KUNLUN ENERGY COMPANY LIMITED (incorporated in Bermuda with limited liability) CONNECTED TRANSACTION CAPITAL INCREASE AGREEMENTS AND DEEMED DISPOSAL

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1 Hong Kong Exchanges and Clearing Limited and The Stock Exchange of Hong Kong Limited take no responsibility for the contents of this announcement, make no representation as to its accuracy or completeness and expressly disclaim any liability whatsoever for any loss howsoever arising from or in reliance upon the whole or any part of the contents of this announcement. KUNLUN ENERGY COMPANY LIMITED (incorporated in Bermuda with limited liability) (Stock Code: HK) CONNECTED TRANSACTION CAPITAL INCREASE AGREEMENTS AND DEEMED DISPOSAL CAPITAL INCREASE AGREEMENTS The Board is pleased to announce that on 17 May 2018, the Company entered into the Qinggang Capital Increase Agreement, the Binhai Xinneng Capital Increase Agreement and the Jigang Capital Increase Agreement with Changqing Collective Investment, Dagang Oilfield Labour Services and Jiyou Investment, respectively, pursuant to which, (i) Changqing Collective Investment agreed to make an additional contribution of RMB10,748,200 (of which RMB6,600,000 will be included in paid-in capital and RMB4,148,200 will be included in capital reserve) to the capital of Qinggang Company, (ii) Dagang Oilfield Labour Services agreed to make an additional contribution of RMB4,622,500 (of which RMB4,487,100 will be included in paid-in capital and RMB135,400 will be included in capital reserve) to the capital of Binhai Xinneng, and (iii) Jiyou Investment agreed to make an additional contribution of RMB23,380,400 (of which RMB20 million will be included in paid-in capital and RMB3,380,400 will be included in capital reserve) to the capital of Jigang Company. Upon Completion of the Capital Increases, (i) the registered capital of Qinggang Company will increase to RMB336.6 million from RMB330 million, in which the Company s shareholding will be reduced from 51% to 50% and Changqing Collective Investment s shareholding will increase to 50% from 49%, (ii) the registered capital of Binhai Xinneng will increase to RMB228,840,200 from RMB224,353,100, in which the Company s shareholding will be reduced to 50% from 51% and Dagang Oilfield Labour Services shareholding will increase to 50% from 49%, and (iii) the registered capital of Jigang Company will increase to RMB1,020 million from RMB1,000 million, in which the Company s shareholding will be reduced to 50% from 51% and Jiyou Investment s shareholding will increase to 50% from 49%. 1

2 LISTING RULES IMPLICATIONS As at the date of this announcement, CNPC indirectly holds 4,985,734,133 Shares, representing approximately 61.76% of the issued share capital of the Company, and is the controlling Shareholder of the Company. As CNPC is able to exercise or control the exercise of more than 30% or more of the voting rights at the employee representative general meeting or Shareholder s meeting of Changqing Collective Investment, Dagang Oilfield Labour Services and Jiyou Investment, pursuant to Chapter 14A of the Listing Rules, each of Changqing Collective Investment, Dagang Oilfield Labour Services and Jiyou Investment constitutes an associate of CNPC and thus a connected person of the Company. Accordingly, the Capital Increases constitute connected transactions of the Company under Chapter 14A of the Listing Rules. The Capital Increases constitute deemed disposals of the Company under Rule of the Listing Rules. As the highest applicable percentage ratio in respect of the Capital Increases exceeds 0.1% but is less than 5%, the Capital Increases are subject to the reporting and announcement requirements but are exempt from the independent shareholders approval requirement under Chapter 14A of the Listing Rules. As at the date of this announcement, no Director has any material interests in the Capital Increases. As such, no Director is required to abstain from voting on the resolution approving the Capital Increases and the transactions contemplated thereunder at the Board meeting. INTRODUCTION The Board is pleased to announce that on 17 May 2018, the Company entered into the Qinggang Capital Increase Agreement, the Binhai Xinneng Capital Increase Agreement and the Jigang Capital Increase Agreement with Changqing Collective Investment, Dagang Oilfield Labour Services and Jiyou Investment, respectively. Each of the Capital Increase Agreements is executed independently and will be completed independently from each other. The principal terms of the Capital Increase Agreements are similar or the same. However, terms of each Capital Increase Agreements are applied independently, and the completion of them are independent from each other. The principal terms of the Capital Increase Agreements are set out below: 2

3 CAPITAL INCREASE AGREEMENTS 1. Date 17 May Parties (1) Qinggang Capital Increase : the Company and Changqing Agreement Collective Investment (2) Binhai Xinneng : the Company and Dagang Capital Increase Agreement Oilfield Labour Services (3) Jigang Capital Increase : the Company and Jiyou Investment Agreement 3. Amount of increase in capital and registered capital Pursuant to the Qinggang Capital Increase Agreement, Changqing Collective Investment agreed to make an additional contribution of RMB10,748,200 (of which RMB6,600,000 will be included in paid-in capital and RMB4,148,200 will be included in capital reserve) to the capital of Qinggang Company. Pursuant to the Binhai Xinneng Capital Increase Agreement, Dagang Oilfield Labour Services agreed to make an additional contribution of RMB4,622,500 (of which RMB4,487,100 will be included in paid-in capital and RMB135,400 will be included in capital reserve) to the capital of Binhai Xinneng. Pursuant to the Jigang Capital Increase Agreement, Jiyou Investment agreed to make an additional contribution of RMB23,380,400 (of which RMB20 million will be included in paidin capital and RMB3,380,400 will be included in capital reserve) to the capital of Jigang Company. The Company agreed to waive its right to make additional capital contribution in proportion to its shareholding under the Capital Increase Agreements. 3

4 Upon Completion of the Capital Increases: (1) the registered capital of Qinggang Company will increase to RMB336.6 million from RMB330 million, in which the Company s shareholding will be reduced to 50% from 51% and Changqing Collective Investment s shareholding will increase to 50% from 49%; (2) the registered capital of Binhai Xinneng will increase to RMB228,840,200 from RMB224,353,100, in which the Company s shareholding will be reduced to 50% from 51% and Dagang Oilfield Labour Services shareholding will increase to 50% from 49%; and (3) the registered capital of Jigang Company will increase to RMB1,020 million from RMB1,000 million, in which the Company s shareholding will be reduced to 50% from 51% and Jiyou Investment s shareholding will increase to 50% from 49%. 4. Uses of capital contribution Changqing Collective Investment, Dagang Oilfield Labour Services and Jiyou Investment agreed to pay their additional capital contribution in cash, and such capital contributions will be made within one year since the signing of the Capital Increase Agreements. RMB10,748,200, RMB4,622,500 and RMB23,380,400 to be paid by Changqing Collective Investment, Dagang Oilfield Labour Services and Jiyou Investment, respectively, will be utilised towards the replenishment of capital and the improvement of the quality and efficiency of their operation of Qinggang Company, Binhai Xinneng and Jigang Company. 5. Basis for determination of amount of additional capital contribution The amounts of additional capital contribution to be made by the parties were determined by the parties based on the valuation of their respective total equity interests. In particular, (1) pursuant to the Qinggang Capital Increase Agreement, Qinggang Company appointed Zenith Assets Appraisal Co., Ltd. ( ) to issue a valuation report. Zenith Assets Appraisal Co., Ltd. adopted the asset-based approach to value all the assets and liabilities of Qinggang Company. The valuation reference date is 31 December As at the valuation reference date, the appraised value of net assets of Qinggang Company was approximately RMB537,409,900. Through negotiations between the Company and Qinggang Company and based on the appraised value of net assets of Qinggang Company, the amount of additional capital contribution to Qinggang Company was determined to be RMB10,748,200; 4

5 (2) pursuant to the Binhai Xinneng Capital Increase Agreement, Binhai Xinneng appointed Xiamen Academic Assets Appraisal and Land and Properties Valuation Co., Ltd. ( ) to issue a valuation report. Xiamen Academic Assets Appraisal and Land and Properties Valuation Co., Ltd. adopted the asset-based approach to value all the assets and liabilities of Binhai Xinneng. The valuation reference date is 31 December As at the valuation reference date, the appraised value of net assets of Binhai Xinneng was approximately RMB231,126,200. Through negotiations between the Company and Binhai Xinneng and based on the appraised value of net assets of Binhai Xinneng, the amount of additional capital contribution to Binhai Xinneng was determined to be RMB4,622,500; and (3) pursuant to the Jigang Capital Increase Agreement, Jigang Company appointed Songyuan Zhongqing Assets Appraisal Co., Ltd. ( ) to issue a valuation report. Songyuan Zhongqing Assets Appraisal Co., Ltd. adopted the asset-based approach to value the entire equity value of Jigang Company. The valuation reference date is 31 December As at the valuation reference date, the appraised value of net assets of Jigang Company was approximately RMB663,118,400. Through negotiations between the Company and Jigang Company and based on the appraised value of net assets of Jigang Company, the amount of additional capital contribution to Jigang Company was determined to be RMB23,380, Completion Each of the Capital Increase Agreements is executed independently and will be completed independently from each other. Completion of the Capital Increases are subject to the obtaining of the approval of competent authority and completion of the relevant filing procedures for each of the Capital Increase Agreements in accordance with the requirements of the relevant laws and regulations. 5

6 KEY BUSINESS AND FINANCIAL INFORMATION 1. Qinggang Company (1) Key business information of Qinggang Company Qinggang Company is a company incorporated by the Company and Changqing Collective Investment in the PRC on 2 July 2009 with limited liability, with a registered capital of RMB330 million. Prior to the Completion of the Capital Increases, the Company holds 51% equity interest in Qinggang Company. The major scope of business of Qinggang Company includes, among others, recovery and utilisation of petroleum associated gas, comprehensive utilisation of product sewage of oil and gas fields, technical research and development, and wholesale and distribution of petrochemical products. (2) Key financial information of Qinggang Company The table below sets out certain audited financial information of Qinggang Company as at 31 December 2016 and 31 December 2017 prepared under the China Accounting Standards for Business Enterprises: Unit: RMB 000 As at 31 December Total assets 1,262, ,250, Net assets 325, , The table below sets out certain audited financial information of Qinggang Company for the two financial years ended 31 December 2017 prepared under the China Accounting Standards for Business Enterprises: Unit: RMB 000 For the year ended 31 December Total revenue 1,054, ,350, Profit/(Loss) before income tax expense (65,546.44) 10, Profit/(Loss) after income tax expense (77,093.71) (11,507.71) 6

7 2. Binhai Xinneng (1) Key business information of Binhai Xinneng Binhai Xinneng is a company incorporated by Dagang Oilfield Labour Services in the PRC and the Company injected capital on 21 November 2011 with limited liability, with a registered capital of RMB224,353,100. Prior to the Completion of the Capital Increases, the Company holds 51% equity interest in Binhai Xinneng. The major scope of business of Binhai Xinneng includes, among others, non-storage operation of natural gas (for industrial uses), pipeline and pipeline network transmission and distribution of natural gas; leasing of self-owned properties, gas facilities and equipment; gas appliances, petrochemical equipment, instrumentation, construction materials, machinery equipment, firefighting equipment; technical development, technical transfer, technical consulting and technical services relating to gas; engineering technology consulting services. (2) Key financial information of Binhai Xinneng The table below sets out certain audited financial information of Binhai Xinneng as at 31 December 2016 and 31 December 2017 prepared under the China Accounting Standards for Business Enterprises: Unit: RMB 000 As at 31 December Total assets 339, , Net assets 207, , The table below sets out certain audited financial information of Binhai Xinneng for the two financial years ended 31 December 2017 prepared under the China Accounting Standards for Business Enterprises: Unit: RMB 000 For the year ended 31 December Total revenue 308, , Profit/(Loss) before income tax expense (171,567.03) (27,692.14) Profit/(Loss) after income tax expense (170,426.89) (27,227.67) 7

8 3. Jigang Company (1) Key business information of Jigang Company Jigang Company is a company incorporated by the Company and Jiyou Investment in the PRC on 23 May 2012 with limited liability, with a registered capital of RMB1,000 million. Prior to the Completion of the Capital Increases, the Company holds 51% equity interest in Jigang Company. The major scope of business of Jigang Company includes, among others, supply and sale of liquefied natural gas, compressed natural gas and pipeline natural gas; construction and operation of liquefied natural gas and compressed natural gas filling stations; filling and transportation of liquefied natural gas and compressed natural gas vehicle; hydrocarbon recovery; gas appliance sales and services; construction and installation of natural gas transmission and distribution projects; leasing of gas facilities and equipment; sale of and installation services for combustion equipment and accessories, boilers and accessories. (2) Key financial information of Jigang Company The table below sets out certain audited financial information of Jigang Company as at 31 December 2016 and 31 December 2017 prepared under the China Accounting Standards for Business Enterprises: Unit: RMB 000 As at 31 December Total assets 749, , Net assets 694, , The table below sets out certain audited financial information of Jigang Company for the two financial years ended 31 December 2017 prepared under the China Accounting Standards for Business Enterprises: Unit: RMB 000 For the year ended 31 December Total revenue 77, , Profit/(Loss) before income tax expense 14, (3,716.36) Profit/(Loss) after income tax expense 2, (4,127.02) 8

9 FINANCIAL IMPACT ON THE GROUP Upon Completion of the Capital Increases, the Company s shareholding each in Qinggang Company, Binhai Xinneng and Jigang Company will be reduced from 51% to 50%, and Qinggang Company, Binhai Xinneng and Jigang Company will cease to be subsidiaries of the Company. Upon Completion of the Capital Increases, the assets, liabilities and financial results of such companies will no longer be consolidated into the consolidated financial statements of the Company. In addition, the Company has conducted a preliminary assessment mainly based on the amounts of the Capital Increases and the financial information of Qinggang Company, Binhai Xinneng and Jigang Company set out in their audited financial statements for the year ended 31 December 2017 prepared under the China Accounting Standards for Business Enterprises. As such, the Company expects to record a gain of approximately RMB173,810,000 in its consolidated financial statements for the year ending 31 December 2018 as a result of the Capital Increases. The actual amount of gain/loss to be recorded by the Company as a result of the Capital Increases is subject to, among others, the actual results of operation of Qinggang Company, Binhai Xinneng and Jigang Company for the period from 1 January 2018 to the date of completion, potential adjustment to the consideration under the Capital Increases and/or any taxation or expenses in respect of the Capital Increases. REASONS FOR AND BENEFITS OF THE CAPITAL INCREASES The Board, including the independent non-executive Directors, is of the opinion that the Capital Increases is conducted based on the following reasons and in the interest of the Company and the Shareholders as a whole: firstly, Qinggang Company, Binhai Xinneng and Jigang Company have recorded poor operational performance and have been loss-making in recent years, and the Capital Increases will enable the equity restructuring of Qinggang Company, Binhai Xinneng and Jigang Company. Upon completion, the assets, liabilities and financial results of these companies will no longer be consolidated into the consolidated financial statements of the Company, which will improve the results and performance of the Company; secondly, these companies all have liquefied natural gas plant assets which have been unutilised or operated in an inefficient manner for long. Upon completion of the equity restructuring, the excessive capacity may be removed from the financial statements of the Company. 9

10 OPINIONS OF THE DIRECTORS As at the date of this announcement, no Director has any material interests in the Capital Increases. As such, no Director is required to abstain from voting on the resolution approving the Capital Increases and the transactions contemplated thereunder at the Board meeting. The Board has considered and approved the resolution on the Capital Increases. All Directors (including all independent non-executive Directors) are of the opinion that, (i) the Capital Increases are on normal commercial terms or more favourable terms; (ii) the terms and conditions of the Capital Increase Agreements are fair and reasonable; and (iii) the Capital Increases are in the interest of the Company and the Shareholders as a whole. LISTING RULES IMPLICATIONS As at the date of this announcement, CNPC indirectly holds 4,985,734,133 Shares, representing approximately 61.76% of the issued share capital of the Company, and is the controlling Shareholder of the Company. As CNPC is able to exercise or control the exercise of more than 30% or more of the voting rights at the employee representative general meeting or Shareholder s meeting of Changqing Collective Investment, Dagang Oilfield Labour Services and Jiyou Investment, pursuant to Chapter 14A of the Listing Rules, each of Changqing Collective Investment, Dagang Oilfield Labour Services and Jiyou Investment constitutes an associate of CNPC and thus a connected person of the Company. Accordingly, the Capital Increases constitute connected transactions of the Company under Chapter 14A of the Listing Rules. The Capital Increases constitute deemed disposals of the Company under Rule of the Listing Rules. As the highest applicable percentage ratio in respect of the Capital Increases exceeds 0.1% but is less than 5%, the Capital Increases are subject to the reporting and announcement requirements but are exempt from the independent shareholders approval requirement under Chapter 14A of the Listing Rules. GENERAL Information on the Group The Company is an investment holding company. The principal activities of its subsidiaries, associates and joint ventures are the exploration and production of crude oil and natural gas in the PRC, the Republic of Kazakhstan, the Sultanate of Oman, the Republic of Peru, the Kingdom of Thailand and the Republic of Azerbaijan. The businesses of the Group are the sales of natural gas, LNG processing, LNG terminal business and transmission of natural gas in the PRC. 10

11 Information on the Parties Changqing Collective Investment Changqing Collective Investment is a collective ownership enterprise in the PRC and established in January The main scope of business of Changqing Collective Investment includes, among others, engineering services and production services for the exploration and development of petroleum and natural gas, machine processing and manufacturing, oilfield property services, building installation, construction of roads and bridges, telecommunications network, investment in energy conservation and emissions reduction and capital operation. Dagang Oilfield Labour Services Dagang Oilfield Labour Services is a collective ownership enterprise in the PRC and established in April The main scope of business of Dagang Oilfield Labour Services includes, among others, enterprise management consulting, information, computer software development, labour services, photography, modern office machinery maintenance and leasing. Jiyou Investment Jiyou Investment is a company incorporated in the PRC in April 2012 with limited liability. The main scope of business of Jiyou Investment is investment in liquified natural gas projects with self-owned funds. DEFINITIONS In this announcement, unless the context requires otherwise, the following terms shall have the meanings set out below: Binhai Xinneng Binhai Xinneng Co., Ltd. ( ), a company incorporated in the PRC with limited liability Binhai Xinneng Capital Increase Agreement an agreement dated 17 May 2018 between the Company and Dagang Oilfield Labour Services in relation to the increase in the capital of Qinggang Company Board the board of directors of the Company 11

12 CNPC China National Petroleum Corporation ( ), a state-owned enterprise incorporated in the PRC and the controlling Shareholder of the Company Capital Increases the additional contribution in the amount of RMB10,748,200, RMB4,622,500 and RMB23,380,400 to the capital of Qinggang Company, Binhai Xinneng and Jigang Company, respectively, to be made by Changqing Collective Investment, Dagang Oilfield Labour Services and Jiyou Investment in accordance with the terms and conditions of the Capital Increase Agreements, which will hold 50%, 50% and 50% respectively, of shares of Qinggang Company, Binhai Xinneng and Jigang Company thereafter Capital Increase Agreements collectively, the Qinggang Capital Increase Agreement, the Binhai Xinneng Capital Increase Agreement and the Jigang Capital Increase Agreement Changqing Collective Investment Changqing Petroleum Exploration Bureau Collective Assets Investment and Management Centre ( ), a collective ownership enterprise incorporated in the PRC in January 2002, the main scope of business of which includes, among others, engineering services and production services for the exploration and development of petroleum and natural gas, machine processing and manufacturing, oilfield property services, building installation, construction of roads and bridges, telecommunications network, investment in energy conservation and emissions reduction and capital operation. Company Kunlun Energy Company Limited (stock code: HK), a company incorporated in Bermuda with limited liability, the Shares of which are listed on the Stock Exchange Completion completion of the Capital Increase in accordance with the Capital Increase Agreements 12

13 connected person(s) has the meaning ascribed to it under the Listing Rules connected transaction(s) has the meaning ascribed to it under the Listing Rules Dagang Oilfield Labour Services Tianjin Dagang Oilfield Labour Services Company ( ), a collective ownership enterprise incorporated in the PRC in April 1990, the main scope of business of which includes, among others, enterprise management consulting, information, computer software development, labour services and leasing. Director(s) director(s) of the Company Group the Company and its subsidiaries Jigang Company Jilin Jigang Clean Energy Co., Ltd. ( ), a company incorporated in the PRC in May 2012 with limited liability Jigang Capital Increase Agreement an agreement dated 17 May 2018 between the Company and Jiyou Investment in relation to the increase in the capital of Jigang Company Jiyou Investment Songyuan Jiyou Investment Co., Ltd. ( ), a company incorporated in the PRC in April 2012 with limited liability. The main scope of business of Jiyou Investment is investment in liquified natural gas projects with self-owned funds Listing Rules the Rules Governing the Listing of Securities on The Stock Exchange of Hong Kong Limited China or PRC the People s Republic of China Qinggang Company Xi an Qinggang Clean Energy Technology Co., Ltd. ( ), a company incorporated in the PRC in July 2009 with limited liability 13

14 Qinggang Capital Increase Agreement an agreement dated 17 May 2018 between the Company and Changqing Collective Investment in relation to the increase in the capital of Qinggang Company RMB Renminbi, the lawful currency of the PRC Share(s) ordinary share(s) in the share capital of the Company with par value of HK$0.01 each Shareholder(s) the holder(s) of Share(s) Stock Exchange The Stock Exchange of Hong Kong Limited subsidiary(ies) has the meaning ascribed to it under the Listing Rules By order of the Board Kunlun Energy Company Limited Ling Xiao Chairman and Executive Director Hong Kong, 17 May 2018 As at the date of this announcement, the Board comprises Mr. Ling Xiao as the Chairman and Executive Director, Mr. Zhao Yongqi as the Chief Executive Officer and Executive Director, Mr. Zhao Zhongxun as Executive Director, Mr. Zhou Yuanhong as Executive Director, Mr. Miao Yong as Executive Director, and Mr. Li Kwok Sing Aubrey, Dr. Liu Xiao Feng and Mr. Sun Patrick as Independent Non-Executive Directors. 14