Regulations of the PRC Concerning the Exploitation of Onshore Petroleum Resources in Cooperation with Foreign Enterprises(Revised)
(Promulgated by the State Council on, and effective from October 7, 1993. Revised in 2001)
Chapter 1 General principles
Article 1. These Regulations are formulated in order to safeguard the development of the petroleum industry and to promote international economic cooperation and technical cooperation.
Article 2. These Regulations must be observed in all activities involving Chinese-foreign cooperative exploitation of onshore petroleum resources in the People's Republic of China.
Article 3. Ownership of the petroleum resources within the territory of the People's Republic of China shall vest with the State of the People's Republic of China.
Article 4. The cooperative exploitation activities, investments, profits and other lawful rights and interest of foreign enterprises participating in the cooperative exploitation of onshore petroleum resources in the People's Republic of China are protected by the government of China according to law
Activities in the People's Republic of China involving the cooperative exploitation of onshore petroleum resources must comply with the relevant laws, rules and regulations of the People's Republic of China and shall be subject to supervision and control by the relevant authorities of the Chinese government.
Article 5. The State will not requisition the investments and gains of foreign enterprises participating in the cooperative exploitation of onshore petroleum resources unless special circumstances relevant to the public interest requires. Part or all of the petroleum due to the foreign enterprise in connection with cooperative exploitation may be requisitioned according to legal procedures, appropriate compensation shall be paid when this occurs.
Article 6. A department designated by the State Council shall be responsible for demarcating cooperation blocks, determining the forms of cooperation, arranging for the formulation of relevant plans and policies, and examining and approving overall development programs for oil/gas fields in cooperation with foreign enterprises. These cooperative areas shall also be approved by the State Council.
Article 7. China National Petroleum Corporation (CNPC), and China Petrochemical corporation (Sinopec) (hereafter referred as Chinese Petroleum companies) shall be responsible for business matters in respect of the exploitation of onshore petroleum resources in cooperation with foreign enterprises; for negotiating, entering into and implementing contracts for the cooperative exploitation of onshore petroleum resources with foreign enterprises; and the enjoyment of exclusive right to engage in petroleum exploration, development and production in cooperation with foreign enterprises in areas approved by the State Council for exploitation of onshore petroleum resources in cooperation with foreign enterprises.
Article 8 Following invitations to bid or engage in negotiations, The Chinese Petroleum Companies shall enter into contracts with foreign enterprises for the cooperative exploitation of onshore petroleum resources in the cooperation blocks demarcated and approved by the State Council for said purposes. Such contracts shall come into force only after they have been approved by the Ministry of Foreign Trade and Economic Cooperation of the People's Republic of China.
In addition to the contracts referred to in the preceding paragraph, the Chinese Petroleum Companies may also enter into other cooperation contracts with foreign enterprises in respect of areas approved by the State Council for cooperative exploitation of onshore petroleum resources. Such contracts must be submitted to the Ministry of Foreign Trade and Economic Cooperation of the People's of China for the record.
Article 9. After a block has been declared open to foreign cooperation, the Chinese Petroleum Companies may engage in cooperative exploitation of onshore petroleum resources with foreign enterprises exclusive of other companies with regard to prospecting for petroleum or entering into economic or technical cooperation agreements with foreign enterprise for petroleum exploitation in said block.
Any enterprise that has entered into and is prospecting for petroleum (in the regional appraisal prospecting stage) in a block declared open to foreign cooperation prior to the time such declaration has been made shall withdraw from such block when the Chinese Petroleum Companies and the foreign enterprise have entered into a contract. The Chinese Petroleum Companies shall be responsible for selling the prospecting data obtained by the withdrawing enterprise so as to compensate the enterprise for its investment in an appropriate manner. After an oil/gas field with commercial exploitation value is discovered in such block, the enterprise that withdraws from the block may participate in development by investing.
A department designated by the State Council shall periodically adjust the blocks, which have been determined as open blocks, based on the circumstances of signing and implementation of the contract.
Article 10. In the exploitation of onshore petroleum resources in cooperation with foreign enterprises, the principle of taking both central and local interests into consideration shall be observed. New commercial development shall take the appropriate measures to stimulate the local economy.
The relevant local People's Governments shall protect normal production and business activities carried out in cooperation areas according to law and shall render effective assistance in respect of land use, road access, living amenities, etc.
Article 11. In the cooperative exploitation with the foreign enterprise of onshore petroleum resources, taxes shall be paid according to law; in addition to royalties.
Employees of enterprises engaged in the cooperative exploitation with the foreign enterprise of onshore petroleum resources shall pay tax on their income according to law.
Article 12. Duties and taxes on equipment and materials imported for the purpose of implementing contracts shall be reduced or exempted, other preferential treatment may be granted in respect of such duties and taxes in accordance with relevant regulations of the State. The measures therefore shall be formulated by the Ministry of Finance in conjunction with the General Administration of Customs.
Chapter 2 Rights and Obligations of Foreign Contractors
Article 13. A contract must first be concluded before cooperative exploitation can begin. Unless there are laws, regulations or the contract provide otherwise, the foreign enterprise entering to the contract (hereafter referred to as "Foreign Contractor?shall be provide the investment to carry out exploration, hold responsibility for the exploration operations, and bear all exploration risks exclusively. After the discovery of an oil/gas field with commercial exploitation value, the Foreign Contractor and the Chinese Petroleum Companies shall jointly invest in cooperative development. The Foreign Contractor shall undertake the development and production operations until production operations are taken over by the Chinese Petroleum Companies, as stipulated in the contract.
Article 14. Foreign Contractors may, in accordance with the provisions of the contract, recover their investment and expenses by obtaining remuneration out of the petroleum produced.
Article 15. Foreign Contractors may transport the petroleum due or purchased out of the country, and may also remit the investment recovered, profits and their other lawful gains out of the country, in accordance with the relevant regulations of the State and the provisions of the contractors.
If a Foreign contractor sell the petroleum due to it within the territory of the People's Republic of China, such petroleum can be purchased by the Chinese Petroleum Companies, or sold through other ways as agreed in the contract without violation of the relevant regulations of the People's Republic of China.
Article 16. Foreign contractors, when open accounts with banks within the territory of P. R. China and handle other foreign exchange business, shall abide by State regulations on exchange control.
Investment of the foreign contractors shall be made in the US dollars or other hard currencies.
Article 17. Foreign contractors shall establish branches, subsidiaries or representative offices within the territory of the P. R. China according to law.
The location of the organizations referred to in the preceding paragraph shall be determined by the foreign contractors and the Chinese petroleum companies through negotiation.
Article 18. In the course of implementing the contracts, foreign contractors shall promptly and accurately report on its petroleum operations to the Chinese Petroleum Companies, and report complete and accurate data, records, samples, vouchers and other original information in respect of technical, economic, financial, accounting and administrative aspects to the Chinese Petroleum Companies in accordance with regulations.
Article 19. After a foreign contractor has been compensated for its investment in accordance with the contract or after the production period of the oil/gas field in question has expired, title to all assets purchased and manufactured by the foreign contractor according to the plan and the budget for implementation of the contracts, except for equipment leased from third parties, shall be transferred to the Chinese Petroleum Companies. During the term of the contract, the foreign contractor may use such assets in accordance with the contract.
Chapter 3 Petroleum Operations
Article 20. The operator must formulate overall development programs for oil/gas fields in accordance with the regulations of the State concerning the exploitation of petroleum resources, and shall carry out development and production operations after such programs have been approved by the department designated by the State Council.
Article 21. With respect to the personnel stipulated in the petroleum contract for the petroleum operations, the operators shall give preference to the employment of Chinese citizens.
Article 22. In carrying out petroleum operations, operators and subcontractors shall observe State laws, regulations and standards concerning environmental protection and operational safety, carry out their operations according to international practice, protect farmland, aquatic resources, forest reserves and other natural resources, and prevent pollution of and damage to the atmosphere, oceans, rivers, lakes, groundwater and other land environment.
Article 23. The use of land in the course of petroleum operations shall be handled in accordance with the Law of the People's Republic of China on the Administration of Land, and other relevant regulations of the State.
Article 24. Title to all data, records, samples, vouchers and other original information in respect of all petroleum operations as referred to in Article 18 hereof shall vest in the Chinese Petroleum Companies.
The use, assignment, donation, exchange, sale, publication, and transport or transmission out of the People's Republic of China, of data, records, samples, vouchers and other original information as mentioned in the preceding paragraph must be done in accordance with the relevant regulations of the State.
Chapter 4 Settlement of Disputes
Article 25. Any dispute between the parties to a contract for the cooperative exploitation of onshore petroleum resources that arises from the implementation of the contract shall be resolved through consultations or mediation. If the parties are not willing to resolve the dispute through consultations or mediation or if consultation or mediation is unsuccessful, the dispute may be submitted for arbitration by a Chinese arbitration institution or another arbitration institution in accordance with the arbitration Article in the contract or a written arbitration agreement entered into subsequently.
If the parties have neither included an arbitration Article in their contract nor reached a subsequent written arbitration agreement, proceedings may be commenced in a People's Court of China.
Chapter 5 Legal Liability
Article 26. violators these Regulations in any of the following stipulations may be first warned and ordered to rectify the situation within a prescribed time limit by the department designated by the State Council. If the situation is not rectified within the prescribed time limit, be ordered to suspend petroleum operations; if the violation constitutes a criminal offense, criminal liability shall be pursued according to law:
1) Acting in violation of the first paragraph of Article 9 by entering without authorization a block opened to foreign cooperation to prospect for petroleum or by signing without authorization a cooperation agreement with a foreign enterprise for petroleum exploitation in such block;
2) Acting in violation of Article 18 by, in the course of implementing the contract, failing promptly and accurately to report on the petroleum operations to the Chinese Petroleum Companies or failing to submit information, samples and various reports in respect of technical, economic, financial, accounting and administrative aspects to the Chinese Petroleum Companies in accordance with regulations;
3) Acting in violation of Article 20 by carrying out development and production operations without having obtained approval for the overall development program for the oil/gas field; or
4) Acting in violation of the second paragraph of Article 24 hereof by making unauthorized use of data, records, samples, vouchers or other original information on petroleum operations, or by assigning, donating, exchanging, selling, publishing the same without authorization, or by transporting or transmitting the same out of the People's Republic of China without authorization.
Article 27. Anyone that violates Article 11, 16, 22 or 23 hereof shall be punished by the relevant department-in-charge of the State in accordance with relevant laws and regulations. If the violation constitutes a criminal offense, criminal liability shall be pursued according to law.
Chapter 6 Supplementary Provisions
Article 28. For the purpose of these Regulations, the following terms shall have the meaning assigned to them below:
1) The term " petroleum " shall mean underground crude oil and natural gas that is being or has been extracted;
2) The term " onshore petroleum resources" shall mean underground petroleum resources anywhere within the onshore area (including sea beaches, islands and marine areas extending from the onshore area up to a water depth of 5 meters);
3) The term " exploitation " shall mean the exploration for and development, production and sale of petroleum, as well as activities in connection therewith;
4) The term " petroleum operations " shall mean exploration, development and production operations carried out in order to implement a contract, as well as activities in connection therewith;
5) The term " exploration operations " shall mean all work carried out to find oil-bearing traps by various means such as geological, geophysical and geochemical means, including the drilling of exploration wells, as well as all work carried out to determine whether a discovered petroleum trap has commercial value, such as the drilling of appraisal wells, feasibility studies and preparation of overall development programs for the oil/gas field;
6) The term " development operations " shall mean all designing, manufacturing, installation and drilling projects, and the corresponding research, carried out as from the date of approval of the overall development program for the oil/gas field for the purpose of realizing petroleum production, including production activities carried out prior to the commencement of commercial production;
7) The term " production operations " shall means all operations out for the purpose of petroleum production as from the date of commencement of the commercial production of an oil/gas field, as well as all activities in connection therewith.
Article 29. Articles 4, 11, 12, 15, 16, 17 and 21 hereof shall be applicable to foreign subcontractors.
Article 30. The exploitation of coalbed methane in cooperation with foreign enterprises is monopolized by the China United Coalbed Methane Corporation (CUCBM) and shall be implemented according to the Regulations.
Article 31. The Regulations shall take effect as from the date of promulgation.
This document is an unofficial English translation of the Regulations of the PRC Concerning the Exploitation of Onshore Petroleum Resources in Cooperation with Foreign Enterprises. The law was promulgated by the State Council on, and effective from October 7, 1993,revised in 2001. Adjudication of these laws and regulations will be conducted according to the original Chinese text; this document should be interpreted as a basic reference only. EnergyDataBank does not make any representation regarding this documentation's legal validity.