The vote was hailed as a victory by minority shareholders, including shareholder rights activist David Webb, who has long campaigned against the move, saying the company was throwing away its exclusive rights.

The vote comes four months after CNOOC was forced to withdraw an US$18.5 billion bid for US oil firm Unocal Corp due to opposition from US legislators concerned that a sale to CNOOC would compromise US energy security.

CNOOC had hoped to leverage its entirely state-owned parent firm's political connections to increase its chances of success in overseas mergers and acquisitions.

To achieve that, it proposed amending the non-compete undertaking by its parent firm, China National Offshore Oil Corp, thus allowing the latter to engage in upstream oil and gas exploration and production. Currently, CNOOC has exclusive rights within the group to participate in all upstream projects to avoid intra-group competition.

The proposal was presented by the board as a way of allowing it to acquire assets it could not otherwise obtain, as the proposal included the granting of a free, indefinitely valid option for CNOOC to buy the competing assets from the parent firm. This could be achieved by allowing its parent firm to get into the upstream business when it was deemed not suitable for CNOOC to do so and then have the parent company sell the assets to CNOOC at a suitable time.

At the shareholders' meeting, chairman Fu Chengyu dismissed criticism CNOOC would be giving up its exclusive rights for nothing.

'We are not giving up any of our rights,' Mr Fu said. 'There are things to be had, things that we couldn't have at the moment.'

He said any upstream project that its parent firm engaged in must be subject to approval by CNOOC's board. 'If CNOOC cannot or does not want to pursue them at a certain moment, letting our parent firm chase after them first is not harmful to us,' Mr Fu said, although he admitted that in the case of US oil assets, even the parent company faced US political opposition.

Mr Webb said the best way to protect the rights of small shareholders would be for CNOOC to ask for independent shareholder approval on each upstream project.

He pointed out that CNOOC was 70.64 per cent controlled by the parent company and seven out of CNOOC's 12 directors were non-independent.

The management at CNOOC expressed disappointment at the result of the vote, in which shareholders with 40.33 per cent of eligible shares took part. 'While we regret the result ... we still believe that the proposed amendments to the non-compete undertaking, if passed, would have been beneficial to the company and its shareholders as a whole,' the company said.