The principal activities are the exploration and production of crude oil and natural gas in the People’s Republic of China (the “PRC”), the Republic of Kazakhstan, the Sultanate of Oman, Peru, the Kingdom of Thailand, the Azerbaijan Republic and the Republic of Indonesia, and the sale of natural gas and transmission of natural gas in the PRC.

Business Review - For the year ended December 31, 2009

Natural Gas Business

2009 was a crucial year for the Group. We have started to develop the end-users sale and utilisation of natural gas business in accordance with our corporate strategy.

During the Year, through equity acquisitions and capital injections, we have established the foundation for the Company’s business transition and the development of natural gas business.

As the natural gas business is still in the developing stage, it has not contributed much to the Group. The natural gas business contributed HK$214 million to the Group’s profit during the Year.

Exploration and Production Business

The Group currently has eleven oil fields located in seven different countries, four of them are exploration projects. In 2009, each oil field underwent comprehensive exploration and development as planned, remaining the sound cash flows to seek to increase production volume in light of high oil prices, so as to generate considerable returns for shareholders.

In 2009, the exploration and production business contributed HK$1,081 million to the Group’s profit.

For the year 2009, total sales of crude oil and natural gas by Aktobe was 40 million barrels and 82,772 million cu.ft (2008: crude oil 39 million barrels; natural gas 62,576 million cu.ft.) respectively. Sales of crude oil increased by 1 million barrels or 3.5%, while sales of natural gas increased by 20,196 million cu.ft. or 32.3%. On a pro rata basis, the Group’s share of crude oil amounted to 6 million barrels and natural gas amounted to12,475 million cu.ft. (2008: crude oil 6 million barrels; natural gas 9,431 million cu.ft). According to the production schedule, the sales volume will be increased year by year.

The Group holds 50% interest in the right to explore and produce oil and natural gas in Blocks VI and VII of the Talara Oil Field in Peru. During the Year, 1.08 million barrels (2008: 1.01 million barrels) of crude oil and 458 million cu. ft. (2008: 720 million cu. ft.) of natural gas were sold by the oil field, representing an increase of 6.9% and a decrease of 36.4% compared to previous year respectively. 2010 is a key year for the Group. The Group order to increase the production volume, we will large-scaly exploit the secondary oil seams and implement the rolling development of the offshore oil zone in the northwest area of Block VI.

Under the unremitting efforts of the management of Continental GeoPetro (Bengara-II) Limited (“CGBII”), in February 2009, the Indonesian Petroleum Department eventually agreed to extend the exploration period to December 2011. Therefore, 2010 will be a crucial year to CGB-II. The Company will arrange the 2D and 3D seismic data as soon as possible and plan to carry out drilling of exploration wells in 2010 so as to confirm the reserve volume and submit application for entering the development phase.

The existing exploration and production business is still a main profit stream to the Group, and it will continue to grow. With the benefit from the rising of the oil price and the sales volume increase, it is expected to generate considerable profits to the Group.

Source: Kunlun Energy (00135) Annual Results Announcement