inventory (1) Inventory type Item Balance at end of Falling price Book balance reserve Book value Balance at beginning of Falling price Book balance Book value reserve Raw materials Work-inprocess Inventory commodity Revolving materials Consumable biological assets Asset not settled but completed in construction contract Engineering construction 1,020,540, ,770, ,770, ,032, ,436, ,596, Engineering material preparation 733,585, ,194, ,391, ,389, ,850, ,539, Total 1,754,126, ,964, ,611,161, ,738,422, ,287, ,690,135,415.03

130 128 COOEC / ANNUAL REPORT 2016 Engineering material preparation is detailed as follows: Item Book balance Balance at end of Falling price reserve Book value Book balance Balance at beginning of year Falling price reserve Book value Engineering material preparation 733,585, ,194, ,391, ,389, ,850, ,539, Wherein: Common steel products 75,989, ,194, ,794, ,859, ,850, ,008, Imported material 137,221, ,221, ,277, ,277, Electrical engineering materials 101,563, ,563, ,578, ,578, Other materials 418,811, ,811, ,673, ,673, (2) Inventory falling price reserves Item Balance at beginning of Increased amount in current Withdrawal Others Decreased amount in current Retake or write-off Others Balance at end of Raw materials Work-in-process Inventory commodity Revolving materials Consumable biological assets Asset not settled but completed in construction contract Engineering construction 38,436, ,770, ,436, ,770, Engineering material preparation 9,850, ,580, , ,194, Total 48,287, ,351, ,673, ,964, All engineering materials prepared are common steel products. 8. Other current assets Item Balance at end of Balance at beginning of Prepaid corporate income tax 277, , Offset against VAT input tax 79,681, ,588, Bank financial products 3,600,000, ,100,000, Total 3,679,958, ,141,976,414.46

131 COOEC / ANNUAL REPORT Financial assets available for sales (1) Financial assets available for sales Item Book balance Balance at end of Depreciation reserves Balance at beginning of Book value Book balance Depreciation reserves Book value Debt instrument available for sale: Equity instruments available for sale: 311,277, ,277, ,043, ,043, Calculated based on fair value 240,605, ,605, ,372, ,372, Calculated based on cost 70,671, ,671, ,671, ,671, Total 311,277, ,277, ,043, ,043, (2) Financial assets available for sales calculated based on fair value at end of Asset classification available for sale Equity instrument available for sale Debt instrument available for sale Cost of equity instrument/amortized cost of debt instrument 36,684, ,684, Fair value 240,605, ,605, Cumulative changed amount of fair value credited into other consolidated income 203,921, ,921, Impairment amount withdrawn (3) Financial assets available for sales calculated based on cost at end of Investee Unit Beginning of Book balance Current Increase Current Decrease End of Beginning of Depreciation reserves Current Increase Current Decrease End of Holding proportion in investee (%) Total Cash dividend of current CNOOC Finance 70,671, ,671, ,475, Co., Ltd. Total 70,671, ,671, / 7,475, (4) Change in impairment of financial assets available for sale in report

132 130 COOEC / ANNUAL REPORT 2016 (5) Relevant description on fair value of equity instrument available for sale at the end of which declines seriously or not temporarily, but with depreciation reserves not withdrawn: Other description 10. Long-term equity investment Applicable Inapplicable Investee I. Cooperative venture COOEC- Fluor Heavy Industries Co., Ltd. Beginning of Balance Additional investment Negative investment Increase and decrease variation in current Recognized profit and loss on investment under equity method Other composite incomes adjustment Other equity variation Cash dividends or benefit to be issued Withdrawal of depreciation reserves Others End of Balance 2,823,723, ,921, ,201, ,046,600, Subtotal 2,823,723, ,921, ,201, ,046,600, II. Joint venture Kvearner - COOEC (Qingdao) Engineering Technology Co., Ltd. Subtotal Total 2,823,723, ,921, ,201, ,046,600, Depreciation reserve balance at end of Other description Note: Shareholding ratio of the subsidiary, Offshore Oil Engineering (Qingdao) Co., Ltd in Kvearner and 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 balance at end of of RMB 0.00 yuan.

133 COOEC / ANNUAL REPORT Fixed assets (1) Fixed assetsii. Fixed assets Item Housings and buildings Machinery equipment Transportation means Electronic equipment I. Original book value: 1. Balance at beginning of 5,332,669, ,171,492, ,665,517, ,421, ,350,101, Increased amount in current 162,312, ,498, ,183, ,202, ,197, (1) Purchase 615, ,227, ,206, ,771, ,821, (2) Transferred from project under construction 161,559, ,797, ,229, ,412, ,999, (3) Increased from consolidation (4) Converted from foreign currency 137, , ,315, , ,944, statement (5) Other (note 1 ) -25,568, ,568, Decreased amount in current 1,906,750, ,706, ,488, ,224, ,335,170, (1) Disposal or scrapping 744,079, ,087, ,488, ,871, ,169,527, (2) Other (note 2 ) 1,162,670, ,618, , ,165,643, Balance at end of 3,588,231, ,888,284, ,768,212, ,399, ,423,127, II. Accumulated depreciation 1. Balance at beginning of 996,507, ,835,267, ,923,781, ,180, ,875,736, Increased amount in current 164,141, ,876, ,301, ,745, ,071,065, (1) Withdrawal 164,077, ,474, ,972, ,744, ,019,269, (2) Converted from foreign currency 63, , ,329, ,796, statement 3. Decreased amount in current 55,954, ,352, ,443, ,052, ,803, (1) Disposal or scrapping 7,297, ,075, ,443, ,009, ,825, (2) Other (note 2 ) 48,657, , , ,977, Balance at end of 1,104,694, ,975,791, ,564,639, ,873, ,772,998, III. Depreciation reserves 1. Balance at beginning of 154,675, ,820, ,495, Total

134 132 COOEC / ANNUAL REPORT 2016 Item Housings and buildings Machinery equipment Transportation means Electronic equipment Total 2. Increased amount in current (1) Withdrawal 3. Decreased amount in current (1) Disposal or scrapping 4. Balance at end of IV. Book value 1. Book value at end of 2. Book value at beginning of 154,675, ,820, ,495, ,328,861, ,672, ,203,573, ,526, ,484,633, ,181,486, ,325,404, ,741,736, ,241, ,308,869, Note 1 : Other increasing items in original book value of fixed assets in this year mainly refers to adjustment of difference between engineering vessel project of this year and fixed assets to be transferred of last year due to engineering settlement and audit. Note 2 : decrease of fixed assets in current is caused by subsidiary of the Company, Offshore oil engineering (Zhuhai) Co., Ltd investing in COOEC-Flour Heavy Industries Co., Ltd. (2) Fixed assets leased out through operating lease Item Book value at end of House buildings 650, Transportation equipment 602,432, (3) Fixed assets with uncompleted certificate of property title Item Book value Reasons for the property certificate failure House buildings 672,079, In progress

135 COOEC / ANNUAL REPORT Projects under construction (1) Projects under construction Item Balance at end of Book balance Depreciation Book value reserves Balance at beginning of Book balance Depreciation Book value reserves Phase II of Zhuhai Deepwater Base 617,405, ,405, Construction Project Phase I of Zhuhai Deepwater Base 92,383, ,383, Construction Project Purchasing of two 3,000 m working 69,066, ,066, ,065, ,065, ROVs in Shenzhen Deepwater flexible pipe laying system 97,335, ,335, ,133, ,133, VENOM 5(rov33) upgrading and 14,157, ,157, ,614, ,614, reconstruction Overall budgeting system deepening application and promotion project- 3,740, ,740, Hyperion budgeting system Construction project management 3,731, ,731, information system Pipe ditching (DP) project vessel 68,644, ,644, ,019, ,019, construction project Equipment installation 1,972, ,972, , , Blasting workshop organic exhaust gas purification equipment 1,057, ,057, reconstruction preliminary study of port-surrounding base 610, , construction project Offshore engineering resource price information system 311, , development project (phase II) Deepwater winding and laying multipurpose engineering 97, , vessel construction project Gutter plough purchase project 8, , Others 10,368, ,368, ,419, ,419, Total 263,630, ,630, ,253, ,253,146.09

136 134 COOEC / ANNUAL REPORT 2016 (2) Changes in major construction projects of current Project name Budget amount Beginning of Balance Increased amount in current Transferred fixed assets amount of current Phase II of Zhuhai Deepwater Base Construction Project 617,405, ,892, ,691, Phase I of Zhuhai Deepwater Base Construction Project 92,383, ,496, ,098, Purchasing of two 3,000 m working ROVs in Shenzhen 99,077, ,065, Deepwater flexible pipe laying system 444,130, ,133, ,201, VENOM5 (Robot 33) upgrading and reconstruction 53,170, ,614, ,211, ,668, Overall budgeting system deepening application and promotion project-hyperion 4,000, ,740, , budgeting system Construction project management information system 5,000, ,731, , Pipe ditching engineering vessel (DP) feasibility study project 372,910, ,019, ,289, Equipment installation 739, ,403, ,449, Semi-submersible pipe-laying crane vessel 20,680, , Blasting workshop organic exhaust gas purification equipment reconstruction 1,900, ,057, preliminary study of port-surrounding base construction project 4,800, , Offshore engineering resource price information system development project 1,225, , (phase II) Newly added ground anchor for Petrobras 2,800, ,629, ,629, Deepwater winding and laying multi-purpose engineering vessel construction project 2,400, , Gutter plough purchase project 132,546, , Others 26,419, ,011, ,461, Total 1,144,639, ,253, ,026, ,999, Remarks Note1: balance of the phase II of Zhuhai base construction project at end of is 0; the capital transferred to fixed asset of current is RMB 105,691, yuan, the capital invested in or sold to the joint venture of current is RMB 725,606, yuan. Accumulative project investment by end of is RMB 1,403,564, yuan, among which raised fund investment is RMB 1,059,697, yuan. Note 2: balance of the phase I of Zhuhai base construction project at end of is 0; the capital transferred to fixed asset of current is RMB 1,593,817, yuan, the capital transferred to the intangible asset is RMB 1,226, yuan, and the capital invested in or sold to the joint venture in current is RMB 123,782, yuan. Accumulative project investment by end of is RMB 1,718,826, yuan, among which raised fund investment is RMB 1,402,288, yuan.

137 COOEC / ANNUAL REPORT Other amount of decrease of current End of Balance Proportion of project accumulative investment in budget (%) Project schedule Accumulated amount of interest capitalization Including: amount of interest capitalization of current Interest capitalization rate of current (%) Capital source 725,606, Note 1 123,782, Note 2 69,066, Self-raised funds 97,335, Self-raised funds 14,157, Self-raised funds 3,796, Self-raised funds 4,429, Self-raised funds 2,664, ,644, Self-raised funds 721, ,972, Self-raised funds 20, Self-raised funds 1,057, Self-raised funds 29, , Self-raised funds 311, Self-raised funds Self-raised funds 97, Self-raised funds 8, Self-raised funds 599, ,368, Self-raised funds 861,649, ,630, / / / /

138 136 COOEC / ANNUAL REPORT Intangible assets (1) Intangible assets Item Land-use right Patent right Non-patent technology Software Total I. Original book value 1. Balance at beginning of 1,962,956, ,615, ,091,571, Increased amount in current 18,906, ,906, (1) Purchase 6,556, ,556, (2) Internal R&D (3) Increased from consolidation (4) Transferred from project under construction 12,261, ,261, (5) Converted from foreign currency statement 88, , Decreased amount in current 1,024,427, ,538, ,025,965, (1) Disposal 1,024,427, ,538, ,025,965, Balance at end of 938,529, ,983, ,084,513, II. Accumulated amortization 1. Balance at beginning of 195,132, ,834, ,967, Increased amount in current 21,125, ,263, ,388, (1) Withdrawal 21,125, ,253, ,378, (2) Converted from foreign currency statement 9, , Decreased amount in current 75,549, , ,014, (1) Disposal 75,549, , ,014, Balance at end of 140,708, ,633, ,342, III. Depreciation reserves 1. Balance at beginning of 2. Increased amount in current (1) Withdrawal 3. Decreased amount in current (1) Disposal 4. Balance at end of IV. Book value 1. Book value at end of 797,820, ,350, ,170, Book value at beginning of 1,767,823, ,780, ,797,604, Intangible asset formed by the Company internal R&D takes up 0% of the balance of intangible assets at end of current. Note: decrease of fixed assets in current is caused by subsidiary of the Company, COOEC (Zhuhai) Co., Ltd. investing in COOEC-Flour Heavy Industries Co., Ltd.

139 COOEC / ANNUAL REPORT Business reputation (1) Goodwill original book value Investee name or goodwill-related matters Balance at beginning of Increased in current Formed by consolidation Decreased in current Disposal Balance at end of A.E.S. Destructive & Non-destructive Testing Ltd. 13,075, ,075, Total 13,075, ,075, Long-term unamortized expenses Item Balance at beginning of Increased amount in current Current amortization amount Other amount of decrease Balance at end of Parking place rental fee 48,040, ,752, ,766, ,025, Improved expenditure of leased-in assets 1,531, ,568, ,501, ,598, Total 49,571, ,320, ,267, ,623, Deferred income tax assets/liabilities (1) Non-offset deferred income tax assets Item Balance at end of Deductible temporary difference Deferred income tax Asset Balance at beginning of Deductible temporary difference Deferred income tax Asset Assets depreciation reserve 284,699, ,704, ,394, ,315, Unrealized profits from internal transaction 704,201, ,059, Deductible loss 992,122, ,160, ,261, , Not-invoiced costs on account 476,306, ,445, ,173,376, ,006, Deferred income 218,685, ,802, ,462, ,069, Change in fair value of transactional financial liabilities 212,302, ,845, ,594, ,989, Dismission welfare 2,612, , ,612, , Amortization of intangible assets 2,097, , ,844, , Total 2,893,029, ,726, ,824,546, ,864,257.55

140 138 COOEC / ANNUAL REPORT 2016 (2) Non-offset deferred income tax liability Item Balance at end of Taxable temporary difference Deferred income tax Liabilities Balance at beginning of Taxable temporary difference Deferred income tax Liabilities Asset evaluation increment of consolidation under different control Fluctuation of fair value of sellable financial assets 203,921, ,588, ,982, ,697, Depreciation of fixed assets 38,958, ,843, ,108, ,716, Total 242,880, ,432, ,091, ,413, Financial assets which are accounted at the fair value and of which the fluctuations are counted as the gains and losses of current Item Balance at end of Balance at beginning of Transactional financial liabilities 212,302, ,594, Including: issued traded bond Financial derivative liabilities 212,302, ,594, Others Designated as financial liabilities accounted by fair value with their changes accounted to current profits and losses Total 212,302, ,594, Other description: The remaining sum of derivative financial liability at end of year 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. 18. Accounts payable (1) List of payables Item Balance at end of Balance at beginning of Engineering project and material collections 4,065,799, ,713,696, Total 4,065,799, ,713,696,227.79

141 COOEC / ANNUAL REPORT (2) Major payables with accounting age over 1 year Item Balance at end of Reasons for arrear or carry down Tianjin, ZhongTie Jianye, Group Co., Ltd. 50,171, Unfinished settlement China Railway Port and Channel Engineering Group Co., Ltd 33,230, Unfinished settlement S.B.Submarine Systems Co., Ltd. 32,257, Unfinished settlement MCC TianGong Group Corporation Limited 21,193, Unfinished settlement DaYuan Construction Group Co., Ltd. 20,530, Unfinished settlement Tianjin TEDA Bluewhale Offshore Engineering Technology Co., Ltd. 19,277, Unfinished settlement CCCC First Harbor No. 2 Engineering Co., Ltd. 18,771, Unfinished settlement Shenzhen Chiwan Sembawang Engineering Co., Ltd. 18,712, Unfinished settlement Offtech International Limited 13,764, Unfinished settlement Jiangsu Huaxicun Offshore Engineering Service Co., Ltd. 13,106, Unfinished settlement Hunan No.3 Construction and Engineering Co., Ltd. 13,000, Unfinished settlement Total 254,017, / 19. Advance receipts (1) List of advance receipts Item Balance at end of Balance at beginning of Engineering project payment 59,997, Others 88, , Total 88, ,402, Payroll payable (1) List of payroll payable Item Balance at beginning of Increased in current Decreased in current Balance at end of I. Short-term compensation 325,131, ,531,766, ,578,128, ,769, II. Defined contribution plans for welfare after dismission 31,159, ,965, ,517, , III. Dismission welfare 2,612, , , ,612, IV. Other welfares to expire within one year Total 358,904, ,764,787, ,841,701, ,991,056.15

142 140 COOEC / ANNUAL REPORT 2016 (2) List of short-term salary Item Balance at beginning of Increased in current Decreased in current Balance at end of I. Salary, bonus, allowance, and subsidy 300,524, ,111,142, ,157,796, ,870, II. Employee welfare expenses ,285, ,285, III. Social insurance premium 127,959, ,959, Including: medical insurance premium 115,449, ,449, Work injury insurance premium 6,117, ,117, Birth insurance premium 6,393, ,393, IV. Housing fund 128,968, ,968, V. Labor union and staff education funds 20,244, ,268, ,223, ,289, VI. Short-term compensated absences VII. Short-term profits sharing plan VIII. Others 4,361, ,141, ,894, ,608, Total 325,131, ,531,766, ,578,128, ,769, (3) List of defined contribution plans Item Balance at beginning of Increased in current Decreased in current Balance at end of 1. Primary endowment insurance 198,002, ,002, Unemployment insurance 10,043, ,043, Enterprise annuity payment 31,159, ,919, ,470, , Total 31,159, ,965, ,517, , Taxes payable Item Balance at end of Balance at beginning of VAT 47,897, ,084, Consumption tax Business tax 166,053, Corporate income tax 366,514, ,537, Individual income tax 23,738, ,716, Urban maintenance and construction tax 2,278, ,828, Land value increment tax 24,072, Others 13,848, , Real estate tax 5,974, ,458, Stamp tax 2,654, ,571,292.15

143 COOEC / ANNUAL REPORT Item Balance at end of Balance at beginning of Land use tax 2,411, ,865, Educational surtax 1,626, ,140, Anti-flood fee 283, ,793, Total 491,301, ,797, Interest payable Item Balance at end of Balance at beginning of 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 stock/perpetual bond interest divided as financial liabilities Corporate bond interest 10,193, ,193, Total 10,193, ,193, Other payables (1) Other payables listed by nature of payment Item Balance at end of Balance at beginning of Appropriate funds for scientific research 48,494, ,176, Temporary receipts 76,801, ,002, Total 125,296, ,179, (2) Other major payables with accounting age over 1 year Item Balance at end of Reasons for arrear or carry down Advance money 18,865, Not paid yet Total 18,865, /

144 142 COOEC / ANNUAL REPORT Non-current liabilities due within one year Item Balance at end of Balance at beginning of Long-term loans due within one year Bonds payable due within one year 1,198,558, Long-term payable due within 1 year Total 1,198,558, Other current liabilities Other current liabilities Item Balance at end of Balance at beginning of Short-term bond payable Government subsidies 6,266, ,360, Total 6,266, ,360, Details of government subsidy items Item of government subsidy Return of site supporting facilities fee Scientific research appropriation for significant national subjects Balance at beginning of year Newlyadded subsidy amount in current Amount included in non-operating income of current Other changes Balance at end of 51,856, ,365, ,856, ,365, ,046, ,499, ,331, , ,548, Deed tax return of office building in bonded area 353, , , , Appropriation for technical transformation 104, , Total 58,360, ,217, ,645, , ,266, Related to assets/ income Related to assets Related to income Related to assets Related to assets Note: Other current liabilities of the Company 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; other changes of RMB 665, are conditional grants to be carried back after closure. 26. Bond payable (1) Bond payable Item Balance at end of Balance at beginning of 07 COOEC Bond 1,197,065, Total 1,197,065,406.36

145 COOEC / ANNUAL REPORT (2) Increase and decrease of bond payable: (excluding preferred stock/perpetual bond and other financial tools divided as financial liabilities) Bond Name Face value Issue Date Bond Term Issue Amount Beginning of Balance 07 COOEC Bond 1,200,000, ,200,000, ,197,065, Total / / / 1,200,000, ,197,065, Bond Name Current Issue Interest accrued by face value Amortization of premium Current Amount repaid in current Other decrease 07 COOEC Bond 69,240, ,492, ,240, ,198,558, Total 69,240, ,492, ,240, ,198,558, End of Balance Note: Approved by CSRC in ZH.J.F.X.Z [2007] No.383 Writ, the Company issued the 2007 COOEC bonds with total face value of RMB 1.2 billion yuan to the public from November 9, 2007 to November 13, 2007, and raised RMB 1.2 billion yuan of funds. After deducting the issuance expenses of RMB million yuan, the actual funds entering the accounts amount to RMB 1, million yuan 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 an nual 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. Other decrease in current is non-current liabilities due within one year. 27. Special payables Item Balance at beginning of Increased in current Decreased in current Balance at end of Causes Appropriation of scientific research funds 31,672, ,561, ,111, for 863 Project Total 31,672, ,561, ,111, / Other description: The amount of special payables in the current decrease transferred to the non-operating income is RMB 1,841, yuan, and those allocated the external organization is RMB 720, yuan. 28. Deferred income Deferred income Item Balance at beginning of Increased in current Decreased in current Balance at end of Causes Fund allocated by Government subsidies 1,020,001, ,242, ,817, ,426, the government Total 1,020,001, ,242, ,817, ,426, /

146 144 COOEC / ANNUAL REPORT 2016 Projects involving government subsidies: Liabilities items Scientific research appropriation for significant national subjects Deed tax return of office building in bonded area Return of site supporting facilities fee Appropriation for technical transformation Balance at beginning of Newly-added subsidy amount in current Amount included in non-operating income of current Other changes Balance at end of 122,771, ,542, ,869, ,919, ,524, ,559, , ,206, ,800, ,700, ,440, ,365, ,694, , , Related to assets/ income Related to income Related to assets Related to assets Related to assets Total 1,020,001, ,242, ,179, ,638, ,426, / 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 29,239, transferred to cooperating organization and 5,398, transferred to other current liabilities at the end of. 29. Capital stock Balance at beginning of Issue New share Increase and decrease in this change (+, -) Donated share Accumulation fund Shares transferred from Others Subtotal Balance at end of Total shares 4,421,354, ,421,354, Capital reserve Item Balance at beginning of Increased in current Decreased in current Balance at end of Capital premium (share capital premium) 4,229,620, ,229,620, Capital reserve 18,319, ,319, Total 4,247,940, ,247,940,206.11

147 COOEC / ANNUAL REPORT Other comprehensive income Item I. Other comprehensive incomes which cannot be reclassified into the profit and loss in future Including: re-compute the set net debt of benefits plan and change in net assets. Shares that cannot 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 Including: shares to be reclassified into other comprehensive income of profit and loss of the invested entity under the equity law Change of fair value recognized in profits or losses of available-forsale 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 comprehensive income sum Beginning of Balance Pre-capital premium amount of current Amount incurred in current Less: 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 End of Balance 181,810, ,553, ,790, ,109, ,588, , ,399, ,285, ,270, ,790, ,109, ,951, ,333, ,474, ,823, ,540, , ,066, ,810, ,553, ,790, ,109, ,588, , ,399,714.45

148 146 COOEC / ANNUAL REPORT Special reserve Item Balance at beginning of Increased in current Decreased in current Balance at end of Safety production cost 549,115, ,770, ,334, ,551, Total 549,115, ,770, ,334, ,551, Surplus reserves Item Balance at beginning of Increased in current Decreased in current Balance at end of Legal surplus reserves 1,275,278, ,275,278, Discretionary surplus reserves 89,145, ,145, Reserve funds Enterprise development fund Others Total 1,364,424, ,364,424, Undistributed profits Item Current Last Undistributed profits at end of previous before adjustment 12,211,812, ,109,425, Total undistributed profit at beginning of adjustment (increase +, decrease -) Undistributed profit at beginning of later of adjustment 12,211,812, ,109,425, Plus: Net profit attributable to owners of the parent company 1,315,307, ,409,945, Less: withdrawal of legal surplus reserves 290,647, Withdrawal of discretionary surplus reserves Withdrawal of general risk reserves Common-stock dividends payable 1,105,338, ,016,911, Common stock dividends converted to capital stock Undistributed profit at end of 12,421,780, ,211,812,116.92

149 COOEC / ANNUAL REPORT Operating income and operating costs Accrued in current Accrued in last Item Income Cost Income Cost Core business 11,908,025, ,059,060, ,131,639, ,180,313, Other business 83,657, ,145, ,867, ,118, Total 11,991,683, ,095,206, ,201,506, ,220,432, Top 5 clients operating incomes Name of client Operating income Proportion to total operating income (%) YAMGAZ 5,340,302, CNOOC Limited 4,562,363, TUPI B.V. 744,043, PTTEP International Limited 370,668, Husky-CNOOC Madura Limited 281,227, Total 11,298,606, Core business income classified by products Product name Accrued in current Accrued in last 1. Revenue from offshore engineering EPC contract project 5,343,467, ,555,742, Revenue from offshore engineering non-epc contract project 876,263, ,555,005, Including: revenue from offshore installation and subsea pipe-laying 269,861, ,985, Income from maintenance service 455,399, ,996, Revenue from onshore construction 79,359, ,239, Engineering design income 71,643, ,784, Income not from offshore engineering projects 5,688,295, ,020,891, Total 11,908,025, ,131,639, Taxes and surcharges Item Accrued in current Accrued in last Turnover tax and additional tax 42,380, ,534, Real estate tax 22,363, Land use tax 6,198, Vehicle and vessel use tax 359, Stamp tax 5,530, Others 11,227, ,936, Total 88,060, ,470,860.29

150 148 COOEC / ANNUAL REPORT Selling expenses Item Accrued in current Accrued in last Publicity and exhibition expenses 7,798, ,985, Employee salary 3,027, ,114, Traveling expense 1,125, ,247, Advertising expense 836, Office, water, electricity and communication expenses 36, , Depreciation cost and amortization of intangible assets 13, , Others 1,045, ,388, Total 13,047, ,674, Management expenses Item Accrued in current Accrued in last R&D costs 703,950, ,602, Employee salary 148,633, ,289, Depreciation cost and amortization of intangible assets 25,200, ,908, Tax 15,672, ,270, Property management and afforestation expense 7,746, ,074, Auditing and consulting expense 6,705, ,058, Office, water, electricity and communication expenses 6,323, ,240, Rental charge 6,045, ,444, Transportation expense 5,286, ,490, Traveling expense 3,980, ,777, Business entertainment expense 291, , Others 19,823, ,596, Total 949,660, ,211,672, Financial expenses Item Accrued in current Accrued in last Interest expenses 70,732, ,676, Less: interest income -42,494, ,353, Exchange gain/loss -254,123, ,193, Others 16,059, ,312, Total -209,825, ,558,901.12

151 COOEC / ANNUAL REPORT Assets impairment loss Item Accrued in current Accrued in last I. Bad debt loss -6,454, ,007, II. Loss of inventory devaluation 133,351, ,648, III. Impairment losses on available-for-sale financial assets 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 XI. Impairment losses on oil and gas assets XII. Impairment losses of intangible assets XIII. Impairment loss on goodwill XIV. Others Total 126,896, ,656, Income from changes in fair value Sources for gains from change in fair value Accrued in current Accrued in last Financial assets which are accounted at the fair value and of which the fluctuations are counted as the gains and losses of current -2,147, 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 -5,707, ,595, Investment real estate calculated based on fair value Total -5,707, ,742,822.21

152 150 COOEC / ANNUAL REPORT Investment income Accrued in Item current Long-term equity investment income accounted by equity method -777,122, Investment income during disposing long-term equity investment Investment income gained in the holding of financial assets accounted at their fair values and with the variation included in the current profits and losses Investment income gained in the disposition of financial assets accounted at their fair values and with the variation included in the current profits and losses Held-to-maturity investment income during holding Accrued in last -147,186, ,533, Investment income gained by available-for-sale financial assets etc. 7,849, ,986, Investment income from disposal of available-for-sale financial assets 1,982, ,534, Gains by metering residual stick rights by fair value after losing of control rights Investment income from bank financial products 91,915, ,840, Total -822,561, ,827, Non-operating income Non-operating income Item Accrued in current Accrued in last Amount calculated into extraordinary profit and loss of current Disposal income sum on non-current assets 452,878, ,112, ,878, Including: gains from disposal of fixed assets 452,878, ,112, ,878, Gains from disposal of intangible assets Gains from debt restructuring Gains from exchange of non-monetary assets Donation received Government subsidies 1,059,926, ,254, ,059,926, Others 17,428, ,832, ,428, Total 1,530,233, ,199, ,530,233,584.85

153 COOEC / ANNUAL REPORT Governmental subsidy accounted into current profit and loss Subsidy items Amount incurred in current Amount incurred in last Related to assets/ income Scientific research appropriation for significant national subjects 50,201, ,157, Related to income Consumption tax rebate 54,075, ,839, Related to income Return of site supporting facilities fee 928,296, ,998, Related to assets Bounty on export from finance bureau in free trade zone 20,000, Related to income Xuejiadao Office support fund 3,000, Related to income Appropriation of scientific research funds for 863 Project 1,841, , Related to income Appropriation for technical transformation 973, Related to assets Financial Bureau subsidy 600, Related to income Bonus of enterprises to be listed into new technology enterprise cultivation library 778, Related to income Preferential return of income tax of overseas subsidiaries 640, Related to income Deed tax return of office building in bonded area 353, , Related to assets Others 584, , Related to income Total 1,059,926, ,254, / 44. Non-operating expenses Item Accrued in current Accrued in last Amount calculated into extraordinary profit and loss of current Disposal loss on non-current assets sum 12,720, ,472, ,720, Including: disposal loss on fixed assets 12,720, ,472, ,720, Loss on disposal of intangible assets Loss on debt restructuring Loss on exchange of non-monetary assets External donations 117, , , Others 398, , , Total 13,237, ,012, ,237,603.37

154 152 COOEC / ANNUAL REPORT Income tax expense (1) Table of income tax expense Item Accrued in current Accrued in last Income tax expense for current 532,187, ,040, Deferred income tax expense -227,734, ,880, Total 304,452, ,160, (2) Accounting profit and income tax expense adjustment process: Item Accrued in current Total profit 1,617,364, Income tax expense calculated at legal/applicable tax rate 242,604, Influence of different tax rate application of subsidiary corporation 96,102, Influence of income tax before adjustment 11,882, Influence of non-taxable income -3,000, Influence of cost, expense and losses that cannot be deductible -1,665, Influence of deductible losses of unconfirmed deferred income taxes in early of usage 1,193, Deductible temporary difference or influence for deductible losses of unconfirmed deferred income taxes in this 660, Others -43,324, Income tax expenses 304,452, Items of cash flow statement (1) Other cashes received relating to operating activities: Item Accrued in current Accrued in last R&D and fund allocated by the government 177,194, ,492, Insurance claim payment 64,455, ,969, Interest income 46,555, ,731, Pretty cash, security deposit and cash deposit 35,967, ,008, Others 43,514, ,768, Total 367,687, ,971,045.55

155 COOEC / ANNUAL REPORT (2) Other cash paid relating to operating activities: Item Accrued in current Accrued in last Pretty cash, security deposit and cash deposit 55,383, ,924, Service charge 16,059, ,113, Publicity and advertising expense 7,798, ,689, Property management and afforestation expense 7,746, ,074, Auditing and consulting expense 6,705, ,435, Office expense 6,360, ,524, Rental charge 6,045, ,445, Transportation expense 5,286, ,625, Traveling expense 5,105, ,955, Machine and material consumption and repair expense 1,043, ,367, Healthy, safety and environmental protection fees 982, ,502, Business entertainment expense 291, ,008, Property insurance 382, ,402, Meal fee 184, ,583, Meeting expense 32, , Others 15,342, ,482, Total 134,753, ,375, (3) Other cashes paid relating to investment Item Accrued in current Future foreign exchange settlement contract loss 147,186, Total 147,186, Accrued in last (4) Other cashes paid in connection with financing activities Item Accrued in current Accrued in last Finance lease outlay 576,249, Total 576,249,145.83

156 154 COOEC / ANNUAL REPORT Supplementary data of cash flow statement (1) Supplementary data of cash flow statement Supplementary data Current amount Last amount 1. Adjust the net profit into business cash flow: Net profits 1,312,911, ,410,269, Plus: assets depreciation reserve 126,896, ,656, Depreciation of fixed assets, oil and gas assets and productive biological assets 1,019,269, ,222,833, Amortization of intangible assets 35,378, ,646, Amortization of long-term unamortized expenses 3,267, ,912, Loss from the disposal of fixed assets, intangible assets and other longterm assets (income indicated with "-") -440,157, ,639, Loss on retirement of fixed assets (income indicated with "-") Loss from fair value change (income indicated with "-") 5,707, ,742, Financial expenses (income indicated with "-") -183,390, ,517, Losses arising from investment (income indicated with "-") 822,561, ,827, Decrease of deferred tax assets(increase indicated with "-") -230,861, ,227, Increase of deferred income tax debts (decrease indicated with "-") 3,127, ,366, Inventory decrease (increase indicated with "-") -15,704, ,620, Decrease of operation receivables (increase indicated with "-") 2,679,281, ,282,449, Increase of operation payables (decrease indicated with "-") -1,816,732, ,485,130, Others -33,564, ,743, Net cash flow from operating activities 3,287,991, ,625,658, Major investment and financing events 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: Cash balance at end of 6,628,261, ,809,364, Less: cash balance at beginning of 4,809,364, ,281,826, Plus: cash equivalent balance at end of Less: cash equivalent balance at beginning of Net increase of cash and cash equivalent 1,818,897, ,527,537,692.25

157 COOEC / ANNUAL REPORT (2) Composition of cash and cash equivalents Item Balance at end of Balance at beginning of I. Cash 6,628,261, ,809,364, Including: cash on hand 18, , Bank deposits payable anytime 6,628,243, ,809,344, Other monetary fund payable anytime Fund payable in central bank Deposits in other banks Inter-bank borrowing II. Cash equivalents Including: bond investment maturing within three months III. Cash and cash equivalent balance at end of 6,628,261, ,809,364, Including: cash and cash equivalents restricted by parent company or subsidiary within the Group 48. Assets with the ownership or use right limited Item Book value at end of Limit reason Monetary fund 77,769, Guarantee security Notes receivable Inventory Fixed assets Intangible assets Total 77,769, /

158 156 COOEC / ANNUAL REPORT Foreign currency monetary items (1) Foreign currency monetary items: Unit: yuan Item Foreign currency balance at end of Exchange rate for conversion RMB converted at end of Balance Monetary fund Including: USD 592,021, ,106,854, HKD 6,303, ,638, THB 1,643, , BND 19, , AED 525, , CAD 4, , AUD 7, , IDR 126,574,562, ,975, NGN 5,436, , Receivables Including: USD 4,797, ,282, EUR 363, ,659, HKD 3,962, ,544, CAD 75, , BND 1,273, ,200, Long-term loan Including: USD EUR HKD RMB RMB Other receivables USD 85, , HKD 4,269, ,818, CAD 54, , THB 554, , Accounts payable USD 64,281, ,920, HKD 2,742, ,456, AUD 109, , IDR 66,416,500, ,094, SGD 384, ,847, CAD 121, , GBP 62, , THB 143, , Other payables USD 1,401, ,721, HKD 189, ,825.24

159 COOEC / ANNUAL REPORT Item Foreign currency balance at end of Exchange rate for conversion RMB converted at end of Balance AUD , IDR 61,412, , CAD 141, , THB 9, , (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 Main overseas operation location Recording currency Blue Ocean International Co., Ltd. British Virgin Islands USD Gaotai Deep Sea Technology Co., Ltd. (originally translated into Ketai Co., Ltd.) US Houston USD 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 Australia Co., Ltd. Australia USD COOEC Canada Co., Ltd. Canada CAD Offshore International Engineering (Thailand) Co., Ltd. Thailand THB 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. VIII. Change of consolidation scope 1. Consolidation under different control 2. Consolidation under same control 3. Disposing subsidiaries or businesses Whether single disposal of subsidiary investment will lead to loss of control right. Whether there is stepped disposal of subsidiary investment through multiple transactions with control right lost in this. 4. Change of consolidation scope by 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).

160 158 COOEC / ANNUAL REPORT 2016 IX. Equities in other subjects 1. Equities in subsidiaries (1) Composition of corporate group Subsidiary Name A.E.S. Destructive & Non-destructive Testing Ltd. Main operation location Registration place COOEC (Qingdao) Co., Ltd. Qingdao Qingdao Shenzhen COOEC Subsea Technology Co., Ltd. Business nature Hong Kong Hong Kong Detection Shenzhen Shenzhen COOEC Indonesia Co., Ltd. Indonesia Indonesia COOEC Nigeria Co., Ltd. Nigeria Nigeria COOEC International Co., Ltd. Hong Kong Hong Kong COOEC International Engineering Co., Ltd. Blue Ocean International Co., Ltd. Beijing British Virgin Islands Beijing British Virgin Islands COOEC (Zhuhai) Co., Ltd. Zhuhai Zhuhai COOEC Australia Co., Ltd. Australia Australia Gaotai Deep Sea Technology Co., Ltd. (originally translated into Ketai Co., Ltd.) Beijing COTEC Offshore Engineering Co., Ltd. US Houston US Houston COOEC Canada Co., Ltd. Canada Canada Offshore International Engineering (Thailand) Co., Ltd. Other description: Engineering contracting Engineering contracting and labor service Engineering contracting Engineering contracting Engineering contracting Engineering contracting Engineering contracting Engineering contracting Engineering contracting and labor service Engineering contracting and labor service Shareholding proportion (%) Direct Indirect Acquisition method Subsidiary obtained through consolidation not under same control Foundation Foundation Foundation Foundation Foundation Foundation Foundation Foundation Foundation Foundation Beijing Beijing Labor service Foundation Thailand Thailand Engineering contracting and labor service Engineering contracting Foundation Foundation Note: 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.

161 COOEC / ANNUAL REPORT (2) Important non-wholly-owned subsidiaries Subsidiary name A.E.S. Destructive & Non-destructive Testing Ltd. Gaotai Deep Sea Technology Co., Ltd. (originally translated into Ketai Co., Ltd.) Beijing COTEC Offshore Engineering Co., Ltd. Shareholding of minority shareholders proportion Profit/loss attributable to minority shareholders in current Dividends declared to distribute to minority stockholders in current Balance of minority stockholders' equities at end of , ,307, ,448, ,670, ,245, ,540, (3) Main financial information of important non-wholly-owned subsidiaries Subsidiary name A.E.S. Destructive & Non-destructive Testing Ltd. Gaotai Deep Sea Technology Co., Ltd. (originally translated into Ketai Co., Ltd.) Beijing COTEC Offshore Engineering Co., Ltd. Subsidiary name A.E.S. Destructive & Non-destructive Testing Ltd. Gaotai Deep Sea Technology Co., Ltd. (originally translated into Ketai Co., Ltd.) Beijing COTEC Offshore Engineering Co., Ltd. Current assets Non-current assets Balance at end of Total assets Current liabilities Non-current liabilities Total liabilities 13,764, ,939, ,703, ,624, ,624, ,712, , ,171, ,270, ,270, ,974, , ,293, ,159, ,159, Current assets Non-current assets Balance at beginning of Total assets Current liabilities Non-current liabilities Total liabilities 13,601, ,861, ,463, ,737, ,737, ,517, , ,460, ,064, ,064, ,556, , ,107, ,599, ,599,221.16

162 160 COOEC / ANNUAL REPORT 2016 Subsidiary name A.E.S. Destructive & Non-destructive Testing Ltd. Gaotai Deep Sea Technology Co., Ltd. (originally translated into Ketai Co., Ltd.) Beijing COTEC Offshore Engineering Co., Ltd. Subsidiary name A.E.S. Destructive & Non-destructive Testing Ltd. Gaotai Deep Sea Technology Co., Ltd. (originally translated into Ketai Co., Ltd.) Beijing COTEC Offshore Engineering Co., Ltd. Operating income Accrued in current Net profits Total comprehensive income Cash flow from operating activities 15,728, , ,354, ,875, ,070, ,161, ,494, ,222, ,420, ,152, ,152, ,182, Operating income Accrued in last Net profits Total comprehensive income Cash flow from operating activities 16,616, , ,516, ,149, ,235, , ,589, , ,682, , , ,048, 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 Engineering contracting Design and technical consultation services Shareholding proportion (%) Direct Indirect Accounting treatment method for investment for cooperative or associated venture Perform subsequent measurement with equity method Perform subsequent measurement with 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 CNOOC Fluor Heavy Industry Co., Ltd. in February 2016, with 51% equity held by COOEC (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 is comprised of 7 directors, including 4 from COOEC (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 in the board meeting. Any party can not individually control and can prevent the counterparty controlling such decisions. Therefore, CNOOC Fluor Heavy Industry Co., Ltd. is a joint venture.

163 COOEC / ANNUAL REPORT (2) Main financial information of important cooperative venture Balance at end of /amount incurred in current COOEC-Fluor Heavy Industries Co., Ltd. Current assets 1,088,056, Including: cash and cash equivalent Non-current assets 4,456,173, Total assets 5,544,230, Balance at beginning of /amount incurred in last COOEC-Fluor Heavy Industries Co., Ltd. Current liabilities 156,117, Non-current liabilities Total liabilities 156,117, Minority stockholders equity Stockholders' equity attributable to the parent company 5,388,113, Net assets share calculated based on shareholding proportion 2,747,937, Adjusting events --Business reputation --Unrealized profits from internal transaction -704,201, Others 2,864, Book value for equity investment of cooperative venture 2,046,600, Fair valve for equity investment of cooperative venture with public offer Operating income 278,640, Financial cost -5,960, Income tax expenses -47,660, Net profits -142,982, Net profit for discontinuing operation Other composite incomes Total comprehensive income -142,982, Dividend received from cooperative venture in current year

164 162 COOEC / ANNUAL REPORT 2016 (3) Main financial information of important associated venture Balance at end of /amount incurred in current Kvearner - COOEC (Qingdao) Engineering Technology Co., Ltd. Balance at beginning of /amount incurred in last Kvearner - COOEC (Qingdao) Engineering Technology Co., Ltd. Current assets 5,059, ,533, Non-current assets 4,822, ,762, Total assets 9,882, ,295, Current liabilities 30,592, ,247, Non-current liabilities Total liabilities 30,592, ,247, Minority stockholders equity Stockholders' equity attributable to the parent company -20,710, ,952, Net assets share calculated based on shareholding proportion -8,284, ,180, Adjusting events --Business reputation --Unrealized profits from internal transaction --Others Book value for equity investment of cooperative venture Fair valve for equity investment of cooperative venture with public offer Operating income 12,108, Financial cost 518, ,138, Net profits -2,758, ,545, Net profit for discontinuing operation Other composite incomes Total comprehensive income -2,758, ,545, Dividend received from cooperative venture in current year

165 COOEC / ANNUAL REPORT (4) Excess deficit incurred in cooperative or associated venture Name of the cooperative or associated venture Kvearner - COOEC (Qingdao) Engineering Technology Co., Ltd. Accumulated unrecognized pre- loss Unrecognized loss at end of current (or net profit shared in current ) Accumulated unrecognized loss at end of current 7,180, ,103, ,284, Important joint operation 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 related with these financial instruments and risk management policies taken by this group to reduce these risks are described below. In order to ensure all the above risks to be controlled within a limited scope, the management layer of this group has controlled and supervised the risk exposure. (1) Credit risk On Saturday, December 31, 2016, 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. In particular,to reduce the credit risk, the Company 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 Company 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 think that the credit risk has been significantly reduced. The Company adopts necessary policies to ensure good credit record for all trade debtors. Besides top five amounts of payables, the Company has no other major centralized credit risks. As of December 31, 2016, the receivables of top five clients of the Company took up 89.47% 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 (2) 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, 2016, the foreign currency financial assets and foreign currency financial liabilities held by the Company 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 Company.

166 164 COOEC / ANNUAL REPORT 2016 Item Amount at end of Amount at beginning of year Currency capital-usd 592,021, ,022, Receivable-USD 4,797, ,027, Other receivables - USD 85, ,567, Payables-USD 64,281, ,157, Other payables - USD 1,401, ,700, Advance receipts - USD 7,738, Advance payment - USD 2,274, ,880, 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 Company 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. (3) Liquidity risk Liquidity risk refers to the risk that the financial obligation of the Company is failed to be performed before expiring date. The method for liquidity risk management of the Company is to ensure enough financial liquidity to perform the matured debts without causing unacceptable loss or damage to corporate reputation. The Company 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 liability is listed as follows by undiscounted contract cash flow by maturity date: Item Balance at end of Within 1 year 1-2 years 2-5 years Total Transactional financial liabilities 212,302, ,302, Accounts payable 4,065,799, ,065,799, Employee compensation payable 281,991, ,991, Other payables 125,296, ,296, Interest payable 10,193, ,193, Non-current liabilities due within one year 1,198,558, ,198,558, Total 5,894,141, ,894,141, Item Balance at beginning of year Within 1 year 1-2 years 2-5 years Total Transactional financial liabilities 108,607, ,206, ,813, Accounts payable 4,713,696, ,713,696, Employee compensation payable 358,904, ,904, Other payables 88,179, ,179, Interest payable 10,193, ,193, Non-current liabilities due within one year 1,492, ,195,572, ,197,065, Total 5,281,073, ,303,779, ,584,853,126.17

167 COOEC / ANNUAL REPORT (4) Sensitivity analysis Sensitivity analysis technology is used by the Company to analyze the rationality for risk variable and possible impact of potential change on current profits and losses 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 profits and losses and entities is as follows: Item All foreign currencies All foreign currencies Exchange rate fluctuation Appreciation of RMB by 5% Depreciation of RMB by 5% Impact on net profit 2016 Impact on owner s equity 159,222, ,222, ,222, ,222, XI. Disclosure of fair value 1. Fair value at end of of assets and liabilities Measured by fair value Item Measuring of the first layer fair value Fair value at end of 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 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 240,605, ,605, (1) Debt instrument investment (2) Equity instrument investment 240,605, ,605, (3) Others (III) Investment real estate 1. Right to use for lands for rent 2. Buildings leased Total

168 166 COOEC / ANNUAL REPORT 2016 Item Measuring of the first layer fair value Fair value at end of Measuring of the second layer fair value Measuring of the third layer fair value 3. Use to right for lands held and prepared for transfer after valueadding (IV) Biological assets 1. Consumable biological assets 2. Productive biological assets Total assets measured continuously by fair value 240,605, ,605, (V) Trading financial liabilities 212,302, ,302, Including: issued traded bond Financial derivative liabilities 212,302, ,302, Others (VI) Designated as financial liabilities measured by fair value with their changes accounted to current profits and losses Total liabilities measured continuously by fair value 212,302, ,302, II. Measuring of the non-continuous fair value (I) Assets held for sale Total assets measured noncontinuously by fair value Total liabilities measured noncontinuously by fair value 2. Basis for determining of the continuous and non-continuous project market price metered by the first layer of fair value Trading financial liabilities of the Company are the future foreign exchange settlement contract signed by the subsidiary of the COOEC (Qingdao) Co., Ltd. and Standard Chartered Bank. The forward exchange rate of the contract is provided by the counter party Standard Chartered Bank, and our Company will determine the fair value of the contract based on the forward exchange rate as well as the change amount of fair value. The financial assets available for sale metering by fair value of the Company 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. Total

169 COOEC / ANNUAL REPORT XII. Related party and related transactions 1. Profile of parent company of the Company Unit: 10,000 Yuan Currency: RMB Name of parent company Registration place Business nature Registered capital Shareholding proportion of parent company to the Company (%) Proportion of voting rights of parent company to the Company (%) China National Offshore Oil Corporation Beijing Offshore oil and gas exploration, development, production and refining; petroleum and chemical products sales 9,493, Description of the parent company of the Company China National Offshore Oil Corporation (hereinafter referred to as CNOOC for short) holds the stock rights of 6.65%, 0.28% and 0.04% respectively via the wholly-owned subsidiaries CNOOC Nanhai West Corporation, CNOOC Bohai Corporation and CNOOC Finance Co., Ltd., so the proportion for voting rights is 58.33%. The final controlling party of the Company is China National Offshore Oil Corporation. 2. Profile of subsidiaries of the Company For details of the subsidiaries of the Company, please refer to notes. For details of the subsidiaries of the Company, please refer to Note IX. Equities in other subjects. 3. Profile of cooperative or associated venture of the Company Details of the important cooperative or associated venture of the Company Please refer to Note IX. Equities in other subjects. Other cooperative or associated ventures having related-party transaction in current or in previous to form balance are listed as follows. Name of cooperative or associated venture COOEC-Fluor Heavy Industries Co., Ltd. Kvearner - COOEC (Qingdao) Engineering Technology Co., Ltd. Relationship with the Company Cooperative venture of the Company Cooperative venture of the Company Other description

170 168 COOEC / ANNUAL REPORT Profile of other related parties Name of other related parties China Offshore Oil Bohai Corporation China Offshore Oil Nanhai West Corporation CNOOC Limited China Oilfield Services Limited CNOOC Finance Co., Ltd. CNOOC Nanhai East Corporation Sea Industrial International Co., Limited CNOOC Oil & Gas Development & Utilization Company CNOOC Gas & Power Group CNOOC Energy Technology & Services Limited CNOOC Oil & Petrochemicals Co., Ltd. China Ocean Oilfields Services Hong Kong Limited CNOOC Research Institutes CNCCC International Tendering Co., Ltd. CNOOC Infrastructure Management Co., Ltd. China National Chemical Construction Corporation China Offshore Oil Donghai Corporation China Blue Chemical Ltd. Relationship between other related parties and the Company 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 Wholly owned subsidiary of parent company Wholly owned subsidiary of parent company Holding subsidiary of parent company 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 party CNOOC Energy Technology & Services Limited China Offshore Oil Bohai Corporation China Oilfield Services Limited CNOOC Gas & Power Group China National Offshore Oil Corporation China Ocean Oilfields Services Hong Kong Limited Sea Industrial International Co., Limited CNOOC Oil & Petrochemicals Co., Ltd. CNOOC Infrastructure Management Co., Ltd. Related transaction items Subcontracting, transportation, vessel, fuel and hydroelectricity, etc. Subcontracting, transportation, vessel, fuel and hydroelectricity, etc. Subcontracting, transportation, vessel, fuel and hydroelectricity, etc. Subcontracting, transportation, vessel, fuel and hydroelectricity, etc. Subcontracting, transportation, vessel, fuel and hydroelectricity, etc. Subcontracting, transportation, vessel, fuel and hydroelectricity, etc. Subcontracting, transportation, vessel, fuel and hydroelectricity, etc. Subcontracting, transportation, vessel, fuel and hydroelectricity, etc. Subcontracting, transportation, vessel, fuel and hydroelectricity, etc. Accrued in current Accrued in last 764,706, ,139,090, ,916, ,409, ,990, ,822, ,697, , ,585, , ,318, ,050, ,082, ,347, ,544, ,134, ,109,575.22

171 COOEC / ANNUAL REPORT Related party China Offshore Oil Nanhai West Corporation CNOOC Research Institutes COOEC-Fluor Heavy Industries Co., Ltd. CNOOC Limited CNCCC International Tendering Co., Ltd. China Offshore Oil Donghai Corporation CNOOC Nanhai East Corporation Related transaction items Subcontracting, transportation, vessel, fuel and hydroelectricity, etc. Subcontracting, transportation, vessel, fuel and hydroelectricity, etc. Subcontracting, transportation, vessel, fuel and hydroelectricity, etc. Subcontracting, transportation, vessel, fuel and hydroelectricity, etc. Subcontracting, transportation, vessel, fuel and hydroelectricity, etc. Subcontracting, transportation, vessel, fuel and hydroelectricity, etc. Subcontracting, transportation, vessel, fuel and hydroelectricity, etc. Accrued in current Accrued in last 1,963, ,649, , , ,786, , , , , Table for Selling Commodities/Providing Labor Services Related party CNOOC Limited CNOOC Gas & Power Group CNOOC Oil & Petrochemicals Co., Ltd. CNOOC Research Institutes CNOOC Energy Technology & Services Limited China National Offshore Oil Corporation Related transaction items Design, installation, construction and other professional services Design, installation, construction and other professional services Design, installation, construction and other professional services Design, installation, construction and other professional services Design, installation, construction and other professional services Design, installation, construction and other professional services Accrued in current Accrued in last 4,548,345, ,613,422, ,523, ,361, ,450, ,094, ,632, ,952, ,469, ,653, ,043, ,397, China Oilfield Services Limited Fuel sales 719, COOEC-Fluor Heavy Industries Co., Ltd. Provision of personnel sent abroad and material sales 21,023,

172 170 COOEC / ANNUAL REPORT 2016 (2) Associated commissioned management/contracting and entrusted management/outsourcing Table for Trusteeship Management and Contracting of the Company: Associated management/contract description 1) Based on the entrusted operation agreement, COOEC-Flour Heavy Industries Co., Ltd employs Offshore Engineering (Zhuhai) Co., Ltd as the ostensible agent to operate business, manage and operate investment assets, and supervise its employees. The agreement went into effect since March 1, 2016 and will terminate when COOEC-Flour Heavy Industries Co., Ltd obtains Construction enterprise qualification certificate, safety production license, and registration certificate of use of special equipment. 2) Associated trustee research Subject client CNOOC Limited China National Offshore Oil Corporation CNOOC Research Institutes 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 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 building and installation, design and research of FLNG/ FLPG device oil and gas pretreatment and upper liquefied module, outward transportation system of west Africa deepwater technology research subject and key technology research of jump connection. Balance at end of Subject funds Balance at beginning of year 8,075, ,738, ,314, ,216, ,150, ,046, Commissioned management/contracting out of the Company Related management/contracting out (3) Associated lease The Company is the lessor: Lessee name Type of asset leased Lease income confirmed in current Lease income confirmed in last CNOOC Limited House buildings 14,017, ,848, The Company is the leasee:

173 COOEC / ANNUAL REPORT (4) Associated guarantee The Company is the guarantor The Company is the guarantee (5) Borrowing of funds by associated party (6) Asset transfer and debt restructuring of associated parties Related party COOEC-Fluor Heavy Industries Co., Ltd. Related transaction items Related assets in engineering equipment manufacturing base Accrued in current Accrued in last 1,607,093, (7) Remuneration of key management personnel Unit: 10,000 Yuan Currency: RMB Item Accrued in current Accrued in last Remuneration of key management personnel (8) Other associated transactions 1) Interest income on deposit of related parties Type and name of associated party Accrued in current Amount Proportion to the total amount of same transactions (%) Accrued in last 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. 18,158, ,518, Total 18,158, ,518, ) Interest income on deposit of associated parties Related party Balance at end of Balance at beginning of year Other enterprises controlled by the same controlling shareholder and final controlling party CNOOC Finance Co., Ltd. 1,737,842, ,384,880, Total 1,737,842, ,384,880,096.54

174 172 COOEC / ANNUAL REPORT ) Investment incomes gained by associated parties Type and name of associated party Accrued in current Amount Proportion to the total amount of same transactions (%) Accrued in last 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. 7,475, ,098, Subtotal 7,475, ,098, Joint ventures COOEC-Fluor Heavy Industries Co., Ltd. -777,122, Subtotal -777,122, ) Project transfer of associated party On March 1, 2016, COOEC (Zhuhai) Co., Ltd. (transferor), COOEC-Fluor Heavy Industries Co., Ltd (transferee), and the Company (owner) entered contract transfer agreement. COOEC(Zhuhai) Co., Ltd. transfers all rights and obligations of construction project of topside module of the Weizhou 12-2WHPB production platform, jackets, life building construction project, construction project of topside module of Wenchang 9-2/9-3CEP production platform, topside module construction and life building construction project of Kongqueting A/B, Enping 18-1WHPA topside module construction project. The Company as the owner acknowledges and agrees the transfer. 6. Receivables and payables of related parties (1) Receivables Project name Related party Balance at end of Balance at beginning of Book balance Bad debt reserves Book balance Receivables CNOOC Limited 1,331,493, ,002,064, Receivables CNOOC Gas & Power Group 197,704, ,227, Receivables CNOOC Oil & Petrochemicals Co., Ltd. 31,706, ,368, Receivables CNOOC Research Institutes 19,587, Receivables CNOOC Energy Technology & Services Limited 9,461, ,904, Receivables China Oilfield Services Limited 841, Receivables Receivables Prepayment Prepayment COOEC-Fluor Heavy Industries Co., Ltd. CNOOC Oil & Gas Development & Utilization Company China Offshore Oil Bohai Corporation CNOOC Energy Technology & Services Limited 21,023, ,838, ,779, ,779, , Other receivables CNCCC International Tendering Co., Ltd. 450, Other receivables CNOOC Limited 88, ,988, Bad debt reserves

175 COOEC / ANNUAL REPORT Project name Other receivables Other receivables Other receivables Other receivables Related party COOEC-Fluor Heavy Industries Co., Ltd. China National Offshore Oil Corporation Kvearner - COOEC (Qingdao) Engineering Technology Co., Ltd. Balance at end of Book balance 11,319, Bad debt reserves Balance at beginning of Book balance 28,374, ,711, ,711, China Blue Chemical Ltd. 87, Bad debt reserves Interest receivable CNOOC Finance Co., Ltd. 3,056, , (2) Payables Project name Related party Book balance at end of Book balance at beginning of Accounts payable CNOOC Energy Technology & Services Limited 364,193, ,287, Accounts payable CNOOC Gas & Power Group 23,282, ,393, Accounts payable China Oilfield Services Limited 15,603, ,951, Accounts payable China Offshore Oil Bohai Corporation 6,317, ,013, Accounts payable CNOOC Oil & Petrochemicals Co., Ltd. 2,577, ,346, Accounts payable China Ocean Oilfields Services Hong Kong Limited 1,531, , Accounts payable China Offshore Oil Nanhai West Corporation 1,192, ,361, Accounts payable CNOOC Infrastructure Management Co., Ltd. 246, Accounts payable China National Offshore Oil Corporation 2, Accounts payable COOEC-Fluor Heavy Industries Co., Ltd. 118,156, Accounts payable CNOOC Limited 552, Accounts payable Sea Industrial International Co., Limited 210, Advance receipts CNOOC Limited 9,746, Other payables China National Offshore Oil Corporation 47,828, ,173, Other payables CNOOC Energy Technology & Services Limited 453, , Other payables China National Chemical Construction Corporation 103, , Other payables CNOOC Oil & Petrochemicals Co., Ltd. 2, Other payables COOEC-Fluor Heavy Industries Co., Ltd. 1,951, Other payables CNOOC Oil & Gas Development & Utilization Company 91,560.81

176 174 COOEC / ANNUAL REPORT 2016 XIII. Stock payment 1. Overall condition of stock 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, COOEC (Zhuhai) Co., Ltd. and Fluor jointly invested to found CNOOC Fluor Heavy Industry Co., Ltd. on January 8, 2016, with registered capital of USD billion, including USD billion from COOEC (Zhuhai) Co., Ltd. in the form of fixed assets and cash. By December 31, 2016, USD million was contributed, and the rest contribution obligation of USD 81 million will be performed before September 30, (2) By December 31, 2016, the large contract of the Company 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 COOEC (Qingdao) Co., Ltd. as well as letter of commitment of the bank guarantee that COOEC (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 of the parent company is from the issue date to May 2, Guarantee as above have been deliberated and approved by the general meeting of shareholders of 2011 held on May 11, (See resolution announcement and guarantee announcement of Board of Directors and resolution announcement of general meeting of shareholders published on 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 COOEC (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 a unit price contract, and its estimated contract amount is USD 11 million; according to the contract, the maximum claim amount is 10% of the contract amount; the guarantee 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 million; according to the contract, the maximum claim amount is USD 8.25 million; the guarantee will last from the day of providing guarantee to March 31, The above guarantee does not have to be submitted to the general meeting of shareholders 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 April 29, 2014) 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 SNC for Russia Yamal project undertaken by COOEC (Qingdao) Co., Ltd. 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 limit is up to 25% and the maximum defer penalty is 10% of the contract amount. The guarantee is from the issue date to September 23, Guarantee as above have been deliberated and approved by the second extraordinary general meeting of 2014 held on September 16, (See resolution announcement and guarantee announcement and resolution announcement of general meeting of shareholders published on website

177 COOEC / ANNUAL REPORT 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 COOEC (Qingdao) Co., Ltd. The guarantee amount is RMB 1.54 billion yuan and the guarantee is from the issue date to July 20, The above guarantee does not have to be submitted to the general meeting of shareholders 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 Friday, July 10, 2015) 5) As approved upon deliberation by the 19th Meeting of the 5th Board of Directors held on July 06, 2016, the Company provides parent company guarantee for Shell Netherland Company based on Shell SDA project undertaken by COOEC (Qingdao) Co., Ltd. The contract of Shell SDA project is a unit price contract with estimated contract amount of about 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 starts from guarantee issuing date to April 7, The guarantee does not have to be submitted to the general meeting of shareholders of the Company for approval. (See resolution announcement and guarantee announcement of Board of Directors published on website of Shanghai Stock Exchange on Friday, July 8, 2016) Except the aforesaid contingencies, the Group had no other major or contingent matters as of Saturday, December 31, (2) The important contingencies not required to be disclosed shall be explained as well: the 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. 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 4.42 Profit or dividend to be distributed after deliberation and approval Sales return 4. Explanation to events after the balance sheet date

178 176 COOEC / ANNUAL REPORT 2016 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 4. Annuity plan 5. Discontinuing operation 6. 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 can not be disclosed, explain the reasons. (4) Other descriptions 7. Other critical transactions or matters impacting investment decision

179 COOEC / ANNUAL REPORT XVII. Notes to main items of financial statements of the parent company 1. Receivables (1) Classification disclosure of receivables: Type Receivables of single significant amount and separate withdrawal of bad debt reserves Receivables with consolidated withdrawal of bad debt reserves according to credit risk characteristics Book balance Balance at end of Bad debt reserves Amount Percentage (%) Amount Withdrawal proportion (%) Book value 2,201,388, ,001, ,195,387, Receivables of single amount insignificant but separate withdrawal of bad debt reserves Total 2,201,388, / 6,001, / 2,195,387, Type Receivables of single significant amount and separate withdrawal of bad debt reserves Receivables with consolidated withdrawal of bad debt reserves according to credit risk characteristics Book balance Balance at beginning of Bad debt reserves Amount Percentage (%) Amount Withdrawal proportion (%) Book value 4,675,202, ,442, ,667,759, Receivables of single amount insignificant but separate withdrawal of bad debt reserves Total 4,675,202, / 7,442, / 4,667,759, Receivables with significant unit amount and separately withdrawal of bad debt reserves at end of : In combination, the accounts receivable with withdrawal of bad debt reserves by accounting age analysis method:

180 178 COOEC / ANNUAL REPORT 2016 Accounting age Receivables Balance at end of Bad debt reserves Withdrawal proportion (%) Within 1 year 253,186, Subtotal within 1 year 253,186, to 2 years 215, , % 2 to 3 years 220, , % Above 3 years 5,804, ,804, % Total 259,427, ,001, (2) Bad debt reserves withdrawn, reclaimed or turned back in current : The amount of bad debt reserves withdrawn in current is RMB 5,250, yuan, and that reclaimed or turned back in current is RMB 6,691, yuan, (3) Receivables gathered based on debt party with top five balances at end of : Balance at end of Company name Proportion to Receivables total number of receivables (%) CNOOC Limited 1,213,877, Shenzhen COOEC Subsea Technology Co., Ltd. 356,768, PTTEP International Limited 199,663, CNOOC Gas & Power Group 197,704, CNOOC Oil & Petrochemicals Co., Ltd. 31,706, Total 1,999,720, Bad debt reserves 2. Other receivables (1) Classification disclosure of other receivables: Category Other receivables with significant single amount and separate withdrawal of bad debt reserves Other receivables with consolidated withdrawal of bad debt reserves according to credit risk characteristics Book balance Amount Percentage (%) Balance at end of Bad debt reserves Amount Withdrawal proportion (%) Book value 898,626, , ,183, Other receivables of single amount insignificant but separate withdrawal of bad debt serves Total 898,626, / 443, / 898,183,500.30

181 COOEC / ANNUAL REPORT Category Other receivables with significant single amount and separate withdrawal of bad debt reserves Other receivables with consolidated withdrawal of bad debt reserves according to credit risk characteristics Book balance Balance at beginning of Bad debt reserves Amount Percentage (%) Amount Withdrawal proportion (%) Book value 1,065,894, , ,065,358, Other receivables of single amount insignificant but separate withdrawal of bad debt serves Total 1,065,894, / 535, / 1,065,358, Other receivables with significant single amount and separate withdrawal of bad debt reserves at end of : In the combination, other receivables with withdrawal of bad debt reserves by accounting age analysis method: Applicable Inapplicable Accounting age Other receivables Within 1 year 59,493, Subtotal within 1 year 59,493, Balance at end of Bad debt reserves Withdrawal proportion (%) 1 to 2 years 24, , to 3 years Above 3 years 435, , Total 59,953, ,014.95

182 180 COOEC / ANNUAL REPORT 2016 (2) Bad debt reserves withdrawn, reclaimed or turned back in current : The amount of bad debt reserves withdrawn in current is RMB 1, yuan, and that reclaimed or turned back in current is RMB 94, yuan, (3) Classification of other accounts receivable by nature Payment nature Book balance at end of Book balance at beginning of Loan and interest of related parties and other related current account 815,294, ,732, Refunding export taxes 19,642, ,931, Insurance claim payment 37,145, ,176, Pretty cash, security deposit and cash deposit 23,377, ,647, Advance money 3,166, ,030, Consumption tax rebate 28,374, Total 898,626, ,065,894, (4) Other receivables gathered based on debt party with top five balance at end of : Company name COOEC International Co., Ltd. China Pacific Property Insurance Co., Ltd. Tianjin Branch COOEC International Engineering Co., Ltd. Shenzhen Customs District People s Republic of China Tianjin Municipal Office of SAT, Offshore Oil Taxation Branch Bureau Nature of accounts Balance at end of Accounting age Proportion to the total number of other receivable balance at end of year (%) Loan and interest 756,706, Above 3 years Insurance claim payment 37,145, Within 1 year 4.13 Loan and interest 37,069, Note Security 20,834, Note Refunding export taxes 19,642, Within 1 year 2.19 Total / 871,398, / Bad debt reserves Balance at end of Note 1 : for Offshore International Engineering Co., Ltd., RMB 17,477, within 1 year, RMB 13,616, yuan for 1 to 2 years, and RMB 5,975, yuan for 2 to 3 years. Note 2 : for Shenzhen Customs District People s Republic of China, RMB 15,298, yuan for 1 year at most; RMB 845, yuan for 2-3 years; RMB 4,690, yuan for more than 3 years

183 COOEC / ANNUAL REPORT Long-term equity investment Item Book balance Balance at end of Depreciation reserves Balance at beginning of Book value Book balance Depreciation reserves Book value Investment for 8,985,974, ,985,974, ,126,075, ,126,075, subsidiaries Investment for associated companies and cooperative venture Total 8,985,974, ,985,974, ,126,075, ,126,075, (1) Investment for subsidiaries Investee COOEC (Zhuhai) Co., Ltd. COOEC (Qingdao) Co., Ltd. Shenzhen COOEC Subsea Technology Co., Ltd. COOEC International Engineering Co., Ltd. Balance at beginning of Increased in current Decreased in current Balance at end of 3,950,000, ,950,000, ,970,000, ,970,000, ,112,238, ,235, ,972,473, ,000, ,000, A.E.S. Destructive & Non-destructive 20,094, ,094, Testing Ltd. Blue Ocean International Co., 6,698, ,698, Ltd. COOEC International Co., Ltd. 5,787, , ,186, COOEC Indonesia Co., Ltd. 735, , COOEC Nigeria Co., Ltd. 521, , Total 8,126,075, ,634, , ,985,974, Withdrawal of depreciation reserves in current Depreciation reserve balance at end of

184 182 COOEC / ANNUAL REPORT Operating income and operating costs Item Accrued in current Accrued in last Income Cost Income Cost Core business 5,968,993, ,958,713, ,784,935, ,350,411, Other business 45,237, ,174, ,864, ,927, Total 6,014,230, ,973,888, ,859,800, ,379,339, Other description: Including: Top 5 clients operating incomes Name of client Operating income Proportion to total operating income (%) CNOOC Limited 4,191,964, TUPI B.V. 744,043, Pttep International Limited 370,668, CNOOC Gas & Power Group 126,523, CNOOC Oil & Petrochemicals Co., Ltd. 26,450, Total 5,459,650, Investment income Item Accrued in current Accrued in last Investment income of long-term equity measured by cost method 192,040, ,000, Long-term equity investment income accounted by equity method Investment income during disposing long-term equity investment -336, , Investment income gained in the holding of financial assets accounted at their fair values and with the variation included in the current profits and losses Investment income gained in the disposition of financial assets accounted at their fair values and with the variation included in the current profits and losses Held-to-maturity investment income during holding Investment income for financial assets available for sale during holding 7,849, ,986, Investment income from disposal of available-for-sale financial assets 1,982, ,534, Gains by metering residual stick rights by fair value after losing of control rights Others 42,095, ,570, Total 243,630, ,958,904.42

185 COOEC / ANNUAL REPORT XVIII. Supplementary data 1. Details of non-recurring profits and losses of current Item Amount Remarks Interests and losses on disposal of non-current assets 440,157, 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) Tax for the use of funds which is charged from nonfinancial enterprises and recorded in current gains or losses Revenues generated by the fair value of identifiable net assets of investee enjoyed by the Company when its investment cost in subsidiary, associate and joint venture is less than investment returns. Non-monetary assets exchange gains and losses Losses and profits from investing or managing assets by others entrusted Various assets depreciation preparation 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 consolidation under the same control from the beginning of subsidiary to the consolidation date Gains and losses unrelated to normal operating activities or generated from events Losses and profits from changes in fair value generated from possessing trading financial assets, trading financial liabilities, except valid hedging business related with normal business of the Company, as well as investment income gained from disposal of trading financial assets, trading financial liabilities and available-for-sale financial assets. 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 1,059,926, ,915, ,912, No-current assets disposal profits mainly come from contributing capital to and selling assets to COOEC-Fluor Heavy Industries Co., Ltd. Joint Venture. Governmental subsidy is mainly used for Zhuhai base construction. During the report, the Company uses Zhuhai base related assets to contribute capital or sell assets to the joint venture. The deferred income related to these assets is carried forward to non-operating income. Income from buying bank financial products This is mainly resulted from future foreign exchange settlement contract delivery of Qingdao subsidiary.

186 184 COOEC / ANNUAL REPORT 2016 Item Amount Remarks 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-operating income and expense except the respective items above 16,912, Other profits and losses in conformity with definition of non-recurring profits and losses -704,201, Amount effected of income tax -180,535, Amount affected of minority shareholders equity -511, Total 572,751, Net assets income ratio and earnings per share Profit in report Return on weighted average net assets (%) Zhuhai subsidiary uses Zhuhai base related assets to contribute capital or sell assets to the COOEC-Fluor Heavy Industries Co., Ltd. Joint Venture. Assets accretion and deferred income related to above assets are carried forward to non-operating income. Contributing capital or selling assets to the joint venture based on requirements of accounting standards are downstream transactions. If this transaction fails to realize profits and losses on internal transactions, the part calculated based on the percentage owned by the Company is not recognized, so investment income is reduced by RMB 733,000,000 yuan. At the end of 2016, RMB 29,000,000 yuan was realized, so affected investment income is RMB - 704,000,000 yuan. Basic earnings per share Earnings per share Diluted earnings per share Net profit attributable to common stockholders of the Company Net profits attributable to common stockholders of the Company after deducting nonrecurring loss and profit

187 COOEC / ANNUAL REPORT 2016 List of Documents for Further Reference 185 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 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 www sse com cn and newspaper appointed by China Securities Regulatory Commission in the report. Chairman: Lv Bo Date of Submission to and Approval by Board of Directors: March 17, 2017