On 27th October 2008, CNOOC and Zhejiang Gas entered into an agreement in principle for the sale and purchase of gas from Lishui 36-1 discovery ("Gas Sale Agreement"). In entering into the Gas Sale Agreement, CNOOC acted on its own behalf and on behalf of Primeline and PPC.

The Gas Sale Agreement defines the general terms on which Zhejiang Gas will purchase the future production of natural gas from the Lishui 36-1 gas field, including the quality of the gas, take-or-pay principles, base price, annual quantity and delivery schedule. The principles set out in the Gas Sale Agreement will govern the further negotiation of a final gas sale contract, which can only be finalised during the development of the production facility.

CNOOC has entered into a separate agreement with Primeline and PPC outlining their understanding that, subject to the ODP referred to below confirming the commerciality of the development of the Lishui 36-1 discovery, CNOOC will exercise its rights under the Petroleum Contract to take a 51% interest in that development and that Primeline's and PPC's share of the gas (being 36.75% and 12.25% respectively) from the Lishui 36-1 gas field will be sold through CNOOC on the terms set out in the Gas Sale Agreement. According to the Petroleum Contract, Primeline will continue to be the Operator of the proposed development and production operations and CNOOC, Primeline and PPC will each pay their pro rata costs of the development and production costs.

The Gas Sale Agreement is based on the development proposal of producing gas from the Lishui 36-1 gas field via an offshore pipeline to an onshore processing terminal to be established adjacent to Wenzhou city. The development proposal in the Feasibility Study is based on the reserve approved by the State Reserve Committee, which is approximately the same as the minimum resource estimate for Lishui 36-1 as contained in the resource evaluation prepared by McDaniel.

Primeline and CNOOC have also completed an overall development program ("ODP") for the development of the production facilities for the Lishui 36-1 discovery, which work involved further engineering design and survey work to allow the detailed design to be finalised. Such survey work included the site survey for the production platform, a route survey for the pipeline, a survey for the onshore terminal and environmental surveys. Two environmental surveys were also completed. CNOOC and Primeline are in the process of submitting the ODP for final approval by the relevant State Authorities and CNOOC is leading this submission process.

As part of the gas market development, Primeline and CNOOC have been working with the Wenzhou Municipal Authority to select the site for the landing point for the proposed offshore pipeline and the onshore gas processing terminal. Preliminary locations have been agreed on and work is being undertaken to ensure that the site chosen for this onshore facility can be secured and ready on time for the proposed development.