China Oil & Gas (00603) announced that on April 29, 2026, China Oil & Gas Investment, Tianda Litong, and China Oil Zhongtai (collectively referred to as the "Sellers") entered into a share swap agreement with Shandong Shengli Co., Ltd. (000407). Under the agreement, Shengli conditionally agreed to acquire, and the Sellers conditionally agreed to sell, the target assets. These include a 100% equity stake in Zhongyou Zhuhai, a 100% stake in Tianda Shengtong, a 51% stake in Nantong Zhongyou, and a 40% stake in Ganhe Zhongyou. The total transaction consideration is approximately RMB 1.7508 billion. The share consideration of about RMB 1.595 billion will be settled by issuing new Shengli A-shares, while the cash consideration of approximately RMB 155.9 million will be paid in cash.

The proposed transaction constitutes a very substantial disposal and a very substantial acquisition under the share swap agreement. Upon completion, Shengli will hold or control a 100% stake in Zhongyou Zhuhai, a 100% stake in Tianda Shengtong, an 80% stake in Ganhe Zhongyou, and a 100% stake in Nantong Zhongyou. Consequently, China Oil & Gas will hold approximately 51.11% of the enlarged issued share capital of Shengli. Therefore, Shengli will become a non-wholly-owned subsidiary of China Oil & Gas.

The company believes the proposed transaction will generate significant synergistic effects across four dimensions. In terms of industrial and supply chain synergy, Shengli's existing natural gas pipeline manufacturing and gas sales operations, combined with the target assets' gas application services for industrial, commercial, and residential sectors, will establish an integrated industrial chain from pipeline manufacturing and gas sales to end-user application services. This will enable the enlarged group to expand its downstream coverage and strengthen its gas asset portfolio, while the target assets will benefit from more stable pipeline and gas supply sources.

Regarding market synergy, Shengli's established market channels, customer networks, and brand recognition in the natural gas and plastic pipeline sectors complement the stable end-user customer base of the target companies in regional markets. This allows the enlarged group to expand terminal market coverage, broaden the customer base, and jointly increase overall market share, advancing the group's national gas asset development strategy.

For technical synergy, Shengli's technical expertise in pipeline manufacturing, transmission, and sales will combine with the target assets' operational experience in gas application services and end-scenario optimization, creating a virtuous cycle of technology sharing. This is expected to improve pipeline compatibility, enhance gas utilization efficiency, and drive product innovation.

In management synergy, Shengli's established corporate governance framework, internal control systems, and standardized management processes will complement the target companies' professional operational and customer service management capabilities. This will facilitate the mutual exchange of management best practices, optimize organizational structure, and improve overall operational efficiency.

Shandong Shengli Co., Ltd. is primarily engaged in promoting and applying clean energy natural gas across China. Its business includes providing natural gas application services for industrial, commercial, and residential sectors, supplying natural gas to vehicles in the transportation sector, and offering solutions in the natural gas innovation field. Through this restructuring, the group aims to streamline its natural gas business, achieve more efficient operational synergy with Shengli's nationwide clean energy platform, strengthen resource allocation, and build a more focused and efficient structure for its downstream city gas operations.

The group will seize industry development opportunities, anchored in the strategic tone of "consolidating the core business while extending the ecosystem," with creating a second growth curve as a key initiative. It aims to deliver long-term, stable, and sustainable value returns to investors through more robust operations, clearer planning, and stronger growth. The focus will be on improving efficiency across the entire business chain and solidifying the foundation for development. Downstream, it will deepen its core gas business, intensify market development and pipeline network operation and maintenance, precisely advance expansion among residential, industrial, and commercial users, steadily increase gas sales and transmission volumes, strengthen gas source coordination and spread management, optimize pipeline network layout, and continuously consolidate its core position in regional energy supply to ensure steady progress in core business performance.

The group will also push forward with ecosystem extension to create diversified growth drivers. It will accelerate the transition from a "single gas supplier" to a "comprehensive energy service provider," reinforcing technology enablement and management fundamentals to activate new growth momentum. Centered on realizing value from digital transformation, it will focus on integrating business and finance in core operational scenarios. From a new starting point, the group will unite efforts to overcome challenges, promote synergistic development of domestic and international businesses, core and other operations, and fully build a new pattern of high-quality development to reward investors with excellent operational performance.

At this stage of the restructuring, the group has identified mature subsidiaries and investment projects. These entities operate or hold equity interests in city gas projects with franchise rights, with their primary business and assets located mainly in Jiangsu, Jiangxi, and Qinghai provinces. Integrating the city gas franchise projects in these regions into Shengli will directly leverage existing digital operational synergies, building a unified smart platform, standardized safety and monitoring procedures, and accelerating the deployment of advanced technologies within the integrated network.

The group applied specific criteria for selecting subsidiaries and investments for this restructuring phase. First, the relevant entity must hold a valid and subsisting franchise right granted by relevant local government authorities, authorizing it to operate city gas pipeline businesses within a designated geographical area. Second, the entity must possess established and operational city gas infrastructure, with a proven track record of commercial operation, stable customer relationships with industrial, commercial, and residential users, and a consistent history of revenue and profitability. Third, the scale and development stage of the entity's primary business and assets must allow for meaningful integration into Shengli's existing national clean energy platform, with significant operational and technical synergies.

For the proposed transaction, "mature development" refers to subsidiaries and investments that have completed their initial infrastructure construction phase, achieved stable operational performance with recurring income from gas connection fees and gas sales, and operate under franchise agreements with clearly defined service areas and contract terms. The group believes the target assets, primarily located in Jiangsu, Jiangxi, and Qinghai provinces, meet all the above criteria and are well-suited for integration into Shengli's platform during this restructuring phase.

A characteristic of the city gas business is its regional exclusivity. Under China's regulatory framework for the city gas industry, municipal or county-level government authorities grant a franchise or exclusive operating authorization to one enterprise in each designated service area. The relevant franchise agreement clearly defines the geographical boundaries within which the authorized operator can conduct pipeline gas business, and no third party is permitted to engage in the same business within the same franchise area. Therefore, there is no competition between city gas operators in different regions.

Prior to the proposed transaction, Shengli was primarily engaged in promoting and applying clean energy natural gas in certain regions of China, providing gas application services for industrial, commercial, and residential users, and offering natural gas solutions for vehicles in transportation and other innovative areas. Shengli's controlling shareholder, China Oil & Gas Investment, is a wholly-owned subsidiary of China Oil & Gas. China Oil & Gas and its subsidiaries are mainly engaged in investments in natural gas and energy-related businesses, including city pipeline gas operation, pipeline design and construction, transportation, distribution, and sales of Compressed Natural Gas (CNG) and Liquefied Natural Gas (LNG), and the development, production, and sales of upstream energy resources such as crude oil and natural gas.

Before the proposed transaction, Shengli's city gas business was mainly concentrated in regions including Shandong Province (excluding Binzhou), Puyang and Anyang in Henan Province, Langfang in Hebei Province, Dazu District in Chongqing, Qinzhou in Guangxi, Wenzhou in Zhejiang, and Jiujiang in Jiangxi Province. The city gas business of China Oil & Gas was primarily located in Qinghai Province, Jiangsu Province, Hunan Province, Shanxi Province, Guangdong Province, Binzhou in Shandong Province, Nanchang, Ganzhou, and Yichun in Jiangxi Province, and Zhangye in Gansu Province. The operating regions of Shengli and China Oil & Gas did not overlap; therefore, there was no substantive competition between them prior to the proposed transaction.

Upon completion, China Oil & Gas's city gas companies located in Nantong and Nanjing in Jiangsu Province, Nanchang in Jiangxi Province, and Xining in Qinghai Province will be transferred to the Shengli system as part of the proposed transaction, thereby expanding Shengli's operating regions to these areas. Following completion, China Oil & Gas and its subsidiaries will not engage in the same or similar businesses or activities within the operating regions of Shengli or the target assets. Consequently, the board believes that after the proposed transaction, there will be no material adverse competition between China Oil & Gas and Shengli. The group's established goal of unlocking the value of the target assets by integrating them into Shengli's larger national platform will not be affected by any competitive business activities.

China Oil & Gas considers that the target assets meet all the aforementioned selection criteria and were therefore chosen as the target assets for the proposed transaction. The board believes the proposed transaction will bring key benefits to the group and its shareholders. These include achieving operational synergies and efficiency improvements by injecting the target assets into Shengli and leveraging the existing national clean energy platform. This will facilitate integrated management of city gas franchise projects, promote the sharing of smart infrastructure, operational standardization, and enhanced monitoring capabilities, thereby increasing the efficiency of the combined asset portfolio, reducing operational costs, and optimizing risk management.

Upon completion, Shengli will become a non-wholly-owned subsidiary of China Oil & Gas. The group's actual interest in Shengli will increase from approximately 22.16% to about 51.11% on an enlarged share capital basis. This will enhance the group's influence over Shengli's strategic direction, unlock the value of the target assets through integration into the larger platform, and allow the group to benefit from Shengli's potential market capitalization growth and dividends.

Furthermore, the proposed transaction supports China's clean energy transition goals, including achieving carbon neutrality by 2060, by promoting the use of natural gas as a low-carbon alternative energy source. Integrating the franchise projects under Shengli will accelerate the adoption of innovative natural gas solutions and contribute to the sustainable development of the energy industry.