HKCOG to Build LNG, CNG Filling Stations, China

China Oil And Gas Group announced that on 13 September, Hong Kong China Oil And Gas Group, a wholly-owned subsidiary of the Company, entered into a project cooperation agreement on construction of gas filling stations with Zaozhuang City Public Transport Corporation, a wholly-owned subsidiary of the government of Zaozhuang City, Shandong Province, pursuant to which the parties intend to cooperate in the project of LNG/CNG bus filling stations in Zaozhuang City.

Pursuant to the Cooperation Agreement, HKCOG will set up a wholly-owned company to invest in the construction of 6 LNG/CNG filling stations and Zaozhuang CPT will lease the sites to HKCOG for construction of gas filling stations for a term of 25 years. The total investment of construction of gas filling stations is approximately RMB108,000,000. Furthermore, HKCOG will exclusively provide Zaozhuang CPT with the natural gas required for all of its transit buses, and the annual sales of LNG will be over 15,000 tons.

The Group is principally engaged in natural gas investment and energy related business, and has invested and set up more than 80 gas projects in 11 different provinces in China and holds 45 exclusive operating rights of natural gas.

Zaozhuang City, located in the southern part of Shandong Province, has always been building its city brand of "A Jiangbei Water Village, An Ancient Canal City". It is well-known as the "Lunan Pearl" and is an important energy and coal chemical base of Shandong Province, with a number of railways, highways and the Beijing- Hangzhou Grand Canal passing through. The local government actively promotes the development of local tourism, takes clean environment as a long-term approach to implement the scientific concept of development, and strives to shape an environmentally friendly green city.

Zaozhuang CPT was founded in 1970 and is the main public transport operator in Zaozhuang City. It currently has close to 500 units of transit buses and more than 30 transport routes, with a total distance of 630 kilometers, over 30 million annual passengers and with annual run of 20 million kilometers.

The Project will play a tremendous role in improving the urban environment and reducing the operating costs of the public transport (by approximately 30%). LNG/CNG, renowned for its significant economic, social and environmental benefits and its extensive applications in the market, is a kind of ideal energy of the city for energy conservation and emissions reduction, which enjoys a broad space for development. After the launch of the Project, the Group's market share of natural gas business in Shandong Province will be increased, and thus the Group's position in the domestic market will be enhanced.