CNOOC in Tax Dispute in Nigeria Over OML 130 License

BEIJING, April 25, 2008 (Dow Jones Newswires)

Chinese oil producer Cnooc Ltd. (CEO) is involved in a tax dispute in Nigeria that might affect the price of its biggest-ever acquisition of a foreign oil field.

In its 2007 annual report which was published this month, Cnooc said a local tax office in Nigeria has "raised a disagreement" in the tax filings made for the $2.3 billion purchase of a 45% stake in the OML 130 license from South Atlantic Petroleum Ltd. in 2006.

Cnooc's management headed by Chairman and Chief Executive Fu Chengyu are contesting the preliminary tax assessment, which followed an audit by the local tax office in Nigeria on South Atlantic Petroleum Ltd. last year.

However, Cnooc said: "The final tax audit results might affect the acquisition cost of the company for the OML 130 transaction."

The deal for OML 130, announced in January 2006 and completed four months later, is key to Cnooc's production growth as the offshore license covers fields in one of the world's most prolific oil and natural gas basins.

OML 130 is operated by Total S.A. (TOT) of France and contains the Akpo field, which is scheduled to begin production by the end of 2008.

Cnooc said earlier that peak output from the deepwater field could reach 175,000 barrels of oil equivalent a day.

"After seeking legal and tax advice, the company's management believes the company has reasonable grounds in making the contest," Cnooc said.

"Consequently, no provision has been made for any expenses and/or adjustment to the acquisition cost of OML 130 which might arise as a result of the dispute."

Xiao Zongwei, head of investor relations at Cnooc Ltd., wouldn't say how much money was being disputed, saying it was still under discussion. He added that it wasn't certain when the dispute may be resolved.

The OML 130 license covers an area of approximately 500 square miles in the Niger Delta. Water depths in the block range from around 1,100 meters to 1,800 meters.

In addition to the Akpo field, discovered in 2000, OML 130 contains three other significant discoveries -- Egina, Egina South and Preowei -- and a number of other exploration prospects.

The Akpo field's recoverable volumes are estimated by Total at around 600 million barrels of oil, with further recoverable reserves of more than 500 million barrels in the OML 130 area as a whole, Cnooc said when it first announced the deal.

Cnooc Ltd., China's third-largest oil producer by capacity, is listed in Hong Kong and has American Depositary Receipts traded in New York.

BEIJING, April 25, 2008 (Dow Jones Newswires)