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.

This announcement appears for information purpose only and does not constitute an invitation or offer to acquire, purchase or subscribe for the securities of the Company.

KUNLUN ENERGY COMPANY LIMITED

(incorporated in Bermuda with limited liability)

昆 侖 能 源 有 限 公 司

(Stock Code: 00135.HK)

1. VERY SUBSTANTIAL ACQUISITION AND CONNECTED TRANSACTION IN RELATION TO THE ACQUISITION OF

   PETROCHINA KUNLUN GAS CO., LTD AND

2. PROPOSED CONTINUING CONNECTED TRANSACTIONS

Financial Advisers

THE ACQUISITION AGREEMENT

The Board is pleased to announce that on 28 December 2015, the Company and PetroChina entered into the Acquisition Agreement, pursuant to which, PetroChina has agreed to sell and the Company has agreed to purchase the entire equity interest in Kunlun Gas owned by PetroChina at a consideration of RMB14,827,093,900 (equivalent to approximately HK$17,998,414,600 or US$2,322,357,900). The Consideration will be settled in RMB or a foreign currency (including US$ and HK$) in equivalent amount subject to adjustment by the Gain or Loss during the Transition Period.

As at the date of this announcement, PetroChina indirectly holds 4,708,302,133 Shares in the Company, representing approximately 58.33% of the issued share capital of the Company. In addition, CNPC, the controlling shareholder of PetroChina, indirectly holds additional 277,432,000 Shares in the Company, representing 3.43% of the issued share capital of the Company. Accordingly, CNPC as the ultimate controlling shareholder of the Company will be deemed to have interests in 4,985,734,133 Shares of the Company, representing approximately 61.76% of the issued share capital of the Company. Both CNPC and PetroChina are the controlling shareholders of the Company, thus both CNPC and PetroChina are connected persons of the Company under Chapter 14A of the Listing Rules.

Accordingly, the Acquisition constitutes a connected transaction of the Company. As one or more of the applicable percentage ratios referred to in Chapters 14 and 14A of the Listing Rules for the Acquisition exceed 100%, the Acquisition constitutes a very substantial acquisition and connected transaction of the Company under Chapters 14 and 14A of the Listing Rules respectively and is subject to requirements for reporting, announcement and approval by the Independent Shareholders at the SGM by way of poll under the Listing Rules.

PROPOSED CONTINUING CONNECTED TRANSACTIONS

Both CNPC and PetroChina are the controlling shareholders of the Company, thus both CNPC and PetroChina are connected persons of the Company under Chapter 14A of the Listing Rules. As soon as Kunlun Gas becomes a wholly owned subsidiary of the Company, the continuing transactions between Kunlun Gas and CNPC or PetroChina and their respective associates will become continuing connected transactions of the Company under Chapter 14A of the Listing Rules.

As the applicable percentage ratios for the Revised Caps Subject to Approval for the relevant continuing connected transactions exceed 5% on an annual basis, the Revised Caps Subject to Approval are subject to reporting, announcement and Independent Shareholders' approval requirements under the Listing Rules.

DISPATCH OF THE CIRCULAR AND THE SGM

The Company will convene a SGM for the Shareholders to consider and, if thought fit, to approve, among other things: (i) the Acquisition Agreement and the transactions contemplated thereunder; and (ii) the Revised Caps Subject to Approval for the continuing connected transactions.

CNPC, PetroChina and their respective associates shall abstain from voting on the resolutions approving the Acquisition Agreement together with the transactions contemplated thereunder and the Revised Caps Subject to Approval for the continuing connected transactions.

An Independent Board Committee comprising all independent non-executive Directors has been established to advise the Independent Shareholders in relation to the Acquisition and the Revised Caps Subject to Approval for the continuing connected transactions. ING Bank N.V. has been appointed as the Independent Financial Adviser to advise the Independent Board Committee and the Independent Shareholders in this regard.

The Circular containing, among others, (i) details of the Acquisition and the Revised Caps Subject to Approval for the continuing connected transactions; (ii) basic information of Kunlun Gas; (iii) basic information of the Company; (iv) a letter from the Independent Board Committee regarding the Acquisition and the Revised Caps Subject to Approval for the continuing connected transactions to the Independent Shareholders; (v) the letter of advice from Independent Financial Adviser to the Independent Board Committee and the Independent Shareholders; and (vi) notice of the SGM is expected to be dispatched to the Shareholders.

Pursuant to Rule 14.60(7) of the Listing Rules, considering more time is required for the relevant information to be prepared for inclusion in the Circular, the Company currently expects to dispatch to the Shareholders the Circular on or before 31 January 2016. If the Company is not able to dispatch the Circular within such period due to the time required to prepare and finalise the relevant information for inclusion in the Circular under the Listing Rules, the Company will make a further announcement of any expected delay in dispatch of the Circular in due course.

WARNING

The Acquisition is subject to a number of conditions including approvals by the Independent Shareholders at the SGM, etc., which may or may not be fulfilled. In the event that any of the conditions to the Completion is not fulfilled, the Acquisition will not proceed. As at the date of this announcement, the Company had not entered into any binding agreement with respect to any of the financing arrangements disclosed in this announcement or proposed for the settlement of the Consideration.

Shareholders of the Company and potential investors should exercise caution when they deal or contemplate dealing in the Shares or other securities (if any) of the Company.

1. INTRODUCTION

   
   

   Reference is made to the announcement of the Company dated 25 November 2015 for entering into the LOI on Integration between the Company and PetroChina.

   
   

   The Board is pleased to announce that on 28 December 2015, the Company entered into the Acquisition Agreement with PetroChina, pursuant to which the Company has agreed to purchase, and PetroChina has agreed to sell, the entire equity interest in Kunlun Gas owned by PetroChina at a consideration of RMB14,827,093,900 (equivalent to approximately HK$17,998,414,600 or US$2,322,357,900) in accordance with the terms and conditions of the Acquisition Agreement.

   
   

2. THE ACQUISITION AGREEMENT

   
   

3. Date: 28 December 2015

   
   

4. Parties:

   
   

5. Purchaser: the Company;

   
   

6. Vendor: PetroChina; and

   
   

7. Target Company: Kunlun Gas

   
   

8. Assets to be acquired

   
   

   Pursuant to the Acquisition Agreement, PetroChina has agreed to sell and the Company has agreed to purchase the entire equity interest in Kunlun Gas owned by PetroChina.

   
   

9. Consideration

   
   

   Pursuant to the Acquisition Agreement, the Consideration payable by the Company to PetroChina will be RMB14,827,093,900 (equivalent to approximately HK$17,998,414,600 or US$2,322,357,900), which has taken into account the RMB 1 billion dividend ("Special Dividend") declared to PetroChina by Kunlun Gas and will be satisfied by way of cash payments. The Consideration will be settled in RMB or a foreign currency (including US$ and HK$) in equivalent amount subject to adjustment by the Gain or Loss during the Transition Period.

   
   

   The Company will pay no less than 30% of the Consideration (hereinafter referred to as the "First Tranche Consideration") to the bank account designated by PetroChina on the Completion Date, while the remainder of the Consideration (hereinafter referred to as the "Deferred Payment") shall be settled in full by the Company within 12 months from the Completion Date in compliance with applicable laws, regulations and regulatory requirements (including settlement of no less than 60% of the Consideration within 6 months of the Completion Date). Any Deferred Payment will be charged an interest which shall be equivalent to the one-year benchmark RMB loan interest rate as published by the People's Bank of China on the working day immediately preceding the relevant payment date.

   The Gain or Loss during the Transition Period will be, regardless of whether distributed or not, entitled to or borne by PetroChina. According to the Acquisition Agreement, the Gain or Loss during the Transition Period will be determined and settled as follows:

   
   

10. if the net book asset value of Kunlun Gas in the Completion Date Financial Statements is less than the net book asset value of Kunlun Gas in the Audited Financial Statements as at the Valuation Reference Date after deducting the Special Dividend, the Gain or Loss during the Transition Period will represent a loss in net assets, which will be borne by PetroChina and will be paid by PetroChina to the Company;

    
    

11. if the net book asset value of Kunlun Gas in the Completion Date Financial Statements is more than the net book asset value of Kunlun Gas in the Audited Financial Statements as at the Valuation Reference Date after deducting the Special Dividend, the Gain or Loss during the Transition Period will represent a gain in net assets, to which PetroChina will be entitled and shall be paid by the Company to PetroChina.




Save for the Special Dividend, if there is any increase or reduction in share capital, dividend distribution or asset disposal in respect of Kunlun Gas between the date of the signing of the Acquisition Agreement and the Completion Date, the Consideration shall be adjusted accordingly.




The Consideration above will be funded by the internal cash of the Company and other available sources of funds, including but not limited to debt financing and equity financing.




12. Basis of Consideration Determination

    
    

    The Consideration was determined after arm's length negotiations between the Company and PetroChina, having taken into account, among others, the following factors:

    
    

13. the valuation of the Target Group by the Valuer, as adjusted by the Special Dividend;

    
    

14. the current status and future development prospects of the related industries in which the Target Group operates; and

    
    

15. business profile, historical financial performance and future development potential of the Target Group.




The valuation of the Target Group by the Valuer using 30 September 2015 as the Valuation Reference Date was approximately RMB15,827,093,900 (equivalent to approximately HK$19,212,301,500 or US$2,478,987,300). The valuation of the Target Group was conducted using the market method approach which values the Target Group by comparing the trading multiples of comparable companies of similar business nature in the open market. Meanwhile, the Special Dividend has been taken into consideration.