Xinhua Far East Places the AAA Domestic Currency Issuer Rating of CNOOC Ltd on Review for Possible Downgrade HONG KONG, June 23 /Xinhua-PRNewswire/ -- Xinhua Far East China Credit Ratings today placed the AAA domestic currency issuer credit rating of CNOOC Ltd ("CNOOC" or "the Company", HK 0883, NYSE: CEO) on review for possible downgrade. The review was prompted by CNOOC's latest proposal to merge with Unocal Corporation ("Unocal", NYSE: UCL) for a cash consideration of USD 18.5 billion. According to Xinhua Far East's estimates, the resulting capital structure and financial profile of the combined CNOOC-Unocal entity can hardly maintain the excellent position required for the AAA rating category. Furthermore, such a huge-scale merger involving two similar-sized companies with distinct backgrounds and cultures entails considerable integration and execution risks, at least in the short to medium term. Accordingly, Xinhua Far East believes that CNOOC's credit profile will undergo a structural change that will no longer makes it commensurate with the extremely high level of resilience and resistance to volatility required in an AAA credit. Xinhua Far East added that while there are still uncertainties and regulatory barriers regarding a successful bid by CNOOC, this Company's merger proposal reveals a change of management strategy that shows a larger appetite and a higher tolerance for the risks in overseas acquisitions. If the bid turns out to be unsuccessful, Xinhua Far East anticipates that CNOOC will continue to seek other acquisition opportunities to strengthen its oil and gas reserves and expand its international operations. Thus, the potential structural impact of large-scale acquisitions on CNOOC's AAA rating will linger. In Xinhua Far East's opinion, under CNOOC's proposed financing plan, CNOOC will turn from a net cash to a net debt position but financial leverage will maintain at moderate level after the merger. Depending on the outcome of the acquisition bridging loan refinancing, Xinhua Far East estimates that CNOOC's resulting gross debt (excluding subordinated debts provided by its parent company) to total capital ratio will be around 20% - 30% upon close of the merger. Xinhua Far East acknowledges that CNOOC has very strong operating and financial profiles, competent management and a prudent financial strategy. It is also bolstered by growing demand and a supportive regulatory environment in its home market. Moreover, given the Company's strategic position in China's energy sector, we expect that its majority shareholder, China National Offshore Oil Corporation, a wholly state-owned enterprise, will continue to provide strong support in this and future acquisitions. For instance, in the proposed USD 18.5 billion merger, China National Offshore Oil Corporation is committed to providing a subordinated long term loan of USD 4.5 billion and a bridging loan of USD 2.5 billion. Further, the proposed merger will deliver synergies and enhance stability of crude oil supply for CNOOC, whose home market is experiencing vibrant growth in demand and net depletion of crude oil reserves. In view of its expected very strong credit profile and resilience post merger, even if the proposed merger triggers a downgrade, CNOOC's rating will probably stay at a AA level. During the review period, Xinhua Far East will evaluate the impact on CNOOC and the progress of integration if the proposed bid is successful. Otherwise, we will continue to monitor CNOOC's strategy in implementing overseas acquisitions. CNOOC Ltd is principally engaged in the exploration, development, production and sale of crude oil and natural gas. It is the only company permitted by the Chinese government to conduct oil and nature gas exploration and production activities offshore China, either independently or with international oil and gas companies through production sharing contracts (PSC). As of year-end 2004, CNOOC Ltd had net proved reserves of 2.23 billion barrels-of-oil equivalent (BOE), namely 1.46 billion barrels of crude oil and 4.65 trillion cubic feet of natural gas. Total net production in 2004 was 382,513 BOE per day. Oil and gas sales accounted for 66.8% of its total revenue in 2004. The ultimate parent company of CNOOC Ltd is China National Offshore Oil Corporation, which has 70.64% interest in the Company. CNOOC is a red chip listed on Hong Kong Stock Exchange and a constituent in the Xinhua/FTSE China 25 Index. As of June 23, 2005, the total market cap of CNOOC accounted for HKD174 billion (USD22.3 billion) with an investable market cap of HKD25 billion (USD 3.2 billion). For the rating report summary, please visit http://www.xinhuafinance.com/creditrating. Chart 1: Operating Profile of Unocal, Chevron, and CNOOC Ltd (2004) Unocal Chevron CNOOC Total Proved Reserves (Million BOE) 1,754 11,252 2,230 % of oil 37.6% 70.9% 65.3% % of natural gas 62.4% 29.1% 34.7% Total oil & gas production (thousands BOE per day) 411 2,509 383 Total assets (US$ million) 13,101 93,208 11,362 Total revenues (US$ million) 8,204 155,300 6,669 Net income (US$ million) 1,208 13,328 1,955 Capital Expenditure (US$ million) 1,744 6,310 2,250 Net operating cash flow (US$ million) 2,556 14,690 2,697 More Information: Hong Kong Joy Tsang, Corporate & Investor Communications Manager, Xinhua Finance +852-3196-3983, +852-9486-4364, US The Ruth Group (PR Contact in the US) Mr. Jason Rando, +1 646 536 7025, Note to Editors: About Xinhua/FTSE China 25 Index Xinhua/FTSE China 25 Index is a real-time tradable index designed for use as the basis for both on-exchange and OTC derivative products, mutual funds and ETFs. The index includes the largest 25 Chinese companies comprising H shares and Red Chip shares, ranked by total market capitalization. The index is designed to meet fund regulatory requirements worldwide, with constituent weightings capped, in order to avoid over-concentration in any one stock. About Xinhua Far East China Ratings Xinhua Far East China Ratings (Xinhua Far East) is a pioneering venture in China that aims to rank credit risks among corporations in China. It is a strategic alliance between Xinhua Financial Network, a Xinhua Finance subsidiary, and Shanghai Far East Credit Rating Co., Ltd. Shanghai Far East became a Xinhua Finance partner company in 2003 and the first China member of The Association of Credit Rating Agencies in Asia in December 2003. Capitalizing on the synergy between Xinhua Finance and Shanghai Far East, Xinhua Far East's rating methodology and process blend unique local market knowledge with international rating standards. Xinhua Far East is committed to provide investors with independent, objective, timely and forward-looking credit opinions on Chinese companies. It aims to help investors differentiate the credit risks among the corporations in China, thereby, cultivating their awareness and promoting information disclosures and transparency in China market. For more information, see http://www.xfn.com/creditrating. About Xinhua Finance Limited Xinhua Finance Limited is China's premier financial services and media company, listed on the Mothers board of the Tokyo Stock Exchange (symbol: 9399). The Company provides financial news and information, as well as a broad array of financial products and services unique to the China markets. Xinhua Finance provides real time coverage of Chinese and Asian equity markets, delivering an integrated platform of China-specific indices, financial news feeds, credit ratings, and investor relations services to global financial institutions and re-distributors via leased line, Internet, and satellite technology. Founded in 1999, the Company is headquartered in Hong Kong and has 16 offices and 22 news bureaus across Asia, Australia, North America and Europe. For more information, see http://www.xinhuafinance.com/. About Shanghai Far East Credit Rating Co., Ltd Shanghai Far East Credit Rating Co., Ltd. is the first and leading professional credit rating company with comprehensive business coverage in China. It is an independent agency established by the Shanghai Academy of Social Sciences with the mission to develop internationally accepted standards for capital market in China. The company is a pioneer in conducting bond- rating business in China. For years, it has been authorized by the Shanghai branch of the PBOC to undertake loan certificate credit rating. Since establishment, it has rated over 1,000 corporate long-term bonds and commercial papers, based on the principles of objectivity, fairness and independence. The company has also maintained over 50% market share in the loan certificate-rating sector in Shanghai for three consecutive years. With its strong local presence and knowledge, it provides investors with unique and the most insightful credit opinion. For more information, see http://www.fareast-cr.com/. DATASOURCE: Xinhua Far East China Credit Ratings CONTACT: Hong Kong - Joy Tsang, Corporate & Investor Communications Manager, Xinhua Finance, +852-3196-3983, +852-9486-4364, ; US - Mr. Jason Rando, of The Ruth Group +1-646- 536-7025, Web site: http://www.xfn.com/creditrating

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