Commitments concerning Unocal's U.S. assets

CNOOC Limited is committed to fully integrating Unocal's strong management team and workforce into the combined company. The transaction will not adversely affect the U.S. oil and gas market since Unocal's U.S. oil and gas production will continue to be sold in the U.S. Unocal's U.S. oil and gas production accounts for less than 1% of total U.S. oil and gas consumption.
In connection with this offer, CNOOC Limited has provided the following assurances:
·CNOOC Limited is willing to continue Unocal's practice of selling and marketing all or substantially all of the oil and gas produced from Unocal's U.S. properties in U.S. markets.
·CNOOC Limited will seek to retain substantially all Unocal employees, including those in the U.S. This is in contrast to the existing Chevron proposal where Chevron has already announced plans to extract hundreds of millions of dollars of cost savings from the merger annually, including from employee layoffs.
· CNOOC Limited hopes and will endeavor to persuade members of Unocal's executive and operational management to join the management team of the combined company.
·CNOOC Limited will accept and agree to the terms of Unocal's recent FTC settlement relating to its patent rights in reformulated gasoline.
·CNOOC Limited is confident that it will obtain Exon-Florio approval. To this end, CNOOC Limited is willing to divest or take other actions with respect to any of Unocal's non-E&P assets in North America to the extent such divestitures and actions would not give rise to a material adverse effect on Unocal, including considering special management arrangements for Unocal's U.S. non-controlling, minority pipeline interests and its storage assets.

Financing structure

The financing is structured to ensure that the company will retain a strong balance sheet and maintain future financial flexibility. The transaction will be financed from the following sources:
· CNOOC Limited's cash resources of more than US$3 billion;
· Bridge loans provided by Goldman Sachs and JPMorgan totaling US$3 billion, which are expected to be replaced by permanent debt financing in the form of bonds at or shortly after completion;
· Bridge loans provided by Industrial and Commercial Bank of China (ICBC) in the amount of US$6 billion, which are expected to be replaced by permanent debt financing in the form of term loans at or shortly after completion;
· A long-term, subordinated loan provided by CNOOC Limited's majority shareholder, China National Offshore Oil Corporation, of US$4.5 billion, which is expected to receive equity treatment for credit ratings purposes; and
· A subordinated bridge loan provided by CNOOC Limited's majority shareholder of US$2.5 billion, which is expected to be refinanced with equity within two years.
CNOOC Limited has received commitment letters from each of Goldman Sachs, JPMorgan, ICBC and CNOOC Limited's majority shareholder for the financing noted above.

Strengths and opportunities

CNOOC Limited believes that the merged group would benefit greatly from the companies' complementary strengths.

· Platform for growth: This combination is expected to more than double CNOOC Limited's production and increase reserves by nearly 80%. CNOOC Limited believes that Unocal has an attractive portfolio of development projects with a substantial growth profile.

· An Asia-focused energy company: Both companies are already primarily Asian businesses – together they will be a leader in one of the fastest growing regions in the world. It is estimated that 85% of the combined reserves of the companies are located in Asia and the Caspian region.

· A leading regional gas business: Sixty percent of Unocal's reserves are natural gas (mostly in Asia). CNOOC Limited currently has 35% of its reserves in gas; it is estimated that the combined company will have a more balanced portfolio with reserves of 53% oil and 47% natural gas. CNOOC Limited believes that an improved oil and gas balance will reduce its exposure to commodity price cyclicality.

CNOOC Limited believes that China's LNG market potential will allow it to accelerate the exploration and development of gas resources and position it as a long-term supplier to the Bontang LNG plant. This is an important part of the environmental drive to promote cleaner burning fuels.

· Optimizing investment programs: CNOOC Limited expects to generate considerable synergies from the optimization of the combined exploration and capital investment programs of the two companies.

· Proven management and world-class technical expertise: CNOOC Limited believes that Unocal has an excellent operational management team, and CNOOC Limited can also draw on Unocal's deepwater drilling and production expertise.

Advisors

CNOOC Limited is advised by Goldman Sachs (Asia) L.L.C. and J.P. Morgan Securities (Asia Pacific) Ltd. N M Rothschild & Sons (Hong Kong) Limited also assisted the board's independent non-executive directors in their review of the transaction.

More information about the transaction can be found through CNOOC Limited's website (www.cnoocltd.com) and through CNOOC Limited's transaction microsite (www.transactioninfo.com/cnooc).