Continuing connected transactions sales of refined oil to connected parties

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.

(Incorporated in Bermuda with limited liability)

(Stock Code: 00346)

CONTINUING CONNECTED TRANSACTIONS

SALES OF REFINED OIL

TO CONNECTED PARTIES

During a review of the trading data for the year ended 31 December 2020 in March 2021, the Group discovered that the highest of applicable percentage ratios in respect of the amount of the Sales of Refined Oil for the five years ended 31 December 2020 exceeds 5% and the consideration exceeds HK$10,000,000 on an annual basis. However, due to an inadvertent oversight, the Company did not fulfil the requirement of entering into a written agreement for the Sales of Refined Oil during such period; and reporting, announcement, circular, independent financial advice, Independent Shareholders' approval, annual caps and annual review requirements in respect of the Sales of Refined Oil under Chapter 14A of the Listing Rules. As the Company and its Directors are not aware of the Transactions and the Company has no intention what-so-ever of not complying the requirements of the Listing Rules. The Company is therefore forthwith in the process of re-complying with the reporting, announcement and Independent Shareholders' approval requirements. The Board will seek the approval of the Independent Shareholders, among other things, to approve the Ratification at the SGM.

Henan Yanchang is a non wholly-owned subsidiary of the Company, while Yanchang Petroleum Group, being a substantial Shareholder beneficially holding 12,686,203,231 Shares as at the date of this announcement representing approximately 69.19% of the existing issued share capital of the Company, is a connected person of the Company as defined under the Listing Rules and hence the Transactions constituted continuing connected transactions of the Company under Chapter 14A of the Listing Rules. As the highest of applicable percentage ratios in respect of the amount of the Sales of Refined Oil exceeds 5% and the consideration exceeds HK$10,000,000 on an annual basis, the Transactions are subject to the reporting, announcement, annual review and the Independent Shareholders' approval requirements under Chapter 14A of the Listing Rules.

The SGM will be convened by the Company to seek the approval from the Independent Shareholders for the Ratification by way of poll. As Yanchang Petroleum Group being a substantial Shareholder is a connected person and hence Yanchang Petroleum Group, together with its associates, will abstain from voting at the SGM.

An Independent Board Committee comprising all the independent non-executive Directors has been established to advise the Independent Shareholders in relation to, among other things, the Ratification and on how to vote. An independent financial adviser will be appointed to advise the Independent Board Committee and the Independent Shareholders in these regards.

A circular containing, amongst other things, (i) details of the Ratification; (ii) the recommendation of the Independent Board Committee; (iii) the letter from an independent financial adviser; and (iv) a notice of the SGM will be despatched to the Shareholders as soon as practicable, which is expected to be on or before 23 April 2021.

BACKGROUND

The Group is principally engaged in investment in the oil, gas and energy related business; oil and gas exploration, exploitation and operation; and trading and distribution of oil related products.

Henan Yanchang is principally engaged in the wholesale, retail, storage and transportation of refined oil (gasoline, diesel oil, paraffin fuel oil, lubricating oil, grease and asphalt). Henan Yanchang has been granted a valid licence since 21 December 2006 (without expiry date) for the distribution and sale of refined oil in the PRC.

For the years ended 31 December 2016, 2017, 2018, 2019 and 2020 and up to the date of this Announcement, the Group has been conducting the sales of refined oil by Henan Yanchang to the Connected Parties. The relevant historical transaction amounts of Sales of Refined Oil are set out as follows:

For the year ended 31 December

For the period from 1 January 2021 to date of this

Since before the 2011, Henan Yanchang has been a non wholly-owned subsidiary of the Company, while Yanchang Petroleum Group, being a substantial Shareholder. As at the date of this announcement, Henan Yanchang is a non wholly-owned subsidiary of the Company, while Yanchang Petroleum Group, being a substantial Shareholder beneficially holding 12,686,203,231 Shares representing approximately 69.19% of the existing issued share capital of the Company, is a connected person of the Company as defined under the Listing

Rules and hence the Transactions constituted continuing connected transactions of theCompany under Chapter 14A of the Listing Rules. As the highest of applicable percentage ratios in respect of the amount of the Sales of Refined Oil exceed 5% and the consideration exceeds HK$10,000,000 on an annual basis, the Transactions are subject to the reporting, announcement, annual review and the Independent Shareholders' approval requirements under Chapter 14A of the Listing Rules.

However, due to an inadvertent oversight, the Company did not fulfil the requirement of entering into a written agreement for the Sales of Refined Oil during such period; and reporting, announcement, circular, independent financial advice, Independent Shareholders' approval, annual caps and annual review requirements in respect of the Sales of Refined Oil for the five years ended 31 December 2020 under Chapter 14A of the Listing Rules. Please refer to paragraphs headed "Remedial Measures" for a series of measures to prevent recurrence of similar events.

For the period from 1 January 2021 to date of this announcement, since one or more of the applicable percentage ratios as defined under the Listing Rules calculated for the Company in respect of the Transactions exceed 0.1% but are less than 5%, the Transactions constitutes continuing connected transactions of the Company subject to the reporting, announcement and annual review requirements but exempt from the Independent Shareholders' approval requirement under Chapter 14A of the Listing Rules. However, due to an inadvertent oversight, the Company did not fulfil the requirements of entering into a written agreement for the Sales of Refined Oil, reporting and announcement under Chapter 14A of the Listing Rules. Please refer to paragraphs headed "Remedial Measures" for a series of measures to prevent recurrence of similar events.

Henan Yanchang has already ceased the Transactions and no Sales of Refined Oil will be traded from now on. Should there be Sales of Refined Oil are expected to be traded, the Company will comply with the relevant requirements in accordance with the Listing Rules such as by publication of a further announcement or to seek approval from independent Shareholders, if applicable.

The Company is in the process of re-complying with the reporting, announcement and Independent Shareholders' approval requirements. The Board will seek the approval of the Independent Shareholders, among other things, to approve the Ratification at the SGM.

Yanchang Petroleum Group and its associates shall abstain from voting in favour of the Ratification and matters contemplated thereunder at the SGM. Save for Yanchang Petroleum Group, to the best knowledge, information and belief of the Directors, no other Shareholders or any of their respective associates have a material interest in the Ratification and matters contemplated thereunder and the Ratification, and accordingly are required to abstain from voting at the SGM.

BASIS OF DETERMINING THE 2016 - 2020 ANNUAL CAP

For Ratification purpose, the 2016 - 2020 Annual Cap was determined based on the historical amounts of Sales of Refined Oil on annul basis.

REMEDIAL MEASURES

The Company would like to emphasize that such non-compliance was inadvertent. The Company and its Directors are not aware of the Transactions and the Company has no intention what-so-ever of not complying the requirements of the Listing Rules. The Company is therefore forthwith in the process of re-complying with the said requirements of the Listing Rules. The current internal control measure adopted by the Company to ascertain whether a transaction is a connected transaction involves maintaining a list of connected persons and circulating such list together with copies of the relevant extracts of the Listing Rules to the personnel/senior management of each member of the Group. The personnel/senior management of the relevant subsidiary should update from time to time the connected persons list and report any potential connected transaction to the personnel/senior management of the Company in advance in order to ascertain whether there will be any implications under the Listing Rules.

The Company will take further remedial measures to tighten its internal control procedure with a view to ensuring timely compliance with the Listing Rules and to prevent recurrence of similar events. These measures include (1) relevant internal training session will be arranged for all the personnel/senior management involving in all business departments (especially sales and purchases) of the Company's subsidiaries to reinforce and re-explain the relevant requirements under Chapter 14A of the Listing Rules; and (2) for any potential transaction(s) which may constitute new connected transaction(s) of the Group, the Company will consult legal advisers and the Stock Exchange (where necessary) in a timely manner prior to entering into of such transaction(s).

IMPLICATION UNDER THE LISTING RULES

As at the date of this announcement, Henan Yanchang is a non wholly-owned subsidiary of the Company and Yanchang Petroleum Group, being a substantial Shareholder beneficially holding 12,686,203,231 Shares representing approximately 69.19% of the existing issued share capital of the Company, is a connected person of the Company as defined under the Listing Rules and hence the Transactions constitute continuing connected transactions of the Company under Chapter 14A of the Listing Rules. As the highest of applicable percentage ratios in respect of the amount of the 2016 - 2020 Annual Cap exceeds 5% and the consideration exceeds HK$10,000,000 on an annual basis, the Transactions are subject to the reporting, announcement, annual review and the Independent Shareholders' approval requirement under Chapter 14A of the Listing Rules.

Yanchang Petroleum Group and its associates shall abstain from voting in favour of the Ratification and matters contemplated thereunder, at the SGM. Save for Yanchang Petroleum Group, to the best knowledge, information and belief of the Directors, no other Shareholders or any of their respective associates have a material interest in the Ratification and matters contemplated thereunder, and accordingly are required to abstain from voting at the SGM.

INDEPENDENT BOARD COMMITTEE

An Independent Board Committee comprising all the independent non-executive Directors has been established to advise the Independent Shareholders in relation to, among other things, the Ratification and on how to vote. An independent financial adviser will be appointed to advise the Independent Board Committee and the Independent Shareholders in these regards.

SGM

The SGM will be convened by the Company to seek the approval from the Independent Shareholders for the Ratification by way of poll. As at the date of this announcement, Yanchang Petroleum Group, being a substantial Shareholder beneficially holding 12,686,203,231 Shares representing approximately 69.19% of the existing issued share capital of the Company, is a connected person and hence Yanchang Petroleum Group, together with its associates, will abstain from voting at the SGM.

GENERAL

A circular containing, amongst other things, (i) details of the Ratification; (ii) the recommendation of the Independent Board Committee; (iii) the letter from an independent financial adviser; and (iv) a notice of the SGM will be despatched to the Shareholders as soon as practicable, which is expected to be on or before 23 April 2021.

DEFINITIONS USED IN THIS ANNOUNCEMENT

In this announcement, the following expressions have the meanings set out below unless the context requires otherwise:

"Connected Parties"

ʕذַڗͩذቖਯٰ΅Ϟࠢʮ̡ (China Petroleum Yanchang Petroleum Trading Stock Limited Company*), ʕذַڗͩ ذቖਯϞࠢʮ̡ๆ؍ʱʮ̡ (China Petroleum Yanchang Petroleum Trading Limited Yulin Branch*), ʕذַڗ(Ћʆ) ͩذʷʈϞࠢʮ̡ (China Petroleum Yanchang (Zhoushan) Petroleum Chemical Limited*), ʕذַڗͩذቖਯٰ΅Ϟ ࠢʮַ̡ʇʱʮ̡ (China Petroleum Yanchang Petroleum Trading Stock Limited Yanchuan Branch*), ַڗಠ೐ͩذϞ ࠢʮ̡ (Yanchang Shell Petroleum Limited*), ַڗಠ೐ئی ͩذϞࠢʮ̡ (Yanchang Shell Henan Petroleum Limited*), ৯ГַڗͩذණྠʆГቖਯϞࠢʮ̡ (Shaanxi Yanchang Petroleum Group Shanxi Trading Limited*), ৯Гַڗͩذַ τঐ๕ʷʈϞࠢப΂ʮ̡ (Shaanxi Yanchang Petroleum an Energy Chemical Company Limited*), the associate(s) and/or subsidiary(ies), of Yanchang Petroleum Group

"connected person(s)"

has the meaning ascribed thereto in the Listing Rules

"Continuing Connected

Transaction(s)"

transaction(s) between the Connected Parties and Henan Yanchang for the sales of refined oil from Henan Yanchang to the Connected Parties

"Director(s)"

the director(s) of the Company

"Group"

"Henan Yanchang"

the Company and its subsidiaries from time to time ئیַڗͩذቖਯϞࠢʮ̡ (Henan Yanchang Petroleum Sales Co., Limited), a limited company incorporated under the PRC laws which is an indirect non wholly-owned subsidiary of the Company and 70% owned by the Group as at the date of this announcement

"Hong Kong"

the Hong Kong Special Administrative Region of the PRC

"Independent Board

Committee"

the independent board committee of the Company, comprising all the independent non-executive Directors to be established to advise the Independent Shareholders on the Ratification and matters contemplated thereunder

"Independent Shareholders"

Shareholders other than Yanchang Petroleum Group and its associates

"Listing Rules"

the Rules Governing the Listing of Securities on the Stock Exchange

Certain English translation of Chinese names or words in this announcement are included for information only, and are not official English translations of such Chinese names or words.

*

For identification purposes only